UNIVERSAL TECHNICAL INSTITUTE INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion together with the "Selected Financial Data" and the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K. 41 Company Overview Universal Technical Institute, Inc., which together with its subsidiaries is referred to as the “Company,” “we,” “us” or “our,” was founded in 1965 and is a leading workforce solutions provider of transportation, skilled trades and healthcare education programs, whose mission is to serve students, partners, and communities by providing quality education and support services for in-demand careers across a number of highly-skilled fields. We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. Our reporting structure includes two reportable segments as follows: Universal Technical Institute (“UTI”): UTI operates 16 campuses located in nine states and offers a wide range of degree and non-degree transportation and skilled trades technical training programs under brands such as Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute (collectively, “MMI”), NASCAR Technical Institute, and MIAT College of Technology (“MIAT”). UTI also offers manufacturer specific advanced training programs (“MSAT”), which include student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers. Lastly, UTI provides dealer technician training or instructor staffing services to manufacturers. UTI works closely with multiple original equipment manufacturers and industry brand partners to understand their needs for qualified service professionals. Concorde Career Colleges (“Concorde”): On December 1, 2022, we acquired Concorde which operates 17 campuses located in eight states and online, offering degree, non-degree, and continuing education programs in the allied health, dental, nursing, patient care and diagnostic fields. The Company has designated campuses that offer degree granting programs “Concorde Career College;” where allowed by State regulation. The remaining campuses are designated as “Concorde Career Institute.” Concorde believes in preparing students for their healthcare careers with practical, hands-on experiences including opportunities to learn while providing care to real patients. Prior to graduation, students will complete a number of hours in a clinical setting or externship, depending upon their program of study. “Corporate” includes corporate related expenses that are not allocated to the UTI or Concorde reportable segments. See Note 22 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on our segments. All of our campuses are accredited and are eligible for federal student financial assistance funds under the Higher Education Act of 1965, as amended, commonly referred to as Title IV Programs, which are administered by the U.S. Department of Education. Our programs are also eligible for financial aid from federal sources other than Title IV Programs, such as the programs administered by the U.S. Department of Veterans Affairs and under the Workforce Innovation and Opportunity Act. We believe that our industry-focused educational model and national presence has enabled us to develop valuable industry relationships, which provide us with significant competitive advantages and supports our market leadership, and enables us to provide highly specialized education to our students, resulting in enhanced employment opportunities and the potential for higher wages for our graduates. Revenues Our revenues consist primarily of student tuition and fees derived from the programs we provide after reductions are made for discounts and scholarships that we sponsor and for refunds to students who wi t hdraw from our programs prior to specified dates. Tuition and fee revenue is recognized ratably over the term of the course or program offered. Approximately 99% of our revenues for each of the years ended September 30, 2024, 2023 and 2022, respectively, consisted of gross tuition. We supplement our tuition and fee revenues with additional revenues from sales of textbooks and program supplies and other revenues, which are recognized as the transfer of goods or services occurs. Tuition revenue and fees generally vary based on the average number of students enrolled and average tuition charged per program. For students at our UTI schools, we offer a proprietary loan program, where we provide the students who participate in this program with extended payment terms for a portion of their tuition for up to ten years. UTI also provides dealer technician training or instructor staffing services to manufacturers where revenue is recognized as the transfer of services occurs. 42 Student Enrollment and Tuition Average full-time enrollments vary depending on, among other factors, the number of continuing students at the beginning of a period, new student enrollments during the period, students who have previously withdrawn but decide to re-enroll during the period, and graduations and withdrawals during the period. Our average full-time enrollments are influenced by the: • Attractiveness of our program offerings to high school graduates and potential adult students; • Effectiveness of our marketing efforts; • Depth of our industry relationships; • Strength of employment markets and long-term career prospects; • Quality of our instructors and student services professionals; • Persistence of our students; • Length of our education programs; • Availability of federal and alternative funding for our programs; and • Number of graduates of our programs who elect to attend the advanced training programs we offer and general economic conditions. The introduction of additional program offerings at existing campuses and the opening of additional campuses is expected to influence our average full-time enrollment. UTI currently offers start dates at its campuses that range from every three to eleven weeks throughout the year in the core programs. The number of start dates of UTI advanced training programs varies by the duration of those programs and the needs of the manufacturers that sponsor them. Concorde enrolls students throughout the year with core terms starting every month and clinical terms starting every ten weeks. Concorde’s new short courses are starting three to five times a year, depending on the campus. Although Concorde operates year-round with lower seasonality than UTI, Concorde experiences population fluctuations dictated by its clinical programmatic accreditors and how many student starts are allowed and the time required between those