Hello, and welcome to the Universal Technical Institute’s Fourth Quarter 2016 Conference Call. [Operator Instructions] At this time, all participants are in a listen-only mode. And after today’s prepared remarks, we’ll open up the lines for questions. 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 9, 2016 by dialing 412-317-0088 or 877-344-7529 and entering pass code 10096553. At this time, I would like to turn the conference over to Ms. Jody Kent Vice President of Communications and Public Affairs for Universal Technical Institute. Please go ahead.

Hello and thank you for joining us. With me today is Kim McWaters, Chairman and CEO; and Bryce Peterson, Chief Financial Officer. During today’s call, we’ll review the results of our fourth quarter and full-year and then open the line up for 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 will make reference to EBITDA which is a non-GAAP measure representing net income exclusive of interest, income taxes, and depreciation and amortization. The schedule provided in the earnings release reconciles EBITDA to the nearest corresponding GAAP measure, net income or loss. And now, I would like to turn the call over to Kim McWaters, our Chairman and Chief Executive Officer.

Thanks, Jody, and good afternoon, everyone. We appreciate you being with us. The purpose of today’s call is to review our fiscal 2016 results, our outlook for 2017, and to update you on our business strategy for the future. In just a moment, I’ll ask Bryce Peterson, our CFO to give you an overview of the quarter and fiscal year. From there, we will focus the majority of our time together on our plan for 2017 and our business strategy for the future. First, for those of you who are new to our story, UTI is the nation’s leading provider of technician training for the automotive, diesel, motorcycle, and marine industries. We have been in business for more than 50 years and have graduated more than 200,000 technicians. We are very proud of the relationships that we've built with industry leaders, such as BMW, Cummins, Ford, Freightliner, GM, Harley-Davidson, Honda, Mercury Marine, NASCAR, Peterbilt, and Porsche just to name a few. These companies help give our students relevant training and valuable certifications and credentials. We believe our focus on industry, the primary customer, has served our graduates well. Last year, 88% of our graduates went to work in the fields for which they trained at UTI. Despite the very strong demand for our graduates, our enrollment revenue and earnings have declined during the past several years reflecting changing attitudes about education, employment, and debt as well as the countercyclical nature of our business. We know that during periods of economic recovery as the labor market improves, our prospective students tend to choose work over education. These factors have certainly contributed to our results over the past few years, but more importantly they've informed our thinking about our future and what is necessary to operate profitably and grow during both good times and bad, and we will talk more about that in just a minute. For now, Bryce can you please walk us through 2016?

Yes. Thank you, Kim. Despite a lot of hard work by our dedicated team members, we were disappointed in our financial performance in 2016. For the fourth quarter, we recorded revenues of $86.9 million and operating loss of $5.2 million, a net loss of $8.9 million and net loss available for distribution of $10.3 million, which is calculated as net loss less preferred stock dividends. This compares to revenues of $90.7 million, an operating loss of $13.2 million, and a net loss of $9.8 million last year. Our quarterly results included a $3.9 million charge for severance related to our September reduction in force, $1.3 million in preferred stock dividends, $2.5 million income tax expense or 39% of pretax loss, $4.2 million of excluded tuition revenue related to students participating in the Company's proprietary loan program, which will be recognized as revenue when payments are received, $700,000 of operating income from our new Long Beach campus and an increase in revenue per student from 7,100 to 7,500. Our net quarterly loss per diluted share was $0.42 compared to a loss of $0.41 per diluted share last year. We began the fourth quarter with about 1,200 fewer students than we had at the same time last year. Our show rate was down 160 basis points and starts declined by about 400 student’s year-over-year. In all, our average student population was down about 8.6% compared to the fourth quarter of last year. At the end of the fourth quarter, about 35% of the students in school were benefiting from the UTI scholarship or discount, which reduced tuition revenue by 3.4% compared to 3.8% in the fourth quarter of last year. For the full-year, we recorded revenues of $347.1 million and operating loss of $18.6 million, a net loss of $47.7 million and…

Thank you, Bryce. Certainly 2016 was a challenging year by any measure, but it was also a pivotal year for the Company as we took important steps to return our Company to profitability to exceed the Department of Education's composite score requirements and to raise the capital necessary to invest in our future. As Bryce mentioned, we are on track to deliver better than $30 million in cost savings this year primarily due to a thoughtful yet significant restructuring our workforce and a more efficient investment in marketing admissions and public relations. We believe these reductions will help generate operating income and significantly improve levels of EBITDA during the year. This plan is essential to achieving our goal of returning our Company to profitability. From a marketing perspective, we’ve continued to decrease our advertising spend searching for more cost efficient and effective ways to engage with our prospective students. Our advertising spend was down 4.1% for the quarter and 7.8% for the full-year primarily driven by a reduced investment in national television offset by increased spending in other digital and local media channels. For 2017, we plan to reduce our advertising expense by 10%. Advertising expense as a percentage of revenue should run between 11% to 12%. Student demand remains soft, but we're working to drive greater awareness among our target audience and improve levels of engagement with prospective students. As I mentioned on our last call, we have been encouraged with our ability to generate more cost efficient inquiries from certain news sources, but we continue to balance our media mix to effectively grow student demand at a reasonable cost. We will gain greater confidence in our evolving strategy as our execution improves and we see the demand for our programs continue to grow. Moving to admissions, this year…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first questioner today is Peter Appert from Piper Jaffray. Please go ahead.

