Good day, everyone, and welcome to the UTI Fourth Quarter and Full Year Fiscal 2018 Earnings Conference Call. [Operator Instructions] At this time, all participants are in listen-only mode, and after today's prepared remarks, we’ll open the lines for questions. As a reminder, today's conference call is being recorded. A replay of the call will be available at www.uti.edu or through December 13, 2018, by dialing 412-317-0088 or 877-344-7529 and entering passcode 10125966. At this time, I'd like to turn the conference call over to Ms. Jody Kent, Vice President of Communications and Public Affairs for Universal Technical Institute. Please, go ahead.

Thank you. Hello, and thanks for joining us this afternoon. With me today are Kim McWaters, President and Chief Executive Officer; and Scott Yessner, Interim Chief Financial Officer. During the call today, we'll update you on our fiscal fourth quarter and full year 2018 business highlights, our 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 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 UTIs 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 refer to EBITDA and free cash flow, which are non-GAAP measures. EBITDA, representing net income exclusive of interest, income taxes, depreciation and amortization, and free cash flow is cash from operating activities less capital expenditures. Management utilizes EBITDA and free cash flow as performance measures internally. It is now my pleasure to turn the call over to Kim McWaters.

Thank you, Jody. Good afternoon, everyone, and thank you for joining us today. 2018 was a transformative year for UTI. New student starts increased for the first time in eight years, with start growth accelerating over the past quarter. That momentum has carried into 2019 with start growth expected to be 10% in Q1 and in the mid to high single digit range for the full year. We continue to invest in marketing and admissions to support start growth and the planned expansion of our welding program, which we believe will result in an operating loss of between $10 million and $15 million and positive cash flows from operating activities for the full year, fiscal 2019. We further expect to be free cash flow positive with an EBITDA that will range between $5 million and $11 million, unadjusted for anticipated onetime costs of $4 million. Based on the successes of the past 12 months, we believe, we will exit 2019 positioned for impressive growth in 2020 and beyond. Turning the focus back to 2018, during today's call, we will discuss our transformation efforts within the context of successfully achieving three key strategic initiatives, leveraging the implementation of our transformation plan to drive new student starts across our campus footprint, investing in highly accretive new campuses and program offerings with the opening of our newest metro site campus in Bloomfield, New Jersey and our second welding program in Avondale, Arizona; and continuing to rationalize our real estate footprint and cost to support more profitable operations and better serve our students. Early in fiscal 2018, in concert with the top-tier consulting firm, we launched a comprehensive evaluation of our business with a focus on increasing efficiency within the organization and growing new students starts. The analysis validated the strong demand for our…

Thanks, Kim. Fiscal 2018 was a year of organic investment in multiple strategies to grow long-term value. We've leveraged our strong capital and cash position to transform our marketing and admissions operations, construct a new metro campus and add new programs to existing campuses and reduce costs. As with most organic investments, a significant portion of these costs were expensed through the income statement in 2018 with a lesser portion capitalized on our balance sheet. As Kim mentioned, these investments started demonstrating impact with the fourth quarter student start results, the highly successful launch of the new Bloomfield, New Jersey campus and new programs. These investments will drive improving cash flow and operating results, which I will share in our 2019 outlook shortly. Before discussing our 2019 outlook, I'll review our fourth quarter and fiscal 2018 business metrics and financial results. As noted in our October 23 press release, new student starts in the fourth quarter increased 8.5% compared to the prior year fourth quarter for a total of 6,022 students. More than half of the start growth came from our legacy campuses with the balance coming from our newest campus in Bloomfield, which opened in August. Overall, new student starts for the fiscal 2018 were up 1.2% compared to 2017. For the fourth quarter of fiscal 2018 compared to the same period last year, revenue was $80.3 million compared to $81.3 million for the prior year period. While the year-over-year revenue variance resulted from a 2.1% decrease in the average student population, year-to-date average revenue per student was up 2.2% versus the prior year. Total operating expenses were $91.3 million compared to $82.4 million for the prior year period. The increase was primarily attributable to planned increases in the Bloomfield, New Jersey campus and program launches, consulting services, advertising…

Thank you, Scott. In fiscal 2018, we successfully implemented marketing, admissions and student support services initiatives that created a foundation for new student start growth. And I'd like to take a moment to thank everyone at UTI for their efforts that got us to where we are today. In particular, I would like to congratulate our Bloomfield, New Jersey team for opening on time, on budget and being ahead of plan. I'd also like to thank our industry partners and employers for their continued support in the student recruitment process and for providing tuition reimbursement and other support to make schooling more affordable and viable as we all work together to meet the tremendous demand for skilled talent. I look forward to working together with our industry partners and employers and the entire UTI team to achieve greater success in 2019. I'd now like to open the call for questions. Operator?

[Operator Instructions] And our first question today comes from Peter Appert from Piper Jaffray. Please go ahead with your question.

Thank you. Good afternoon. So the start improvement is impressive. Congratulations on that, Kim. You gave a lot of detail on the drivers, but it's noteworthy, I think, how dramatic the inflection has been. And I'm just wondering if there's any more color you can offer in terms of what have been the key changes that have driven this improvement and driving - and how that drives your confidence in the sustainability of this improvement.