starts. Our tuition charges vary by type, length and level of the programs, such as core or advanced training. The UTI segment implemented average tuition rate increases of up to 3.0%, 6.0% and 2.5% for each of the years ended September 30, 2024, 2023 and 2022, respectively, and the Concorde segment implemented average tuition rate increases of approximately 2.5% and 3.0% for the years ended September 30, 2024 and 2023, respectively. We regularly evaluate our tuition pricing based on individual campus markets, the competitive environment and ED regulations. Financial Aid Most students at our campuses rely on funds received under various government-sponsored student financial aid programs, predominantly Title IV Programs and various veterans' benefits programs, to pay a substantial portion of their tuition and other education-related expenses. Approximately 78% of our revenues, on a cash basis, were collected from funds distributed under Title IV Programs and various veterans' benefits programs for the year ended September 30, 2024 as calculated under the 90/10 rule. The Company extends credit for tuition and fees, for a limited period of time, to the majority of our students. Our credit risk is mitigated through the students’ participation in federally funded financial aid and veterans' benefit programs unless students withdraw prior to the receipt by us of Title IV or veterans' benefit funds for those students. The financial aid and veterans' benefits programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which our students participate. Our administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions, including a suspension, limitation, placement on reimbursement status or termination proceeding, which could have a material adverse effect on our business. If any of our institutions were to lose its eligibility to participate in federal student financial aid or veterans' benefit programs, the students at that institution, and other locations of that institution, would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees. The receipt of financial aid and veterans’ benefit funds reduces the students’ amounts due to us and has no impact on revenue recognition, as the transfer relates to the source of funding for the costs of education which may occur through Title IV, veterans’ benefit or other funds and resources available to the student. Additionally, we bear all credit and collection risk for the portion of our student tuition that is funded through the proprietary loan program. 43 Operating Expenses We categorize our operating expenses as (i) educational services and facilities and (ii) selling, general and administrative. Major components of educational services and facilities expenses include: faculty and other campus administration employees’ compensation and benefits; facility rent; maintenance; utilities; depreciation and amortization of property and equipment used in the provision of educational services; tools; training aids; royalties under our licensing arrangements; and other costs directly associated with teaching our programs and providing educational services to our students. Selling, general and administrative expenses include: compensation and benefits, including stock-based compensation, of employees who are not directly associated with the provision of educational services, such as executive management, finance and central accounting, information technology, legal, human resources, marketing and student admissions; marketing and student enrollment expenses; professional services; provision for credit losses; costs associated with the implementation and operation of our student management and reporting system; rent for our corporate office headquarters; depreciation and amortization of property and equipment that is not used in the provision of educational services; and other costs that are incidental to our operations. All marketing and student enrollment expenses are recognized in the period incurred. Costs related to the opening of new facilities, excluding related capital expenditures, are expensed in the period incurred or when services are provided. 2024 Overview Student Metrics September 30, 2024 September 30, 2023 (1) % Change UTI Total new student starts 15,138 14,181 6.7 % Average full-time active students 13,810 12,614 9.5 % End of period full-time active students 15,873 14,833 7.0 % Concorde Total new student starts 11,747 8,432 39.3 % Average full-time active students 8,475 7,654 10.7 % End of period full-time active students 9,747 8,369 16.5 % Consolidated Total new student starts 26,885 22,613 18.9 % Average full-time active students 22,285 20,268 10.0 % End of period full-time active students 25,620 23,202 10.4 % (1) New student starts and average student data for Concorde presented in the year ended September 30, 2023 column represents the period of UTI’s ownership, or December 1, 2022 through September 30, 2023. The increase in consolidated total and segment new student starts, average full-time active students and end of period full-time active students was primarily due to new program rollouts and increased student demand for existing programs across both segments. In the UTI segment, our student population was positively impacted during the current year by the successful launch of 14 new programs across nine campuses during fiscal 2023, and three new HVAC and refrigeration programs launched in the back half of 2024. The Concorde segment benefited from the roll out seven new programs at three campuses during the current and prior year, and also introduced new cash pay “short programs” at a number of campuses. Concorde’s short programs offer an affordable, fast-track pathway into the workforce and provide essential foundational skills that prepare students for entry-level roles in healthcare. Additionally, Concorde benefited from two additional months during fiscal 2024 due the December 1, 2022 close of the acquisition. Our ability to start new students can be influenced by various factors including: the state of the general macro-economic environment and its impact on price sensitivity and the ability and willingness of students and their families to incur debt to fund their education; unemployment rates; competition; adverse media coverage; legislative, or regulatory actions and investigations by attorneys general and various agencies related to allegations of wrongdoing on the part of other companies 44 within the education and training services industry, which can cast the