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UNIVERSAL TECHNICAL INSTITUTE INC - Quarter Report: 2019 June (Form 10-Q)


__________________________________________________________________________________________
_________________________________________________________________________________________
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _____________________________________________
Form 10-Q
(Mark One)

þ    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
 
¨    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.)
16220 North Scottsdale Road, Suite 500
Scottsdale, Arizona 85254
(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 30, 2019, there were 25,498,779 shares outstanding of the registrant's common stock.



UNIVERSAL TECHNICAL INSTITUTE, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019
 
 
 
 
 
 
Page
 
 
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents

Special Note Regarding Forward-Looking Statements

This Report on Form 10-Q contains forward-looking statements within the meaning of 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. 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. These forward-looking statements include, without limitation, statements regarding: proposed new programs; scheduled openings of new campuses and campus expansions; expectations that regulatory developments or agency interpretations of such regulatory developments or other matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity and anticipated timing for ongoing regulatory initiatives; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management’s goals and objectives and other similar expressions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. 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. You should bear this in mind as you consider forward-looking statements.

Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission (SEC). The Annual Report on Form 10-K that we filed with the SEC on November 30, 2018 listed various important factors that could cause actual results to differ materially from expected and historical results. We note these factors for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Readers can find them under the heading “Risk Factors” in the Report on Form 10-K and in this Report on Form 10-Q, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.



ii
Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
 
June 30, 2019
 
September 30,
2018
Assets
 
(In thousands)
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
42,689

 
$
58,104

Restricted cash
 
13,534

 
14,055

Receivables, net
 
12,032

 
21,106

Notes receivable, current portion

5,150


5,183

Prepaid expenses
 
8,997

 
10,320

Other current assets
 
7,402

 
8,027

Total current assets
 
89,804

 
116,795

Property and equipment, net
 
106,490

 
114,848

Goodwill
 
8,222

 
8,222

Notes receivable, less current portion

29,597


31,194

Other assets
 
9,978

 
11,219

Total assets
 
$
244,091

 
$
282,278

Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
37,350

 
$
46,617

Dividends payable
 
1,309

 
—

Deferred revenue
 
27,672

 
38,236

Accrued tool sets
 
2,920

 
2,397

Financing obligation, current portion
 
1,493

 
1,319

Other current liabilities
 
3,242

 
3,893

Total current liabilities
 
73,986

 
92,462

Deferred tax liabilities, net
 
329

 
329

Deferred rent liability
 
9,927

 
12,003

Financing obligation
 
39,567

 
40,715

Other liabilities
 
9,555

 
10,124

Total liabilities
 
133,364

 
155,633

Commitments and contingencies (Note 12)
 

 

Shareholders’ equity:
 
 
 
 
Common stock, $0.0001 par value, 100,000,000 shares authorized; 32,363,676 shares issued and 25,498,779 shares outstanding as of June 30, 2019 and 32,168,795 shares issued and 25,303,898 shares outstanding as of September 30, 2018
 
3

 
3

Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 700,000 shares of Series A Convertible Preferred Stock issued and outstanding as of June 30, 2019 and September 30, 2018, liquidation preference of $100 per share
 
—

 
—

Paid-in capital - common
 
188,086

 
186,732

Paid-in capital - preferred

68,853


68,853

Treasury stock, at cost, 6,864,897 shares as of June 30, 2019 and September 30, 2018
 
(97,388
)
 
(97,388
)
Retained deficit
 
(48,827
)
 
(31,555
)
Total shareholders’ equity
 
110,727

 
126,645

Total liabilities and shareholders’ equity
 
$
244,091

 
$
282,278

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

1
Table of Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (UNAUDITED)

 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands, except per share amounts)
Revenues
 
$
79,042

 
$
74,890

 
$
243,838


$
236,709

Operating expenses:
 
 
 
 
 



Educational services and facilities
 
42,836

 
44,737

 
134,393


134,635

Selling, general and administrative
 
36,661

 
41,953

 
122,685


126,298

Total operating expenses
 
79,497

 
86,690

 
257,078


260,933

Loss from operations
 
(455
)
 
(11,800
)
 
(13,240
)

(24,224
)
Other income (expense):
 
 
 
 
 



Interest expense, net
 
(444
)
 
(474
)
 
(1,271
)

(1,405
)
Equity in earnings of unconsolidated affiliate
 
100

 
96

 
298


289

Other income, net
 
465

 
307

 
1,121


635

Total other income (expense), net
 
121

 
(71
)
 
148


(481
)
Loss before income taxes
 
(334
)
 
(11,871
)
 
(13,092
)

(24,705
)
Income tax expense (benefit)
 
31

 
(158
)
 
253


(3,024
)
Net loss and comprehensive loss
 
$
(365
)
 
$
(11,713
)
 
$
(13,345
)

$
(21,681
)
Preferred stock dividends

1,309


1,309


3,927


3,927

Loss available for distribution

$
(1,674
)

$
(13,022
)

$
(17,272
)

$
(25,608
)
 
 
 
 
 
 
 
 
 
Loss per share:
 
 
 
 
 
 
 
 
Net loss per share - basic
 
$
(0.07
)

$
(0.52
)

$
(0.68
)

$
(1.02
)
Net loss per share - diluted
 
$
(0.07
)

$
(0.52
)

$
(0.68
)

$
(1.02
)
Weighted average number of shares outstanding:
 
 
 
 
 



Basic
 
25,498

 
25,186

 
25,410


25,084

Diluted
 
25,498

 
25,186

 
25,410


25,084


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

2
Table of Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

The following summarizes the changes in total equity for the nine months ended June 30, 2019:
 
 
Common Stock
 
Preferred Stock
 
Paid-in
Capital - Common
 
Paid-in
Capital - Preferred
 
Treasury Stock
 
Retained Earnings (Deficit)
 
Total
Shareholders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
(In thousands)
Balance as of September 30, 2018
 
32,169


$
3


700


$
—


$
186,732


$
68,853


6,865


$
(97,388
)

$
(31,555
)

$
126,645

Net loss
 
—


—


—


—


—


—


—


—


(7,717
)

(7,717
)
Issuance of common stock under employee plans
 
99


—


—


—


—


—


—


—


—


—

Shares withheld for payroll taxes
 
(38
)

—


—


—


(118
)

—


—


—


—


(118
)
Stock-based compensation
 
—


—


—


—


694


—


—


—


—


694

Preferred stock dividends
 
—


—


—


—


—


—


—


—


(1,323
)

(1,323
)
Balance as of December 31, 2018
 
32,230


$
3


700


$
—


$
187,308


$
68,853


6,865


$
(97,388
)

$
(40,595
)

$
118,181

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,263
)
 
(5,263
)
Issuance of common stock under employee plans
 
134

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares withheld for payroll taxes
 
(2
)
 
—

 
—

 
—

 
(7
)
 
—

 
—

 
—

 
—

 
(7
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
618

 
—

 
—

 
—

 
—

 
618

Preferred stock dividends
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,295
)
 
(1,295
)
Balance as of March 31, 2019
 
32,362

 
$
3

 
700

 
$
—

 
$
187,919

 
$
68,853

 
6,865

 
$
(97,388
)
 
$
(47,153
)
 
$
112,234

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(365
)
 
(365
)
Issuance of common stock under employee plans
 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares withheld for payroll taxes
 
—

 
—

 
—

 
—

 
(2
)
 
—

 
—

 
—

 
—

 
(2
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
169

 
—

 
—

 
—

 
—

 
169

Preferred stock dividends
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,309
)
 
(1,309
)
Balance as of June 30, 2019
 
32,364

 
$
3

 
700

 
$
—

 
$
188,086

 
$
68,853

 
6,865

 
$
(97,388
)
 
$
(48,827
)
 
$
110,727






3
Table of Contents


The following summarizes the changes in total equity for the nine months ended June 30, 2018:
 
 
Common Stock
 
Preferred Stock
 
Paid-in
Capital - Common
 
Paid-in
Capital - Preferred
 
Treasury Stock
 
Retained Earnings (Deficit)
 
Total
Shareholders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
(In thousands)
Balance as of September 30, 2017
 
31,872

 
$
3

 
700

 
$
—

 
$
185,140

 
$
68,853

 
6,865

 
$
(97,388
)
 
$
(30,832
)
 
$
125,776

Cumulative-effect adjustment
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
37,209

 
37,209

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,135
)
 
(1,135
)
Issuance of common stock under employee plans
 
3

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares withheld for payroll taxes
 
—

 
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
—

 
(3
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
359

 
—

 
—

 
—

 
—

 
359

Preferred stock dividends
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,323
)
 
(1,323
)
Balance as of December 31, 2017
 
31,875

 
$
3

 
700

 
$
—

 
$
185,496

 
$
68,853

 
6,865

 
$
(97,388
)
 
$
3,919

 
$
160,883

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,833
)
 
(8,833
)
Issuance of common stock under employee plans
 
179

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares withheld for payroll taxes
 
(4
)
 
—

 
—

 
—

 
(8
)
 
—

 
—

 
—

 
—

 
(8
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
741

 
—

 
—

 
—

 
—

 
741

Preferred stock dividends
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,295
)
 
(1,295
)
Balance as of March 31, 2018
 
32,050

 
$
3

 
700

 
$
—

 
$
186,229

 
$
68,853

 
6,865

 
$
(97,388
)
 
$
(6,209
)
 
$
151,488

Net loss
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(11,713
)
 
(11,713
)
Issuance of common stock under employee plans
 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shares withheld for payroll taxes
 
—

 
—

 
—

 
—

 
(2
)
 
—

 
—

 
—

 
 
 
(2
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
145

 
—

 
—

 
—

 
 
 
145

Preferred stock dividends
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,309
)
 
(1,309
)
Balance as of June 30, 2018
 
32,052

 
$
3

 
700

 
$
—

 
$
186,372

 
$
68,853

 
6,865

 
$
(97,388
)
 
$
(19,231
)
 
$
138,609




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

4
Table of Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(13,345
)
 
$
(21,681
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation and amortization
 
9,945

 
9,891

Amortization of assets subject to financing obligation
 
2,012

 
2,012

Goodwill and intangible asset impairment expense
 
—

 
1,164

Bad debt expense
 
887

 
1,191

Stock-based compensation
 
1,481

 
1,245

Deferred income taxes
 
—

 
(2,812
)
Equity in earnings of unconsolidated affiliate
 
(298
)
 
(289
)
Training equipment credits earned, net
 
440

 
116

Other losses, net
 
143

 
71

Changes in assets and liabilities:
 
 
 
 
Receivables
 
3,795

 
173

Prepaid expenses
 
571

 
(1,342
)
Other assets
 
1,270

 
(31
)
Notes receivable
 
1,630

 
(421
)
Accounts payable and accrued expenses
 
(3,793
)
 
556

Deferred revenue
 
(10,564
)
 
(15,491
)
Income tax payable/receivable
 
198

 
(1,490
)
Accrued tool sets and other current liabilities
 
441

 
507

Deferred rent liability
 
(2,076
)
 
4,027

Other liabilities
 
139

 
148

Net cash used in operating activities
 
(7,124
)
 
(22,456
)
Cash flows from investing activities:
 
 
 
 
Purchase of property and equipment
 
(5,301
)
 
(17,088
)
Proceeds from disposal of property and equipment
 
8

 
9

Proceeds received upon maturity of investments
 
—

 
7,497

Purchase of trading securities
 
—

 
(894
)
Proceeds from sales of trading securities
 
—

 
40,902

Capitalized costs for intangible assets
 
—

 
(325
)
Return of capital contribution from unconsolidated affiliate
 
200

 
229

Net cash provided by (used in) investing activities
 
(5,093
)
 
30,330

Cash flows from financing activities:
 
 
 
 
Payment of preferred stock cash dividend
 
(2,618
)
 
(2,618
)
Payment of financing obligation
 
(974
)
 
(816
)
Payment of payroll taxes on stock-based compensation through shares withheld
 
(127
)
 
(13
)
Net cash used in financing activities
 
(3,719
)
 
(3,447
)
Change in cash, cash equivalents and restricted cash:
 
 
 
 
Net (decrease) increase in cash, cash equivalents and restricted cash
 
(15,936
)
 
4,427

Cash, cash equivalents and restricted cash, beginning of period
 
72,159

 
64,960

Cash, cash equivalents and restricted cash, end of period
 
$
56,223

 
$
69,387

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

5
Table of Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), continued
 
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
 
(In thousands)
Supplemental disclosure of cash flow information:
 
 
 
 
Taxes paid
 
$
56

 
$
1,278

Interest paid
 
$
2,424

 
$
2,490

Training equipment obtained in exchange for services
 
$
520

 
$
1,724

Depreciation of training equipment obtained in exchange for services
 
$
1,066

 
$
1,022

Change in accrued capital expenditures during the period
 
$
1,173

 
$
(840
)
Dividends payable
 
$
1,309

 
$
1,309

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

6
Table of Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)




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 well as welders and computer numerical control (CNC) machining technicians as measured by total average undergraduate full-time enrollment and graduates. We offer certificate, diploma or degree programs at 13 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute, Motorcycle Mechanics Institute and 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. We have provided technical education for 53 years.

