__________________________________________________________________________________________________________

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 June 30, 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 July 31, 2021, there were 32,824,707 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 June 30, 2021 and September 30, 2020 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2021 and 2020 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2021 and 2020 (Unaudited)	3
	Condensed Consolidated Statements of Shareholders’ Equity as of June 30, 2021 and 2020 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2021 and 2020 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
SIGNATURES		45

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;

•failure to comply with the restrictive convenants and our ability to pay the amounts when due under the Credit Agreement; and

•risks related to other factors discussed in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020 (the “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

ii

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.

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)

	June 30, 2021		September 30, 2020
Assets
Cash and cash equivalents	$	102,856	$	76,803
Restricted cash	11,924		12,116
Held-to-maturity investments	250		38,055
Receivables, net	25,611		35,411
Notes receivable, current portion	5,441		5,184
Prepaid expenses	7,409		6,121
Other current assets	8,395		6,489
Total current assets	161,886		180,179
Property and equipment, net	117,490		72,743
Goodwill	8,222		8,222
Notes receivable, less current portion	29,952		27,609
Right-of-use assets for operating leases	147,596		144,663
Other assets	9,864		8,565
Total assets	$	475,010	$	441,981
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	$	50,659	$	51,891
Dividends payable	1,313		—
Deferred revenue	41,993		40,694
Accrued tool sets	3,454		3,148
Operating lease liability, current portion	19,999		23,666
Long term debt, current portion	918		129
Other current liabilities	2,009		2,112
Total current liabilities	120,345		121,640
Deferred tax liabilities, net	674		674
Operating lease liability	138,999		134,089
Long-term debt	30,065		131
Other liabilities	7,730		8,925
Total liabilities	297,813		265,459
Commitments and contingencies (Note 15)
Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 32,907 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	141,787		141,002
Paid-in capital - preferred	68,853		68,853
Treasury stock, at cost, 82 shares as of June 30, 2021 and September 30, 2020	(365)		(365)
Retained deficit	(32,729)		(32,971)
Accumulated other comprehensive income (loss)	(352)		—
Total shareholders’ equity	177,197		176,522
Total liabilities and shareholders’ equity	$	475,010	$	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				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenues	$	83,768	$	54,483	$	237,602	$	224,434
Operating expenses:
Educational services and facilities	42,238		32,476		122,049		118,261
Selling, general and administrative	38,478		35,786		113,387		116,197
Total operating expenses	80,716		68,262		235,436		234,458
Income (loss) from operations	3,052		(13,779)		2,166		(10,024)
Other income:
Interest income	11		218		73		901
Interest expense	(130)		(2)		(133)		(5)
Other income (expense), net	153		316		508		(13)
Total other income, net	34		532		448		883
Income (loss) before income taxes	3,086		(13,247)		2,614		(9,141)
Income tax (expense) benefit	(86)		(21)		(78)		10,699
Net income (loss)	$	3,000	$	(13,268)	$	2,536	$	1,558
Preferred stock dividends	1,313		1,309		3,938		3,941
Net income (loss) available for distribution	$	1,687	$	(14,577)	$	(1,402)	$	(2,383)
Earnings per share (See Note 17 ):
Net income (loss) per share - basic	$	0.03	$	(0.45)	$	(0.04)	$	(0.08)
Net income (loss) per share - diluted	$	0.03	$	(0.45)	$	(0.04)	$	(0.08)
Weighted average number of shares outstanding:
Basic	32,821		32,607		32,746		28,871
Diluted	33,036		32,607		32,746		28,871

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 OTHER COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income (loss)	$	3,000	$	(13,268)	$	2,536	$	1,558
Other comprehensive income (loss):
Unrealized loss on derivative contract	(352)		—		(352)		—
Comprehensive income (loss)	$	2,648	$	(13,268)	$	2,184	$	1,558

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

3

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		Accumulated Other Comprehensive Income (Loss)		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
Net income	—	—		—	—		—		—		—	—		3,000		—		3,000
Issuance of common stock under employee plans	11	—		—	—		—		—		—	—		—		—		—
Stock-based compensation	—	—		—	—		(596)		—		—	—		—		—		(596)
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,313)		—		(1,313)
Unrealized loss on derivative contract	—	—		—	—		—		—		—	—		—		(352)		(352)
Balance as of June 30, 2021	32,907	$	3	700	$	—	$	141,787	$	68,853	(82)	$	(365)	$	(32,729)	$	(352)	$	177,197

