What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-12-12 compared with 2021-12-02 · 605 added, 504 removed, 1171 unchanged (49% of the section changed)

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OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not Applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Below is a list of our Executive Officers and Board of Directors as of the year ended September 30, 2021:

Below is a list of our Executive Officers and Board of Directors as of September 30, 2022:

Executive Officer Position

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Chief Executive Officer, Lennox Strategies, LLC

McWaters Former President and Chief Executive Officer, Universal Technical Institute, Inc.;

President and CEO of Fresh Start Women’s Foundation

Okinaka Executive Vice President, Chief Financial Officer and Treasurer of Hawaiian Holdings, Inc.

Sanchez Former U.S.

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(Incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q dated May 7, 2021.)

2.2 Purchase and Sale Contract dated February 4, 2022, by and among Universal Technical Institute, Inc., Universal Technical Institute Ventures, LLC, and iStar Net Lease I LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q dated May 5, 2022).

2.3 Purchase and Sale Contract dated February 11, 2022, by and among Universal Technical Institute, Inc., Universal Technical Institute Ventures, LLC, and iStar Net Lease Member I LLC (incorporated by reference to Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q dated May 5, 2022).

2.4 Stock Purchase Agreement, dated May 3, 2022, by and among Universal Technical Institute, Inc., Concorde Career Colleges, Inc., Liberty Partners Holdings 28, L.L.C., Liberty Investment IIC, LLC, and Liberty Partners L.P.

(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated May 3, 2022).

3.1 Fifth Amended and Restated Certificate of Incorporation of Universal Technical Institute, Inc.

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4.6+ Description of Securities.

Exhibit Number Description

10.1* Universal Technical Institute Executive Benefit Plan, effective March 1, 1997.

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(Incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant on March 3, 2017.)

Exhibit Number Description

10.4.1* Form of Restricted Stock Unit Agreement.

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(Incorporated by reference to Exhibit 10.2 to the Form 8-K filed by the Registrant on October 21, 2019.)

10.18 Credit Agreement, dated May 12, 2021, by and among the Company, Universal Technical Institute of Arizona, LLC and Fifth Third Bank, National Association (incorporated herein by reference to Exhibit 10.1 to the Current report on Form 8-K filed with the SEC on May 12, 2021).

10.19 Term Promissory Note, issued by the Company, dated May 12, 2021 (incorporated herein by reference to Exhibit 10.2 to the Current report on Form 8-K filed with the SEC on May 12, 2021).

10.20 Deed of Trust, Security Agreement and Fixture Filing dated May 12, 2021 (incorporated herein by reference to Exhibit 10.3 to the Current report on Form 8-K filed with the SEC on May 12, 2021).

Exhibit Number Description

10.19 Term Promissory Note, issued by the Company, dated May 12, 2021 (incorporated herein by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on May 12, 2021).

10.20 Deed of Trust, Security Agreement and Fixture Filing dated May 12, 2021 (incorporated herein by reference to Exhibit 10.3 to the Form 8-K filed with the SEC on May 12, 2021).

10.21 Universal Technical Institute, Inc.

2021 Equity Incentive Plan.

(Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on February 26, 2021).

(Incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant on February 26, 2021).

10.22 Loan Agreement dated April 14, 2022, by and among 2611 Corporate West Drive Venture LLC and Valley National Bank (incorporated by reference to Exhibit 10.3 to the Form 10-Q dated May 5, 2022).

10.23 Guaranty dated April 14, 2022, by and among Universal Technical Institute, Inc., 2611 Corporate West Drive Venture LLC and Valley National Bank (incorporated by reference to Exhibit 10.4 to the Form 10-Q dated May 5, 2022).

21.1+ Subsidiaries of the Registrant.

Exhibit Number Description

23.1+ Consent of Deloitte & Touche LLP.

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§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

101.INS Inline XBRL Instance Document.

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Indicates a contract with management or compensatory plan or arrangement.

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A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

FORM 10-K SUMMARY

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Director December 12, 2022

/s/ Kimberly J.

/s/ Shannon L.

Director December 12, 2022

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Management’s Report on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of September 30, 202 2 and 202 1

Consolidated Statements of Operations for the years ended September 30, 202 2 , 202 1 and 20 20

Consolidated Statements of Other Comprehensive Income (Loss) for the years ended September 30, 2021, 2020 and 2019

Consolidated Statements of Other Comprehensive Income for the years ended September 30, 2022, 2021 and 2020

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 202 2 , 202 1 and 20 20

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We have audited the internal control over financial reporting of Universal Technical Institute, Inc.

and subsidiaries (the “Company”) as of September 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

(the “Company”) as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2021, of the Company and our report dated December 2, 2021 expressed an unqualified opinion on those consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended September 30, 2022, of the Company and our report dated December 12, 2022 expressed an unqualified opinion on those financial statements.

Basis for Opinion

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/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

Tempe, Arizona

December 12, 2022

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Universal Technical Institute, Inc.

and subsidiaries (the "Company") as of September 30, 2021 and 2020, the related consolidated statements of operations, of other comprehensive income (loss), of shareholders’ equity, and of cash flows for each of the three years in the period ended September 30, 2021, and the related notes (“collectively referred to as the financial statements”).

We have audited the accompanying balance sheets of Universal Technical Institute, Inc.

(the "Company") as of September 30, 2022 and 2021, the related statements of operations, other comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

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/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

Tempe, Arizona

December 12, 2022

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Goodwill 16,859 8,222

Intangible assets, net 14,215 124

Notes receivable, less current portion 30,231 30,586

Right-of-use assets for operating leases 132,038 159,075

Deferred tax assets, net 3,365 —

Other assets 5,958 9,120

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Preferred stock, $ 0.0001 par value, 10,000 shares authorized;

700 shares of Series A Convertible Preferred Stock issued and outstanding as of September 30, 2021 and 2020, liquidation preference of $ 100 per share

676 and 700 shares of Series A Convertible Preferred Stock issued and outstanding as of September 30, 2022 and 2021, liquidation preference of $ 100 per share

Paid-in capital - common 148,372 142,314

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Income (loss) from operations 22,374 14,947 ( 3,871 )

Other income:

Other (expense) income:

Interest income 507 83 1,152

Interest expense ( 2,002 ) ( 365 ) ( 10 )

Equity in earnings of unconsolidated affiliate — — 399

Other income 518 135 1,467

Total other income, net 236 1,277 137

Other (expense) income ( 438 ) 518 135

Total other (expense) income, net ( 1,933 ) 236 1,277

Income (loss) before income taxes 20,441 15,183 ( 2,594 )

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

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

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

Net income 25,848 14,581 8,008

Preferred stock dividends ( 5,159 ) ( 5,250 ) ( 5,264 )

Income (loss) available for distribution $ 9,331 $ 2,744 $ ( 13,118 )

Income available for distribution 20,689 9,331 2,744

Income allocated to participating securities ( 7,847 ) ( 3,647 ) ( 1,135 )

Net income available to common shareholders $ 12,842 $ 5,684 $ 1,609

Earnings per share (See Note 21):

Net income (loss) per share - basic $ 0.17 $ 0.05 $ ( 0.52 )

Net income (loss) per share - diluted $ 0.17 $ 0.05 $ ( 0.52 )

Net income per share - basic $ 0.39 $ 0.17 $ 0.05

Net income per share - diluted $ 0.38 $ 0.17 $ 0.05

Weighted average number of shares outstanding:

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(In thousands)

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2022 2021 2020

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

Other comprehensive income (loss):

Unrealized loss on derivative contract ( 279 ) — —

Comprehensive income (loss) $ 14,302 $ 8,008 $ ( 7,868 )

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

Other comprehensive income:

Unrealized gain (loss) on interest rate swaps, net of taxes 2,492 ( 279 ) —

Comprehensive income $ 28,340 $ 14,302 $ 8,008

The accompanying notes are an integral part of these consolidated financial statements.

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Balance as of September 30, 2019 32,499 $ 3 700 $ — $ 187,493 $ 68,853 ( 6,865 ) $ ( 97,388 ) $ ( 44,673 ) $ — $ 114,288

Net loss — — — — — — — — ( 7,868 ) — ( 7,868 )

Net income — — — — — — — — 8,008 — 8,008

Adjustment for the adoption of ASC 842 — — — — — — — — 8,958 — 8,958

Issuance of common stock under employee plans 328 — — — — — — — — — —

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Stock-based compensation — — — — 2,077 — — — — — 2,077

Shares issued for equity offering — — — — ( 47,870 ) — 6,783 97,023 — — 49,153

Preferred stock cash dividends declared — — — — — — — — ( 5,264 ) — ( 5,264 )

Balance as of September 30, 2020 32,730 $ 3 700 $ — $ 141,002 $ 68,853 ( 82 ) $ ( 365 ) $ ( 32,971 ) $ — $ 176,522

Adjustment for the adoption of ASC 842 — — — — — — — — 8,958 — 8,958

Net income — — — — — — — — 14,581 — 14,581

Cumulative effect from adoption of ASC 326 — — — — — — — — 1,644 — 1,644

Issuance of common stock under employee plans 251 — — — — — — — — — —

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Stock-based compensation — — — — 1,733 — — — — — 1,733

Shares issued for equity offering — — — — ( 47,870 ) — 6,783 97,023 — — 49,153

Preferred stock cash dividends declared — — — — — — — — ( 5,250 ) — ( 5,250 )

Unrealized loss on interest rate swap — — — — — — — — — ( 279 ) ( 279 )

Balance as of September 30, 2021 32,915 $ 3 700 $ — $ 142,314 $ 68,853 ( 82 ) $ ( 365 ) $ ( 21,996 ) $ ( 279 ) $ 188,530

Net income — — — — — — — — 25,848 — 25,848

Cumulative effect from adoption of ASC 326 — — — — — — — — 1,644 — 1,644

Issuance of common stock under employee plans 300 — — — — — — — — — —

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Stock-based compensation — — — — 4,337 — — — — — 4,337

Preferred stock conversion 724 — ( 24 ) — 2,372 ( 2,372 ) — — — — —

Preferred stock cash dividends declared — — — — — — — — ( 5,159 ) — ( 5,159 )

Unrealized loss on derivative contract — — — — — — — — — ( 279 ) ( 279 )

Unrealized gain on interest rate swap, net of taxes — — — — — — — — — 2,492 2,492

Balance as of September 30, 2022 33,857 $ 3 676 $ — $ 148,372 $ 66,481 ( 82 ) $ ( 365 ) $ ( 1,307 ) $ 2,213 $ 215,397

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Cash flows from operating activities:

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

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

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

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 16,884 14,027 11,804

Amortization of assets subject to financing obligation — — 2,682

Amortization of right-of-use assets for operating leases 15,893 15,605 24,273

Intangible asset impairment expense 2,000 — —

Bad debt expense 2,510 1,718 1,767

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Deferred income taxes ( 6,014 ) — 345

Equity in earnings of unconsolidated affiliate — — ( 399 )

Training equipment credits earned, net 180 364 541

Unrealized loss on derivative contract ( 279 ) — —

Other (gains) losses, net ( 13 ) ( 52 ) 561

Unrealized gain (loss) on derivative contract 2,492 ( 279 ) —

Other losses (gains), net 663 ( 13 ) ( 52 )

Changes in assets and liabilities:

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Accrued tool sets and other current liabilities 1,685 2,025 1,863

Deferred rent liability — — ( 1,677 )

Operating lease liability ( 13,952 ) ( 20,469 ) ( 25,617 )

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Proceeds from insurance policy — 427 1,566

Cash paid for acquisitions, net of cash acquired ( 26,514 ) — —

Return of capital contribution from unconsolidated affiliate 188 277 261

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Payment of preferred stock cash dividend ( 5,159 ) ( 5,250 ) ( 5,264 )

Payment of financing obligation, term loan and finance leases ( 383 ) ( 99 ) ( 1,319 )

Payment of term loans and finance leases ( 19,227 ) ( 383 ) ( 99 )

Payment of payroll taxes on stock-based compensation through shares withheld ( 651 ) ( 421 ) ( 698 )

Net cash provided by (used in) financing activities 24,824 43,092 ( 7,198 )

Net cash provided by financing activities 12,585 24,824 43,092

Change in cash, cash equivalents and restricted cash ( 75,981 ) 57,058 8,364

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Supplemental disclosure of cash flow information:

Taxes (refunded) paid $ ( 6,712 ) $ ( 113 ) $ 37

Taxes paid (refunded) $ 859 $ ( 6,712 ) $ ( 113 )

Interest paid 1,937 349 7

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Note 1 - Business Description

Founded in 1965, with more than 225,000 graduates in its history, Universal Technical Institute, Inc.

Founded in 1965, with approximately 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, 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 (“UTI”), Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, “MMI”) and NASCAR Technical Institute (“NASCAR Tech”).

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.

We work closely with over 35 original equipment manufacturers and industry brand partners to understand their needs for qualified service professionals.

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For further discussion, see Note 2 on “Summary of Significant Accounting Policies - Concentration of Risk” and Note 24 on “Government Regulation and Financial Aid.”

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

This blended learning format has allowed us to continue to offer our programs to our students during the COVID-19 pandemic and aligns with an increasing trend of online education now being offered as individuals seek life-long learning opportunities.

On-campus labs are designed to meet or exceed the current national guidelines recommended by the Centers for Disease Control (“CDC”) as well as state and local mandates, while still meeting our accreditation and curriculum requirements.

Note 2 - Summary of Significant Accounting Policies

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Such estimates and assumptions 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, investments, property and equipment, goodwill recoverability, self-insurance claim liabilities, income taxes, contingencies and stock-based compensation.

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

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

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

We supplement our revenues with sales of textbooks and program

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 duration.

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

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

UNIVERSAL TECHNICAL INSTITUTE, INC.

