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__________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

☑    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
 
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from _____ to ______
Commission File Number: 1-31923

 UNIVERSAL TECHNICAL INSTITUTE, INC.
(Exact name of registrant as specified in its charter)
Delaware86-0226984
(State or other jurisdiction of
incorporation or organization)		(IRS Employer Identification No.)
4225 East Windrose Drive, Suite 200
Phoenix, Arizona 85032
(Address of principal executive offices, including zip code)

(623) 445-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol Name of each exchange on which registered
Common Stock, $0.0001 par valueUTINew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   þ    No ¨  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
 Accelerated filer þ     
Non-accelerated filer ¨  
 Smaller reporting company ☐
 Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  þ
At January 31, 2021, there were 32,739,749 shares outstanding of the registrant's common stock.


UNIVERSAL TECHNICAL INSTITUTE, INC.
INDEX TO FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2020

 
  Page
  Number


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and the Private Securities Litigation Reform Act of 1995, which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions (including the negative form of such expressions) intended to identify forward-looking statements, although not all forward looking statements contain these identifying words. Forward-looking statements are based on our current expectations and assumptions, do not strictly relate to historical or current facts, any of which may not prove to be accurate. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Important factors that could cause actual results to differ from those in our forward-looking statements include, without limitation:

•failure of our schools to comply with the extensive regulatory requirements for school operations;
•our failure to maintain eligibility for federal student financial assistance funds;
•continued Congressional examination of the for-profit education sector;
•a disruption in our ability to process student loans under the Federal Direct Loan Program;
•regulatory investigations of, or actions commenced against, us or other companies in our industry;
•the effect of public health pandemics, epidemics or outbreak, including COVID-19;
•changes in the state regulatory environment or budgetary constraints;
•our failure to improve underutilized capacity at certain of our campuses;
•enrollment declines or challenges in our students’ ability to find employment as a result of macroeconomic conditions;
•our failure to maintain and expand existing industry relationships and develop new industry relationships with our industry customers;
•our ability to update and expand the content of existing programs and develop and integrate new programs in a cost-effective manner and on a timely basis;
•our failure to effectively identify, establish and operate additional schools, programs or campuses;
•the effect of our principal stockholder owning a significant percentage of our capital stock, and thus being able to influence certain corporate matters and the potential in the future to gain substantial control over our company;
•the impact of certain holders of our Series A Preferred Stock owning a significant percentage of our capital stock, their ability to influence and control certain corporate matters and the potential for future dilution to holders of our common stock;
•loss of our senior management or other key employees; and
•risks related to other factors discussed in our 2020 Annual Report on Form 10-K, including those described in Item 1A. “Risk Factors.”

The factors above are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. Among the factors that could cause actual results to differ materially are the factors discussed under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should bear this in mind as you consider forward-looking statements.

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Also, these forward-looking statements represent our estimates and assumptions only as of the date of the document containing the applicable statement. Except as required by law, we undertake no obligation to update or revise forward looking statements, whether as a result of new information, future events or otherwise. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q, including the documents that we incorporate by reference herein, by these cautionary statements. You are advised, however, to consult any further disclosures we make on related subjects in our reports and filings with the Securities and Exchange Commission (“SEC”).




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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and per share amounts)
(Unaudited)

