What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-12 compared with 2021-12-02 · 193 added, 173 removed, 289 unchanged (56% of the section changed)

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General Overview

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

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

Founded in 1965, with more than 250,000 graduates in its history, Universal Technical Institute, Inc.

(“we,” “us” or “our”) is a leading provider of transportation and technical training programs.

As of September 30, 2022, we offered certificate, diploma or degree programs at 16 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute (“UTI”), Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, “MMI”), NASCAR Technical Institute (“NASCAR Tech”), and MIAT College of Technology (“MIAT”).

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

We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

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.

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

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

Through the proprietary loan program, the bank provides the students who participate in this program with extended payment terms for a portion of their tuition.

Under ASC 606, the portion of tuition revenue related to the proprietary loan program is considered a form of variable consideration.

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Estimating the collection rate requires significant management judgment.

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

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.

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Any regulatory violation could be the basis for the initiation of potential adverse actions, including a suspension, limitation, placement on reimbursement status or termination proceeding, which could have a material adverse effect on our business.

If any of our institutions were to lose its eligibility to participate in federal student financial aid or veterans' benefit programs, the students at that institution, and other locations of that institution, would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees.

and would have to seek alternative sources of funds to pay their tuition and fees.

The receipt of financial aid and veterans benefit funds reduces the students’ amounts due to us and has no impact on revenue recognition, as the transfer relates to the source of funding for the costs of education which may occur through Title IV, veterans benefit or other funds and resources available to the student.

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

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

Operating Expenses

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End of period undergraduate full-time active students 14,380 13,682 5.1 %

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.

The increase in new student starts, average undergraduate full-time active students and end of period undergraduate full-time active students was due to strong student demand throughout fiscal 2021 and the acquisition of MIAT in November 2021.

The opening of new campuses in Austin, TX and Miramar, FL during fiscal 2022 also contributed positively.

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

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Our revenues for the year ended September 30, 2022 were $418.8 million, an increase of $83.7 million, or 25.0%, from the prior year.

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

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

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

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

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

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

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

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

The increase in revenue was due to growth in students, increased revenue per student due to the impact of the COVID-19 pandemic in the prior year, and the acquisition of MIAT.

In fiscal 2022, we had operating income of $22.4 million, as compared to $14.9 million in the prior year.

Our operating expenses for fiscal 2022 increased 23.8% as compared to the prior year primarily due to support activities related to the increase in student enrollment and the acquisition of MIAT.

Productivity improvements and proactive cost actions have been a key part of our operating model for the past several years, and we 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, 2022 was $25.8 million compared to $14.6 million in the prior year.

Business Strategy

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During the year ended September 30, 2022, 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.

• Entered into a definitive agreement to acquire Concorde Career Colleges, Inc.

(“Concorde”) in May 2022.

Concorde is a leading provider of industry-aligned healthcare education programs in fields such as nursing, dental hygiene and medical diagnostics.

Concorde currently operates 17 campuses across eight states with approximately 8,000 students, and offers its programs in ground, hybrid and online formats.

The acquisition aligns with our growth and diversification strategy, which is focused on offering a broader array of high-quality, in-demand workforce solutions which both prepare students for a variety of careers in fast-growing fields and help close the country's skills gap by leveraging key industry partnerships.

On December 1, 2022, we closed the Concorde acquisition.

• Completed the acquisition of MIAT College of Technology (“MIAT”) from HCP & Company on November 1, 2021.

MIAT had an average of approximately 950 undergraduate full-time active students during the year ended September 30, 2022 through its campuses in Canton, Michigan and Houston, Texas.

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

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

Campus Openings and Optimization

• Expanded our operations through the opening of our new campuses in Austin, Texas and Miramar, Florida.

Austin is our third school in Texas and Miramar is our second school in Florida.

Both campuses help to broaden the reach of our skilled trade programs to high demand geographies.

• Completed the consolidation and reconfiguration of our UTI and MMI Orlando, Florida campus facilities into one site and the consolidation of the MMI Phoenix campus into our Avondale, Arizona building.

• Purchased the Lisle, Illinois campus (“Lisle Campus”) in February 2022, for approximately $28.7 million in cash consideration, including closing costs and other fees and assumed debt of $18.3 million.

In April 2022, we completed the financing for the purchase which retired the assumed debt and replenished approximately $20.0 million of the funds used to purchase the campus.

