__________________________________________________________________________________________________________

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, 2022

☐    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 2, 2022, there were 33,042,047 shares outstanding of the registrant's common stock.

UNIVERSAL TECHNICAL INSTITUTE, INC.

INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022

 

		Page
		Number
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2022 and September 30, 2021 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2022 and 2021 (Unaudited)	2
	Condensed Consolidated Statements of Other Comprehensive Income (Loss) for the Three and Six Months Ended March 31, 2022 and 2021 (Unaudited)	3
	Condensed Consolidated Statements of Shareholders’ Equity as of March 31, 2022 and 2021 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2022 and 2021 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
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 realize the expected benefits of our acquisition of MIAT College of Technology;

•our failure to successfully integrate MIAT College of Technology’s program offerings into our current program offerings;

•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 while maintaining positive student outcomes;

•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 covenants and our ability to pay the amounts when due under the Credit Agreement; and

•risks related to other factors discussed in our 2021 Annual Report on Form 10-K filed with the SEC on December 2, 2021 (the “2021 Annual Report on Form 10-K”).

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

ii

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.

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, 2022		September 30, 2021
Assets
Cash and cash equivalents	$	61,498	$	133,721
Restricted cash	11,481		12,256
Receivables, net	15,465		17,151
Notes receivable, current portion	5,519		5,538
Prepaid expenses	8,048		6,658
Other current assets	7,461		8,068
Total current assets	109,472		183,392
Property and equipment, net	193,084		122,051
Goodwill	16,859		8,222
Intangible assets	16,273		124
Notes receivable, less current portion	30,764		30,586
Right-of-use assets for operating leases	141,736		159,075
Deferred tax asset, net	3,907		—
Other assets	5,258		9,120
Total assets	$	517,353	$	512,570
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	$	55,147	$	54,397
Deferred revenue	42,010		57,648
Accrued tool sets	3,619		3,292
Operating lease liability, current portion	12,940		14,075
Long term debt, current portion	2,374		876
Other current liabilities	2,262		2,430
Total current liabilities	118,352		132,718
Deferred tax liabilities, net	—		674
Operating lease liability	137,635		153,228
Long-term debt	46,045		29,850
Other liabilities	4,586		7,570
Total liabilities	306,618		324,040
Commitments and contingencies (Note 16)
Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 33,124 and 32,915 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	143,926		142,314
Paid-in capital - preferred	68,853		68,853
Treasury stock, at cost, 82 shares	(365)		(365)
Retained deficit	(2,437)		(21,996)
Accumulated other comprehensive income (loss)	755		(279)
Total shareholders’ equity	210,735		188,530
Total liabilities and shareholders’ equity	$	517,353	$	512,570

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,
	2022		2021		2022		2021
Revenues	$	102,086	$	77,709	$	207,161	$	153,834
Operating expenses:
Educational services and facilities	49,209		40,480		97,110		79,811
Selling, general and administrative	49,500		38,890		93,096		74,909
Total operating expenses	98,709		79,370		190,206		154,720
Income (loss) from operations	3,377		(1,661)		16,955		(886)
Other (expense) income:
Interest income	8		8		20		62
Interest expense	(466)		(1)		(699)		(3)
Other (expense) income, net	(163)		73		(45)		355
Total other (expense) income, net	(621)		80		(724)		414
Income (loss) before income taxes	2,756		(1,581)		16,231		(472)
Income tax benefit (See Note 15)	4,598		34		5,945		8
Net income (loss)	$	7,354	$	(1,547)	$	22,176	$	(464)
Preferred stock dividends	1,294		1,312		2,617		2,625
Net income (loss) available for distribution	$	6,060	$	(2,859)	$	19,559	$	(3,089)
Earnings per share (See Note 18):
Net income (loss) per share - basic	$	0.11	$	(0.09)	$	0.36	$	(0.09)
Net income (loss) per share - diluted	$	0.11	$	(0.09)	$	0.36	$	(0.09)
Weighted average number of shares outstanding:
Basic	32,992		32,762		32,920		32,709
Diluted	33,436		32,762		33,393		32,709

