Universal Technical Institute(UTI) - 2022 Q3 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that the report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[9] - Key risk factors include regulatory non-compliance, inability to maintain federal student financial assistance eligibility, Congressional scrutiny of for-profit education, disruptions in federal financial aid access, regulatory investigations, public health pandemic impacts, state regulatory changes, failure to realize acquisition benefits, enrollment declines, and loss of key management[11] PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, acquisitions, revenue recognition, fair value measurements, property, goodwill, intangible assets, leases, debt, derivatives, income taxes, commitments, shareholders' equity, EPS, segment information, government regulation, and emergency relief funds Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 (in thousands) | September 30, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :-------------------------------- | | Cash and cash equivalents | $70,713 | $133,721 | | Total current assets | $121,939 | $183,392 | | Property and equipment, net | $207,036 | $122,051 | | Goodwill | $16,859 | $8,222 | | Intangible assets | $16,244 | $124 | | Total assets | $540,282 | $512,570 | | Total current liabilities | $120,933 | $132,718 | | Long-term debt | $66,832 | $29,850 | | Total liabilities | $328,638 | $324,040 | | Total shareholders' equity | $211,644 | $188,530 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenues | $100,966 | $83,768 | $308,127 | $237,602 | | Total operating expenses | $99,012 | $80,716 | $289,218 | $235,436 | | Income from operations | $1,954 | $3,052 | $18,909 | $2,166 | | Net income | $843 | $3,000 | $23,019 | $2,536 | | Preferred stock dividends | $1,296 | $1,313 | $3,913 | $3,938 | | Net (loss) income available for distribution | $(453) | $1,687 | $19,106 | $(1,402) | | Net (loss) income per share - basic | $(0.01) | $0.03 | $0.36 | $(0.04) | | Net (loss) income per share - diluted | $(0.01) | $0.03 | $0.35 | $(0.04) | Condensed Consolidated Statements of Other Comprehensive Income (Loss) Condensed Consolidated Statements of Other Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $843 | $3,000 | $23,019 | $2,536 | | Unrealized gain (loss) on interest rate swap, net of taxes | $334 | $(352) | $1,368 | $(352) | | Comprehensive income | $1,177 | $2,648 | $24,387 | $2,184 | Condensed Consolidated Statements of Shareholders' Equity Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Metric (in thousands) | Balance as of September 30, 2021 | Balance as of June 30, 2022 | | :-------------------------------- | :------------------------------- | :-------------------------- | | Common Stock (shares) | 32,915 | 33,850 | | Common Stock (amount) | $3 | $3 | | Preferred Stock (shares) | 700 | 676 | | Paid-in Capital - Common | $142,314 | $147,326 | | Paid-in Capital - Preferred | $68,853 | $66,481 | | Retained Deficit | $(21,996) | $(2,890) | | Accumulated Other Comprehensive Income (Loss) | $(279) | $1,089 | | Total Shareholders' Equity | $188,530 | $211,644 | - During the nine months ended June 30, 2022, net income contributed $23,019 thousand to retained deficit, while preferred stock dividends reduced it by $3,913 thousand; a significant unrealized gain on interest rate swap of $1,368 thousand was recognized in accumulated other comprehensive income[24] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $7,906 | $14,783 | | Net cash used in investing activities | $(95,934) | $(16,612) | | Net cash provided by financing activities | $15,391 | $27,690 | | Change in cash, cash equivalents and restricted cash | $(72,637) | $25,861 | | Cash, cash equivalents and restricted cash, end of period | $73,340 | $114,780 | - Significant investing activities in 9M 2022 included $26,514 thousand cash paid for the MIAT acquisition and $69,615 thousand for property and equipment purchases[29] - Financing activities in 9M 2022 included $38,000 thousand proceeds from a term loan, offset by $19,004 thousand in payments on term loans and finance leases[29] Notes to Condensed Consolidated Financial Statements Note 1 - Nature of the Business - Universal Technical Institute, Inc. is a leading provider of transportation and