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Universal Technical Institute, Inc. (UTI)

Q4 2013 Earnings Call· Tue, Dec 3, 2013

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Transcript

Operator

Operator

Good afternoon, and welcome to the Universal Technical Institute's Fourth 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.uti.edu or through December 14, 2013, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode 10037253. At this time, I'd like to turn the conference over to Mr. John Jenson, Vice President and Corporate Controller of Universal Technical Institute. Please go ahead, sir.

John Jenson

Analyst

Hello, and thanks for joining us. During today's call, we'll review the results of our fourth quarter and all of 2013, discuss our strategic direction and outlook for the upcoming year, as well as 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 the 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 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. Now I'd like to turn the call over to Kim McWaters, our Chief Executive Officer. Kim?

Kimberly J. McWaters

Analyst

Thank you, John. Good afternoon, everyone, and thank you for joining us. Eugene and I will spend some time today discussing our results and our outlook, but I wanted to first start with a look at the headlines of 2013. As we look back on the year, we saw some key trends emerge that contributed to our results and that will shape our strategic approach as we move forward. First and foremost, the recovery of the transportation industry drove strong growing demand for trained technicians. This is a very favorable trend and one that can have a very positive impact on our business. As demand grows, so does the need for employers to compete more effectively with each other to recruit and retain our graduates. First, we begin to see improved employment rates followed by higher starting wages. We then start to see the relaunch of manufacturer funded training programs, as well as new OEM partners joining UTI. Then we see greater engagement and support from manufacturers and other employers in supporting the cost of education for our students. All of these things started during 2013 and will continue to be a positive force for 2014. Second, student demand steadily improved throughout the year, as evidenced by the continued increases in high-quality inquiries and new student applications. The volume of inquiries that we score as high quality increased approximately 23% in the fourth quarter of 2013 compared with the same quarter last year. Student applications were up approximately 16% during the past 6 months and continued to grow year-over-year. Further, there is greater student interest in the manufacturer programs, as evidenced by a year-over-year increase of nearly 50% in applications for automotive and diesel programs that include manufacturer advanced training as part of the students' initial program. And finally, the…

Eugene S. Putnam

Analyst

Thanks, Kim. In round numbers, we began the quarter with 1,500 fewer students than we had at this time in 2012. And despite a 250-basis-point decline in show rate, we still experienced new student start growth in the quarter of 9.5% as a result of more students scheduled to start, as well as the benefit of one more start date compared to last year. While revenues of $95.8 million were down 5.4%, average revenue per student was up slightly from $6,500 to $6,600. Tuition this quarter excluded $4.1 million related to our Proprietary Loan Program compared to $4 million in last year's quarter. As a reminder, we recognize that revenue when tuition loans -- from tuition loans when we receive payments. Revenue for the full year was approximately $380.3 million, which was down 8% compared to $413.6 million last year. In the face of these revenue declines, we continued to manage our total cost structure to align with the number of students that we have in school. While our financial results certainly aren't where we would like them to be, I am very encouraged with our work to manage our variable costs, as well as our efforts towards making our marketing and recruiting efforts more efficient. We recognized operating income of $1.4 million for the quarter compared to $2.3 million in the same period last year. Operating income this quarter was impacted by severance cost of approximately $1.6 million in the fourth quarter. And despite that charge, compensation expenses were more than $12 million lower this year than last. And our work to reduce and better target our marketing investments delivered a $1.1 million decrease in advertising expense, which came in at $8.8 million for the quarter. As a percentage of revenue, advertising expense was 9.2%, which is lower than…

Kimberly J. McWaters

Analyst

Thanks, Eugene. At UTI, our strategy, our efforts and our investments are focused on supplying industry's growing demand for trained technicians by doing 4 things: attracting a high quantity of high-quality students at a lower cost; helping them get to school and stay in school with better customer service and scholarships; giving them a high-quality, industry-relevant education; and helping them become gainfully employed so they can make a good living and comfortably repay their student loans. That starts with recruiting students effectively and efficiently. In the Adult segment, which is driven by media-generated inquiries, we continue to focus our marketing investments on generating high-quality inquiries from students most likely to start school. Using media mix modeling, we were able to better optimize media buying, targeting sources of high-quality inquiries. During the fourth quarter, we built on this success and began to optimize our media buying based on predicted new student starts. We expected this strategy to create fewer inquiries, and in the fourth quarter, total inquiries were, in fact, down 8.2%, but the quality of inquiries was higher. During 2013, we saw steady improvement in the number of inquiries generated that were predicted to start school, while advertising expense continued to decline. So we're pleased with the progress we've made in the marketing side of the business, and as we continue on this path, we hope to see even more improvements in inquiry quality and the efficiency of our marketing efforts. In addition to generating more high-quality inquiries, we made it easier and less expensive for students to apply to school. As a result, we have seen new student applications improve over the prior year for 2 consecutive quarters. Total new student applications were up 11.5% in the fourth quarter and 3.8% for the year. Fourth quarter new student applications…