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 (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Net income (loss)	$	7,354	$	(1,547)	$	22,176	$	(464)
Other comprehensive income:
Unrealized gain on interest rate swap	861		—		1,034		—
Comprehensive income (loss)	$	8,215	$	(1,547)	$	23,210	$	(464)

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, 2021	32,915	$	3	700	$	—	$	142,314	$	68,853	(82)	$	(365)	$	(21,996)	$	(279)	$	188,530
Net income	—	—		—	—		—		—		—	—		14,822		—		14,822
Issuance of common stock under employee plans	111	—		—	—		—		—		—	—		—		—		—
Shares withheld for payroll taxes	(37)	—		—	—		(301)		—		—	—		—		—		(301)
Stock-based compensation	—	—		—	—		706		—		—	—		—		—		706
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,323)		—		(1,323)
Unrealized gain on interest rate swap	—	—		—	—		—		—		—	—		—		173		173
Balance as of December 31, 2021	32,989	$	3	700	$	—	$	142,719	$	68,853	(82)	$	(365)	$	(8,497)	$	(106)	$	202,607
Net income	—	—		—	—		—		—		—	—		7,354		—		7,354
Issuance of common stock under employee plans	177	—		—	—		—		—		—	—		—		—		—
Shares withheld for payroll taxes	(42)	—		—	—		(327)		—		—	—		—		—		(327)
Stock-based compensation	—	—		—	—		1,534		—		—	—		—		—		1,534
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,294)		—		(1,294)
Unrealized gain on interest rate swap	—	$	—	—	$	—	$	—	$	—	—	$	—	$	—	$	861	$	861
Balance as of March 31, 2022	33,124	$	3	700	$	—	$	143,926	$	68,853	(82)	$	(365)	$	(2,437)	$	755	$	210,735

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		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

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)

	Six Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	22,176	$	(464)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,563		6,851
Amortization of right-of-use assets for operating leases	9,123		8,117
Bad debt expense	1,355		415
Stock-based compensation	2,240		1,782
Deferred income taxes	(6,556)		—
Training equipment credits earned, net	(809)		155
Unrealized gain on interest rate swap	1,034		—
Other gains (losses), net	112		(135)
Changes in assets and liabilities:
Receivables	3,777		12,277
Prepaid expenses	(79)		(2,987)
Other assets	(540)		(535)
Notes receivable	(159)		134
Accounts payable and accrued expenses	(46)		(1,480)
Deferred revenue	(17,481)		260
Income tax receivable	—		2,685
Accrued tool sets and other current liabilities	752		244
Operating lease liability	(8,566)		(9,159)
Other liabilities	(3,496)		(633)
Net cash provided by operating activities	10,400		17,527
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired	(26,514)		—
Purchase of property and equipment	(53,151)		(49,919)
Proceeds from disposal of property and equipment	2		6
Proceeds from maturities of held-to-maturity securities	—		18,189
Return of capital contribution from unconsolidated affiliate	188		150
Net cash used in investing activities	(79,475)		(31,574)
Cash flows from financing activities:
Payment of preferred stock cash dividend	(2,617)		(2,625)
Payments on term loan and finance leases	(678)		(64)
Payment of payroll taxes on stock-based compensation through shares withheld	(628)		(401)
Net cash used in financing activities	(3,923)		(3,090)
Change in cash, cash equivalents and restricted cash	(72,998)		(17,137)
Cash and cash equivalents, beginning of period	133,721		76,803
Restricted cash, beginning of period	12,256		12,116
Cash, cash equivalents and restricted cash, beginning of period	145,977		88,919
Cash and cash equivalents, end of period	61,498		58,965
Restricted cash, end of period	11,481		12,817
Cash, cash equivalents and restricted cash, end of period	$	72,979	$	71,782

6

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)

