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Item 7. Management’s Discussion and Analysis

2021-12-02 compared with 2020-12-03 · 187 added, 237 removed, 275 unchanged (61% of the section changed)

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General Overview

We are the leading provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians as measured by total average full-time enrollment and graduates.

We also provide programs for welders and CNC machining technicians.

We offer certificate, diploma or degree programs at 12 campuses across the United States, excluding the Norwood, Massachusetts campus which was closed on July 31, 2020.

Additionally, we offer MSAT programs, including student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers.

Founded in 1965, we have provided technical education for more than 55 years and have graduated more than 220,000 technicians.

Founded in 1965, with more than 225,000 graduates in its history, we are a leading provider of transportation and technical training programs.

As of September 30, 2021, we offered certificate, diploma or degree programs at 12 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute, Motorcycle Mechanics Institute and Marine Mechanics Institute and NASCAR Technical Institute.

Additionally, we offer manufacturer specific advanced training (“MSAT”) programs, including student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers.

Our revenues consist primarily of student tuition and fees derived from the programs we provide after reductions are made for discounts and scholarships that we sponsor and for refunds for students who wi t hdraw from our programs prior to specified dates.

Tuition and fee revenue is recognized ratably over the term of the course or program offered.

Approximately 99%, 99% and 98% of our revenues for each of the years ended September 30, 2020, 2019 and 2018, respectively, consisted of gross tuition.

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

We supplement our tuition and fee revenues with additional revenues from sales of textbooks and program supplies and other revenues, which are recognized as the transfer of goods or services occurs.

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Estimating the collection rate requires significant management judgment.

Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments (Topic 326) as of October 1, 2020, we revised our estimated collection rate to only include historical collections from the past ten years as we determined that such population better represents our current expected collections.

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

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We also provide dealer technician training or instructor staffing services to manufacturers, and we recognize revenue as the transfer of services occurs.

Student Enrollment and Tuition

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

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

Our introduction of additional program offerings at existing campuses and opening additional campuses is expected to influence our average full-time enrollment.

The introduction of additional program offerings at existing campuses and opening additional campuses is expected to influence our average full-time enrollment.

We currently offer start dates at our campuses that range from every three to six weeks throughout the year in our core programs.

The number of start dates of advanced training programs varies by the

duration of those programs and the needs of the manufacturers which sponsor them.

The number of start dates of advanced training programs varies by the duration of those programs and the needs of the manufacturers which sponsor them.

Our tuition charges vary by type and length of our programs and the program level, such as core or advanced training.

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We regularly evaluate our tuition pricing based on individual campus markets, the competitive environment and ED regulations.

Financial Aid

Most students at our campuses rely on funds received under various government-sponsored student financial aid programs, predominantly Title IV Programs and various veterans' benefits programs, to pay a substantial portion of their tuition and other education-related expenses.

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Additionally, we bear all credit and collection risk for the portion of our student tuition that is funded through our proprietary loan program.

Operating Expenses

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

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

Selling, general and administrative expenses include compensation and benefits of employees who are not directly associated with the provision of educational services, such as:

executive management;

finance and central accounting;

information technology;

human resources;

marketing and student enrollment expenses, including compensation and benefits of personnel employed in marketing and student admissions;

costs of professional services;

Major components of educational services and facilities expenses include:

faculty and other campus administration employees’ compensation and benefits;

facility rent;

depreciation and amortization of property and equipment used in the provision of educational services;

training aids;

royalties under our licensing arrangements;

and other costs directly associated with teaching our programs and providing educational services to our students.

Selling, general and administrative expenses include:

compensation and benefits of employees who are not directly associated with the provision of educational services, such as:

executive management, finance and central accounting, information technology, legal, human resources, marketing and student admissions;

marketing and student enrollment expenses;

professional services;

bad debt expense;

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rent for our corporate office headquarters;

depreciation and amortization of property and equipment that is not used in the provision of educational services, and other costs that are incidental to our operations.

depreciation and amortization of property and equipment that is not used in the provision of educational services;

and other costs that are incidental to our operations.

All marketing and student enrollment expenses are recognized in the period incurred.

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2021 Overview

Impact of COVID-19

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.

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.

Both the ED and the ACCSC granted institutions temporary approval to offer distance learning through December 31, 2020.

To afford us additional flexibility beyond the current temporary approval period(s), we have initiated the approval process with the ACCSC and the appropriate state agencies to be able to offer distance education and a blended learning format for all of our programs on a more permanent basis.

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.

As previously planned, we completed the teach-out of our Norwood, Massachusetts campus and it closed on July 31, 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, as of September 30, 2020, approximately 5% of students had 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 approximately 28% of students were 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 had 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.

Student Metrics

End of period undergraduate full-time student enrollment as of September 30, 2020 and 2019 was 12,524 and 12,363, respectively, representing growth of 1.3% despite the impacts of the COVID-19 pandemic.

We experienced a 2.0% decline in our average full-time enrollment to 10,462 students for the year ended September 30, 2020 as compared to the prior year period.

Excluding the Norwood, Massachusetts campus, we started 11,283 students during the year ended September 30, 2020, which represents a decrease of 2.4% from the same period during fiscal 2019.

The decrease in full-time enrollment and starts was primarily the result of the COVID-19 pandemic.

September 30, 2021 September 30, 2020 % Change

Total new student starts 13,028 11,283 15.5 %

Average undergraduate full-time active students 11,489 10,462 9.8 %

End of period undergraduate full-time active students 13,682 12,524 9.2 %

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

Our ability to start new students continues to be influenced by various factors including:

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“Risk Factors.”

Our revenues for the year ended September 30, 2020 were $300.8 million, a decrease of $30.7 million, or 9.3%, from the prior year.

The decrease in revenue was primarily due to the COVID-19 pandemic as more students were on leave of absence during the year and our campuses suspended operations for a period of time.

