Good day, and welcome to the UTI First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. A replay of the call will be available at www.uti.edu or through February 19, 2019 by dialing (412) 317-0088 or (877) 344-7529 and entering passcode 10127998. 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. Ms. Kent, please go ahead.

Hello, and thanks for joining us. 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 first quarter 2019 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 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 this conference call, including initial comments by management as well as answers to questions. During today's call, we'll refer to adjusted operating loss, adjusted EBITDA and adjusted free cash flow, which are non-GAAP measures. Adjusted operating loss is loss from operations adjusted for items not considered normal recurring operating expenses. Adjusted EBITDA is net income before interest, income tax, depreciation, amortization, adjusted for items not considered normal recurring operating expenses. Adjusted free cash flow is cash from operating activities less capital expenditures adjusted for items not considered normal recurring operating expenses. Management utilizes adjusted operating loss, adjusted EBITDA and adjusted free cash flow as performance measures internally, and those will be the figures discussed on today's call. It is now my pleasure to turn the call over to Kim McWaters. Please go ahead, Kim.

Thank you, Jody. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report another strong quarter of solid year-over-year start growth. During our first quarter of fiscal 2019, new student starts grew 14.8% compared to the prior year quarter. Total new student starts were 1,511, an increase of 195. Our new Bloomfield campus accounted for 62 of the starts. We had strong start growth across all student segments. The adult segment starts grew 8.5% year-over-year. Military starts grew 20.1%, and high school starts grew 28.1%. The show rate for the quarter held steady to last year. The start growth was driven by the continued successful execution of our multiyear transformation plan and our new campus and program-growth initiatives. Having reached an inflection point, we are now clearly gaining traction as demonstrated by consecutive quarters of year-over-year start growth at both our legacy and new Bloomfield campus. In particular, we are pleased that our transformation plan is beginning to positively impact the adult student segment as evidenced by its start growth in a robust economy. Given the historically high correlation between student start growth and unemployment, where the unemployment rates rise, we would expect to see an acceleration in our rate of start growth. Given the significant investments made in a number of highly accretive initiatives during 2018, such as our transformation plan, our new Bloomfield campus and our new welding programs, we are laser focused on driving cash flow and cash flow growth through new student starts, cost efficiencies and footprint rationalization while providing our students with a quality education. During today's call, we will discuss our transformation efforts within the context of successfully achieving 3 strategic objectives: leveraging the implementation of our transformation plan to grow new student starts across our campus footprint; realizing the…

Thanks, Kim. My remarks will summarize a few key items, provide details to the first quarter operating results and reaffirm our 2019 guidance. As shared in our previous earnings call, the operating financial objectives for UTI are to grow EBITDA and free cash flows. Strong student growth and positive adjusted EBITDA and free cash flows in the first quarter are a good start to the 2019 objectives. In this earnings release, UTI is providing adjusted operating income, adjusted EBITDA and adjusted free cash flow reporting tables. These measures are provided to assist you in the analysis of our financial performance by adjusting results for onetime nonrecurring projects, events or items. Now for a few details on our first quarter business metrics and financial results. As Kim stated in her remarks, new student starts from the first quarter increased 14.8% to 1,511 compared to the prior year first quarter. The growth was driven by starts from our legacy campuses, which grew 10.1% compared to our prior year's quarter and the new Bloomfield, New Jersey campus. Average students for the quarter were 11,225, almost flat to fiscal first quarter 2018. The quarter-ending student population increased 92 to 10,540. The improvement in our student metric results reflect the sales and marketing transformation, program expansions and metro campus model strategies. For the first quarter of fiscal 2019 compared to the same quarter last year, revenues increased 2.3% to $83.1 million. This is compared to $81.2 million for the prior year period. An additional earning day and higher average tuition with virtually flat average students led to the increased revenues. Total operating expenses were $90.3 million compared to $84.8 million for the prior year period. Of the $5.5 million increase, $4.2 million was due to the onetime transformation consultant termination cost. The Bloomfield campus with…

Thank you, Scott. The first quarter of fiscal 2019 was another successful quarter, demonstrating UTI's growing leadership in the technical trade educational space. Our focus is to provide a quality education to our students, partnering with industry partners to provide rewarding careers as an outcome. Our work with and support from our industry partners continues to grow. To call out just a few examples of this, in the first quarter, we had renewals from a few key industry partners. Ford renewed the FACT program agreement for 3 years and added Bloomfield as an authorized location. Mercedes-Benz U.S.A. renewed the DRIVE program agreement for 1 year beginning in 2019. Raytheon Professional Services extended our GM dealer training agreement at Avondale through 2021. And we secured a new industry partnership with Bass Pro. Overall, we are very encouraged that we are driving growth in a robust economy. We remain on track to grow our new student starts by mid- to high single digits and exit the year with a larger average student population than we had at the beginning. I look forward to updating you on our progress, and I'd now like to open the call for questions. Operator?