Eugene S. Putnam

Analyst

Thanks, Kim. As many of you know, our industry relationships are at the heart of our ability to deliver value to our students. UTI is unique because of our extensive relationships with industry. With the renewed health of the automotive and diesel industry, our manufacturer partners and their dealers are helping lead the charge for job creation. They want high-quality, brand-specific, trained technicians to service their expanding fleet of vehicles on the road, and they are looking to UTI more than ever to help. The Mercedes-Benz ELITE program was launched in the fourth quarter. This is a manufacturer-paid advanced training program offered to our top graduates. Additionally, Porsche expanded its manufacturer-paid advanced training program in September. And in early November, we began teaching a new manufacturer-paid program in partnership with Peterbilt, designed to deliver a comprehensive service technician training. And the 12-week advanced training program we're delivering -- I'm sorry, developing with General Motors is an important step in meeting their demand for new technicians. Now this is not to be confused with the dealer training courses being offered by UTI and other institutions that support existing technicians in an industry. But instead, it is one that is being developed for existing students. These programs, only offered at UTI, provide real value for our students. They receive credentials that will take years to earn while working in the industry, and they increase their starting wages and earnings potential. As Kim said, affordability for our students represents a significant challenge. We continue to make progress here by making our loan program accessible to even more students, as well as increasing our scholarship offerings. Our proprietary loans for students who are well qualified to attend UTI but have a gap in their financing package after completing the traditional financial aid packaging process.…

Kimberly J. McWaters

Analyst

Thanks, Eugene. Before we get into the Q&A part of our call, I'd like to thank John White, our company founder and our Chairman of the Board. He is retiring after 37 years with UTI and MMI. John retires as the most tenured employee in the company, having played a critical role in the history and success of our company and the advancement of technical education overall. Thank you, John, for your visionary leadership and the profound difference you've made for hundreds of thousands of people, students and employees alike. I appreciate all that you've done for UTI. You will be missed in the office, but your legacy will live on. I also want to thank our employees for their hard work and many contributions in 2013. In a challenging environment, our people remain passionately committed to our purpose. As a result, we have a strong brand, a sound strategy and a solid foundation from which we can build and make the most of increasing demands from both students and employers. And now, operator, I think we're ready to open the lines for questions.

Operator

Operator

[Operator Instructions] And our first question will come from Peter Appert of Piper Jaffray.

John D. Crowther - Piper Jaffray Companies, Research Division

Analyst

This is John Crowther on for Peter. I just want to start off with a question about your new starts outlook for 2014. So obviously, the extra period this last quarter is creating a headwind in the December quarter and it also creates, I believe, a headwind next September as well. And so just wondering, as we look at that flat guidance for the year, should we be looking at sort of on an apples-to-apples basis that you're actually looking to grow new starts next year?

Eugene S. Putnam

Analyst

I think you're making the change to apples to apples. So if you're adjusting for that, then I would say, yes. But I think what I was referring to with the guidance of flat year-over-year was on a reported -- what we will actually report.

John D. Crowther - Piper Jaffray Companies, Research Division

Analyst

Okay. And it is it correct to assume that the extra start period you had in this September quarter won't carry over into the September quarter of next year?

Eugene S. Putnam

Analyst

Correct.

John D. Crowther - Piper Jaffray Companies, Research Division

Analyst

Okay, great. And then just a second question here, follow-up question on pricing. And obviously, you addressed it on your call earlier, but obviously, it's a topic of concern in the industry right now. And when you talk about pricing trends in your particular program, just wondering, when you say smaller tuition increases year-over-year, how should we sort of compare that for the last couple of years and how you kind of look at pricing for your company as we -- for your program as we go forward here?

