Hello and welcome to Universal Technical Institute’s second quarter 2017 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 for 60 days at www.uti.edu, or through May 15, 2017 by dialing 412-317-0088 or 877-344-7529 and entering pass code 10106031. 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 are Kim McWaters, Chairman and CEO; and Bryce Peterson, Chief Financial Officer. During the call today, we will update you on our fiscal second quarter 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 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 refer 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.

Thank you, Jody. Good afternoon everyone and thanks for joining us on our call. Over the past 50 years we have established UTI as the nation's leading provider of technician training for the automotive, diesel, collision repair, motorcycle and marine industries. Demonstrating our strong track record of results, we have graduated over 200,000 technicians in that time and 88% of our 2014 and 2015 graduates went to work in the fields for which they trained. Through our focus on industry, we have built quality educational programs and very strong relationships with industry leaders such as BMW, Cummins, Ford, Freightliner, GM, Harley Davidson, Honda, NASCAR, Mercury Marine, Peterbilt and Porsche, just to name a few. While student starts were softer than expected in the first half of the year, we have made good progress on our plan to further differentiate UTI by building out our course offering, moving forward with our plan to open additional smaller campuses and optimizing our marketing mix. This progress is especially meaningful as we continue to face macroeconomic and regulatory headwinds. I’ll provide a more detailed update on these strategies in a moment. Over the past several months we have taken important steps to strengthen our financial foundation. The financial improvement plan we implemented in September of 2016 has significantly reduced costs and reset our cost structure. In fact, we now believe we are on pace to deliver annualized cost savings at the higher end of between $30 million and $40 million in fiscal 2017. Bryce will give more detail on the factors supporting this updated outlook later in the call. In light of the softer than expected new student starts in the first half of the year, we have adjusted our marketing strategy further and further enhanced our student support services to achieve our goal…

Thanks Kim. I'll start with a review of our business metrics and then discuss our financial results for the second quarter. Total starts were 1900 compared to 2300 in Q2 of last year. Our average student enrollment for the second quarter was 10,900 compared to 12,200 last year. On a year-to-date basis, average student enrollment was 11,400 compared to 12,700 for the prior year period. At the end of the second quarter, about 38% of the students in school were benefiting from a UTI scholarship or discount, as compared to about 35% in the second quarter of 2016. These scholarships and discounts reduced tuition revenue by 3.5% this year compared to 3.3% in the second quarter of last year. For the fiscal quarter -- or for the second fiscal quarter of 2017 compared to the same quarter last year, revenue was $82.5 million, excluding $4.4 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 $88.2 million in revenue for the second quarter of 2016 which excluded $4.6 million in tuition related revenue. The year-over-year revenue variance was attributable to a 10.7% decrease in our average student population. Total operating expenses were $81.8 million compared to $94.0 million in the prior year period. The $12.2 million improvement is largely due to lower compensation expense and improved operating efficiencies pursuant to the implementation of the financial improvement plan. Advertising expense was $10.7 million for the second quarter compared to $11.7 million for the prior year period. The $1 million decrease is consistent with our strategy to reduce spending in certain channels and our media mix. However the run rate may vary as investment opportunities arise. As Kim mentioned earlier, we continue to evaluate our…

Thank you, Bryce. Over the past several quarters, we discussed our progress on plans to further improve our students' educational experience, to meet our partners’ growing demand for trained workers, to reduce operating costs and ultimately return the company to profitable growth. We remain focused on the following initiatives furthering our penetration of the high school and military segments: moving forward with our smaller campus strategy to expand our national footprint and drive revenue growth; diversifying our offerings to help deliver strong outcomes for our students in a variety of technical career path; expanding tuition affordability options for our student population; adjusting our marketing strategy to drive results; and maintaining a prudent cost and expense structure. We continue to be very confident in the long term trajectory of our business. The demand for trained technicians in the transportation industry remains very strong and the education we offer students provides significant value to both our partners and students. Operator, we are now ready to take your questions.

[Operator Instructions] And our first question will come from Barry Lucas of Gabelli & Co.

How are you today, Kim?

We are doing well; thank you.

