Good afternoon and welcome to Universal Technical Institute's Fourth Quarter 2014 conference call. [Operator Instructions]. 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 will review the results of our fourth quarter and the full year 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 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 the 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 Officer. Kim?

Thanks, John. Hello, everyone and thanks for joining us on the call today. For nearly 50 years, Universal Technical Institute has stood for success for our students and for America's transportation industry. We've given our students the quality education they need to build careers they love. We've trained the skilled employees our industry partners and our economy need to thrive. We've championed America's middle-class and helped our graduates find their own American dream and while 2014 was a challenging year for our business, it did nothing to dampen our resolve or curtail our commitment to our students and the industry leaders who employ them. We stay true to our purpose and we have used these difficult times to create a business that is leaner, smarter and poised to capitalize on the eventual recovery in our sector. So despite the difficult cycle and year, I'm pleased with the progress we've made in a number of areas. I continue to feel confident about our business overall, the strength of our strategy and our ability to produce solid results. I believe in our purpose and our people and know that after being in business for 50 years, UTI continues to be fundamentally strong. We're an industry leader with a recognizable and respected brand. We have a sound balance sheet with no long term debt, a solid management team and a culture of integrity and compliance. Leading manufacturers and the transportation industry have chosen to partner with UTI, MMI and NASCAR Tech. They rely on us to train the highly skilled professional technicians they need. Our extensive industry partner relationships provide resources that help us give students an education that is both current and relevant and aligned with employers' needs. We're widely known and respected for our student outcomes, for providing students with a…

Thanks, Kim. Our continued effort to control costs as well as an increase in tuition per student, resulted in operating income of $3.9 million for the quarter, a meaningful improvement compared to the operating income of $1.4 million in the same period last year, an improvement which is consistent with last quarter's guidance. We began the quarter with approximately 400 fewer students than we had at this time in 2013. With a 60 basis point decline in show rate, we experienced a drop of 7% in new student starts, also consistent with our previous guidance. Lower student populations, slightly offset by higher-average revenue per student, led to revenues of $95.3 million in the quarter which were down about 0.5 a percent from last year. Average revenue per student was up slightly from $6600 to $6800 per student. Tuition excluded $4.8 million related to our proprietary loan program, compared to $4.1 million in the fourth quarter of 2013 reflecting continued difficulties for students and parents to secure financing for their education. As a reminder, we recognize revenue from this program when we receive payments. Revenue for the full year was $378 million which was also down about 0.5 a percentage point compared to $380 million in 2013. Our work to balance the quality and quantity of inquiries resulted in a slight increase in advertising expense which was $9 million for the quarter. As a percentage of revenue, advertising expense was 9.4% for the quarter and 10.4% for the full year both of which were slightly higher than the rates for the same period last year. 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…

Thanks, Eugene. Looking at the quarter, both inquiries and applications were down approximately 20% compared to the prior year. Inquiries were down year-over-year due to the lingering impact of the TCPA language on our inquiry conversion, increased competition and related costs as well as some creative wear in our primary television spot. Enrollment applications were certainly impacted from a difficult inquiry acquisition environment, but also recall that we increased our registration fee last March which makes the year-over-year comparison more challenging. We expect that to continue until April before seeing application growth through the second half of the year. Looking at student demand from a bigger-picture perspective, the unemployment rate is forecasted to decline in 2015 and 2016, but at a lesser rate before stabilizing. While this remains a headwind for UTI, we also see opportunity. A recent Bain & Company study estimated that in the sector we serve more than 30% of the population is either unemployed or underemployed. We believe that the farther we get from the great recession and the longer perspective students are in low skilled, low-paying jobs, jobs that they took out of desperation, the more likely they will consider an education that can improve their career opportunities. We also know that consumer confidence is improving. Incomes are starting to rise, household equity is improving and consumers are beginning to borrow again. Following the recession, millennial students have been postponing major life decisions like home ownership, marriage and education but that will eventually catch up. One thing we know for sure is that millennials want to be happy and that means they won't settle for a dead-end job for long. Our new, multifaceted for-success campaign will encourage prospective students to pursue their dreams, a career as a technician versus a low or no-skill job they…