While we have transitioned to a blended learning model, the COVID-19 pandemic has impacted the pace in which students are progressing through their programs.

As a result, our total graduates in fiscal 2020 decreased by 19% as compared to the prior year.

Additionally, our revenue was impacted by our exit of the Norwood, Massachusetts campus in July 2020.

We had $1.4 million of revenue from Norwood in fiscal 2020, compared to $8.5 million in the prior year.

Revenues were favorably impacted in fiscal 2020 from the opening of our Bloomfield, New Jersey campus in fiscal 2018.

We had $14.6 million in revenue from Bloomfield in fiscal 2020, as compared to $10.9 million in fiscal 2019 when the campus was still ramping up.

In fiscal 2020, we had an operating loss of $3.9 million, as compared to an operating loss of $7.8 million for the same period in the prior year.

Our operating expenses for fiscal 2020 decreased 10.2% as compared to the prior year primarily due to cost management initiatives, as well as decreases in compensation and benefit costs, depreciation expense, and contract and professional services expenses.

Our revenues for the year ended September 30, 2021 were $335.1 million, an increase of $34.3 million, or 11.4%, from the prior year.

The increase in revenue was due to growth in students, increased revenue per student, and the impact of the COVID-19 pandemic in the prior year, which resulted in more students being on leave of absence and the suspension of operations at our campuses for a period of time in fiscal 2020.

All of our campuses were fully operational during fiscal 2021, and as of September 30, 2021, all students were attending in person for labs at our campuses with less than 1% of students with catch-up lab work outstanding.

As a result, there was no deferred revenue related to the impact of COVID-19 as of September 30, 2021, while we had $6.1 million of deferred revenue as of September 30, 2020.

In fiscal 2021, we had operating income of $14.9 million, as compared to an operating loss of $3.9 million in the prior year.

Our operating expenses for fiscal 2021 increased 5.1% as compared to the prior year primarily due to support activities related to the increase in student enrollment.

Productivity improvements and proactive cost actions have been a key part of our operating model for the past several years, and we continue to identify and execute on efficiency opportunities throughout our cost structure, while improving and investing in the overall student experience.

Net income for the year ended September 30, 2020 was $8.0 million, compared to a net loss of $7.9 million in the prior year, and includes a $10.7 million tax benefit resulting from the application of revised net operating loss carryback regulations from the CARES Act.

During fiscal 2020, we were granted approximately $33.0 million in HEERF funds under the CARES Act, with $16.5 million exclusively for emergency financial aid grants to students impacted by COVID-19 and $16.5 million to cover institutional costs associated with significant changes to the delivery of instruction due to coronavirus.

As of September 30, 2020, we have awarded all $16.5 million designated for student grants.

During the year ended September 30, 2020, we drew down $13.9 million of the institutional funds into our operating cash account as partial reimbursement for the $15.7 million of eligible costs incurred during fiscal 2020.

We continue to focus on the following key strategies as we identify opportunities for growth:

• Expanding into new geographic markets either organically or through strategic acquisitions;

• Offering new programs, such as expanding our welding program to additional campus locations, and offering associate level degree programs at additional campus locations;

• Maintaining and expanding our manufacturer brand partners and other employers to provide career opportunities and tuition reimbursement for our graduates;

• Identifying and executing on a variety of affordability initiatives for our students, including employer financial support and institutional scholarships and grants;

• Shifting perceptions and building advocacy with key policy makers and influencers.

Net income for the year ended September 30, 2021 was $14.6 million, compared to net income of $8.0 million in the prior year.

The prior period included a $10.7 million tax benefit resulting from the application of revised net operating loss carryback regulations from the CARES Act.

Business Strategy

Our core business strategies are aligned with our mission to serve students, partners and communities by providing quality education and training for in-demand careers.

Additionally, as we evolve our business model, we are focused on growth and diversification which is achieved through acquisitions, opening new campus locations, the expansion of new program offerings, and new funding and business operating models.

During the year ended September 30, 2021, we executed the following as part of our growth and diversification strategy:

• We entered into a definitive agreement to acquire MIAT College of Technology (“MIAT”) from HCP & Company.

MIAT served approximately 1,200 students as of September 30, 2021 through its campuses in Canton, Michigan and Houston, Texas.

The company offers vocational and technical certificates as well as associates degrees in fields with robust and growing demand for skilled technical workers, including aviation maintenance, energy technology, wind power, robotics and automation, non-destructive testing, HVACR, and welding.

The acquisition will enable us to further expand our program offerings into growing industry sectors and rapidly expanding fields likely to be bolstered by technological innovation and the country’s focus on sustainable energy.

The transaction closed on November 1, 2021.

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

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

• Launched or expanded the following MSAT programs:

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

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

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

• Launched or expanded the following military base MSAT programs:

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

Army post in El Paso, Texas.

◦ BMW Military Service Technician Education Program at Fort Bragg, a U.S.

Army post near Fayetteville, North Carolina.

• Purchased our Avondale, Arizona campus at the end of December 2020, for approximately $45.2 million, including closing costs and other fees, with the intention of consolidating our MMI Phoenix, Arizona campus into the same location by the end of fiscal 2022.

During May 2021, we completed the financing of our Avondale, Arizona campus which replenished approximately $31.2 million of the funds used to purchase the campus.

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

Results of Operations

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Total operating expenses 95.6 % 101.3 % 102.4 %

Loss from operations (1.3) % (2.4) % (11.1) %

Interest income (expense), net 0.4 % (0.5) % (0.6) %

Income (loss) from operations 4.4 % (1.3) % (2.4) %

Interest (expense) income, net (0.1) % 0.4 % (0.5) %

Other income 0.2 % — % 0.6 %

Total other income (expense), net 0.4 % 0.1 % (0.2) %

Loss before income taxes (0.9) % (2.3) % (11.3) %

Income tax benefit (expense) 3.5 % (0.1) % 1.0 %

Total other income, net 0.1 % 0.4 % 0.1 %

Income (loss) before income taxes 4.5 % (0.9) % (2.3) %

Income tax (expense) benefit (0.2) % 3.5 % (0.1) %

Net income (loss) 4.3 % 2.6 % (2.4) %

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Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Our revenues for the year ended September 30, 2020 were $300.8 million, a decrease of $30.7 million, or 9.3%, as compared to revenues of $331.5 million for the year ended September 30, 2019.