We work closely with leading original equipment manufacturers (OEMs) and employers 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 (HEA), as amended, as well as from various veterans benefits programs. For further discussion, see Note 2 "Summary of Significant Accounting Policies - Concentration of Risk" and Note 18 “Government Regulation and Financial Aid” included in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018.
2.    Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. Normal and recurring adjustments considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the three and nine months ended June 30, 2019, are not necessarily indicative of the results that may be expected for the year ending September 30, 2019. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018.

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

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


7
Table of Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



3.    Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, then the acquisition is not a business. In addition, a business must include at least one substantive process. The standard is to be applied on a prospective basis to purchases or disposals of a business or an asset. We adopted ASU 2017-01 as of October 1, 2018. There was no impact to our financial statements or disclosures.
    
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 as of October 1, 2018. There was no impact on our consolidated statements of cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. This guidance requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. We adopted ASU 2016-18 as of October 1, 2018 using the retrospective method of adjustment. As a result of our adoption of ASU 2016-18, net cash used in operating activities increased by less than $0.1 million and net cash provided by investing activities decreased by $1.4 million for the nine months ended June 30, 2018.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:

 
 
June 30, 2019
 
June 30, 2018
Cash and cash equivalents
 
$
42,689

 
$
55,968

Restricted cash
 
13,534

 
13,419

Total cash, cash equivalents and restricted cash shown in condensed consolidated statements of cash flows
 
$
56,223

 
$
69,387


In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 primarily impacts the accounting for equity investments other than those accounted for using the equity method of accounting, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. Additionally, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities and financial liabilities is largely unchanged. We adopted ASU 2016-01 as of October 1, 2018. There was no impact to our financial statements or disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 amends Accounting Standards Codification (ASC) 220 to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the "Tax Cuts and Jobs Act" and requires entities to provide certain disclosures regarding stranded tax effects. We adopted ASU 2018-02 as of October 1, 2018. There was no impact to our financial statements or disclosures.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



Effective the First Quarter of Fiscal 2020:

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) to provide entities with relief from the costs of implementing certain aspects of the new leasing standard. ASU 2018-11 allows entities to elect not to recast the comparative periods presented when transitioning to ASC 842. It also allows lessors to elect not to separate lease and nonlease components when certain conditions are met. In March 2019, the FASB issued ASU 2019-01, Lease (Topic 824): Codification Improvements. ASU 2019-01 clarifies certain items regarding lessor accounting. It also clarifies the interim disclosure requirements during transition. We are in the process of implementing a new enterprise-wide lease accounting system and are modifying internal controls to address the collection, recording and accounting for leases in accordance with ASC 842. We do expect this standard to have a material impact on our financial statements.

ASC 842 also provides a package of transition practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing lease. We expect to elect the package of transition practical expedients, and to use the modified retrospective method without the recasting of comparative periods’ financial information.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 amends the disclosure requirements of ASC 820, changing the fair value measurement disclosure requirements of ASC 820 by adding new disclosure requirements, modifying existing disclosure requirements and eliminating other disclosure requirements. Early adoption is permitted. We are currently evaluating the impact that the standard will have on our financial statement disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and other Internal-use Software (Subtopic 350-40). ASU 2018-15 aligns the accounting for costs incurred to implement a cloud computing arrangement (CCA) that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. Early adoption is permitted. The effect of this new standard on our consolidated financial statements will be dependent on our entry into any future cloud computing arrangements.
Effective the First Quarter of Fiscal 2021:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses (ECL), which the FASB believes will result in more timely recognition of such losses. In April 2019, the FASB issued ASU 2019-05 - Targeted Transition Relief, which provides transition relief to entities adopting ASU 2016-13. We are currently evaluating the impact that the update will have on our results of operations, financial condition and financial statement disclosures.


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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



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 Accounting Standards Codification Topic 606, Revenue from Contracts from Customers (ASC 606), which we adopted effective October 1, 2017. Tuition and fee revenue is recognized ratably over the term of the course or program offered. The majority of our core programs are designed to be completed in 33 to 102 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 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 U.S. 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 15 for disaggregated segment revenue information.
Contract Balances
Contract assets primarily relate to the Company’s rights to consideration for work completed in relation to its services performed but not billed at the reporting date. The contract assets are transferred to the receivables when the rights become unconditional. Currently, the Company does not have any contract assets which have not transferred to a receivable. The contract liabilities primarily relate to service contracts where we received payments but we have not yet satisfied the related performance obligations. The advance consideration received from customers for the services is a contract liability until services are provided to the customer.

The following table provides information about receivables and contract liabilities from contracts with customers:
 
 
June 30, 2019
 
September 30, 2018
Receivables, which includes Tuition and Notes Receivable
 
$
40,299

 
$
46,372

Contract liabilities
 
$
27,672

 
$
38,236


During the nine months ended June 30, 2019, the contract liabilities balance included decreases for revenues recognized during the period and increases related to new students who started school 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 33 to 102 weeks, and our advanced training programs range from 12 to 23 weeks in duration.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



5.  Postemployment Benefits

On February 18, 2019, we announced that our campus in Norwood, Massachusetts is no longer accepting new student applications, and its last group of students started on March 18, 2019. The campus is expected to close in the fall of 2020. We expect the postemployment benefits will total approximately $0.9 million, when the campus closes in 2020. Additionally, we periodically enter into agreements that provide postemployment benefits to personnel whose employment is terminated. The postemployment benefit liability, which is included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets, is generally paid out ratably over the terms of the agreements, which range from 1 month to 24 months, with the final agreement expiring in 2021.

The postemployment benefit accrual activity for the nine months ended June 30, 2019 was as follows:
 
 
Liability Balance at
September 30, 2018
 
Postemployment
Benefit Charges
 
Cash Paid
 
Other
Non-cash (1)
 
Liability Balance at June 30, 2019
Severance
 
$
372

 
$
1,607

 
$
(932
)
 
$
(74
)
 
$
973

Other
 
9

 
85

 
(22
)
 
(22
)
 
50

Total
 
$
381

 
$
1,692

 
$
(954
)
 
$
(96
)
 
$
1,023


(1) Primarily relates to the reclassification of benefits between severance and other benefits.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



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 and 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, 2019
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Money market funds and corporate bonds
 
$
42,626

 
$
42,626

 
$
—

 
$
—

Notes receivable
 
34,747

 
—

 
—

 
34,747

Total assets at fair value on a recurring basis
 
$
77,373

 
$
42,626

 
$
—

 
$
34,747


 
 
 
 
Fair Value Measurements Using
 
 
September 30, 2018
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Money market funds
 
$
36,387

 
$
36,387

 
$
—

 
$
—

Notes receivable
 
36,377

 
—

 
—

 
36,377

Total assets at fair value on a recurring basis
 
$
72,764

 
$
36,387

 
$
—

 
$
36,377


Money market funds and corporate bonds are reflected as cash and cash equivalents in our consolidated balance sheets. Notes receivable relate to our proprietary loan program.


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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



7. Property and Equipment, net
Property and equipment, net consisted of the following:
 
 
 
Depreciable
Lives (in years)
 
June 30, 2019
 
September 30, 2018
Land
 
—
 
$
3,189

 
$
3,189

Buildings and building improvements
 
30-35
 
82,576

 
81,304

Leasehold improvements
 
1-28
 
53,399

 
54,310

Training equipment
 
3-10
 
97,072

 
95,795

Office and computer equipment
 
3-10
 
36,243

 
36,714

Curriculum development
 
5
 
19,692

 
19,692

Software developed for internal use
 
1-5
 
11,606

 
12,251

Vehicles
 
5
 
1,400

 
1,400

Construction in progress
 
—
 
885

 
4,250

 
 
 
 
306,062

 
308,905

Less accumulated depreciation and amortization
 
 
 
(199,572
)
 
(194,057
)
 
 
 
 
$
106,490

 
$
114,848


The following amounts, which are included in the above table, represent assets financed by financing obligations:
 
 
June 30, 2019
 
September 30, 2018
Assets financed by financing obligations, gross
 
$
45,816

 
$
45,816

Less accumulated depreciation and amortization
 
(13,538
)
 
(11,526
)
Assets financed by financing obligations, net
 
$
32,278

 
$
34,290


8. Goodwill and Intangible Assets
Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which may result from the deterioration in the operating performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. Any resulting impairment charge would be recognized as an expense in the period in which impairment is identified.
Our goodwill balance of $8.2 million resulted from the acquisition of our motorcycle and marine education business in 1998 and is allocated to our MMI Orlando, Florida campus that provides the related educational programs. No impairment was identified during the nine months ended June 30, 2019.


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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



9.   Investment in Unconsolidated Affiliate

In 2012, we invested $4.0 million to acquire an equity interest of approximately 28% in a joint venture (JV) related to the lease of our Lisle, Illinois campus facility. In connection with this investment, we do not possess a controlling financial interest as we do not hold a majority of the equity interest, nor do we have the power to make major decisions without approval from the other equity member. Therefore, we do not qualify as the primary beneficiary. Accordingly, this investment is accounted for under the equity method of accounting and is included in other assets in our condensed consolidated balance sheets. We recognize our proportionate share of the net income or loss during each accounting period and any return of capital as a change in our investment.
Investment in unconsolidated affiliate consisted of the following and is included within other assets on our condensed consolidated balance sheet:
 
 
June 30, 2019
 
September 30, 2018
 
 
Carrying Value
 
Ownership Percentage
 
Carrying Value
 
Ownership Percentage
Investment in JV
 
$
4,304

 
27.972
%
 
$
4,206

 
27.972
%

Investment in unconsolidated affiliate included the following activity during the period:
 
 
Nine Months Ended June 30,
 
 
2019
 
2018
Balance at beginning of period
 
$
4,206

 
$
4,112

Equity in earnings of unconsolidated affiliate
 
298

 
289

Return of capital contribution from unconsolidated affiliate
 
(200
)
 
(229
)
Balance at end of period
 
$
4,304

 
$
4,172


10.   Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
 
 
 
June 30, 2019
 
September 30, 2018
Accounts payable
 
$
6,982

 
$
8,759

Accrued compensation and benefits
 
18,646

 
22,022

Other accrued expenses
 
11,722

 
15,836

 
 
$
37,350

 
$
46,617



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



11.   Income Taxes

Each reporting period, we estimate the likelihood that we will be able to recover our deferred tax assets, which represent timing differences in the recognition of revenue and certain tax deductions for accounting and tax purposes. The realization of deferred tax assets is dependent, in part, upon future taxable income. In assessing the need for a valuation allowance, we consider all available evidence, including our historical profitability and projections of future taxable income. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance. Such valuation allowance is maintained on our deferred tax assets until sufficient positive evidence exists to support its reversal in future periods. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Significant judgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets.