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(In thousands, except per share amounts)

supplies and other revenues, which are recognized as the transfer of goods or services occurs.

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.

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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Restricted Cash

Restricted cash includes funds held as collateral for certain of the surety bonds that our insurers issue on behalf of our campuses and admissions representatives with multiple states, which are required to maintain authorization to conduct our business, funds transferred in advance of loan purchases under our proprietary loan program and funds held for students from Title IV financial aid program funds that result in credit balances on a student’s account.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Restricted cash includes funds held as collateral for certain of the surety bonds that our insurers issue on behalf of our campuses and admissions representatives with multiple states which are required to maintain authorization to conduct our business, funds transferred in advance of loan purchases under the proprietary loan program and funds held for students from Title IV financial aid program funds that result in credit balances on a student’s account.

Allowance for Uncollectible Accounts

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Management analyzes accounts receivable, historical percentages of uncollectible accounts, customer credit worthiness and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts.

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

Although we believe that our allowance is adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, or 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 use an internal

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

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

Although we believe that our allowance is adequate, if the financial condition of our students deteriorates, resulting in their ability to make payments, or 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.

Property and Equipment

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If we determine that an asset’s carrying value is impaired, we will write-down the carrying value of the asset to its estimated fair value and charge the impairment as an operating expense in the period in which the determination is made.

There were no significant impairment charges required for the years ended September 30, 2021, 2020 and 2019.

Our goodwill balance of $ 8.2 million as of September 30, 2021, 2020 and 2019, resulted from the acquisition of our motorcycle and marine education business in 1998 and is allocated to our MMI Orlando, Florida campus that provides the related educational programs.

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 may 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.

After performing a qualitative a nalysis, there were no indicators of goodwill impairment as of September 30, 2021.

There were no impairment charges recorded for property and equipment for the years ended September 30, 2022, 2021 and 2020.

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.

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.

There were no indicators of impairment for our goodwill as of September 30, 2022.

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

We reviewed the results of this study and determined that the useful life of the MIAT trademarks and trade name was no longer indefinite and a four-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 were no impairment charges related to intangible assets recorded for the years ended September 30, 2021 and 2020 and no impairments for the remaining intangible assets in 2022.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

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.

See Note 10 and Note 11 for additional details on our goodwill and intangible assets.

Self-Insurance Plans

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Upon adoption of Accounting Standards Codification Topic 842, Leases (“ASC 842”) as of October 1, 2019, we derecognized our previously recorded deferred rent balance.

ASC 842 requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability on

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

the balance sheet for substantially all leases, with the exception of short-term leases.

ASC 842 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 under a modified retrospective method without the recasting of comparative periods’ financial information.

See Note 9 “Leases” for additional disclosures on our leases.

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.

See Note 13 for additional disclosures on our leases.

Advertising Costs

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Historically, we have issued restricted stock units and stock options.

Restricted stock units are subject to vesting with service and performance conditions.

All restricted stock units are subject to service vesting conditions, while some are also subject to performance conditions.

We measure all share-based payments to employees at estimated fair value.

We recognize the compensation expense for restricted stock units with only service conditions on a straight-line basis over the requisite service period.

We granted restricted stock units with both service and performance conditions during the years ended September 30, 2021 and 2020.

We granted restricted stock units with service only conditions (“RSUs”) and restricted stock units with both service and performance conditions (“PSUs”) during the years ended September 30, 2022, 2021 and 2020.

We did not grant any stock options during the years ended September 30, 2022, 2021 and 2020.

Shares issued under our equity compensation plans are new shares.

Compensation expense associated with restricted stock units is measured based on the grant date fair value of our common stock.

The requisite service period for restricted stock units and performance units is generally the vesting period.

We estimate the fair value of performance units using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rates of return, and dividend yields.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Compensation expense associated with RSUs, PSUs or stock options is measured based on the grant date fair value of our common stock.

The requisite service period for RSUs and PSUs is generally the vesting period.

We estimate the fair value of PSUs using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rates of return, and dividend yields.

Expected volatilities are derived using a method that calculates historical volatility over a period equal to the length of the measurement period for UTI.

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Treasury bill that is commensurate with each measurement period, and we assume that any dividends paid were reinvested.

Actual results against the performance condition are measured at the end of the performance period, which typically coincides with the vesting period.

The fair value of the PSUs is amortized on a straight-line basis over the requisite service period based upon the fair market value on the date of grant, adjusted on a quarterly basis for the anticipated or actual achievement against the established performance condition.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model.

The estimated fair value is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables, including, but not limited to, our expected stock price volatility, the expected term of the awards and actual and projected employee stock exercise behaviors.

We evaluate our assumptions on the date of each grant.

Stock-based compensation expense of $ 4.4 million, $ 1.8 million and $ 2.1 million was recorded for the years ended September 30, 2022, 2021 and 2020, respectively.

The tax benefit related to stock-based compensation recognized was $ 1.1 million, $ 0.5 million, and $ 0.5 million for the years ended September 30, 2022, 2021 and 2020, respectively.

See Note 17 “Stock-Based Compensation” for further discussion.

See Note 20 for further discussion.

We recognize deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Deferred tax assets are reduced through a valuation allowance if it is more likely than not that the deferred tax assets will not be realized.

See Note 14 “Income Taxes” for additional details.

See Note 17 for additional details.

Concentration of Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term investments and receivables.

As of September 30, 2021, we held cash and cash equivalents of $ 133.7 million and restricted cash of $ 12.3 million.

We place our cash and cash equivalents and restricted cash with high quality financial institutions and limit the amount of credit exposure with any one financial institution.

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term held-to-maturity investments and receivables.

As of September 30, 2022, we held cash and cash equivalents of $ 66.5 million, restricted cash of $ 3.5 million, and held-to-maturity investments of $ 28.9 million.

We place our cash and cash equivalents, restricted cash, and held-to-maturity investments with high quality financial institutions and limit the amount of credit exposure with any one financial institution.

We mitigate the concentration risk of our investments by limiting the amount invested in any one issuer.

We mitigate the risk associated with our investment in corporate bonds by requiring a minimum credit rating of A.

We have the ability and intention to hold these investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

We have the ability and intention to hold our short-term investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost.

We extend credit for tuition and fees, for a limited period of time, to a majority of our students.

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Extensive and complex regulations govern the financial assistance programs in which our students participate.

Our administration of these programs is periodically reviewed by various regulatory agencies.

Our administration of these programs is periodically reviewed by various

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

regulatory agencies.

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

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Fair Value of Financial Instruments

The carrying value of cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and deferred tuition approximates their respective fair value as of September 30, 2021 and 2020 due to the short-term nature of these instruments.

The carrying value of cash equivalents, restricted cash, held-to-maturity investments, accounts receivable, accounts payable, accrued liabilities and deferred tuition approximates their respective fair value as of September 30, 2022 and 2021 due to the short-term nature of these instruments.

Start-up Costs

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We do not use derivative financial instruments for trading or speculative purposes.

We recognize all derivatives at fair value within the line items “Other current assets,” “Other assets,” “Other current liabilities,” and “Other liabilities” on the condensed consolidated balance sheet.

We recognize all derivatives at fair value within the line items “Other current assets,” “Other assets,” “Other current liabilities,” and “Other liabilities” on the consolidated balance sheet.

Management reviews our derivative positions and overall risk management strategy on a regular basis.

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Due to the high degree of effectiveness between the hedging instruments and the underlying exposures hedged, fluctuations in the value of the derivative financial instruments will generally be offset by the changes in the cash flows or fair value of the underlying exposures being hedged.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the consolidated balance sheets.

For cash flow hedges, we report the effective portion of the gain or loss as a component of “Accumulated other comprehensive income (loss)” and reclassify it to “Interest expense” in the consolidated statements of operations over the corresponding period of the underlying hedged item.

The ineffective portion of the change in fair value of a derivative financial instrument is recognized in “Interest expense” at the time the ineffectiveness occurs.

To the extent the hedged forecasted interest payments on debt related to our interest rate swap is paid off, the remaining balance in “Accumulated other comprehensive income (loss)” is recognized in “Interest expense” in the consolidated statements of operations.

See Note 16 for additional disclosures related to our derivative financial instruments.

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Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the condensed consolidated balance sheets.

For cash flow hedges, we report the effective portion of the gain or loss as a component of “Accumulated other comprehensive income (loss)” and reclassify it to “Interest expense” in the condensed consolidated statements of operations over the corresponding period of the underlying hedged item.

The ineffective portion of the change in fair value of a derivative financial instrument is recognized in “Interest expense” at the time the ineffectiveness occurs.

See Note 13 “Derivative Financial Instruments” for additional disclosures related to our derivative financial instruments.

Reclassifications

Due to the new term loan that was executed during the year ended September 30, 2021, which is described in further detail in Note 12, we added two new lines to the condensed consolidated balance sheet:

“Long-term debt, current portion,” and “Long-term debt.” We have presented both the liabilities related to the term loan and finance leases in these new lines as of September 30, 2021.

For the period ended September 30, 2020, $ 0.1 million of short-term finance lease liabilities was reclassified from “Other current liabilities” to “Long-term debt, current portion” and long-term finance lease liabilities of $ 0.1 million were reclassified from “Other liabilities” to “Long-term debt” on the condensed consolidated balance sheet for comparable presentation.

Due to the acquisition of MIAT on November 1, 2021, which is described in further detail in Note 4, we added a new line to the consolidated balance sheet:

“Intangible Assets.” We have presented the intangible assets arising from the MIAT acquisition as well as the previously recorded intangible assets in this line.

As of September 30, 2021, $ 0.1 million of intangible assets was reclassified from “Other assets” to “Intangible assets” on the consolidated balance sheet for comparable presentation.

Certain other prior year amounts have been reclassified to conform to current year presentation in our Income taxes disclosures included in Note 17.

Note 3 - Recent Accounting Pronouncements

Accounting Pronouncements Effective in Fiscal 2022

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses:

Measurement of Credit Losses on Financial Instruments (Topic 326) .

This update significantly changes the way that entities measure credit losses.

The new standard requires that entities estimate credit losses based upon an “expected credit loss” approach rather than the historical “incurred loss” approach.

The new approach requires entities to measure all expected credit losses for financial assets based on historical experience, current conditions and reasonable forecasts of collectability.

The change in approach impacts the timing of recognition of credit losses.

This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019.

These changes became effective for the Company's fiscal year beginning October 1, 2020.

Upon adoption on October 1, 2020, we recorded an increase in our receivables balance related to our proprietary loan program of $ 1.6 million, with the corresponding amount recorded as an increase to retained earnings.

No other adjustments were deemed necessary in applying this new guidance.

Accounting Pronouncements Effective in Fiscal 2022

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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We have evaluated the new guidance and determined that there is no material impact on our results of operations, financial condition and financial statement disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).

The amendments in ASU 2021-08 require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts from Customers (“ASC 606”).

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts.

To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree financial statements were prepared in accordance with generally accepted accounting principles).

For public business entities, the amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption of ASU 2021-08 is permitted, including adoption in an interim period.

An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

Due to the MIAT acquisition on November 1, 2021, we have elected to early adopt ASU 2021-08 as of October 1, 2021 and have applied the guidance in ASU 2021-08 to the deferred revenue recorded for MIAT.

See Note 4 for further information on the acquisition of MIAT.

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

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This new guidance only applies to contracts and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March

The amendments in ASU 2020-04 do not apply to contract modifications made after December 31, 2022.

Given the interest rate for one of our term loans (which is further described in Note 15) references LIBOR, we are currently evaluating the new reference rate reform practical expedients and will consider adopting this guidance when we are required to modify our contract for the discontinuation of LIBOR.

UNIVERSAL TECHNICAL INSTITUTE, INC.

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(In thousands, except per share amounts)

12, 2020, up to the date that the financial statements are available to be issued.

The amendments in ASU 2020-04 do not apply to contract modifications made after December 31, 2022.

Given the interest rate for our new term loan (which is further described in Note 12) references LIBOR, we are currently evaluating the new reference rate reform practical expedients and will consider adopting this guidance when we are required to modify our contract for the discontinuation of LIBOR.

Note 4 - Acquisition MIAT College of Technology

On November 1, 2021, we completed the acquisition contemplated by the previously announced Stock Purchase Agreement (the “Purchase Agreement”), dated March 29, 2021, by and among UTI, HCP Ed Holdings, LLC, a Delaware limited liability company (“Seller”), HCP Ed Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Seller (“HCP”), and Michigan Institute of Aeronautics, Inc.

d/b/a MIAT, a Michigan corporation and wholly subsidiary of HCP.

MIAT is a post-secondary school that offers vocational and technical certificates and degrees across aviation maintenance, energy technology, wind energy technology, robotics and automation, non-destructive testing, heating ventilation air conditioning and refrigeration (“HVACR”), and welding disciplines.

HCP is MIAT’s holding company that owns no assets other than the issued and outstanding shares of MIAT.

The acquisition is part of our growth and diversification strategy and allows us to expand MIAT programs throughout UTI brand campuses and extend UTI’s presence and programs into the Canton, MI market where MIAT has been for over 50 years.

Other expected synergies include operating and purchasing cost efficiencies and broadening the opportunity for student growth at the acquired MIAT campuses by leveraging our high school and national marketing and admissions infrastructure.

Under the terms of the Purchase Agreement, we acquired all of the issued and outstanding shares of capital stock of HCP from the Seller for $ 26.0 million base purchase price plus $ 2.8 million working capital surplus for total cash consideration paid of $ 28.8 million.

As a result, HCP is now a wholly owned subsidiary of UTI and MIAT remains as a wholly owned subsidiary of HCP.

The consideration paid was funded by available operating cash.

In connection with this acquisition, we incurred total transaction costs of $ 1.7 million of which $ 0.9 million were incurred during the year ended September 30, 2022 and $ 0.8 million during the year ended September 30, 2021.