Our average full-time student enrollment decreased by 2.0% primarily due to a higher number of students who went on a leave of absence during the three months ended June 30, 2020 due to the COVID-19 pandemic.

Additionally, timing of revenue recognition for active students has been impacted by additional time needed to complete in-person catch-up labs that were unable to be completed during the time the campuses were closed and by students retaking courses that were previously completed.

As a result of the catch up labs not yet completed, as of September 30, 2020, we have deferred revenue of $6.1 million.

Our revenues for the year ended September 30, 2021 were $335.1 million, an increase of $34.3 million, or 11.4%, as compared to revenues of $300.8 million for the year ended September 30, 2020.

During fiscal 2021, our average full-time

student enrollment increased by 9.8% and our new student starts increased 15.5%, reflecting strong front-end demand across all channels.

Revenues for fiscal 2020 were impacted by a higher number of students on leave of absence and the deferral of $6.1 million of revenue related to the large number of make-up labs and online-only students that resulted when we paused operations during the year due to the onset of the COVID-19 pandemic in March 2020.

Our revenue recognized for active students in fiscal 2021 was also impacted by COVID-19, with lower average revenue per student versus pre-COVID levels driven by the pace at which students were progressing through their programs and by students retaking courses previously completed or attempted.

However, as of September 30, 2021, all students were attending in person for labs at our campuses with less than 1% of students with catch-up lab work outstanding.

As a result, we had no deferred revenue as of September 30, 2021.

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

The decrease in overall fiscal year 2020 revenues was also partially attributable to a $1.5 million decrease in revenues from student-paid MSATs for the year ended September 30, 2020 as compared to the prior year period.

Educational services and facilities expenses

Our educational services and facilities expenses for the year ended September 30, 2020 were $155.9 million, representing a decrease of $22.4 million, or 12.6%, as compared to $178.3 million for the year ended September 30, 2019.

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

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

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Compensation and related costs 89,295 84,514

Depreciation and amortization expense 12,187 15,811

Occupancy costs 31,409 37,742

Other educational services and facilities expenses (2,099) 11,560

Depreciation and amortization expense 13,232 12,187

Supplies and maintenance expense 13,069 15,282

Student expense 4,158 3,186

Contract services expense 2,516 2,801

Taxes and licensing expense 2,422 2,319

Student expense $ 3,186 $ 2,626

Other educational services and facilities expenses 10,717 (2,099)

Total educational services and facilities expense $ 166,818 $ 155,932

Compensation and related costs decreased $10.2 million for the year ended September 30, 2020, as compared to the prior year:

• Salaries expense decreased $6.7 million primarily due to an approximate 6% decrease in full-time employee headcount.

The decrease in headcount was primarily due to attrition and productivity improvements.

Furloughs enacted to offset revenue decreases from the COVID-19 pandemic also reduced salaries expense.

• Employee benefits and tax decreased $4.1 million also primarily due to lower headcount and lower cost per employee from implementing new benefit plans at the beginning of fiscal 2020.

Depreciation and amortization expense decreased $3.6 million during the year ended September 30, 2020 primarily due to the adoption of ASC 842 as of October 1, 2019, whereby the assets that were previously financed by finance obligations were converted to operating leases.

Subsequent to the adoption of ASC 842, the assets relating to the operating leases were

classified as “Right-of-use assets for operating leases” on the consolidated balance sheet and the related operating lease expense was rolled into “Occupancy costs” in the table above.

Occupancy costs increased $2.0 million during the year ended September 30, 2020.

The increase was primarily attributed to the adoption of ASC 842 as of October 1, 2019 as described above partially offset by cost reductions from closing our Norwood, Massachusetts campus, relocating and downsizing our headquarters facility, and downsizing our Exton, Pennsylvania campus.

Other educational services and facilities expense decreased by $13.7 million, which includes a $13.3 million credit for the year ended September 30, 2020 from the institutional HEERF funds for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus.

The allowable costs were included in the relevant line items above.

See Note 21 in the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further information on the HEERF funds.

Supplies and maintenance expense increased by $4.4 million primarily due to $5.7 million in laptops purchased for our students to support their transition to the new blended on-line learning model.

The laptops were one of the allowable costs qualifying for reimbursement from the institutional HEERF funds received.

Contract services expense decreased $0.7 million during the year ended September 30, 2020 primarily due to phasing out contracts with third parties and absorbing these responsibilities internally.

Taxes and licensing expenses decreased by $1.2 million, primarily due to a $0.7 million decrease in taxes and licensing fees for properties in use and a $0.4 million decrease in sales and use taxes.

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

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

• Bonus expense increased $1.0 million.

The increase was the result of actual achievement against management bonus plan metrics in the current year.

Occupancy costs decreased $6.3 million during fiscal year 2021.

The decrease was primarily attributable to cost reductions from closing our Norwood, Massachusetts campus, downsizing our Exton, Pennsylvania and Sacramento, California campuses, and purchasing our Avondale, Arizona campus in December 2020.

Our future occupancy costs will increase due to the addition of the new Austin, Texas and Miramar, Florida campus locations.

In order to have the campuses ready for the anticipated opening dates in fiscal 2022, we took possession of the Austin campus building in September 2021 and the Miramar campus in October 2021 to complete tenant improvements.

Lease expense begins at the possession date.