See Notes 9, 12, 13 and 15 of the notes to our consolidated financial statements herein for additional details on the purchase and related debt and interest rate swap.

Program Expansion and New Industry Partnerships

• Executed on the next phase of our growth and diversification strategy by announcing the addition of 15 new programs across our campus footprint, including Aviation, HVACR, Robotics, Industrial Maintenance and Wind Energy Technician training to UTI and NASCAR Tech branded campuses, and initiated efforts to add Auto and Diesel Essentials to the MIAT Canton, Michigan campus.

Pending all regulatory approvals, the initial planned program additions are projected to begin launching in the second quarter of 2023.

• Launched electric vehicle (“EV”) technician training coursework to meet increasing demand for clean cars and trucks.

This enhanced training is the initial step in our overall EV strategy to prepare future technicians for anticipated increasing EV sales in the coming decades.

▪ As part of this initiative, we rolled out new curriculum in our Ford Accelerated Credential Training program to prepare students for the next generation of vehicles on the road.

This new curriculum will feature blended learning courses on high voltage systems safety, hybrid vehicle components and operation,

EV battery components and operation and an introduction to high voltage battery service, as well as a Ford instructor-led class on hybrid and EV operation and diagnosis.

▪ We have also selected Bosch to support the development of new courseware that helps meet the needs of the growing EV market, which continues to see record sales and a demand for skilled technicians.

• Expanded our welding technology program to our Mooresville, North Carolina and Exton, Pennsylvania campuses in January and July 2022, respectively.

• Launched the BMW Fast Track program at our Avondale, Arizona and Orlando, Florida campuses in January 2022, our Long Beach, California campus in April 2022, our Houston, Texas campus in May 2022 and our Exton, Pennsylvania campus in August 2022.

We expect to launch the program at our Lisle, Illinois campus in Spring 2023 and Miramar, Florida campus in Summer 2023.

• Formed a new strategic alliance with Napa Auto Parts (“NAPA”).

NAPA will supply essential parts for hands-on labs, including brake kits, rotors, bulbs, bearing kits, wheel weights and more.

The initial stage of the partnership will impact UTI, MMI and NASCAR Tech campuses and may be expanded to MIAT-branded campuses in the future.

Results of Operations

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

Other income 0.2 % — % 0.6 %

Total other income, net 0.1 % 0.4 % 0.1 %

Other (expense) income (0.1) % 0.2 % — %

Total other (expense) income, net (0.5) % 0.1 % 0.4 %

Income (loss) before income taxes 4.8 % 4.5 % (0.9) %

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

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

Income tax benefit (expense) 1.3 % (0.2) % 3.5 %

Net income 6.1 % 4.3 % 2.6 %

Preferred stock dividends (1.2) % (1.6) % (1.8) %

Income (loss) available for distribution 2.7 % 0.8 % (4.0) %

Income available for distribution 4.9 % 2.7 % 0.8 %

Income allocated to participating securities (1.9) % (1.1) % (0.4) %

Net income available to common shareholders 3.0 % 1.6 % 0.4 %

Year Ended September 30, 2022 Compared to Year Ended September 30, 2021

Our revenues for the year ended September 30, 2022 were $418.8 million, an increase of $83.7 million, or 25.0%, as compared to revenues of $335.1 million for the year ended September 30, 2021.

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.

During fiscal 2022, our average full-time student enrollment increased by 11.7% and our new student starts increased 2.7%, driven primarily by the addition of MIAT and the opening of the two new campuses in Austin, Texas and Miramar, Florida.

The increase in revenue is due to the growth in the average undergraduate full-time students and an increase in the average revenue per student as compared to the prior year which was impacted by the timing of completion of student make-up lab work and slower student progression due

to the ongoing but diminishing impacts of COVID-19.

The acquisition of MIAT also contributed to our revenue growth, accounting for $23.6 million of revenues for the year ended September 30, 2022.

We recognized $9.1 million on an accrual basis related to revenues and interest under the proprietary loan program for the year ended September 30, 2022, as compared to $9.7 million recognized for the year ended September 30, 2021.

Educational services and facilities expenses

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Compensation and related costs increased $19.3 million for the year ended September 30, 2022, 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.

Salaries expense increased $13.1 million primarily related to incremental headcount for the two new campuses and two new welding programs launched during the year, as well as other programs and needs to continue enhancing the student experience.

The acquisition of MIAT represented $7.3 million of the increase.

Occupancy costs increased $4.0 million during fiscal year 2022.