December 31,
2020		September 30,
2020
Assets
Cash and cash equivalents$44,212 $76,803 
Restricted cash15,031 12,116 
Held-to-maturity investments27,878 38,055 
Receivables, net24,115 35,411 
Notes receivable, current portion5,446 5,184 
Prepaid expenses6,894 6,121 
Other current assets6,985 6,489 
Total current assets130,561 180,179 
Property and equipment, net116,637 72,743 
Goodwill8,222 8,222 
Notes receivable, less current portion29,875 27,609 
Right-of-use assets for operating leases140,296 144,663 
Other assets8,996 8,565 
Total assets$434,587 $441,981 
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses$43,221 $51,891 
Dividends payable1,313 — 
Deferred revenue42,616 40,694 
Accrued tool sets3,052 3,148 
Operating lease liability, current portion20,357 23,666 
Other current liabilities1,927 2,241 
Total current liabilities112,486 121,640 
Deferred tax liabilities, net674 674 
Operating lease liability132,175 134,089 
Other liabilities10,946 9,056 
Total liabilities256,281 265,459 
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 32,767 and 32,730 shares issued
3 3 
Preferred stock, $0.0001 par value, 10,000 shares authorized; 700 shares of Series A Convertible Preferred Stock issued and outstanding, liquidation preference of $100 per share
— — 
Paid-in capital - common141,372 141,002 
Paid-in capital - preferred68,853 68,853 
Treasury stock, at cost, 82 shares as of December 31, 2020 and September 30, 2020
(365)(365)
Retained deficit(31,557)(32,971)
Total shareholders’ equity178,306 176,522 
Total liabilities and shareholders’ equity$434,587 $441,981 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended
December 31,
 20202019
Revenues$76,125 $87,234 
Operating expenses:
Educational services and facilities39,331 42,876 
Selling, general and administrative36,019 40,104 
Total operating expenses75,350 82,980 
Income from operations775 4,254 
Other income:
Interest income54 336 
Interest expense(2)— 
Other income, net282 178 
Total other income, net334 514 
Income before income taxes1,109 4,768 
Income tax expense(26)(84)
Net income$1,083 $4,684 
Preferred stock dividends1,313 1,323 
Net (loss) income available for distribution$(230)$3,361 
Earnings per share (See Note 15 ):
Net (loss) income per share - basic$(0.01)$0.07 
Net (loss) income per share - diluted$(0.01)$0.07 
Weighted average number of shares outstanding:
Basic32,658 25,663 
Diluted32,658 26,038 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Common StockPreferred StockPaid-in
Capital - Common		Paid-in
Capital - Preferred		Treasury StockRetained DeficitTotal
Shareholders’
Equity
SharesAmountSharesAmountSharesAmount
Balance as of September 30, 202032,730 $3 700 $— $141,002 $68,853 (82)$(365)$(32,971)$176,522 
Net income— — — — — — — — 1,083 1,083 
Cumulative effect from adoption of ASC 326— — — — — — — — 1,644 1,644 
Issuance of common stock under employee plans66 — — — — — — — — — 
Shares withheld for payroll taxes(29)— — — (178)— — — — (178)
Stock-based compensation— — — — 548 — — — — 548 
Preferred stock dividends— — — — — — — — (1,313)(1,313)
Balance as of December 31, 202032,767 $3 700 $— $141,372 $68,853 (82)$(365)$(31,557)$178,306 


 Common StockPreferred StockPaid-in
Capital - Common		Paid-in
Capital - Preferred		Treasury StockRetained DeficitTotal
Shareholders’
Equity
 SharesAmountSharesAmountSharesAmount
Balance as of September 30, 201932,499 $3 700 $— $187,493 $68,853 (6,865)$(97,388)$(44,673)$114,288 
Net income— — — — — — — — 4,684 4,684 
Cumulative effect from adoption of ASC 842— — — — — — — — 9,107 9,107 
Issuance of common stock under employee plans179 — — — — — — — — — 
Shares withheld for payroll taxes(68)— — — (497)— — — — (497)
Stock-based compensation— — — — 14 — — — — 14 
Preferred stock dividends— — — — — — — — (1,323)(1,323)
Balance as of December 31, 201932,610 $3 700 $— $187,010 $68,853 (6,865)$(97,388)$(32,205)$126,273 