aggregate “for-profit” education industry in a negative light; and pandemics and or other national, state or local emergencies as declared by various government authorities. For more information, see Item 1A. “Risk Factors.” Operations Our revenues for the year ended September 30, 2024 were $732.7 million, an increase of $125.3 million, or 20.6%, from the prior year. UTI revenues increased by $57.1 million, or 13.3%, driven primarily by the higher average full-time active students compared to the prior year. Concorde revenues increased by $68.2 million, or 38.3%, primarily due to the inclusion of two extra months of revenue compared to the prior year period, along with higher average full-time active students. Our operating expenses for fiscal 2024 were $673.8 million, a 15.0% increase over the prior year . In fiscal 2024, we had operating income of $58.9 million, a 175.2% increase when compared to $21.4 million in the prior year. This increase in operating income was primarily driven by productivity improvements and proactive cost reductions, which have been a key part of our operating model for the past several years. Net income for the year ended September 30, 2024 was $42.0 million compared to $12.3 million in the prior year. Business Strategy Our business strategy has three key tenets: to grow the business by more deeply penetrating existing target markets and adding new markets; to diversify the business by adding new locations, programs, and offerings that maximize the lifetime value of our students; and to continually optimize the business by constantly enhancing operational efficiency. During the year ended September 30, 2024, we executed the following as part of our growth, diversification and optimization strategy: • Concorde announced the launch of additional dental hygiene program offerings in Jacksonville, Florida, Miramar, Florida, and Portland, Oregon and sonography program offerings in Orlando, Florida and San Bernardino, California. • UTI announced additional HVAC and refrigeration program expansions in Avondale, Arizona, Bloomfield, New Jersey, Long Beach, California and Sacramento, California. Avondale, Bloomfield and Long Beach first launched in the third quarter of 2024, with Sacramento expected to launch in the first half of fiscal 2025. • UTI announced plans to consolidate the two Houston, Texas campuses to align the curriculum, student facing systems, and support services to better serve students. As part of the transition, the MIAT Houston campus, acquired in November 2021, began operating under the UTI brand and implemented a phased teach-out agreement starting in May 2024. Both facilities will remain in use post-consolidation. See Note 16 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further details on the restructuring. • UTI obtained Federal Aviation Administration approval for the Airframe and Powerplant Technician program at the Miramar, Florida campus and started the first cohort of students during the first quarter of 2024, which completed the rollout of the 14 new programs announced in fiscal 2023. • UTI Wind Turbine Technician programs were the first in the United States to earn Certified Training Center status from the Global Wind Organisation. • UTI announced new partnerships with United Service Organization, Hawaiian Airlines, iRacing, Crown Equipment, The Associated company and several other companies for early employment programs. These partnerships will provide additional career transition and placement opportunities for UTI students. • UTI announced the integration of Electric Vehicle curriculum into BMW’s manufacturer specific advanced training program in the fourth quarter of fiscal 2024. In addition, we continue to pursue other opportunities that align with our growth, diversification and optimization strategy. 45 Results of Operations The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated. Year Ended September 30, 2024 2023 2022 Revenues 100.0 % 100.0 % 100.0 % Operating expenses: Educational services and facilities 52.5 % 54.3 % 49.5 % Selling, general and administrative 39.5 % 42.2 % 45.2 % Total operating expenses 92.0 % 96.5 % 94.7 % Income from operations 8.0 % 3.5 % 5.3 % Interest (expense) income, net (0.4) % (0.6) % (0.4) % Other income (expense) 0.1 % 0.1 % (0.1) % Total other (expense) income, net (0.3) % (0.5) % (0.5) % Income before income taxes 7.7 % 3.0 % 4.8 % Income tax (expense) benefit (1.9) % (0.9) % 1.3 % Net income 5.8 % 2.1 % 6.1 % Preferred stock dividends (0.1) % (0.8) % (1.2) % Income available for distribution 5.7 % 1.3 % 4.9 % Income allocated to participating securities (0.4) % (0.4) % (1.9) % Net income available to common shareholders 5.3 % 0.9 % 3.0 % Year Ended September 30, 2024 Compared to Year Ended September 30, 2023 Revenues The following table presents revenue by segment (in thousands): Year ended September 30, 2024 Year ended September 30, 2023 Year over Year % Change UTI $ 486,376 $ 429,317 13.3 % Concorde 246,311 178,091 38.3 % Consolidated 732,687 607,408 20.6 % Our revenues for the year ended September 30, 2024 were $732.7 million, an increase of $125.3 million, or 20.6%, as compared to revenues of $607.4 million for the year ended September 30, 2023. UTI Revenues for UTI for the year ended September 30, 2024 were $486.4 million, an increase of $57.1 million, or 13.3%, versus the prior year. Revenue increased primarily due to a 9.5% increase in overall average full-time active students and an overall increase in average revenue per student. We recognized $12.0 million on an accrual basis related to revenues and interest under the proprietary loan program for the year ended September 30, 2024, as compared to $8.8 million recognized for the year ended September 30, 2023. Concorde Revenues for Concorde for the year ended September 30, 2024 were $246.3 million, an increase of $68.2 million, or 38.3%, versus the prior period. The primary drivers of the increase for Concorde were the inclusion of two additional months of revenue during the current year and a 10.7% increase in overall average full-time active students. 