In both periods, these costs are included in “Selling, general and administrative” expenses in the consolidated statements of operations.

Under the acquisition method of accounting, the total purchase price was allocated to the identifiable assets acquired and the liabilities assumed based on our valuation estimates of the fair values as of the acquisition date.

As we have finalized the related tax returns, there will be no further adjustments to the carrying value of the respective recorded assets and liabilities, or residual amount allocated to goodwill.

The final allocation of the purchase price at November 1, 2021 is summarized as follows:

Assets acquired:

Cash and cash equivalents $ 2,301

Accounts receivable, net 3,230

Prepaid expenses 268

Other current assets 507

Property and equipment 3,043

Goodwill 8,637

Intangible assets 16,200

Right-of-use assets for operating leases 14,979

Other assets 314

Total assets acquired $ 49,479

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Liabilities assumed

Accounts payable and accrued expenses $ 1,720

Deferred revenue 1,843

Operating lease liability, current portion 817

Deferred tax liabilities, net 1,975

Operating lease liability 14,216

Other liabilities 93

Total liabilities assumed 20,664

Net assets acquired $ 28,815

The goodwill of $ 8.6 million arising from the acquisition consists largely of the growth and operating synergies expected from integrating MIAT into UTI.

The total amount of goodwill expected to be deductible for tax purposes is approximately $ 0.6 million.

See Note 10 for additional details on goodwill.

The purchase price allocation requires subjective estimates that, if incorrectly estimated, could be material to our consolidated financial statements including the amount of depreciation and amortization expense.

The fair value of the tangible assets was estimated using the cost approach.

The intangible assets acquired, which primarily consists of the accreditations and regulatory approvals, trademarks and trade names, and curriculum, were valued using different valuation techniques depending upon the nature of the intangible asset acquired.

The accreditations and regulatory approvals were valued using the multiperiod excess earnings method (“MPEEM”) under the income approach.

The MPEEM is a variation of discounted cash-flow analysis.

Rather than focusing on the whole entity, the MPEEM isolates the cash flows that can be associated with a single intangible asset and measures fair value by discounting them to present value.

The trademarks and trade names were valued using the relief from royalty method.

The value of the trade name encompasses all items necessary to generate revenue utilizing the trade name.

The curriculum was valued using the cost approach.

See Note 11 for further details on the intangible assets recorded.

As previously discussed in Note 3, we early adopted ASU 2021-08 and applied the new guidance when recording the initial deferred revenue.

Pro forma financial information is not presented as the fiscal 2021 revenues and earnings of MIAT are not material to our consolidated statements of operations.

MIAT’s principal business is providing postsecondary education and is included in our “Postsecondary Education” reporting unit disclosed in Note 23 on Segments.

MIAT’s corporate expenses are allocated to “Postsecondary Education” and the “Other” category based on compensation expense.

Note 5 - Revenue from Contracts with Customers

Nature of Goods and Services

See Note 2 “Summary of Significant Accounting Policies” for a description of the nature of revenues.

See Note 2 for a description of the nature of revenues.

Postsecondary Education

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 ASC 606, Revenue from Contracts from Customers .

We apply the five-step model outlined in ASC 606.

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

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

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 condensed consolidated balance sheets because it is expected to be earned within the next 12 months.

Additionally, certain students participate in a proprietary loan program that extends repayment terms for their tuition.

Additionally, certain students participate in the proprietary loan program that extends repayment terms for their tuition.

We purchase said loans from the lender and, based on historical collection rates, believe a portion of these loans are collectible.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

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 the amount we expect to collect, and we recognize these revenues ratably over the term of the course or program offered.

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The impact of economic factors on the nature, amount, timing and uncertainty of revenue and cash flows is consistent among our various postsecondary education programs.

See Note 20 “Segment Information” for disaggregated segment revenue information.

See Note 23 for disaggregated segment revenue information.

Contract Balances

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Deferred revenue $ 54,223 $ 57,648

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

During the year ended September 30, 2022, the deferred revenue balance included decreases for revenues recognized during the period and increases related to new students who started their training programs during the period.

Transaction Price Allocated to the Remaining Performance Obligations

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

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

Impacts of COVID-19

During fiscal 2020, for most of our programs we transitioned our on-campus, in-person education model to a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs so that our students could continue their education during the COVID-19 pandemic.

On-campus labs are designed to meet the current national guidelines recommended by the Centers for Disease Control (“CDC”) as well as state and local mandates, while still meeting our accreditation and curriculum requirements.

All of our campuses were fully operational during the year ended September 30, 2021, and as of September 30, 2021, all students were attending in-person 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.

Note 6 - Receivables, net

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Tuition receivables $ 18,931 $ 16,265

Tax receivables (1)

Other receivables 3,153 3,673

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Receivables, net $ 16,450 $ 17,151

(1) Primarily related to an income tax receivable recorded as a result of the net operation loss provisions in the CARES Act.

See Note 14 “Income Taxes” for further discussion.

The allowance for uncollectible accounts is estimated using our historical write-off experience applied to the receivable balances for students who are no longer attending school due to graduation or withdrawal or who are in school and have receivable balances in excess of financial aid available to them.

We write off receivable balances against the allowance for uncollectible accounts at the time we transfer the balance to a third-party collection agency.

UNIVERSAL TECHNICAL INSTITUTE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

The following table summarizes the activity for our allowance for uncollectible accounts for the years ended September 30, 2022, 2021 and 2020:

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Balance at beginning of period $ 2,787 $ 1,793 $ 1,097

Additions due to opening balance of MIAT acquisition 1,682 — —

Additions to bad debt expense 2,510 1,718 1,767

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Balance at end of period $ 5,634 $ 2,787 $ 1,793

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Note 7 - Investments

In February 2020, we raised approximately $ 49.5 million in net proceeds from an underwritten public offering of shares of our common stock.

See Note 16 “Shareholders’ Equity” for further details on the equity offering.

We invested a portion of the proceeds from the equity 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 have the ability and intention to hold these investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost.

As of September 30, 2021, there were no outstanding held-to-maturity investments as all of the securities matured and there were no new purchases of held-to-maturity investments during fiscal 2021.

The amortized cost, gross unrealized gains or losses, and fair value of investments classified as held-to-maturity at September 30, 2020 were as follows:

In July 2022, we invested a portion of our cash and cash equivalents in short-term investments which primarily consist of corporate and municipal bonds with a minimum credit rating of A.

We have the ability and intention to hold these investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost and presented them in “Held-to-maturity investments” on our consolidated balance sheet as of September 30, 2022.

The amortized cost, gross unrealized gains or losses, and fair value of held-to-maturity investments at September 30, 2022 are noted in the table below.

As of September 30, 2021, there were no outstanding held-to-maturity investments.

September 30, 2022

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Amortized Cost Gains Losses Market Value

Corporate and municipal bonds $ 38,055 $ 10 $ ( 33 ) $ 38,032

Corporate, municipal bonds and other $ 28,918 $ — $ ( 19 ) $ 28,899

Investments are exposed to various risks, including interest rate, market and credit risk.

As a result, it is possible that changes in the values of these investments may occur and that such changes could affect the amounts reported in the condensed consolidated financial statements.

As a result, it is possible that changes in the values of these investments may occur and that such changes could affect the amounts reported in the consolidated financial statements.

Note 8 - Fair Value Measurements

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Any transfers of investments between levels occurs at the end of the reporting period.

UNIVERSAL TECHNICAL INSTITUTE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Assets measured or disclosed at fair value on a recurring basis consisted of the following:

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35,872 — — 35,872

Corporate bonds, municipal bonds, and other (3)

28,899 28,899 — —

Total assets at fair value on a recurring basis $ 88,210 $ 52,338 $ — $ 35,872

UNIVERSAL TECHNICAL INSTITUTE, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Fair Value Measurements Using

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36,124 — — 36,124

Corporate bonds (3)

33,119 33,119 — —

Municipal bonds and other (3)

4,913 4,913 — —

Total assets at fair value on a recurring basis $ 98,224 $ 62,100 $ — $ 36,124

(1) Money market funds and other highly liquid investments with maturity dates less than 90 days are reflected as “Cash and cash equivalents” in our consolidated balance sheet as of September 30, 2021 and 2020.

(2) Notes receivable relate to our proprietary loan program.

(3) Corporate bonds, municipal bonds and other are reflected as “Held-to-maturity investments” in our condensed consolidated balance sheet as of September 30, 2020.

(1) Money market funds and other highly liquid investments with maturity dates less than 90 days are reflected as “Cash and cash equivalents” in our consolidated balance sheets as of September 30, 2022 and 2021.

(2) Notes receivable relate to the proprietary loan program and are reflected as “Notes receivable, current portion” and “Notes receivable, less current portion” in our consolidated balance sheets as of September 30, 2022 and 2021.

See Note 2 for further discussion over the proprietary loan program.

(3) Corporate bonds, municipal bonds and other are reflected as “Held-to-maturity investments” in our consolidated balance sheet as of September 30, 2022.

Note 9 - Property and Equipment, net

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Depreciable Lives (in years) 2022 2021

— $ 8,355 $ 3,189

Land — $ 16,603 $ 8,355

Building and building improvements 3 - 30

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Property and equipment, net $ 214,292 $ 122,051

(1) During the year ended September 30, 2021, land and buildings and building improvements increased primarily due to the purchase of the building and land at our Avondale, Arizona campus location.

The total purchase price was approximately $ 45.2 million, of which $ 5.1 million was allocated to land and $ 40.1 million was allocated to buildings and building improvements based upon the appraised values.

Note 9 - Leases

As of September 30, 2021, we lease 9 of our 12 campuses and our corporate headquarters under non-cancelable operating leases, some of which contain escalation clauses and requirements to pay other fees associated with the leases.

Additionally, as of September 30, 2021, we have recorded the lease for our new Austin, Texas campus which is expected to open during the second quarter of fiscal 2022.

Our facility leases have original lease terms ranging from 8 to 20 years and expire at

UNIVERSAL TECHNICAL INSTITUTE, INC.

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various dates through 2033.

Depreciation expense related to property and equipment was $ 16.8 million and $ 14.0 million for years ended September 30, 2022 and 2021, respectively.

Acquisition of Lisle

On February 11, 2022, we completed the acquisition of 2611 Corporate West Drive Venture LLC (“2611”) which owns our Lisle, Illinois campus (the “Lisle Campus”).

Prior to the acquisition, we had a 28 % interest in 2611 through our unconsolidated affiliate, as described in Note 12, and previously leased the campus from 2611.

The total cash consideration paid, including transaction related costs, for the remaining 72 % interest in 2611 was $ 28.7 million.

In addition to the cash consideration paid, we assumed $ 18.3 million in debt for a loan agreement with a third-party bank that was secured by a mortgage on the Lisle Campus.

The total net assets recorded for the transaction equals $ 33.2 million, of which $ 8.2 million was allocated to land, $ 43.3 million was allocated to buildings, and $ 18.3 million was allocated to debt.

Additionally, prior to the acquisition of 2611, there was $ 4.0 million in leasehold improvements recorded for the Lisle Campus which we have reclassified to building and building improvements.

Note 10 - Goodwill

Our goodwill balance of $ 16.9 million as of September 30, 2022 represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed.

The changes in the carrying value of goodwill for the years ended September 30, 2022 and 2021 are presented in the table below.

Year ended September 30,

Balance at beginning of period $ 8,222 $ 8,222

Additions to Goodwill for acquisition of MIAT 8,637 —

Balance at end of period $ 16,859 $ 8,222

Of the $ 16.9 million recorded as goodwill as of September 30, 2022, $ 8.6 million relates to the acquisition of MIAT as of November 1, 2021 as previously described in Note 4, and $ 8.2 million resulted from the acquisition of our motorcycle and marine education business in Orlando, Florida in 1998.

All of the goodwill relates to our Postsecondary Education reportable operating segment.

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

Historically, this testing has been performed as of September 30 of each fiscal year.

E ffective as of October 1, 2021, we determined that our goodwill will be tested annually for impairment as of August 1 and more frequently if events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

We do not consider this change to be material and believe that the timing is preferable as it allows additional time to complete the annual assessment in advance of the annual reporting deadline.

This change in assessment date did not delay, accelerate, or cause avoidance of a potential impairment charge.

T here were no indicators of goodwill impairment as of September 30, 2022 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Note 11 - Intangible Assets, net

The following table provides the gross carrying value, accumulated amortization, net book value and remaining useful life for intangible assets subject to amortization as of September 30, 2022:

Gross Carrying Value Accumulated Amortization Net Book Value Weighted Average Remaining Useful Life (Years)

Accreditations and regulatory approvals - MIAT $ 12,800 $ — $ 12,800 Indefinite

Trademarks and trade names - MIAT 1,000 — 1,000 4.00

Curriculum - MIAT 400 ( 73 ) 327 4.08

Non-compete agreement and trade name 442 ( 354 ) 88 2.58

Total $ 14,642 $ ( 427 ) $ 14,215 3.93

Of the $ 14.6 million gross carrying value recorded as intangible assets as of September 30, 2022, $ 14.2 million relates to the MIAT acquisition completed on November 1, 2021 as previously described in Note 4, and $ 0.4 million relates to previously recorded non-complete agreements and trade names.

The remaining weighted average useful lives shown are calculated based on the net book value and remaining amortization period of each respective intangible asset.

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

Amortization expense related to finite-lived intangible assets was $ 108.8 thousand and $ 35.5 thousand for the years ended September 30, 2022 and 2021, respectively.

As discussed in Note 2, we determined the fair value of our MIAT trademarks and trade names intangible asset to be $ 1.0 million and recorded an intangible asset impairment charge of $ 2.0 million within “Selling, general and administrative” on the consolidated statement of operations during the year ended September 30, 2022.

There were no impairment charges related to intangible assets recorded for the year ended September 30, 2021 or the other remaining intangible assets for the year ended September 30, 2022.

