John Jenson - Vice President and Corporate Controller Kimberly J. McWaters - Chairman and Chief Executive Officer Eugene S. Putnam - President, Chief Financial Officer and Principal Accounting Officer

Good afternoon, and welcome to Universal Technical Institute's First Quarter 2015 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 February 15, 2015, by dialing (412) 317-0088 or (877) 344-7529 and entering the passcode 10059712. 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.

Hello, and thanks for joining us. With me today are Kim McWaters, Chairman and CEO; and Eugene Putnam, President and CFO. During today's call, we'll review the results of our first quarter, and then we'll 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 and 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 Chairman and Chief Executive. Kim?

Thank you, John. Good afternoon, and thank you for joining our call today. We're very pleased to report a good quarter with significantly improved financial results, driven by operating efficiencies and cost management. We are encouraged by continued growth in the demand for our graduates, reflected by strong placement rates and higher starting wages. We're proud to announce that we've launched our Diesel Technology and blended learning program in Orlando and are ready to launch a new welding elective in Sacramento. And last, that we're making good progress on our next campus in Long Beach. Our focus remains squarely centered on rebuilding student enrollments, specifically on how we can better articulate our value proposition by diminishing perceived risk and increasing the perceived value of pursuing a UTI education. To us, the benefit of the UTI education is obvious. A career in the transportation industry that is significantly better than the kinds of jobs available to students without an education. But it is not that simple for a generation of students, who are understandably adverse to risk and looking for some guarantees in life. We certainly cannot guarantee employment, but employers growing engagement in our student recruitment efforts and their willingness to help more students pay for a UTI education, will certainly enhance our value proposition and positively impact student enrollment in the future. Up to this point, employers have focused their marketing and recruitment efforts on our graduates. But because of the demand and competition for our graduates is now, so great, and there is simply not a sufficient supply of graduates to meet their needs, employers are increasingly recognizing the need to invest in marketing to prospective students. This is how employer demand will drive student demand, giving graduates access to great jobs, while helping them cover the cost of tuition. I will discuss this more when we talk about our marketing and admissions efforts, later in the call. But first, let's take a minute for Eugene to review the quarter's results.

Thanks, Kim. Our continued efforts to control costs resulted in an operating income of $5.6 million for the quarter. That's a significant improvement compared to operating income of $3.1 million in the same period last year. We began the quarter with approximately 800 fewer students that we had at this time in 2014. Our show rate was up, 830 basis points, but as expected new student starts were down 13.6% due to a lower volume of new student schedule to start, leading to a decline in average student population of approximately 5.8%. The lower student populations, offset by higher average revenue per student, led to revenues of $95.7 million in the quarter, which were down 1.4% from last year. Average revenue per student was up from $6,300 to $6,600 per student. Tuition excluded $5.7 million related to our loan program compared to $6.3 million in the first quarter of 2014. And just as a reminder, we recognize that revenue for this program when we actually receive payments. Managing expenses continues to be a very important focus, while we're working to increase our student populations. During the past year, we implemented key process improvements and technology solutions to operate more efficiently and effectively in the current business environment. We have and we will continue to manage our variable costs to appropriately align with our student populations. During the quarter, we implemented the second phase of a restructuring completed in October. Combined with the first phase, which was completed in September, approximately 100 employees were affected. We incurred severance costs in the first quarter of approximately $1.2 million pretax, related to this restructuring. Despite an increase in severance costs of $900,000, comp and related costs were down $1.5 million in the first quarter compared to last year. And we anticipate the restructuring…

Thanks, Eugene. Let's start first with the key operating metrics for marketing and admissions. Overall, the trends improved. During the quarter inquiries were down 12% year-over-year, but this is an improvement from the nearly 20% declines, we've seen over the past several quarters. Applications were down 14% year-over-year, slightly lagging the improvement in inquiry generation, but better than the 20-plus percent declines we saw in the last 2 quarters of 2014. We're encouraged with improving trends, and we're excited that service technician jobs are more plentiful than ever and starting wages continue to increase. So why have we not seen an increase in student enrollment? The short answer is we do believe that the demand on the back end for our graduates will eventually drive the front-end demand from prospective students. Let me explain why I believe it hasn't happened yet, and why we believe it will happen. First and foremost, we are a countercyclical business. During a period of economic recovery, when more jobs become available and is very typical for prospective students to choose work over education. That has been happening for several years, but we expect that to moderate as new job growth flows. Further, we expect that many who accepted low-skill jobs out of desperation over the past 5 years will eventually, become disenchanted with their decision and begin to explore options for a better future, including an education that provides a path to a better career, where they can make a good living doing something they love. As consumer confidence builds, family incomes continue to rise and household equity improves, prospective students will be more willing and able to invest in their education. To take advantage of those trends, we must help both students and their key influencers understand there is a great return on…

Thanks, again, Kim. While we are continuing our efforts to manage the business efficiently and to reduce costs where appropriate, we believe our path to growth includes bringing our education to reach more students in markets. Construction is underway and on schedule for our new campus location in Long Beach, California, which is scheduled to open later this summer. As we have discussed, similar to our Dallas campus expansion, this additional Southern California campus will enable us to provide convenient access to prospective students, already being reached through our large national marketing and admissions footprint, in markets where there is already pent-up demand as well. Based upon our experience in Dallas, we believe this is one of the highest return investments that we can make. Additionally, we are teaching our new "state of the industry" blended learning curriculum at our campuses in Avondale, Dallas, Sacramento and as mentioned now, in Orlando as well. We completed our expansion in Orlando to include diesel and launched our new curriculum just last month. And with limited marketing and awareness just building in the market, the first 2 diesel programs are already at capacity. Finally, we continue to work with our industry partners to expand, renew and extend relationships. Our industry relationships continued to be a very important market differentiator for us and are becoming even more important in assisting students financially in the pursuit of their education. Turning to affordability for our students, we continue to offer scholarships, a proprietary loan program and are engaging our OEM partners to assist in sharing the UTI opportunity with potential students. Our industry partners, driven by the demand they're experiencing for new technicians, had become increasingly more willing to participate in assisting students with their education. Many offer a tuition reimbursement program that will help students…

[Operator Instructions] As I'm showing no questions, I'd like to turn the conference back over to Kim McWaters for any closing remarks.

Thank you, it sounds like we have little competition for our earnings call report out. So I appreciate you tuning in and reviewing our prepared remarks. We appreciate your time and interest in Universal Technical Institute, and we look forward to second quarter 2015 earnings call, which is scheduled for the first part of May. Have a great evening.

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