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




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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended December 31,
 20202019
Cash flows from operating activities:
Net income $1,083 $4,684 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,282 3,013 
Amortization of right-of-use assets for operating leases4,445 5,920 
Bad debt expense389 283 
Stock-based compensation548 14 
Training equipment credits earned, net10 439 
Other losses, net(139)(231)
Changes in assets and liabilities:
Receivables8,108 4,065 
Prepaid expenses(1,651)(409)
Other assets(139)23 
Notes receivable(884)(555)
Accounts payable and accrued expenses(8,416)(1,938)
Deferred revenue1,922 (695)
Income tax receivable/payable2,783 92 
Accrued tool sets and other current liabilities(234)32 
Operating lease liability(5,301)(6,532)
Other liabilities1,977 (1,081)
Net cash provided by operating activities7,783 7,124 
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity securities9,965 — 
Purchase of property and equipment(47,293)(1,811)
Proceeds from disposal of property and equipment6 23 
Return of capital contribution from unconsolidated affiliate73 69 
Net cash used in investing activities(37,249)(1,719)
Cash flows from financing activities:
Payment of financing obligation and finance leases(32)— 
Payment of payroll taxes on stock-based compensation through shares withheld(178)(497)
Net cash used in financing activities(210)(497)
Change in cash, cash equivalents and restricted cash(29,676)4,908 
Cash and cash equivalents, beginning of period76,803 65,442 
Restricted cash, beginning of period12,116 15,113 
Cash, cash equivalents and restricted cash, beginning of period88,919 80,555 
Cash and cash equivalents, end of period44,212 70,533 
Restricted cash, end of period15,031 14,930 
Cash, cash equivalents and restricted cash, end of period$59,243 $85,463 




4

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
(Unaudited)

Three Months Ended December 31,
20202019
Supplemental disclosure of cash flow information:
Taxes (refunded) paid$(19)$7 
Interest paid2 — 
Training equipment obtained in exchange for services141 241 
Depreciation of training equipment obtained in exchange for services317 332 
Change in accrued capital expenditures during the period238 140 
Dividends payable1,313 1,323 
CARES Act funds received for institutional costs (See Note 18)
880 — 

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



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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)

Note 1 - Nature of the Business

We are the leading provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians as measured by total average undergraduate full-time enrollment and graduates. We also provide programs for welders and computer numeric control (“CNC”) machining technicians. We offer certificate, diploma or degree programs at 12 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute and NASCAR Technical Institute. We also 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. Founded in 1965, we have provided technical education for more than 55 years and have graduated more than 220,000 technicians.

We work closely with over 35 original equipment manufacturers and industry brand partners to understand their needs for qualified service professionals. Revenues generated from our schools consist primarily of tuition and fees paid by students. To pay for a substantial portion of their tuition, the majority of students rely on funds received from federal financial aid programs under Title IV Programs of the Higher Education Act of 1965, as amended (“HEA”), as well as from various veterans benefits programs. For further discussion, see Note 2 on “Summary of Significant Accounting Policies - Concentration of Risk” and Note 20 on “Government Regulation and Financial Aid” included in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020.
Note 2 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. Normal and recurring adjustments considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the three months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020.

The unaudited condensed consolidated financial statements include the accounts of Universal Technical Institute, Inc. and our wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Note 3 - Recent Accounting Pronouncements

Effective the First Quarter of Fiscal 2021

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
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
effective for our 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.
Effective the First Quarter of Fiscal 2022

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this standard simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We are currently evaluating the impact that the update will have on our results of operations, financial condition and financial statement disclosures.