Eugene S. Putnam

Analyst

Well, I think if you look traditionally over the past 3 or 4 years or maybe even longer, you've seen increases in the range of 3% to 5% per year. I think it will be slightly less than that this year. But we do still expect to see some price increases.

Operator

Operator

And the next question is from David Chu of Bank of America Merrill Lynch.

David Chu - BofA Merrill Lynch, Research Division

Analyst

So is it possible to quantify how much of an impact the additional start date had on start trends?

Eugene S. Putnam

Analyst

Yes. I'm not going to do that. I mean, I think we're not going to start talking about date by date specifically. We tried to be as transparent with you as we could, and that's why we talked about 6 months to adjust for that. But we're not going to get to the level of giving -- we start classes every 3 weeks. We're not going to give weekly start dating.

David Chu - BofA Merrill Lynch, Research Division

Analyst

Okay, okay. And so what does your guidance suggest for show rates for fiscal '14?

Eugene S. Putnam

Analyst

What does the guidance -- sorry, what does the guidance suggest?

David Chu - BofA Merrill Lynch, Research Division

Analyst

Yes. I mean, do you expect some sort of an improvement to show rates, for it to be largely flat year-over-year? Just some thoughts around that would be helpful.

Eugene S. Putnam

Analyst

Sure. I mean, the guidance that we gave would expect show rates to be relatively flat. That said, they're under pressure, as Kim talked about, and I think a lot of what we are doing in terms of targeted scholarships, expansion of scholarships, selective price increases, working with students earlier in the process, that is all going towards helping to improve what has been over the last couple of years a deteriorating trend in show rates.

David Chu - BofA Merrill Lynch, Research Division

Analyst

Okay. And so in terms of revenue per student, I know -- I mean, the previous caller had spoken about -- or asked a question about tuition. And if we expect slightly less in tuition increases this year and increase in scholarships, can you help us kind of quantify or think about the revenue per student impact for '14?

Eugene S. Putnam

Analyst

I think revenue per student -- so there are a few variables that are going to impact those. You touched on a couple of them. The other variables that are going to impact that is the percentage of students that use student loans and how much of their tuition is financed through UTI student loans, and obviously, the mix of the classes they take and what discounts they get. All that factored in, we would expect slight increases in revenue per student in 2014 versus 2013.

Operator

Operator

The next question comes from Corey Greendale of First Analysis.

Corey Greendale - First Analysis Securities Corporation, Research Division

Analyst

I actually had a couple of questions about the guidance. So if you are now looking for a slight increase in new students in the 6 months ended December 31, by my calculation, that means that starts in Q1 could be down 10%, 15%. Is that right? And I think that is more negative than you were thinking, even with the calendar discrepancy. Can you just talk about what hasn't gone as well as you expected when you reported last quarter?

Eugene S. Putnam

Analyst

Well, what we said last quarter is we expect them to be up for the 6 months. And I would tell you, they were -- versus what we thought at this point last time, last quarter, they were up more in Q4 as we successfully tried to get people to start their education and fill classes as early as possible. So I would say the overall impact to the 6 months is about the same as we were thinking. We had -- we expected high growth in Q4 and flattish in Q3 -- I'm sorry, in Q1. What I think we're going to see now is we outperformed our expectation in Q4, and that will -- as we pull those through from Q1, that will impact Q1. But the net-net, we think, will still be about the same.

Corey Greendale - First Analysis Securities Corporation, Research Division

Analyst

Okay. And then to get to the full year guidance where you're talking about a slight revenue increase, so I'm just doing back-of-the-envelope math. If you assume flattish starts for the year and a slight increase in revenue per student, I'm getting that you need to see like a 200 basis point or better increase in retention, as we calculate it, to get to that revenue increase. Does that math sound right? And what are the initiatives that would lead to that kind of improvement in retention?

Eugene S. Putnam

Analyst

Well, we don't really do it looking at retention although that's part of it. But I mean, your math is right. There's a lot of variables in terms of what the average students are and whether those come from increased persistence, increased enrollments and the tuition rate, the net tuition rate. All those things factored in is what we do to get to the guidance that we gave you.

