Hello and welcome to the Universal Technical Institute’s Third Quarter 2015 Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. A replay of the call will be available for 60 days at www.uti.edu or through August 20, 2015 by dialing 412-317-0088 or 877-344-7529 and entering the pass code 10069922. At this time, I would like to turn the conference over to Mr. John Jenson, Vice President Corporate Controller of Universal Technical Institute. Please go ahead, sir.

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 third quarter and then we will 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 will 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 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, depreciation and amortization. The schedule provided in the earnings release reconciles EBITDA to the nearest corresponding GAAP measure, net income. And now, I would like to turn the call over to Kim McWaters, our Chairman and Chief Executive Officer. Kim?

Thank you, John and welcome to the call everyone. As we continue to see growth in the demand for UTI graduates, so have we seen greater career opportunities for our students and more employers willing to help them pay for school. This quarter we maintained our intense focus on rebuilding our student population to meet that demand. While making thoughtful investments in our gross strategy balanced with our ongoing work to manage cost and deliver operating efficiencies. I’m pleased to tell you that even in this tough environment our strategy is taking hold and driving recovery in many of our key front end metrics. Our primary objective during the quarter was centered on one thing, reversing the downward year-on-year trend in new student starts with the goal of delivering start growth in the second half of the year. I’m happy to say that after many quarter of decline we did see the trend turn around in the third quarter with new student starts relatively flat to last year. With the launch of our new campus slated to open this month in Long Beach, California, we remain cautiously optimistic that we can achieve new student growth in the fourth quarter. And while it’s currently too close for us to declare victory, we’re working hard to get there. Let me share with you at a high level the things that are helping drive our recovery as well as some of the challenges that may get harder to execute as fast and consistently and efficiently as we’d like. Over the last four quarters we’ve seen an improving trend in new student increase, applications and starts. With third quarter increase and application down just slightly and new student starts flat year-over-year. Total advertising expense for the quarter was approximately 14% of revenue up from…

Thanks, Kim. As a reminder this is typically our weakest quarter of the fiscal year from a revenue and earnings standpoint. With that said, we ended the quarter with an operating loss of $4 million as compared to operating income of $1 million in the same quarter last year. Third quarter operating income was negatively impacted by preopening cost for our Long Beach campus of $1.4 million and severance charges of 400,000. We began the quarter with approximately 1,400 fewer students than we had at the same time last year. Now, despite fewer students scheduled to start in the quarter an improvement of 600 basis points in our share rate enabled us to achieve flat starts this quarter than the prior year. The combination of a lower beginning student population and flat new student starts led to an overall decline in average student population of approximately 9.7% versus last year’s third quarter. The lower student population offset somewhat by higher average revenue per student led to revenues of 85.1million in the quarter which were down 6.8% from last year. The average revenue per student was up from $6,800 to $7,000 per student. Tuition excluded, $5.1 million in the quarter related to our proprietary loan program compared to 5.6 in the third quarter of 2014. And as a reminder we’ve recognized revenue from this program only when we receive cash payments. For the first nine months ended June 30, revenues were approximately 272 million which is down about 4% compared to 283 million for the same period of last year. So for this year tuition excluded 16.5 million related to our loan program compared to 18.4 million last year. Advertising expense was 12.1 million which was up from 9.1 last year and as a percentage of revenue it was 14.2% for…

Thanks, Eugene. In all we’re very pleased to see the progress we made in the last quarter. Yes, we’re still in the tough environment and we would certainly like our progress to be faster and smoother. But we are making progress, our strategy is taking hold and we believe we’re on the right track to deliver for our students, our industry customers and our investors. And now operator I think we’re ready to open the line for questions.

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] First question comes from Peter Appert from Piper Jaffray. Please go ahead.

Hi, thank you. So Eugene, couple of questions on the Long Beach campus. Just wanted to confirms, you said fourth quarter impacts specifically for the startup is 2.8 million to 3.2 million, is that correct?

That’s correct.

Okay, would that suggest that you’re probably going to be very close to breakeven or maybe in negative territory in terms of overall profitability in the fourth quarter, does that sound right?

That’s within the realm of possibilities, yes.

Okay and then can you remind me of just in terms of how the economics on new campus work in terms of the ramp?

Well, it’ll ramp up to be accretive to - we need to get to about 300 students on average for a quarter to be at accounting breakeven. So we would expect to hit that towards the later part of the first quarter of fiscal 2016. So I would say the first quarter will be close to breakeven and then accretive going forward from a P&L standpoint. We’ve always said we expect it to be - a new campus to be cumulative for cash breakeven somewhere in the second to third year.

Okay and that would imply then you should see a fairly significant inflection in your free cash flow in fiscal ‘16, is that fair?

Can you define what you mean by inflection?

A fairly significant step up in what the free cash flow number would look like next year.