Note 12 - Investment in Unconsolidated Affiliate

In 2012, we invested $ 4.0 million to acquire an equity interest of approximately 28 % in a joint venture (“JV”) related to the lease of our Lisle, Illinois campus facility which was accounted for under the equity method of accounting.

As discussed in Note 9, in February 2022, this JV was dissolved and we acquired the building, land and debt associated with this campus through the acquisition of the 2611 entity.

Our equity in earnings of unconsolidated affiliates was $ 0.1 million for the year ended September 30, 2022, and $ 0.4 million for the years ended 2021 and 2020.

Investment in unconsolidated affiliate is included within “Other assets” on our consolidated balance sheets as noted below:

September 30,

Carrying Value Ownership Percentage Carrying Value Ownership Percentage

Investment in JV $ — — % $ 4,627 28.0 %

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Investment in our unconsolidated affiliate included the following activity during the period:

Year ended September 30,

Balance at beginning of period $ 4,627 $ 4,494

Equity in earnings of unconsolidated affiliate 113 410

Return of capital contribution from unconsolidated affiliate ( 188 ) ( 277 )

Dissolution of unconsolidated affiliate ( 4,552 ) —

Balance at end of period $ — $ 4,627

Note 13 - Leases

As of September 30, 2022, we lease 12 of our 16 campuses and our corporate headquarters under non-cancelable operating leases, some of which contain escalation clauses and requirements to pay other fees associated with the leases.

Our facility leases have original lease terms ranging from 8 to 20 years and expire at various dates through 2036.

In addition, the leases commonly include lease incentives in the form of rent abatements and tenant improvement allowances.

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All of the leases, other than those that may qualify for the short-term scope exception of 12 months or less, are recorded on our consolidated balance sheets.

As previously discussed in Note 9, in February 2022 we purchased the 2611 entity which owns the Lisle Campus.

While the lease for the Lisle Campus remains in place between the 2611 and UTI of Illinois, LLC entities, at the UTI, Inc consolidated level, the right-of-use asset and the operating lease liability for this campus were settled, resulting in a gain on settlement of $ 1.6 million which has been included within “Educational services and facilities” on our consolidated statement of operations for the year ended September 30, 2022.

Some of the facility leases are subject to annual changes in the Consumer Price Index (“CPI”).

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There are no early termination with penalties, residual value guarantees, restrictions or covenants imposed by our facility leases.

Significant Assumptions and Judgments

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

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.

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.”

The components of lease expense during the years ended September 30, 2021 and 2020 were as follows:

The components of lease expense during the years ended September 30, 2022, 2021, and 2020 are presented below.

The operating lease expense excludes expense for short-term leases not accounted for under ASC 842, which was not significant for the years ended September 30, 2022, 2021, or 2020.

Year ended September 30,

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Operating lease expense $ 22,424 $ 22,623 $ 29,348

$ 22,623 $ 29,348

Finance lease expense:

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Total net lease expense $ 27,812 $ 25,990 $ 32,833

(1) Excludes the expense for short-term leases not accounted for under ASC 842, which was not significant for the years ended September 30, 2021 and 2020.

UNIVERSAL TECHNICAL INSTITUTE, INC.

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Total lease liabilities $ 142,284 $ 167,399

(1) Finance lease assets are recorded net of accumulated amortization of $ 0.1 million as of September 30, 2021 and 2020, respectively.

(1) Finance lease assets are recorded net of accumulated amortization of $ 0.2 million and $ 0.1 million as of September 30, 2022 and 2021, respectively.

September 30,

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Related Party Transactions for Leases

Since 1991, two of our properties comprising our Orlando, Florida location have been leased from entities controlled by John C.

From 1991 through February 2022, two of our properties comprising our MMI Orlando, Florida location were leased from entities controlled by John C.

White, a former director on our board of directors.

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During October and November 2020, we paid rent expense to the entities controlled by Mr.

White of $ 0.3 million, and $ 2.0 million for the years ended September 30, 2020 and 2019.

The leases extend through August 19, 2022 and August 31, 2022 with annual base lease payments for the first year under this lease totaling approximately $ 0.3 million and $ 0.7 million, with annual adjustments based on the higher of (i) an amount equal to 4 % of the total annual rent for the immediately preceding year or (ii) the percentage of increase in the CPI.

These transactions were not considered significant for the year ended September 30, 2021.

Note 10 - Investment in Unconsolidated Affiliate

In 2012, we invested $ 4.0 million to acquire an equity interest of approximately 28 % in a joint venture (JV) related to the lease of our Lisle, Illinois campus facility.

In connection with this investment, we do not possess a controlling financial interest as we do not hold a majority of the equity interest, nor do we have the power to make major decisions without approval from the other equity member.

Therefore, we do not qualify as the primary beneficiary.

Accordingly, this investment is accounted for under the equity method of accounting and is included in “Other assets” in our consolidated balance sheets.

We recognize our proportionate share of the JV's net income or loss during each accounting period and any return of capital as a change in our investment.

Our equity in earnings of unconsolidated affiliates was $ 0.4 million for the years ended September 30, 2021, 2020 and 2019.

Investment in our unconsolidated affiliate consists of the following:

September 30,

Carrying Value Ownership Percentage Carrying Value Ownership Percentage

Investment in JV $ 4,627 28.0 % $ 4,494 28.0 %

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Investment in our unconsolidated affiliate included the following activity during the period:

Year ended September 30,

Balance at beginning of period $ 4,494 $ 4,338

Equity in earnings of unconsolidated affiliate 410 417

Return of capital contribution from unconsolidated affiliate ( 277 ) ( 261 )

Balance at end of period $ 4,627 $ 4,494

Through September 30, 2019, the activity from equity in earnings of the unconsolidated affiliate was included in “Total other income, net” on the consolidated statements of operations.

In conjunction with the adoption of ASC 842, beginning October 1, 2019, the activity is included in “Educational services and facilities” on the consolidated statements of operations.

White of $ 0.3 million and $ 2.0 million for the year ended September 30, 2020.

The leases were terminated in February 2022 in connection with the consolidation of the Orlando, Florida campus into one site.

Note 14 - Accounts Payable and Accrued Expenses

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Carrying Value of Debt (6)

Term Loan (1)

Avondale Term Loan (1)

4.56 % May 2028 $ 30,083 $ 30,886

Lisle Term Loan - VN (2)

4.51 % Apr 2029 38,000 —

Lisle Term Loan - WA (3)

5.29 % Nov 2031 — —

Finance leases (4)

1 unchanged sentence

Total debt 68,106 30,982

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

September 30, 2022 September 30, 2021

Interest Rate Maturity Date Carrying Value of Debt (6)

Carrying Value of Debt (6)

Debt issuance costs presented with debt (5)

( 568 ) ( 256 )

Total debt, net 67,538 30,726

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Long-term debt $ 66,423 $ 29,850

(1) Interest on the Term Loan (as defined below) accrues at annual rate equal to the monthly LIBOR plus 2.0 %.

(1) Interest on the Avondale Term Loan (as defined below) accrues at annual rate equal to the LIBOR plus 2.0 %.

(2) Interest on the Lisle Term Loan - VN (as defined below) accrues at annual rate equal to the SOFR plus 2.0 %.

(3) The Lisle Term Loan - WA (as defined below) was paid off and retired.

(4) Our finance leases include finance lease arrangements related to various equipment with a weighted-average annual interest rate of approximately 3.08 %, which mature in varying installments between 2022 and 2023.

See Note 13 for additional details on our finance leases.

(3) The unamortized debt issuance costs as of September 30, 2021 relate entirely to the Term Loan.

(4) Our Term Loan and finance leases bear interest at rates commensurate with market rates and therefore the respective carrying values approximate fair value (Level 2).

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(5) The unamortized debt issuance costs as of September 30, 2022 relate to the Avondale Term Loan and the Lisle Term Loan - VN.

The unamortized debt issuance costs as of September 30, 2021 relate entirely to the Avondale Term Loan.

(6) Our term loans and finance leases bear interest at rates commensurate with market rates and therefore the respective carrying values approximate fair value (Level 2).

Avondale Term Loan

In connection with the Avondale, Arizona building purchase in December 2020, we entered into a Credit Agreement with Fifth Third Bank, National Association (the “Lender”) on May 12, 2021 in the maximum principal amount of $ 31.2 million with a maturity of seven years (the “Term Loan”).

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As of September 30, 2022, we were in compliance with all debt covenants.

Lisle Term Loan - WA

As discussed in Note 9, in connection with the Lisle Campus purchase, we assumed a Loan Agreement with Western Alliance Bank on February 14, 2022 in the principal amount of $ 18.3 million, maturing in October 2031 (the “Lisle Term

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

In April 2022, this term loan was repaid in full with proceeds from the Lisle Term Loan - VN, as discussed below.

Lisle Term Loan - VN

On April 14, 2022, 2611 (the “Borrower”) entered into a new Loan Agreement (“Lisle Loan Agreement - VN”) with Valley National Bank (the “Lisle Lender”), 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 “Lisle Term Loan - VN”).

The Lisle Term Loan - VN bears interest at a rate of one-month Secured Overnight Financing Rate (“SOFR”) plus 2.0 %.

In connection with the Lisle Term Loan - VN, we entered into an interest rate swap agreement with the Lisle Lender that effectively fixes the interest rate on 50 % of the principal amount of the Lisle Term Loan - VN, or $ 19.0 million, at 4.69 % for the entire loan term.

The Lisle Term Loan - VN is secured by a mortgage on the Lisle Campus and is guaranteed by the Company.

As guarantor, the Company is subject to certain customary affirmative and negative covenants under the Lisle Loan Agreement - VN, including, without limitation, reporting and notice obligations and certain financial maintenance covenants.

The Company’s fixed charge coverage ratio is required to be not less than 1.25 to 1.00 during the period being measured (which commences on June 30, 2022 and may be tested no more than quarterly thereafter on a trailing 12-month basis) and is defined as the ratio of (a) the sum of consolidated net income (loss) for the year, before interest expense, income taxes, depreciation and amortization, and other extraordinary non-recurring items (“Adjusted EBITDA”) plus rent paid to Borrower and less cash taxes paid, distributions, and unfinanced capital expenditures to (b) principal and interest expenses plus rent paid to Borrower.

The ratio of total indebtedness to Adjusted EBITDA is required to be no greater than 3.50 to 1.00 (which commences on the date the Company shall submit its initial compliance certificate in accordance with the Loan Agreement and may be tested no more than annually thereafter on a trailing 12-month basis).

In addition, the Borrower’s debt service coverage ratio is required to equal or exceed 1.20 to 1.00 during the period being measured (which commences on June 30, 2022 and may be tested no more than quarterly thereafter on a trailing 12-month basis) and is defined as the ratio of (a) net operating income of the Lisle Campus to (b) actual annual debt service due under the Loan Agreement.

Events of default under the Loan Agreement include, among others, the failure to make payments when due, breach of covenants (including certain financial maintenance covenants) and breach of representations or warranties.

If the Company fails to meet the minimum fixed charge coverage ratio or ratio of total indebtedness to Adjusted EBITDA and fails to cure such non-compliance within a time period acceptable to the Lender, the Company will be in default.

As of September 30, 2022, we were in compliance with all debt covenants.

Debt Maturities

Scheduled principal payments due on our debt for each year through the period ended September 30, 2027, and thereafter were as follows at September 30, 2022:

Maturity Term Loan Finance Leases Total

Maturity Term Loans Finance Leases Total

2023 $ 1,092 $ 23 $ 1,115

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See Note 2 for our derivative financial instruments policy.

On May 12, 2021, in connection with the Term Loan discussed in Note 12, 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, or approximately $ 15.6 million, at 3.5 % for the entire loan term, or seven years (the “Swap”).

On May 12, 2021, in connection with the Avondale Term Loan discussed in Note 15, 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 Avondale Term Loan, or approximately $ 15.6 million, at 3.5 % for the entire loan term, or seven years (the “Swap”).

On May 12, 2021, the Swap was designated as an effective cash flow hedge for accounting and tax purposes.

For cash flow hedges, we report the effective portion of the gain or loss as a component of “Accumulated other comprehensive income (loss)” and reclassify it to “Interest expense” in the condensed consolidated statements of operations over the corresponding period of the underlying hedged item.

On April 14, 2022, in connection with the Lisle Term loan - VN discussed in Note 15, we entered into an interest rate swap agreement with the Lisle Lender that effectively fixes the interest rate on 50 % of the principal amount of the Lisle Term Loan - VN at 4.69 % for the entire loan term, or seven years (the “Lisle Swap”).

On April 14, 2022, the Lisle Swap was designated as an effective cash flow hedge for accounting and tax purposes.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the consolidated balance sheets.

The ineffective portion of the change in fair value of a derivative financial instrument is recognized in “Interest expense” at the time the ineffectiveness occurs.

Of the net amount of the existing losses that are reported in “Accumulated other comprehensive income (loss)” as of September 30, 2021, we estimate that $ 0.2 million will be reclassified to “Interest expense” within the next twelve months.

As of September 30, 2021, the notional amount of our Swap was approximately $ 15.4 million.

Of the net amount of the existing gains that are reported in “Accumulated other comprehensive income (loss)” as of September 30, 2022, we estimate that $ 0.7 million will be reclassified to “Interest expense” within the next twelve months.

As of September 30, 2022, the notional amounts of the Avondale Swap and Lisle Swap was approximately $ 15.0 million and $ 19.0 million, respectively.

