Hello, and welcome to Universal Technical Institute's Second Quarter 2018 Conference Call. [Operator Instructions] At this time, all participants are in listen-only mode, and after today's prepared remarks, we will 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, 2018, by dialing 412-317-0088 or 877-344-7529 and entering the passcode 10119697. At this time, I'd 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 thanks for joining us. With me today are Kim McWaters, President and Chief Executive Officer; and Bryce Peterson, Chief Financial Officer. During the call today, we'll update you on our fiscal second quarter 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 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'll refer 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 or loss. Before I turn the call over to Kim McWaters, I would like to inform you, UTI has provided a presentation that supplements today's second quarter 2018 financial results discussion. It can be accessed from the Investor Relations section of our Web site at uti.edu. 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. I'm excited to review recent trends and plans. There is growth demand across the nation for trade and technical education, in part due to a shift over the past year or two, a national dialogue about education's role in workforce development. In a country where over 40% of recent college graduates are underemployed parents, students, and increasingly policy makers are moving from a mantra of college for all to a focus on the skills needed to perform in the workplace. Two trends are driving this change. The first is a strong economy that has exacerbated a significant skill shortage, particularly for skilled trades and other technical occupations. These good jobs are going unfilled at the same time as many Americans are either underemployed or unskilled. In many cases there is a mismatch between what industry requires and what education is teaching. The second trend is a greater focus by parents and students on ensuring they are getting a good return on their educational investment. Many policy makers and thought leaders are starting to question whether graduating from a two-year or four-year college ensures the best employment outcomes. There is growing emphasis on the value of stackable credentials, certifications, and life-long learning, and less emphasis on the importance of college degrees. Employers are increasingly hiring from technical schools and boot camps, training on the job via apprenticeships, and sponsoring certificate programs. This is good news for UTI. In order to capitalize on these market trends and showcase the value of our industry-aligned education model and strong outcomes, we unveiled our transformation plan in March, supported by our engagement with the leader in education consulting. The plan is designed to drive new student new student starts, completions, and enhance…

Thanks, Kim. I'll start with a review of our second quarter business metrics, and then discuss our financial results for the second quarter. Total starts were 1,819, down 50 starts or 2.7% versus the prior year. And as Kim mentioned earlier, this decline was driven primarily by continued base access challenges and reduced numbers of transitioning members in our military channel. Our average student enrollment for the second quarter was 10,394, compared to 10,876 last year, which represents a 4.4% decline. At the end of the second quarter, about 43% of the students in school were benefiting from a UTI scholarship, discount, or institutional grant, as compared to the 38% in the second quarter last year. The year-over-year increase was primarily driven by our institutional grant initiative. These scholarships and discounts reduced revenue by an additional 744,000 this quarter, as compared to the prior year. However, since beginning the institutional grant last year, the ROI on the program is well over 40%. For the second quarter of fiscal 2018, compared to the same quarter last year, revenue was $80.7 million compared to $82.5 million for the prior year period. While the year-over-year revenue variance resulted from the 4.4% decrease in the average student population, the year-to-date average revenue per student of 14,951 is up 2.4% versus prior year, primarily driven by the March 2017 tuition increase and improvements in our employer sponsored programs. Total operating expenses were $89.5 million, compared to $81.8 million for the prior year period. The increase was primarily attributable to planned increases in compensation costs, which were largely a result of our graduate-based incentive compensation program conversion for our admissions representatives, increases in contract services and advertising expense. These increases were aligned with our previously-announced strategic growth transformation. As a reminder, the transition period for our…

Thank you, Bryce. In the first-half of 2018, we continue to drive improvement in our student enrollment efforts demonstrated by the growth of quality increase and student applications. We look forward to keeping you all updated on the broad range of opportunities we are working hard to realize, our progress in New Jersey and the great things we are doing to help our students change their lives. I now like to open the call for questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Barry Lucas from Gabelli & Company. Please go ahead. Mr. Lucas, your line is open.

Well, it sounds like we're having technical difficulties, but we'll be happy to talk to Barry following the call.

[Operator Instructions] And again, we have Barry Lucas of Gabelli & Company. Please go ahead.

Let's try that again. Can you hear me now?

Yes. Hi, Barry.

Excellent. My bad, it was the old mute button. First question just on the numbers, Bryce, so I look at the G&A expense and the $7-ish million delta from a year ago. How much of that would you -- if you could break it down into the increase in ad spend versus other kind of contributors to the change, and is any part of that related to the consulting contract?

Yes. So, yes, a portion of that is related to the consulting contract for the transformation initiative. The increase in advertising spend was just over $2 million for the period in question. And so we've had some good progress from that investment. And then, as we alluded to in previous calls, a portion of that increase was related to the conversion costs for moving our admissions reps from the fixed to the variable pay.

Okay, thanks. And just could we go back, Kim, and talk about some of the bright spots that you see that may be giving you the confidence to talk about, applications were up. And if you could breakdown sort of where we are in enquiries, to applications, to show, and maybe a little bit more color on what's happening on those show rates?

Sure. So our goal is to increase enquires for the highest converting channels through our Web site. And we are doing that. So that is a positive indicator. A steady improvement in application growth, looking back last quarter it was roughly flat. This year or this quarter it's up. And so far in April we're seeing a similar trend. So when we think forward to second-half of the year and '19, that is a really key leading indicator of application growth. And we're really pleased to see that across high school and adults. When you look at the show rate and improvement, as I mentioned in my prepared remarks, we have a number of initiatives across enrollment, and show rate, and start really outreach to help our students ensure they're able to show to school as planned. And I think we had a bit of a distraction during the quarter as we launched a number of initiatives. So it's nothing that I'm concerned about because we're very focused on it. And I expect to see the trend continue throughout the remainder of the year and into '19, and that trend being improved show rates that we've been seeing for several quarters running.

Okay. When you talk about the show rate, are you distinguishing between the metro campuses and the legacy campuses, so that you know, if I would look at the older big boxes, are the show rates improving there, because we would assume that in the newer smaller schools the show rates are naturally going to be higher?

Yes, what you will see -- and every market is different, but generally students who live within a closer proximity to the campus are going to show at a higher rate. So, the higher the population it needs to relocate, the greater the pressure is on the show rates. So it's our mix shift. We should start to see improvement with our show rates.

All right. Okay, last one from me would be, I think I ask this every quarter, but had progress on the military channel appears you had some success at Camp Pendleton. Is that transferable or are you getting feedback that will help to open some military bases a little bit more?

We have received very positive feedback. I think it's pretty mature at this point to announce the next location or the next program launch, but generally it has been very positive for both BMW at the military base and in terms of our ability to access additional prospect students.

Okay, thank you very much.

You are welcome.

[Operator Instructions] I'm showing no further questions at this time. This concludes the question-and-answer session. I would like to turn the conference back over to Kim McWaters for any closing remarks.

Thank you, and thank you to all of those who are on the call. We look forward to our one-on-one investor call that follow-up to this quarter. And we look forward to updating everyone in a quarter from now as we progress through our transformation. Thank you.

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