Universal Technical Institute, Inc. (UTI) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Universal Technical Institute's Second Quarter 2013 Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. A replay of the call will be available for 60 days at www.uta. -- uti, apologies, .edu, or -- through May 14, 2013, by dialing (877) 344-7529 or (412) 317-0088 and enter pass code 1002783. At this time, I would like to turn the conference over to Mr. John Jenson, Vice President and Corporate Controller of Universal Technical Institute. Please go ahead.

Hello, and thanks for joining us. During today's call, we'll review the results of our second quarter, discuss our strategic direction and outlook for the rest of 2013 and take your questions. Before we begin, we must remind everyone that except for historical information, today's call may contain forward-looking statements as defined by Section 21E of Securities Exchange Act of 1934 and Section 27A of the Amended Securities Act of 1933. I'll refer you to today's news release for UTI's comments on that topic. The Safe Harbor statement in the release also applies to everything discussed during this conference call, including initial comments by management as well as answers to your questions. During today's call, we'll make reference to EBITDA, which is a non-GAAP measure representing net income exclusive of interest, income taxes, depreciation and amortization. The schedule provided in the earnings release reconciles EBITDA to the nearest corresponding GAAP measure, net income. And now, I'd like to turn the call over to Kim McWaters, our Chief Executive Officer.

Thanks, John. Good afternoon, everyone. Thank you for joining us. The second quarter was another difficult one for Universal Technical Institute. In many ways, it reflects the continued challenges we and others in the sector have faced for the past couple of years. Continued weakness in the economy, changes in consumer perception and behaviors regarding education and the lingering effects of regulatory change, including increased competition for higher-quality students, have driven fewer new student starts, lower retention rates and, ultimately, multiple year declines in our continuing average student population. These trends continued through the second quarter before showing a glimmer of light in April. While average enrollment and revenue were down for the quarter, we worked diligently to contain costs while rebuilding the front end of our business with new student inquiries, applications and starts. Unfortunately, in a business with high fixed costs, our work to trim variable expenses simply wasn't enough to mitigate declining revenue. While we expect these challenges to linger throughout 2013, our near-term results are a reflection of the past implications of a long business cycle. In no way is this quarter's results a reflection of our company's fundamental stability and strength, our unique competitive advantages and our ability to successfully navigate the road ahead. Our challenge today is to ensure we align our cost structure with our current student population as best we can while rebuilding our student population. During the call, we're going to discuss many of the initiatives that are in place and the indication of our ability to drive new student growth at the end of the year. We believe in UTI, and we're confident that our people and the initiatives we're pursuing can and will see us through this year and help us emerge even stronger and more capable of delivering enrollment growth, quality educational outcomes, a sufficient technician supply for our employers and, ultimately, long-term shareholder value. With that said, we're also clear that we must be patient and that it will take time for the changes we're making to deliver results. Now I'd like to hand it over to Eugene to cover the quarter's results first. And then we'll spend a little bit of time on our initiatives and the progress we're seeing. Eugene?