Fair Value of Derivative Instruments

The following table presents the fair value of our Swap (Level 2) which is designated as a cash flow hedge and the related classification on the condensed consolidated balance sheet as of September 30, 2021:

Interest Rate Swap

Other current liabilities $ 194

Other liabilities 85

Total fair value of liabilities designated as hedging instruments $ 279

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting for our Swap on “Accumulated other comprehensive income (loss)” as of September 30, 2021:

Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income

Year Ended September 30, 2021

Interest Rate Swap $ ( 365 ) Interest expense $ ( 86 )

Effect of Cash Flow Hedge Accounting on the Condensed Consolidated Statement of Operations

The table below presents the effect of cash flow hedge accounting for our Swap on the condensed consolidated statement of operations for the year ended September 30, 2021:

The following table presents the fair value of our Swap and Lisle Swap (Level 2), both of which are designated as a cash flow hedges, and the related classification on the consolidated balance sheets as of September 30, 2022 and 2021:

September 30,

Interest Rate Swaps 2022 2021

Other current assets $ 632 $ 194

Other assets 2,067 85

Total fair value of assets designated as hedging instruments $ 2,699 $ 279

Effect of Cash Flow Hedge Accounting on the Consolidated Statement of Operations and Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting for our Swap and Lisle Swap on the consolidated statement of operations and Accumulated other comprehensive income (loss) for the years ended September 30, 2022 and 2021:

UNIVERSAL TECHNICAL INSTITUTE, INC.

2 unchanged sentences

(In thousands, except per share amounts)

Interest Expense

Interest Rate Swap

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income $ ( 86 )

Year Ended September 30, 2022

Interest Rate Swaps $ 2,787 Interest expense $ ( 192 )

Year Ended September 30, 2021

Interest Rate Swaps $ ( 365 ) Interest expense $ ( 86 )

Note 17 - Income Taxes

6 unchanged sentences

Total current (expense) benefit ( 1,082 ) ( 602 ) 10,947

Deferred (expense) benefit:

Deferred benefit (expense):

United States federal 2,380 — ( 345 )

Total deferred (expense) benefit — ( 345 ) —

Total income tax (expense) benefit $ ( 602 ) $ 10,602 $ ( 203 )

State 4,109 — —

Total deferred benefit (expense) 6,489 — ( 345 )

Total income tax benefit (expense) $ 5,407 $ ( 602 ) $ 10,602

The income tax provision differs from the tax that would result from application of the statutory federal tax rate of 21.0 % to pre-tax income for the years ended September 30, 2022, 2021 and 2020.

4 unchanged sentences

State income taxes, net of federal tax benefit ( 1,356 ) ( 480 ) ( 246 )

Decrease (increase) in valuation allowance 3,229 6,135 ( 1,514 )

Excess officers compensation ( 276 ) ( 203 ) ( 304 )

Adjustment to deferred taxes ( 345 ) — —

Decrease in valuation allowance 12,075 3,229 6,135

Net operating losses carryback to higher federal statutory rate years — — 4,270

Other, net ( 398 ) 40 202

Total income tax (expense) benefit $ ( 602 ) $ 10,602 $ ( 203 )

Total income tax benefit (expense) $ 5,407 $ ( 602 ) $ 10,602

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

The components of the deferred tax assets (liabilities) recorded in the accompanying consolidated balance sheets were as follows:

7 unchanged sentences

Deferred revenue 5,178 4,595

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

September 30,

Net operating losses 5,406 5,442

2 unchanged sentences

Deductions limited by Section 382 249 670

Other comprehensive income — 70

Valuation allowance ( 1,200 ) ( 13,492 )

5 unchanged sentences

Prepaid and other expenses deductible for tax ( 720 ) ( 1,188 )

Other comprehensive income ( 675 ) —

Total gross deferred tax liabilities ( 51,389 ) ( 48,815 )

Net deferred tax liabilities $ ( 674 ) $ ( 674 )

Net deferred tax assets (liabilities) $ 3,365 $ ( 674 )

In assessing whether a valuation allowance was required, we considered the weight of all available positive and negative evidence.

The following table summarizes the activity for the valuation allowance for the years ended September 30, 2022, 2021 and 2020:

2 unchanged sentences

Balance at beginning of period $ 13,492 $ 17,449 $ 25,673

Additions (reductions) to income tax ( 3,957 ) ( 5,947 ) 2,561

Reductions to income tax ( 12,075 ) ( 3,957 ) ( 5,947 )

Write-offs (1)

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Balance at end of period $ 1,200 $ 13,492 $ 17,449

(1) The write-offs during the year ended September 30, 2020 of $ 2.3 million related to our adoption of ASC 842 as of October 1, 2019.

We have valuation allowances of $ 13.5 million and $ 17.4 million against the deferred tax assets as of September 30, 2021, and 2020, respectively, based on our assessment of the ability to utilize the deferred tax assets.

The valuation allowances established relate to all federal and state deferred tax assets, for which we determined that it was more likely than not that a benefit will not be realized.

In assessing whether a valuation allowance was required for the deferred tax assets, we considered the weight of all available positive and negative evidence.

During the year ended September 30, 2020, we recorded an income tax refund of approximately $ 11.3 million as a result of certain provisions of the CARES Act, of which $ 7.1 million remained outstanding as of September 30, 2020.

As of September 30, 2021, we have received the remaining outstanding income tax refund.

For additional information on the CARES Act, see the “COVID-19 and the CARES Act” section of Note 21 on “Government Regulation and Financial Aid.”

As of September 30, 2021, we had approximately $ 12.9 million and $ 44.2 million in net operating losses for federal and state tax purposes, respectively.

The federal net operating losses can be carryforward indefinitely, while the state net operating losses expires in the years 2027 through 2042 if not utilized.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations.

ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes,

(1) The write-offs in the year ended September 30, 2020 relate to the adoption of ASC 842 as of October 1, 2019.

UNIVERSAL TECHNICAL INSTITUTE, INC.

2 unchanged sentences

(In thousands, except per share amounts)

on the basis of the technical merits.

We believe that all of our tax positions meet the more-likely-than not test and therefore no uncertain tax positions were recorded as of September 30, 2021.

During the year ended September 30, 2022, based in part on our sustained positive earnings, we determined that there was sufficient evidence to meet the more likely than not realizability threshold and support the reversal of a majority of the previously recorded valuation allowance against our deferred tax assets.

The release of the valuation allowance resulted in the recognition of certain deferred tax assets on the consolidated balance sheet and a non-cash tax benefit recorded in the consolidated statement of operations for the year ended September 30, 2022.

As of September 30, 2022, our remaining valuation allowance of $ 1.2 million relates to certain federal and state attributes for which we determined that it was more likely than not that a benefit will be realized prior to expiration.

As of September 30, 2022, we had approximately $ 17.9 million and $ 19.9 million in net operating losses for federal and state tax purposes, respectively.

The federal net operating losses can be carryforward indefinitely, while the state net operating losses expires in the years 2027 through 2042 if not utilized.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities.

The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information.

Although we believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.

The following table summarizes the activity related to the Company's gross unrecognized tax benefits for the fiscal year ended September 30, 2022 (amounts in thousands):

Year Ended September 30,

Balance at beginning of period $ —

Increases related to acquisitions 387

Balance at end of period $ 387

The total amount of gross unrecognized tax benefits was $ 0.4 million as of September 30, 2022, of which $ 0.3 million, if fully recognized, would decrease our effective tax rate.

We recognize interest and penalties related to unrecognized tax benefits through income tax expense.

No interest or penalties were accrued as of September, 30 2022.

We do not expect a significant decrease in our liability for unrecognized tax benefits in the next 12 months.

We file income tax returns for federal purposes and in many states.

Our tax filings remain subject to examination by applicable tax authorities for certain length of time, generally three to four years, following the tax year to which these filings relate.

In fiscal 2019 and 2020, we filed returns to carry back federal and certain state net operating losses to prior years.

In 2019 and 2020, we filed returns to carried back federal and certain state net operating losses to prior years.

The statute of limitations for adjustment of the net operating losses utilized on these tax returns remains open an additional three to four years, depending on jurisdiction, from the date these returns were filed.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases.

The effective date of these provisions is January 1, 2023.

We do not expect the enactment of the IRA will have an impact on our financial statements.

Note 18 - Commitments and Contingencies

2 unchanged sentences

The expense for the license fees under these various agreements totaled $ 2.1 million, $ 2.0 million, and $ 2.2 million for the years ended September 30, 2022, 2021 and 2020, respectively, and were recorded in “Educational services and facilities expenses” on the consolidated statements of operations.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Snap-on Tools Product Support Agreement

4 unchanged sentences

The credits under this agreement may be redeemed in multiple ways, which historically has been for additional equipment at the full retail list price, which is more than we would be required to pay using cash.

The renewal was executed in October 2017 and expires October 31, 2022.

The renewal allows us to redeem our credits for a portion of the tool sets we purchase for our students.

The renewal was executed in October 2017 and originally expired October 31, 2022, however we executed an extension through January 6, 2023.

The renewal allowed us to redeem our credits for a portion of the tool sets we purchase for our students.

Any product credits remaining at termination will expire 60 days after the date of termination.

1 unchanged sentence

Students are provided a Career Starter Tool Set Voucher which can be redeemed for a tool set near graduation.

The cost of the tool sets, net of the credit, is accrued during the time period in which the students begin attending school until they have progressed to the point that the promotional tool set vouchers are provided.

The cost of the tool sets, net of the discount, is accrued during the time period in which the students begin attending school until they have progressed to the point that the promotional tool set vouchers are provided.

Our consolidated balance sheets include an “Accrued tool sets” liability of $ 3.2 million and $ 3.3 million as of September 30, 2022 and 2021, respectively.

6 unchanged sentences

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

In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitration, investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current or former students, routine

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

employment matters, business disputes and regulatory demands.

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

2 unchanged sentences

Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim.

Because we cannot predict with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory proceedings or claims) asserted against us, it is not currently possible to provide such an estimate.

The ultimate outcome of pending legal proceedings to which we are a party may have a material adverse effect on our business, cash flows, results of operations or financial condition.

We are not currently a party to any material legal proceedings, but note that legal proceedings could, generally, have a material adverse effect on our business, cash flows, results of operations or financial condition.

Note 19 - Shareholders’ Equity

2 unchanged sentences

Any future common stock dividends require the approval of a majority of the voting power of the Series A Preferred Stock.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Preferred Stock

Preferred Stock consists of 10,000,000 authorized preferred shares of $ 0.0001 par value each.

As of September 30, 2021 and 2020, 700,000 shares of Series A Preferred Stock were issued and outstanding.

The liquidation preference associated with the Series A Preferred Stock was $ 100 per share at September 30, 2021 and 2020.

On June 24, 2016, we entered into a Securities Purchase Agreement (“Purchase Agreement”) with Coliseum Holdings I, LLC (“Purchaser”) to sell to the Purchaser 700,000 shares of Series A Preferred Stock for a total purchase price of $ 70.0 million.

On June 24, 2016, we entered into a Securities Purchase Agreement (“Purchase Agreement”) with Coliseum Holdings I, LLC (“Purchaser”) to sell to the Purchaser 700,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) for a total purchase price of $ 70.0 million.

The Series A Preferred Stock is perpetual, and therefore does not have a maturity date.

The description below provides a summary of certain material terms of the Series A Preferred Stock as set forth in the Certificate of Designations (“Certificate of Designations”) of the Series A Preferred Stock:

In June 2022, one stockholder elected to convert its 24,115 shares of Series A Preferred Stock into 724,174 shares of our common stock in accordance with the terms of the Series A Preferred Stock as set forth in the Certificate of Designations (“Certificate of Designations”), which reduced the Series A Preferred Stock outstanding to 675,885 shares.

As of September 30, 2022 and 2021, 675,885 and 700,000 shares of Series A Preferred Stock were issued and outstanding, respectively.

The liquidation preference associated with the Series A Preferred Stock was $ 100 per share at September 30, 2022 and 2021.

The description below provides a summary of certain material terms of the Certificate of Designations of the Series A Preferred Stock.

The Series A Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank senior to our common stock and each other junior class or series of shares that we may issue in the future.

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Cash Dividends are payable semi-annually in arrears on September 30 and March 31 of each year, and will begin to accrue on the first day of the applicable dividend period.

We paid Cash Dividends of $ 5.3 million during the years ended September 30, 2021 and 2020 .

We paid Cash Dividends of $ 5.2 million and $ 5.3 million during the years ended September 30, 2022 and 2021 .

The Series A Preferred Stock includes participation rights such that, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay to each holder of the Series A Preferred Stock a dividend on an as converted basis.

If we are required to or elect to obtain stockholder and regulatory approval and if such approval is not obtained within the time periods set forth in the Certificate, the dividend rates with respect to the Cash Dividend and Accrued Dividend will be increased by 5.0 % per year, not to exceed a maximum of 14.5 % per year, subject to downward adjustment on obtaining the foregoing approvals.

Liquidation Preference

In the event of voluntary or involuntary liquidation, dissolution or winding up of our company, holders of the Series A Preferred Stock are entitled to receive, before any distribution or payment to the holders of any common or junior stock, an amount per share of Series A Preferred Stock equal to the liquidation preference then in effect, which would include any Accrued Dividends.

Alternatively, the holder may choose to receive the amount that would be payable per share of common stock issued upon conversion of the Series A Preferred Stock immediately prior to such liquidation event.

UNIVERSAL TECHNICAL INSTITUTE, INC.

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increased by 5.0 % per year, not to exceed a maximum of 14.5 % per year, subject to downward adjustment on obtaining the foregoing approvals.

Liquidation Preference

Mergers (regardless of whether we remain the surviving entity), sale of substantially all of our assets or any other recapitalization, reclassification or other transaction in which substantially all of our common stock is exchanged or converted into cash or other property are considered “Deemed Liquidation Events.” The Certificate of Designations provides that, in the case of a Deemed Liquidation Event, each holder of Series A Preferred Stock shall be entitled to receive the liquidation amount they would receive under a normal liquidation event;

converted into cash or other property are considered “Deemed Liquidation Events.” The Certificate of Designations provides that, in the case of a Deemed Liquidation Event, each holder of Series A Preferred Stock shall be entitled to receive the liquidation amount they would receive under a normal liquidation event;

however, the liquidation amount must be in the same form of consideration as is payable to the holders of our common stock.