During the three months ended March 31, 2016, there were several pieces of negative evidence that contributed to our conclusion that a valuation allowance was appropriate against all deferred tax assets that rely upon future taxable income for their realization. As a result of our assessment, we recorded a full valuation allowance during the three months ended March 31, 2016. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased, if objective negative evidence in the form of cumulative losses is no longer present and if additional weight may be given to subjective evidence such as our projections for growth. We continue to have a full valuation allowance as of June 30, 2019 and will continue to evaluate our valuation allowance in future periods for any change in circumstances that causes a change in judgment about the realizability of the deferred tax assets.

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act (the Act) was enacted. The Act makes significant changes to U.S. tax laws, including the following that are expected to be impactful to us: lower corporate tax rates; limitations on the amount of net operating losses that can be used to offset income beginning with our fiscal year ending September 30, 2019; the elimination of net operating loss carrybacks and the allowance of indefinite loss carryforwards; and the immediate expensing of short-lived capital investment, such as machinery and equipment.

We have adjusted our deferred tax liabilities and deferred tax assets, and the corresponding valuation allowance, for the expected impact of the provisions of the Act. As our net operating losses can now be carried forward indefinitely, our related deferred tax asset can be offset with the deferred tax liability related to goodwill, before a full valuation allowance was applied to the deferred tax asset. As a result of the Act, which was enacted on December 22, 2017, we reversed approximately $2.8 million of the valuation allowance on our deferred tax assets during the three months ended December 31, 2017, as such assets are now offset by the deferred tax liability related to our goodwill before the full valuation allowance was applied to the deferred tax asset.
    

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



Section 382 Change in Ownership

Under Section 382 of the Internal Revenue Code (IRC), for income tax purposes only, we underwent a change in ownership as a result of a preferred stock issuance in June 2016, which is discussed in Note 13.  Under the IRC, a change in ownership occurs when a five percent shareholder, as measured by ownership value, increases their ownership in a loss corporation by more than 50 percentage points during the defined testing period; both common and preferred stock are included in the determination of ownership value. Since the purchaser of the preferred stock acquired ownership exceeding 50 percent of our total ownership value, this transaction qualified as a change in ownership under section 382 of the IRC only. Accordingly, certain deductions and losses will be subject to an annual Section 382 limitation.  The limitation will affect the timing of when these deductions and losses can be used and may cause us to make income tax payments even if a pre-tax loss is recorded in future periods. 
The components of income tax expense are as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
2019
 
2018
2019
 
2018
Current expense (benefit)
 
 
 
 
 
 
 
 
United States federal
 
$
5

 
$
(119
)
 
$
—

 
$
(125
)
State
 
26

 
(39
)
 
253

 
(87
)
Total current expense (benefit)
 
31

 
(158
)
 
253

 
(212
)
Deferred (benefit) expense
 
 
 
 
 
 
 
 
United States federal
 
—

 
—

 
—

 
(2,878
)
State
 
—

 
—

 
—

 
66

Total deferred benefit
 
—

 
—

 
—

 
(2,812
)
Total provision (benefit) for income taxes
 
$
31

 
$
(158
)
 
$
253

 
$
(3,024
)

The income tax provision differs from the tax that would result from application of the statutory federal tax rate of 21.0% to pre-tax loss for the three and nine months ended June 30, 2019 and 24.5% to pre-tax loss for the three and nine months ended June 30, 2018. The reasons for the differences are as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
2019
 
2018
2019
 
2018
Income tax benefit at statutory rate
 
$
(69
)
 
$
(2,909
)
 
$
(2,749
)
 
$
(6,053
)
State income taxes (benefits), net of federal tax benefit
 
24

 
(403
)
 
204

 
(1,010
)
Current and deferred tax rate difference

—


416


—


865

Increase in valuation allowance
 
14

 
2,750

 
2,630

 
3,119

Other, net
 
62

 
(12
)
 
168

 
55

Total income tax expense (benefit)
 
$
31

 
$
(158
)
 
$
253

 
$
(3,024
)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



The components of the deferred tax assets (liabilities) recorded in the accompanying condensed consolidated balance sheets were as follows:

 
 
June 30, 2019
 
September 30, 2018
 
Gross deferred tax assets
 
 
 
 
Deferred compensation
 
$
1,303

 
$
1,253

Reserves and accruals
 
4,576

 
4,794

Accrued tool sets
 
765

 
638

Deferred revenue
 
4,342

 
9,185

Deferred rent liability
 
—

 
189

Net operating losses and tax credit carryforwards
 
13,678

 
5,389

Depreciation and amortization of property and equipment
 
4,680

 
3,740

Charitable contribution carryovers
 
1,188

 
804

Deductions limited by Section 382
 
668

 
700

Valuation allowance
 
(26,921
)
 
(23,112
)
Total gross deferred tax assets
 
4,279

 
3,580

Gross deferred tax liabilities
 
 
 
 
Amortization of goodwill and intangibles
 
(2,056
)
 
(2,056
)
Prepaid and other expenses deductible for tax
 
(2,552
)
 
(1,853
)
Total gross deferred tax liabilities
 
(4,608
)
 
(3,909
)
Net deferred tax liabilities
 
$
(329
)
 
$
(329
)

The following table summarizes the activity for the valuation allowance for the nine months ended June 30, 2019:
Balance at
Beginning of Period
 
Additions (Reductions) to Income
Tax Expense
 
Write-offs
 
Balance at End of
Period
$
23,112

 
$
3,809

 
$
—

 
$
26,921


12.   Commitments and Contingencies

Legal

In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitration, investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current or former students, routine employment matters, business disputes and regulatory demands. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we accrue a liability for the loss. When a loss is not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim. Because we cannot predict with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory proceedings or claims) asserted against us, it is not currently possible to provide such an estimate. The ultimate outcome of pending legal proceedings to which we are a party may have a material adverse effect on our business, cash flows and results of operations or financial condition.
13.  Shareholders’ Equity
Common Stock
Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval. On June 9, 2016, our Board of Directors voted to eliminate the quarterly cash dividend on our common stock. Any future common stock dividends require the approval of a majority of the voting power of the Series A Preferred Stock.
Preferred Stock

Preferred Stock consists of 10,000,000 authorized preferred shares of $0.0001 par value each. As of June 30, 2019 and September 30, 2018, 700,000 shares of Series A Convertible Preferred Stock (Series A Preferred Stock) were issued and outstanding. The liquidation preference associated with the Series A Preferred Stock was $100 per share at June 30, 2019.

Pursuant to the terms of the Securities Purchase Agreement, we may pay a cash dividend on each share of the Series A Preferred Stock at a rate of 7.5% per year on the liquidation preference then in effect (Cash Dividend). If we do not pay a Cash Dividend, the liquidation preference shall be increased to an amount equal to the current liquidation preference in effect plus an amount reflecting that liquidation preference multiplied by the Cash Dividend rate then in effect plus 2.0% per year (Accrued Dividend). Cash Dividends are payable semi-annually in arrears on September 30 and March 31 of each year, and begin to accrue on the first day of the applicable dividend period. We paid Cash Dividends of $2.6 million on March 28, 2019 and accrued Cash Dividends of $1.3 million as of June 30, 2019.

Share Repurchase Program
On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our common stock in the open market or through privately negotiated transactions. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements and prevailing market conditions. We may terminate or limit the share repurchase program at any time without prior notice. We did not repurchase shares during the nine months ended June 30, 2019. As of June 30, 2019, we have purchased 1,677,570 shares at an average price per share of $9.09 and a total cost of approximately $15.3 million under this program. Under the terms of the Securities Purchase Agreement, future stock purchases under this program require the approval of a majority of the voting power of the Series A Preferred Stock.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



14.   Earnings per Share

Basic net income (loss) per share has historically been calculated by dividing net income (loss) attributable to common stock by the weighted average number of common shares outstanding for the period. Our Series A Preferred Stock is considered a participating security because, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis. As such, for periods subsequent to the issuance of the Series A Preferred Stock, which occurred on June 24, 2016, we calculated basic earnings per share pursuant to the two-class method. The
two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends. The Series A Preferred Stock is not included in the computation of basic income (loss) per share in periods in which we have a net loss, as the Series A Preferred Stock is not contractually obligated to share in our net losses. Accordingly, the two-class method was not applicable for the three and nine months ended June 30, 2019 and 2018.

Diluted net income per share is calculated using the more dilutive of the as-converted or the two-class method. The two-class method assumes conversion of all potential shares other than the participating securities. Dilutive potential common shares include outstanding stock options, unvested restricted share awards and units and convertible preferred stock. The basic and diluted net loss amounts are the same for the three and nine months ended June 30, 2019 and 2018 as a result of the net loss and anti-dilutive impact of the potentially dilutive securities. The following table summarizes the computation of basic and diluted loss per share under the as-converted method:
 


Three Months Ended June 30,

Nine Months Ended June 30,
 

2019

2018

2019

2018
Loss available for distribution

$
(1,674
)

$
(13,022
)

$
(17,272
)

$
(25,608
)













Weighted average number of shares












Basic shares outstanding

25,498


25,186


25,410


25,084

Dilutive effect related to employee stock plans

—


—


—


—

Diluted shares outstanding

25,498


25,186


25,410


25,084










Net loss per share - basic

$
(0.07
)

$
(0.52
)

$
(0.68
)

$
(1.02
)
Net loss per share - diluted

$
(0.07
)

$
(0.52
)

$
(0.68
)

$
(1.02
)

The following table summarizes the potential weighted average shares of common stock that were excluded from the determination of our diluted shares outstanding as they were anti-dilutive:


Three Months Ended June 30,

Nine Months Ended June 30,


2019

2018

2019

2018


(In thousands)
Outstanding stock-based grants

273


262


387


450

Convertible preferred stock

21,021


21,021


21,021


21,021



21,294


21,283


21,408


21,471



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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



15.   Segment Information
Our principal business is providing postsecondary education. We also provide manufacturer-specific training and these operations are managed separately from our campus operations. These operations do not currently meet the quantitative criteria for segments and therefore are reflected in the Other category. Our equity method investment and other non-Postsecondary Education operations are also included within the Other category. Corporate expenses are allocated to Postsecondary Education and the Other category based on compensation expense. Depreciation and amortization includes amortization of assets subject to a financing obligation.
Summary information by reportable segment is as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
 
Postsecondary education
 
$
75,396

 
$
70,751

 
$
232,561

 
$
224,348

Other
 
3,646

 
4,144

 
11,277

 
12,367

Intersegment eliminations
 
—

 
(5
)
 
—

 
(6
)
Consolidated
 
$
79,042

 
$
74,890

 
$
243,838

 
$
236,709

Income (loss) from operations
 
 
 
 
 
 
 
 
Postsecondary education
 
$
(402
)
 
$
(10,253
)
 
$
(12,071
)
 
$
(21,284
)
Other
 
(53
)
 
(1,547
)
 
(1,169
)
 
(2,940
)
Consolidated
 
$
(455
)
 
$
(11,800
)
 
$
(13,240
)
 
$
(24,224
)
Depreciation and amortization(1)
 
 
 
 
 
 
 
 
Postsecondary education
 
$
3,966

 
$
3,376

 
$
11,835

 
$
11,239

Other
 
36

 
473

 
122

 
664

Consolidated
 
$
4,002

 
$
3,849

 
$
11,957

 
$
11,903

Net loss
 
 
 
 
 
 
 
 
Postsecondary education
 
$
(413
)
 
$
(10,364
)
 
$
(12,474
)
 
$
(19,237
)
Other
 
48

 
(1,349
)
 
(871
)
 
(2,444
)
Consolidated
 
$
(365
)
 
$
(11,713
)
 
$
(13,345
)
 
$
(21,681
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2019
 
September 30, 2018
Goodwill
 
 
 
 
 
 
 
 
Postsecondary education
 
 
 
 
 
$
8,222

 
$
8,222

Other
 
 
 
 
 
—

 
—

Consolidated
 
 
 
 
 
$
8,222

 
$
8,222

Total assets
 
 
 
 
 
 
 
 
Postsecondary education
 
 
 
 
 
$
237,240

 
$
275,427

Other
 
 
 
 
 
6,851

 
6,851

Consolidated
 
 
 
 
 
$
244,091

 
$
282,278

(1) Excludes depreciation of training equipment obtained in exchange for services of $0.4 million and $0.3 million for the three months ended June 30, 2019 and 2018, respectively, and of $1.1 million and $1.0 million for the nine months ended June 30, 2019 and 2018, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



16.  Government Regulation and Financial Aid
Accreditation

In July 2018, the Accrediting Commission of Career Schools and Colleges (ACCSC) conducted a renewal of accreditation on-site evaluation at NASCAR Technical Institute, which resulted in zero findings. The campus was reaccredited at the February 2019 Commission meeting. The accreditation will expire in December 2023.