Note 4 - Revenue from Contracts with Customers
Nature of Goods and Services
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. 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. 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.  We purchase said loans from the lender and, based on historical collection rates, believe 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 the amount we expect to collect, and we recognize these revenues ratably over the term of the course or program offered.
Other
We provide dealer technician training or instructor staffing services to manufacturers. Revenues are recognized as transfer of the services occurs.
We provide postsecondary education and other services in the same geographical market, the United States. 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 16 for disaggregated segment revenue information.
Contract Balances
Contract assets primarily relate to our rights to consideration for a student’s progress through our training program in relation to our services performed but not billed at the reporting date. The contract assets are transferred to the receivables when the rights become unconditional. Currently, we do not have any contract assets that have not transferred to a receivable. Our deferred revenue is considered a contract liability and primarily relates to our enrollment agreements where we received payments for tuition but we have not yet delivered the related training programs to satisfying the related performance obligations. The advance consideration received from students or Title IV funding is deferred revenue until the training program has been delivered to the students.
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
The following table provides information about receivables and deferred revenue resulting from our enrollment agreements with students:
December 31, 2020September 30, 2020
Receivables, which includes tuition and notes receivable$49,725 $53,144 
Deferred revenue42,616 40,694 

During the three months ended December 31, 2020, 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 the year ended September 30, 2020, due to the COVID-19 pandemic, we transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. On-campus labs have been re-designed to meet the health, safety and social distancing guidelines recommended or required by the Centers for Disease Control (“CDC”) and state and local jurisdictions, while still meeting our accreditation and curriculum requirements.

All of our campuses remained open during the three months ended December 31, 2020, however, as of December 31, 2020, there were students that remained exclusively online and others with catch-up lab work outstanding. As of December 31, 2020, less than 1% of students had not returned to campus to complete the in-person labs and remained exclusively in the online portion of the curriculum, essentially only completing half of each course, while approximately 18% of students were completing catch-up lab work, but over an extended period of time. We continue to recognize revenue ratably over the term of the course or program offered, taking into consideration those only completing the online curriculum, and the catch-up period for active students and the impact it has on expected graduation dates. As a result, as of December 31, 2020, we had deferred revenue of approximately $2.0 million.

Note 5 - Investments

During the second quarter of 2020, we raised approximately $49.5 million in net proceeds from an underwritten public offering of shares of our common stock. See Note 15 on “Shareholders’ Equity - Equity Offering” included in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020 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.

The amortized cost, gross unrealized gains or losses, and fair value of investments classified as held-to-maturity at December 31, 2020 were as follows:
Gross UnrealizedEstimated Fair
Due in less than 1 year:Amortized CostGainsLossesMarket Value
   Corporate and municipal bonds$27,878 $— $(20)$27,858 
Total as of December 31, 2020$27,878 $— $(20)$27,858 

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
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.

Note 6 - Fair Value Measurements
The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers:
Level 1:    Defined as quoted market prices in active markets for identical assets or liabilities.
Level 2:    Defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:    Defined as unobservable inputs that are not corroborated by market data.
Any transfers of investments between levels occurs at the end of the reporting period. Assets measured or disclosed at fair value on a recurring basis consisted of the following:
  Fair Value Measurements Using
 December 31, 2020Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Money market funds(1)
$33,999 $33,999 $— $— 
Notes receivable(2)
35,321 — — 35,321 
Corporate bonds(3)
21,663 21,663 — — 
Municipal bonds and other(3)
6,195 6,195 — — 
Total assets at fair value on a recurring basis$97,178 $61,857 $— $35,321 

  Fair Value Measurements Using
 September 30, 2020Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Money market funds(1)
$43,322 $43,322 $— $— 
Notes receivable(2)
32,793 — — 32,793 
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$114,147 $81,354 $— $32,793 

(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 condensed consolidated balance sheet as of December 31, 2020 and September 30, 2020.
(2) Notes receivable relate to our proprietary loan program.
(3) Corporate bonds and municipal bonds and other are reflected as “Held-to-maturity investments” in our condensed consolidated balance sheet as of December 31, 2020 and September 30, 2020.
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)

