Hello everyone, and welcome to the Universal Technical Institute’s First Quarter 2017 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 February 13, 2017 by dialing 412-317-0088 or 877-344-7529 and entering pass code 10100225. 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. Ma’am, please go ahead.

Hello and thank you for joining us. With me today are Kim McWaters, Chairman and CEO; and Bryce Peterson, Chief Financial Officer. During the call today, we will update you on the significant progress we have made in implementing our financial improvement plan, our first quarter financial results and our vision for the future. Then we will open the call 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 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. Now, I’d like to turn the call over to Kim McWaters, our Chairman and Chief Executive Officer.

Thanks, Jody, good afternoon, everyone. We appreciate you being with us today. For those of you who are new to the company, UTI is the nation’s leading provider of technician training for the automotive, diesel, motorcycle and marine industries. We have graduated more than 200,000 technicians in our 51-year history. Our pledge to our students is to give them a quality education that prepares them for good job and helps them build rewarding careers in the growing transportation industry. We are exceedingly proud of our 88% graduate placement rate for 2016. We believe our strong student outcomes are the result of our quality programs, our dedicated intelligent employees and our partnerships with select industry leaders such as BMW, Cummins, Ford, Freightliner, GM, Harley-Davidson, Honda, Infinity, Mercury Marine, NASCAR, Peterbilt, and Porsche just to name a few. Our commitment to our shareholders is to return the profitability and create long term value. As part of our work to deliver on that commitment we announced our financial improvement plan in September 2016 and since that time we have accomplished quite a bit. We generated 9.2 million in cost savings and improved operating income by 3.6 million year-over-year in the first quarter. Of course, we still have work to do primarily on the front end of the business and we will continue to optimize our marketing mix between traditional and digital media and balance our advertising investment on a national and local basis, all the while ensuring we made adjustments based on macro factors and student trends. Today’s marketing environment provides us with opportunities and challenges. It enables us to reach our target demographics more efficiently through a variety of media, but it also requires a constant orchestration between technology, people and third party agencies to deliver results. During the first quarter, we…

Thanks, Kim. I’ll start with a review of our business metrics and then discuss our financial results for the first quarter. Total starts for the quarter were 1400 compared to 1800 in Q1 of last year. Our average student enrolment was 12,000 compared to 13,300 last year. At the end of the first quarter in both fiscal 2016 and 2017 about 35% of the students in school were benefiting from a UTI scholarship or discount which reduced tuition revenue by 3.2% this year compared to 3.3% in the first quarter of last year. For the first quarter of fiscal 2017 compared to the same quarter last year, revenue was $84.2 million excluding $5 million in tuition revenue related to students participating in our proprietary loan program, which will be recognized as revenue when the payments are received. This compares to $89.8 million in revenue for the first quarter of 2016 which excluded $5.7 million in tuition related revenue. Year-over-year revenue variance was attributable to a 9.8% decrease in student enrolment. In addition, there was one less earning day in the first quarter of 2017 which impacted comparable revenue by $1.4 million. Total operating expenses were $82.8 million compared to $92 million for the prior year period. The $9.2 million decrease is largely due to lower compensation expense and improved operating efficiencies as a result of implementing the financial improvement plan. The savings were partially offset by $1.3 million in severance charges related to November 2016 reduction in workforce. Advertising expense was $9.2 million for the quarter compared to $10.4 million for the prior year period. The $1.2 million decrease is consistent with our strategy to reduce spending in certain channels in our media mix. As discussed the run rate may vary as investment opportunities arise. Operating income was $1.4 million…

Thank you, Bryce. Before we take your questions, I want to review why we are so confident in the long terms trajectory of our business and the initiatives that we have in place to support our success. There continue to be very strong demand for trained technicians in the transportation industry and the certifications and credentials we provide are of significant value to both our employers and our students. Our unparalleled industry partnerships help us deliver strong outcomes for our students and they position us to provide an array of valuable programs beyond entry level technician training such as continuing education and workforce training with industry partners. We are adapting our offerings and our national footprint to changing education preferences. We are accelerating the opening of smaller commuter friendly campuses like Long Beach in Dallas and we are doing so in markets with strong student and employer demand. As I mentioned earlier, we hope to provide you with the location of our next campus on our next call. Finally, we remain committed to our students and to our foundational strength giving students a quality education that prepares them for good jobs and sets them up to building rewarding careers. We look forward to keeping you updated on our progress. Operator, we are now ready to take questions.