[Operator Instructions] The first question today comes from Peter Appert with Piper Jaffray.

So Kim, just a logistical question first. I think you mentioned 2.5% growth in number of applications in the quarter. And I'm just trying to think about how to put that in context relative to the start growth, right? Does 2.5% applicant growth, is that a forward indicator of what we should think about for start growth, for example, in the next quarter or 2?

It is a -- it's a forward or leading indicator. But I would not expect that that's exactly what you would see in Q2 or Q3, as we tend to build momentum as we near the start dates. I would expect to see something more than that in Q2. And remember, a number of these applications are for Q3 and 4 as well.

Okay. But the decline in military and adult, anything you'd call out regarding that in terms of the software applications you saw in the most recent quarter?

Yes, really looking at the adult segment, while we've continued to see some pressure just from the broader economy trends, overall, we're starting to see improvement and gaining traction from an adult standpoint. So it's not moving as fast as we've seen the younger or the high school population. But I'd say, largely, it's been the military. So even though it's not growing yet from an application standpoint, growth from a start standpoint was very strong from the adult segment. And again, I think that reflects that we tend to write enrollments as we get closer to the start dates for the adult segment.

Right. Okay. And then this might be for Steve (sic) [ Scott ]. You gave us some numbers on the expected fiscal '19 savings from the campus consolidations. Is it possible to think about what that number could look like longer term? How big the opportunity is from a cost perspective if you are able to get where you want to be from a campus logistics perspective?

Yes, I think there is a lot of opportunities in our system. There is in every different campuses that are coming up on their lease termination period where it gives us an opportunity to shrink the size of the campus along with the -- looking at the marketplace for opportunities. And so I think that -- at this time, I can't give you a range of what that reduction would be. But we do see opportunities inside of our campus system for further footprint reductions.

Okay. And then -- and, Steve (sic) [ Scott ], on the nonrecurring cost. The cost related to the termination of the consultant contract, that's all behind us now? Or is there more -- anything more to come on that?

Yes, that's all behind us now.

Okay. And then, Kim, what -- can you remind me your thought process on new locations in terms of timing and numbers you are thinking about?

Yes. So we have identified a number of markets that would support a campus similar to Bloomfield. But as I stated in our prepared remarks, this year, we do not have plans to open a new campus. We are very focused on ensuring that we realize the significant investment we made at our Bloomfield location with our welding programs and the rationalization [ ever less ] on anything like that.

All right. And then on the welding, Kim, I think you're up to 3 campuses, correct?

Correct.

Okay. And is that potentially something you could offer in all the campuses? And any thoughts on the scale of the opportunity from a revenue standpoint?

I do think that the welding program has strong student and employer demand characteristics. We do think that we could roll out that program to a number of campuses. And I think in our investor deck, it shows really the revenue that is being generated on a campus-specific location.

Okay. I'll take note of that.

So I think if you refer to that and you think about having 13 campuses right now, most of which are automotive, the majority of them could support a welding program.

Right. Understood. Okay. Great. And then just last thing, Steve (sic) [ Scott ], in terms of the quarterly phasing in fiscal '19, I mean, beyond the normal seasonality of the business, anything we should be thinking about in terms of unusual patterns this year?

No. I would highlight that when our operating expenses are going to decline in 2019 and many of those initiatives start being realized in the second quarter and the second half of 2019, we have a compensation related on the admission side that was a scheduled change that we had talked about in the previous call. And we have marketing efficiencies that we had evolved through the strategic transformation and those start coming through in the next period -- the next few periods. And then also you start seeing the -- your forward run rate as you describe it, our consulting fees, those are coming off our books. And so I see more normalization. We are not investing in new capabilities and new resources. So we're not building up our cost base. We are in that part of that transformation where we see the opportunity to deliver efficiencies through our student services and our campus activities and then in our corporate office. And so if anything we see the opportunity to continue to drive our expense base down.

This concludes our question-and-answer session. I would like to turn the conference back over to Kim McWaters for any closing remarks.

I'd just like to thank everyone for participating on our call today, and we look forward to our next update for Q2 in the future, and we will post the date for your awareness. Thank you, and have a great day.

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