Well, that's - it's a great question. I think, it is a number of initiatives across the entire front end of the funnel. And so as I mentioned, we focused on ways to build our brand awareness and create visibility about the opportunity with our type of training and the employment opportunities. And most of our effort, initially, was really focused on getting our marketing mix correct and being willing to move some of the investment to top of funnel, which is a little more difficult to measure and moving away from underperforming digital sources. And that is - being on television more, being out in the community, on radio, billboards, just creating broader awareness has driven more interest in our brand as reflected by the statistics I gave in terms of uti.edu and our brand search. So for every student that comes through that channel, those inquiries are converting 4 times at a better rate than what we saw in some of the digital sources previously. And so not only are we getting more higher quality, we're also seeing admissions improvement because we're converting them at a higher rate. So first, focus on marketing and the improvement there and the optimization of our marketing investment. Second was a really focusing on our team, our admissions representatives and ensuring that they had the tool, the training, the leadership, the process to make their job easier, to simplify it and to improve the performance management and accountability, both from a reward standpoint and an improvement standpoint. So I think, again, marketing and admissions - and then we have a lot of students - who raise their hands about coming to school, but they need help making that first day a reality. And so many of our teams across the entire company focus their efforts on improving our show rate and making certain that we removed as many barriers as possible to help our students show to school. And those things are as basic as outreach programs, contact, different times a day, different points of contact, instructors, financially aid reps and our admissions reps. It's been a collective effort to make certain that we help the student as much as we could. And then last, I would ask - or add that we invested in dashboards so that we could measure what matters and start to make decisions based on the data and those things that we were seeing. And I think that is - some of the real value that came out of our investment in the transformation was being able to build that capability in the dashboards that would help us make informed business decision. But I'm really proud of the team and everything that we've been able to accomplish in a relatively short period of time.

Yeah, that's great. Thank you for that. Is there more to do, Kim, you think, in terms of shifting media mix as a driver of improved inquiry flow?

Given the fact that we have these great dashboards now, I feel like optimization is always got to be at the top of our list in terms of priorities, especially given what we invest. But I feel like we've got our digital sources really optimized, and we'll continue to optimize those. And we will continue to invest in new not channels, necessarily, but things like television or event marketing that could expand. So I think we made great progress. We're now - it's now just about continued optimization based on the data that we see.

Got it. Any changes, from your perspective, Kim, in competitive dynamics in the markets?

You know, I'd say that this past year, we continued to see competitive pressure from the community colleges because they're cost effective and convenient. But we also did quite a bit of research to understand the students who are choosing community college over UTI or another technical school. And I think we have a good understanding of that student and what their preferences are, and we also found great examples of ways in which we were competing very effectively or in a superior way in markets with very strong community colleges. So that was one of the key elements of our transformation was understanding that competition and how to compete effectively. And I'd say, the bottom line is our graduation rates and our employment rates. And when you put that in perspective, it helps to explain what you'd really get for a good investment and a good education. And so we - I would say that we continue to see that, but our number one competitor right now is the job market. And that continues to be a real competitor right now. So - but again, we're trying to make certain that our messaging is in line with what the students need for themselves today as well as tomorrow. And fast food job is not what they want to do their entire life even if they're getting a good check right now. And so we will continue to communicate both the short and long-term benefits of technical training.

Right. Kim, you mentioned - or Scott mentioned the tuition reimbursement programs. Has there been a measurable change in terms of the percent of students or the level of support that students are getting in terms of these programs? Or maybe I don't know if there's a quantitative measure you can offer in terms of what percent impact on enrollments or revenue per student that has - or not revenue per student but cost per student, rather.

Yes. Absolutely, sure, Peter, this is Scott. And so the number of student - the percentage of students receiving some form of grant or support increased from 41% to 44% in the quarter. That is something that we had in the stages of the transformation when we're analyzing how best to serve our students. We found in a number of cases where the ability to get to the first day, as Kim mentioned, was a challenge. And so we organized ourselves, our sales and marketing teams and our financial resources to create that lever for them. So we did spend a little over $1 million more in the quarter to that - for that support, but we felt like the - but the return for the company and the return for the student was well worth it.

So the 44% Scott refers to the percentage of students that are getting tuition support directly from UTI, not from industry partners, correct?

That's correct.

Okay. And what portion of students are getting - or what portion of fees are covered by tuition reimbursement at this point?

We don't have a percentage of the fees that are covered by tuition reimbursement because it's something that is subsequent to graduation. We just really are reporting on the percentage of employers who are sponsoring it.

Got it.

So that one is a little more difficult to quantify in terms of the amount because it's between the student and the employer.

Sure, got it. But do you see that, Kim, as a specific driver of some of the improvement you've seen recently?

I do believe that, that is a key driver, especially on our field side, because we've engaged industry so much in trying to get them to expose students and families and teachers to what our training offers and what the - a career might look like that they're able to talk about what they would get paid and that they're willing to help them pay their education if they do well in school and they graduate. And so I think that's a very powerful message for a parent to hear and for a teacher as well as the student. And I'm really pleased with our field team out in the high school market and the work and success they'd had with industry days.

And then just one last item. With the inflection back to positive cash flow, what's the thought process in terms of potential further new campus openings?

The - next year, we don't have any new openings. We are going to bring Bloomfield to life and continue on that. And I would expect, as we work through 2019 and 2020, we'll be able to talk about that from beyond. But obviously, there are very good investment, high returns, and we'll continue to look at those opportunities in the number of markets we've already identified.

Sure. And Peter, this is Scott. I'd just also emphasize that we have positioned the company to be able to take advantage of these high-ROI opportunities. And so we feel like with the delivery of the sales and marketing and the student starts and the masteration [ph] of our metro campus models along with our balance sheet and our cash capability, we can be very opportunistic. And so that's something that will be, like Kim said, evaluated over the next 12 to 18 months.

All right. Great. Okay, thank you, folks. Appreciate it.

Thank you.

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.

I'd like to thank everyone for joining us today. And we look forward to reporting our first quarter results in a few months here. And we'll announce the date as we get closer to it. Again, thank you for your interest in Universal Technical Institute. And have a great day.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.