Thank you, Kim. In round numbers, we began the quarter with 2,100 fewer students than we had at this time in 2012. Overall, our student starts were down at 15% as a result of fewer students scheduled to start and a 60-basis-point decrease in our show rate. The result was a 10.5% decrease in revenues, which came in at $95.1 million. Our average revenue per student was flat at about $6,300 per student. Tuition excluded, $5.2 million related to our Proprietary Loan Program compared to $3.7 million in the second quarter of 2012. The increase reflects our efforts to ensure this program is accessible to students. And as a reminder, we recognize revenue from that loan program when we receive payments. For the first half of 2013, revenues were approximately $194 million, down about 9% versus last year. In the face of these revenue declines, we've continued to manage our variable costs to align with the number of students we have in school. But our high cost, or high cost structure, combined with the weakening top line, resulted in a decline in our operating results. We recognized an operating loss of $1.9 million for the quarter compared to operating income of $3 million in the same period last year. Our work to reduce and better target our marketing investments delivered a $900,000 decline in advertising expense, which was -- came in at $10.7 million for the quarter. As a percent of revenue, advertising expense came in at about 11.3%, which is relatively consistent with where it was last year. Driven by a reduction in our workforce last September as well as other lower compensation costs, compensation-related expense were down $4.3 million for the quarter. And given our focus on expense control, I would expect second half expenses to be down significantly from the first half run rates. Our bad debt expense as a percentage of revenue was 1.1% for the quarter and 1.4% year-to-date. We generated $4.2 million in EBITDA during the second quarter compared to $9.5 million last year. For the first half of 2013, EBITDA was $16.3 million versus $23.5 million in the first half of last year. In all, we recorded a second quarter loss of $900,000, or negative $0.04 per share, compared to net income of $1.9 million or $0.08 per diluted share last year. Year-to-date, our net income is $2.6 million, or $0.11 per share, compared to $6.4 million or $0.26 per share last year. Looking at our balance sheet, we had cash, cash equivalents and investments of roughly $94.3 million at the end of the second quarter compared to $101.7 million at the beginning of the year. In the first 6 months of 2013, we generated cash from operations of $7.6 million compared with $15.6 million for the first half of last year. We continue to have no debt on our balance sheet. And I should point out that despite the GAAP accounting loss, we generated over $9 million in cash from operations in Q2. During the quarter, we invested $1.4 million in fixed assets, which was down about $2 million from last year. And finally, we returned about $2.5 million of dividend payments to shareholders during the quarter. And with that, I'll turn it back over to Kim for some details on our strategic initiatives and the progress that we're making on them.