Additionally, future occupancy costs will be favorably impacted as we complete our campus consolidation plans for both MMI Phoenix, Arizona and MMI Orlando, Florida.

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

Supplies and maintenance expense decreased by $2.2 million primarily due to $5.7 million in laptops purchased for our students to support their transition to the new blended on-line learning model in fiscal 2020, while we only purchased $2.6 million in laptops in the current year.

In fiscal 2020, the laptops were one of the allowable costs qualifying for reimbursement from the institutional HEERF funds received which is reflected in the “Other educational services and facilities expense” line.

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

Other educational services and facilities expense increased by $12.8 million.

The increase is primarily related to a credit of $13.3 million for the reimbursement of allowable costs related to the changes in delivery of instruction due to the coronavirus during the year ended September 30, 2020, while the year ended September 30, 2021 includes a $0.3 million credit for allowable costs.

The allowable costs are included in the relevant line items above.

See Note 22 of the notes to the Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further information on the HEERF funds.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the year ended September 30, 2020 were $148.7 million, representing a decrease of $12.3 million, or 7.6%, as compared to $161.0 million for the year ended September 30, 2019.

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

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

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Total selling, general and administrative expenses $ 153,318 $ 148,700

Compensation and related costs decreased by $2.2 million for the year ended September 30, 2020, as compared to the prior year:

• Salaries expense decreased by $0.6 million, primarily due to lower headcount compared to the prior year, partially offset by costs related to the retirement of Kimberly J.

McWaters, our former President and Chief Executive Officer, in October 2019.

• Employee benefits and tax decreased by $2.6 million, primarily due to lower headcount and lower cost per employee from implementing new benefit plans at the beginning of fiscal 2020.

• Stock-based compensation expense increased by $0.6 million, due to new awards granted during fiscal 2020.

There were no stock-based compensation awards granted during fiscal 2019.

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

• Bonus expense increased by $3.6 million.

The increase was the result of higher student counts and related admissions representative graduation incentives, and actual achievement against management bonus plan metrics in the current year.

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

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

Advertising expense decreased by $1.0 million for the year ended September 30, 2021, as compared to the prior year.

The decrease was attributable to targeted cost-efficient marketing efforts, with a shift away from television advertising toward digital media.

Advertising expense as a percentage of revenues remained relatively consistent at approximately 13.2% for the year ended September 30, 2020 as compared to 12.4% in the prior year.

Other selling, general and administrative decreased by $3.2 million.

Other selling, general and administrative expenses includes a $1.8 million credit for year ended September 30, 2020 from the institutional HEERF funds for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus.

The allowable costs were included in the relevant line items above.

See Note 21 of the notes to our Condensed Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further information on the HEERF funds.

Also contributing to the favorable cost trend were decreases in travel and entertainment of $1.5 million.

Contract services expense decreased $4.1 million for the year ended September 30, 2020.

The decrease was attributable to a one-time, non-recurring $4.0 million consultant termination fee recognized during the year ended September 30, 2019.

Professional services expense decreased by $0.9 million primarily attributable to a decreases in legal fees of $0.5 million and broad decreases related to external professional services due to cost control measures.

Other income (expense)

Other income for the year ended September 30, 2020 was $1.3 million, an increase of $1.1 million as compared to other expense of $0.1 million for the year ended September 30, 2019.

The $1.3 million of other income in fiscal 2020 was comprised primarily of interest income from our held-to-maturity investments.

The adoption of ASC 842 as of October 1, 2019 resulted in the de-recognition of the assets associated with our financing obligations, which were previously included in property and equipment during the year ended September 30, 2019 and contributed $3.2 million of interest expense during that period.

This was partially offset by tenant rent income in the prior period of $1.5 million which was not present during the year ended September 30, 2020 also due to the impacts of the ASC 842 adoption.

Our income tax benefit for the year ended September 30, 2020 was $10.6 million, or (408.7%) of pre-tax loss, compared to income tax expense of $0.2 million, or 2.6% of pre-tax loss, for the year ended September 30, 2019.

The decrease was attributable to targeted cost-efficient marketing efforts, with a shift away from television advertising toward

digital media.

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

Other selling, general and administrative expenses increased by $0.9 million for the year ended September 30, 2021, as compared to the prior year, primarily due to increases of $0.8 million in software costs and $0.4 million in charitable contributions, which were partially offset by a decrease of $0.8 million in occupancy costs primarily due to relocating our headquarters to a more cost-effective location.

Other selling, general and administrative expenses includes a $0.6 million credit for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus, while the prior year included a $1.8 million credit for allowable costs.

The allowable costs are included in the relevant line items above.

See Note 22 of the notes to the Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further information on the HEERF funds.

Contract services expense increased by $1.2 million and professional services increased by $1.6 million for the year ended September 30, 2021.

The increases were primarily due to costs incurred related to our growth and diversification initiatives, including the acquisition of MIAT which closed in November 2021.

Other income, net

Other income for the year ended September 30, 2021 was $0.2 million, a decrease of $1.0 million as compared to other income of $1.3 million for the year ended September 30, 2020.

The $0.2 million of other income in fiscal 2021 was comprised primarily of $0.4 million of gains on our non-qualified deferred compensation plan due to investment performance which was partially offset by $0.3 million of interest expense on our Term Loan (as defined below).

Fiscal 2020 other income was primarily attributable to interest income on held-to-maturity securities.

Our income tax expense for the year ended September 30, 2021 was $0.6 million, or (4.0)% of pre-tax income, compared to an income tax benefit of $10.6 million, or (408.7)% of pre-tax loss, for the year ended September 30, 2020.

The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance and state taxes.

Our income tax benefit or expense was impacted by a decrease of $6.1 million and an increase of $1.5 million in the valuation allowance during the years ended September 30, 2020 and 2019, respectively.

Our income tax expense/benefit was impacted by a decrease in the valuation allowance of $3.2 million and $6.1 million during the years ended September 30, 2021 and 2020, respectively.