46 Educational services and facilities expenses Our educational services and facilities expenses for the year ended September 30, 2024 were $384.5 million, representing an increase of $54.6 million, or 16.6%, as compared to $329.9 million for the year ended September 30, 2023. This increase was primarily due to the increase in student volumes during the current period and the inclusion of Concorde results for two additional months in the current year. The following table sets forth the significant components of our educational services and facilities expenses (in thousands): Year ended September 30, 2024 UTI Concorde Consolidated Salaries, employee benefits and tax expense $ 118,638 $ 93,671 $ 212,309 Bonus expense 1,954 1,155 3,109 Stock-based compensation 481 — 481 Compensation and related costs 121,073 94,826 215,899 Occupancy costs 30,519 21,847 52,366 Supplies, maintenance and student expense 33,204 17,479 50,683 Depreciation and amortization expense 22,456 4,346 26,802 Contract services expense 3,611 2,126 5,737 Other educational services and facilities expenses 23,159 9,883 33,042 Total educational services and facilities expense $ 234,022 $ 150,507 $ 384,529 Year ended September 30, 2023 UTI Concorde Consolidated Salaries, employee benefits and tax expense $ 111,030 $ 68,238 $ 179,268 Bonus expense 2,027 — 2,027 Stock-based compensation 192 — 192 Compensation and related costs 113,249 68,238 181,487 Occupancy costs 30,798 18,612 49,410 Supplies, maintenance and student expense 27,357 14,114 41,471 Depreciation and amortization expense 19,738 3,618 23,356 Contract services expense 3,763 431 4,194 Other educational services and facilities expenses 21,666 8,286 29,952 Total educational services and facilities expense $ 216,571 $ 113,299 $ 329,870 UTI Compensation and related costs increased $7.8 million for the year ended September 30, 2024 primarily due to additional instructors and other personnel hired to support the new programs added in fiscal 2023 and 2024. Supplies, maintenance and student expense increased by $5.8 million primarily due to approximately $6.5 million in additional grants for student housing during the current year. This increase was offset by a decrease of approximately $0.6 million in expenses for student laptops. Depreciation and amortization expense increased $2.7 million during the year ended September 30, 2024 primarily due to the purchase of the three primary buildings at our UTI Orlando, Florida campus in March 2023 and increased capital expenditures related to the new program launches during fiscal 2023 and 2024. Other educational services and facilities expense increased by $1.5 million. The increase is primarily due to a higher Snap-on tool voucher expense of $1.8 million. 47 Selling, general and administrative expenses Our selling, general and administrative expenses for the year ended September 30, 2024 were $289.3 million, representing an increase of $33.2 million, or 12.9%, as compared to $256.1 million for the year ended September 30, 2023. This increase was primarily due to the increase in student volumes during the current period and the inclusion of Concorde results for two additional months in the current year. During fiscal 2023, in coordination with the integration of Concorde, we began to reassess our operating model to determine the organizational structure that would best help the Company achieve future growth goals and optimally support the business. Beginning in fiscal 2024, we have executed an internal reorganization to fully transition our operating and reporting model to support a multi-divisional business. As part of the internal reorganization, each of the reportable segments now have dedicated accounting, finance, information technology, and human resources teams. Additionally, human resources and information technology costs that benefit the entire organization are now allocated across UTI, Concorde and Corporate each period based upon relative headcount. As a result, additional costs have moved from Corporate into the UTI segment and to a lesser extent the Concorde segment as resources were redirected to support the segment’s objectives. Due to these changes in allocation methodology, the prior year amounts for selling, general and administrative expenses have been recast for comparability to the current year presentation. The following table sets forth the significant components of our selling, general and administrative expenses (in thousands): Year ended September 30, 2024 UTI Concorde Corporate Consolidated Salaries, employee benefits and tax expense $ 78,900 $ 27,688 $ 15,857 $ 122,445 Bonus expense 9,849 2,352 4,977 17,178 Stock-based compensation 1,599 213 6,267 8,079 Compensation and related costs 90,348 30,253 27,101 147,702 Advertising and marketing expense 51,940 25,744 577 78,261 Professional and contract services expense 6,810 7,557 11,861 26,228 Other selling, general and administrative expenses 25,500 11,446 130 37,076 Total selling, general and administrative expenses $ 174,598 $ 75,000 $ 39,669 $ 289,267 Year ended September 30, 2023 UTI Concorde Corporate Consolidated Salaries, employee benefits and tax expense $ 72,577 $ 21,401 $ 13,777 $ 107,755 Bonus expense 11,257 2,594 5,141 18,992 Stock-based compensation 877 — 2,779 3,656 Compensation and related costs 84,711 23,995 21,697 130,403 Advertising and marketing expense 52,809 19,358 — 72,167 Professional and contract services expense 8,093 4,537 9,110 21,740 Other selling, general and administrative expenses 24,371 6,369 1,089 31,829 Total selling, general and administrative expenses $ 169,984 $ 54,259 $ 31,896 $ 256,139 UTI Compensation and related costs increased by $5.6 million for the year ended September 30, 2024 as compared to the prior year, primarily due to an increase in headcount to support our growth, diversification and optimization initiatives. Advertising and marketing expense decreased by $0.9 million for the year ended September 30, 2024, as compared to the prior year. We continue to fine tune our marketing strategy by selecting cost-effective marketing options. Advertising expense as a percentage of revenues decreased to 10.7% for the year ended September 30, 2024 as compared to 12.3% in the prior year. 48 Professional and contract services decreased by $1.3 million for the year ended September 30, 2024. The decreases were primarily due to one-time costs incurred in the prior year related to our business strategies. Other selling, general and administrative expenses increased by $1.1 million for the year ended September 30, 2024, as compared to the prior year. This increase is in line with the growth in headcount to support the UTI segment and our business strategies. Concorde Compensation and related costs increased by $6.3 million for the year ended September 30, 2024 as compared to the prior year, primarily due to the inclusion of two additional months of expense in the current year and