Thanks, Eugene. I'd like to spend a few minutes updating you on our targeted efforts to build on our strengths, improve our operations, create greater competitive advantage and generate long-term value for our shareholders. We are laser focused on 5 strategic pillars: efficiency and cost control, growing our student population and market share, delivering value and affordability for our students, strengthening our industry relationships and developing and engaging on our people. First, we are managing costs at every level of the business, and we're redesigning our business processes with the goal of eliminating costs and waste, driving process efficiency and making it easier to do business with UTI. This is ongoing and top-of-mind for everyone in the organization. Our focus on cost control and efficiency is critical during the current environment and is also an important driver of improving the value and affordability equation. Eugene is going to talk more about that in just a minute. For now, let's spend a few minutes talking about our current student segments and what we're doing to help them learn about and enroll at a UTI, MMI or NASCAR Tech campus. As you know, UTI serves 3 student segments: high school, veterans, and adult career searchers and changers. Today, high school students and military veterans account for more than half of the new student applications we receive on an annual basis. These student segments are served by dedicated field admissions representatives who regularly visit thousands of high schools and military bases across the country. Student inquiries from these 2 student segments are born out of the personal relationships our admissions teams have with the teachers, counselors and administrators of high schools and officers on military bases. Our strategic initiatives in these areas have been largely focused on providing greater value to those we serve. For example, our military efforts have been largely focused on helping our veterans transition to civilian life while providing them with tools to select from several educational and career paths. Our strategy and investment in this area have been well received as evidenced by the continued growth of this segment. Our seasoned military team has delivered 21 consecutive quarters of year-on-year new student application growth. This is both a reflection of the strong demand for our training as well as our teams' expertise and commitment to serve this population. For the quarter, military applications grew 14% year-on-year. For the first half of the year, they are up 17%. Moving on to the high school admissions team. We had a bit of a soft quarter in the high schools, with new student applications down 4% for the quarter. We believe this decline was driven by increased focus on Enroll the Show [ph] activities to help students who enrolled earlier in the year prepare to come to school this summer. That caused a bit of distraction from usual enrollment activities in the high schools. So as we wrap up the first half of the year, our high school applications were flat year-over-year. We know that, that male 18-to-24 demographic is the most challenging student segment to reach, yet it is our target demographic, and we believe we understand how best to engage with them and their key influencers. One of the best ways to engage with our target student segment is building relationships with them while in high school. That has become more challenging over the years with the decline of career and technical classes and the negative publicity the for-profit sector has had with secondary educators. As a result, we are continuously developing innovative ways to engage with students while in high school primarily by building relationships with teachers and counselors. This year, we have visited nearly 10,000 high schools to engage with students as they contemplate their future beyond high school. In today's environment, many students, both young and adult, are questioning the value of an education and whether it really translates into a meaningful career. At this critical point in a student's decision-making process, our high school representatives are there to help them and their parents evaluate all of their options beyond high school and the consequences of their decisions. Our representatives also provide value-added service to high school teachers and counselors by giving them tools to engage high school students in STEM-oriented classes, to stay in school and graduate and to help prepare them for life after high school. To that end, our work on STEM-related initiatives at the high school level continued this past year. We have literally worked with thousands of teachers and counselors on STEM and how to bring it to life in their schools and classrooms. We have also educated them on the relevance of STEM in automotive education and the preparation that provides for a career in the transportation industry. These efforts help get students excited about science, technology, engineering and math and inform their thinking about a STEM post-secondary education and the impact that will have on their career over a lifetime. This coming school year, we'll be partnering with NASCAR to take our high school STEM initiative to a new level. Our active participation in national STEM-related events across the country places UTI squarely in front of thousands of educators, an important audience across the country. Now let's turn to our adult segment. We engage with this population largely through media and event-driven inquiry generation. This segment continues to be a challenge for us as the adult population is more skeptical than ever about the value of an education. They're also very sensitive to price and averse to debt. Therefore, it's taking them longer to make their decision about their education, and sometimes they aren't sticking with that decision, especially if they can get a job after being unemployed or underemployed for so long. So we continue to have our work cut out for us here. Adult applications were down approximately 17% for the quarter and 16% for the first half of the year. This decrease in the quarter offset the growth in our military applications, and we closed the quarter with total new applications down 9%. For the first half of the year, we are down in total 6% year-over-year. With that said, mid-quarter we began implementing the changes to our media mix strategy using our advertising reattribution model. As a result, with 8% less in advertising expenses, we grew inquiry volume and improved the quality overall. Now because the buying cycle is taking a little longer, we did not have opportunity to see whether this higher-quality increase would in fact convert into new student applications during the quarter. However, in April, our adult segment team will likely close the month better than 10% ahead of last year. Granted this is only one month, but it is the first month in a very long time where we've seen adult applications grow year-over-year and achieve goal. I truly believe we're finally at a point where we can correlate our marketing mix with the results they produce at an appropriate spend that yields the best results at the lowest cost per new student start. Next up is full implementation of our predictive model that allows us to optimize our media buying to predict the new student starts rather than highest volumes of inquiries at lowest cost. We are focused on providing our admissions teams the tools they need to engage students from the point of inquiry to the first day of class. And we've been working on enhancing a number of tools: streamlining processes and collaborating in a much higher level between marketing, admissions and financial aid to ensure we're providing our prospective students with the best possible customer service. We believe changes to our fee structure, increased scholarships and better articulation of the true return on our students' educational investment will also help our teams be successful. And as we further refine our processes and see the cultural shift take hold, we expect continued improvement. So we've taken some important first steps on our journey to making strategic, data-driven decisions about where we can invest and innovate to deliver to new student growth to meet the growing demand from industry and maximize shareholder value. And while each of these initiatives is in its very early stages and will take time to bear fruit, we're seeing some positive early indications. I'm confident that with time, we'll see our investments in the front end of the business deliver growth and market share. But what makes me most optimistic about the future of UTI is our people. In the past month they've spent a great deal of time in our campuses sharing our strategy with employees and, most important, listening to them. I've been very impressed by their knowledge, experience and passion, by their innovation and their ideas. Our employees are committed to our purpose, engaged in our strategy and the force behind our ability to drive change and deliver results. With that, I'll hand it back to Eugene to discuss our strategies to improve student value and affordability and further strengthen our industry relationships.