The significant decrease in the valuation allowance for the year ended September 30, 2020, and the related income tax benefit, was primarily attributable to the carryback of NOLs under the provisions of the CARES Act and the adoption of ASC 842 as of October 1, 2019.

The income tax expense for the year September 30, 2019 was related to certain state taxes.

We will maintain a valuation allowance on our deferred tax assets until sufficient positive evidence exists to support its reversal.

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On June 24, 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash, less $1.2 million in issuance costs.

Pursuant to this sale, we paid preferred stock cash dividends totaling $5.3 million during the years ended September 30, 2020 and 2019, respectively.

See Note 15 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the preferred stock transaction.

Income (loss) available for distribution

Income (loss) available for distribution refers to net income (loss) reduced by dividends on our Series A Preferred Stock.

As a result of the foregoing, we reported income available for distribution for the year ended September 30, 2020 of $2.7 million, as compared to a loss available for distribution of $13.1 million for the year ended September 30, 2019.

For a discussion of the financial results of operations for the year ended September 30, 2019 compared to the year ended September 30 2018, refer to Part I, Item 7 of our 201 9 Form 10-K filed with the SEC on December 6, 2019 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Pursuant to the terms of the certificate of designation defining the rights, preferences, and privileges of the Series A Preferred Stock, we paid preferred stock cash dividends totaling $5.3 million during the years ended September 30, 2021 and 2020, respectively.

See Note 16 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the preferred stock.

Income available for distribution

Income available for distribution refers to net income reduced by dividends on our Series A Preferred Stock.

As a result of the foregoing, we reported income available for distribution for the years ended September 30, 2021 and 2020 of $9.3 million and $2.7 million, respectively.

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

Non-GAAP Financial Measures

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Net income (loss) $ 14,581 $ 8,008 $ (7,868)

Interest (income) expense, net (1,142) 1,729 1,885

Income tax (benefit) expense (10,602) 203 (3,015)

Interest expense (income), net 282 (1,142) 1,729

Income tax expense (benefit) 602 (10,602) 203

Depreciation and amortization (1)

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Liquidity and Capital Resources

Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and short-term investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as the expansion of programs at existing campuses through the next 12 months.

Our cash position is available to fund strategic long-term growth initiatives, including opening additional metro campuses in new markets and the creation of new programs, such as welding, in existing markets with under-utilized campus facilities.

We had no line of credit or other long-term debt as of September 30, 2020.

Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as announced growth and diversification initiatives through at least the next fiscal year.

Our cash position is available to fund strategic long-term growth initiatives, including opening additional campuses in new markets and the creation and expansion of new programs, such as welding, in existing markets and campus facilities.

Our aggregate cash and cash equivalents were $133.7 million as of September 30, 2021, an increase of $56.9 million from September 30, 2020.

Additionally, we had short-term held-to-maturity investments of $38.1 million as of September 30, 2020.

There were no held-to-maturity investments as of September 30, 2021.

We believe that additional strategic use of our cash resources may include funding new campuses or new programs in our existing campuses, purchase of real estate assets, consideration of strategic acquisitions, the repurchase of common stock, subsidizing funding alternatives for our students, and other potential uses of cash.

To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents, and short-term investments, or we need capital to fund operations, new campus openings or expansion of programs at existing campuses, we may enter into a credit facility, issue debt or issue additional equity.

On February 20, 2020, we entered into an Underwriting Agreement with B.

Riley FBR, Inc., as representative of the several underwriters named therein, to issue and sell an aggregate of 6,782,610 shares of our common stock, par value $0.0001 per share, in a public offering, at a price to the public of $7.75 per share, pursuant to a registration statement on Form S-3 (Registration No.

333-236146) and the accompanying prospectus , including the related prospectus supplement , filed with the SEC (the “Offering”).

The Offering closed on February 25, 2020.

The net proceeds from the Offering were approximately $49.2 million, after deducting underwriting discounts and offering expenses.

We invested a portion of the net proceeds from the Offering in held-to-maturity securities, which primarily consist of corporate bonds from large cap industrial and selected financial companies with a minimum credit rating of A.

We intend to use the proceeds for working capital, capital expenditures, and other general corporate purposes, which may include the addition of new campuses, the expansion of existing programs and the development of new programs, and the purchase of real property and campus infrastructure.

We may also use a portion of the net proceeds to fund potential strategic acquisitions of complementary businesses, assets, services or technologies.

See Note 15 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the Offering.

On June 9, 2016, our board of directors voted to eliminate the quarterly cash dividend on our common stock.

On June 24, 2016, we issued 700,000 shares of Series A Preferred Stock for a total purchase price of $70.0 million.

The proceeds from the offering were used to fund strategic initiatives to drive growth including the transformation plan, expansion to new markets with metro campuses and the creation of new programs in existing markets with under-utilized campus facilities.

We had short-term held-to-maturity investments of $38.1 million as of September 30, 2020.

We had $30.9 million of long-term debt outstanding as of September 30, 2021 and no long-term debt outstanding as of September 30, 2020.

We believe that additional strategic uses of our cash resources may include consideration of strategic acquisitions, the repurchase of common stock, purchase of real estate assets, and subsidizing funding alternatives for our students, among others.

To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents, and short-term investments, or we need capital to fund operations, new campus openings or expansion of programs at existing campuses, we may enter into additional credit facilities, issue debt or issue additional equity.

As previously noted, we purchased our Avondale, Arizona campus at the end of December 2020, for approximately $45.2 million, including closing costs and other fees.

Due to the timing of the close for the Avondale property, we used available operating cash for the purchase.

On May 12, 2021, we entered into a credit agreement to refinance the Avondale property through a $31.2 million term loan that bears interest at the rate of LIBOR plus 2.0% over the seven year term (the “Term Loan”).

