Universal Technical Institute, Inc. (UTI) Q4 2013 Earnings Report, Transcript and Summary

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.

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?

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 last headline is that despite strong industry demand and improving student demand, these positive demand dynamics have not yet translated into the business results we desire and are working hard to achieve. Students and their families are still struggling with the cost of education and questioning whether there is a good return on a bad investment, having experienced the worst recession in their lifetimes. People remained generally very leery of debt, especially those without a job. And those who are working are afraid to give up the job they have to pursue an education. Again, owing to the most recent recession. Given these realities, we try to make it easier for students and their families to understand the cost of an education and the return on their investment by sharing graduate success stories and our student outcomes, as well as offering more scholarship monies and improved levels of customer service. As a result, many of our forward-looking indicators throughout the year showed positive momentum during our enroll-to-show process. However, at the end of the year, we were disappointed that more students did not begin school as scheduled. Yes, our new student starts were up in the fourth quarter by nearly 10% due to an increased number of applications and one additional start date in the quarter. That was great news. However, we know that there were thousands of other students who enrolled at UTI and for one reason or another, did not start school as planned. Moving into 2014, this remains our #1 challenge and opportunity, to grow new student starts. The transportation industry is large and growing and is in need of skilled technicians, a lot of them. In fact, there will be over 1.3 million technicians employed in the automotive, diesel, collision repair, motorcycle and marine industries by 2018. According to the Bureau of Labor Statistics, on average, there will be 48,000 job openings for these positions each year for at least the next 5 years. Today, we are filling approximately 9,600 of those positions with our graduates. There is tremendous opportunity for UTI to help close the skills gap and help thousands of men and women get an education that prepares them to go to work for a job that is in demand and that will not be outsourced or offshored in the future. There is a solid return on the UTI education. Yet the hurdles our students face to come to school are real barriers to their success. This year, we will work together with our industry partners to find solutions for the affordability challenges our students face to help them rebuild the pipeline of technicians they need for the future. In 2014, we will apply all we've learned about what's needed to deliver results in this difficult environment and to build on the momentum we've created. We will stay focused on execution, and will continue our work to position this company to deliver positive outcome for our students while fulfilling the transportation industry's growing need for skilled technicians. With that, I'll turn it over to Eugene, who will review the quarter and the year, and then we'll take a closer look at our initiatives and plans for 2014. Eugene?

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 the rate for the same quarter last year. Our bad debt expense as a percentage of revenue was 1.1% for the quarter and was 1.3% for the full year. We generated $7.1 million in fourth quarter EBITDA compared to $8.4 million last year. For the year, EBITDA was $29.8 million versus $39.5 million last year. In all, UTI recorded fourth quarter net income of $900,000 or $0.04 per diluted share compared to $1.6 million or $0.06 per diluted share in last year's fourth quarter. For the year, our net income was $3.8 million or $0.15 per share compared to $9 million or $0.36 per share last year. As a reminder, pre-tax severance costs of approximately $1.6 million referred to earlier impacted earnings per share by approximately $0.03 for the quarter and $0.04 for the year. Turning to our balance sheet. We had cash, cash equivalents and investments of roughly $97 million at the end of the fourth quarter compared to $102 million last year. In 2013, we generated cash from operations of $26.7 million compared to $18.5 million last year, and we continue to have no debt on our balance sheet. During the quarter, we invested $2.7 million in fixed assets, which was down from last year. And for the full year, we invested 9.7 -- $9.4 million, excuse me, which was down from $11.3 million in 2012. Finally, we returned $15.2 million to shareholders during the year through dividend payments and share repurchases. And now I'll turn it over to Kim for some details on our strategic initiatives and the progress we're making.