an increase in headcount to support our growth, diversification and optimization initiatives. Advertising and marketing expense increased by $6.4 million for the year ended September 30, 2024, as compared to the prior year primarily due to the inclusion of two additional months of expense in the current year and to support overall growth in the student population. Advertising expense as a percentage of revenues decreased to 10.5% for the year ended September 30, 2024 as compared to 10.9% in the prior year. Other selling, general and administrative expenses for Concorde for the year ended September 30, 2024 increased across all categories as the current year period includes two additional months of expenses compared to the prior year. This increase was also partially due to the continued integration of Concorde during 2024. Corporate Corporate compensation and related costs increased by $5.4 million for the year ended September 30, 2024 as compared to the prior year, primarily due to additional headcount hired to support our business strategies and higher expected achievement on our performance stock-based compensation awards. Professional and contract services expense increased by $2.8 million for the year ended September 30, 2024 as compared to the prior year, due to an increase of $2.3 million in contract services primarily related to optimization and integration projects and an increase of $0.4 million in accounting and legal fees. Other selling, general and administrative expenses decreased by $1.0 million for the year ended September 30, 2024 as compared to the prior year, primarily due to the completion of integration projects. Other (expense) income, net Other expense for the year ended September 30, 2024 was $2.7 million, compared to $3.3 million for the year ended September 30, 2023. The $2.7 million of other expense in fiscal 2024 is primarily comprised of $9.5 million of interest expense from our revolving credit facility and term loans, partially offset by interest income of $6.3 million. Income taxes Our income tax expense for the year ended September 30, 2024 was $14.2 million, or 25.3% of pre-tax income, compared to $5.8 million, or 31.9% of pre-tax income, for the year ended September 30, 2023. The effective income tax rate for the year ended September 30, 2024 differed from the federal statutory tax rate of 21% primarily due to non-deductible executive compensation, stock compensation, change in valuation allowance, federal research and development tax credits and state and local income and franchise taxes. The effective income tax rate for the year ended September 30, 2023 differed from the federal statutory rate of 21% primarily due to non-deductible executive compensation, transaction costs, federal research and development tax credits and state and local income and franchise taxes. See Note 15 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion. Preferred stock dividends As of September 30, 2024, no shares of the Series A Preferred Stock remained outstanding and all rights of the holders to receive future dividends have been terminated due to the combination of the repurchase and conversion of all outstanding preferred shares as of December 18, 2023. As of September 30, 2023, 675,885 shares of Series A Convertible Preferred Stock were issued and outstanding. Pursuant to the Certificate of Designations of the Series A Preferred Stock, we paid preferred stock cash dividends of $1.1 million and $5.1 million during the years ended September 30, 2024 and 2023, respectively. See 49 Note 18 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the preferred stock. Income available for distribution Income available for distribution refers to net income reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported income available for distribution for the years ended September 30, 2024 and 2023 of $40.9 million and $7.3 million, respectively. Income allocated to participating securities Our Series A Preferred Stock is considered a participating security because, in the event that we pay a dividend or make a distribution on the outstanding common stock, we must also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends. As noted above, no shares of the Series A Preferred Stock remain outstanding and all rights of the holders to receive future dividends have been terminated as of the December 18, 2023 conversion date. The amount of income allocated to the participating securities for the years ended September 30, 2024 and 2023 was $2.9 million and $2.7 million, respectively. Net income available to common shareholders After allocating the income to the participating securities, we had $38.0 million and $4.5 million of net income available to common shareholders for the years ended September 30, 2024 and 2023, respectively. For a discussion of the financial results of operations for the year ended September 30, 2023 compared to the year ended September 30 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 2023 Form 10-K filed with the SEC on December 1, 2023 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov. Non-GAAP Financial Measures Our earnings before interest, tax, depreciation and amortization (“EBITDA”) for the years ended September 30, 2024, 2023 and 2022 were $88.7 million, $47.1 million and $38.8 million, respectively. We define EBITDA as net income (loss) for the year, before interest (income) expense, income tax expense (benefit), and depreciation and amortization. EBITDA is a non-GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable GAAP measure. We choose to disclose this non-GAAP financial measure because it provides an additional analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this measure helps compare our performance on a consistent basis across time periods. Management also utilizes EBITDA as an internal performance measure. To obtain a complete understanding of our performance, this measure should be examined in connection with net income (loss) determined in accordance with GAAP. Since the items excluded from this measure are significant components in understanding and assessing financial performance under GAAP, this measure should not be considered to be an alternative to net income (loss) or any other measures derived in accordance with GAAP as a measure of our operating performance or profitability. Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP measures when evaluating our financial performance. 