Thanks again, Kim. While we're working to attract and start more high-quality students, we also continue to focus on ensuring our product is available where our students want and that it delivers substantial value and prepares our graduates to meet industry's needs. We're also continuing in our efforts to manage the business efficiently and to reduce costs where appropriate. We're now teaching our new state-of-the-industry blended learning curriculum at our Avondale, Dallas and Sacramento campuses, with efforts underway to roll out in conjunction with our diesel expansion at Orlando in early 2015. We’ve broken ground on our new campus in Long Beach which is scheduled to open in late summer 2015. This campus will be located in close proximity to Long Beach Airport, with access to numerous major freeways and will be approximately 140,000 square feet. As Kim mentioned, we'll offer auto, diesel and collision repair at this campus and it's designed to accommodate approximately 800 students over 2 sessions. The campus will be operated on a similar business model as our Dallas campus which is operating at full capacity and has proven to be a very successful model for us to reach more students. This location will predominately serve a commuter population, allowing students to work while going to school without the cost of relocating to an existing campus. We believe this new campus will complement our Rancho Cucamonga campus and help us fully optimize our current marketing investment in this very sizable market. Our expectation is that the campus will be accretive to operating income approximately six months after opening and we will recoup our original cash investment within approximately three years of starting the project. Similar to Dallas, this additional Southern California campus will enable us to provide convenient access to prospective students already being reached and…

[Operator Instructions]. Our first question comes from Corey Greendale, First Analysis.

First of all, I apologize if I missed this; I just had a couple quick numbers questions. Kim, did you say both inquiries and applications were down 20% in the quarter?

Yes, I did.

Okay. And did you give a split among your end-markets, the high school and young adult?

No, I didn't. I can tell you that for the quarter, from an application standpoint, we saw a larger decline with the adult population, primarily concentrated with our motorcycle program. Our high school was down in the mid-single digits, as well as our military team was down. I think, as I said in the comments Corey, the application decline is certainly driven by a difficult or challenging inquiry acquisition environment. But you also have to recall about the registration fee. And as we lap that timeframe in March and April of this year, we'll see less pressure on applications. As we raised the fee, it made it -- I suppose that we wink out some of the lower-quality, non-interested students.

But you are not rethinking that application fee?

Actually, we believe we are in the right range at this point in time, especially given the significant improvement we've seen in our show rate for those who register at a higher fee. So while we tested it, we think that the higher registration makes perfect sense and we're pleased with the results that we are seeing and I think that's reflected in the show rate for the quarter, with only a 60-basis points difference from the prior year.

Okay. And then again, Eugene, I apologize if I missed this. I understand the guidance is excluding the start-up cost. Did you say what the start-up costs are expected to be?

The start-up costs, Corey, will be in the neighborhood of $5 million to $6 million on a pretax basis. And that's the combination of personnel and non-capitalized equipment. But that will be the P&L impact.

And are there any quarters where that's concentrated or should we assume it ramps as the year goes on?

It will ramp, but it really won't start meaningfully until the second half of the year.

And it's a similar ramp to the Dallas campus; wouldn't you expect the Long Beach campus to break even in fiscal '16?

What we said was, it will be breakeven from an accounting perspective in 2016, yes. From a cumulative cash flow basis, it will probably take it until 2017.

And if I'm remembering right, you changed the way you were compensating your admissions people, is that right? Can you talk about any impact that you had either on turnover or on productivity?

We haven't really changed the compensation significantly. The most significant changes were several years ago but certainly it's impacting results, as we've talked about in previous calls. But there is nothing that I would say is contributing to any of the application variance inside of this year that's related to new changes in compensation. As far as retention, I think our retention of representatives continues to be strong. Obviously we had some changes in the territories and we reduced the number of reps in the previous quarter, as Eugene mentioned. But that was largely driven by the investment in technology with our new CRM system and given that investment, we are seeing improvement in efficiencies especially as we move into this fiscal year.