	Six Months Ended March 31,
	2022		2021
Supplemental disclosure of cash flow information:
Income taxes paid (refunded)	$	399	$	(2,693)
Interest paid	680		3
Training equipment obtained in exchange for services	802		227
Depreciation of training equipment obtained in exchange for services	453		646
Accounts payable and accrued expenses for capital expenditures	1,140		1,098
CARES Act funds received for student emergency grants (See Note 21)	4,942		—
CARES Act funds disbursed for student emergency grants (See Note 21)	(5,026)		—
CARES Act funds received for institutional costs	—		880

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

Founded in 1965, with approximately 250,000 graduates in its history, Universal Technical Institute, Inc. (“we,” “us” or “our”) is a leading provider of transportation and technical training programs. As of March 31, 2022, we offered certificate, diploma or degree programs at 14 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute (“UTI”), Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, “MMI”), NASCAR Technical Institute (“NASCAR Tech”), and MIAT College of Technology (“MIAT”). Additionally, we offer manufacturer specific advanced training (“MSAT”) programs, including student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers.

We 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 21 on “Government Regulation and Financial Aid” included in our 2021 Annual Report on Form 10-K filed with the SEC on December 2, 2021 (the “2021 Annual Report on Form 10-K”).

We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. This blended learning format has allowed us to continue to offer our programs to our students during the COVID-19 pandemic and aligns with an increasing trend of online education being offered as individuals seek more flexibility and life-long learning opportunities. On-campus labs are designed to meet or exceed the current national guidelines recommended by the Centers for Disease Control (“CDC”) as well as state and local mandates, while still meeting our accreditation and curriculum requirements.

Note 2 - 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, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2022. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2021 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 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 2021 Annual Report on Form 10-K.

New Significant Accounting Policy for Goodwill and Intangible Assets

We test goodwill and indefinite-lived intangible assets for impairment annually as of August 1, or more frequently if events and circumstances warrant. Under ASC 350, Intangibles - Goodwill and Other, to evaluate the impairment of goodwill, we first assess qualitative factors, such as deterioration in the operating performance of the acquired business, adverse market conditions, adverse changes in the applicable laws or regulations and a variety of other circumstances, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. To evaluate the impairment of the indefinite-lived intangible assets, we assess the fair value of the assets to determine whether they were greater or less than

8

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

the carrying values. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the quantitative impairment tests to compare the estimated fair value of the reporting unit to the carrying value of its net assets. Determining the fair value of indefinite-lived intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, future tuition revenues, operating costs, working capital changes, capital expenditures and a discount rate. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends particularly in student enrollment and pricing and long-term operating strategies and initiatives. There were no indicators of impairment for our goodwill or indefinite-lived intangible assets as of March 31, 2022.

We also have definite-lived intangible assets, which primarily consist of purchased intangibles and capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets.

See Note 8 and Note 9 for additional details on our goodwill and intangible assets.

Reclassifications

Due to the acquisition of MIAT on November 1, 2021, which is described in further detail in Note 4, we added a new line to the condensed consolidated balance sheet: “Intangible Assets.” We have presented the intangible assets arising from the MIAT acquisition as well as the previously recorded intangible assets in this line. As of September 30, 2021, $0.1 million of intangible assets was reclassified from “Other assets” to “Intangible assets” on the condensed consolidated balance sheet for comparable presentation.

Note 3 - Recent Accounting Pronouncements

Effective in Fiscal 2022

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 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 have evaluated the new guidance and determined that there is no material impact on our results of operations, financial condition or financial statement disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendments in ASU 2021-08 require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts from Customers (“ASC 606”). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree financial statements were prepared in accordance with generally accepted accounting principles). For public business entities, the amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of ASU 2021-08 is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. Due to the MIAT acquisition on November 1, 2021, we have elected to early adopt ASU 2021-08 as of October 1, 2021 and have applied the guidance in ASU 2021-08 to the deferred revenue recorded for MIAT. See Note 4 for further information on the acquisition of MIAT.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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 term loan (which is further described in Note 13) references LIBOR, we are currently evaluating the new reference rate reform practical expedients and will consider adopting this guidance when we are required to modify our contract for the discontinuation of LIBOR.