Corey Greendale - First Analysis Securities Corporation, Research Division

Analyst

Okay. And going down the income statement, so looking for -- the comment on operating income sounds fairly positive. Could you put any parameters around that? Because off of a 2013 operating income base of $5.9 million is a little bit substantial -- substantially improved to be -- would you qualify $7 million in operating income as substantially improved in 2014 or...

Eugene S. Putnam

Analyst

I'm not going to be that specific. We're not even 3 months into the year. I'm not going to be that specific. I think substantial was the word I used, and that doesn't mean a rounding error here or there. This is -- substantial to me means somewhere north of 10%.

Corey Greendale - First Analysis Securities Corporation, Research Division

Analyst

North of 10%. And can you discuss a little bit more, Eugene, on then if you have modest growth in revenue, what drives the more substantial growth on the bottom line?

Eugene S. Putnam

Analyst

Well, I think we'll do a pretty good job of holding expenses. I won't go so far as to say flat, but we certainly expect to grow revenues, while not a great deal, more than we grow expenses as hopefully we start to leverage some of the capacity that's been created over the last couple of years.

Corey Greendale - First Analysis Securities Corporation, Research Division

Analyst

Okay. But it doesn't sound like you're in cost-cutting mode?

Eugene S. Putnam

Analyst

No, no. I'm not preannouncing some cost cut, no. But it's just a continuation of what we've been doing the past year in terms of making sure our investments fit the size and scope of our student population.

Operator

Operator

The next one is Jeff Silber of BMO Capital Markets.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

I know you're not giving out the impact of that extra start. But I just want to clarify, the number of starts you had this quarter, was it 5 versus 4 in the year-ago quarter?

Eugene S. Putnam

Analyst

We had 1 more. I don't know if it was 5 versus 4 or 4 versus 3. But we had 1 more.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

And you started every 3 weeks or so, so that was...

Eugene S. Putnam

Analyst

Yes. But you guys got to remember, some of those starts are very small starts because they're -- because of the programs. Not every program at every campus starts every 3 weeks. We can get you that, Jeff, but I don't know the exact number off the top of my head. And honestly, I'm not sure giving you that would be very helpful.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

Yes, because what I was trying to do is trying to see the number of new students per start date on a year-over-year basis just to see what the impact was. It looks like a pretty decent decline by that aspect, but again, I'm not sure if I'm looking at it correctly.

Eugene S. Putnam

Analyst

Yes, we'll help you with that offline, but I don't think that's an accurate analysis.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

All right, that's fair. In looking at my notes from last year at this time, I think you guys were also projecting relatively flat starts for the year and there was a little bit of a shortfall. What's different 12 months later? Why is this different now than we were a year ago?

Kimberly J. McWaters

Analyst

I certainly think that we have continued to learn and put new tools in market and are attracting, hopefully, a different type of student given what we're seeing from our marketing investment and our predictive modelings. The targeted scholarships are helping. I think mainly it is lessons learned in how we can apply the things that are working and how quickly we eliminate those that are not. So it's -- I'd say it's across all dimensions of the business. But it's just getting smarter and working more efficiently that I think will drive the improvement. Again, it goes back to that one date, on the one day that's kind of caught between the 2 fiscal years that make it more challenging, but I do believe that when I look at the front end of the business, I'm encouraged by what we're seeing from inquiry generation and the number of applications. As I said at the beginning of my remarks, the demand on both sides of the business is very strong, and that matters to students. So when we hear that we can't supply enough technicians and our employment rates are improving, that translates into positive messages on the front end. And it gives our representatives and our marketing messaging greater relevance in an economy where our target segment is not really going back to work. It's still feeling the impact of this recession. So it's -- I think it's speaking to them where it matters.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

Okay, that makes sense. Just a few numbers questions. Eugene, what should we use for tax rates for 2014 and what are you budgeting for capital expenditures?

Eugene S. Putnam

Analyst

Tax rates ought to be about 40%, and capital expenditures for 2014 will probably run in the upper teens.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

Upper teens in terms of upper teens millions?

Eugene S. Putnam

Analyst

Millions, yes. Somewhere in the $16 million to $18 million range.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

All right, great. And on a seasonality perspective, besides what's going in the first quarter, any things we need to know from a comparable perspective throughout the rest of the year?

Eugene S. Putnam

Analyst

Our earnings stream is highly weighted towards the first and fourth quarter. Our second and third quarters of the fiscal year are very flattish earnings. The vast majority of our earnings will come in Q1 and Q4.