Our occupancy cost increased due to the addition of the new Austin, Texas and Miramar, Florida campus locations as well as the two MIAT campus locations.

Depreciation and amortization expense increased $2.5 million during the year ended September 30, 2022 primarily due to the purchase of the Lisle Campus during fiscal year 2022.

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

Student expense increased by $0.8 million primarily due to a $0.3 million increase in student housing expenses.

Other educational services and facilities expense increased by $7.0 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.

The increase is primarily related to an increased cost of tools of $2.1 million due to our new campus openings and books of $1.3 million due to our increased number of students.

Selling, general and administrative expenses

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Professional services expense 8,755 5,409

Intangible asset impairment expense 2,000 —

Depreciation and amortization expense 1,174 796

Total selling, general and administrative expenses $ 189,158 $ 153,318

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 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.

Compensation and related costs increased by $9.5 million for the year ended September 30, 2022 as compared to the prior year, primarily due to an increase in headcount to support our growth and diversification initiatives, along with an increase in stock-based compensation expense reflecting the cumulative impact of annual grants being resumed in 2020 and adjustments related to the performance conditions in the prior year.

The acquisition of MIAT represented $2.9 million of the increase.

Advertising expense increased by $12.8 million for the year ended September 30, 2022, as compared to the prior year.

The increase was primarily attributable to incremental spend in support of our new campuses and programs launched during the current year.

Advertising expense for MIAT accounted for $5.1 million of the increase.

Advertising expense as a percentage of revenues increased to 12.3% for the year ended September 30, 2022 as compared to 11.6% in the prior year.

Other selling, general and administrative expenses increased by $7.5 million for the year ended September 30, 2022, as compared to the prior year, due to an increase of $1.9 million in travel and entertainment costs, $1.0 million for software, and $0.8 million for bad debt expense.

The increase was also due to acquisition of MIAT which represented $3.9 million.

Professional services increased by $3.3 million and contract services expense increased by $0.3 million for the year ended September 30, 2022.

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 and pre-closing costs associated with the acquisition of Concorde, which closed in December 2022.

During the year ended September 30, 2022, we recorded an intangible asset impairment charge of $2.0 million for the MIAT trademarks and trade name due to changing the useful life from indefinite to four years.

See Notes 2 and 11 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion.

Other (expense) income, net

Other expense for the year ended September 30, 2022 was $1.9 million, a decrease of $2.2 million as compared to other income of $0.2 million for the year ended September 30, 2021.

The $1.9 million of other expense in fiscal 2022 was comprised primarily of $2.0 million of interest expense on our additional term loan entered into during 2022 and increased interest rates due to the increased federal reserve rate, as discussed further below, partially offset by interest income of $0.5 million.

Our income tax benefit for the year ended September 30, 2022 was $5.4 million, or 26.5% of pre-tax income, compared to an income tax expense of $0.6 million, or 4.0% of pre-tax income, for the year ended September 30, 2021.

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

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

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

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

The tax benefit recorded during the year ended September 30, 2022 primarily relates to the $12.1 million release of the valuation allowance during the period and the impact of the MIAT deferred tax liability for indefinite lived intangibles which are available to offset a portion of our indefinite lived deferred tax assets.

Our income tax expense during the year ended September 30, 2021 was impacted by a decrease in the valuation allowance of $3.2 million.

See Note 17 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion.

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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 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.

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 $5.2 million and $5.3 million during the years ended September 30, 2022 and 2021, respectively.

See Note 19 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.

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As a result of the foregoing, we reported income available for distribution for the years ended September 30, 2022 and 2021 of $20.7 million and $9.3 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.

Income allocated to participating securities

Our Series A Preferred Stock is considered a participating security because, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis.

The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividend and participation rights in undistributed earnings.

Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends.

The amount of income allocated to the participating securities for the years ended September 30, 2022 and 2021 was $7.8 million and $3.6 million, respectively.

Net income available to common shareholders

After allocating the income to the participating securities, we had $12.8 million and $5.7 million of net income available to common shareholders for the years ended September 30, 2022 and 2021, respectively.

For a discussion of the financial results of operations for the year ended September 30, 2021 compared to the year ended September 30 2020, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 202 1 Form 10-K filed with the SEC on December 2, 2021 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Non-GAAP Financial Measures

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To obtain a complete understanding of our performance, this measure should be examined in connection with net income (loss) determined in accordance with GAAP.