It's fair to say that you would attribute the decline in new students to a combination of the regulatory changes, the economic environment and the registration fee or the application fee not to your internal compensation changes?

That is correct for this period.

And just one last one for me, philosophically, what's the thinking behind opening your next new campus within driving distance of another campus, as opposed to a more greenfield or totally distant market?

Well, as a native Southern Californian, I can tell you that while it is driving distance, it takes about the same time to get from Long Beach to the Ranch as it does Houston to Dallas. I'm exaggerating a little bit. But the logic there is simply that as we look at where our applications are coming from where our student interests are coming from, we see a tremendous amount that the new campus will serve that are not able or willing to make the drive on a daily basis which could be up to three hours round-trip maybe more to the Ranch and/or relocate. So it's a location of obviously tremendous size, tremendous demand from a student interest standpoint and tremendous employment need from our industry partners there in the -- I'm not sure we're going to end up calling it Long Beach but that kind of Long Beach, Greater South Bay, western side of Southern California, even going down the coast toward San Diego and Camp Pendleton.

Our next question comes from Jason Anderson at Stifel.

On the expenses and thanks for the color on the workforce reduction, as well as the new campus operating expenses. Just so -- you're talking a reduction, $9.5 million on the workforce reduction and then the incremental on the new campus. How should we think about any other expenses? I know you're talking about some new programs or the diesel expansion -- I don't know if that's included in that, too, but is there other expense pushes and pulls in 2015 that we should be thinking about?

Well, there is normal inflation. Whether that is people cost, in terms of merit or cost of living increases. But in terms of significant items like new program expansion anything like that that's incorporated into the guidance that we gave you.

And then you referenced later on updating us on potential other further campus expansions. I know you're not going to pinpoint times, but how should we think about the speed of expansion? Should we expect your typical process here in length of time between or are you looking to accelerate that or how should we think about that?

I think it's fair to say we opened Dallas in summer of 2010 and we're going to open Long Beach summer of 2015. Dallas was a new model for us that we proved out and at the same time, we were rolling out new curriculums. I think the success of Dallas, the success that we expect in Long Beach, what we know about our marketing and our ability to leverage both our national advertising and our national footprint, I think it would be wise to expect us to roll out campuses much more quickly than that five year span. They are still obviously heavily capital-intensive and human-intensive to roll out. So I don't think you could do many more than a small one or two a year, but I would expect us to probably announce another campus sometime in 2015 with an opening in 2016.

And one other here, I know you've been talking about the diesel program in Orlando and I think you referenced some other programs. Can you quantify or is there other program expansion you're expecting to be impacting 2015? And if so, is there any way you could frame that like either number of programs or contribution?

I don't think there's anything other than Orlando that we're ready to discuss at this point. We're looking at some other very similar-type programs. But in all likelihood, they wouldn't have a significant impact on 2015 either because of the start-up time, the regulatory approval if it's a new program or if it's a manufacturer-specific program, just the time to get the graduates through and enrolled in that program. I think you'll probably hear us talk about the opening of some of them, but in terms of their impact either as a drag or starting to see some revenue I don't expect much either way in 2015. Obviously, the exception would be any acquisition that we might do.

The next question comes from Peter Appert at Piper Jaffray.

So Kim, I look at your numbers in terms of great placement rates, great income levels for students, strong employer demand, it doesn't really fit all that well with the weakness in inquiries and enrollment. Would you attribute some of it to just competitive issues and this broader issue that your price point is quite high and that scares off students?