Thanks. So Bryce a numbers question that the revenue per student calculation if I just do sort of the easy calculation the way we get the numbers, it looks like you're seeing some fairly significant growth. I'm wondering how much that's distorted by these loan receipt numbers and how should we think about revenue per student next year?

Yes. Revenue per student again, there's several factors that go into that calculation, but I think directionally you're on track. Essentially as we've given the guidance, I would expect that revenue per student is going to remain flat with some slight increases, but some of the variance that you see quarter-over-quarter is driven primarily by the drop in the average student population more so than by tuition increase.

Okay. And is there any issue around mix that would be impacting it?

Yes, Peter. This is Kim. Certainly mix is a driver of that as shorter programs typically will generate higher revenue actually inside of the quarter, but we're seeing trends toward longer programs. So, I think it is more a reflection of the loan program as you talked about offset by the slight tuition increases. So I think if you think about it in terms of as you usually have with 2.5% tuition increase that that would be a fair driver for growth in the future.

Got it. Kim, can you talk about the thought process behind cutting the ad spend, it seems like it might be slightly counterintuitive in the context trying to drive a reacceleration of enrollment growth?

It’s a very good question. It is counterintuitive and something that we continue to balance in terms of lowering our student acquisition costs while driving growth. And we believe given the information and data that we can see in the marketplace, we know when we're getting a good return on investment and we're trying to make certain that we're not spending extra money if we're not getting anything for it. So we will continue to invest in marketing as we start to see good returns on that investment, but right now we're trying to make certain that we are creating awareness and driving demand at a reasonable cost given the environment. I think when you look at what we're doing and I talked a little bit about this on our last call is that we historically have been heavily reliant on national television. And while we believe it’s a critical part of the mix, we have been transitioning more of our marketing spend to digital and local channels in response to how we believe our prospective students see us and want to engage with us. So as I said before, marketing is an art as well as a science and we'll continue to evolve that in line with the customer preferences and learning. But if we see good returns on that, we will continue to invest. We're just going to balance what we're spending our money on given what we're getting back.

Understood. And then on the welding and some of the other new programs, Kim, any color in terms of early responses and how big an opportunity to sink some of these newer programs could be for you?

That's a good question as well, as we considered adjacent programs to fill in some of the existing capacity, we try to look at those programs that were complementary to what we were doing, really serving the same type of students as well as understanding the student demand drivers. And welding has been something that's very strong interest from a student perspective, and I think you see the end market demand changed with the cycle, so there might be a little softness from an employment perspective, but the student demand right now is really strong. We're limited in terms of how we can promote these programs until we have license and approval from the Department of Ed, so what we have been doing is surveying students to determine student interests, and I can tell you that welding gives strong indications of good small programs at a number of locations. It won't be the size of our automotive or diesel programs but it's certainly something that’s complementary. The CNC machining program, I think that there's more opportunity to expand beyond NASCAR Tech is starting out relatively small in partnership with Roush Yates given the employment demand in that region. And I think it's something that we can continue to modify into new markets as we see that program growing across the country and are excited about the prospects. But we just have initial research, we don't have the type of student interest that I could compare to our other programs given our limitations on promoting at this time.

Right. Understood. And then just two other things one gainful employment I think you might have gotten the preliminary data at this point, anything to report on that?

Yes, I'll say at a high level we have 12 programs, the headline is none of them failed, nine of them passed and we have three in the zone. So we're working on strategies there to make certain that we're not in the zone on a go-forward basis, so [indiscernible] fail and as you know you can't fail more than one year out of four, so we are continuing to look at those programs. There wasn't really a surprise, we saw this sort of trend on the preliminary data and are working to address it.

Can you tell us what percent of enrollments are in the zone programs?

Not really going to go there on the programs because it's specific campuses under an OPEID. I will tell you that motorcycle is more under pressure than the other programs as one might expect given the seasonal employment in the earnings and starting wages compared to auto and diesel. And then on the other end of the spectrum diesel is very strong. So that gives you some comparison motorcycles 20% I’d say of our students the Motorcycle and Marine.

And one last thing, on the change in the recruitment comp how does that did against the incentive comp rules. I assume you've studied this carefully to make sure you're compliant, but is that something we should be concerned about?