50 EBITDA reconciles to net income as follows (in thousands): Year Ended September 30, 2024 2023 2022 Net income $ 42,001 $ 12,322 $ 25,848 Interest expense (income), net 3,157 3,795 1,495 Income tax expense (benefit) 14,229 5,765 (5,407) Depreciation and amortization 29,324 25,215 16,883 EBITDA $ 88,711 $ 47,097 $ 38,819 Liquidity and Capital Resources Overview of Liquidity Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as announced growth, diversification and optimization initiatives through the next fiscal year and beyond. Our cash position is available to fund strategic long-term growth initiatives, including opening additional campuses in new markets and the creation and expansion of new programs in existing markets where we continue to optimize utilization of our campus facilities. Our aggregate liquidity as of September 30, 2024 totaled $230.9 million and was comprised of cash and cash equivalents of $161.9 million and undrawn revolving credit facility capacity of $69.0 million. This represents an increase of $71.2 million from our total liquidity as of September 30, 2023. Strategic Uses of Cash We believe that uses of our cash resources may include consideration of strategic acquisitions and organic growth initiatives, purchase of real estate assets, subsidizing funding alternatives for our students, and the repurchase of common stock, among others. To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents, short-term investments, or available revolving credit facility capacity, or we need capital to fund operations, new campus openings or expansion of programs at existing campuses, we may enter into additional credit facilities, issue debt or issue additional equity. Long-term Debt As of September 30, 2024, we had $126.1 million of long-term debt outstanding, which is comprised of two term loans, a finance lease and our revolving credit facility. Of the $126.1 million outstanding, $28.4 million relates to a term loan that bears interest at the rate of Term SOFR plus 2.0% and a tranche rate adjustment of 0.046% over the seven-year term secured in connection with the UTI Avondale, Arizona campus property purchased in December 2020. Approximately $36.9 million relates to a term loan that bears interest at the rate of Term SOFR plus 2.0% over the seven-year term, secured in connection with the purchase of the UTI Lisle, Illinois campus property in February 2022. Approximately $4.8 million relates to a finance lease for a campus within our Concorde segment. The remaining $56.0 million relates to funds drawn from the revolving credit facility that was secured in connection with the Concorde acquisition. During the fourth quarter of 2024, we increased the capacity of our revolving credit facility by $25.0 million to $125.0 million, adding an additional accordion feature. See Note 13 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the term loans and the revolving credit facility. Dividends We currently do not pay a cash dividend on our common stock. For our outstanding Series A preferred shares, we paid preferred stock cash dividends of $1.1 million and $5.1 million during the years ended September 30, 2024 and 2023, respectively. With the Series A Preferred Stock repurchase and subsequent conversion of remaining shares to common stock in December 2023, there will be no further dividend payments related to the Series A Preferred Stock going forward. See Note 18 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the conversion of our preferred stock. 51 Principal Sources of Liquidity Our principal source of liquidity is operating cash flows and existing cash and cash equivalents. A majority of our revenues are derived from Title IV Programs and various veterans’ benefits programs. Federal regulations dictate the timing of disbursements of funds under Title IV Programs. Students must apply for new funding for each academic year consisting of 30-week periods. Loan funds are generally provided in two disbursements for each academic year. The first disbursement for first-time borrowers is usually received 30 days after the start of a student’s academic year, and the second disbursement is typically received at the beginning of the 16th week from the start of the student’s academic year. Under our UTI proprietary loan program, we bear all credit and collection risk and students are not required to begin repayment until six months after the student completes or withdraws from his or her program. Similarly, we bear all credit and collection risk for students paying through cash payment plans and those under retail installment contracts. These factors, together with the timing of when our students begin their programs, affect the timing and seasonality of our operating cash flow. Surety Bonds Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students. Our campuses are subject to extensive, ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students. Our insurers issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers. As of September 30, 2024, the total face amount of these surety bonds was approximately $22.9 million. Operating Activities Our net cash provided by operating activities was $85.9 million and $49.1 million for the years ended September 30, 2024 and 2023, respectively. Net income, after adjustments for non-cash items, provided cash of $114.2 million for the year ended September 30, 2024. The non-cash items included $29.3 million for depreciation and amortization expense, $21.9 million for amortization of right-of-use assets for operating leases, $8.6 million for stock-based compensation expense, $7.5 million for provision for credit losses and $4.4 million of deferred taxes. Changes in operating assets and liabilities for the year ended September 30, 2024 used cash of $28.3 million primarily due to the following: • Changes in our operating lease liability as a result of rent payments used cash of $22.4 million. • The increase in receivables used cash of $12.1 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students. • Changes in our accounts payable and accrued expenses due to the timing of payments provided cash of $13.2 million. • The change in deferred revenue provided cash of $6.8 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at September 30, 2024 as compared to September 30, 2023. • The increase in notes receivable used cash of $5.8 million and was primarily due to higher utilization of UTI’s proprietary loan program. Net income, after adjustments for non-cash items, for the year ended September 30, 2023 provided cash of $71.8 million. The non-cash items included $25.2 million for depreciation and amortization expense, $20.6 million for amortization of right-of -use assets for operating leases, $4.6 million of deferred taxes, $3.8 million for stock-based compensation expense and $3.3 million for provision for credit losses. Changes in operating assets and liabilities for the year ended September 30, 2023 used cash of $22.7 million primarily due to the following: • Changes in our operating lease liability as a result of rent payments used cash of $20.5 million. • The change in deferred revenue provided cash of $11.4 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at September 30, 2023 as compared to September 30, 2022. 