Thank you, Kim. In an industry that's increasingly commoditized, we need to deliver a value proposition the competition can't match and that gives students reasons beyond price and convenience to choose UTI. Our industry relationships are at the heart of our ability to deliver value. I'm pleased to announce that in the second quarter, we began offering the very popular Cummins Engine elective program at our Exton campus. This program is now available at 3 campuses with classes at the Avondale and Houston campus showing strong enrollments all the way through October of this year. We are very excited to also announced the return of the Mercedes-Benz ELITE program. This is a manufacturer-paid advanced training program offered to our top graduates. This program will only be offered at UTI and is scheduled to launch in the fourth quarter. Additionally, Porsche is expanding its manufacturer-paid advanced training program. This is also exclusive to UTI and will launch in September of this year. These programs provide enhanced value for our students as they graduate from these manufacturers' advanced training programs. They receive credentials that would take them years to earn in the real world, and they increase their starting wages and earnings potential. And we continue to make progress on the second piece of the value equation, which is making a UTI education more affordable and accessible. Just last week, we launched the Industry's Choice Scholarship program. We've initially provided $1 million to fund the program, which will help more students achieve their dreams and help our industry customers meet their growing needs for skilled technicians. With the addition of the Industry's Choice Scholarship Program, UTI now awards more than $12 million in scholarships each year to help our students get the training they need to find jobs in the fields they're passionate about. We also offer proprietary loans for students who are well qualified to attend UTI but don't have sufficient access to traditional credit-based loan products. Last year, we completed work to increase awareness on our loan program and remove qualification barriers for dependent students. In the first half of this year, we extended approximately $14.3 million in loans under the program, which is up from just under $11 million last year. Currently, the average individual loan amount is around $5,100. From the launch of the program through the end of the second quarter, we have deferred recognizing revenue and interest totaling almost $60 million on this program. That said, our cash collections for the program continued to improve. During the second quarter, we had about $570,000 in revenue and interest from cash payments received, which was up from just over $400,000 last year. Year-to-date, we've recorded $1 million compared to about $730,000 in the first half of last year. I should note that during the second quarter, we -- as we announced previously, we received a termination notice from our originating bank for the loan program. In response, we've negotiated an extension through the end of June and identified potential replacement banks and other alternatives for this funding. We're currently working through these negotiations with potential replacement banks and believe we have plans in place to minimize any disruption to prospective students as they prepare to start their programs. In addition to making loans more accessible, we're also developing information and tools that help students and their families navigate the financing process. During the second quarter, we launched the new Net Price Calculator that shows prospective students the true cost of their specific UTI education, presents the information in the context of the value the student receives and demonstrates how the cost of an education compares to the substantial earnings potential for trained technicians. We also are continuing to implement our new state-of-the-art curriculum at our Avondale campus, and that is near completion. As we evaluate the learnings and potential efficiencies of this curriculum, we will continue to roll out to our other campuses starting next year. We believe our consistently solid outcomes for our student reflects the strength of UTI's value proposition. In all, about 2,500 students graduated from UTI during the second quarter. While this reflects about a 7.5% decrease, it's consistent with the decline in our student population. During the past 12 months, about 10,500 students have graduated with either degrees or certificates, and our overall consolidated graduate employment rate in the second quarter was more than 200 basis points better than last year's. We are starting to see growth in overall starting wages for our graduates as well, which is reflecting the increased demand for our students. With that, let me take a few minutes to talk about our outlook for the second half of 2013. First, we expect all the macroeconomic drivers we've talked about today to create continued pressures through the rest of the year and for that pressure to increase somewhat as the year goes on. In the past, a rise in unemployment rates has meant an increase in enrollments and vice versa. And given the slow recovery, we expect little improvement in the student's ability to fund an education. We do remain confident of the plans we've put in place to tackle these challenges, and we've made some important progress. But much of our work is still in the early stages and will need additional time to take hold. While our guidance remains unchanged, April was a very good month from an enrollment standpoint. And while a month certainly does not make a trend, I'm encouraged by the increase in our potential student interest. I'm also encouraged by demand for our students as evidenced by overall higher starting wages. And I'm encouraged by our industry partners expanding their training demands. All these data points lead me to believe our initiatives are beginning to gain traction. That said, we still expect new student starts to be down in the third quarter, before possibly showing year-over-year improvements in the fourth quarter. We anticipate full year student starts for 2013 to be down mid- to high-single digits, just as we said last quarter, resulting in a lower average student population for the year. These lower levels of enrollment will most likely result in a high single-digit decline in revenue in 2013. And while we expect significantly lower expenses in the second half of the year, we still believe we will record an overall decline in operating margin and net income compared to 2012. We believe our strategy will appropriately position our company to deal with these challenges and return us to sustainable, profitable growth. Our employees remain focused on their core mission, changing our students lives for the better by providing a quality education. And this focus can and should strengthen our competitive advantage, leading to increased market share growth and generation of long-term shareholder value. And with that, we'd be glad to answer questions if the operator can open the line.