In connection with the Term Loan, we entered into an interest rate swap agreement with the lender that effectively

fixes the interest rate on 50% of the principal amount of the term loan at 3.5% for the entire loan term.

The Term Loan is secured by a first priority lien on our Avondale, Arizona property, including all land and improvements.

See Note 12 of the notes to the consolidated financial statements herein for additional details on the Term Loan.

Additionally, on March 29, 2021, we entered into a definitive agreement to acquire MIAT from HCP & Company for a purchase price not to exceed $26.0 million in cash, subject to closing working capital adjustments.

On November 1, 2021, following the satisfaction of all closing conditions, we closed the acquisition using cash on hand to pay the $26.0 million consideration contemplated under the definitive agreement.

We currently do not pay a cash dividend on our common stock.

We paid preferred stock cash dividends of $5.3 million during the years ended September 30, 2021, 2020, and 2019, respectively.

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Federal regulations dictate the timing of disbursements of funds under Title IV Programs.

Students must apply for new funding for each academic year consisting of thirty-week periods.

Students must apply for new funding for each academic year consisting of 30-week periods.

Loan funds are generally provided in two disbursements for each academic year.

The first disbursement for first-time borrowers is usually received 30 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student’s academic year.

The first disbursement for first-time borrowers is usually received 30 days after the start of a student’s academic year, and the second disbursement is typically received at the beginning of the 16th week from the start of the student’s academic year.

Under our proprietary loan program, we bear all credit and collection risk and students are not required to begin repayment until six months after the student completes or withdraws from his or her program.

These factors, together with the timing of when our students begin their programs, affect our operating cash flow.

As discussed in more detail in Note 21 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K, during fiscal 2020 we were granted approximately $33.0 million in HEERF funds under the CARES Act, with $16.5 million exclusively for emergency financial aid grants to students impacted by COVID-19 and $16.5 million to cover institutional costs associated with significant changes to the delivery of instruction due to coronavirus.

As of September 30, 2020, we have awarded all $16.5 million designated for student grants.

As of September 30, 2020, $2.7 million remained in our G5 account with the ED and is not included in our “Cash and cash equivalents” on our consolidated balance sheet.

We drew down the remaining $1.8 million for the eligible costs incurred during the year ended September 30, 2020 in October 2020.

Operating Activities

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

Our net cash used in operating activities was $13.4 million for the year ended September 30, 2018.

Net income, after adjustments for non-cash items, provided cash of $47.7 million for the year ended September 30, 2021.

The non-cash items included $15.6 million for amortization of right-of-use assets for operating leases, $14.0 million for depreciation and amortization expense, $1.7 million for stock based compensation expense and $1.7 million for bad debt expense.

Changes in operating assets and liabilities for the year ended September 30, 2021 provided cash of $7.4 million primarily due to the following:

• The increase in deferred revenue provided cash of $17.0 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at September 30, 2021 as compared to September 30, 2020.

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

• The decrease in the income taxes receivable provided cash of $7.1 million and was primarily attributable to receipt of the remaining income tax refund originally recorded in fiscal 2020 as a result of the CARES Act which allowed us to carryback NOLs from previous years.

• Changes in our operating lease liability as a result of rent payments used cash of $20.5 million.

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

Net income, after adjustments for non-cash items, for the year ended September 30, 2020 provided cash of $48.8 million.

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

• The increase in receivables used cash of $13.7 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students.

• The increase in receivables used cash of $13.7 million and was primarily attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students.

Due to the COVID-19 pandemic, more students took a leave of absence in fiscal 2020 and our campuses suspended operations for a period of time during the second quarter.

While we have transitioned to a blended learning model, the COVID-19 pandemic has impacted the pace in which students are progressing through their programs.

• The increase in the income taxes receivable used cash of $7.0 million and was primarily attributable to the CARES Act, which allowed us to carryback NOLs from fiscal 2019 and fiscal 2018.

• The decrease in deferred revenue used cash of $2.2 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relations to completion of their program at September 30, 2020 as compared to September 30, 2019.

We had deferred revenue of $6.1 million during fiscal 2020 due to students retaking courses that were previously completed and the additional time needed to complete in-person catch-up labs that were unable to be completed during the time the campuses were closed due to the COVID-19 pandemic.

The COVID-19 pandemic has impacted the pace in which students progress through their programs.

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

Of the $11.3 million income refund recorded, $4.2 million was received during fiscal 2020.

• The increase in deferred revenue used cash of $2.2 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relations to completion of their program at September 30, 2020 as compared to September 30, 2019.

We had deferred revenue of $6.1 million as of September 30, 2020 due to students retaking courses that were previously completed and the additional time needed to complete in-person catch-up labs that were unable to be completed during the time the campuses were closed due to the COVID-19 pandemic.

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

Net loss, after adjustments for non-cash items, for the year ended September 30, 2019 provided cash of $11.1 million.

The non-cash items included $13.2 million for depreciation and amortization expense, $2.7 million for amortization of assets subject to financing obligations, $1.4 million for stock-based compensation expense, and $1.2 million for bad debt expense.

Changes in operating assets and liabilities for the year ended September 30, 2019 provided cash of $10.7 million primarily due to the following:

• The increase in deferred revenue provided cash of $4.7 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at September 30, 2019 as compared to September 30, 2018.

• The decrease in prepaid expenses and other current assets provided cash of $3.2 million primarily due to a decrease in prepaid rent.

• The increase in accounts payable and accrued expenses provided cash of $2.9 million primarily related to the timing of payments to vendors.

• The increase in receivables used cash of $1.5 million and was primarily attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students.

Net loss, after adjustments for non-cash items, for the year ended September 30, 2018 used cash of $15.5 million.

The non-cash items included $13.0 million for depreciation and amortization expense, $2.7 million for amortization of assets subject to financing obligations, $1.8 million for stock-based compensation expense, $1.5 million for bad debt expense, and $1.2 million for goodwill impairment expense.