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In August 2020, the Purchaser notified us that it intended to distribute all 700,000 Series A Preferred Stock to its members, and that certain of its members would subsequently distribute their Series A Preferred Stock to (i) limited partners affiliated with the Purchaser and certain other entities for whom Coliseum Capital Management, LLC (an affiliate of the Purchaser) holds voting and dispositive power with respect to the Series A Preferred Stock (the “Affiliated Holders”), which six Affiliated Holders, following such distribution, will own Series A Preferred Stock that would represent, on an as converted basis, approximately 24.9 % of our outstanding shares of common stock and voting power, and (ii) limited partners unaffiliated with the Purchaser (the “Unaffiliated Holders”), which 12 Unaffiliated Holders, following such distribution, each will own Series A Preferred Stock that would represent, on an as converted basis, 9.9 % or less of our outstanding shares of common stock and voting power (collectively, the “Distributions”).

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In connection with the Distributions, our board of directors, based on advice of legal counsel, determined that:

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The removal of the Conversion Cap and Voting Cap became effective as of the date of the Distributions, subject to the Continuing Caps remaining in place with respect to the Series A Preferred Stock distributed to the Affiliated Holders.

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Education Regulatory Approval continue to be required for, and the Continuing Caps will remain in place with respect to, the Series A Preferred Stock acquired by the Affiliated Holders in the Distributions to the extent such shares, on an as converted basis, represent in excess of 9.9 % of our common stock and voting power as of the date of the Distributions.

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Optional Conversion by Our Company

If at any time following the third anniversary of the issuance of the Series A Preferred Stock, the volume weighted average price of our common stock equals or exceeds 2.5 times the conversion price of the Series A Preferred Stock, or $ 8.33 as of September 30, 2021, for a period of 20 consecutive trading days (“Conversion Trigger”), we may, at our option and subject to obtaining any required stockholder and regulatory approvals, require that any or all of the then outstanding Series A Preferred Stock be automatically converted into our common stock at the conversion rate.

If at any time following the third anniversary of the issuance of the Series A Preferred Stock, the volume weighted average price of our common stock equals or exceeds 2.5 times the conversion price of the Series A Preferred Stock, or $ 8.33 as of September 30, 2022, for a period of 20 consecutive trading days during an open trading window (“Conversion Trigger”), we may, at our option and subject to obtaining any required stockholder and regulatory approvals, require that any or all of the then outstanding Series A Preferred Stock be automatically converted into our common stock at the conversion rate.

We may not elect such conversion during the closed trading window periods in which any director or executive officer of our company is prohibited by us to, directly or indirectly, purchase, sell or otherwise acquire or transfer any equity security of our company.

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Holders of the Series A Preferred Stock will be able to convert their shares into common stock if neither the Investor Voting Cap nor Conversion Cap is in effect.

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they do not provide notice of conversion within 10 days of receipt of the redemption notice, the redemption will proceed at a price per share equal to the product of the current conversion rate and 2.5 times the conversion price.

If they do not provide notice of conversion within 10 days of receipt of the redemption notice, the redemption will proceed at a price per share equal to the product of the current conversion rate and 2.5 times the conversion price.

If either the Investor Voting Cap or Conversion Cap is in effect at the date of the notice of redemption, the holder may request that we obtain the necessary regulatory approval for its removal.

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If either the Investor Voting Cap or Conversion Cap is in effect at the date of the notice of redemption, the holder may request that we obtain the necessary regulatory approval for its removal.

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Anti-dilution

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The 6,782,610 shares purchased were issued from Treasury Stock on February 25, 2020, leaving 82,287 shares in Treasury stock.

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.

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We utilized the proceeds for our growth and diversification initiatives.

Share Repurchase Program

On December 10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of

up to $ 35.0 million of our common stock in the open market or through privately negotiated transactions.

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

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We did not repurchase any

shares during the year ended September 30, 2021.

shares during the years ended September 30, 2022, 2021 and 2020.

Note 20 - Stock-Based Compensation

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The 2021 Plan was adopted by our Board of Directors in January 2021 and approved by our shareholders at the February 2021 annual meeting.

The 2021 Plan replaces the Management 2002 Stock Option Program and the 2003 Incentive Compensation Plan, as amended (the “Former Plans”).

Under the 2021 Plan, we are authorized to issue incentive compensation convertible into up to 2.0 million shares of common stock, increased by 0.7 million shares that remained available for future grants of awards under the Former Plans immediately prior to termination.

Additionally, subject to and in accordance with the 2021 Plan, 1.5 million shares that are subject to outstanding awards under the Former Plans that are subsequently expired, forfeited, or are otherwise terminated will also become available for awards under the 2021 Plan.

As of September 30, 2021, 2.6 million shares remained available for future grants under the 2021 Plan.

Stock-Based Compensation Expense

We measure the cost of employee services received in exchange for awards of restricted stock units based on the market value of our common shares at the date of grant.

The fair value of the restricted stock units is amortized on a straight-line basis over the requisite service period.

Certain restricted stock units are subject to a performance condition established at the date of grant (or “Performance Units”).

We estimate the fair value of Performance Units using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rates of return, and dividend yields.

Expected volatilities are derived using a method that calculates historical volatility over a period equal to the length of the measurement period for UTI.

We use a risk-free rate of return that is equal to the yield of a zero-coupon U.S.

Treasury bill that is commensurate with each measurement period, and we assume that any dividends paid were reinvested.

Actual results against the performance condition are measured at the end of the performance period, which typically coincides with the vesting period.

The fair value of the Performance Units is amortized on a straight-line basis over the requisite service period based upon the fair market value on the date of grant, adjusted for the anticipated or actual achievement against the established performance condition.

We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model.

We evaluate our assumptions on the date of each grant.

We did not grant stock options during the years ended September 30, 2021 and 2020.

We granted 210,000 stock options during the year ended September 30, 2019 which became fully vested and exercisable on the date of the grant.

The following assumptions were used to value options granted during the year ended September 30, 2019:

Year Ended September 30, 2019

Expected years until exercised 7

Risk-free interest rate 2.84 %

Expected volatility 52.4 %

Expected dividends — %

The 2021 Plan replaced the Management 2002 Stock Option Program and the 2003 Incentive Compensation Plan, as amended (the “Former Plans”).

Under the 2021 Plan, we are authorized to issue incentive compensation convertible into up to

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2.0 million shares of common stock, increased by 0.7 million shares that remained available for future grants of awards under the Former Plans immediately prior to termination.

As of September 30, 2022, 1.9 million shares remained available for future grants under the 2021 Plan.

Stock-Based Compensation Expense

As previously discussed in Note 2, compensation expense associated with RSUs, PSUs or stock options is measured based on the grant date fair value of our common stock.

The fair value of the RSUs is amortized on a straight-line basis over the requisite service period.

The fair value of the PSUs is amortized on a straight-line basis over the requisite service period based upon the fair market value on the date of grant, adjusted quarterly for the anticipated or actual achievement against the established performance condition.

For all stock-based compensation expense, we account for forfeitures as they occur.

The following table summarizes the operating expense line and the impact on net income (loss) in the consolidated statements of operations in which stock-based compensation expense has been recorded for the years ended September 30, 2021, 2020 and 2019:

The following table summarizes the operating expense line in which stock-based compensation expense has been recorded and the impact on net income in the consolidated statements of operations for the years ended September 30, 2022, 2021 and 2020:

Year Ended September 30,

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Stock Options

During fiscal 2019, we issued stock options with an exercise price equal to the closing price of our stock on the grant date which vested upon issuance.

We have not issued stock options since fiscal 2019.

These options, under the Former Plans, have an expiration date of seven years .

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Outstanding as of September 30, 2021 210 $ 3.14 4.18 $ 760

Outstanding as of September 30, 2022 210 $ 3.14 3.18 $ 483

Stock options exercisable as of September 30, 2022 210 $ 3.14 3.18 $ 483

Restricted Stock Units and Performance Units

Restricted Stock Units

Our restricted stock units are issued at fair market value, which is based on the closing price of our stock on the grant date.

Restricted stock units generally vest ratably over a three year service period from the date of grant.

As of September 30, 2021, unrecognized stock compensation expense related to restricted stock units was $ 2.6 million which is expected to be recognized over a weighted average period of 2.0 years.

Performance Units

Our outstanding Performance Units vest over a two or three year service period from the date of the grant and are based upon a mix of certain pre-established targets for revenue, compounded annual total shareholder return for the measurement period

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and net income.

On the settlement date for each measurement period, participants will receive shares of our common stock equal to 0 % to 187.5 % of the performance units originally granted depending on the actual achievement against the performance metrics for that measurement period.

The performance units vest subject to a market condition and on the settlement date which is expected to be no later than two and a half months after the end of each measurement period.

As of September 30, 2021, unrecognized stock compensation expense related to performance units was $ 1.7 million, which is expected to be recognized over a weighted average period of 2.3 years.

The following table summarizes the activity for restricted stock units and Performance Units granted under the Former Plans and 2021 Plan for the years ended September 30, 2021, 2020 and 2019:

Restricted Stock Units and Performance Units

Restricted Stock Units

Our RSUs are issued at fair market value, which is based on the closing price of our stock on the grant date.

RSUs generally vest ratably over a three year service period from the date of grant.

As of September 30, 2022, unrecognized stock compensation expense related to RSUs was $ 3.4 million which is expected to be recognized over a weighted average period of 1.9 years.

Performance Share Units

Our outstanding PSUs vest over a three year service period from the date of the grant and are based upon a mix of certain pre-established targets for revenue, compounded annual total shareholder return for the measurement period and net income.

On the settlement date for each measurement period, participants will receive shares of our common stock equal to 0 % to 187.5 % of the PSUs originally granted depending on the actual achievement against the performance metrics for that measurement period.

The PSUs vest subject to a market condition and on the settlement date which is expected to be no later than two and a half months after the end of each measurement period.

As of September 30, 2022, unrecognized stock compensation expense related to PSUs was $ 3.3 million, which is expected to be recognized over a weighted average period of 2.0 years.

The following table summarizes the activity for RSUs and PSUs granted under the Former Plans and 2021 Plan for the years ended September 30, 2022, 2021 and 2020:

(In thousands) Weighted Average

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Outstanding as of September 30, 2022 695 $ 7.47 716 $ 7.60

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Note 21 - Earnings per Share

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Diluted earnings per common share is calculated using the more dilutive of the two-class method or as-converted method.

The two-class method uses net income available to common shareholders and assumes conversion of all potential shares

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other than the participating securities.

The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the participating securities.

The as-converted method uses net income and assumes conversion of all potential shares including the participating securities.

Dilutive potential common shares include outstanding stock options, unvested restricted stock units, unvested performance units and convertible preferred stock.

The basic and diluted weighted average shares outstanding are the same for year ended September 30, 2019 as a result of the net loss available to common shareholders and anti-dilutive impact of the potentially dilutive securities.

The following table summarizes the computation of basic and diluted earnings per common share under the two-class or as-converted method, as well as the anti-dilutive shares excluded:

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Basic earnings per common share:

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

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

Preferred stock dividend declared ( 5,159 ) ( 5,250 ) ( 5,264 )

Income (loss) available for distribution 9,331 2,744 ( 13,118 )

Income available for distribution 20,689 9,331 2,744

Income allocated to participating securities ( 7,847 ) ( 3,647 ) ( 1,135 )

Net income (loss) available to common shareholders $ 5,684 $ 1,609 $ ( 13,118 )

Net income available to common shareholders $ 12,842 $ 5,684 $ 1,609

Weighted average basic shares outstanding 33,218 32,766 29,812

Basic income (loss) per common share $ 0.17 $ 0.05 $ ( 0.52 )

Basic income per common share $ 0.39 $ 0.17 $ 0.05

Diluted earnings per common share:

Two-class Two-class Two-class

Net income (loss) available to common shareholders $ 5,684 $ 1,609 $ ( 13,118 )

Net income available to common shareholders $ 12,842 $ 5,684 $ 1,609

Weighted average basic shares outstanding 33,218 32,766 29,812

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Weighted average diluted shares outstanding 33,743 33,123 30,113

Diluted income (loss) per common share $ 0.17 $ 0.05 $ ( 0.52 )

Diluted income per common share $ 0.38 $ 0.17 $ 0.05

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(In thousands, except per share amounts)

Year Ended September 30,

2022 2021 2020

Anti-dilutive shares excluded:

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In a net income position, diluted earnings per share is determined by the more dilutive of the two-class method or the as-converted method.

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Note 22 - Employee Benefit Plans

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We made matching contributions of approximately $ 1.5 million, $ 1.1 million, and $ 1.0 million to the 401(k) plan for the years ended September 30, 2022, 2021 and 2020, respectively.

Additionally, we have a deferred compensation plan into which certain members of management are eligible to defer a maximum of 75 % of their regular compensation and a maximum of 100 % of their incentive compensation.

Additionally, we have a legacy deferred compensation plan into which certain members of management were eligible to defer a maximum of 75 % of their regular compensation and a maximum of 100 % of their incentive compensation.

No new members have been added to the deferred compensation plan in the past two years.

We are not obligated to fund the deferred compensation plan;

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Net income (loss) 27,664 ( 1,816 ) 25,848

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Postsecondary Education Other Consolidated

Year Ended September 30, 2021

Revenues $ 323,476 $ 11,607 $ 335,083

Loss from operations ( 3,493 ) ( 378 ) ( 3,871 )

Income (loss) from operations 15,841 ( 894 ) 14,947

Depreciation and amortization (1)

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11,698 106 11,804

Net loss ( 7,149 ) ( 719 ) ( 7,868 )

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Postsecondary Education Other Consolidated

Net income (loss) 8,386 ( 378 ) 8,008

As of September 30, 2022

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Total assets $ 504,934 $ 7,636 $ 512,570

(1) Includes depreciation of training equipment obtained in exchange for services of $ 1.2 million for the year ended September 30, 2021.