4

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
Net loss	—	—		—	—		—		—		—	—		(13,268)		(13,268)
Issuance of common stock under employee plans	6	—		—	—		—		—		—	—		—		—
Stock-based compensation	—	—		—	—		503		—		—	—		—		503
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,309)		(1,309)
Balance as of June 30, 2020	32,693	$	3	700	$	—	$	140,589	$	68,853	(82)	$	(365)	$	(38,098)	$	170,982

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

5

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income	$	2,536	$	1,558
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	10,470		8,821
Amortization of right-of-use assets for operating leases	11,856		18,163
Bad debt expense	1,025		1,138
Stock-based compensation	1,186		1,509
Deferred income taxes	—		345
Training equipment credits earned, net	504		503
Unrealized loss on derivative contract	(352)		—
Other (losses) gains, net	(330)		8
Changes in assets and liabilities:
Receivables	6,093		(13,917)
Prepaid expenses	(4,906)		(1,591)
Other assets	(773)		40
Notes receivable	(956)		1,115
Accounts payable and accrued expenses	(1,693)		12,494
Deferred revenue	1,299		(9,973)
Income tax receivable	2,522		(11,070)
Accrued tool sets and other current liabilities	1,122		1,030
Operating lease liability	(13,546)		(19,264)
Other liabilities	(1,274)		(1,026)
Net cash provided by (used in) operating activities	14,783		(10,117)
Cash flows from investing activities:
Purchase of held-to-maturity securities	—		(41,562)
Proceeds from maturities of held-to-maturity securities	37,401		9,761
Purchase of property and equipment	(54,245)		(7,190)
Proceeds from insurance policy	—		1,566
Proceeds from disposal of property and equipment	6		48
Return of capital contribution from unconsolidated affiliate	226		190
Net cash used in investing activities	(16,612)		(37,187)
Cash flows from financing activities:
Proceeds from term loan	31,150		—
Debt issuance costs related to the term loan	(272)		—
Proceeds from equity offering	—		49,137
Payment of preferred stock cash dividend	(2,625)		(2,632)
Payments on term loan and finance leases	(162)		(68)
Payment of payroll taxes on stock-based compensation through shares withheld	(401)		(527)
Net cash provided by financing activities	27,690		45,910
Change in cash, cash equivalents and restricted cash	25,861		(1,394)
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	102,856		59,956
Restricted cash, end of period	11,924		19,205
Cash, cash equivalents and restricted cash, end of period	$	114,780	$	79,161

6

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)

	Nine Months Ended June 30,
	2021		2020
Supplemental disclosure of cash flow information:
Income taxes refunded	$	(2,443)	$	(172)
Interest paid	133		5
Training equipment obtained in exchange for services	400		279
Depreciation of training equipment obtained in exchange for services	922		1,011
Change in accrued capital expenditures during the period	(621)		313
CARES Act funds received for student emergency grants (See Note 20)	11,902		16,565
CARES Act funds disbursed for student emergency grants (See Note 20)	(11,528)		(11,012)
CARES Act funds received for institutional costs (See Note 20)	2,677		—
CARES Act funds for institutional costs included in Receivables, net	—		5,931

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

7

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 56 years and have graduated more than 225,000 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 (the “2020 Annual Report on Form 10-K”).

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 nine months ended June 30, 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.

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.

Other than described below, there have been no other material changes or developments in our significant accounting policies or evaluation of accounting estimates and underlying assumptions or methodologies from those disclosed in Note 2 of our 2020 Annual Report on Form 10-K.

8

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

New Significant Accounting Policy for Derivative Financial Instruments

On occasion, we may use interest rate swaps to manage interest rate risk and limit the impact of future interest rate changes on earnings and cash flows, primarily with variable-rate debt. We do not use derivative financial instruments for trading or speculative purposes. We recognize all derivatives at fair value within the line items “Other current assets,” “Other assets,” “Other current liabilities,” and “Other liabilities” on the condensed consolidated balance sheet. Management reviews our derivative positions and overall risk management strategy on a regular basis. We only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes.