[Operator Instructions] Our first question is from Jeff Lee with Wells Fargo.

You talked about some of the positive application trends for April. What else makes you feel optimistic about the possibility of start growth in Q4 given that you're projecting start declines in Q3?

A couple of things. One is certainly the trend that we saw in April. But also, when we look forward to the number of applicants scheduled to start in the fourth quarter, we do see slightly more on the books at this point in time. In addition, I think the leading indicators such as midyear meetings, financial aid workshops that we've had throughout the country over the past couple of months have had record high attendance. Our path of completion rates are up significantly as well as our packaged -- total packaged population as well. Most of what we have focused on is improved levels of service and process simplification for the students who enrolled earlier in the year to ensure that we have the best possible outcome in Q4. And indications this far are what we'd like to see.

Okay, great. And then the other thing I want to ask is about how important is paid and non-paid search to your lead generating activities? And what have you seen in that channel recently?

It's important and something that's obviously part of our overall media mix. Looking back at this quarter specifically, we did see increased competition, which did drive costs in that category higher than anticipated, which we did accommodate to make certain that we were still in the game with paid search. With that said, it's one component of our overall media mix, and what we're really working toward is ensuring that we have the balance that our media mix model suggests that we should have, and we were able to maintain that during the quarter.

Our next question is from Corey Greendale with First Analysis.

So Eugene, I appreciate the commentary about reducing costs. I was hoping you might be a little bit more specific on how much you expect costs to come down from Q2 and where -- across the cost structure where you'd see the reduction.

Well, I think you'll see the costs of the -- across the company, both in education, obviously, as we deal with variable cost on the education side. On the SG&A side, you'll see it come down as well. I don't want to give a specific number, but I think I used 2 words, meaningful and significant and so I'm expecting significant levels of decline from the second quarter run rate.

Okay, can you say whether you expect operating margin to be still down year-over-year in Q4?

I would expect operating margin in Q4 to be probably flat to up from last year.

Okay, appreciate that.

That's 6 months out, so that's a ways out there.

Okay. And just totaling up a couple of numbers you gave -- I think you said that applications in April in the adult channel were up 10%. Correct me if that's wrong, but do you have the total number, including the high school channel?

Well, we -- we're still calculating that as today is the last day of the month. But I would say that we'll be up in high single digits to low double digits.

Overall.

Overall.

Okay. And in terms of -- I think you ordinarily give the number of inquiries, the change year-over-year. Do you have that number?

Yes. We're up about 2% from an inquiry standpoint. But I would caution us to not focus so much on the volume growth given that the model changes that we had made to really focus on quality. So while we're pleased it up -- pleased that it was up, our focus is really shifting on generating a higher-quality inquiry, which in this quarter we were be able to do both, so that's a very good thing.

So -- and can you just give us a little bit more without giving away any trade secrets on for you what a high-quality inquiry means in terms of channel and what that profile looks like?

Yes, in -- I guess in the most simple terms, we use a number of attributes to predict the likelihood of a student starting school. And so if you look at that -- the number of inquiries that were generated in that quarter, we had a higher predicted -- or projected start population from that inquiry subset, if you will. So there are number of things that we measure, but predicted start is probably the key driver.