Yeah, certainly it’s starting with the second quarter of 2016, the Long Beach campus will be net accretive to the ongoing cash flow that’s generated from, I’ll call the legacy of 11 campuses. So yes, it will start adding to whatever our cash flow position is in - certainly in Q2, potentially in Q1.

Do you have any thought -

I take that back. It will absolutely add to it in Q1 as well assuming that the student start at the pace that we believe it will.

Got it and do you have anything on the drawing board beyond Long Beach at this point that you can talk about?

Nothing to talk about, we’ve mentioned on past calls that we certainly believe in getting the campuses and the education closer to the consumer in more of a metro models, smaller type of campus like we have in Dallas and Long Beach. We are working on where a 13th location might be, but it’s premature to say where that would be at this point.

Okay and are you able to give specific numbers in terms of what the employment rate is this year versus last? You said up 1%, I’m wondering what the actual placement rate is and the average starting wage is?

Yeah, we don’t give it intra year just because it confuses people because of pacing, but I can tell you we’re - last year we finished at 88% and we’re on pace to surpass that this year from a consolidated basis. And I apologize I forgot the second part of your question.

It was on the wage rate.

Well, the starting wage rate. Remember we have several different curriculums, but the wage rate has been improving in the auto diesel curriculum which is our largest curriculum by - I believe it was about five percentage points on a year-over-year basis.

Okay great and one -

I’ll say it another way, wage is raised by about 5%. I believe the BLS data specifically for auto technicians, starting auto technicians range from about depending on the part of the country, $28,000 to $33,000, so that’s slightly dated, but you can do the math and figure out the order of magnitude there.

Got it and just one last thing, maybe Kim, the - it sounds like you’re feeling a little bit more optimistic on the underlying trends, but some of that I guess is currently the cost of the step up in advertising spending. I’m wondering if you have any just further thoughts on what seems to be this disconnect between the very attractive employment dynamics your students faced and the difficulty you’ve had in getting to the positive start numbers.

Well, I think for the past several years we’ve been talking about the negative headlines and certainly that does weigh on consumers, families, educators in terms of their influence over perspective students. So that as a macro factor still exists. I think we’ve seen behavior changes between - with the age group of 18 to 24 year old shifting more towards online and away from television and we have noticed that as they moved more away from television that it has been more difficult to get the younger students unless we are in the high schools in those markets, so we’ve seen some deterioration there. The demand for our graduates looking back over the last several decades is not correlated with front end enrollment as much as we would like, so I think that that’s just part of the model. It’s just more complex and compounded by the environment that we’re operating in. The other thing that we talked about on other calls is that the access to students has been restricted in the high schools and on military bases in ways that we’ve not seen before. So we are trying to reach this audience through the traditional methods such as TV and digital advertising as well as event marketing and we continue to have a strong presence at Monster Gym events and Supercars events where we can reach the young enthusiasts as well as the things that we’ve been talking about over the past several quarters about engaging industry in our employers and future tech events where we’re holding large gatherings of high school students and their families and educators and an employer’s place of business. In addition we’re bringing employers and our industry partners into campuses not for what I call a traditional career fair, but for an…

Yeah, thanks Kim.

And the next question comes from Jeff Silber from BMO Capital Markets. Please go ahead.

Hi, good afternoon, it’s Henry Chen going in for Jeff. You touched upon this a little bit, but I was wondering if you could speak a little bit more to what’s driving the improvement in the number of starts that you’ve seen? Is it corporate related or is there anything specific that you’re doing that you could maybe touch upon? Thanks.

Well, I think as Kim mentioned things at the front end is the final in terms of communicating the opportunities for a career as an entry level technician or beginning to take hold as not only we continue to market but through career fairs and through the demand of the ultimate employers. So that is helping interest. I think from a ability to execute better we have as we’ve talked about in the past invested a lot of money and time in our systems and our processes to meet students and service students and some of it quite frankly is our newer campuses that help get out closer to the consumer. I think part of it is economic, part of it is our ability to execute and part of it is the awareness of the demand and what these careers can generate for a student that is not interested in going to a traditional four year liberal arts college.

Got it and what percentage of starts for the quarter were from high school versus some of the recent corporate partnerships that you’ve announced and launched?

The high school and military starts which we kind of combined for the quarter were about 40% of total starts. Obviously this coming quarter be a significantly higher percentage as our fourth quarter is traditionally, probably 70%, 80% high school students, high school and older.

Okay and the other 60%?

Well, that comes from the adult - what we would call the adult or the career changer channel, somebody that has traditionally been out of high school for greater than a year.

Got it, okay. Thank you.

You’re welcome.

[Operator Instructions] Next question comes from Corey Greendale from First Analysis. Please go ahead.

Hi, this is Ken Wang on for Corey. Thanks for taking my question.

Sure.