Note 7 - Property and Equipment, net
Property and equipment, net consisted of the following:
Depreciable
Lives (in years)		December 31, 2020September 30, 2020
Land (1)
—$8,351 $3,189 
Buildings and building improvements (1)
3-35
68,159 28,046 
Leasehold improvements
1-28
63,267 62,899 
Training equipment
3-10
91,899 91,731 
Office and computer equipment
3-10
33,591 33,524 
Curriculum development
5
19,692 19,692 
Software developed for internal use
1-5
11,959 11,951 
Vehicles
5
1,449 1,502 
Right-of-use assets for finance leases
2-3
359 359 
Construction in progress—2,671 2,213 
301,397 255,106 
Less: Accumulated depreciation and amortization(184,760)(182,363)
$116,637 $72,743 
    
(1) During the three months ended December 31, 2020, land and buildings and building improvements increased 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 8 - Goodwill
Our goodwill balance of $8.2 million as of December 31, 2020 resulted from the acquisition of our motorcycle and marine education business in Orlando, Florida in 1998 and relates to our Postsecondary Education segment. 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 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.
As of December 31, 2020, while some students were taking longer than normal to graduate from their programs due to the impacts of the COVID-19 pandemic on our business, students enrolled at our Orlando, Florida campus continue to progress through their programs under the new blended training model. There were no indicators of goodwill impairment as of December 31, 2020.

Note 9 - 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. 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.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Investment in unconsolidated affiliate consisted of the following and is included within “Other assets” on our condensed consolidated balance sheets:
December 31, 2020September 30, 2020
Carrying ValueOwnership PercentageCarrying ValueOwnership Percentage
Investment in JV$4,528 28.0 %$4,494 28.0 %

Investment in unconsolidated affiliate included the following activity during the period:
Three Months Ended December 31,
20202019
Balance at beginning of period$4,494 $4,338 
Equity in earnings of unconsolidated affiliate107 102 
Return of capital contribution from unconsolidated affiliate(73)(69)
Balance at end of period$4,528 $4,371 


Note 10 - Leases
As of December 31, 2020, we leased 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. The facility leases have original lease terms ranging from 8 to 20 years and expire at various dates through 2031. In addition, the leases commonly include lease incentives in the form of rent abatements and tenant improvement allowances. We sublease certain portions of unused building space to third parties, which as of December 31, 2020, resulted in minimal income. 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 condensed consolidated balance sheets.

Some of the facility leases are subject to annual changes in the Consumer Price Index (“CPI”). While lease liabilities are not remeasured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. There are no early termination with penalties, residual value guarantees, restrictions or covenants imposed by our facility leases.

The components of lease expense are included in “Educational services and facilities” and “Selling, general and administrative” on the condensed 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 three months ended December 31, 2020 and 2019 were as follows:
Three Months Ended December 31,
Lease Expense20202019
Operating lease expense(1)
$6,132 $7,521 
Finance lease expense:
   Amortization of leased assets32 — 
   Interest on lease liabilities2 — 
Variable lease expense907 999 
Sublease income(123)(351)
Total net lease expense$6,950 $8,169 

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
(1) Excludes the expense for short-term leases not accounted for under ASC 842, which was not significant for the three months ended December 31, 2020 and 2019.

Supplemental balance sheet, cash flow and other information related to our leases was as follows:
LeasesClassificationDecember 31, 2020September 30, 2020
Assets:
Operating lease assetsRight-of-use assets for operating leases$140,296 $144,663 
Finance lease assets
Property and equipment, net(1)
225 257 
Total leased assets$140,521 $144,920 
Liabilities:
Current
   Operating lease liabilitiesOperating lease liability, current portion$20,357 $23,666 
   Finance lease liabilitiesOther current liabilities130 129 
Noncurrent
   Operating lease liabilitiesOperating lease liability132,175 134,089 
   Finance lease liabilitiesOther liabilities98 131 
Total lease liabilities$152,760 $158,015 

(1) Finance lease assets are recorded net of accumulated amortization of $0.1 million as of December 31, 2020 and September 30, 2020, respectively.
Three Months Ended December 31,
Supplemental Disclosure of Cash Flow Information and Other Information20202019
Non-cash activity related to lease liabilities:
   Lease assets obtained in exchange for new operating lease liabilities (1)
$78 $148,790 
   Leases assets obtained in exchange for new finance lease liabilities— — 