Note 4 - Acquisition of MIAT College of Technology

On November 1, 2021, we completed the acquisition contemplated by the previously announced Stock Purchase Agreement (the “Purchase Agreement”), dated March 29, 2021, by and among UTI, HCP Ed Holdings, LLC, a Delaware limited liability company (“Seller”), HCP Ed Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Seller (“HCP”), and Michigan Institute of Aeronautics, Inc. d/b/a MIAT, a Michigan corporation and wholly subsidiary of HCP. MIAT is a post-secondary school that offers vocational and technical certificates and degrees across aviation maintenance, energy technology, wind energy technology, robotics and automation, non-destructive testing, heating ventilation air conditioning and refrigeration (“HVACR”), and welding disciplines. HCP is MIAT’s holding company that owns no assets other than the issued and outstanding shares of MIAT.

The acquisition is part of our growth and diversification strategy and will allow us to expand MIAT programs throughout UTI brand campuses and extend UTI’s presence and programs into the Canton, MI market where MIAT has been for over 50 years. Other expected synergies include operating and purchasing cost efficiencies and broadening the opportunity for student growth at the acquired MIAT campuses by leveraging our high school and national marketing and admissions infrastructure.

Under the terms of the Purchase Agreement, we acquired all of the issued and outstanding shares of capital stock of HCP from the Seller for $26.0 million base purchase price plus $2.8 million working capital surplus for total cash consideration paid of $28.8 million. As a result, HCP is now a wholly-owned subsidiary of UTI and MIAT remains as a wholly-owned subsidiary of HCP. The consideration paid was funded by available operating cash.

In connection with this acquisition, we incurred total transaction costs of $1.6 million of which $0.8 million were incurred during the six months ended March 31, 2022 and $0.8 million during the year ended September 30, 2021. In both periods, these costs are included in “Selling, general and administrative” expenses in the condensed consolidated statements of operations. The results of operations for MIAT were not material to our condensed consolidated statement of operations for the three and six months ended March 31, 2022.

Under the acquisition method of accounting, the total purchase price was allocated to the identifiable assets acquired and the liabilities assumed based on our preliminary valuation estimates of the fair values as of the acquisition date. During the three months ended March 31, 2022, adjustments were made related to the acquired deferred tax liabilities, right-of-use assets for operating leases and other assets, which adjusted the value of the goodwill acquired. The acquisition accounting allocation is based upon the information available as of the date of this filing and there could be further adjustments related to taxes as we continue our analysis under the provisions of ASC 805 which allows companies one year to complete acquisition related adjustments, which may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, and the determination of any residual amount that will be allocated to goodwill.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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

Assets acquired:
Cash and cash equivalents	$	2,301
Accounts receivable, net	3,230
Prepaid expenses	268
Other current assets	507
Property and equipment	3,043
Goodwill	8,637
Intangible assets	16,200
Right-of-use assets for operating leases	14,979
Other assets	314
Total assets acquired	$	49,479
Less: Liabilities assumed
Accounts payable and accrued expenses	$	1,720
Deferred revenue	1,843
Operating lease liability, current portion	817
Deferred tax liabilities, net	1,975
Operating lease liability	14,216
Other liabilities	93
Total liabilities assumed	20,664
Net assets acquired	$	28,815

The goodwill of $8.6 million arising from the acquisition consists largely of the growth and operating synergies expected from integrating MIAT into UTI. The total amount of goodwill expected to be deductible for tax purposes is approximately $0.6 million. See Note 8 for additional details on goodwill.

The purchase price allocation requires subjective estimates that, if incorrectly estimated, could be material to our consolidated financial statements including the amount of depreciation and amortization expense. The fair value of the tangible assets was estimated using the cost approach. The intangible assets acquired, which primarily consists of the accreditations and regulatory approvals, trademarks and trade names, and curriculum, were valued using different valuation techniques depending upon the nature of the intangible asset acquired. The accreditations and regulatory approvals were valued using the multiperiod excess earnings method (“MPEEM”) under the income approach. The MPEEM is a variation of discounted cash-flow analysis. Rather than focusing on the whole entity, the MPEEM isolates the cash flows that can be associated with a single intangible asset and measures fair value by discounting them to present value. The trademarks and trade names were valued using the relief from royalty method. The value of the trade name encompasses all items necessary to generate revenue utilizing the trade name. The curriculum was valued using the cost approach. See Note 9 for further details on the intangible assets recorded. As previously discussed in Note 3, we early adopted ASU 2021-08 and applied the new guidance when recording the initial deferred revenue.