Changes in operating assets and liabilities for the year ended September 30, 2018 provided cash of $2.2 million primarily due to the following:

• The increase in deferred rent liability provided cash of $5.1 million and was primarily relating to the Bloomfield, New Jersey campus, partially offset by amortization of the deferred rent balance associated with our home office lease.

• The increase in accounts payable and accrued expenses provided cash of $3.9 million primarily related to changes in our graduate-based incentive compensation program for our admissions representatives.

• The change in notes receivable provided cash of $3.4 million and was due to payments received on loans exceeding new loan originations.

• The decrease in deferred revenue used cash of $5.7 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at September 30, 2018 compared to September 30, 2017.

• The increase in receivables used cash of $2.7 million and was primarily attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students.

• The increase in prepaid expenses and other current assets used cash of $1.6 million primarily related to the timing of the payment made for general invoices compared to the prior year.

Investing Activities

For the year ended September 30, 2021, net cash used in investing activities was $23.0 million.

The cash outflow was primarily related to the net purchase of $38.4 million in held-to-maturity investments with a portion of the proceeds received from the Offering.

The cash outflow was primarily related to the purchase of property and equipment of $61.6 million, of which $45.2 million related to the purchase of the building at our Avondale, Arizona campus location, while the remaining amount represented capital expenditures for the Lisle, Illinois and Bloomfield, New Jersey welding program expansions, the Orlando, Florida and Sacramento, California consolidations, and other campus investments.

The purchase of property and equipment was partially offset by proceeds from maturities of held-to-maturity securities of $37.7 million.

For the year ended September 30, 2020, net cash used in investing activities was $45.8 million.

The cash outflow was primarily related to the net purchase of $38.4 million in held-to-maturity investments with a portion of the proceeds received from a public offering of our common stock in February 2020.

Net cash used in investing activities was also impacted by purchases of property and equipment of $9.3 million which includes capital expenditures for the Houston, Texas and Long Beach, California welding program expansions.

For the year ended September 30, 2019, net cash used in investing activities was $6.2 million, primarily related to the purchase of property and equipment, primarily for our Dallas/Ft.

Worth, Texas campus for welding program expansion, and new and replacement training equipment for ongoing operations and consolidation efforts at our Houston, Texas campus.

For the year ended September 30, 2018, cash provided by investing activities was $27.1 million.

We had cash inflows of $40.9 million from proceeds received from sales of trading securities and $7.7 million from proceeds received upon the maturity of our investments.

We had cash outflows of $20.6 million related to the purchases of new training equipment for our Bloomfield, New Jersey campus and replacement training equipment for our ongoing operations.

Financing Activities

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

For the year ended September 30, 2019, net cash used in financing activities was $7.2 million and related primarily to the semi-annual payments of preferred stock dividends of $5.3 million and payments of financing obligations of $1.3 million.

For the year ended September 30, 2018, net cash used in financing activities was $6.6 million and related primarily to the semi-annual payments of preferred stock dividends of $5.3 million and payments of financing obligations of $1.1 million.

For the year ended September 30, 2021, net cash provided by financing activities was $24.8 million which was primarily the result of the $31.2 million in proceeds received from the financing of the Avondale, Arizona property in May 2021.

This was partially offset by our semi-annual payments of preferred stock dividends of $5.3 million.

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

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

Share Repurchase Program

On December 20, 2011, our board of directors authorized the repurchase of up to $25.0 million of our common stock in the open market or through privately negotiated transactions.

The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements, and prevailing market conditions.

We may terminate or limit the share repurchase program at any time without prior notice.

The last stock repurchase under this stock repurchase program was during fiscal 2015.

As of September 30, 2020, we have repurchased 1,677,570 shares at an average price per share of $9.09 and a total cost of approximately $15.3 million under this program.

Under the terms of the Certificate of Designations, stock purchases under this program require the approval of a majority of the voting power of the Series A Preferred Stock.

Contractual Obligations

The following table sets forth in thousands, as of September 30, 2020, the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms that will require cash outlays in the future.

Payments Due by Period

Less than 1-3 3-5 More than

Total 1 year years years 5 years

Operating leases, net of sublease income (1)

$ 192,815 $ 28,212 $ 46,012 $ 32,457 $ 86,134

Finance leases 268 135 133 — —

Purchase obligations (2)

8,582 1,399 2,515 2,813 1,855

Total contractual commitments $ 201,665 $ 29,746 $ 48,660 $ 35,270 $ 87,989

(1) Minimum rental commitments.

These amounts do not include property taxes, insurance or ordinary course recurring repairs and maintenance.

(2) Includes all agreements to purchase goods or services of either a fixed or minimum quantity that are enforceable and legally binding.

Employment contracts, minimum payments under licensing and royalty agreements and purchase orders outstanding as of September 30, 2020 are included.

In the ordinary course of business, we enter into forward purchase commitments for service agreements for general operations and advertising.

On December 10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to $35.0 million of our common stock in the open market or through privately negotiated transactions.

This new share repurchase plan replaced the previously authorized plan from fiscal 2012.

Any repurchases under this new stock repurchase program require the approval of a majority of the voting power of our Series A Preferred Stock.

We did not repurchase any shares during the year ended September 30, 2021.

Off-Balance Sheet Arrangements

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Fiscal year $ 335,083 100.0 % $ 300,761 100.0 % $ 331,504 100.0 %

The increase in revenues from December 31, 2020 to September 30, 2021 was primarily related to student growth and the rebound in full-time active students during fiscal 2021 as the COVID-19 pandemic became more contained and vaccines became available.

Our revenue recognized for active students improved in fiscal 2021 versus fiscal 2020, but was still impacted by COVID-19, with lower average revenue per student versus pre-COVID levels driven by the pace in which students were progressing through their programs and by students retaking courses previously completed or attempted.