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 were up 19.5% in the Adult segment, 11% in the Military segment and 2.1% from high school students. In addition to the work we did to improve the application process, we also supported our admissions teams with new tools and processes that improve their efficiency and help them better engage with students from the first inquiry to the first day of class at UTI. We invested in local marketing and PR campaigns, as well as events, to build awareness for UTI, MMI and NASCAR Tech in markets where we have campuses and dramatically improved our web presence with virtual campus tours and high-quality content that can better help inform prospective students as they make decisions about their education. In the high school segment, we invested in and educated prospective students' key influencers at the high school level. So it would be teachers, counselors and administrators, with our continued focus on STEM. The STEM effort is an integral part of UTI's outreach to high schools. To date, we have trained more than 1,000 high school educators in STEM and we've recently launched a workshop in partnership with NASCAR that uses actual race footage to build student interest in STEM courses and technical training in the high school and beyond. The Military segment has been an important growth channel for UTI. That said, we continue to experience some base access issues and are developing innovative ways to reach and add value for our veterans. UTI gained some important ground in 2013 and we like some of the trends we're seeing in the front end of the business. But if we want to achieve our goals of supplying industry demand and creating great outcomes for students, we have to do more to grow student starts. As Eugene said, our year-over-year show rate was down about 250 basis points despite having higher-quality inquiries and solid growth in applications. In every area of the business, we're ramping up our operational focus on growing the number of new student starts. And given students' ongoing challenges in paying for school, continued pressure on availability of funding and increasing consumer aversion to debt, helping students manage affordability challenges is one of our primary objectives in 2014. Over the last few years, we've seen a series of changes to the funding available for our students. They continue to feel the loss of year-round Pell Grants and some California grant monies. Further, for the second year in a row, PLUS Loan denials have been extremely high and discourage students and their families from pursuing an education. Parents who are willing to apply for parental loans are typically very supportive of their son and daughter pursuing an education. Denial rates greater than 60% this past year have certainly made an impact on our business. While these changes have reduced the amount of funding available to students, we believe that an even greater impact is the continued economic climate and its effect on students and their families, making them much more hesitant to take on debt. In the face of these challenges, we're using a targeted support approach with scholarship monies to help enrolled, incremental students start school and stay in school, a strategy we believe will ultimately be much more effective than reducing tuition. We're now offering well over $12 million in need- and merit-based scholarships, and in the first quarter, we will begin testing a new scholarship to support students who have to relocate to attend school. We're also going to test changes to our program structure and scholarship programs that can enhance our value proposition by helping students who do well in school earn scholarships for our manufacturer-specific programs. We know our industry partners are motivated to support us in training more qualified technicians. So we're asking them to help make manufacturer-specific training more affordable through tuition reimbursement, scholarships, sponsored courses and other kinds of financial support. Nissan has donated $800,000 to the UTI Foundation over the past 5 years. And already, Porsche and Mercedes-Benz have expanded their manufacturer-paid electives with UTI. Now we're working to expand these kinds of programs with other manufacturers. While we believe affordability is having the biggest impact on student starts, we're also focused on execution and making certain that our admissions and financial team members are effectively and efficiently engaging with our students. As part of that work, we will use our predictive modeling tool to determine the type and level of interaction we have with a particular student, based on their propensity to come to school and the level of service they require. We're also rolling out new tools designed to keep students engaged and motivated to start school, including stronger outreach to students, and perhaps more importantly, the people who influence them with more information and more frequent touch points that emphasize the tangible value of a UTI education. We continue to improve the tools and information available to students on our website through our strong social media channels which are powerful and engaging potential students interested and engaged. Each of these initiatives builds on the work we began in 2013 and on the momentum we have created. While it takes time for these changes to take hold, our experience this past year demonstrates that we do understand the current environment. We know what we have to do to manage through it. We have the right strategic initiatives in place and have the ability to execute against them. And while we'll continue to face challenges in the coming year, I'm confident in our strategy, in our team and in our ability to position UTI to capitalize on the many opportunities ahead of that. With that, I'll hand it back to Eugene to discuss our work to deliver student value and affordability and to further strengthen our industry relationships.