In August 2018, ACCSC conducted a renewal of accreditation on-site evaluation at our Orlando, Florida campus. On April 19, 2019, we received a Team Summary Report from ACCSC that summarized two findings from its visit to our campus in connection with renewing the campus’ accreditation.  The first finding related to two programs that did not meet the employment benchmark set by ACCSC. Both programs did not meet the employment benchmark primarily due to low enrollment of only eight students available for employment across both programs. The second finding relates to not being able to provide documentation of our prior work experience verification for instructors hired prior to 2009. Due to a change in vendors for that service, verification records going back that far were no longer available. Since the on-site evaluation, we have reverified and documented that all instructors meet the minimum three-year practical work experience requirement, and we have provided the documentation in our Team Summary Report response.  We responded to the Team Summary Report on May 31, 2019 in advance of the June 3, 2019 deadline. The campus will be considered for reaccreditation at the August 2019 Commission meeting.
In September 2018, ACCSC conducted a renewal of accreditation on-site evaluation at our Houston, Texas campus, which resulted in one finding of non-compliance. The Houston, Texas campus reported student graduation and employment rates that did not meet the ACCSC minimum benchmarks for the Collision Repair & Refinish Technology program and Core Collision Repair & Refinish Technology with Estimating. The campus has since discontinued the Core Collision Repair & Refinish Technology with Estimating program and the Collision Repair & Refinish Technology is now above the established benchmarks. The campus was reaccredited at the May 2019 Commission meeting. The accreditation will expire in February 2024.
In December 2018, ACCSC conducted a renewal of accreditation on-site evaluation at our Lisle, Illinois campus, which resulted in zero findings. The campus was reaccredited at the May 2019 Commission meeting. The accreditation will expire in February 2024.

In February 2019, ACCSC conducted a branch verification on-site evaluation at our Bloomfield, New Jersey campus, which resulted in zero findings. The campus is currently engaged in the renewal of accreditation process and anticipates a renewal of accreditation on-site evaluation in the fall of 2019. ACCSC also conducted a renewal of accreditation on-site evaluation at our Avondale, Arizona campus, which resulted in zero findings. The campus will be considered for reaccreditation at the August 2019 Commission meeting.

In March 2019, ACCSC conducted a renewal of accreditation on-site evaluation at our Rancho Cucamonga, California campus, which resulted in zero findings. The campus will be considered for reaccreditation at the August 2019 Commission meeting.
    
In April 2019, ACCSC conducted a renewal of accreditation on-site evaluation at our Phoenix, Arizona campus, which resulted in one finding. ACCSC found that the program name identified on the enrollment agreement and the transcript included internal codes and abbreviations that do not align with the state or ACCSC approvals. The enrollment agreement and transcript have been updated and no longer include internal codes or abbreviations in the program name. Under ACCSC procedures, we intend to respond to the Team Summary Report by the August 26, 2019 due date. The campus will be considered for reaccreditation at the November 2019 Commission meeting.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)




State Authorization and Regulation

Each of our institutions must be authorized by the applicable state education agency where the institution is located to operate and offer a postsecondary education program to its students. Our institutions are subject to extensive, ongoing regulation by each of these states. The level of regulatory oversight varies substantially from state to state and is extensive in some states. “See “Regulatory Environment - State Authorization and Regulation” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018.

States often change their requirements in response to the Department of Education (ED) regulations or to implement requirements that may impact institutional and student success, and our institutions must respond quickly to remain in compliance. Also, from time to time, states may transition authority between state agencies and we must comply with the new state agency’s rules, procedures and other documentation requirements. Changes in state requirements have resulted in changes to our recruiting and other operations in those states and have increased our costs of doing business. If any one of our campuses were to lose its authorization from the education agency of the state in which the campus is located, that campus would be unable to offer its programs and we could be forced to close that campus. If one of our campuses were to lose its authorization from a state other than the state in which the campus is located, that campus would not be able to recruit students in that state.

As we previously reported, a series of bills were proposed in the California legislature that would impose substantial new requirements on our schools in California.  In the ensuing period, there have been major proposed revisions to the bills, which decrease their potential risk to our current business; however, these bills are not final, and are still subject to additional change.  The proposed new gainful employment standard for educational programs has been amended to remove penalties associated with a new measure of median student debt and California based wages; the proposal to set limitations on the percentage of revenue received from federal and state financial aid that would have been stricter than ED’s 90/10 rule was withdrawn by the author; and further restrictions on payments based on student success have been amended.  We cannot predict the timing, content or impact of any final laws that may emerge from the California legislature on these or other topics. The enactment of one or more of these proposed laws or similar laws could create compliance challenges and impose substantial additional costs on our institutions which could have a material adverse effect on our cash flows, results of operations and financial condition.

Regulation of Federal Student Financial Aid Programs
Accreditation & Academic Definitions. On October 15, 2018, ED published a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee and three subcommittees to develop proposed regulations related to several matters, including, but not limited to, requirements for accrediting agencies in their oversight of member institutions and programs; criteria used by ED to recognize accrediting agencies; simplification of ED’s recognition and review of accrediting agencies; clarification of the core oversight responsibilities amongst accrediting agencies, states and ED; clarification of the permissible arrangements between an institution of higher education and another organization to provide a portion of an educational program; roles and responsibilities of institutions and accrediting agencies in the teach-out process; regulatory changes required to ensure equitable treatment of brick-and-mortar and distance education programs; regulatory changes required to enable expansion of direct assessment programs, distance education, and competency-based education; regulatory changes required to clarify disclosure and other requirements of state authorization; emphasizing the importance of institutional mission in evaluating its policies, programs and outcomes; simplification of state authorization requirements related to distance education; defining “regular and substantive interaction” as it relates to distance education and correspondence courses; defining the term “credit hour;” defining the requirements related to the length of educational programs and entry level requirements for the occupation; and other matters. On January 7, 2019, ED released a set of draft proposed regulations for consideration and negotiation by the negotiated rulemaking committee and subcommittees. The draft proposed regulations also cover additional topics including, but not limited to, amendments to current regulations regarding the clock to credit hour conversion formula for measuring

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



the lengths of certain educational programs, the return of unearned Title IV funds received for students who withdraw before completing their educational programs, and the measurement of student academic progress. ED released additional revisions and updates to the draft proposed regulations prior to subsequent meetings of the committee and subcommittees in early 2019. The committee and subcommittees completed their meetings in April 2019 and reached consensus on draft proposed regulations. On June 12, 2019, ED published proposed regulations on a portion of these issues (primarily those related to accreditation) in a notice of proposed rulemaking in the Federal Register for public comment and to consider revisions to the regulations in response to the comments before publishing the final versions of the regulations. ED stated that it intends to publish proposed regulations on the remaining issues in a separate notice of proposed rulemaking, but did not indicate when it would publish these proposed changes. The proposed changes to the regulations remain subject to further change during the rulemaking process. We are in the process of reviewing the proposed regulations and will continue to monitor and review the proposed regulations as they evolve. At this time, we cannot provide any assurances as to the timing, content or impact of any final regulations arising from the negotiated rulemaking process.

Compliance with Regulatory Standards and Requests. As described in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, in connection with the issuance of our Series A Preferred Stock, effective July 2016 ED requested the submission of bi-weekly cash flow projection reports and a monthly student roster. On February 28, 2018, ED notified us that the cash flow projection reports would be required on a monthly basis instead of the previously requested bi-weekly basis. This special reporting will continue until we are otherwise notified by ED.

Gainful Employment. As described in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, ED gainful employment regulations include debt to earning (DE) metrics and disclosure requirements for program certifications, reporting and disclosure of program information and warnings. On July 1, 2019, ED issued final regulations that rescind the gainful employment regulations. The final regulations have an effective date of July 1, 2020. However, ED has stated in a June 28, 2019 electronic announcement that institutions may elect to implement immediately the new regulations and that institutions that early implement the regulations will not be required to report gainful employment data for the 2018-2019 award year, comply with requirements for including a gainful employment disclosure template in their promotional materials or directly distributing the disclosure template to prospective students, post gainful employment disclosures on their web pages, or comply with certification requirements for gainful employment. ED stated in the electronic announcement that institutions that do not early implement the new regulations are expected to comply with the existing gainful employment regulations by July 1, 2020. We have taken steps to early implement the new regulations.

Defense to Repayment Regulations. The current regulations on borrower defense to repayment were published on November 1, 2016, with an effective date of July 1, 2017. As described in detail in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, the current regulations include provisions related to Borrower Defense and Other Discharges, Financial Protection Requirements, Student Loan Repayment Rates, and Prohibitions on Pre-Dispute Contractual Provisions. See “Regulatory Environment - Defense to Repayment Regulations” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. On October 24, 2017, ED published an interim regulation that delayed until July 1, 2018 the effective date of the majority of the regulations. On February 14, 2018, a final rule was published in the Federal Register delaying until July 1, 2019 the effective date of the regulations. On September 12, 2018, a U.S. District Court judge issued an opinion concluding among other things that the delay in the effective date was unlawful. On October 16, 2018, the judge issued an order declining to extend a stay preventing the regulations from taking effect. Consequently, the November 1, 2016 regulations are now in effect.

On March 15, 2019, ED issued an electronic announcement with guidance regarding the implementation of some of the provisions of the regulations that were published on November 1, 2016 (the “2016 Final Regulations”).