No. I think you should be excited about it. We have spent a significant amount of time studying it since we received the news that it was something that we could consider about a year ago this month and we have been working to align a program similar to what we had previously that focuses our students on enrolling and showing and graduating students who are best suited for this industry and will be successful. So I think the plan truly aligns what we're trying to accomplish as a business in the best interest of the students and the employers who hire them. But I feel confident about our plan being compliant and obviously you know we haven't had it for five years. So when we felt like it wasn't going to be compliant we didn't do it and now we've made that switch back because we believe it’s compliant and we believe it's in the best interest of our students and our business.

Got it. Okay thanks Kim.

You’re welcome.

Our next questioner today is [indiscernible] from Alexander Capital Advisors. Please go ahead.

Hi, thanks for taking the question.

Good afternoon.

Hi. You guys have said in the past that you would like to open three or four of the newer model campuses. I was wondering what the strong cash balance. Is there anything slowing that pace of the new campus openings?

Yes. What we’ve said in the past is that we would like to be in position to open one every other year, but certainly the last couple of years have made that more difficult given the profitability of the company, balancing the regulatory environment and having the capital to execute on that. So as I talked about in the call we've been really focused on returning the company to profitability, securing the capital necessary to do it, further refining the model in terms of where we - the size and where we go and we are ready to execute. So our first one we're targeting for mid-to-late 2018 and we'll keep you apprised of anything beyond that as we move forward.

Okay. Thanks.

You're welcome.

[Operator Instructions] Our next questioner is Barry Lucas from Gabelli & Company. Please go ahead.

Thanks and good afternoon. Kim, there were some comments earlier about the inquiries being down, but applications had improved. And I'm just wondering if you could walk through the inquiry rate versus applications and the show rate and where the pressure points come, where you could apply the pressure to improve each of those segments, so you get more students showing up?

Very good question. What I referenced in terms of our applications, if you think about our three admissions channels, we have an Adult segment which typically responding to increase generated by our advertising investment. We have high school field representative who are typically generating the majority of their inquiries by making high school presentations, attending career fairs et cetera in territories across the U.S., and then we have specific military representatives who are out working with the transitioning soldiers out at the bases and a team that is committed to those veterans who would be using GI money to come to school and there are different pressure points for all of them. From a high school standpoint it's been challenging to get into the high schools in this regulatory environment. And what we are doing in that regard is working side-by-side with employers who are helping students and families. And educators understand those job opportunities by hosting events out at their place of employment rather than the high schools. And we feel like we are getting good traction there. And that's something where we probably feel less pressure from an inquiry generation standpoint. If the representatives can get into the schools, they have supported employers, we feel good about the direction that we're heading there. What we need to do in that sense is make certain that our territories are full, our reps are trained and that they're equipped with the tools to provide real value to the students. Moving to the adult channel, this is where we had most of the challenges because these students, perspective students are working perhaps in a low skill, low paid job, but they are unwilling to take the risk of giving up that job and moving away to one of our schools and…

Okay. Couple others, Kim if you care to our point and you may not on the new nominee for Secretary of Education and how that might impact either access to military bases or access into the high schools, any thoughts there would be of interest?

We are cautiously optimistic and hopeful. That's about all I can say. And we'll see what happens, but we're hopeful.

Okay. Last one for me than you are trying to come back to the rationale for – and I would say for not accelerating the smaller campuses, the openings at a faster pace you've got the question earlier, but you've got the financial wherewithal now. What are sort of the speed bumps? Is it getting people step down or is it finding the real estate modifying buildings because one school every other year a school that's a third of the size of your typical school. We're talking about a very long process here in changing the shape of the Company?

I know Bryce is going to chime in here. I just want to say one thing, we agree with you. We would like to open more campuses at a faster clip and we do need to make certain things are in balance. But the issues in terms of real estate and talent and those things are not the challenge is making certain that we return to profitability and that we are balancing that with our composite score requirements and that we are investing in that in a very balanced way. But the faster we return to profitability, the faster we can roll these campuses out given that we have the capital to do so, right.

Yes, Kim hit on the two primary points that’s profitability and maintaining that composite score above the threshold and so those are our two competing goals at any given time as you want to reinvest into the business and grow it, but at the same time we have to grow it profitably and so – while we would like to go faster, we really have to maintain that good balance.

So 2017 will be a step in the right direction while we're improving profitability and investing for our future with the next campus.

Great. Thanks…

You have high commitment to figure out a ways to open up more faster.

Great. Thank you.

You're welcome. End of Q&A

[Operator Instructions] It looks like we've no further questions. So I would like to turn the call back over to Kim McWaters for any closing remarks.

Thank you. I appreciate everybody joining us today for our call. We appreciate your interest in the Company and we look forward to updating you on our first quarter and that call is scheduled currently for February 2, 2017. So meanwhile have a great holiday season and Happy New Year. We'll talk soon.

The conference is now concluded. Thank you all for attending today's presentation and you may now disconnect your lines.