So just to begin, one thing I was looking at. It looks like the retention rate has been now sort of on a negative trend for this quarter and the prior quarter and then before that it was either flat or kind of on a positive trend. I’m just wondering what is kind of your view on that, going forward what’s that driving that and maybe what can we expect going forward.

Yeah, I would say it’s actually on a slight tick up this quarter from this quarter last year. So I think you need to be cautious about comparing it on a link quarter basis because of the - the great disparity in seasonality of when we start student. So I know something is look one way on a link quarter basis versus a year-over-year basis, but the persistence this quarter was slightly better than it was this quarter of last year. That said, it’s still not as strong as we would like it to be. So continued effort on trying to work with students prior to or as life changing events happen or getting them the right type of tutoring wherever necessary or being early to identify what might make them a candidate to leave school for whatever reasons and see if we can appropriately accommodate whatever that is. If they can’t do the work, that’s a different story. We don’t want people staying in school that can’t do the work, but those that can be successful and need some type of accommodation, it’s trying to insert ourselves into that process and provide the support as early as possible.

One of the other things, if I could just add to that is as we focus more on local markets and the students are within close proximity to our campus, they will tend to show to school at a higher rate, but they can be more easily distracted and so especially through the economy like that we’ve seen, out teams are very focused on ensuring that not only are we showing more students to school, but we’re retaining them and we need to continue to focus on that local opportunity. Students who relocate hundreds of miles are less likely to check out of school for a couple of weeks or take a break whereas the local ones it’s easy to do. So I think some of that was a mix in population as reflected in that, but the teams very focused on it and lastly I think there’s real opportunity there as we move into the next year or so.

Okay, sure. Thank you. That’s very helpful. And then sort of just looking at the pressure in just getting starts back to obviously where you would want them to be, it seems like really you’re kind of facing two pressures which are the negative media coverage on one hand and then on the other hand kind of pricing. And I guess what I’m wondering is sort of more on the pricing side, do you have any thoughts on kind of increasing scholarships or trying to do something on pricing just to encourage greater starts and greater overall enrollment.

Yeah, if I can let me talk a little bit about the strategy to engage the employers and our industry partners at a much greater level. Again in the past we talked about the demand for the graduates being so strong that employers are willing to reimburse them for their education and/or sponsor them. Historically that level of support has been offered to graduates as they consider a future employer, because the demand is so great and the need is strong across the country, the employers more than 2,000 of them as mentioned in our prepared remarks are partnering with our campuses and offering students in those areas to consider working for them and if they do they’re willing to support their education through our tuition reimbursement plan. To me that is the most important strategic change that we’ve been to implement and I believe it’s in its early stages at this point over what you might see elsewhere with scholarships and such. We do have those, in fact we - we put a lot of focus on understanding where scholarships make sense for the students who need it based financial need as well as on merit. And we don’t believe putting additional scholarship money out there at this point is the answer, it is engaging the support of industry and we’re very pleased with the way industry has stepped up. That sort of information to our admissions team is being distributed and they’ll be trained this summer as we go out into the high schools. I think it will be another key strategic differentiator and certainly of good assistance to our perspective students.

Okay, great. Thanks so much. That’s all I had.

Thank you.

Next question comes from Peter Appert from Piper Jaffray. Please go ahead.

I was hoping Eugene or Kim, could you give us an update on the legal and regulatory situation particularly any comments on the spin [ph] you got US attorney?

Sure Peter, unfortunately the update is nothing more than what we’ve already said in the 8-K that we released and I think for those of you that have interest about that you should assume that when we have something to report we will report it through the normal channels, but until that time we’ll continue to cooperate and meet whatever request the government might have, but we won’t really be providing any comments beyond that.

Okay, gaining full employment I can’t remember. I think you didn’t any failing programs, is that correct?

Are you talking about the kind of draft data that the department released?

Yeah.

That is correct. We had no failing programs with the [indiscernible] that that was some out dated information. So we eagerly await the release of the new information.

And anything else Eugene that you would call out that we should be thinking about in terms of regulatory environment?

Well, it’s still a very focused regulatory environment whether it’s the Department of Education or states, but there’s nothing that I would specifically point to. I will mention that since you raised it, you will see in our queue an update to our 90/10 calculation. The essence of the update is that we recently revised our methodology about what is really a very highly technical manner in which we treat stipends that are awarded to a student with a very specific set of circumstances. So to be transparent, we included detail about that change in the queue, but what I think is important for all of you to keep in mind is that we’ve remained well below the 19% threshold with all of our OPIDs [ph]. I think the range is 72% to 75%, but other than that there’s nothing that I would say is out of the norm or that we have to be conversing about from a regulatory standpoint.

Right, great. Thank you.

That concludes our question-and-answer session. I’d now like to turn the call back over to Kim McWaters for any closing remarks.

Thank you very much everyone for joining our call. We appreciate your time and interest in Universal Technical Institute and we look forward to our fourth quarter earnings call which is currently scheduled for December 1. Have a great evening.

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