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



•
Borrower Defense to Repayment Standard: The 2016 Final Regulations established a federal standard for borrower defense to repayment applications based upon judgments against institutions, breaches of contract by institutions and substantial misrepresentations by institutions. See “Regulatory Environment - Defense to Repayment Regulations - Borrower Defense and Other Discharges” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. The electronic announcement states that this standard will be applied for borrower defense to repayment claims asserted as to loans first disbursed on or after July 1, 2017.
•
The Financial Responsibility Events, Actions, and Conditions: The 2016 Final Regulations included revisions to ED’s standards that institutions must meet to be deemed financially responsible. Among other things, the 2016 Final Regulations require institutions to notify ED within specified time frames for any one of an extensive list of events, actions, or conditions that occur on or after July 1, 2017. See “Regulatory Environment - Defense to Repayment Regulations - Financial Protection Requirements” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. ED acknowledged in the electronic announcement that some institutions may have been uncertain about how to comply with these requirements in light of the delays and court orders regarding the effective date of the 2016 Final Regulations. In general, ED gives institutions within 60 days of the electronic announcement to send notifications of actions, events, and conditions that occurred between the July 1, 2017 effective date of the 2016 Final Regulations and the date of the electronic announcement. However, there are exceptions. For example, institutions are not required to submit a notification for certain debts, liabilities and losses that occurred between July 1, 2017 and the last day of the fiscal year end for the most recent annual audit submission submitted to ED. The electronic announcement indicates that institutions have an ongoing responsibility to notify ED of subsequent actions, events, or conditions. One such event is the planned closure of our Norwood, Massachusetts campus in the fall of 2020, which we announced on February 18, 2019. The occurrence, and notification to ED, of such actions, events, or conditions could result in ED recalculating our composite score and/or requiring us to submit a letter of credit in an amount to be calculated by ED and agree to other conditions on our Title IV participation, which could have a material adverse effect on the company. In May 2019, we submitted our formal notification to ED regarding the closure of our Norwood, Massachusetts campus.  We have not received a response from ED regarding our submission. 
•
The Class Action Bans and Pre-dispute Arbitration Agreements Provisions: The announcement also includes guidance regarding prohibitions in the 2016 Final Regulations on class action bans and pre-dispute arbitration agreements, including implementation of the prohibitions, the types of claims to which the prohibitions do not apply, and the deadlines for submitting to ED copies of certain arbitral and judicial records in connection with certain proceedings concerning borrower defense claims.
•
Repayment Rate Disclosures: The guidance indicates that institutions will be notified at a later date about when and how they must provide repayment rate warnings to students in the future and of any changes to the content of the warning. ED also stated that institutions do not need to provide disclosures to enrolled and prospective students regarding the occurrence of financial actions, events or conditions until further notice from ED.

ED published a notice of proposed rulemaking on July 31, 2018 that included proposed regulations for public comment that would modify the existing defense to repayment regulations, but has not issued final regulations. See “Regulatory Environment - Defense to Repayment Regulations” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. We cannot provide any assurances as to the timing, content or ultimate effective date of any such regulations.
    

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
($’s in thousands, except per share amounts)



Closed School Loan Discharges. ED regulations state that ED may discharge a borrower’s obligation to repay certain Title IV loans if the borrower (or the student on whose behalf a parent borrowed) did not complete the program of study for which the loan was made because the campus at which the borrower (or student) was enrolled closed. The borrower may qualify for a discharge by submitting a request to ED and meeting specific requirements in the regulations. Borrowers generally may qualify for a discharge if they were enrolled at the campus at the time it closed, or if they were enrolled not more than 120 days before the campus closed, and if they did not complete their educational program through a teach-out at another school or by transferring academic credits earned at the closed school to another school. ED has the authority to extend the 120-day period for extenuating circumstances. If ED discharges the loans, ED may seek to recover from the school or other related parties the amount of loans discharged and to impose other liabilities and penalties. Consequently, if we close a campus, ED could discharge borrower obligations to repay certain Title IV loans in connection with loans received by all students enrolled in the campus at the time of its closure and by all students who withdrew from the campus120 days (or a longer period established by ED) prior to the closure and seek to recover the amount of the discharged loans and other liabilities and penalties. We may be able to mitigate these losses by conducting or arranging for an orderly teach-out of students at a closed campus, but these efforts could be unsuccessful if students decline to participate in the teach-out or transfer their credits to another school or if they fail to complete their programs. ED published a notice of proposed rulemaking on July 31, 2018 that included proposed regulations on a variety of topics, including amendments to regulations related to the discharge of student loans based on the school’s closure or a false claim of high school completion under certain circumstances, but has not published final regulations on this topic. We cannot provide any assurances as to the timing, content or ultimate effective date of any such regulations. See “Regulation of Federal Student Financial Aid Programs - Defense to Repayment Regulations” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. On February 18, 2019, we announced that our campus in Norwood, Massachusetts is no longer accepting new student applications, and its last class group of students started on March 18, 2019. The campus is expected to close in the fall of 2020. We intend to teach out all of the students currently enrolled at the campus although certain students may elect to withdraw before graduation and we cannot predict the number of any students who might withdraw prior to the closure of the campus and potentially qualify for a loan discharge.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this Report on Form 10-Q and those in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Risk Factors” in our 2018 Annual Report on Form 10-K and included in Part II, Item 1A of this Report on Form 10-Q. See also "Special Note Regarding Forward-Looking Statements" on page ii of this Report on Form 10-Q.

Overview

We are the leading provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians as well as welders and CNC machining technicians as measured by total average undergraduate full-time enrollment and graduates. We offer certificate, diploma or degree programs at 13 campuses across the United States. We also offer MSAT programs, including student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers. We have provided technical education for 53 years.

We work closely with leading OEMs in the automotive, diesel, motorcycle and marine industries to understand their needs for qualified service professionals. Through our industry relationships, we are able to continuously refine and expand our programs and curricula. We believe our industry-oriented educational philosophy and national presence have enabled us to develop valuable industry relationships, which provide us with significant competitive strength and support our market leadership. We are a primary provider of MSAT programs, and we have relationships with over 30 OEMs. 
    
Participating manufacturers typically assist us in the development of course content and curricula, while providing us with vehicles, equipment, specialty tools and parts at reduced prices or at no charge. In some instances they offer tuition reimbursement and other hiring incentives to our graduates. Our collaboration with OEMs enables us to provide highly specialized education to our students, resulting in enhanced employment opportunities and the potential for higher wages for our graduates. Our industry partners and their dealers benefit from a supply of technicians who are certified or credentialed by the manufacturer as graduates of the MSAT programs. The MSAT programs offer a cost-effective alternative for sourcing and developing technicians for both OEMs and their dealers. These relationships also support the development of incremental revenue opportunities from training the OEMs’ existing employees.

2019 Overview

Operations

Higher student population levels and an increase in new student starts resulted in an increase of 1.8% in our average undergraduate full-time enrollment to 10,562 students for the nine months ended June 30, 2019. We started 5,215 students during the nine months ended June 30, 2019, which was an increase of 11.4% from the prior year comparable period. Excluding the impact of the Norwood, Massachusetts campus, we started 5,125 students during the nine months ended June 30, 2019, which was an increase of 13.0% from the prior year comparable period. The increase in starts was primarily the result of the transformation plan initiatives and continued execution of the metro campus strategy.


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During 2018, we announced and began implementation of a multi-year transformation plan. This plan included a comprehensive evaluation of our business by a top-tier consulting firm, which identified opportunities for growth with select investments in marketing, admissions and student services. In addition to the transformation plan, we continue to focus on existing key strategies, including:

•
Expanding into new geographic markets either organically or through strategic acquisitions; we opened a new campus in Bloomfield, New Jersey in August 2018;
•
Offering new programs, such as expanding our welding program to our Dallas Ft. Worth, Texas campus, and offering associate level degree programs at additional campus locations;
•
Adding and renewing contracts with OEM partners and other employers to provide career opportunities and tuition reimbursement for our graduates;
•
Identifying and executing on a variety of affordability initiatives, including employer financial support and institutional scholarships and grants; and
•
Shifting perceptions and building advocacy with key policy makers and influencers.
Several factors may continue to challenge our ability to start new students, including the following:

•
Unemployment; during periods when the unemployment rate declines or remains stable as it has in recent years, prospective students have more employment options;
•
Adverse media coverage, legislative hearings, regulatory actions and investigations by attorneys general and various agencies related to allegations of wrongdoing on the part of other companies within the education and training services industry, which have cast the industry in a negative light;
•
Competition for prospective students continues to increase from within our sector and from market employers, as well as with traditional postsecondary educational institutions; and
•
The state of the general macro-economic environment and its impact on price sensitivity and the ability and willingness of students and their families to incur debt.

On February 18, 2019, we announced that our campus in Norwood, Massachusetts is no longer accepting new student applications and its last group of students started on March 18, 2019. The decision to exit the Norwood, Massachusetts campus in the fall of 2020 is part of our previously communicated strategy to move from large destination campuses to smaller campuses in markets with higher student density and industry demand. Students will have the opportunity to complete their training programs and graduate with the skills needed to work as automotive and diesel technicians. We remain committed to providing Norwood students with employment assistance and other student support services while attending school and following graduation. Students were given the option of attending another UTI campus, receiving relocation support or having their enrollment fees refunded. We will also support impacted employees through this transition, with severance packages including benefits and the potential to transfer to another UTI location in the future. See Note 5 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q for further discussion of postemployment benefits.

We expect the campus exit to result in an improvement in annual pre-tax net income, EBITDA and cash flows, after completing the exit in the fall of 2020. The financial benefits are generated through eliminating the Norwood, Massachusetts campus direct operating loss, reducing admissions, marketing, and other costs not included in the direct campus operating costs, and earning net revenue from a portion of students expected to attend our other campuses. For further discussion, see the Current Report on Form 8-K filed with the SEC on February 19, 2019.


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Our revenues for the three months ended June 30, 2019 were $79.0 million, an increase of $4.1 million, or 5.5%, from the comparable period in the prior year. We had an operating loss of $0.5 million compared to an operating loss of $11.8 million for the same period in the prior year. The improvement in our operating results was due to the increase in revenue and decrease in expense.   Expenses were lower in contract and professional services expense, advertising, goodwill and intangible asset impairment expense, total compensation and related costs, student training aids and occupancy costs. Our results of operations were impacted by the opening of our new campus in Bloomfield, New Jersey in August 2018. For the three months ended June 30, 2019, this campus had revenues of $2.9 million and direct costs of $2.2 million. We incurred a net loss of $0.4 million compared to a net loss of $11.7 million for the comparable period in the prior year.
Our revenues for the nine months ended June 30, 2019 were $243.8 million, an increase of $7.1 million, or 3.0%, from the comparable period in the prior year. We had an operating loss of $13.2 million compared to an operating loss of $24.2 million for the same period in the prior year. The improvement in our operating results was due to the increase in revenue and decrease in expense.  Expenses were lower in advertising, student training aids and goodwill and intangible asset impairment expense.  Partially offsetting the decreases were increases in total compensation and related costs and student expenses. Our results of operations were impacted by the opening of our new campus in Bloomfield, New Jersey in August 2018. For the nine months ended June 30, 2019, this campus had revenues of $7.4 million and direct costs of $6.2 million. We incurred a net loss of $13.3 million compared to a net loss of $21.7 million for the comparable period in the prior year.
Graduate Employment

Our consolidated graduate employment rate for our 2018 graduates during the nine months ended June 30, 2019 is higher than the rate at the same time in the prior year. The rate has improved for our Automotive and Diesel Technology, Marine and Motorcycle programs. The rate has declined for our Collision Repair program.

Regulatory Environment
Accreditation

In July 2018, the Accrediting Commission of Career Schools and Colleges (ACCSC) conducted a renewal of accreditation on-site evaluation at NASCAR Technical Institute, which resulted in zero findings. The campus was reaccredited at the February 2019 Commission meeting. The accreditation will expire in December 2023.

In August 2018, ACCSC conducted a renewal of accreditation on-site evaluation at our Orlando, Florida campus. On April 19, 2019, we received a Team Summary Report from ACCSC that summarized two findings from its visit to our campus in connection with renewing the campus’ accreditation.  The first finding related to two programs that did not meet the employment benchmark set by ACCSC. Both programs did not meet the employment benchmark primarily due to low enrollment of only eight students available for employment across both programs. The second finding relates to not being able to provide documentation of our prior work experience verification for instructors hired prior to 2009. Due to a change in vendors for that service, verification records going back that far were no longer available. Since the on-site evaluation, we have reverified and documented that all instructors meet the minimum three-year practical work experience requirement, and we have provided the documentation in our Team Summary Report response.  We responded to the Team Summary Report on May 31, 2019 in advance of the June 3, 2019 deadline. The campus will be considered for reaccreditation at the August 2019 Commission meeting.
In September 2018, ACCSC conducted a renewal of accreditation on-site evaluation at our Houston, Texas campus, which resulted in one finding of non-compliance. The Houston, Texas campus reported student graduation and employment rates that did not meet the ACCSC minimum benchmarks for the Collision Repair & Refinish Technology program and Core Collision Repair & Refinish Technology with Estimating. The campus has since discontinued the Core Collision Repair & Refinish Technology with Estimating program and the Collision Repair & Refinish Technology is now above the established benchmarks. The campus was reaccredited at the May 2019 Commission meeting. The accreditation will expire in February 2024.