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our question comes from Peter Appert from Piper Jaffray. Please go ahead with your question.

Thanks, good afternoon Kim. Could you give us any incremental details on the issues around the inquiry marketing challenges and some of the specific changes you’ve made?

Sure. As we’ve been talking over the last couple of quarters, really trying to focus on reducing our senior acquisition cost, we’ve been migrating our advertising investment from I’d say national television to more digital channels. During the quarter, we were continuing to fine tune that spend and trying even different things in the digital space and in that timeframe we changed agencies which affected about 50% of our spend on direct response. And I think we had some technology and agency issues that were the biggest drivers of the issues that we faced. This has been corrected and we have completed the agency transition. And as I mentioned I believe that you we’re back on track in terms of the rebuilding our student inquiry volume. That said, I want to just remind everybody that we are very focused on not only growing volume but ensuring the quality of the inquiry and the candidate is there, because what is most important to us is not only do the students inquire, but actually enrol, start school, graduate and are employable. And I think as we continue to change our media mix that something that we will continue to fine-tune as we test new digital outlets.

Are you far enough along in this process to be able to see if, for example, fiscal 2Q inquiries could end up being up on a year-to-year basis?

I will tell you that they are tracking favorably in January from a volume standpoint. It’s obviously early in the cycle to comment too much on conversion into enrolment from the inquiries generated in the month, but it is a different picture than we saw in the last quarter. And again I think that goes to finalizing the agency transition, addressing the technology that goes along with some of these transitions and continuing to refine the digital strategies.

Understood. Thank you. The sort of a strategic questions, Kim, I hear what you're saying about the advantage of the smaller campus, but I’m just wondering in the context of the current financial challenges and particular the issues around the marketing and student inquiry issues. Will that really makes sense to be opening new campuses at this point? Can you speak to that?

Sure. I think one of the challenges over the last eight years has been this balance of trying to address and fix the core that traditionally have the big box and destination campuses while trying to launch a new model that we believe is in alignment with student preferences and educational desires. And during this process in the worst economy and recovery period, longest recovery period, we demonstrated that these campuses in fact are generating, they are the positive contributors for us and this is the model that we can and should be transitioning to. We also believe that in this environment we are likely to see some regulatory relief. We believe that with the duration of this recovery period that people will start looking for jobs that are not taken out of desperation and that we do require training and we believe that will serve us well in these key markets. To Bryce’s point we are working to rationalize the space with these large campuses, but we want and believe that we should be balancing the opening of these newer, smaller campuses while rightsizing the larger campuses that we had in a number of markets.

And then last from me. Can you talk little bit, Kim or Bryce of the economics of the welding and machining programs. Is there a lot of upfront cost to get these things running? How big do you see the opportunity? How big could they be or how soon could they be contributing to operating results? Thanks.

Yes. So, that’s a great question. As far as kind of the first part of your question the upfront investment given that we already have existing facilities than the upfront investment is really on the curriculum and the tools and training aids and so from a relative perspective it's much smaller if you were to compare it to opening a new campus. And also the speed at which we can deploy those new programs is certainly accelerated. The one thing that’s holding us back right now is getting the approval from the Department of Education, but as soon as we have that approval in place then we can move very quickly. As far as the economics because again we’ve already got the facilities and capacity then ultimately it's similar to what we’ve talked about before that each incremental student has significant benefit towards our bottom line. So the ability for us to get incremental students into welding and into CNC, again, these are generally students that are not going to be selecting some of our existing programs. So we feel like it's a new student not a cannibalized student from another program.

I think to just add on that in terms of welding, we expect that it will be smaller than the automotive programs, but a couple of hundred students at Rancho campus first and there are number of other markets where we believe there is strong student interest as well as employer demand to grow that. But first things first, we’re focus on the opening at Rancho. The CNC program that will open in Mooresville campus, NASCAR Tech campus, we believe that will be smaller on a national scale than welding, but we do believe that there are other markets that will support CNC program and will help us utilize some of the existing space at their large box campuses.