Jeffrey M. Silber - BMO Capital Markets U.S.

Analyst

Yes. I guess I was looking at a year-over-year comparison, fiscal '14 versus fiscal year '13. Any quirks that we have to be aware from a quarter -- on an annual comparison for each quarter?

Eugene S. Putnam

Analyst

No, not really.

Operator

Operator

And next question comes from Jeff Lee of Wells Fargo.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Analyst

I wanted to go back to the show rate assumption in the guidance. The guidance for 2014 calls for an increase in applications, but flat starts. Wouldn't that imply continued decrease in show rates or is there another relevant factor here?

Eugene S. Putnam

Analyst

Well, the other relevant factor is the time between somebody signing an application and actually being scheduled to start school. So that can be, for a high school student, 12 months or more. For an adult changer, that can be a fairly short period of time, a few months. So I -- you have to be careful looking at the numbers that we report in terms of new applications written in a quarter or a month or a year or whatever and when they are scheduled to start school, which is the data point that is the denominator for the show rate.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Analyst

Okay. Is there any change -- is there any lengthening in that time or is that remaining...

Eugene S. Putnam

Analyst

Yes, I think it is lengthening a little bit. The things that we've been talking about, about affordability and debt aversion, you're seeing a little bit longer time on average for students to save up the funds, be fully committed, secure housing, secure part-time employment for themselves and/or their spouse or partner, whoever might be moving with them. So those factors are lengthening slightly the timeframe between a student signing an application to come to school and their anticipated start date.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Analyst

Okay. And is there a difference in the show rate between high school applications and adult applications or I guess a difference in the decrease in show rate?

Kimberly J. McWaters

Analyst

Yes. I mean, there is, and it depends on the quarter. Typically, you'll see the high school population show at a lower rate than the adult population. That said, the adult population has been under pressure as we talked about throughout the year. But I would say generally, you're still going to see the adult population show at a higher rate. Military shows at a higher rate and high school -- because we enroll them so far out, life happens between the time they make application and the time that they show to school. So that general trend has continued to stay true pretty much year-over-year.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Analyst

What about declines in each segment? Are the declines in the show rate similar? Or has one segment been declining at a bigger rate?

Kimberly J. McWaters

Analyst

It actually has changed on a quarterly basis and that typically -- it's hard to give any specific data on it, but we have seen some fluctuations with adult and high school. But generally, I'd say they both have been under pressure, and we've seen Military improve. But across the board, show rates have been under pressure, and it's not something specific to a segment that I would focus on.

Operator

Operator

And our next question comes from Barry Lucas of Gabelli & Company. Barry L. Lucas - Gabelli & Company, Inc.: A couple here on the CapEx. Fairly healthy increase, and Eugene, just wondering how much is that related to new or the replacement campus in Illinois?

Eugene S. Putnam

Analyst

Not really anything from Illinois, but it does -- it is impacted by rolling out a new curriculum at probably 1.5 campus this year as opposed to 1 campus last year. And it also is impacted by the expansion of one of our curriculum that I don't think we've announced yet. Barry L. Lucas - Gabelli & Company, Inc.: Okay. And you didn't call out the new Illinois campuses getting the blended curriculum, but one would suspect that if it's new, it should have the newest and best curriculum.

Eugene S. Putnam

Analyst

Well, the curriculums are fine there, but it is not being rolled out there for -- at this time, for logistics purposes. We actually did not want to double up on the complicating factor of a move and a new curriculum. So the new -- the next campus with the new curriculum is in Sacramento, but I can assure you that the Lisle campus outside of Chicago is a state-of-the-art campus. Barry L. Lucas - Gabelli & Company, Inc.: Okay, fine. And just not to beat this show rate issue to death, and I'm sure you do a lot in terms of trying to intervene and encourage and obviously make sure that students show up at the appointed time, but maybe you could just provide a little more color in terms of the steps you either are taking or can take or improve the knowledge base. I mean, just flushing that out a little bit better would be a bit helpful just to understand the process.