Good. I've got several, and the first one I want to start with is maybe a little bit of nitpicking. But in the comments in the release, you’re talking about – or you said that you're encouraged by initial results and changes in the marketing strategy. And I think we've heard -- we may have heard that comment, or commentary like that previously, something wasn't working in the March quarter. So maybe you could just provide a little bit of color if it doesn't hurt you from a competitive standpoint, and just identify what's working and what's giving you the encouragement that we're going to see start growth and the half that has started?

Thanks for the question and I'll try to provide some context. I think what we've seen in the quarter in terms of student starts reflect the challenges that we've talked about on the previous calls and the marketing challenges we discussed in first quarter. During the second quarter we made significant changes to our marketing mix and moved away from some of those underperforming lead sources that did not convert at the levels we had expected. By the end of the second quarter, our marketing mix and strategies have been effectively deployed and we are encouraged by what we're seeing in the marketplace in terms of our inquiries from a volume standpoint and a mix to a higher quality source. Now we won’t see the benefits of those changes in subsequent quarters, because there is just an inherent lag between the point of inquiry to the time those students actually convert to applications and then to start. But I am encouraged with the mix we have moved our marketing mix from more of a, I’d say, digital focused to include more traditional and heavier weight on television. And so far we've had positive feedback from the campuses with those changes in the local markets.

And just maybe one for Bryce here. Since – I just want to make sure I’ve got this right. Your outlook for the full year at the operating income line -- if I have that right, the operating income line would be roughly breakeven plus or minus $1 million.

That’s correct.

And if I look at for the six months, and additional cost savings and a little bit more maturity at the Long Beach campus, you’re suggesting that operating income is down materially or certainly below the first half levels, so what’s contributing to that?

So as we've talked about before, while our expenses are relatively flat quarter over quarter -- not perfectly but certainly much more so than revenue, our fiscal third quarter is generally a much lower quarter from an average student population perspective. And so as we have greater numbers of students graduating and shorter number of students starting, then that puts pressure. And so that's where you're going to see some of the year to date numbers start to degrade a little bit as we push into the rest of the fiscal year and that swings background in the fourth quarter.

[Operator Instructions] Showing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Kim McWaters for any closing remarks.

Well, I would really like to thank Barry for dialing into our call and for the questions and are happy to follow on after this call. I know a number of companies are reporting at this time, so Bryce and I stand ready to visit with analysts and investors. But meanwhile thank you for your questions. Barry and –

Ms. McWaters, we did have a question come in. Okay, thank you. We have a question that came in from Ken Jacobsen, a private investor.

Thank you. Afternoon folks. I have a general question for general discussion, that's tuition. What I'm wondering is what type of analysis and/or research has gone on in the past relative to tuition and student starts and student population? And what I'm driving at is rate volume -- as rates go up the tuition goes up, your volume tends to go down, basic ECON101 versus lowering tuition and driving in student volume. Just kind of looking from the side it just seems like if you could lower tuition you could drive in more students and get a lot of benefit on a fixed variable cost structure, utilization of campuses et cetera. And sort of babbling on here but basically just wondering about tuition and where it may be going in the future?

Well, it's a very good question and certainly we've spent quite a bit of time looking at the tuition and enrollment and start rates and have done some formal research as well as have tested a number of different programs – scholarship, most recently the institutional grant and are also looking at varying program lengths and price points to determine if there is something that will motivate students to show to school and complete at higher levels than we've seen in the past. I think we've done a lot of work on scholarship levels and we're comfortable with what we're doing on that front. We have been encouraged with the institutional grant that I spoke of earlier that has launched inside of the third quarter and we're testing various levels in student responsiveness to these levels to drive different behaviour. And I think we'll be in a better position to report on that in the next quarter. The shorter programs and the new programs with welding and CNC are at lower price points and we will determine interest in that again during this next quarter as we roll some of these programs out and have the official start. We have done a ton of modeling to look at various tuition reduction strategies and have evaluated whether or not that would be offset with volume and enrollment and have chosen to do targeted support through scholarships and institutional grants and varying program lengths that I think we will again be in a better position to report on next quarter. End of Q&A

And once again Ms. McWaters I am not showing any additional questions at this time.

Okay. Well, thank you again and we appreciate your time and interest in Universal Technical Institute and we look forward to speaking with you about our third quarter results and that call is currently scheduled for August 3. Have a great day everybody .Thank you.

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