technical training programs, operating 15 campuses under brands like UTI, MMI, NASCAR Tech, and MIAT[33] - Revenues primarily consist of student tuition and fees, largely funded by federal financial aid programs (Title IV) and veterans' benefits[34] - The company utilizes a blended learning model combining online teaching with hands-on labs, which supported operations during the COVID-19 pandemic and aligns with online education trends[35] Note 2 - Basis of Presentation - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information, requiring estimates and assumptions[36][37] - A new significant accounting policy for goodwill and indefinite-lived intangible assets involves annual impairment testing as of August 1, or more frequently if circumstances warrant, with no impairment indicators as of June 30, 2022[39][40] - Intangible assets were reclassified from 'Other assets' to a new 'Intangible Assets' line on the balance sheet due to the MIAT acquisition[43] Note 3 - Recent Accounting Pronouncements - ASU 2019-12 (Income Taxes) had no material impact on financial statements[44] - The company early adopted ASU 2021-08 (Business Combinations: Accounting for Contract Assets and Liabilities) as of October 1, 2021, applying it to deferred revenue from the MIAT acquisition[45] - The company is evaluating ASU 2020-04 (Reference Rate Reform) for its term loan referencing LIBOR, considering adoption when contract modification is required[46] Note 4 - Acquisition of MIAT College of Technology - On November 1, 2021, the company acquired MIAT College of Technology for a total cash consideration of $28.8 million, funded by available operating cash[47][49] - The acquisition is part of a growth and diversification strategy, aiming to expand MIAT programs, extend UTI's presence, and achieve operating synergies[48] Assets Acquired and Liabilities Assumed (in thousands) | Assets Acquired (in thousands) | Amount | | :----------------------------- | :----- | | Cash and cash equivalents | $2,301 | | Accounts receivable, net | $3,230 | | Property and equipment | $3,043 | | Goodwill | $8,637 | | Intangible assets | $16,200 | | Right-of-use assets for operating leases | $14,979 | | Total assets acquired | $49,479 | | Less: Liabilities Assumed (in thousands) | Amount | | Accounts payable and accrued expenses | $1,720 | | Deferred revenue | $1,843 | | Operating lease liability | $14,216 | | Deferred tax liabilities, net | $1,975 | | Total liabilities assumed | $20,664 | | Net assets acquired | $28,815 | Note 5 - Revenue from Contracts with Customers - Revenue from postsecondary education, primarily tuition and fees, is recognized ratably over the course or program term, after reductions for discounts, scholarships, and refunds[55] - The company also provides dealer technician training and instructor staffing services to manufacturers, with revenues recognized as services are transferred[57] Contract Balances (in thousands) | Contract Balances (in thousands) | June 30, 2022 | September 30, 2021 | | :------------------------------- | :------------ | :----------------- | | Receivables (tuition and notes) | $55,172 | $46,489 | | Deferred revenue | $42,682 | $57,648 | Note 6 - Fair Value Measurements Assets at Fair Value (in thousands) | Assets at Fair Value (in thousands) | June 30, 2022 | September 30, 2021 | | :---------------------------------- | :------------ | :----------------- | | Money market funds (Level 1) | $52,151 | $62,100 | | Notes receivable (Level 3) | $35,168 | $36,124 | | Total assets at fair value | $87,319 | $98,224 | - In July 2022, the company invested approximately $40.0 million in held-to-maturity securities (money market funds, commercial paper, treasury bills, corporate bonds) to increase interest income yield[63] Note 7 - Property and Equipment, net Property and Equipment, net (in thousands) | Property and Equipment (in thousands) | June 30, 2022 | September 30, 2021 | | :------------------------------------ | :------------ | :----------------- | | Land | $16,603 | $8,355 | | Buildings and building improvements | $118,702 | $71,036 | | Leasehold improvements | $78,383 | $63,502 | | Training equipment | $93,370 | $91,191 | | Construction in progress | $26,682 | $10,171 | | Total gross property and equipment | $398,673 | $309,840 | | Less: Accumulated depreciation and amortization | $(191,637) | $(187,789) | | Property and equipment, net | $207,036 | $122,051 | - On February 11, 2022, the company acquired the Lisle, Illinois campus for $28.4 million cash (including transaction costs) and assumed $18.3 million in debt[65] Note 8 - Goodwill Goodwill (in thousands) | Goodwill (in thousands) | June 30, 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 | - The $8.6 million goodwill from the MIAT acquisition primarily reflects expected growth and operating synergies[52][67] - Goodwill is tested annually for impairment as of August 1, with no indicators of impairment as of June 30, 2022[70] Note 9 - Intangible Assets Intangible Assets (in thousands) | Intangible Assets (in thousands) | 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 | $(53) | $347 | 4.33 | | Non-compete agreement and trade name | $442 | $(345) | $97 | 2.83 | | Total | $16,642 | $(398) | $16,244 | 3.99 | - Of the total intangible assets, $16.2 million resulted from the MIAT acquisition, primarily consisting of accreditations, regulatory approvals, trademarks, trade names, and curriculum[71] - Indefinite-lived intangible assets are reviewed annually for impairment as of August 1, with no impairment indicators as of June 30, 2022[72] Note 10 - Investment in Unconsolidated Affiliate - The company's 28% equity interest in a joint venture related to the Lisle Campus lease was dissolved in February 2022 due to the acquisition of the 2611 entity[73] Investment in Unconsolidated Affiliate (in thousands) | Investment in Unconsolidated Affiliate (in thousands) | June 30, 2022 | September 30, 2021 | | :------------------------------------ | :------------ | :----------------- | | Carrying Value | $0 | $4,627 | | Ownership Percentage | 0% | 28.0% | Note 11 - Leases - The company leases 11 of its 15 operating campuses, one future campus, and its corporate headquarters under non-cancelable operating leases expiring through 2036[76] - The purchase of the Lisle Campus in February 2022 resulted in the settlement of its operating lease liability and right-of-use asset, leading to a $1.6 million gain included in 'Educational services and facilities' expenses[77] Lease Expense (in thousands) | Lease Expense (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Operating lease expense | $4,990 | $5,547 | $17,724 | $17,137 | | Variable lease expense | $1,586 | $947 | $4,059 | $2,804 | | Total net lease expense | $6,563 | $6,409 | $21,717 | $19,678 | Lease Liabilities (in thousands) | Lease Liabilities (in thousands) | June 30, 2022 | September 30, 2021 | | :------------------------------- | :------------ | :----------------- | | Operating lease liability, current portion | $13,197 | $14,075 | | Operating lease liability (noncurrent) | $136,824 | $153,228 | | Total lease liabilities | $150,063 | $167,399 | Note 12 - Accounts Payable and Accrued Expenses Accounts Payable and Accrued Expenses (in thousands) | Accounts Payable and Accrued Expenses (in thousands) | June 30, 2022 | September 30, 2021 | | :----------------------------------- | :------------ | :----------------- | | Accounts payable | $13,824 | $13,702 | | Accrued compensation and benefits | $28,048 | $29,506 | | Other accrued expenses | $15,259 | $11,189 | | Total | $57,131 | $54,397 | Note 13 - Debt Debt (in thousands) | Debt (in thousands) | Interest Rate | Maturity Date | June 30, 2022 | September 30, 2021 | | :------------------ | :------------ | :------------ | :------------ | :----------------- | | Avondale Term Loan | 3.06% | May 2028 | $30,287 | $30,886 | | Lisle Term Loan - VN | 3.05% | Apr 2029 | $38,000 | — | | Finance leases | 3.08% | Various | $42 | $96 | | Total debt | | | $68,329 | $30,982 | | Long-term debt, net | | | $67,761 | $30,726 | - The Lisle Term Loan - VN of $38.0 million was entered into on April 14, 2022, to fund the acquisition and retirement of the previous Lisle Term Loan - WA[91] - The company was in compliance with all debt covenants as of June 30, 2022[89][93] Debt Maturities (in thousands) | Debt Maturities (in thousands) | Term Loans | Finance Leases | Total | | :----------------------------- | :--------- | :------------- | :---- | | Remainder of 2022 | $206 | $19 | $225 | | 2023 | $1,092 | $23 | $1,115 | | 2024 | $1,672 | — | $1,672 | | 2025 | $1,763 | — | $1,763 | | 2026 | $1,836 | — | $1,836 | | Thereafter | $61,718 | — | $61,718 | | Subtotal | $68,287 | $42 | $68,329 | Note 14- Derivative Financial Instruments - The company uses interest rate swap agreements to effectively fix interest rates on 50% of the principal amounts of its Avondale (3.5%) and Lisle (4.69%) term loans, designated as cash flow hedges[96][97] Fair Value of Derivative Instruments (in thousands) | Fair Value of Derivative Instruments (in thousands) | June 30, 2022 | | :---------------------------------- | :------------ | | Other current assets | $259 | | Other assets | $931 | | Total fair value of assets designated as hedging instruments | $1,190 | - An estimated $0.3 million of existing gains reported in 'Accumulated other comprehensive income (loss)' as of June 30, 2022, is expected to be reclassified to 'Interest expense' within the next twelve months[98] Note 15 - Income Taxes Income Tax (in thousands) | Income Tax (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax (expense) benefit | $(336) | $(86) | $5,609 | $(78) | | Effective income tax rate | 28.5% | 2.8% | (32.2)% | 3.0% | - The effective income tax rate differed from the federal statutory rate of 21% primarily due to changes in the valuation allowance and state taxes[102] - During the three months ended March 31, 2022, the company released a majority of the previously recorded valuation allowance against its deferred tax assets, resulting in a non-cash tax benefit[103][104] Note 16 - Commitments and Contingencies - The company is periodically subject to lawsuits, investigations, and regulatory proceedings in the ordinary course of business[105] - The Consumer Financial Protection Bureau (CFPB) is assessing whether UTI is subject to its supervisory authority based on student lending activities, and the company is awaiting further guidance[106] Note 17 - Shareholders' Equity - As of June 30, 2022, 675,885 shares of Series A Convertible Preferred Stock were outstanding, with a liquidation preference of $100 per share[108] - In June 2022, one stockholder converted 24,115 shares of Series A Preferred Stock into 724,174 shares of common stock[109] - The Board authorized a new share repurchase plan for up to $35.0 million of common stock in December 2020, but no shares have been repurchased under this program as of June 30, 2022[113] Note 18 - Earnings per Share - Basic EPS is calculated using the two-class method due to the Series A Preferred Stock, which is considered a participating security[114] - Diluted EPS is calculated using the more dilutive of the two-class method or as-converted method, considering outstanding stock options, unvested restricted share units, and convertible preferred stock[115] EPS (in thousands, except per share) | EPS (in thousands, except per share) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net (loss) income available to common shareholders | $(453) | $1,028 | $11,834 | $(1,402) | | Weighted average basic shares outstanding | 33,257 | 32,821 | 33,032 | 32,746 | | Basic (loss) income per common share | $(0.01) | $0.03 | $0.36 | $(0.04) | | Diluted (loss) income per common share | $(0.01) | $0.03 | $0.35 | $(0.04) | | Total anti-dilutive shares excluded | 20,921 | 21,211 | 20,303 | 21,667 | Note 19 - Segment Information - The company's principal business is 'Postsecondary Education', with other operations (manufacturer-specific training) categorized as 'Other'[119] Segment Performance (in thousands) - Nine Months Ended June 30, 2022 | Segment Performance (in thousands) | Postsecondary Education (9M 2022) | Other (9M 2022) | Consolidated (9M 2022) | | :--------------------------------- | :-------------------------------- | :-------------- | :--------------------- | | Revenues | $297,863 | $10,264 | $308,127 | | Income (loss) from operations | $20,331 | $(1,422) | $18,909 | | Net income (loss) | $24,441 | $(1,422) | $23,019 | | Total assets (as of June 30, 2022) | $537,325 | $2,957 | $540,282 | Segment Performance (in thousands) - Three Months Ended June 30, 2022 | Segment Performance (in thousands) | Postsecondary Education (3M 2022) | Other (3M 2022) | Consolidated (3M 2022) | | :--------------------------------- | :-------------------------------- | :-------------- | :--------------------- | | Revenues | $97,511 | $3,455 | $100,966 | | Income (loss) from operations | $2,308 | $(354) | $1,954 | | Net income (loss) | $1,197 | $(354) | $843 | Note 20 - Government Regulation and Financial Aid - All institutions are certified to participate in federal student aid programs (Title IV) and other federal/state programs (VA, DOD, Cal Grant)[123][132][133] - The 90/10 Rule was amended by the American Rescue Plan Act of 2021 to include all 'Federal education assistance funds', with new regulations expected to take effect July 1, 2023[128][129] - UTI of Texas is subject to a 30-day delay in federal student loan disbursements due to a three-year cohort default rate of 15% or greater[130] - The company has received permanent approvals from ACCSC and all state education authorizing agencies to offer blended format programs[137] Note 21 - Higher Education Emergency Relief Fund Grants - During the nine months ended June 30, 2022, the company awarded approximately $6.8 million in HEERF II and HEERF III grants to over 4,900 students[141] - As of June 30, 2022, approximately $0.1 million of HEERF II and HEERF III funds remained available for student grants[141] Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides an overview of the company's business, student metrics, operational performance, and strategic initiatives for the three and nine months ended June 30, 2022, detailing financial results, liquidity, capital resources, seasonality, and critical accounting policies, highlighting significant revenue growth and increased operating expenses due to growth strategies Company Overview - Universal Technical Institute, Inc. is a leading provider of transportation and technical training programs, operating 15 nationally accredited campuses[145][146] - The company maintains relationships with over 35 OEMs and industry partners to ensure programs meet industry needs, providing competitive advantages and enhanced employment opportunities for graduates[147][148] - Most programs are offered in a blended learning model, combining online instruction with hands-on labs, which has been crucial during the COVID-19 pandemic[149] Overview of the Three and Nine Months Ended June 30, 2022 Student Metrics | Student Metrics | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :------- | :------------------------------ | :------------------------------ | :------- | | Total new student starts | 3,166 | 2,532 | 25.0% | 7,409 | 6,864 | 7.9% | | Average undergraduate full-time active students | 12,025 | 10,797 | 11.4% | 12,881 | 11,280 | 14.2% | | End of period undergraduate full-time active students | 12,077 | 10,583 | 14.1% | 12,077 | 10,583 | 14.1% | - The increase in student metrics was driven by strong student demand, diminishing impacts of the COVID-19 pandemic, and the acquisition of MIAT in November 2021[151] Operations (in millions) | Operations (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | % Change | | :----------------------- | :------------------------------- | :------------------------------- | :------- | :------------------------------ | :------------------------------ | :------- | | Revenues | $101.0 | $83.8 | 20.5% | $308.1 | $237.6 | 29.7% | | Income from operations | $2.0 | $3.1 | (35.5)% | $18.9 | $2.2 | 760.0% | - The company is pursuing a growth and diversification strategy through acquisitions (e.g., definitive agreement to acquire Concorde Career Colleges), new campus openings (Austin, TX), program expansion (15 new programs, EV technician training), and strategic alliances (NAPA Auto Parts)[155][156][160] Results of Operations: Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 Results of Operations (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Revenues | $100,966 | $83,768 | 20.5% | | Educational services and facilities | $53,216 | $42,238 | 26.0% | | Selling, general and administrative | $45,796 | $38,478 | 19.0% | | Income from operations | $1,954 | $3,052 | (35.9)% | | Net income | $843 | $3,000 | (71.9)% | | Net (loss) income available for distribution | $(453) | $1,687 | (126.9)% | - Revenue growth was driven by an 11.4% increase in average undergraduate full-time active students, higher average revenue per student (less impact from COVID-19), and $6.2 million from the MIAT acquisition[163] - Educational