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In December 2018, ACCSC conducted a renewal of accreditation on-site evaluation at our Lisle, Illinois campus, which resulted in zero findings. The campus was reaccredited at the May 2019 Commission meeting. The accreditation will expire in February 2024.

In February 2019, ACCSC conducted a branch verification on-site evaluation at our Bloomfield, New Jersey campus, which resulted in zero findings. The campus is currently engaged in the renewal of accreditation process and anticipates a renewal of accreditation on-site evaluation in the fall of 2019. ACCSC also conducted a renewal of accreditation on-site evaluation at our Avondale, Arizona campus, which resulted in zero findings. The campus will be considered for reaccreditation at the August 2019 Commission meeting.

In March 2019, ACCSC conducted a renewal of accreditation on-site evaluation at our Rancho Cucamonga, California campus, which resulted in zero findings. The campus will be considered for reaccreditation at the August 2019 Commission meeting.
    
In April 2019, ACCSC conducted a renewal of accreditation on-site evaluation at our Phoenix, Arizona campus, which resulted in one finding. ACCSC found that the program name identified on the enrollment agreement and the transcript included internal codes and abbreviations that do not align with the state or ACCSC approvals. The enrollment agreement and transcript have been updated and no longer include internal codes or abbreviations in the program name. Under ACCSC procedures, we intend to respond to the Team Summary Report by the August 26, 2019 due date. The campus will be considered for reaccreditation at the November 2019 Commission meeting.

State Authorization and Regulation

Each of our institutions must be authorized by the applicable state education agency where the institution is located to operate and offer a postsecondary education program to its students. Our institutions are subject to extensive, ongoing regulation by each of these states. The level of regulatory oversight varies substantially from state to state and is extensive in some states. “See “Regulatory Environment - State Authorization and Regulation” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018.

States often change their requirements in response to the Department of Education (ED) regulations or to implement requirements that may impact institutional and student success, and our institutions must respond quickly to remain in compliance. Also, from time to time, states may transition authority between state agencies and we must comply with the new state agency’s rules, procedures and other documentation requirements. Changes in state requirements have resulted in changes to our recruiting and other operations in those states and have increased our costs of doing business. If any one of our campuses were to lose its authorization from the education agency of the state in which the campus is located, that campus would be unable to offer its programs and we could be forced to close that campus. If one of our campuses were to lose its authorization from a state other than the state in which the campus is located, that campus would not be able to recruit students in that state.

As we previously reported, a series of bills were proposed in the California legislature that would impose substantial new requirements on our schools in California.  In the ensuing period, there have been major proposed revisions to the bills, which decrease their potential risk to our current business; however, these bills are not final, and are still subject to additional change.  The proposed new gainful employment standard for educational programs has been amended to remove penalties associated with a new measure of median student debt and California based wages; the proposal to set limitations on the percentage of revenue received from federal and state financial aid that would have been stricter than ED’s 90/10 rule was withdrawn by the author; and further restrictions on payments based on student success have been amended.  We cannot predict the timing, content or impact of any final laws that may emerge from the California legislature on these or other topics. The enactment of one or more of these proposed laws or similar laws could create compliance challenges and impose substantial additional costs on our institutions which could have a material adverse effect on our cash flows, results of operations and financial condition.


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Regulation of Federal Student Financial Aid Programs
Accreditation & Academic Definitions. On October 15, 2018, ED published a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee and three subcommittees to develop proposed regulations related to several matters, including, but not limited to, requirements for accrediting agencies in their oversight of member institutions and programs; criteria used by ED to recognize accrediting agencies; simplification of ED’s recognition and review of accrediting agencies; clarification of the core oversight responsibilities amongst accrediting agencies, states and ED; clarification of the permissible arrangements between an institution of higher education and another organization to provide a portion of an educational program; roles and responsibilities of institutions and accrediting agencies in the teach-out process; regulatory changes required to ensure equitable treatment of brick-and-mortar and distance education programs; regulatory changes required to enable expansion of direct assessment programs, distance education, and competency-based education; regulatory changes required to clarify disclosure and other requirements of state authorization; emphasizing the importance of institutional mission in evaluating its policies, programs and outcomes; simplification of state authorization requirements related to distance education; defining “regular and substantive interaction” as it relates to distance education and correspondence courses; defining the term “credit hour;” defining the requirements related to the length of educational programs and entry level requirements for the occupation; and other matters. On January 7, 2019, ED released a set of draft proposed regulations for consideration and negotiation by the negotiated rulemaking committee and subcommittees. The draft proposed regulations also cover additional topics including, but not limited to, amendments to current regulations regarding the clock to credit hour conversion formula for measuring the lengths of certain educational programs, the return of unearned Title IV funds received for students who withdraw before completing their educational programs, and the measurement of student academic progress. ED released additional revisions and updates to the draft proposed regulations prior to subsequent meetings of the committee and subcommittees in early 2019. The committee and subcommittees completed their meetings in April 2019 and reached consensus on draft proposed regulations. On June 12, 2019, ED published proposed regulations on a portion of these issues (primarily those related to accreditation) in a notice of proposed rulemaking in the Federal Register for public comment and to consider revisions to the regulations in response to the comments before publishing the final versions of the regulations. ED stated that it intends to publish proposed regulations on the remaining issues in a separate notice of proposed rulemaking, but did not indicate when it would publish these proposed changes. The proposed changes to the regulations remain subject to further change during the rulemaking process. We are in the process of reviewing the proposed regulations and will continue to monitor and review the proposed regulations as they evolve. At this time, we cannot provide any assurances as to the timing, content or impact of any final regulations arising from the negotiated rulemaking process.

Compliance with Regulatory Standards and Requests. As described in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, in connection with the issuance of our Series A Preferred Stock, effective July 2016 ED requested the submission of bi-weekly cash flow projection reports and a monthly student roster. On February 28, 2018, ED notified us that the cash flow projection reports would be required on a monthly basis instead of the previously requested bi-weekly basis. This special reporting will continue until we are otherwise notified by ED.


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Gainful Employment. As described in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, ED gainful employment regulations include debt to earning (DE) metrics and disclosure requirements for program certifications, reporting and disclosure of program information and warnings. On July 1, 2019, ED issued final regulations that rescind the gainful employment regulations. The final regulations have an effective date of July 1, 2020. However, ED has stated in a June 28, 2019 electronic announcement that institutions may elect to implement immediately the new regulations and that institutions that early implement the regulations will not be required to report gainful employment data for the 2018-2019 award year, comply with requirements for including a gainful employment disclosure template in their promotional materials or directly distributing the disclosure template to prospective students, post gainful employment disclosures on their web pages, or comply with certification requirements for gainful employment. ED stated in the electronic announcement that institutions that do not early implement the new regulations are expected to comply with the existing gainful employment regulations by July 1, 2020. We have taken steps to early implement the new regulations.

Defense to Repayment Regulations. The current regulations on borrower defense to repayment were published on November 1, 2016, with an effective date of July 1, 2017. As described in detail in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, the current regulations include provisions related to Borrower Defense and Other Discharges, Financial Protection Requirements, Student Loan Repayment Rates, and Prohibitions on Pre-Dispute Contractual Provisions. See “Regulatory Environment - Defense to Repayment Regulations” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. On October 24, 2017, ED published an interim regulation that delayed until July 1, 2018 the effective date of the majority of the regulations. On February 14, 2018, a final rule was published in the Federal Register delaying until July 1, 2019 the effective date of the regulations. On September 12, 2018, a U.S. District Court judge issued an opinion concluding among other things that the delay in the effective date was unlawful. On October 16, 2018, the judge issued an order declining to extend a stay preventing the regulations from taking effect. Consequently, the November 1, 2016 regulations are now in effect.

On March 15, 2019, ED issued an electronic announcement with guidance regarding the implementation of some of the provisions of the regulations that were published on November 1, 2016 (the “2016 Final Regulations”).

•
Borrower Defense to Repayment Standard: The 2016 Final Regulations established a federal standard for borrower defense to repayment applications based upon judgments against institutions, breaches of contract by institutions and substantial misrepresentations by institutions. See “Regulatory Environment - Defense to Repayment Regulations - Borrower Defense and Other Discharges” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. The electronic announcement states that this standard will be applied for borrower defense to repayment claims asserted as to loans first disbursed on or after July 1, 2017.
•
The Financial Responsibility Events, Actions, and Conditions: The 2016 Final Regulations included revisions to ED’s standards that institutions must meet to be deemed financially responsible. Among other things, the 2016 Final Regulations require institutions to notify ED within specified time frames for any one of an extensive list of events, actions, or conditions that occur on or after July 1, 2017. See “Regulatory Environment - Defense to Repayment Regulations - Financial Protection Requirements” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. ED acknowledged in the electronic announcement that some institutions may have been uncertain about how to comply with these requirements in light of the delays and court orders regarding the effective date of the 2016 Final Regulations. In general, ED gives institutions within 60 days of the electronic announcement to send notifications of actions, events, and conditions that occurred between the July 1, 2017 effective date of the 2016 Final Regulations and the date of the electronic announcement. However, there are exceptions. For example, institutions are not required to submit a notification for certain debts, liabilities and losses that occurred between July 1, 2017 and the last day of the fiscal year end for the most recent annual audit submission submitted to ED. The electronic announcement indicates that institutions have an ongoing responsibility to notify ED of subsequent

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actions, events, or conditions. One such event is the planned closure of our Norwood, Massachusetts campus in the fall of 2020, which we announced on February 18, 2019. The occurrence, and notification to ED, of such actions, events, or conditions could result in ED recalculating our composite score and/or requiring us to submit a letter of credit in an amount to be calculated by ED and agree to other conditions on our Title IV participation, which could have a material adverse effect on the company. In May 2019, we submitted our formal notification to ED regarding the closure of our Norwood, Massachusetts campus.  We have not received a response from ED regarding our submission. 
•
The Class Action Bans and Pre-dispute Arbitration Agreements Provisions: The announcement also includes guidance regarding prohibitions in the 2016 Final Regulations on class action bans and pre-dispute arbitration agreements, including implementation of the prohibitions, the types of claims to which the prohibitions do not apply, and the deadlines for submitting to ED copies of certain arbitral and judicial records in connection with certain proceedings concerning borrower defense claims.
•
Repayment Rate Disclosures: The guidance indicates that institutions will be notified at a later date about when and how they must provide repayment rate warnings to students in the future and of any changes to the content of the warning. ED also stated that institutions do not need to provide disclosures to enrolled and prospective students regarding the occurrence of financial actions, events or conditions until further notice from ED.

ED published a notice of proposed rulemaking on July 31, 2018 that included proposed regulations for public comment that would modify the existing defense to repayment regulations, but has not issued final regulations. See “Regulatory Environment - Defense to Repayment Regulations” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. We cannot provide any assurances as to the timing, content or ultimate effective date of any such regulations.
    