We may choose to designate our derivative financial instruments, which are generally interest rate swaps, to hedge future interest payments on variable debt. At inception of the transaction, we formally designate and document the derivative financial instrument as a hedge of a specific underlying exposure, the risk management objective, and strategy for undertaking the hedge transaction. We formally assess both at inception and at least quarterly thereafter, the effectiveness of our hedging transactions. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures hedged, fluctuations in the value of the derivative financial instruments will generally be offset by the changes in the cash flows or fair value of the underlying exposures being hedged.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the condensed consolidated balance sheets. For cash flow hedges, we report the effective portion of the gain or loss as a component of “Accumulated other comprehensive income (loss)” and reclassify it to “Interest expense” in the condensed consolidated statements of operations over the corresponding period of the underlying hedged item. The ineffective portion of the change in fair value of a derivative financial instrument is recognized in “Interest expense” at the time the ineffectiveness occurs. To the extent the hedged forecasted interest payments on debt related to our interest rate swap is paid off, the remaining balance in “Accumulated other comprehensive income (loss)” is recognized in “Interest expense” in the condensed consolidated statements of operations.

See Note 13 for additional disclosures related to our derivative financial instruments.

Reclassifications

Due to the new term loan that was executed during the three months ended June 30, 2021, which is described in further detail in Note 12, we added two new lines to the condensed consolidated balance sheet: “Long-term debt, current portion,” and “Long-term debt.” We have presented both the liabilities related to the term loan and finance leases in these new lines as of June 30, 2021. For the period ended September 30, 2020, $0.1 million of short-term finance lease liabilities was reclassified from “Other current liabilities” to “Long-term debt, current portion” and long-term finance lease liabilities of $0.1 million were reclassified from “Other liabilities” to “Long-term debt” on the condensed consolidated balance sheet for comparable presentation.

Note 3 - Recent Accounting Pronouncements

Effective in 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

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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 in 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.

Other

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. This new guidance only applies to contracts and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The amendments in ASU 2020-04 do not apply to contract modifications made after December 31, 2022. Given the interest rate for our new term loan (which is further described in Note 12) references LIBOR, we are currently evaluating the new reference rate reform practical expedients and will consider adopting this guidance when we are required to modify our contract for the discontinuation of LIBOR.

Note 4 - 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.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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 18 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.

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

	June 30, 2021		September 30, 2020
Receivables, which includes tuition and notes receivable	$	50,145	$	53,144
Deferred revenue	41,993		40,694

During the nine months ended June 30, 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 are designed to meet the current national guidelines recommended by the Centers for Disease Control (“CDC”) as well as state and local mandates, while still meeting our accreditation and curriculum requirements.

All of our campuses remained open during the nine months ended June 30, 2021, and as of June 30, 2021, all students were back in person for labs at our campuses with less than 1% of students with catch-up lab work outstanding. As a result, during the three months ended June 30, 2021, we recognized the remaining $0.8 million of deferred revenue outstanding and had zero deferred revenue related to the impact of COVID-19 as of June 30, 2021 as the deferral would not have been material to the condensed consolidated financial statements.

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 for further details on the equity offering. These proceeds, along with our existing cash balance at that time, resulted in a total cash balance well in excess of our near-term cash needs at that time. As a result, we invested a portion of the excess cash 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.

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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 June 30, 2021 and September 30, 2020 were as follows:

	June 30, 2021
			Gross Unrealized				Estimated Fair
Due in less than 1 year:	Amortized Cost		Gains		Losses		Market Value
Corporate and municipal bonds	$	250	$	—	$	—	$	250

	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
	June 30, 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)	$	61,840	$	61,840	$	—	$	—
Notes receivable(2)	35,393		—		—		35,393
Municipal bonds and other(3)	250		250		—		—
Total assets at fair value on a recurring basis	$	97,483	$	62,090	$	—	$	35,393

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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 June 30, 2021 and September 30, 2020.

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

(3) Corporate bonds, municipal bonds and other are reflected as “Held-to-maturity investments” in our condensed consolidated balance sheet as of June 30, 2021 and September 30, 2020.

Note 7 - Property and Equipment, net

Property and equipment, net consisted of the following:

	Depreciable Lives (in years)	June 30, 2021		September 30, 2020
Land (1)	—	$	8,355	$	3,189
Buildings and building improvements (1)	3-35	68,305		28,046
Leasehold improvements	1-28	64,320		62,899
Training equipment	3-10	91,032		91,731
Office and computer equipment	3-10	31,536		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	—	7,000		2,213
		304,018		255,106
Less: Accumulated depreciation and amortization		(186,528)		(182,363)
		$	117,490	$	72,743

(1) During the nine months ended June 30, 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 June 30, 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

13

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. There were no indicators of goodwill impairment as of June 30, 2021.

Note 9