Since the items excluded from this measure are significant components in understanding and assessing financial performance under GAAP, this measure should not be considered to be an alternative to net income (loss) or any other measures derived in accordance with GAAP as a measure of our operating performance or profitability.

Since the items excluded from this measure are

significant components in understanding and assessing financial performance under GAAP, this measure should not be considered to be an alternative to net income (loss) or any other measures derived in accordance with GAAP as a measure of our operating performance or profitability.

Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring.

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Investors are encouraged to use GAAP measures when evaluating our financial performance.

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

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

Year Ended September 30,

2022 2021 2020

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

Net income $ 25,848 $ 14,581 $ 8,008

Interest expense (income), net 1,495 282 (1,142)

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

Income tax (benefit) expense (5,407) 602 (10,602)

Depreciation and amortization (1)

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Liquidity and Capital Resources

Overview of Liquidity

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

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

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

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

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

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

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

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

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

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

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

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

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.

Our total liquidity as of September 30, 2022 was $95.4 million, including cash and cash equivalents of $66.5 million and $28.9 million of held-to-maturity investments.

This represents a decrease of $38.4 million from our total liquidity as of September 30, 2021.

Strategic Uses of Cash

We believe that additional strategic uses of our cash resources may include consideration of acquisitions, the repurchase of common stock, purchase of real estate assets, new campus openings or expansion of programs at existing campuses 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 held-to-maturity investments, or we need capital to fund operations or other new organic investments, we may enter into additional credit facilities, issue debt or issue additional equity.

On November 1, 2021, using operating cash on hand, we acquired all of the issued and outstanding shares of capital stock of MIAT for $26.0 million base purchase price plus $2.8 million working capital surplus for total cash consideration paid of $28.8 million.

See Note 4 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the acquisition.

During February 2022, we purchased the Lisle Campus for approximately $28.7 million, in cash plus assumed debt, including closing costs and other fees.

Due to the timing of the close for the Lisle Campus, we used available operating cash for the purchase.

On April 14, 2022, our wholly owned subsidiary entered into a new loan agreement to fund the acquisition and retirement of the Lisle Term Loan - WA, via a term loan in the original principal amount of $38.0 million with a maturity of seven years.

The net proceeds from the new loan agreement after fees and the retirement of the Lisle Term Loan - WA were approximately $20.0 million.

See Notes 9, 15 and 16 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the purchase and related debt and interest rate swap.

On May 3, 2022, we entered into a definitive agreement to acquire Concorde for a base purchase price of $50.0 million in cash, subject to closing working capital adjustments.

The closing is subject to customary closing conditions, including the receipt of a pre-acquisition review notice from ED that does not contain certain letter of credit requirements.

On December 1, 2022, the company completed the Concorde acquisition.

See Note 26 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on this acquisition.

Long-term Debt

As of September 30, 2022, we had $68.1 million of long-term debt outstanding, which is comprised of two term loans.

Of the $68.1 million outstanding, $30.1 million relates to a term loan that bears interest at the rate of LIBOR plus 2.0% over the seven year term secured in connection with the Avondale, Arizona campus property purchased in December 2020.

The remaining $38.0 million relates to a term loan that bears interest at the rate of SOFR plus 2.0% over the seven year term, secured in connection with the purchase of the Lisle Campus property in February 2022.

See Note 15 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the term loans.

On November 18, 2022, we entered into a revolving credit facility with Fifth Third Bank, a national banking association with a three year term (the “Credit Facility”).

Availability under the Credit Facility is $100.0 million with a $20.0 million sub-facility available for letters of credit.

On November 28, 2022, we drew $90.0 million from the credit facility in support of the closing of the Concorde acquisition.

See Note 26 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on this subsequent event item.

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.

For our outstanding Series A preferred shares, we paid preferred stock cash dividends of $5.2 million and $5.3 million during the years ended September 30, 2022 and 2021, respectively.

The preferred stock dividends are subject to adjustment for any preferred stock conversions that occur during the year.

Principal Sources of Liquidity

Our principal source of liquidity is operating cash flows and existing cash and cash equivalents.

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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.

Under the 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.

Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students.

Our campuses are subject to extensive, ongoing regulation by each of these states.

Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students.

Our insurers issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business.

We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers.

As of September 30, 2022, the total face amount of these surety bonds was approximately $20.5 million.

Operating Activities

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Net income, after adjustments for non-cash items, provided cash of $64.8 million for the year ended September 30, 2022.