52 • Changes in our accounts payable and accrued expenses due to the timing of payments used cash of $5.9 million. • The increase in receivables used cash of $4.9 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students. Investing Activities For the year ended September 30, 2024, net cash used in investing activities was $24.0 million. The cash outflow was primarily related to the purchase of property and equipment of $24.3 million to support new program expansions at both UTI and Concorde. For the year ended September 30, 2023, net cash used in investing activities was $44.1 million. The cash outflow was primarily related to the purchase of property and equipment of $56.7 million. During the year ended September 30, 2023, we purchased three buildings and the associated land at our UTI Orlando, Florida campus for $26.2 million. Additionally, we had continued capital expenditures for further construction at the UTI Austin, Texas and Miramar, Florida campuses, and program expansion costs for both UTI and Concorde. Further, on December 1, 2022, we completed the acquisition of Concorde which resulted in $16.4 million of cash paid for acquisitions, net of cash acquired. Partially offsetting the cash outflows, is the $29.0 million in proceeds from maturities of held-to-maturity securities. Financing Activities For the year ended September 30, 2024, net cash used by financing activities was $51.3 million which was primarily related to $34.0 million in net payments on the revolving credit facility, or $75.0 million in payments offset by $41.0 million in proceeds. Additionally, $11.5 million was used to repurchase Series A Preferred Stock. See Note 18 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the repurchase. Other uses of cash included payroll taxes paid for stock-based compensation through shares withheld of $2.2 million, the payment of long-term debt of $2.5 million, and the payment of preferred stock dividends of $1.1 million. For the year ended September 30, 2023, net cash provided by financing activities was $81.8 million, which was primarily related to proceeds from our revolving credit facility of $90.0 million, offset by payment of preferred stock dividends of $5.1 million, and the repayment of long-term debt of $1.8 million. For a discussion of our liquidity for the year ended September 30 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 2023 Form 10-K filed with the SEC on December 1, 2023 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov. Share Repurchase Program On December 10, 2020, our board of directors authorized a 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. We did not repurchase any shares under this plan during the years ended September 30, 2024, 2023, and 2022. Seasonality Our operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population and costs associated with opening or expanding our campuses. Our student population varies as a result of new student enrollments, graduations and student attrition. Historically, we have had lower student populations in our third quarter than in the remainder of our year because fewer students are enrolled during the summer months. Additionally, we have had higher student populations in our fourth quarter than in the remainder of the year because more students enroll during this period. Our expenses, however, do not vary significantly with changes in student population and revenues and, as a result, such expenses do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of new school openings, new program introductions, increased enrollments of adult students or acquisitions. Furthermore, our revenues for the first quarter ending December 31 are impacted by the closure of our campuses for a week in December for a holiday break and during which we do not earn revenue. 53 Revenues (Dollars shown in thousands) Year Ended September 30, 2024 2023 2022 Three Month Period Ending: Amount Percent Amount Percent Amount Percent December 31 $ 174,695 23.8 % $ 120,004 19.8 % $ 105,075 25.1 % March 31 184,176 25.1 % 163,820 27.0 % 102,086 24.4 % June 30 177,458 24.2 % 153,286 25.2 % 100,966 24.1 % September 30 196,358 26.9 % 170,298 28.0 % 110,638 26.4 % Total fiscal year $ 732,687 100.0 % $ 607,408 100.0 % $ 418,765 100.0 % The increase in revenues for each of the three months ended December 31, 2023, March 31, 2024, June 30, 2024 and September 30, 2024, as compared to the same periods in fiscal 2023, was due to an increase in student population during fiscal 2024. The increase in revenues for each of the three months ended December 31, 2022, March 31, 2023, June 30, 2023 and September 30, 2023, as compared to the same periods in fiscal 2022, was due to an increase in student population during fiscal 2023 primarily related to the acquisition of Concorde. Income from Operations (Dollars shown in thousands) Year Ended September 30, 2024 2023 2022 Three Month Period Ending: Amount Percent Amount Percent Amount Percent December 31 $ 14,231 24.2 % $ 4,448 20.8 % $ 13,578 60.7 % March 31 11,192 19.0 % 5,949 27.8 % 3,377 15.1 % June 30 7,446 12.6 % 663 3.1 % 1,954 8.7 % September 30 26,022 44.2 % 10,339 48.3 % 3,465 15.5 % Total fiscal year $ 58,891 100.0 % $ 21,399 100.0 % $ 22,374 100.0 % The increase in income from operations for fiscal year 2024 was primarily due to increased revenues as a result of higher student population as well as continued execution of cost control measures. The decrease in income from operations for fiscal year 2023 was primarily due to increased compensation related costs primarily due to an increase in headcount to support our growth, diversification and optimization initiatives. Effect of Inflation To date, inflation has not had a significant effect on our operations. Critical Accounting Estimates Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, the