I understand the disconnect from demand and it's frustrating to us internally because we know the opportunities are so strong not only in terms of just jobs available, but also the willingness of our partners to support the cost of tuition, cost of education, so that these students can get the job. I think one of the issues is certainly getting the attention of students who are working in what might be low-skill or dead-end jobs. They're not tuning into the message yet which is the driver for some of the changes that we're making inside of 2015 with our marketing campaign and the way that we interact with them. The second thing is from a cost standpoint, I think we have tested a number of things to help the students understand the value of our education and how to fund it through various scholarship programs and now with the employer-sponsored or tuition reimbursement programs. And as we evaluated our scholarship program, we understand the level of scholarships that we should be providing students and at what point it doesn't really make a difference for them, in terms of application and/or showing to school. We believe we have that balance and therefore wouldn't be driving total I would say, wholesale cost reductions, but we’re looking at program configurations that allow students to take some shorter programs not significantly shorter, but we’ve that in the mix right now. And what we discover is the students despite having to pay more, typically want to take the longer program. They want to get all of the training that they can get. So while we're changing up the core structure and offerings to make it more affordable, students are still selecting the longer programs that actually cost more, believing that it gets them a better job on the back-end. I agree there's a disconnect, we're working hard to make certain that we’re able to communicate effectively with students and those key influencers and try to overcome some of the negative headlines. As I said, we're at that point in the cycle where people especially the millennials will get tired of being in these jobs. And they'll start saying, I'm not going to flip burgers for the next 50 years. I'm going to start looking at education and inside of this year, we'll be playing to that mindset and I hope to see that change again as we move into the first part of the new calendar year and later into our fiscal year.

Eugene, is there anything you would call out in terms of just thinking about the quarterly dynamics and the start numbers? I ask this in the context of I think in the first quarter last year, the number was particularly weak because there was timing issues in terms of number of start dates and that got me thinking that your expectation of negative first half starts followed by positive second half starts and it seemed like maybe the first half should benefit a little from last year's calendar issue. If I've got something wrong on that?

No, the calendar is basically the same this year as last year, so there is neither an easy comp or a difficult comp, they're similar comps. The fluctuation in the quarters will be similar to what we have seen, in terms of the percentage of the full-year starts being within each quarter. You'll see a strong in terms of order of magnitude, first and fourth quarter and weaker second and third quarter starts. So the guidance in terms of second half is more in terms of what we see in the pipeline in terms of contracts already written and in terms of expectations of what our admission teams are doing. Nothing that is calendar related.

And then last thing, Eugene. Would there be any campuses that you would call out in terms of having disproportionately large negative impact on profitability in terms of utilization? And have you thought at all about perhaps campus consolidation as a way to address that?

Well a couple questions there. We're always looking as appropriate and when available to right-size our campuses and I think, including the Long Beach campus, the last couple that we're doing -- and even in Lisle, when we moved to Lisle, we down-sized that campus somewhat. I think you will continue to see us do that as leases come up. No campus is a drag on contribution. The Boston area campus is no surprise, we've talked about that before, Norwood. It is the least populated, but it's still covers its costs and contributes a little bit to overhead. If its lease were up today, we would certainly be looking to reconfigure it size-wise, but I think that's normal. And I will tell you our Houston campus which is up for lease in 2016 we're looking at how best to right size that whether it stays where it is today or moves to another location. So I think that's more the process that you will see rather than some consolidation because honestly, consolidation is not what we want to see. We want to see more locations, smaller locations rather than less and fewer locations.

[Operator Instructions]. And our next question comes from Jeff Silber at BMO Capital Markets.

One of your larger competitors, WyoTech obviously the company that owns them is going through some issues. I'm just wondering if you've seen any impact on your business, accordingly?

I think the impact we've seen has just been negative headlines and those who interpret what those headlines might mean for others in the sector and so we're dealing with those just as everybody else is. But I wouldn't say that there is any negative impact, it's headline news that we're trying to battle through and make certain that we stand apart from those who might be in the headlines.

I was actually asking in a positive light, do you think that maybe you have been able to obtain some inquiries and applications that might have gone to those schools?

I think it's difficult to say. Certainly in the areas where we had schools closely located formerly in like Sacramento market, we certainly saw that. We've seen some inquiries related to those markets certainly in the Southern California area, but nothing that I would say is significant driver for increased applications or interest, I think just given the market differences.