And I assume these would be lower cost shorter programs than the auto tech programs?

You are correct. We believe there are around 36 to 39 weeks, and so shorter than our automotive and diesel or the manufacturer specific training programs and at a lower cost point obviously given the length the program.

Great. Thanks guys.

Thank you.

[Operator Instructions] Our next question comes from Barry Lucas from Gabelli & Company. Please go ahead with your question.

Thank you. Good afternoon. I just want to stick with this area, Kim if we could and without belabouring the bureaucratic ins and outs, but what is holding up these -- the new programs. I mean and just what it was -- but just what is the hang-up in getting approvals?

So the hang-up as we understand it from Department of Education is that they have higher priorities than approving a new program for us. And because it is not something that we have thought previously, it requires more, I guess intense approval process. And so it’s not going through the normal pattern that we were for a program addition that would fall under automotive, diesel, motor and marine. So it’s new and different, that requires a new and different process and what we have heard is that they are just backlogged. So we have continue to keep the pressure on, to keep in conversation asking if there's anything more that we can do to expedite the process, but we are waiting on them at this point.

Okay. And just sticking with this regulatory theme, if you had to pick out one or two areas where you would like to see regulatory relief. Where would those be gainful employment or some of the other new rules or access to military base? Where do you think your biggest bang for the buck in effect would be?

Yes. You hit on kind of the primary points. Obviously, with gainful employment we feel like some relief on that front would be very helpful. Our experience has shown that students who do take the Manufacturer-Specific Advanced Training program based on Department of Education college scorecard their tenure median earnings are significantly improved and the gainful employment regulation actually would force us to be putting students in shorter programs, so its not really benefiting the student in that regard. And so, we would certainly look and appreciate regulatory relief from that perspective. And then obviously the defense through a payment you know that its still unclear as to how that’s going to move forward, but we’re certainly researching and trying to evaluate the potential impact, but that one and then your question about military base, that one is one that could probably most easily be impacted by the new administration because that would just require a new Department of Defense directive or an executive order to give us greater access to the base and develop transitioning soldiers. And given the strength of our veteran services teams and the focus that we have on helping soldiers, we’re able to provide a really good value offering to these wonderful soldiers and our employers prefer to hire them. And so, we’d certainly like the opportunity to work more closely with the bases and with the different soldiers to help that happen.

Thanks, Bryce. I want to come at Peter’s question maybe another way, dislocations in the December quarter which you described, Kim, in terms of changing aid agencies and some other technological glitches but -- and with a little bit of window in January but to get to positive starts in the back half of the year is certainly a bit of leap of faith, so what else can you provide that will give us the confidence to think that you can really get there?

So, it’s a very good point and I understand this sentiment. But our commentary in terms of our ability to grow new student starts in second half of the year certainly accounts for the issues and challenges that we face inside of the first quarter. So, I wanted to be clear that we are still reiterating that based on what we’re seeing even with that impact. Is it ideal? Should we want that? No, but we have been able to isolated, overcome and make that transition. With that said, we have to make certain that every students who inquires that we are providing the level of service necessary to help them, understand the educational process and to make that commitment, and to that end I think on the admissions team there are great tools underway, there is a committed leadership team who has made an investment in their training and trying to help them, work with students who might be at various stages of the buying or the commitment process. And I can’t comment inside of the last quarter, we have seen improved efficiencies with our representatives. And so, we are seeing that work in our favor and the thought is if we can continue to stabilize and grow inquiries with the changes that we’re making we have a team who is ready and prepared to help, convert those in to applications and enrolments and a team standing ready to help them from the enrol to show process. So, I truly feel that we are doing a number of different things from the initiatives that I highlighted to address that. We have to get our inquiry volume and quality up and that is our primary focus. And we’re encouraged with the things that we’re seeing since we made those changes.

Great. Thanks for that, Kim.

You’re welcome.

Our next question comes from Jeffrey Matthews from Ram Partners. Please go ahead with your question.

Hi. Can hear me? Thank you very much for taking my question.

You’re welcome.