Pro forma financial information is not presented as the fiscal 2021 revenues and earnings of MIAT are not material to our condensed consolidated statements of operations. MIAT’s principal business is providing postsecondary education and is included in our “Postsecondary Education” reporting unit disclosed in Note 19 on Segments. MIAT’s corporate expenses are allocated to “Postsecondary Education” and the “Other” category based on compensation expense.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 5 - 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. Tuition and fee revenue is recognized ratably over the term of the course or program offered. The majority of our UTI programs are designed to be completed in 36 to 90 weeks while our MIAT programs are completed in 30 to 104 weeks. Our advanced training programs range from 12 to 23 weeks in duration. We supplement our revenues with sales of textbooks and program supplies and other revenues, which are recognized as the transfer of goods or services occurs. Deferred revenue represents the excess of tuition and fee payments received as compared to tuition and fees earned and is reflected as a current liability in our 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 19 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:

	March 31, 2022		September 30, 2021
Receivables, which includes tuition and notes receivable	$	45,601	$	46,489
Deferred revenue	42,010		57,648

During the six months ended March 31, 2022, the deferred revenue balance included decreases for revenues recognized during the period and increases related to new students who started their training programs during the period.

12

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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, 2022		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)	$	57,109	$	57,109	$	—	$	—
Notes receivable(2)	36,283		—		—		36,283
Total assets at fair value on a recurring basis	$	93,392	$	57,109	$	—	$	36,283

			Fair Value Measurements Using
	September 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)	$	62,100	$	62,100	$	—	$	—
Notes receivable(2)	36,124		—		—		36,124
Total assets at fair value on a recurring basis	$	98,224	$	62,100	$	—	$	36,124

(1) Money market funds and other highly liquid investments with maturity dates less than 90 days are reflected as “Cash and cash equivalents” in our condensed consolidated balance sheet as of March 31, 2022 and September 30, 2021.

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

13

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)	March 31, 2022		September 30, 2021
Land	—	$	16,555	$	8,355
Buildings and building improvements	3-35	118,335		71,036
Leasehold improvements	1-28	71,544		63,502
Training equipment	3-10	92,261		91,191
Office and computer equipment	3-10	32,016		31,718
Curriculum development	5	19,692		19,692
Software developed for internal use	1-5	11,887		12,524
Vehicles	5	1,431		1,436
Right-of-use assets for finance leases	2-3	215		215
Construction in progress	—	19,587		10,171
		383,523		309,840
Less: Accumulated depreciation and amortization		(190,439)		(187,789)
		$	193,084	$	122,051

Depreciation expense related to property and equipment was $3.9 million and $7.5 million for the three and six months ended March 31, 2022, respectively, and $3.5 million and $6.8 million for the three and six months ended March 31, 2021, respectively.

Acquisition of Lisle

On February 11, 2022, we completed the acquisition of 2611 Corporate West Drive Venture LLC (“2611”) which owns our Lisle, Illinois campus (the “Lisle Campus”). Prior to the acquisition, we had a 28% interest in 2611 through our unconsolidated affiliate, as described in Note 10, and previously leased the campus from 2611. The total cash consideration paid, including transaction related costs, for the remaining 72% interest in 2611 was $28.4 million. In addition to the cash consideration paid, we assumed $18.3 million in debt for a loan agreement with a third-party bank that is secured by a mortgage on the Lisle Campus. The total net assets recorded for the transaction equaled $33.0 million, of which $8.2 million was allocated to land, $43.1 million was allocated to buildings, and $18.3 million was allocated to debt. Additionally, prior to the acquisition of 2611, there was $4.0 million in leasehold improvements recorded for the Lisle Campus which we have reclassified to building and building improvements.