(1) Includes the impact of the opening balance adjustment for the adoption of ASC 842 as of October 1, 2019 for the three months ended December 31, 2019.
Lease Term and Discount RateDecember 31, 2020December 31, 2019
Weighted-average remaining lease term (in years):
   Operating leases10.498.62
   Finance leases1.810.00
Weighted average discount rate:
   Operating leases4.52 %4.14 %
   Finance leases3.08 %— %

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Maturities of lease liabilities were as follows:
As of December 31, 2020
Years ending September 30,Operating LeasesFinance Leases
Remainder of 2021$18,614 $101 
202224,042 110 
202316,984 23 
202416,675 — 
202516,860 — 
2026 and thereafter95,757 — 
Total lease payments188,932 234 
Less: interest(36,400)(6)
Present value of lease liabilities152,532 228 
Less: current lease liabilities(20,357)(130)
Long-term lease liabilities$132,175 $98 

Related Party Transactions for Leases

Rent expense includes rent paid to related parties, which was approximately $0.5 million for the three months ended December 31, 2020 and 2019, respectively. Since 1991, two of our properties comprising our Orlando, Florida location have been leased from entities controlled by John C. White, who served on our board of directors until his retirement on November 30, 2020. 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 as of December 31, 2020.

Note 11 - Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:
December 31, 2020September 30, 2020
Accounts payable$12,039 $12,471 
Accrued compensation and benefits19,377 28,053 
Other accrued expenses11,805 11,367 
Total accounts payable and accrued expenses$43,221 $51,891 

Note 12 - Income Taxes

Our income tax expense for the three months ended December 31, 2020 was $26 thousand, or 2.3% of pre-tax income, compared to income tax expense of $84 thousand, or 1.8% of pre-tax income, for the three months ended December 31, 2019. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance and state taxes. The balance of the valuation allowance for our deferred tax assets was $17.4 million as of December 31, 2020 and September 30, 2020.

As discussed in Note 13 on “Income Taxes” in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020, 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. During the three months ended December 31, 2020, we received approximately $2.8 million in refunds, leaving $4.3 million
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
as an income tax receivable recorded in “Receivable, net” on the condensed consolidated balance sheet as of December 31, 2020. We expect to receive the remaining $4.3 million subsequent to the filing of our consolidated tax return for our fiscal 2020 later this year.

As of December 31, 2020, we continued to have a full valuation allowance against all deferred tax assets that rely upon future taxable income for their realization and will continue to evaluate our valuation allowance in future periods for any change in circumstances that causes a change in judgment about the realizability of the deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased, if objective negative evidence in the form of cumulative losses is no longer present and if additional weight is given to subjective evidence such as our projections for growth.
    
Note 13 - Commitments and Contingencies

Legal

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 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. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we accrue a liability for the loss. When a loss is not both probable and estimable, we do not accrue a liability. 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 and results of operations or financial condition.

Note 14 - Shareholders’ Equity
Common Stock
Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval. On June 9, 2016, our Board of Directors voted to eliminate the quarterly cash dividend on our common stock. Any future common stock dividends require the approval of a majority of the voting power of the Series A Preferred Stock.
Preferred Stock
Preferred Stock consists of 10,000,000 authorized preferred shares of $0.0001 par value each. As of December 31, 2020 and September 30, 2020, 700,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) were issued and outstanding. The liquidation preference associated with the Series A Preferred Stock was $100 per share at December 31, 2020 and September 30, 2020.

Pursuant to the terms of the Certificate of Designations of the Series A Preferred Stock, we may pay a cash dividend on each share of the Series A Preferred Stock at a rate of 7.5% per year on the liquidation preference then in effect (“Cash Dividend”). If we do not pay a Cash Dividend, the liquidation preference shall be increased to an amount equal to the current liquidation preference in effect plus an amount reflecting that liquidation preference multiplied by the Cash Dividend rate then in effect plus 2.0% per year (“Accrued Dividend”). Cash Dividends are payable semi-annually in arrears on September 30 and March 31 of each year, and begin to accrue on the first day of the applicable dividend period. We accrued $1.3 million in Cash Dividends as of December 31, 2020.

For further discussion of our preferred stock, see Note 15 on “Shareholders’ Equity” included in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
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. This new share repurchase plan replaced the previously authorized plan from fiscal 2012. Any repurchases under this new stock repurchase program require the approval of a majority of the voting power of our Series A Preferred Stock. We did not repurchase any shares during the three months ended December 31, 2020.

Note 15 - Earnings per Share

We calculate basic earnings per common share (“EPS”) pursuant to the two-class method as a result of the issuance of the Series A Preferred Stock on June 24, 2016. Our Series A Preferred Stock is considered a participating security because, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis. The two-class method is an earnings allocation formula that determines EPS for common stock and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends. The Series A Preferred Stock is not included in the computation of basic EPS in periods in which we have a net loss, as the Series A Preferred Stock is not contractually obligated to share in our net losses.

Diluted EPS 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 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 share units and convertible preferred stock. The basic and diluted weighted average shares outstanding are the same for the three months ended December 31, 2020 as a result of the net loss available to common shareholders and anti-dilutive impact of the potentially dilutive securities.

Subsequent to the issuance of our December 31, 2019 interim financial statements, we identified that the diluted EPS disclosures incorrectly stated that diluted EPS for the three months ended December 31, 2019 was calculated using the as-converted method and not the two-class method, when in fact diluted EPS was correctly calculated internally using the two-class method. The table in the disclosure summarizing the computation of diluted EPS incorrectly added back “Income allocated to participating securities” to what is equivalent to “Net income available to common shareholders” shown below and incorrectly included the corresponding 21,021 weighted average diluted participating shares outstanding in diluted shares outstanding. The disclosure errors had no impact on reported net income per diluted share for the three months ended December 31, 2019. The disclosures below have been corrected to appropriately reflect diluted EPS under the two-class method for the three months ended December 31, 2019. We have concluded that these corrections were not material to the previously issued condensed consolidated financial statements for the three months ended December 31, 2019.

The following table summarizes the computation of basic and diluted EPS share under the two-class or as-converted method, as well as the anti-dilutive shares excluded:
Three Months Ended
December 31,
 20202019
Basic earnings per common share:
Net income $1,083 $4,684 
Less: Preferred stock dividend declared(1,313)(1,323)
Net (loss) income available for distribution(230)3,361 
Income allocated to participating securities— (1,513)
Net (loss) income available to common shareholders$(230)$1,848 
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
December 31,
 20202019
Weighted average basic shares outstanding32,658 25,663 
Basic (loss) income per common share$(0.01)$0.07 
Diluted earnings per common share:
Method used:Two-classTwo-class
Net (loss) income available to common shareholders $(230)$1,848 
Weighted average basic shares outstanding32,658 25,663 
Dilutive effect related to employee stock plans— 375 
Weighted average diluted shares outstanding 32,658 26,038 
Diluted (loss) income per common share$(0.01)$0.07 
Anti-dilutive shares excluded:
Outstanding stock-based grants436 — 
Convertible preferred stock21,021 21,021 
   Total anti-dilutive shares excluded21,457 21,021 
Dilutive shares under the as-converted method(1)
53,905 47,059 

(1) The dilutive shares under the as-converted method assume conversion of the Series A Preferred Stock and are presented here merely for reference. 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.

Note 16 - Segment Information
Our principal business is providing postsecondary education. We also provide manufacturer-specific training, and these operations are managed separately from our campus operations. These operations do not currently meet the quantitative criteria for segments and therefore are reflected in the “Other” category. Our equity method investment and other non-postsecondary education operations are also included within the “Other” category. Corporate expenses are allocated to “Postsecondary Education” and the “Other” category based on compensation expense.
Summary information by reportable segment was as follows:
Postsecondary EducationOther Consolidated
Three Months Ended December 31, 2020
Revenues$73,560 $2,565 $76,125 
Income (loss) from operations1,104 (329)775 
Depreciation and amortization (1)
3,258 24 3,282 
Net income (loss)1,412 (329)1,083 
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Postsecondary EducationOther Consolidated
Three Months Ended December 31, 2019
Revenues$83,320 $3,914 $87,234 
Income (loss) from operations4,601 (347)4,254 
Depreciation and amortization (2)
2,971 42 3,013 
Net income (loss)5,031 (347)4,684 
As of December 31, 2020
Total assets$428,295 $6,292 $434,587 
As of September 30, 2020
Total assets$435,144 $6,837 $441,981 

(1) Includes depreciation of training equipment obtained in exchange for services of $0.3 million for the three months ended December 31, 2020.
(2) Excludes depreciation of training equipment obtained in exchange for services of $0.3 million for the three months ended December 31, 2019.

Note 17 - Government Regulation and Financial Aid
As discussed at length in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020, our institutions participate in a range of government-sponsored student assistance programs. The most significant of these is the federal student aid programs administered by the U.S. Department of Education (“ED”) pursuant to Title IV of the Higher Education Act (“HEA”), commonly referred to as the Title IV Programs. Generally, to participate in the Title IV Programs, an institution must be licensed or otherwise legally authorized to operate in the state where it is physically located, be accredited by an accreditor recognized by ED, be certified as an eligible institution by ED, offer at least one eligible program of education, and comply with other statutory and regulatory requirements. See “Part I, Item1. Regulatory Environment” in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020.

State Authorization

To operate and offer postsecondary programs, and to be certified to participate in Title IV Programs, each of our institutions must obtain and maintain authorization from the state in which it is physically located (“Home State”). To engage in recruiting activities outside of its Home State, each institution also may be required to obtain and maintain authorization from the states in which it is recruiting students. 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. Some states prescribe standards of financial responsibility and mandate that institutions post surety bonds. Many states have requirements for institutions to disclose institutional data to current and prospective students, as well as to the public. And some states require that our schools meet prescribed performance standards as a condition of continued approval.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Accreditation

Accreditation is a non-governmental process through which an institution voluntarily submits to ongoing qualitative reviews by an organization of peer institutions. Institutional accreditation by an ED-recognized accreditor is required for an institution to be certified to participate in Title IV Programs. All of our institutions are accredited by the Accrediting Commission of Career Schools and Colleges (“ACCSC”), which is an accrediting agency recognized by ED. ACCSC reviews the academic quality of each institution’s instructional programs, as well as the administrative and financial operations of the institution to ensure that it has the resources necessary to perform its educational mission, implement continuous improvement processes, and support student success. 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 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. See “Part I, Item1. Regulatory Environment - Accreditation” in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020 for further details and the current status of our campus accreditation. We believe that each of our institutions is in substantial compliance with ACCSC accreditation standards.

Title IV Programs

The federal government provides a substantial part of its support for postsecondary education through Title IV Programs in the form of grants and loans to students who can use those funds at any institution that has been certified as eligible to participate by ED. All of our institutions are certified to participate in Title IV Programs. Significant factors relating to Title IV Programs that could adversely affect us include:

•The 90/10 Rule. As a condition of participation in Title IV Programs, proprietary institutions must agree when they sign their PPA to derive at least 10% of their revenues for each fiscal year from sources other than Title IV Program funds. 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 for two consecutive fiscal years.

•Administrative Capability. To continue its participation in Title IV Programs, an institution must demonstrate that it remains administratively capable of providing the education it promises and of properly managing the Title IV Programs. 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 s