Okay. And just one more quick one, Eugene, as long as you were hopeful in Q4. I'm assuming Q3 is too quick to assume a year-over-year improvement in margin, but is that an accurate assessment?

No. I -- to the contrary, I -- we will most likely not have improvement year-over-year in Q3.

Our next question is from Jeff Silber with BMO Capital markets.

Actually, just to continue Corey's line of questioning. If I look over the last 2 years, revenues in both Q3 and Q4 were lower than they have been in Q2. Is that something that we should be expecting for the rest of this year?

I think that trend is consistent with this year, yes.

Okay. So based on that...

Certainly Q3.

Okay, good. So let's just focus on Q3. So I know there's going to be a significant cost reduction, but do you expect to generate an operating profit or an operating loss in the quarter?

Q3, I believe, at this point in time will be pretty close to breakeven. I would expect it to be a better quarter financially from a GAAP accounting standpoint than this quarter. Whether it is positive and how much so is pretty close at this point in time.

All right, great. That's very helpful. Shifting gears. Given your remarks, you've talked about the share rate down. I think it was 60 basis points, if I heard correctly. When students are not show -- or potential students are not showing up, what are the reasons why? Are they are not enrolling in school at all? Are they going to other schools? If you can give us some color on that, that would be great.

Typically, I mean, it's hard to answer that question, but if we're just taking frontline input, they're typically doing nothing or going to work. But in terms of them not acting on their educational decision, the primary barrier remains price sensitivity and affordability. We have seen some that will get excited about different educational options and perhaps the affordability barriers in the way, and they will occasionally seek community colleges. But honestly, we haven't been hearing that of late. It's been more about getting a job and saving money to come to school.

And if students aren't going to work, are you seeing any differences in different parts of the country where the job market may be a little bit better than it is in other areas?

We have different trends across the campuses, but I wouldn't say that anything stands out significantly. Go ahead, yes.

The possible exception would be Texas, I think, especially the Houston market. And to a slightly lesser extent, Dallas market is extraordinarily competitive from an employment standpoint for young males. So I think we probably have seen a little bit more impact there. But other than that, it's pretty consistent across the states.

I can add from an area of interest or program most of the pressure inside of this quarter came from motorcycle, which is a population that has to relocate and was really at the destination campuses in Arizona and Florida.

And motorcycle is roughly what percentage of your enrollment?

20%.

15% to high teens.

Okay.

High teens, great. And then just one more numbers question. I'm sorry, Eugene. Can you give us what you're budgeting for capital expenditures for the year?

For the remainder of the year, it'll probably be somewhere in the $5 million-or-south range. Again, that's for the remainder of the year.

Yes, I got it.

Our next question is from Gary Bisbee with Barclays.

Hi, it's Zach Fadem for Gary. In your press release, you noted some encouraging signs of improved student interest and internal efficiencies. Can you just elaborate further here, particularly in the area of internal efficiencies?

Yes, the internal efficiencies, certainly what we talked about from a marketing standpoint as well as from the point of inquiry to getting the students ready to show to school. So the way in which we're servicing the population and the path of completion process as well as getting them packaged and ready to attend school, significantly more efficient and significantly more effective at this point. And that is assuming that they show up at school as planned. And so it's -- again, it's early on, but those sorts of signs are positive indications. The other positive indications are the attendance at the shops that I spoke of earlier, the midyear meetings, where parents and their students come to school or a specified location to make certain that their preparations are underway and that they're completing the necessary steps to show to school as planned, and we've been handling all of those logistics much more efficiently. In terms of the other comment in the press release about positive indication, we know from research what matters most to students in terms of making their educational decision. And at the top of that list are the relationships that we have with manufacturers and also employment outcomes, all of which are moving in a positive direction. And I think an early indication of how that translates for our students, we've had a major initiative underway with our high school representatives, and we've seen year-over-year a 50% improvement in the number of students who have enrolled for manufacturer-specific electives. So that's a pretty significant increase on a year-over-year basis that I think is reflective of the in-market demand and what our students believe these opportunities are with this type of training.

That's really helpful. What's your outlook for the second half of the year for ad expense?