Not often you see companies pick up such a high percentage of their cost base in such a short period of time without having an impact on the business itself. And I wondered if you could talk about whether the cost reduction that you made did have any impact on the student experience or not?

It’s a great question. I think maybe I’ll answer in two parts. Our September 2016 reduction in force was primarily a corporate staff and support resource, and so obviously from that perspective there is a direct student services impact because those resources are primarily doing back-office support. And so, effectively we’re able to do a lot of functional consolidation and process improvement, and we've actually seen in several areas, improved efficiency and morale from the corporate structure being thinner and flatter that we’re able to -- to be able to operate more efficiently. The November reduction in force, again, was at the campus level and that was just adjusting the staff levels to the current student load. And so we do follow those ratios very carefully and we use that as a monitoring metric to make sure that the adjustments that we made would not negatively impact our student service. And so far we've been able to deliver high quality student service despite some of the reductions in headcount.

I would say where you might see a little bit of that is not so much on the student experience, but the marketing transitioning and having resources who are monitoring all of the things, I think there are certainly adjustments necessary for people to grow and to take on different responsibilities and there were some shuffling of responsibility there, not just on the marketing side, across the whole company, but I can’t say this. I'm very impressed and pleased with our team and willing to take on more because we all understand what its take and are working very hard to ensure that we’re delivering on our student promise and our commitment to our industry partners, and that requires us operating profitably. And everybody’s hands in the middle, I’m trying to figure out what that balance is. As I said on our last call, I'm sure there will be areas where we realized that we need additional resources and we’re working through that. But at this point in time we’re very pleased with how the team is responding and the results that we’re seeing with these changes.

Great. Thanks. And if I could just also follow-up, it looks like a Long Beach campus is kind of off to a good start. I wonder what you’re learning from it, what surprised you positively or negatively thus far?

Similar to what we shared a couple years ago on the on-boarding or ramping up of the Dallas/Fort Worth campus, both of them are the smaller campus model, and so as Kim mentioned, we see them as accretive to earnings within the first 18 months and then cash flow breakeven between the year three and four and certainly Long Beach is well on its way to achieving that. And that really reiterates or enforces the strategic promise of those opportunities. If we find the right locations and we place a smaller campus in those areas of high student and employer demand we’re certainly looking for great growth opportunities in those locations.

Great. Well, thanks very much. Just to know, I visited the Orlando campus a couple, walked in off the street in 10 o'clock and they were kind enough to include me in a tour, very good operation there. So congratulations and thank you.

Thank you.

[Operator Instructions] Our next question comes from Frank Faiella from Alexander Capital Advisors. Please go ahead with your question.

Hey. Thanks for taking my call. I know you guys have said in the past that pricing is not as much of a factor in the starts, but I was just wondering if anything's changed there on the quarter with the low start level?

It’s a good question, and we're constantly trying to evaluate price sensitivity and have chosen to provide scholarships supporting the needs of our students based on criteria rather than adjusting price. We continue to look at and pilot a number of different programs that give students the choice in terms of the lower cost program versus a longer more expensive program that includes manufacturer’s specific training. At this point in time despite the cost or the higher of this education a number of students do migrate towards the longer programs where they get the additional education. And I honestly think that is the reflection of their passion and interest to learn. And so, we will continue working with students and their feedback to adjust the program length and the content, their educational content to ensure that we are not leaving students on the wayside if they cannot afford a shorter program. So, I would say that that is a strategy that we are working on and piloting in different ways and certainly I think the launch of the welding and CNC programs will give us some insight in terms of total cost. But from our perspective what we’re doing to lower our cost structure is the biggest driver of how we can lower the overall cost of education and our team is working to do that. I don't believe that that was a significant driver in terms of starts inside this quarter, but I will certainly say the cost is always an issue that we’re trying to address.

Okay. Thank you.

You’re welcome.

And ladies and gentlemen, at this time, I’m showing no additional questions. I’d like to turn the conference call back over to management for any closing remarks.

Thank you everybody for joining us on our call. I appreciate your questions and appreciate your time and interest in our company. We look forward to speaking to you on our second quarter 2017 earnings call that is currently scheduled for May 4. I hope you have a great day. Thank you.

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your telephone lines.