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. For the year, we extended approximately $22 million in loans under this program, which is slightly up from $21 million last year. And currently, the average individual loan under the program is about $4,300. Our cash collections for this program continue to improve. During the fourth quarter, we recorded approximately $658,000 in revenues and interest from cash payments received from the loans in the program. And that was up from about $435,000 last year. For the year, we recorded $2.3 million compared to $1.6 million last year. And since the program began, we've collected a total of $5 million in loan payments. Additionally, we continue to offer both merit-based and need-based scholarships and we increased the amount of need-based scholarships awarded this year. For the quarter, need-based scholarships increased almost 29% from $1.9 million to $2.4 million, and the number of scholarship recipients increased 23% from about 950 to about a little under 1,200 students. For the year, need-based scholarships increased 30% from $3.8 million to $4.9 million, and recipients increased about 38%. As mentioned last quarter, we successfully completed the rollout of our state-of-the-industry curriculum at our Avondale campus. This curriculum is now being taught both at Dallas and Avondale, and we're currently in the progress of rolling it out in a third campus. We also believe our consistently solid student outcomes reflect the strength of UTI's value proposition. In all, about 2,800 students graduated from UTI during the fourth quarter. During the past 12 months, over 9,800 students graduated from UTI with either a degree or certificates, and our overall consolidated graduate employment rate of 85% was 300 basis points better than last year's already reasonably strong rate. And all of our programs have been showing slight increases from last year's employment rate. And we're also continuing to see growth in overall starting wages for our graduates, reflecting the increased demand for our students. Now let me take a few minutes to talk about our outlook for 2014. In line with our previous guidance, we expect positive year-over-year new student start growth over the 6 months which will end December 31. The growth we experienced in new student starts during the fourth quarter of 2013 should offset the decline we now anticipate for the first quarter of 2014, which is primarily due to the change in the start date from the first quarter to the fourth quarter. For the year ending September 30, 2014, we expect high single-digit growth in applications. But as you all know, with the time lag for conversions, we expect a relatively flat new student start rate. With a focus on persistence and show rate improvement, combined with helping students overcome macroeconomic headwinds through increased usage of scholarships and smaller tuition increases, we expect a low single-digit level of revenue growth for the year. Despite these challenges, with the continuation of our focus on efficiencies and student outcomes, we do believe that we will be able to achieve meaningful growth in operating results. And now before closing, I'd like to turn it over one more time to Kim.

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

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?

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.

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?

Correct.

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?

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.

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

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

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.

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

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

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.

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.

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?

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.

The next question comes from Corey Greendale of First Analysis.

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?

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.

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?

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.

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...

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%.

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?

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.

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

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.

The next one is Jeff Silber of BMO Capital Markets.

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?

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

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

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.

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.

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

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?

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.

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?

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

Upper teens in terms of upper teens millions?

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

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?

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.

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?

No, not really.

And next question comes from Jeff Lee of Wells Fargo.

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?

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.

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

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.

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?

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.

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

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.

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?

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.

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.

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 years ago, and that requires a greater level of handholding and support, and we've got to make certain that we are tuned into that. And I mentioned that in my prepared remarks, that using the media mix model and the predictive model and the scoring, actually, will allow our representatives to understand how best to work with that student, what level of need do they have. If they are a high-quality student, chances are they're going to do whatever is required and more to make certain that they show to school and require little support. Those who are at the lower end, there may be a higher volume, but they need a lot more handholding to make certain that they can walk through the process because financing an education is pretty complex. And so I think the more insight we get on the types of students and the way that we can respond to different segments is what will allow us to improve that. But at the end of the day, it is about the growth in new student starts. It is not all about the show rate. So I just -- I want to be clear on that because we are testing a number of different things with marketing to a higher-quality student, which kind of narrows the net a little bit. But yet, we've made it easier to apply, which casts a wider net. And we're trying to sort through those things to make certain that we optimize our model. And so I apologize for the complexity in how many different things are in motion, but in an environment like this, you've got to be willing to push and pull all kinds of levers and that's what we're doing. And unfortunately, we don't have a crystal ball in terms of what that will yield. But ultimately, we're trying to grow our new student starts, and that is the number that I would focus on. Barry L. Lucas - Gabelli & Company, Inc.: Okay, great. That's helpful. One last one for me, and that has to do with the PLUS Loans and the increase in the denials or fewer approvals, and so what's happening at the Department of Ed and why is that up? So why are the denials up so dramatically?

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.

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?

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?

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?

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...

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?

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?

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?

Correct.

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

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.

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