Jeff, I think you've seen a couple of personnel pick-ups especially on the admissions side. As you can imagine, that environment is pretty volatile, where we've had some relationships and know some quality people there, we have been successful in recruiting them, but that's a handful, not a sizable amount.

And just a few numbers questions, can you just remind me what the application fee is?

It's $50.

$50. And you're planning on keeping that the same for this coming year as well?

Yes.

And I know you called out the preopening expenses on the Long Beach campus, but I'm just curious. Are there any incremental revenues that you're including in your guidance for this year?

No. Nothing from Long Beach.

Nothing from Long Beach. Okay, great. And also, can you just remind me, what's your total capacity currently?

Of students? Is that your question? How many students if we were full?

Yes.

Assuming that we didn't add sessions, the current course offering, we're probably consolidated at about 50%. We could overtime, double in size.

Our next question comes from Trace Urdan at Wells Fargo Securities.

Kim, I'm wondering what you can tell us about trends in the automotive repair market more generally. Is there anything about that job that is changing or making it somehow less desirable than it used to be?

Well, I think there are still stereotyped images that have to be overcome and we're working with the partners to change that, but if you talk with some of the OEMs what they will say is that there is less interest in younger people and the relationship with the car and that, that has disconnected people from wanting a career working on the car. It's been replaced by digital mobile technology, versus the car through community. There is some debate over that given that millennials are postponing all kinds of life decisions including getting their drivers license. So I don't know if that's actually working against us. But if you look at the environment, everything from my perspective and what we're communicating with students, has improved. The work environment has improved. The opportunities in terms of the technology versus the mechanical side of it, wage opportunities and I think over time, the stereotype is beginning to change. So I'm not certain that I understand exactly what's driving less interest in automotive technician or automotive training, as Google is reporting. But we're working hard to change that by giving students exposure to what that career is. And if I can just add on to the Long Beach conversation, about a month ago, we held a Future Tech Night with Longo Toyota, the world's largest automotive retailer, certainly for Toyota vehicles and this is in the Southern California area. And what we did is, we invited future students, high school administrators, counselors, teachers, adult prospective students in that market and graduates, all working at Longo Tech. And we hosted them that evening and they heard from their service managers, former UTI graduates who are successful there, and it really educated them about what the environment is like and what the opportunities are as well as the type of support coming from employers to get this type of education to better prepare for that career. So that's an example of how we're trying to educate people and change stereotypes. But it still seems to be a battle right now to get their attention on the matter; just given they're working and not considering education at this point in time at the level we would like.

I know you've had these programs in place for a while, I'm not sure that I know really in detail what they involve, but can you talk a little bit more about the STEM instruction that you provide to high school students and what exactly the points of connection are between you and the high schools?

Sure. So what we’re doing is helping high school instructors who have automotive shop classes or small engine classes understand how much STEM content is really included in these courses and I'll call it certifying the STEM content in these courses so that they can get funding for the courses, they can be considered as part of the required courses for students to graduate. STEM is certainly something that the country needs and that is top-of-mind for educators and we're helping to ensure that those key elements are included in these vocational educational programs, so they actually continue to exist at the high school level. So what we do is we bring in instructors and counselors to a campus, we educate them and teach them how to quantify the STEM content and then they can go back into their classrooms and back to their districts to secure funding to keep those programs alive.

Do you do any work like that at the district level?

We do it at district. Yes, we do and it depends on the state that we're working in. In some areas we've had more traction than others. But I would say we are hand selecting high schools in districts where we know we're making a difference and continuing to invest in those. We've had hundreds of instructors go through this as well as counselors, and that obviously creates greater value for the students in high school and exposes them to the type of training that UTI offers as well as the career opportunities beyond our training.

Have you found it allows you or that it leads more directly to your ability to recruit those students at those high schools?

Yes we have, definitely.

[Operator Instructions]. Seeing no further questions, I would like to turn the conference back over to Kim for closing remarks.

Thank you, Amy and thank you all for joining us today. We appreciate your interest and questions in Universal Technical Institute. We look forward to updating you on our first quarter in the first part of February. Have a great evening. Thank you.

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