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.

The non-cash items included $16.9 million for depreciation and amortization expense, $15.9 million for amortization of right-of-use assets for operating leases, $4.3 million for stock-based compensation expense and $2.5 million for bad debt expense, partially offset by an adjustment of deferred taxes of $6.0 million due primarily to the release of our valuation allowance during the year.

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

• Changes in our operating lease liability as a result of rent payments used cash of $14.0 million.

• 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.

• Changes in our accounts payable and accrued expenses due to the timing of payments provided cash of $5.7 million.

• The decrease in deferred revenue used cash of $5.3 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at September 30, 2022 as compared to September 30, 2021.

• The increase in prepaid expense and other current assets used cash of $1.7 million primarily related to the change in training equipment credits earned as of September 30, 2022.

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

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

• 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 attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students.

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

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

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

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

• The increase in deferred revenue used cash of $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 relations to completion of their program at September 30, 2021 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.

• 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.

• 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 the timing of payments to vendors and bonus accruals.

Investing Activities

For the year ended September 30, 2022, net cash used in investing activities was $134.6 million.

The cash outflow was primarily related to the purchase of property and equipment of $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.

The cash outflow was primarily related to the purchase of property and equipment of $79.5 million, of which $28.7 million related to the purchase of the Lisle Campus.

Other capital expenditures included investments for new campuses in Austin, Texas and Miramar, Florida, the consolidation of the Orlando, Florida and Arizona campuses, and the rollout of new programs at our campuses.

We purchased $28.8 million of short term held-to-maturity investments.

Additionally, we purchased MIAT for $26.5 million, net of cash consideration received.

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 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.

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 and land 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.

Financing Activities

For the year ended September 30, 2022, net cash provided by financing activities was $12.6 million which was primarily related to proceeds from our new term loan for the Lisle Campus of $38.0 million offset by the repayment of long-term debt of $19.2 million and the semi-annual payments of preferred stock dividends of $5.2 million.

For 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.

For a discussion of our liquidity for the year ended September 30 2020, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 2021 Form 10-K filed with the SEC on December 2, 2021 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Share Repurchase Program

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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

Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students.

Our campuses are subject to extensive, ongoing regulation by each of these states.

Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students.

Our insurers issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business.

We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers.

As of September 30, 2021, the total face amount of these surety bonds was approximately $15.3 million.

We did not repurchase any shares during the years ended September 30, 2022, 2021, and 2020.

Related Party Transactions

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Fiscal year $ 418,765 100.0 % $ 335,083 100.0 % $ 300,761 100.0 %

The increase in revenues for each of the three months ended December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022, as compared to the same periods in fiscal 2021, was primarily due to an increase in student population during fiscal 2022, in conjunction with the acquisition of MIAT.

The first three periods also benefited from lower average revenue per student in the prior year period due to lingering impacts of COVID-19.

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

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

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

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

The increase in revenue for the three months ended September 30, 2020 was primarily due to our successful transition of our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations

with hands-on labs.

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

Income (Loss) from Operations

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Fiscal year $ 22,374 100.0 % $ 14,947 100.0 % $ (3,871) 100.0 %

The increase in income from operations for fiscal year 2022 was primarily due to increased revenues well as continued execution of cost control measures.

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

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

Management's continued cost control efforts contributed to the improvement in income (loss) from operations for the each of the three months ended March 31, 2019, June 30, 2019 and September 30, 2019, as compared to the same periods in fiscal 2018.

Effect of Inflation

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During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, our proprietary loan program, allowance for uncollectible accounts, goodwill recoverability, self-insurance claim liabilities, income taxes and contingencies.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, the proprietary loan program, allowance for uncollectible accounts, goodwill recoverability, self-insurance claim liabilities, income taxes and contingencies.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

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

We apply the five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from Customers (“ASC 606”).

We apply the five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from

Customers (“ASC 606”).

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

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

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.

Approximately 99% of our revenues for each of the years ended September 30, 2022, 2021 and 2020, respectively, consisted of gross tuition.

The majority of our UTI programs are designed to be completed in 36 to 90 weeks while our MIAT programs are completed in 28 to 96 weeks.

Our advanced training programs range from 12 to 23 weeks in durations.

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

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

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

We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

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

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.

All of our campuses were fully operational during fiscal 2022 and 2021.