Kimberly J. McWaters

Analyst

So maybe I could add just a little bit of color on that, connecting the dots from our last quarter to this quarter in terms of how we view show rate. In our prepared remarks, we talked about being disappointed that more students didn't show to school. And that's because we know we're not meeting the expectations of our industry customers, and we're not helping all of the students who want this type of education get an education. With that said, during this year, we made some strategic changes that would, in fact, drive our show rate lower just by nature of the changes. And that is that we made the application process easier and the fee market competitive to make application at UTI. So what has -- what happens during that process is it makes it easier for some to apply, but they may not have the full commitment to work through the process, to complete the FAFSA. They may get easily discouraged if their parents don't get the PLUS Loans. All of these sorts of things that happen between the time they make applications to the time that they show to school. So we took that sort of test and determined that we were willing to give up some of the show rate to improve the number of starts by having greater reach with those families that perhaps we did not have in the past. And in fact, that worked. From an applications standpoint, it grew. Now what we have to do is continue to refine the level of service and support necessary for those students who may not put forth the same effort as those who we had in years prior. There are much greater hurdles and barriers to overcome today than even last year or 2…

Kimberly J. McWaters

Analyst

So this is a trend that we've seen for the last couple of years. The credit ratings were increased -- or the credit requirements were increased last year. And so we saw a significant jump in terms -- this would be from fiscal year '11 to fiscal year '12, almost 10-percentage-point increase in parental loan denial. And that stayed relatively flat, slight deterioration between '12 and '13. But that's a pretty significant increase in denials, especially when you consider our population in the fourth quarter. And we have a large number of traditional students that require parental support. And if you think about those who actually apply and who get approved, they show at a very high show rate. And so if they get denied, it discourages them. And some show to school, and some don't. Some immediately back out of the process. So 60% is -- or better than 60% is actually very disappointing. I understand that they're looking at changing those requirements, but that has negatively impacted our business for 2 years running. And our denial rate is, I think, higher than what you're seeing on average across the nation given our traditional student focus.

Operator

Operator

And next, we have a question from Jerry Herman of Stifel. Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: Just a couple of clarifying points, if I can. Eugene, I think you said that operating expenses wouldn't be flat, but they'd be up less than revenue this year. That's correct, correct?

Eugene S. Putnam

Analyst

That's correct. Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: And then with regard to the timing issues, I guess it's my understanding that this quarter, namely the fourth quarter, you had an extra start that borrows from the first quarter. Is that correct? And are there any -- following up on Jeff's question, is there any timing issue in the third and fourth quarter with regard to number of starts?

Eugene S. Putnam

Analyst

No. The rest of the year will be pretty normal. We always have months that have more teaching days and less teaching days. Therefore, it impacts revenue accrual by a day. But nothing of significance. Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: That's great. And I know your graduates normally get paid on an hourly basis, but is there some way to quantify the income change year-over-year associated with that placement rate?

Eugene S. Putnam

Analyst

Yes, we've got to be a little careful how we do that. Can we take that one offline for you? We're not... Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: Sure, Sure. And then...

Eugene S. Putnam

Analyst

Hold on. I've got something in front of me here. The note I have that -- this is compared to last year's fourth quarter. We've seen an overall average starting wage increase of about a little over 10%. That differs by discipline, whether it's auto, diesel, collision, marine or motorcycle. Auto diesel is the highest of those. And I don't know this, but I'm guessing the diesel is even higher than auto. But that's the order of magnitude Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: So that's sort of a blended average then, if you would?

Eugene S. Putnam

Analyst

That's correct. And that's kind of their starting salary of those that -- a lot of caveats around that, those that we can track and get the data. But I think everything that we're seeing out there suggests that, that is directionally accurate. And in line with what Kim said and what we're hearing from manufacturers and dealerships about their need and demand for technicians, it makes sense from a traditional Econ 101 standpoint. Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: And then one last question, if I might. You guys have built a history on the loan program. Can you speak to sort of the default experience on that portfolio at this point?

Eugene S. Putnam

Analyst

Yes. It's running pretty steady. I mean, we're collecting roughly 40% of what is due. When we put this in place, it was back when we looked at the Sallie Mae loan pools and we assumed that this would be kind of the experience of their lowest tranche, and that's pretty much tracking to what it is. Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division: So 40% collection and implying a 60% default?

Eugene S. Putnam

Analyst

Correct.

Operator

Operator

[Operator Instructions] I'm showing no additional questions. I will turn the conference back over to management for any closing remarks.

Kimberly J. McWaters

Analyst

Thank you, and thank you all very much for your questions. 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 Thursday, January 30. Have a great day. Thank you.

Operator

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.