Closed School Loan Discharges. ED regulations state that ED may discharge a borrower’s obligation to repay certain Title IV loans if the borrower (or the student on whose behalf a parent borrowed) did not complete the program of study for which the loan was made because the campus at which the borrower (or student) was enrolled closed. The borrower may qualify for a discharge by submitting a request to ED and meeting specific requirements in the regulations. Borrowers generally may qualify for a discharge if they were enrolled at the campus at the time it closed, or if they were enrolled not more than 120 days before the campus closed, and if they did not complete their educational program through a teach-out at another school or by transferring academic credits earned at the closed school to another school. ED has the authority to extend the 120-day period for extenuating circumstances. If ED discharges the loans, ED may seek to recover from the school or other related parties the amount of loans discharged and to impose other liabilities and penalties. Consequently, if we close a campus, ED could discharge borrower obligations to repay certain Title IV loans in connection with loans received by all students enrolled in the campus at the time of its closure and by all students who withdrew from the campus120 days (or a longer period established by ED) prior to the closure and seek to recover the amount of the discharged loans and other liabilities and penalties. We may be able to mitigate these losses by conducting or arranging for an orderly teach-out of students at a closed campus, but these efforts could be unsuccessful if students decline to participate in the teach-out or transfer their credits to another school or if they fail to complete their programs. ED published a notice of proposed rulemaking on July 31, 2018 that included proposed regulations on a variety of topics, including amendments to regulations related to the discharge of student loans based on the school’s closure or a false claim of high school completion under certain circumstances, but has not published final regulations on this topic. We cannot provide any assurances as to the timing, content or ultimate effective date of any such regulations. See “Regulation of Federal Student Financial Aid Programs - Defense to Repayment Regulations” in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. On February 18, 2019, we announced that our campus in Norwood, Massachusetts is no longer accepting new student applications, and its last class group of students started on March 18, 2019. The campus is expected to close in the fall of 2020. We intend to teach out all of the students currently enrolled at the campus although certain students may elect to withdraw before graduation and we cannot predict the number of any students who might withdraw prior to the closure of the campus and potentially qualify for a loan discharge.

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Results of Operations
The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated.
 
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
2019

2018
Revenues
 
100.0
 %
 
100.0
 %
 
100.0
 %

100.0
 %
Operating expenses:
 
 
 
 
 



Educational services and facilities
 
54.2
 %
 
59.7
 %
 
55.1
 %

56.9
 %
Selling, general and administrative
 
46.4
 %
 
56.0
 %
 
50.3
 %

53.4
 %
Total operating expenses
 
100.6
 %
 
115.7
 %
 
105.4
 %

110.3
 %
Loss from operations
 
(0.6
)%
 
(15.7
)%
 
(5.4
)%

(10.3
)%
Interest expense, net
 
(0.6
)%
 
(0.6
)%
 
(0.5
)%

(0.6
)%
Other income, net
 
0.7
 %
 
0.5
 %
 
0.6
 %

0.4
 %
Total other income (expense), net
 
0.1
 %
 
(0.1
)%
 
0.1
 %

(0.2
)%
Loss before income taxes
 
(0.5
)%
 
(15.8
)%
 
(5.3
)%

(10.5
)%
Income tax expense (benefit)
 
—
 %
 
(0.2
)%
 
0.1
 %

(1.3
)%
Net loss
 
(0.5
)%
 
(15.6
)%
 
(5.4
)%

(9.2
)%
Preferred stock dividends
 
1.7
 %
 
1.7
 %
 
1.6
 %
 
1.7
 %
Loss available for distribution
 
(2.2
)%
 
(17.3
)%
 
(7.0
)%
 
(10.9
)%

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018 and Nine Months Ended June 30, 2019 Compared to Nine Months Ended June 30, 2018

Revenues. Our revenues for the three months ended June 30, 2019 were $79.0 million, an increase of $4.1 million, or 5.5%, as compared to revenues of $74.9 million for the three months ended June 30, 2018. Our average full-time student enrollment increased 4.2%, which resulted in an increase in revenues of approximately $3.0 million. Additionally, there were tuition rate increases of up to 2.5%, depending on the program. Our Bloomfield, New Jersey campus contributed revenues of $2.9 million. We recognized $1.5 million on an accrual basis related to revenues and interest under our proprietary loan program for the three months ended June 30, 2019 as compared to $1.4 million for the three months ended June 30, 2018. Partially offsetting the increase in revenue, was a decrease in industry training revenue of $0.5 million.

Our revenues for the nine months ended June 30, 2019 were $243.8 million, an increase of $7.1 million, or 3.0%, as compared to revenues of $236.7 million for the nine months ended June 30, 2018. Our average undergraduate full-time student enrollment increased 1.8%, which resulted in an increase in revenues of approximately $4.0 million. There were tuition rate increases of up to 2.5%, depending on the program. Our Bloomfield, New Jersey campus contributed revenues of $7.4 million. We recognized $4.7 million on an accrual basis related to revenues and interest under our proprietary loan program for the nine months ended June 30, 2019 and June 30, 2018, respectively. Partially offsetting the increase, was a decrease in industry training revenue of $1.1 million and course retake revenue of $0.5 million.


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Educational services and facilities expenses. Our educational services and facilities expenses were $42.8 million for the three months ended June 30, 2019, which represents a decrease of $1.9 million as compared to $44.7 million for three months ended June 30, 2018. Our educational services and facilities expenses were $134.4 million for the nine months ended June 30, 2019, which represents an decrease of $0.2 million as compared to $134.6 million for the nine months ended June 30, 2018.

Our educational services and facilities expenses included directs costs for our Bloomfield, New Jersey campus of $2.0 million and $5.8 million for the three months and nine months ended June 30, 2019, respectively as compared to $1.5 million and $2.6 million for the three months and nine months ended June 30, 2018, respectively.

The following table sets forth the significant components of our educational services and facilities expenses:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Salaries expense
$
18,660

 
$
19,780

 
$
59,269

 
$
59,098

Employee benefits and tax
4,143

 
3,862

 
12,383

 
12,211

Bonus expense
100

 
(112
)
 
330

 
183

Compensation and related costs
22,903

 
23,530

 
71,982

 
71,492

Contract service expense
725

 
998

 
2,779

 
3,012

Depreciation and amortization expense
3,964

 
3,730

 
11,912

 
11,385

Occupancy costs
8,661

 
9,219

 
26,510

 
27,133

Other educational services and facilities expense
5,909

 
5,996

 
18,765

 
18,606

Student expense
532

 
458

 
1,792

 
1,089

Student training aids
142

 
806

 
653

 
1,918

 
$
42,836

 
$
44,737

 
$
134,393

 
$
134,635

Compensation and related costs decreased $0.6 million and increased $0.5 million for the three and nine months ended June 30, 2019, respectively.
•
Salaries expense decreased $1.1 million and increased $0.2 million for the three and nine months ended June 30, 2019, respectively. The decrease for the three months ended June 30, 2019 was attributable to overall lower headcount of 5.2% compared to the prior year. The decrease was partially offset by additional headcount needed for the addition of the Bloomfield, New Jersey campus.
•
Employee benefits and tax increased $0.2 million for the three and nine months ended June 30, 2019, due to higher medical claims.
Contract service expense decreased $0.3 million and $0.2 million for the three and nine months ended June 30, 2019, respectively. The decrease for the three months ended June 30, 2019 was due to the overall business initiative to monitor expenses and timing of when invoices are paid.

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Depreciation and amortization expense increased $0.3 million and $0.5 million for the three and nine months ended June 30, 2019, respectively, due to training aids and equipment at our Bloomfield, New Jersey campus that were placed into service. Partially offsetting the increase for the nine months ended June 30, 2019, was a higher percentage of our fixed assets becoming fully depreciated.
Occupancy costs decreased $0.5 million and $0.6 million for the three and nine months ended June 30, 2019, respectively. The decrease for the three months ended and nine months ended was primarily attributed to changes in lease terms at our Houston, Texas and Norwood, Massachusetts campuses. The decrease was partially offset by an increase in occupancy costs for our Bloomfield, New Jersey campus which was still in the build-out phase during a major portion of the prior year.
Student expense increased $0.7 million for the nine months ended June 30, 2019. The increase was attributed to transformation plan initiatives and higher student count.
Student training aids decreased $0.7 million and $1.2 million for the three and nine months ended June 30, 2019, respectively. The prior year included additional expenses for the Bloomfield, New Jersey campus build-out.
Selling, general and administrative expenses. Our selling, general and administrative expenses for the three months and nine months ended June 30, 2019 were $36.7 million and $122.7 million, respectively. This represents a decrease of $5.3 million and $3.6 million, respectively, as compared to $42.0 million and $126.3 million for the three months and nine months ended June 30, 2018.
Our selling, general and administrative expenses included direct costs for our Bloomfield, New Jersey campus of $0.2 million for the three months ended June 30, 2019 and $0.4 million for the nine months ended June 30, 2019 as compared to $0.3 million and $0.4 million for the three months and nine months ended June 30, 2018, respectively.

The following table sets forth the significant components of our selling, general and administrative expenses:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
Salaries expense
$
14,045

 
$
15,099

 
$
43,876

 
$
44,681

Employee benefits and tax
3,592

 
3,306

 
10,830

 
10,658

Bonus expense
2,134

 
1,672

 
6,981

 
6,091

Stock-based compensation
169

 
145

 
1,531

 
1,295

Compensation and related costs
19,940

 
20,222

 
63,218

 
62,725

Advertising expense
9,484

 
10,722

 
31,415

 
32,891

Contract and professional services expense
2,072

 
3,902

 
11,201

 
11,069

Depreciation and amortization expense
362

 
462

 
1,111

 
1,538

Goodwill and intangible asset impairment expense
—

 
1,164

 
—

 
1,164

Other selling, general and administrative expenses
4,803

 
5,481

 
15,740

 
16,911

 
$
36,661

 
$
41,953

 
$
122,685

 
$
126,298


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Compensation and related costs decreased $0.3 million and increased $0.5 million for the three months and nine months ended June 30, 2019, respectively:
•
Salaries expense decreased by $1.1 million and $0.8 million for the three and nine months ended June 30, 2019, respectively. The transition period for our admissions compensation structure ended resulting in a decrease in salaries expense for our admissions representatives. The graduate-based incentive compensation is fully implemented and rewards admissions representatives for students who successfully complete our programs. The decrease for the nine months ended was partially offset by an increase due to severance related to Norwood, Massachusetts campus closure and addition of selective key personnel to support transformation efforts.
•
Employee benefits and tax increased by $0.3 million and $0.1 million for the three and nine months ended June 30, 2019, respectively. The increase for three months ended was due to higher medical claims.
•
Bonus expense increased by $0.4 million and $0.9 million for the three and nine months ended June 30, 2019, respectively. The increase for the three months ended was an adjustment recorded in the prior year to reverse a previously accrued management bonus expense due to the expected zero attainment of the plan. No management bonus was recorded during the three months ended June 30, 2019. Partially offsetting the increase was lower management incentive compensation. The increase for the nine months ended was primarily the result of our graduate-based admissions compensation, which is based on an increase in projected graduates.
Advertising expense decreased $1.2 million and $1.5 million for the three and nine months ended June 30, 2019, respectively. The decrease for the three months ended June 30, 2019 was attributable to a strategic change in spending pattern versus the prior year. Additionally, the prior year implemented new strategies from the transformation plan, local marketing efforts and the launch of the Bloomfield, New Jersey campus.
Contract and professional services expense decreased $1.8 million for the three months ended June 30, 2019. The decrease for the three months ended was attributed to no longer incurring fees for the engagement of a consulting firm related to the strategic transformation plan. The engagement was terminated on October 17, 2018. For further discussion, see Note 20 "Subsequent Event" included in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018. The decrease was partially offset by an increase for contract and professional services expense incurred for strategic initiatives and efforts to adopt new accounting pronouncements.
Goodwill and intangible asset impairment expense decreased $1.2 million for the three and nine months ended June 30, 2019, respectively. At June 30, 2018, we recorded a goodwill impairment charge of $0.8 million and an intangible asset impairment charge of $0.4 million to write off the full carrying value of goodwill and intangible assets for BrokenMyth Studios, LLC.
Income taxes. Our income tax expense for the three months ended June 30, 2019 was less than $0.1 million compared to an income tax benefit of $0.2 million for the three months ended June 30, 2018. Our income tax expense for the nine months ended June 30, 2019 was approximately $0.3 million compared to our income tax benefit of $3.0 million for the nine months ended June 30, 2018. See Note 11 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q for further discussion. The effective income tax rate in each period also differed from the federal statutory tax rate as a result of state income taxes, net of related federal income tax benefits.