The decline in revenues from December 31, 2019 to June 30, 2020 was primarily due to the impact of the COVID-19 pandemic as a higher number of students went on leave of absence.

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

The increase in revenues for each of the three months ended December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019, as compared to the same periods in fiscal 2018, was primarily due to an increase in our student population during fiscal 2019.

Income (Loss) from Operations

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Fiscal year $ 14,947 100.0 % $ (3,871) 100.0 % $ (7,802) 100.0 %

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

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

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Tuition and fee revenue is recognized ratably over the term of the course or program offered.

Approximately 99%, 99% and 98% of our revenues for each of the years ended September 30, 2020, 2019 and 2018,

respectively, consisted of gross tuition.

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

of gross tuition.

The majority of our core programs are designed to be completed in 36 to 90 weeks, and our advanced training programs range from 12 to 23 weeks in duration.

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Deferred revenue represents the excess of tuition and fee payments received as compared to tuition and fees earned and is reflected as a current liability in our consolidated balance sheets because it is expected to be earned within the next 12 months.

During the year ended September 30, 2020, due to the COVID-19 pandemic, we transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

For most of our programs, we have transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

We continue to recognize revenue ratably over the term of the course or program offered.

However, revenue recognition for active students during the year ended September 30, 2020 was impacted by students retaking courses that were previously completed and the additional time needed to complete in-person catch-up labs that were unable to be completed during the time the campuses were closed due to COVID-19.

As of September 30, 2020 we had deferred revenue of $6.1 million related to students who were only attending courses online or with catch-up labs still outstanding.

We do not recognize revenue while a student is on a leave of absence.

Through our proprietary loan program, we, in substance, provide the students who participate in this program with extended payment terms for a portion of their tuition.

Based on historical collection rates, we can demonstrate that a portion of these loans are collectible, which results in a change in accounting due to our adoption of ASC 606 on October 1, 2017.

Accordingly, we recognize tuition and loan origination fees financed by the loan and any related interest revenue under the effective interest method required under the loan based on this collection rate.

As a result, there was no deferred revenue related to the impact of COVID-19 as of September 30, 2021, while we had $6.1 million of deferred revenue as of September 30, 2020.

We provide dealer technician training or instructor staffing services to manufacturers.

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In order to provide funding for students who are not able to fully finance the cost of their education under traditional governmental financial aid programs, commercial loan programs or other alternative sources, we established a private loan program with a bank.

Through our proprietary loan program, we, in substance, provide the students who participate in this program with extended payment terms for a portion of their tuition.

Based on historical collection rates, we can demonstrate that a portion of these loans are collectible.

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

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Estimating the collection rate requires significant management judgment.

Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses:

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

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We also monitor and consider external factors such as changes in the economic and regulatory environment.

We use an internal group of

collectors, augmented by third party collectors as deemed appropriate, in our collection efforts.

We use an internal group of collectors, augmented by third party collectors as deemed appropriate, in our collection efforts.

When a student with Title IV loans withdraws, Title IV rules determine if we are required to return a portion of Title IV funds to the lender.

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

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

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

We lease the majority of our administrative and educational facilities.

ASC 842, Leases , requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income.

We adopted ASC 842 as of October 1, 2019 under a modified retrospective method without the recasting of comparative periods’ financial information.

To determine if a contract is or contains a lease, we considered whether (1) explicitly or implicitly identified assets have been deployed in the contract and (2) we obtain substantially all of the economic benefits from the use of that underlying asset and direct how and for what purpose the asset is used during the term of the contract.

If we determine a contract is, or contains, a lease, we assess whether the contract contains multiple lease components.

We consider a lease component to be separate from other lease components in the contract if (a) we can benefit from the right of use either on its own or together with other resources that are readily available to us and (b) the right of use is neither highly dependent on nor highly interrelated with the other right(s) to use underlying assets in the contract.

In contracts involving the use of real estate, we separate the right to use land from other underlying assets unless the effect of separating the land is insignificant to the resulting lease accounting.

We have elected to account for the lease and non-lease components as a single lease component.

For all leases we are a party to, the discount rate implicit in the lease was not readily determinable.

Therefore, we used our incremental borrowing rate for each lease to determine the present value of the lease.

We determined the incremental borrowing rate applicable to each lease through a model that represents the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The incremental borrowing rate was applied to each lease based on the remaining term of the lease.

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

Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed.

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As a result, we did not perform the quantitative goodwill impairment evaluation.

Self-Insurance

We are self-insured for a number of risks, including claims related to employee health care and dental care and workers’ compensation.

The accounting for our self-insured plans involves estimates and judgments to determine our ultimate liability related to reported claims and claims incurred but not reported.

We consider our historical experience, severity factors, actuarial analysis and existing stop loss insurance in estimating our ultimate insurance liability.

If our insurance claim trends were to differ significantly from our historic claim experience, we would make a corresponding adjustment to our insurance reserves.

We are subject to the income tax laws of the United States, which are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities.

4 unchanged sentences

If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance.

Such valuation allowance is maintained on our deferred tax assets until sufficient positive evidence exists to support its reversal in future periods.

Such valuation allowance is maintained on our deferred tax assets until sufficient positive evidence exists to

support its reversal in future periods.

The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.

1 unchanged sentence

Changes in the valuation allowance are included in our statement of operations as a charge or credit to income tax benefit (expense).

As a result of our assessment, income tax benefit (expense) within our statements of operations was impacted by a decrease of $6.1 million and an increase of $1.5 million in the valuation allowance during the years ended September 30, 2020 and 2019, respectively.

The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased, if objective negative evidence in the form of cumulative losses is no longer present and if additional weight may be given to subjective evidence such as our projections for growth.

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

The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased and if additional weight may be given to subjective evidence such as our projections for growth.

We will continue to evaluate our valuation allowance in future periods for any change in circumstances that causes a change in judgment about the realizability of the deferred tax assets.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis