__________________________________________________________________________________________________________

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 March 31, 2021

☐    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)

Delaware	86-0226984
(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 class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	UTI	New 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 May 3, 2021, there were 32,813,845 shares outstanding of the registrant's common stock.

UNIVERSAL TECHNICAL INSTITUTE, INC.

INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021

		Page
		Number
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2021 and September 30, 2020 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2021 and 2020 (Unaudited)	2
	Condensed Consolidated Statements of Shareholders’ Equity as of March 31, 2021 and 2020 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2021 and 2020 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
SIGNATURES		38

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 the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (“Securities Act”), 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.

ii

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”).

iii

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)

	March 31, 2021		September 30, 2020
Assets
Cash and cash equivalents	$	58,965	$	76,803
Restricted cash	12,817		12,116
Held-to-maturity investments	19,502		38,055
Receivables, net	19,809		35,411
Notes receivable, current portion	5,307		5,184
Prepaid expenses	8,262		6,121
Other current assets	6,431		6,489
Total current assets	131,093		180,179
Property and equipment, net	114,921		72,743
Goodwill	8,222		8,222
Notes receivable, less current portion	28,996		27,609
Right-of-use assets for operating leases	147,651		144,663
Other assets	9,462		8,565
Total assets	$	440,345	$	441,981
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	$	49,088	$	51,891
Deferred revenue	40,954		40,694
Accrued tool sets	3,251		3,148
Operating lease liability, current portion	19,565		23,666
Other current liabilities	1,901		2,241
Total current liabilities	114,759		121,640
Deferred tax liabilities, net	674		674
Operating lease liability	140,136		134,089
Other liabilities	8,318		9,056
Total liabilities	263,887		265,459
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 32,896 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 - common	142,383		141,002
Paid-in capital - preferred	68,853		68,853
Treasury stock, at cost, 82 shares as of March 31, 2021 and September 30, 2020	(365)		(365)
Retained deficit	(34,416)		(32,971)
Total shareholders’ equity	176,458		176,522
Total liabilities and shareholders’ equity	$	440,345	$	441,981

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

1

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021		2020		2021		2020
Revenues	$	77,709	$	82,717	$	153,834	$	169,951
Operating expenses:
Educational services and facilities	40,480		42,909		79,811		85,785
Selling, general and administrative	38,890		40,307		74,909		80,411
Total operating expenses	79,370		83,216		154,720		166,196
(Loss) income from operations	(1,661)		(499)		(886)		3,755
Other income (expense):
Interest income	8		347		62		683
Interest expense	(1)		(3)		(3)		(3)
Other income (expense), net	73		(507)		355		(329)
Total other income (expense), net	80		(163)		414		351
(Loss) income before income taxes	(1,581)		(662)		(472)		4,106
Income tax benefit	34		10,804		8		10,720
Net (loss) income	$	(1,547)	$	10,142	$	(464)	$	14,826
Preferred stock dividends	1,312		1,309		2,625		2,632
Net (loss) income available for distribution	$	(2,859)	$	8,833	$	(3,089)	$	12,194
Earnings per share (See Note 15 ):
Net (loss) income per share - basic	$	(0.09)	$	0.18	$	(0.09)	$	0.25
Net (loss) income per share - diluted	$	(0.09)	$	0.18	$	(0.09)	$	0.25
Weighted average number of shares outstanding:
Basic	32,762		28,379		32,709		27,013
Diluted	32,762		28,644		32,709		27,320

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

2

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Common Stock			Preferred Stock			Paid-in Capital - Common		Paid-in Capital - Preferred		Treasury Stock			Retained Deficit		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount						Shares	Amount
Balance as of September 30, 2020	32,730	$	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 plans	66	—		—	—		—		—		—	—		—		—
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, 2020	32,767	$	3	700	$	—	$	141,372	$	68,853	(82)	$	(365)	$	(31,557)	$	178,306
Net loss	—	—		—	—		—		—		—	—		(1,547)		(1,547)
Issuance of common stock under employee plans	164	—		—	—		—		—		—	—		—		—
Shares withheld for payroll taxes	(35)	—		—	—		(223)		—		—	—		—		(223)
Stock-based compensation	—	—		—	—		1,234		—		—	—		—		1,234
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,312)		(1,312)
Balance as of March 31, 2021	32,896	$	3	700	$	—	$	142,383	$	68,853	(82)	$	(365)	$	(34,416)	$	176,458

3

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

(In thousands)

(Unaudited)

	Common Stock			Preferred Stock			Paid-in Capital - Common		Paid-in Capital - Preferred		Treasury Stock			Retained Deficit		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount						Shares	Amount
Balance as of September 30, 2019	32,499	$	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 plans	179	—		—	—		—		—		—	—		—		—
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, 2019	32,610	$	3	700	$	—	$	187,010	$	68,853	(6,865)	$	(97,388)	$	(32,205)	$	126,273
Net income	—	—		—	—		—		—		—	—		10,142		10,142
Adjustment for the adoption of ASC 842	—	—		—	—		—		—		—	—		(149)		(149)
Issuance of common stock under employee plans	81	—		—	—		—		—		—	—		—		—
Shares withheld for payroll taxes	(4)	—		—	—		(30)		—		—	—		—		(30)
Stock-based compensation	—	—		—	—		992		—		—	—		—		992
Shares issued for equity offering	—	—		—	—		(47,886)		—		6,783	97,023		—		49,137
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,309)		(1,309)
Balance as of March 31, 2020	32,687	$	3	700	$	—	$	140,086	$	68,853	(82)	$	(365)	$	(23,521)	$	185,056

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

4

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net (loss) income	$	(464)	$	14,826
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	6,851		5,894
Amortization of right-of-use assets for operating leases	8,117		11,840
Bad debt expense	415		571
Stock-based compensation	1,782		1,006
Deferred income taxes	—		345
Training equipment credits earned, net	155		419
Other losses, net	(135)		227
Changes in assets and liabilities:
Receivables	12,277		3,058
Prepaid expenses	(2,987)		(1,347)
Other assets	(535)		16
Notes receivable	134		652
Accounts payable and accrued expenses	(1,480)		4,784
Deferred revenue	260		(6,132)
Income tax receivable	2,685		(10,893)
Accrued tool sets and other current liabilities	244		11
Operating lease liability	(9,159)		(12,734)
Other liabilities	(633)		(1,646)
Net cash provided by operating activities	17,527		10,897
Cash flows from investing activities:
Purchase of held-to-maturity securities	—		(41,562)
Proceeds from maturities of held-to-maturity securities	18,189		—
Purchase of property and equipment	(49,919)		(5,164)
Proceeds from disposal of property and equipment	6		32
Return of capital contribution from unconsolidated affiliate	150		142
Net cash used in investing activities	(31,574)		(46,552)
Cash flows from financing activities:
Proceeds from equity offering	—		49,137
Payment of preferred stock cash dividend	(2,625)		(2,632)
Payment of finance leases	(64)		(37)
Payment of payroll taxes on stock-based compensation through shares withheld	(401)		(527)
Net cash (used in) provided by financing activities	(3,090)		45,941
Change in cash, cash equivalents and restricted cash	(17,137)		10,286
Cash and cash equivalents, beginning of period	76,803		65,442
Restricted cash, beginning of period	12,116		15,113
Cash, cash equivalents and restricted cash, beginning of period	88,919		80,555
Cash and cash equivalents, end of period	58,965		76,606
Restricted cash, end of period	12,817		14,235
Cash, cash equivalents and restricted cash, end of period	$	71,782	$	90,841

5

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)

	Six Months Ended March 31,
	2021		2020
Supplemental disclosure of cash flow information:
Income taxes refunded	$	(2,693)	$	(172)
Interest paid	3		3
Training equipment obtained in exchange for services	227		250
Depreciation of training equipment obtained in exchange for services	646		678
Change in accrued capital expenditures during the period	1,098		111
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.

6

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.

During fiscal 2020, 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. This new blended learning format allowed us to continue to offer our programs to our students during the COVID-19 pandemic and aligns with an increasing trend of online education now being offered as individuals seek life-long learning opportunities. We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in a blended learning format on a permanent basis.

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 six months ended March 31, 2021 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.

7

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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 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.

8

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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.

The following table provides information about receivables and deferred revenue resulting from our enrollment agreements with students:

	March 31, 2021		September 30, 2020
Receivables, which includes tuition and notes receivable	$	43,103	$	53,144
Deferred revenue	40,954		40,694

During the six months ended March 31, 2021, 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

As previously noted, during the year ended September 30, 2020, 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 so that our students could continue their education during the COVID-19 pandemic. 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 six months ended March 31, 2021, however, as of March 31, 2021, there were students with catch-up lab work outstanding and a small number of others that remained exclusively online. As of March 31, 2021, approximately 10% of students were completing catch-up lab work, but over an extended period of time, while 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. 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 March 31, 2021, we had deferred revenue of approximately $0.8 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.

9

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

The amortized cost, gross unrealized gains or losses, and fair value of investments classified as held-to-maturity at March 31, 2021 and September 30, 2020 were as follows:

	March 31, 2021
			Gross Unrealized				Estimated Fair
Due in less than 1 year:	Amortized Cost		Gains		Losses		Market Value
Corporate and municipal bonds	$	19,502	$	1	$	(7)	$	19,496

	September 30, 2020
			Gross Unrealized				Estimated Fair
Due in less than 1 year:	Amortized Cost		Gains		Losses		Market Value
Corporate and municipal bonds	$	38,055	$	10	$	(33)	$	38,032

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
	March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	42,351	$	42,351	$	—	$	—
Notes receivable(2)	34,303		—		—		34,303
Corporate bonds(3)	16,009		16,009		—		—
Municipal bonds and other(3)	3,487		3,487		—		—
Total assets at fair value on a recurring basis	$	96,150	$	61,847	$	—	$	34,303

10

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

			Fair Value Measurements Using
	September 30, 2020		Quoted 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 March 31, 2021 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 March 31, 2021 and September 30, 2020.

Note 7 - Property and Equipment, net

Property and equipment, net consisted of the following:

	Depreciable Lives (in years)	March 31, 2021		September 30, 2020
Land (1)	—	$	8,355	$	3,189
Buildings and building improvements (1)	3-35	68,282		28,046
Leasehold improvements	1-28	64,232		62,899
Training equipment	3-10	92,250		91,731
Office and computer equipment	3-10	32,641		33,524
Curriculum development	5	19,692		19,692
Software developed for internal use	1-5	11,959		11,951
Vehicles	5	1,460		1,502
Right-of-use assets for finance leases	2-3	359		359
Construction in progress	—	1,276		2,213
		300,506		255,106
Less: Accumulated depreciation and amortization		(185,585)		(182,363)
		$	114,921	$	72,743

(1) During the six     months ended March 31, 2021, 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 March 31, 2021 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

11

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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 March 31, 2021, 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 March 31, 2021.

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.

Investment in unconsolidated affiliate consisted of the following and is included within “Other assets” on our condensed consolidated balance sheets:

	March 31, 2021				September 30, 2020
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
Investment in JV	$	4,559	28.0	%	$	4,494	28.0	%

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

	Six Months Ended March 31,
	2021		2020
Balance at beginning of period	$	4,494	$	4,338
Equity in earnings of unconsolidated affiliate	215		205
Return of capital contribution from unconsolidated affiliate	(150)		(142)
Balance at end of period	$	4,559	$	4,401

Note 10 - Leases

As of March 31, 2021, 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 March 31, 2021, 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.

12

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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 and six months ended March 31, 2021 and 2020 were as follows:

	Three Months Ended March 31,				Six Months Ended March 31,
Lease Expense	2021		2020		2021		2020
Operating lease expense(1)	$	5,458	$	7,462	$	11,590	$	14,984
Finance lease expense:
Amortization of leased assets	33		38		65		38
Interest on lease liabilities	1		3		3		3
Variable lease expense	950		1,180		1,857		2,179
Sublease income	(123)		(156)		(246)		(507)
Total net lease expense	$	6,319	$	8,527	$	13,269	$	16,697

(1) Excludes the expense for short-term leases not accounted for under ASC 842, which was not significant for the three and six months ended March 31, 2021 and 2020.

Supplemental balance sheet, cash flow and other information related to our leases was as follows (in thousands, except lease term and discount rate):

Leases	Classification	March 31, 2021		September 30, 2020
Assets:
Operating lease assets	Right-of-use assets for operating leases	$	147,651	$	144,663
Finance lease assets	Property and equipment, net(1)	192		257
Total leased assets		$	147,843	$	144,920
Liabilities:
Current
Operating lease liabilities	Operating lease liability, current portion	$	19,565	$	23,666
Finance lease liabilities	Other current liabilities	131		129
Noncurrent
Operating lease liabilities	Operating lease liability	140,136		134,089
Finance lease liabilities	Other liabilities	65		131
Total lease liabilities		$	159,897	$	158,015

(1) Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.1 million as of March 31, 2021 and September 30, 2020, respectively.

13

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Lease Term and Discount Rate	March 31, 2021		September 30, 2020
Weighted-average remaining lease term (in years):
Operating leases	9.68		9.34
Finance leases	1.58		2.05
Weighted average discount rate:
Operating leases	4.54	%	4.37	%
Finance leases	3.08	%	3.08	%

	Six Months Ended March 31,
Supplemental Disclosure of Cash Flow Information and Other Information	2021		2020
Non-cash activity related to lease liabilities:
Lease assets obtained in exchange for new operating lease liabilities (1)	$	11,105	$	21
Leases assets obtained in exchange for new finance lease liabilities	—		205

(1) Excludes the impact of the opening balance adjustment for the adoption of ASC 842 as of October 1, 2019 for the six months ended March 31, 2020.

Maturities of lease liabilities were as follows:

	As of March 31, 2021
Years ending September 30,	Operating Leases		Finance Leases
Remainder of 2021	$	12,205	$	67
2022	23,823		110
2023	19,035		23
2024	18,765		—
2025	18,993		—
2026 and thereafter	104,647		—
Total lease payments	197,468		200
Less: interest	(37,767)		(4)
Present value of lease liabilities	159,701		196
Less: current lease liabilities	(19,565)		(131)
Long-term lease liabilities	$	140,136	$	65

Note 11 -