I think yes, for the full year, we would expect it to be about 10% of revenue. Next quarter, I think you can expect the spend to be relatively the same as this quarter, and it actually decreases slightly in the fourth quarter so...

Okay, and just a last question. Can you just give me an update on what you guys are expecting for revenue per student in the second half of the year?

A slight uptick from where it is right now. So in the 1% to 2% range on a year-over-year basis.

Our next question is from Jason Anderson with Stifel. Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division: Just to go along with the RPS there. You had previously mentioned that we'd see in the second half similar -- that RPS will be up similar to the prior quarter and down -- and it was flat here. And it looks like you mentioned the 1%, 2%. Could you maybe elaborate on what's going on there?

Yes, I think you've got a couple of things that somewhat offset each other but, net to that slight improvement. The tuition rates have been increasing. And as we get more student starts, the mix of those at higher rates drives that up. As the level of internally financed student loans kind of stabilizes, that has a little bit of a drag, but it's not a declining drag. And as we continue to promote scholarships, that obviously has a little bit of a drag on net tuition revenue per student. The net of all of that -- and one other thing. As Kim mentioned, the increased electives and lengthening of some students' programs adds to that as well. So the net effect of those 4 things is the 1% to 2% year-over-year increase. Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And then going back to the advertising, I realized you're in a mode to cut costs and get efficiencies here, but is -- could you walk us through the thought process of -- in the advertising expense line here on I guess how you guys think about that in relation to trying to drive demand and spark demand? I understand trying to more efficient about it, but do you think the combination of greater advertising with your improving process would generate even more or put you in a better situation?

Well, that's a great question and one that we are constantly evaluating. And the reality is if we saw a combination of investments that was really off the charts or exceptional, we would be making a decision to invest. I think over the last -- certainly the last couple of quarters and months, we have been refining this media mix and slowly investing into the areas that we're seeing a good return and creating the right balance because things in the marketplace have been so chaotic and confusing. And now, I think we're at a point where we will continue to turn up the volume in the channels that make the most sense. And so, this was the challenge for the organization, was to be more efficient. And we're not saying don't spend on marketing, we're just cutting out the garbage and continuing to reduce the waste and really target our spend on the most effective channels. So if we see something that works, next quarter I could be coming back telling you that we're spending more because of that. But right now, we are really -- I think we're dialed in on where we think we need to be.

But I want to also clarify that my comments about lower costs in Q3 and Q4 are not dependent upon taking marketing costs down. So I don't want to leave anybody with the impression of that's how we're getting there. We're getting there with our normal plan level of marketing expense, and the cost reductions come elsewhere in the organization and the processes. Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division: And if I can add on here. You mentioned the fall, your application pipeline was up a little bit, scheduled for fall anyway. Is there -- can you give us a bit more on that? Is there -- could you compare that to prior year? Is it up or ahead?

Yes. Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division: Go ahead.

That's what I was speaking to, is that the number of students scheduled to start at this time compared to last year at this time is up a couple of percentage points. And the confidence comes from knowing the improved service levels that are in place and following the students through the process of completing their financial aid paperwork and getting prepared for school. So unless the trends reverse, we would expect that we would continue to see that population grow. And with the initiatives under way, our expectation is that we have improved performance.

We're ahead of where we were last time -- last year at this point. We have, granted, only a month but more momentum than we had last year at this point. And to Kim's comments about the service levels, we had an extremely poor show rate last year's fourth quarter due in no small part to some of our internal challenges, which have been fixed. So I think if you combine better than where we were last year at this point, increased momentum and expectations of improved show rate, that's what gives us a fair deal of confidence that we might see some meaningful start improvement in Q4. Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division: And you took my last one there on the show rate thoughts on the 4Q there.

[Operator Instructions] I'm showing no further questions at this time. I would like to turn the call back over to management for any closing remarks.

Thank you very much for your questions today. We appreciate your time and interest in Universal Technical Institute, and we look forward to updating you on our next earnings call, which is scheduled for Friday, July 26. Have a great evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. Please disconnect your lines.