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

(1) Includes depreciation of training equipment obtained in exchange for services of $ 0.9 million and $ 1.2 million for the years ended September 30, 2022 and 2021, respectively.

(2) Excludes depreciation of training equipment obtained in exchange for services of $ 1.3 million for the year ended September 30, 2020.

Note 24 - Government Regulation and Financial Aid

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The level of regulatory oversight varies substantially from state to state and is extensive in some states.

State laws may establish standards for instruction, qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, student outcomes reporting, disclosure obligations to students, limitations on mandatory arbitration clauses in enrollment agreements, financial operations, and other operational matters.

State laws may establish standards for instruction,

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qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, student outcomes reporting, disclosure obligations to students, limitations on mandatory arbitration clauses in enrollment agreements, financial operations, and other operational matters.

Some states prescribe standards of financial responsibility and mandate that institutions post surety bonds.

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And some states require that our schools meet prescribed performance standards as a condition of continued approval.

States can and often do revisit, revise, and expand their regulations governing postsecondary education and recruiting.

Accreditation

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Our institutions must submit annual reports, and at times, supplemental reports, to demonstrate ongoing compliance and improvement.

ACCSC requires institutions to disclose certain institutional information to current and prospective students, as well as to the public, and requires that our schools and

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programs meet various performance standards as a condition of continued accreditation.

ACCSC requires institutions to disclose certain institutional information to current and prospective students, as well as to the public, and requires that our schools and programs meet various performance standards as a condition of continued accreditation.

Institutions must periodically renew their accreditation by completing a comprehensive renewal of accreditation process.

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Under the current 90/10 rule, to remain eligible to participate in the federal student aid programs, a proprietary institution must derive at least 10% of their revenues for each fiscal year from sources other than Title IV Program funds.

Under the American Rescue Plan Act of 2021 (“ARPA”), a proprietary institution must derive at least 10 percent of its revenue from sources other than “Federal education assistance funds.” Federal education assistance funds are defined as “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution.” Pursuant to ARPA, the earliest this revision to the 90/10 rule may take effect is for institutional fiscal years beginning on or after January 1, 2023.

Under the American Rescue Plan Act of 2021 (“ARPA”), a proprietary institution must derive at least 10% of its revenue from sources other than “Federal education assistance funds.” Federal education assistance funds are defined as “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution.” ED published a proposed 90/10 rule on July 28, 2022 and a final rule on October 28, 2022.

The new rule will take effect July 1, 2023 and will apply to any annual audit submission for a proprietary institutional fiscal year beginning on or after January 1, 2023.

A proprietary institution is subject to sanctions if it exceeds the 90% level for a single year and loses its eligibility to participate in Title IV Programs if it derives more than 90% of its revenue from Title IV Programs/Federal education assistance funds, as applicable, for two consecutive fiscal years.

We are currently reviewing the potential impact of the change in the 90/10 rule created under ARPA and will be monitoring any proposed or final regulations promulgated by ED to carry out this change.

We are currently reviewing the potential impact of the proposed 90/10 rule and will be monitoring any proposed or final regulations promulgated by ED to carry out this change.

• Administrative Capability .

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ED assesses the administrative capability of each institution that participates in Title IV Programs under a series of standards listed in the regulations, which cover a wide range of operational and administrative topics, including the designation of capable and qualified individuals, the quality and scope of written procedures, the adequacy of institutional communication and processes, the timely resolution of issues, the sufficiency of recordkeeping, and the frequency of findings of noncompliance, to name a few.

ED’s administrative capability standards also include thresholds and expectations for federal student loan cohort default rates (discussed below), satisfactory academic progress, and loan counseling.

ED’s administrative capability standards also include thresholds and expectations for federal student loan cohort default rates (discussed below), satisfactory academic progress, and loan

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Failure to satisfy any of the standards may lead ED to find the institution ineligible to participate in Title IV Programs, require the institution to repay Title IV Program funds, change the method of payment of Title IV Program funds, place the institution on provisional certification as a condition of its continued participation or take other actions against the institution.

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An institution whose three-year cohort default rate is 15% or greater for any one of the three preceding years is subject to a 30-day delay in receiving the first disbursement on federal student loans for first-time borrowers.

As of September 30, 2021, only Universal Technical Institute of Texas was subject to a 30-day delay in receiving the first disbursement on federal student loans for first-time borrowers due to a three-year cohort default rate that was 15% or greater for one of the three most recent years.

As of September 30, 2022, Universal Technical Institute of Texas and MIAT College of Technology were subject to a 30-day delay in receiving the first disbursement on federal student loans for first-time borrowers due to a three-year cohort default rate that was 15% or greater for one of the three most recent years.

• Financial Responsibility.

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(1) the equity ratio which measures the institution’s capital resources, ability to borrow and financial viability;

(2) the primary reserve ratio which measures the institution’s ability to support current

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operations from expendable resources;

(2) the primary reserve ratio which measures the institution’s ability to support current operations from expendable resources;

and (3) the net income ratio which measures the institution’s ability to operate at a profit.

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

Recent and significant negotiated rulemakings include the Gainful Employment Rulemaking, the Borrower Defense to Repayment Rulemaking, and the Accreditation and Innovation Rulemaking.

New regulations associated with these rulemakings took effect on July 1, 2020, and additional, new rules took effect on July 1, 2021.

Additionally, on May 26, 2021, ED announced its intention to establish multiple rulemaking committees and for these committees to prepare proposed regulations.

These regulations could involve revisiting and potentially revising regulations across 14 different topics areas identified by ED, including the rules governing changes in ownership, standards of administrative capability, borrower defense to repayment, closed school loan discharges, mandatory pre-dispute arbitration clauses, and gainful employment.

It is expected that these negotiated rulemakings would occur throughout 2022 and 2023, and that any resulting rules would become effective during that time or thereafter.

ED has also invited public commentary on other matters around potential gaps in post secondary outcomes including retention, completion, loan repayment and student loan default.

The potential outcome, if any, from these announced actions is unknown at this time.

ED is currently managing two significant rulemaking efforts.

First, between October and December 2021, ED held three rounds of negotiations as part of the Affordability and Student Loans rulemaking.

The negotiators considered nine issue areas, including the borrower defense to repayment rule, closed school loan discharges and loan repayment plans.

Second, between January and March of 2022, ED held three rounds of negotiations as part of the Institutional and Programmatic Eligibility rulemaking.

The negotiators considered seven issue areas, including administrative capability, financial responsibility, gainful employment, change of ownership and control, ability to benefit and the 90/10 rule.

On October 28, 2022, ED published a final rule amending regulations governing Pell Grants for prison education programs, the 90/10 rule, and changes in ownership and control, effective July 1, 2023.

On November 1, 2022, ED published a final rule governing borrower defense to repayment rule, closed school loan discharges, pre-dispute arbitration and class action waiver clauses, interest capitalization on Federal student loans, Public Student Loan Forgiveness, total and permanent disability discharges, and false certification discharges, also effective July 1, 2023.

The regulated community is awaiting proposed rules on the remaining topics covered by ED’s negotiated rulemakings.

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

Other Federal and State Student Aid Programs

Some of our students also receive financial aid from federal sources other than Title IV Programs, such as the programs administered by the VA, the Department of Defense (“DOD”) and under the Workforce Investment Act.

Additionally, some states provide financial aid to our students in the form of grants, loans or scholarships.

Our Long Beach, Rancho Cucamonga and Sacramento, California campuses, for example, are currently eligible to participate in the Cal Grant program.

All of our institutions must comply with the eligibility and participation requirements applicable to each of these funding programs, which vary by funding agency and program.

Department of Veterans Affairs Benefit Programs

Some of our students also receive financial aid from federal sources other than Title IV Programs, such as the programs administered by the Department of Veterans Affairs (“VA”), the Department of Defense (“DOD”) and under the Workforce Innovation and Opportunity Act.

In 2022, we derived approximately 13 % of our revenues, on a cash basis, from veterans’ benefits programs, which include the Post-9/11 GI Bill, the Montgomery GI Bill, the Reserve Education Assistance Program (“REAP”) and VA Vocational Rehabilitation.

To continue participation in veterans’ benefits programs, an institution must comply with certain requirements established by the VA.

COVID-19 and the CARES Act

On March 13, 2020, the United States declared a national emergency concerning the COVID-19 pandemic, effective March 1, 2020.

ED, consistent with its authority under then-existing statutes and regulations, issued guidance on March 5, 2020, outlining a range of accommodations intended to address interruptions of study related to COVID-19.

On March 27, 2020, President Trump signed the CARES Act, which provided additional flexibilities and accommodations, beyond those offered by the ED in its March 5, 2020 guidance, particularly with regard to the campus-based assistance programs, the measurement of satisfactory academic progress, and the return of unearned Title IV Program funds to ED.

Shortly thereafter, on April 3, 2020, ED issued further guidance, providing additional regulatory flexibilities, and in some cases, implementing the accommodations provided for in the CARES Act.

ED periodically updated and supplemented this guidance over the following months.

Guidance also was published regarding immigration, discrimination, safety, and privacy issues, as well as the Higher Education Emergency Relief Fund (“HEERF”) established under the CARES Act.

On December 11, 2020, ED published a notice in the Federal Register extending the end dates of COVID-19-related waivers and modifications, and introducing several new flexibilities using its authority granted by the Higher Education Relief Opportunities for Students (“HEROES”) Act of 2003.

In most cases the waivers and modifications were extended through the end of the payment period that begins after the date on which the federally-declared national emergency related to COVID-19 is rescinded.

UNIVERSAL TECHNICAL INSTITUTE, INC.

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(In thousands, except per share amounts)

On December 27, 2020, President Trump signed a $2.3 trillion spending bill that combined a $1.4 trillion omnibus appropriations bill for federal fiscal year 2021 with $900 billion in supplemental appropriations to provide relief for the COVID-19 pandemic.

As part of the omnibus appropriations bill, Congress simplifies the Free Application for Federal Student Aid, provides a $15 million increase to the Federal Supplemental Educational Opportunity Grant program, and adds an additional $10 million for Federal Work Study.

This latter piece of legislation is known as the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”).

The CRRSAA extends the Paycheck Protection Program and allocates to it an additional $284.5 billion, and includes The Higher Education Emergency Relief Fund II (“HEERF II”), which makes an addition $22.7 billion available to higher education institutions to mitigate the impact of the COVID-19 pandemic.

Of this amount, private, proprietary institutions are allocated approximately $681 million and may only use HEERF II funding to provide emergency financial aid grants to students.

On January 14, 2021, ED made extensive guidance available regarding the administration of the HEERF II program.

On March 11, 2021, President Biden signed into law the ARPA, a $1.9 trillion economic relief package.

The ARPA provides almost $40 billion in funding available to higher education institutions under the Higher Education Emergency Relief III (“HEERF III”).

Of this amount, private, proprietary institutions are allocated approximately $396 million and may only use HEERF III funding to provide emergency financial aid grants to students.

On May 11, 2021, ED published guidance regarding the administration of the HEERF III program.

Other Federal and State Student Aid Programs

Additionally, some states provide financial aid to our students in the form of grants, loans or scholarships.

Our Long Beach, Rancho Cucamonga and Sacramento, California campuses, for example, are currently eligible to participate in the Cal Grant program.

All of our institutions must comply with the eligibility and participation requirements applicable to each of these funding programs, which vary by funding agency and program.

Consumer Protections Laws and Regulations

As a postsecondary educational institution, we are subject to a broad range of consumer protection and other laws, such as recruiting, marketing, the protection of personal information, student financing and payment servicing, enforced by federal agencies such as the FTC and CFPB and various state agencies and state attorneys general.

We devote significant effort to complying with state and federal consumer protection laws.

We received a January 18, 2022 letter from the Consumer Financial Protection Bureau (“CFPB”) explaining that it was assessing whether UTI “is subject to the CFPB’s supervisory authority based on its activities related to student lending.” The CFPB’s letter then requested certain information about extensions of credit to UTI students;

generally explained the source and scope of the CFPB’s regulatory authority;

and advised that, after it reviewed the requested materials, the CFPB “anticipates providing guidance regarding whether UTI is subject to CFPB’s supervisory authority.” We have provided the requested information and are awaiting further guidance, if any, from the CFPB.

We, along with 69 other proprietary institutions, received an October 6, 2021 letter from the FTC providing notice that engaging in deceptive or unfair conduct in the education marketplace violates consumer protection laws and could lead to significant civil penalties.

The notice stated that an institutions receipt of the letter “does not reflect any assessment as to whether they have engaged in deceptive or unfair conduct,” and the FTC did not request any information.

The CARES Act, the CRRSAA, and the ARPA

During fiscal 2020 and 2021, various pieces of legislation were issued related to the COVID-19 pandemic, including the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”), the Coronavirus Response and Relief Supplemental Appropriations Act 2021 (“CRRSAA”) and the American Rescue Plan Act (“ARPA”).

This legislation created additional regulatory flexibilities for institutions of higher education and established the Higher Education Emergency Relief Fund to support institutions and eligible students impacted by the COVID-19 pandemic.

On March 31, 2021, ED published its Guide for Compliance Attestation Engagements of Proprietary Schools Expending Higher Education Emergency Relief Fund Grants (the “Guide”).

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However, having observed that our blended learning programs offer a range of academic, operational, and financial efficiencies, we have determined to seek the permanent approvals that will permit us to continue offering blended learning programming after the noted temporary flexibilities have expired.

We also continue to work to ensure that our blended learning programming complies with applicable distance education rules and standards, including ED’s new distance education rules, which became effective July 1, 2021.