services and facilities expenses increased by $11.0 million, primarily due to increased headcount, new campus costs (Austin, Miramar), MIAT acquisition ($2.4 million in compensation), and higher technical supplies[164][166][167][168][169][170] - Selling, general and administrative expenses rose by $7.3 million, mainly from increased headcount for growth initiatives, $3.0 million higher advertising spend (including $1.4 million for MIAT), and increased professional services for growth initiatives[171][172][173][174] Results of Operations: Nine Months Ended June 30, 2022 Compared to Nine Months Ended June 30, 2021 Results of Operations (in thousands) | Metric (in thousands) | 9 Months Ended June 30, 2022 | 9 Months Ended June 30, 2021 | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Revenues | $308,127 | $237,602 | 29.7% | | Educational services and facilities | $150,326 | $122,049 | 23.2% | | Selling, general and administrative | $138,892 | $113,387 | 22.5% | | Income from operations | $18,909 | $2,166 | 772.9% | | Net income | $23,019 | $2,536 | 807.7% | | Net income (loss) available for distribution | $19,106 | $(1,402) | 1462.5% | - Revenue increased by $70.5 million, driven by a 14.2% increase in average full-time student enrollment, higher average revenue per student, and $17.8 million from the MIAT acquisition[180] - Educational services and facilities expenses increased by $28.3 million, primarily due to higher compensation ($12.8 million, including $6.3 million from MIAT), increased occupancy costs ($3.9 million for new campuses), and higher supplies and maintenance ($3.7 million), partially offset by a $1.6 million gain from the Lisle Campus lease settlement[181][183][184][185][186][187] - Selling, general and administrative expenses increased by $25.5 million, mainly due to higher compensation ($7.5 million, including $2.2 million from MIAT), increased advertising ($8.3 million, including $3.6 million from MIAT), and higher professional services ($3.6 million) for growth initiatives[189][190][191][192] - Income tax benefit of $5.6 million was primarily due to the release of a valuation allowance against deferred tax assets[193] Non-GAAP Financial Measures - EBITDA is presented as a non-GAAP financial measure to supplement GAAP results, providing an additional analytical tool for operational performance and underlying trends[197] EBITDA Reconciliation (in thousands) | EBITDA Reconciliation (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $843 | $3,000 | $23,019 | $2,536 | | Interest income | $(68) | $(11) | $(88) | $(73) | | Interest expense | $552 | $130 | $1,251 | $133 | | Income tax (benefit) expense | $336 | $86 | $(5,609) | $78 | | Depreciation and amortization | $4,561 | $3,619 | $12,124 | $10,470 | | EBITDA | $6,224 | $6,824 | $30,697 | $13,144 | Liquidity and Capital Resources - The company believes its cash flows from operations, cash on hand, and investments will satisfy liquidity requirements for the next 12 months, including existing operations and growth initiatives[199] - Cash and cash equivalents decreased by $63.0 million to $70.7 million as of June 30, 2022, from September 30, 2021[200] - Strategic uses of cash included the MIAT acquisition ($28.8 million), Lisle Campus purchase ($28.4 million cash + assumed debt), and a definitive agreement to acquire Concorde for $50.0 million cash (expected H1 FY23)[201][202][203] - Net cash provided by operating activities was $7.9 million for the nine months ended June 30, 2022, a decrease from $14.8 million in the prior year[209] - Net cash used in investing activities significantly increased to $95.9 million (9M 2022) from $16.6 million (9M 2021), primarily due to property and equipment purchases ($69.6 million) and the MIAT acquisition ($26.5 million)[212] - Net cash provided by financing activities was $15.4 million (9M 2022), mainly from $38.0 million in proceeds from the Lisle Campus term loan, offset by $19.0 million in debt repayments and $2.6 million in preferred stock dividends[214] Seasonality and Trends - Operating results normally fluctuate due to seasonal variations in student population, with lower numbers in the third quarter (summer months) and higher in the fourth quarter[216] - Expenses do not vary significantly with changes in student