Note 8 - Goodwill

Our goodwill balance of $16.9 million as of March 31, 2022 represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed. The changes in the carrying value of goodwill are presented in the table below.

	March 31, 2022		September 30, 2021
Balance at beginning of period	$	8,222	$	8,222
Additions to Goodwill for acquisition of MIAT	8,637		—
Balance at end of period	$	16,859	$	8,222

Of the $16.9 million recorded as goodwill as of March 31, 2022, $8.2 million resulted from the acquisition of our motorcycle and marine education business in Orlando, Florida in 1998 and $8.6 million relates to the acquisition of MIAT as of November 1, 2021 as previously described in Note 4. All of the goodwill relates to our Postsecondary Education reportable operating segment.

14

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Goodwill is reviewed at least annually for impairment, which may result from the deterioration in the operating performance of the acquired businesses, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. Historically, this testing has been performed as of September 30 of each fiscal year. Effective as of October 1, 2021, we determined that our goodwill will be tested annually for impairment as of August 1 and more frequently if events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We do not consider this change to be material and believe that the timing is preferable as it allows additional time to complete the annual assessment in advance of the annual reporting deadline. This change in assessment date did not delay, accelerate, or cause avoidance of a potential impairment charge. There were no indicators of goodwill impairment as of March 31, 2022.

Note 9 - Intangible Assets

The following table provides the gross carrying value, accumulated amortization, net book value and remaining useful life for intangible assets subject to amortization as of March 31, 2022:

	Gross Carrying Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (Years)
Accreditations and regulatory approvals - MIAT	$	12,800	$	—	$	12,800	Indefinite
Trademarks and trade names - MIAT	3,000		—		3,000		Indefinite
Curriculum - MIAT	400		(33)		367		4.58
Non-compete agreement and trade name	442		(336)		106		3.08
Total	$	16,642	$	(369)	$	16,273	4.23

Of the $16.6 million gross carrying value recorded as intangible assets as of March 31, 2022, $16.2 million relates to the MIAT acquisition completed on November 1, 2021 as previously described in Note 4. The remaining weighted average useful lives shown are calculated based on the net book value and remaining amortization period of each respective intangible asset. Amortization is computed using the straight-line method based on estimated useful lives of the related assets. Amortization expense related to finite-lived intangible assets was $51.1 thousand and $17.7 thousand for the six months ended March 31, 2022 and 2021, respectively.

As discussed in our new significant accounting policy on intangible assets in Note 2, our indefinite-lived intangible assets are reviewed at least annually for impairment as of August 1, or more frequently if there are indicators of impairment. There were no indicators of impairment for our indefinite-lived intangible assets as of March 31, 2022.

Note 10 - Investment in Unconsolidated Affiliate

In 2012, we invested $4.0 million to acquire an equity interest of approximately 28% in a joint venture (“JV”) related to the lease of the Lisle Campus. As discussed in Note 7, in February 2022, this JV was dissolved and we acquired the building, land and debt associated with this campus through the acquisition of the 2611 entity.

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

	March 31, 2022				September 30, 2021
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
Investment in JV	$	—	—	%	$	4,627	28.0	%

15

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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

	Six Months Ended March 31,
	2022		2021
Balance at beginning of period	$	4,627	$	4,494
Equity in earnings of unconsolidated affiliate	113		215
Return of capital contribution from unconsolidated affiliate	(188)		(150)
Dissolution of unconsolidated affiliate	(4,552)		—
Balance at end of period	$	—	$	4,559

Note 11 - Leases

As of March 31, 2022, we leased 10 of our 14 currently operating campuses, two future 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 2036. 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, 2022, 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.

As previously discussed in Note 7, in February 2022 we purchased the 2611 entity which owns the Lisle Campus. While the lease for the Lisle Campus remains in place between the 2611 and UTI of Illinois, LLC entities, at the UTI, Inc consolidated level, the right-of-use asset and the operating lease liability for this campus were settled, resulting in a gain on settlement of $1.6 million which has been included within “Educational services and facilities” on our condensed consolidated statement of operations for the three and six months ended March 31, 2022.

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