proprietary loan program, and allowance for credit losses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements. Our significant accounting policies are discussed in Note 2 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K. We believe that the following accounting estimates are the most critical to aid 54 in fully understanding and evaluating our reported financial results, and they require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties. Revenue recognition Revenues consist primarily of student tuition and fees derived from the programs we provide after reductions are made for discounts and scholarships that we sponsor and for refunds for students who withdraw from our programs prior to specified dates. We apply the five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from Customers (“ASC 606”). Tuition and fee revenue is recognized ratably over the term of the course or program offered. Approximately 99% of our revenues for each of the years ended September 30, 2024, 2023 and 2022, respectively, consisted of gross tuition. The majority of the UTI programs are designed to be completed in 30 to 100 weeks. The UTI advanced training programs range from 8 to 26 weeks in duration. UTI also provides dealer technician training or instructor staffing services to manufacturers. Revenues are recognized as transfer of the services occurs. The majority of Concorde’s short and core programs are 8 to 36 weeks in duration, Concorde’s clinical programs are completed in 60 to 90 weeks. In addition to revenue from tuition and fees, UTI and Concorde derive supplemental revenues from sales of textbooks and program supplies and other revenues, which are recognized as the transfer of goods or services occurs. Deferred revenue represents the excess of tuition and fee payments received as compared to tuition and fees earned and is reflected as a current liability on our consolidated balance sheets because it is expected to be earned within the next 12 months. All of our revenues are generated within the United States. The impact of economic factors on the nature, amount, timing and uncertainty of revenue and cash flows is consistent across our various programs for both the UTI and Concorde segments. Proprietary Loan Program In order to provide funding for students who are not able to fully finance the cost of their education under traditional governmental financial aid programs, commercial loan programs or other alternative sources, we established a private loan program with a bank. This program is currently offered to students at our UTI schools. Through the proprietary loan program, the bank originates the loans to the students who participate in this program for a portion of their tuition. Based on historical collection rates, we can demonstrate that a portion of these loans are collectible. Accordingly, we recognize tuition and loan origination fees financed by the loan and any related interest revenue under the effective interest method required under the loan based on this collection rate. Under the terms of the proprietary loan program, the bank originates loans for our students who meet specific criteria with the related proceeds used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and assume all of the related credit risk. The loans bear interest at market rates ranging from approximately 6% to 10%; however, principal and interest payments are not required until six months after the student completes or withdraws from his or her program. After the deferral period, monthly principal and interest payments are required over the related term of the loan. The repayment term is generally up to 10 years. Under ASC 606, the portion of tuition revenue related to the proprietary loan program is considered a form of variable consideration. We estimate the amount we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program, resulting in a note receivable. Estimating the collection rate requires significant management judgment. Our estimated collection rate includes historical collections from the past ten years as we determined that such population better represents our current expected collections and aligns with the typical term of the loan. The estimated amount is determined at the inception of the contract and we recognize the related revenue as the student progresses through school. Each reporting period, we update our assessment of the variable consideration associated with the proprietary loan program. Allowance for credit losses We maintain an allowance for expected credit losses resulting from the inability, failure or refusal of our students to make required payments. We offer a variety of payment plans, including retail installment contracts, to help students pay that portion of their education expenses not covered by financial aid programs or alternate fund sources, which are unsecured and not guaranteed. We use estimates that are subjective and require judgment in determining the allowance for credit losses, which represent an estimate of the lifetime expected credit losses inherent in our receivables as of each balance sheet date. We principally utilize 55 historical percentages of uncollectible accounts, customer credit worthiness, and changes in payment history when evaluating the adequacy of the allowance for credit losses. We also monitor and consider external factors such as changes in the economic and regulatory environment. We use an internal group of collectors, augmented by third party collectors as deemed appropriate, in our collection efforts. When a student with Title IV loans withdraws, Title IV rules determine if we are required to return a portion of Title IV funds to the lender. We are then entitled to collect these funds from the students, but collection rates for these types of receivables is significantly lower than our collection rates for receivables for students who remain in our programs. Although we believe that our allowance is adequate, if we underestimate the allowances required, additional allowances may be necessary, which would result in increased selling, general and administrative expenses in the period such determination is made. Recent Accounting Pronouncements Information concerning recently issued accounting pronouncements which are not yet effective is included in Note 3 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K. As indicated in Note 3, we are still evaluating the impact of the recently issued accounting pronouncements on our financial statements.