population and revenues, leading to quarterly fluctuations in operating results[216] Critical Accounting Policies and Estimates - The company's critical accounting policies and estimates for goodwill and indefinite-lived intangible assets involve annual impairment testing as of August 1, with no impairment indicators as of June 30, 2022[218] Recent Accounting Pronouncements - For information regarding recent accounting pronouncements, refer to Note 3 of the notes to the condensed consolidated financial statements[220] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, primarily related to changes in interest rates, detailing its cash investments and long-term debt, and how derivative financial instruments are used to mitigate interest rate volatility - The company's principal market risk exposure is to changes in interest rates[221] - As of June 30, 2022, the company held $70.7 million in cash and cash equivalents, primarily invested in money market funds, with low financial exposure to interest rate fluctuations due to a restrictive investment policy[222] - Long-term debt of $68.3 million (Avondale Term Loan: $30.3 million at LIBOR+2.0%; Lisle Term Loan: $38.0 million at SOFR+2.0%) exposes the company to variable interest rate volatility[223][224][225] - Interest rate swap agreements effectively fix the interest rates on 50% of the principal amounts of the term loans (3.5% for Avondale, 4.69% for Lisle) to mitigate this exposure[225] - A hypothetical 10% change in LIBOR or SOFR would result in a $3.4 million change to annual interest expense for the unhedged portion of the long-term debt[226] Item 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, with no material changes in internal control over financial reporting during the period, while acknowledging the inherent limitations of any control system - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[227] - There were no changes in internal control over financial reporting identified during the three months ended June 30, 2022[228] - Management acknowledges that control systems provide only reasonable, not absolute, assurance and have inherent limitations, including the possibility of error, fraud, or management override[229][230] PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS This section states that the company is periodically involved in legal proceedings, investigations, and claims in the ordinary course of business, and while the likelihood of loss is assessed, the ultimate outcome cannot be predicted with certainty, and it's not currently possible to estimate potential losses - The company is periodically subject to lawsuits, arbitrations, investigations, regulatory proceedings, or other claims[232] - It is not currently possible to predict with certainty the ultimate resolution or provide an estimate of the amount of loss or range of possible losses for pending legal proceedings[232] Item 1A. RISK FACTORS This section directs readers to consider the risk factors detailed in the company's 2021 Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report, emphasizing that additional unknown or immaterial risks could also adversely affect the business - Readers should carefully consider risk factors discussed in the 2021 Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report[233] - Additional risks and uncertainties not currently known or deemed immaterial could materially adversely affect the business, financial condition, or operating results[233] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities and use of proceeds during the period[234] Item 3. DEFAULTS UPON SENIOR SECURITIES This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the period[235] Item 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[236] Item 5. OTHER INFORMATION This section confirms that there is no other information to report under this item - There is no other information to report under this item[237] Item 6. EXHIBITS This section lists all exhibits required by Item 601 of Regulation S-K, including various agreements, certifications, and XBRL documents, filed or furnished with the report - The section lists exhibits required by Item 601 of Regulation S-K, including Stock Purchase Agreements, Loan Agreements, Guaranty, Certifications (CEO, CFO), and XBRL documents[239]