Preferred stock dividends. On June 24, 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash, less $1.1 million in issuance costs. In accordance with the terms of the related purchase agreement, we recorded a preferred stock cash dividend of $1.3 million for each of the three months ended June 30, 2019 and 2018 and $3.9 million for each of the nine months ended June 30, 2019 and 2018.

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Loss available for distribution. Loss available for distribution refers to net loss reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported a loss available for distribution for the three months and nine months ended June 30, 2019 of $1.7 million and $17.3 million, respectively, as compared to $13.0 million and $25.6 million for the three months and nine months ended June 30, 2018, respectively. 

Non-GAAP Financial Measures

Our earnings before interest income, income taxes, depreciation and amortization (EBITDA) for the three months and nine months ended June 30, 2019 were $4.4 million and $1.2 million, respectively, as compared to a loss of $7.2 million and $10.4 million for the three months and nine months ended June 30, 2018, respectively.

EBITDA is a non-GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable GAAP measure. We choose to disclose this non-GAAP financial measure because it provides an additional analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this measure helps compare our performance on a consistent basis across time periods. Management also utilizes EBITDA as a performance measure internally. To obtain a complete understanding of our performance, this measure should be examined in connection with net income determined in accordance with GAAP. Since the items excluded from this measure should be examined in connection with net income in determining financial performance under GAAP, this measure should not be considered an alternative to net income as a measure of our operating performance or profitability. Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

EBITDA reconciles to net loss as follows:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
Net loss, as reported
 
$
(365
)
 
$
(11,713
)
 
$
(13,345
)

$
(21,681
)
Interest expense, net
 
444

 
474

 
1,271


1,405

Income tax expense (benefit)
 
31

 
(158
)
 
253


(3,024
)
Depreciation and amortization(1)
 
4,326

 
4,192

 
13,023


12,923

EBITDA
 
$
4,436

 
$
(7,205
)
 
$
1,202

 
$
(10,377
)

(1)Includes depreciation of training equipment obtained in exchange for services of $0.4 and $0.3 million for the three months ended June 30, 2019 and 2018, respectively, and of $1.1 million and $1.0 million for each of the nine months ended June 30, 2019 and 2018, respectively.

Liquidity and Capital Resources
    
Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing commitments and other liquidity requirements associated with our existing operations as well as the expansion of programs at existing campuses through the next 12 months.

We believe that the strategic use of our cash resources includes subsidizing funding alternatives for our students. Additionally, we evaluate the repurchase of our common stock, consideration of strategic acquisitions, expansion of programs at existing campuses, opening additional campus locations and other potential uses of cash.

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On June 24, 2016, we issued 700,000 shares of Series A Preferred Stock for a total purchase price of $70.0 million. The proceeds from the offering are intended to be used to fund strategic long-term growth initiatives, including the expansion to new markets of campuses on a scale similar to our Long Beach, California, Bloomfield, New Jersey and Dallas/Ft. Worth, Texas campuses and the creation of new programs in existing markets with under-utilized campus facilities. We may use the proceeds to fund strategic acquisitions that complement our core business. To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents and investments on hand or we need capital to fund operations, new campus openings or expansion of programs at existing campuses, we may enter into a credit facility, issue debt or issue additional equity. We paid preferred stock cash dividends of $5.3 million during the year ended September 30, 2018. We paid Cash Dividends of $2.6 million on March 28, 2019 and accrued Cash Dividends of $1.3 million as of June 30, 2019. We have eliminated the quarterly cash dividend on our common stock. Currently, we do not have a credit facility agreement or bank debt.

To the extent that we enter into leasing transactions that result in financing obligations or capital leases, our interest expense would increase. Our aggregate cash and cash equivalents were $42.7 million as of June 30, 2019. We own the two properties for our Dallas/Ft. Worth and Houston, Texas campuses.

Our principal source of liquidity is operating cash flows and existing cash and cash equivalents. A majority of our revenues are derived from Title IV Programs and various veterans benefits programs. Federal regulations dictate the timing of disbursements of funds under Title IV Programs. Students must apply for new funding for each academic year consisting of thirty-week periods. Loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement for first-time borrowers is usually received 30 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student’s academic year. Under our proprietary loan program, we bear all credit and collection risk and students are not required to begin repayment until six months after the student completes or withdraws from his or her program. These factors, together with the timing of when our students begin their programs, affect our operating cash flow.

Operating Activities

Our cash used in operating activities was $7.1 million for the nine months ended June 30, 2019 compared to cash used in operating activities of $22.5 million for the nine months ended June 30, 2018.

For the nine months ended June 30, 2019, changes in our operating assets and liabilities resulted in cash outflows of $8.4 million and were primarily attributable to changes in deferred revenue, receivables, accounts payable and accrued expenses, deferred rent, notes receivable, and other assets. The decrease in deferred revenue resulted in a cash outflow of $10.6 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at June 30, 2019 as compared to September 30, 2018. The decrease in receivables resulted in a cash inflow of $3.8 million and was primarily attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students. The decrease in accounts payable and accrued expenses resulted in a cash outflow of $3.8 million primarily related to the timing of payments for payroll and bonuses. The decrease in deferred rent resulted in a cash outflow of $2.1 million due to change in amortization of the deferred rent balance related to Norwood, Massachusetts campus exit announced on February 18, 2019. Deferred rent also decreased due to normal amortization of our Orlando, Florida and home office leases. The decision to exit the Norwood, Massachusetts campus in the fall of 2020 is part of our strategy to move from large destination campuses to smaller campuses in markets with higher student density and industry demand. The decrease in notes receivable resulted in an inflow of $1.6 million due to payments received on loans exceeding new loan originations. The decrease in other assets resulted in an inflow of $1.3 million due to the timing of payments on certain lease changes and changes in cash surrender life insurance related to our non-qualified deferred compensation plan.
  

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For the nine months ended June 30, 2018, changes in our operating assets and liabilities resulted in cash outflows of $13.4 million and were primarily attributable to changes in deferred revenue, income tax payable, and prepaid and other current assets. The decrease in deferred revenue resulted in a cash outflow of $15.5 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at June 30, 2018 compared to September 30, 2017. The change in income tax from a payable to a receivable position resulted in a cash outflow of $1.5 million and was primarily due to the timing of tax payments and refunds. The increase in prepaid expenses and other current assets resulted in a cash outflow of $1.3 million primarily related to the timing of payments.

Investing Activities

During the nine months ended June 30, 2019, cash used in investing activities was $5.1 million. The cash outflow was primarily related to the purchase of property and equipment for our Dallas/Ft. Worth, Texas campus for welding, real estate consolidation efforts and new and replacement training equipment for ongoing operations. For the year ending September 30, 2019, we anticipate investing in capital expenditures in the range of $6.0 million to $7.0 million. Of this total, approximately $2.7 million is related to purchases for new and replacement equipment for our ongoing operations and $1.6 million is attributable to opening our Welding Technology program at our Dallas/Ft. Worth, Texas campus.
 
During the nine months ended June 30, 2018, cash provided by investing activities was $30.3 million. We had cash inflows of $40.9 million from the proceeds of trading securities and of $7.5 million from proceeds received upon the maturity of investments. We had cash outflows of $17.1 million for property and equipment, primarily related to purchases for our Bloomfield, New Jersey campus and other new programs, as well as new and replacement training equipment for our ongoing operations.
 

Financing Activities

During the nine months ended June 30, 2019, cash used in financing activities was $3.7 million and related primarily to to the payment of a semi-annual preferred stock dividend on March 28, 2019, totaling approximately $2.6 million and payments on our financing obligations of $1.0 million.

During the nine months ended June 30, 2018, cash used in financing activities was $3.4 million and related primarily to the payment of a semi-annual preferred stock dividend on March 28, 2018, totaling approximately $2.6 million.

Seasonality and Trends

Our revenues and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population and costs associated with opening or expanding our campuses. Our student population varies as a result of new student enrollments, graduations and student attrition. Historically, we have had lower student populations in our third quarter than in the remainder of our year because fewer students are enrolled during this period. Additionally, we have had higher student populations in our fourth quarter than in the remainder of the year because more students enroll during this period. Our expenses, however, do not vary significantly with changes in student population and revenues and, as a result, such expenses do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of new school openings, new program introductions, increased enrollments of adult students or acquisitions. Furthermore, our revenues for the first quarter ending December 31 are impacted by the closure of our campuses for a week in December for a holiday break, during which time we do not earn revenue.


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Critical Accounting Policies and Estimates

There were no significant changes in our critical accounting policies previously disclosed in Part II, Item 7 of our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 3 to our condensed consolidated financial statements within Part I, Item 1 of this Report on Form 10-Q.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk since September 30, 2018. For a discussion of our exposure to market risk, refer to our 2018 Annual Report on Form 10-K, filed with the SEC on November 30, 2018.


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Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and the Interim Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2019 were effective in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) that occurred during the three months ended June 30, 2019. As we continue the process to adopt ASU 2016-02, Leases (Topic 842), we expect that there will be additional changes in internal controls over financial reporting.
Limitations on Effectiveness of Controls and Procedures

Our management, including our President and Chief Executive Officer and our Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks that internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitrations, investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current and former students, routine employment matters, business disputes and regulatory demands. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we would accrue a liability for the loss. When a loss is not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim. Because we cannot predict with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory proceedings or claims) asserted against us, it is not currently possible to provide such an estimate. The ultimate outcome of pending legal proceedings to which we are a party may have a material adverse effect on our business, cash flows, results of operations or financial condition.
Item 1A. RISK FACTORS
In addition to the other information set forth in this Report on Form 10-Q, including the information contained in Part I, Item 3, you should carefully consider the factors discussed in Part I, Item IA of our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, which could materially affect our business, financial condition or operating results. The risks described in this Report on Form 10-Q and in our 2018 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.


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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our common stock in the open market or through privately negotiated transactions. As of June 30, 2019, we have purchased an aggregate of 1,677,570 shares of our common stock for an aggregate purchase price of $15.3 million under this stock repurchase program.  During the quarter ended June 30, 2019, we made no purchases under this stock repurchase program.  Any future repurchases under this stock repurchase program require the approval of a majority of the voting power of the Series A Preferred Stock.

The following table summarizes our share repurchases to settle individual employee tax liabilities. These are not included in the repurchase plan totals as they were approved in conjunction with restricted share awards, during each period in the three months ended June 30, 2019. Shares from share repurchases in lieu of taxes are returned to the pool of shares issuable under our 2003 Incentive Compensation Plan.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans Or Programs
(In thousands)
Tax Withholdings
 
 
 
 
 
 
 
 
April 1-30, 2019
 
—

 
$
—

 
—

 
$
—

May 1-31, 2019
 
—

 
$
—

 
—

 
$
—

June 1-30, 2019
 
711

 
$
3.43

 
—

 
$
—

Total
 
711

 
$
3.43

 
—

 
$
—


Any future common stock dividends require the approval of a majority of the voting power of the Series A Preferred Stock.
Item 6. EXHIBITS

The following exhibits required by Item 601 of Regulation S-K are filed or furnished with this report, as applicable:
Number
 
Description
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101
 
Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Loss; (iii) Condensed Consolidated Statements of Comprehensive Loss; (iv) Condensed Consolidated Statement of Shareholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 9, 2019         

UNIVERSAL TECHNICAL INSTITUTE, INC.


By: /s/ Kimberly J. McWaters                 
Kimberly J. McWaters
President and Chief Executive Officer


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