As a result, there was no deferred revenue related to the impact of COVID-19 as of September 30, 2022 and September 30, 2021, while we had $6.1 million of deferred revenue as of September 30, 2020.

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.

Through the proprietary loan program, the bank provides the students who participate in this program with extended payment terms for a portion of their tuition.

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

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

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

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

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

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

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

Goodwill is reviewed at least annually for impairment, which might result from the deterioration in the operating performance of the acquired business, adverse market conditions, adverse changes in the applicable laws or regulations and a variety of other circumstances.

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

We perform our annual goodwill impairment assessment during the fourth quarter of each fiscal year.

In performing our impairment tests, we first consider the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying amount.

Goodwill and Intangible Assets

We test goodwill and indefinite-lived intangible assets for impairment annually as of August 1, or more frequently if events and circumstances warrant.

Under ASC 350, Intangibles - Goodwill and Other , to evaluate the impairment of goodwill, we first assess qualitative factors, such as deterioration in the operating performance of the acquired business, adverse market conditions, adverse changes in the applicable laws or regulations and a variety of other circumstances, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.

To evaluate the impairment of the indefinite-lived intangible assets, we assess the fair value of the assets to determine whether they were greater or less than the carrying values.

If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the quantitative impairment tests to compare the estimated fair value of the reporting unit to the carrying value of its net assets.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis.

If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, our market capitalization, financial performance and key business drivers, long-term operating plans and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit.

When performing a quantitative goodwill impairment test, we generally determine the fair value of reporting units using an income-based approach consisting of a discounted cash flow valuation method.

The fair value determination consists primarily of using unobservable inputs under the fair value measurement standards, and we believe our related assumptions are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset.

Determining the fair value of indefinite-lived intangible assets is judgmental in nature and involves the use of significant estimates and assumptions.

We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, future tuition revenues, operating costs, working capital changes, capital expenditures and a discount rate.

The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends particularly in student enrollment and pricing and long-term operating strategies and initiatives.

We also have definite-lived intangible assets, which primarily consist of purchased intangibles and capitalized curriculum development costs.

The definite-lived intangible assets are recognized at cost less accumulated amortization.

Amortization is computed using the straight-line method based on estimated useful lives of the related assets.

2022 Impairment Testing

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

Our total recorded goodwill was $16.9 million as of September 30, 2022.

Of this balance, $8.6 million relates to our acquisition of MIAT in November 2021.

The remaining $8.2 million relates to our MMI Orlando, Florida campus and resulted from the acquisition of our motorcycle and marine education business in 1998.

We completed our 2022 annual goodwill impairment tests and determined that it was more likely than not that the fair value of the reporting units exceeded the carrying value and concluded that goodwill was not impaired.

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

Our total recorded intangible assets were $14.2 million as of September 30, 2022 which primarily relates to the MIAT acquisition completed on November 1, 2021.

During the fourth quarter of 2022, in conjunction with our growth and diversification initiatives, we completed a branding study.

As a result of this study, we determined that the useful life of the MIAT trademarks and trade name was no longer indefinite and a 4 year finite useful life was more appropriate.

We completed the required impairment testing when changing from an indefinite to a finite useful life for an intangible asset and determined that the carrying value of the MIAT trademarks and trade name exceeded its fair value.

We determined the fair value of intangible asset to be $1.0 million using the relief from royalty method, and recorded an intangible asset impairment charge of $2.0 million during the year ended September 30, 2022.

Actual results may differ from the amounts included in our assessment, which could result in additional impairment of our intangible assets in the future.

There was no impairment related to our other intangible assets.

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.

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The realization of deferred tax assets is dependent, in part, upon future taxable income.

In assessing the need for a valuation allowance, we consider all available evidence, including our historical profitability and projections of future taxable income.

In assessing the need for a valuation allowance, we

consider all available evidence, including our historical profitability and projections of future taxable income.

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

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

support its reversal in future periods.

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.

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Additionally, actual operating results and the underlying amount and category of income in future years could render our current assessment of recoverable deferred tax assets inaccurate.

Contingencies

In the ordinary conduct of our business, we are subject to occasional lawsuits, investigations and claims, including, but not limited to, claims involving students and graduates and routine employment matters.

When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure.

If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss.

If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

Generally, we expense legal fees as incurred.

There can be no assurance that the ultimate outcome of any of the lawsuits, investigations or claims pending against us will not have a material adverse effect on our financial condition or results of operations.

Recent Accounting Pronouncements

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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