We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in a blended learning format on a permanent basis.

Additionally, we intend to continue to invest in our blended learning platform and curriculum to further enhance the student experience and student outcomes.

To date, we have received approval from ACCSC to permanently offer blended format programs that utilize both distance and on-ground education.

Additionally, we have received permanent approvals by all state education authorizing agencies to offer blended format programs.

Finally, we are working to secure approval from the Florida State veterans agency to classify our MMI non-degree, blended programs as resident training for purposes of VA benefits, to ensure that veterans enrolling in these programs can access their VA benefits after December 21, 2021, when applicable waivers are currently set to expire.

We also continue to work to ensure that our blended learning programming complies with applicable distance education rules and standards, including ED’s new distance education rules, which became

UNIVERSAL TECHNICAL INSTITUTE, INC.

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(In thousands, except per share amounts)

effective July 1, 2021.

We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in a blended learning format on a permanent basis.

Additionally, we intend to continue to invest in our blended learning platform and curriculum to further enhance the student experience and student outcomes.

To date, we have received approval from ACCSC to permanently offer blended format programs that utilize both distance and on-ground education.

Additionally, we have received permanent approvals by all state education authorizing agencies to offer blended format programs.

Note 25 - Higher Education Emergency Relief Fund under the CARES Act

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The remaining funds must be used “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus.”

In order to access the HEERF funds, institutions must complete two Funding and Certification Agreements (the “HEERF Agreements”), one for the emergency financial grants to students portion and the other for the institutional portion, which obligate the recipient to administer the funds in a manner that is consistent with the CARES Act and federal laws and regulations cited in the HEERF Agreements.

The HEERF Agreements also subject the recipient to a range of audit requirements, as well as quarterly and annual reporting requirements.

ED has emphasized that institutions should be prepared to report the use of the funds and to describe any internal controls the institution has in place to ensure that funds were used for allowable purposes and in accordance with cash management principles.

The agency also has encouraged institutions to keep detailed records of how they are expending all funds received under the HEERF.

A failure to administer the HEERF funds in accordance with applicable laws at regular intervals could result in a future repayment liability.

The allocations to the higher education institutions were set by a formula prescribed in the CARES Act, which is weighted significantly by the number of full-time students who are Pell-eligible, but also takes into consideration the total population of the school and the number of students who were not enrolled full-time online before the COVID-19 outbreak.

ED utilized the most recent data available from the Integrated Postsecondary Education Data System and Federal Student Aid for this calculation.

In May 2020, we were granted approximately $ 33.0 million in HEERF funds for emergency grants to students and to cover institutional costs associated with significant changes to the delivery of instruction due to coronavirus.

HEERF Funds for Student Grants

Per the HEERF Agreements, at least 50% of HEERF funds received were to be used exclusively for emergency financial aid grants to students impacted by COVID-19, supporting their efforts to stay in school and continue their training toward graduation and future careers.

Per the HEERF Funding and Certification Agreements, at least 50% of HEERF funds received were to be used exclusively for emergency financial aid grants to students impacted by COVID-19, supporting their efforts to stay in school and continue their training toward graduation and future careers.

In May 2020, we received approximately $ 16.5 million designated for student grants and deposited these funds into a separate restricted cash account.

As of September 30, 2020, we have awarded all $ 16.5 million designated for student grants to approximately 9,000 students.

As of September 30, 2020, we had awarded all $ 16.5 million designated for student grants to approximately 9,000 students.

HEERF Funds for Significant Changes to the Delivery of Instruction Due to Coronavirus

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Such funds may be used to provide additional emergency financial aid grants to students, to cover institutional costs associated with significant changes to the delivery of instruction due to coronavirus, or not used at all and returned to the government.

Per the CARES Act, the HEERF Agreements, and ED guidance, the following requirements are generally applicable to all allowable institutional costs:

• Funds may only be used to cover institutional costs associated with significant changes to the delivery of instruction due to the coronavirus.

• Costs must have been incurred on or after March 13, 2020.

• Funds must generally be spent one calendar year (365 days) from the date of award.

• The use of funds must be documented and reported.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

As explained in the HEERF Agreements for the Institutional Portions, we have “discretion in determining how to allocate and use the funds provided under the CARES Act, provided the funds will be spent only on those costs for which Recipient has a reasoned basis for concluding such costs have a clear nexus to significant changes to the delivery of instruction due to the coronavirus.” Institutional costs that the ED has specifically designated as allowable include:

additional emergency grants to students;

reimbursements for refunds made to students for services the institution could no longer provide such as housing, food, room and board, and tuition;

technology costs including laptops, hotspots, and other information technology equipment and software to enable students to participate in distance learning;

qualified scholarships and payment for future academic terms;

payments to a third-party service provider or online program manager for each additional student using the distance learning platform;

purchases to ensure the physical safety of the students on campus;

and purchases of equipment or software, paying for online licensing fees, or paying for internet service to enable students to transition to distance learning as such costs are associated with a significant change in the delivery of instruction due to the coronavirus.

The ED has specifically prohibited costs related to pre-enrollment recruiting activities, endowments, capital outlays associated with facilities to athletics, sectarian instruction, or religious worship, executive compensation, investor benefits, and to pay student balances or student debt.

Prior to the COVID-19 crisis, the majority of our training programs were delivered exclusively through in-person instruction at our campus locations.

In order to allow our students to continue their education during the COVID-19 crisis, beginning on March 25, 2020, we shifted our predominantly on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

We incurred significant costs for the initial development and implementation of our online training program for students including software purchases, audio/video equipment purchases and labor hours to record the instructional videos and for training of faculty, and enhancements to the online student experience.

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 to resume in-person labs in Bloomfield, New Jersey opened on July 1, 2020.

On-campus labs have been re-designed or modified to meet the guidelines set by the CDC, as well as state and local jurisdictions for health, safety and social distancing.

In order to comply with these new guidelines, we incurred costs for sanitization supplies, partitions, labor hours and other related expenses to ensure safety and social distancing.

Additionally, we purchased laptops to provide to our students to assist their transition to the online blended training model.

We also incurred costs as we continued to improve and enhance the delivery of our online instruction for students.

In total, we incurred approximately $ 15.1 million between March 15, 2020 and September 30, 2020 related to the changes in the delivery of instruction due to the coronavirus.

We have consulted with our outside regulatory counsel and believe that all of these costs are allowable expenses for the institutional HEERF funds under the CARES Act.

However, we cannot guarantee that ED will agree with our foregoing conclusion.

We have offset our total operating expenses by $ 15.1 million for the year ended September 30, 2020.

Of the $ 15.1 million, $ 13.3 million was recorded in “Educational services and facilities” and $ 1.8 million was recorded in “Selling, general and administrative” on the consolidated statement of operations for the year ended September 30, 2020.

Additionally, during the year ended September 30, 2020, we used $ 0.6 million of the institutional funds for additional emergency grants to our students.

Including the additional student grants, the total institutional funds spent during fiscal 2020 was $ 15.7 million.

As of September 30, 2020, we had drawn 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 the year ended September 30, 2020.

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.

During the year ended September 30, 2021, we incurred $ 0.9 million in allowable costs related to the changes in the delivery of instruction due to the coronavirus, thereby utilizing the remaining available funds.

Of the $ 0.9 million incurred, $ 0.3 million was recorded in “Educational services and facilities” and $ 0.6 million was recorded in “Selling, general and administrative” on the consolidated statements of operations for the year ended September 30, 2021.

During the year ended September 30, 2021, we drew down the remaining $ 2.7 million in funds from our G5 account with the ED.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

During the years ended September 30, 2020 and 2021, we drew down and utilized the HEERF Institutional funds granted to us as previously noted in our Supplemental Cash Flow disclosures.

Fiscal 2021 HEERF II Grant for Students under the CRRSAA and HEERF III Grant for Students under the ARPA

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The statute permits proprietary institutions to use HEERF II funds to provide financial aid grants to students and requires that institutions prioritize the grants to students with exceptional need, such as students who receive Pell Grants.

On January 14, 2021, ED issued guidance regarding the administration of the HEERF II program.

In accordance with the ED’s allocation schedule, during the year ended September 30, 2021, we were granted approximately $ 16.8 million for purposes of funding HEERF II student grants.

The ARPA provides almost $40 billion in funding available to higher education institutions under the HEERF III.

The ARPA includes almost $40 billion in funding available to higher education institutions under the HEERF III.

Of this amount, private, proprietary institutions are allocated approximately $396 million and may only use HEERF III funding to provide emergency financial aid grants to students.

In accordance with the ED’s allocation schedule, during the year ended September 30, 2021, we were granted approximately $ 9.9 million for purposes of funding HEERF III student grants.

During the year ended September 30, 2021, we awarded approximately $ 19.7 million in HEERF II and HEERF III grants to over 10,660 students.

The HEERF II and HEERF III funds were drawn down as student grants were distributed with approximately $ 0.3 million included in “Restricted cash” on our consolidated balance sheet as of September 30, 2021 which relates to pending student grants and outstanding checks.

As of September 30, 2022 and 2021, we awarded approximately $ 7.0 million and $ 19.7 million, respectively, in HEERF II and HEERF III grants to over 15,500 students.

The HEERF II and HEERF III funds were drawn down as student grants were distributed.

As the HEERF II and III programs ended in July 2022, there are no further funds to be awarded.

UNIVERSAL TECHNICAL INSTITUTE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

Note 26 - Subsequent Events

d/b/a MIAT College of Technology, a Michigan corporation and wholly subsidiary of HCP (“MIAT”).

HCP is MIAT’s holding company that owns no assets other than the issued and outstanding shares of MIAT.

The acquisition is part of our growth and diversification strategy and will allow us to expand MIAT programs throughout UTI brand campuses and extend UTI’s presence and programs into the Canton, MI market where MIAT has been for over 50 years.

Other expected synergies include operating and purchasing cost efficiencies and broadening the opportunity for student growth at the MIAT campuses by leveraging the national our marketing and admissions infrastructure.

Under the terms of the Purchase Agreement, we acquired all of the issued and outstanding shares of capital stock of HCP from the Seller for total consideration of $ 26.0 million in cash, subject to closing working capital adjustments.

As a result, HCP is now a wholly-owned subsidiary of UTI, and MIAT remains as a wholly-owned subsidiary of HCP.

The consideration paid was funded by available operating cash.

Revolving Credit Facility

On November 18, 2022, we entered into a $ 100.0 million senior secured revolving credit facility with Fifth Third Bank, a national banking association (the “Credit Facility”), which includes a $ 20.0 million sub facility that is available for letters of credit.

The Credit Facility has a term of three years , unless earlier terminated pursuant to the terms and conditions set forth in the credit agreement.

This agreement provides that the revolver will amortize on an interest-only basis during its term with principal able to be borrowed, re-paid and re-borrowed throughout the term of the Facility and with the outstanding principal due and payable at maturity.

Advances made under the Credit Facility will bear interest at a floating rate equal to, at our option, either (a) a variable rate equal to the greater of:

(i) 3.5 %, or (ii) the rate that the lender publicly announces, publishes or designates from time to time as its index rate or prime rate, or any successor rate thereto, in effect at its principal office, or (b) a variable rate equal to the greater of (i) 0 %, or (ii) Term SOFR relating to quotations for one (1) or three (3) months, as selected by us or as otherwise set pursuant to the terms of the credit agreement, as applicable, plus, in the case of any Term SOFR loan, an adjustment equal to 0.10 % if the interest period is one (1) month and 0.15 % if the interest period is three (3) months.

Interest in the case of tranche rate loans will be increased by an applicable margin that varies from 1.75 % up to 2.25 % based on our then-current total leverage ratio.

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

We are also subject to certain customary affirmative and negative covenants under the credit agreement for financing generally and for the Credit Facility, including financial covenants such as total leverage ratio, a fixed charge coverage ratio, and a quick ratio.

In addition, we are required to maintain a financial responsibility composite score of at least 1.4 as of the end of the fiscal year ending September 30, 2023 and of at least 1.5 as of the end of any fiscal year thereafter.

Lastly, we are subject to a “clean off” provision, under which we will not permit the amount outstanding on the Credit Facility to exceed $ 20.0 million for a single thirty ( 30 ) consecutive day period, during the period commencing on the date of the initial draw under the Credit Facility and ending on the date which falls twenty ( 20 ) months thereafter.

Acquisition of Concorde Career Colleges, Inc.

On December 1, 2022, we completed the acquisition contemplated by the previously announced Stock Purchase Agreement (the “Purchase Agreement”), dated May 3, 2022, by and among UTI, Concorde Career Colleges, Inc., a Delaware corporation (“Concorde”);

Liberty Partners Holdings 28, L.L.C., a Delaware limited liability company, and Liberty Investment IIC, LLC, a Delaware limited liability company (each a “Seller,” and collectively, the “Sellers”);

and Liberty Partners L.P., a Delaware limited partnership, in its capacity as a representative of the Sellers.

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

Concorde 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.

Under the terms of the Purchase Agreement, we acquired all of the issued and outstanding shares of capital stock of Concorde from the Seller for total consideration of $ 50.0 million in cash, subject to closing working capital adjustments.

As a result, Concorde is now a wholly-owned subsidiary of UTI.

The consideration paid was funded by the new Credit Facility established in November 2022.

In connection with this acquisition, we incurred transaction costs of $ 3.0 million during the year ended September 30, 2022, which are included in “Selling, general and administrative” expenses in the accompanying consolidated statements of operations.

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We have engaged a third-party specialist to assist with the valuation of the property, plant and equipment and intangible assets.

We expect to disclose a preliminary allocation of the November 1, 2021 purchase price in our Form 10-Q for the three months ended December 31, 2021.

We expect to disclose a preliminary allocation of the December 1, 2022 purchase price in our Form 10-Q for the three months ended December 31, 2022.

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 9A. Controls and Procedures