Good afternoon. And welcome to Universal Technical Institute Fiscal Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. As a reminder, this event is being recorded and a replay of the call will be available at www.uti.edu or through December 2, 2020 by dialing 877-344-7529 or 412-317-0088 and entering passcode 10149609. I would now like to turn the conference over to Ms. Jody Kent, Vice President of Communications and Public Affairs. Please go ahead.

Good afternoon, and thanks for joining us. With me today are CEO, Jerome Grant; and CFO, Troy Anderson. During the call today, we will update you on our fiscal fourth quarter 2020 business highlights, our financial results and our vision for the future. Then we will open the call for your questions. Before we begin, we want to remind everyone that today’s call will contain forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Please carefully review today’s press release for additional information and important disclosures about forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes and circumstances that are difficult to predict, and many of which are outside of our control. Our actual results and financial condition they differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. As a reminder, the session entitled Forward-Looking Statements in today’s press release also applies to everything discussed during this conference call. During today’s call, we will refer to adjusted operating income or loss, adjusted EBITDA and adjusted free cash flow, which are non-GAAP measures. Adjusted operating income or loss is income or loss from operations adjusted for items that affect trends and underlying performance from year-to-year and are not considered normal recurring cash operating expenses. Adjusted EBITDA is net income or loss before interest expense, interest income, income taxes, depreciation, amortization, and adjusted for items not considered as part of the company’s normal recurring operations. Adjusted free cash flow is net cash provided by are used in operating activities less capital expenditures, adjusted for items not considered as part of the company’s normal recurring operations. Management internally uses adjusted operating income and loss, adjusted EBITDA and adjusted free cash flow as performance measures and those figures will be discussed on today’s call. As a reminder, we have provided reconciliations of these non-GAAP measurements to the most directly comparable GAAP financial measurements in today’s press release and we encourage you to carefully review those reconciliation. Starting with the third quarter of fiscal 2019 and through fiscal 2020, we have reported operating metrics such as student applications and starts, excluding our Norwood, Massachusetts campus. As we have shared previously, Norwood stopped accepting new student applications in the second quarter of fiscal 2019 and the campus was fully closed in July 2020. So we believe it is appropriate to exclude its impact.

Thank you, Jody. Good afternoon, everyone, and thank you all for joining us today. Before I jump in, please indulge me, while I once again share a heartfelt debt of gratitude to the UTI team, who in 2020 represented the very best in human spirit and dedication, while helping our institution, our students, our industry partners navigate some of the most challenging conditions imaginable. Thank you all for your dedication, hard work and passion. This afternoon, I will be focusing my comments in three areas, after which, Troy, will briefly review for you some of the highlights and key takeaways from our fourth quarter and full year results. Troy will then provide some guidance on handful of key metrics for 2021. The three areas I’d like to focus on is -- in the next few minutes our outcomes, accomplishments, accomplishments and our vision for the future of UTI. Outcomes are metrics and standards that have truly set us apart in the industry for the past five decades. Continue to underscore our unique value proposition today and will be critical to the success of our business strategies going forward. With respect to accomplishments, I will share with you some thoughts and examples of the effectiveness and importance of the credentials our students earned, as well as innovations we have put into place to help our students succeed more efficiently and effectively in the workforce. And finally, I’d like to share with you our vision for the future of UTI by updating you on our growth and diversification plans. Let me start with outcomes. At the very heart of our operating model and UTI’s unique value proposition is the relentless focus on improving the employment and career outcomes for our current students and graduates. This starts with ensuring that they succeed in their vocational curriculum and successfully graduate. Our keen eye kept on the number of students who persistent in their education and graduate is one of the ways which we prove our value every day. Nationally, just 40% of college students earn a certificate or degree within six years of beginning their post-secondary studies. Yet, a UTI nearly 70% of our students graduate within two years. This is in no small part due to the investment our faculty and support teams make in the success of our students. We work closely and individually with them to work through the many challenges that life brings so that they can stay focused on their passion, finish their studies and go on to rewarding careers.

Thank you, Jerome. As Jerome outlined, we are very pleased with the progress we made during the quarter and with our operating results for the quarter and the fiscal year, given the many challenges presented by COVID-19. Starting with student metrics, we started 5,772 new students in the fourth quarter, which increased 1.1% year-over-year when adjusting for the extra start that occurred in the 2019 fiscal fourth quarter and was down 10.3% year-over-year including it. New students scheduled to start increased 6.9% year-over-year for the fiscal fourth quarter, excluding the prior year extra start. We saw a significant positive shift in the momentum of new student starts earlier in the quarter to later in the quarter. We are looking at start dates from August 31st through the end of September, when over 3,200 new students started the program. We saw a 14.8% year-over-year increase and exceeded our pre-COVID expectation by almost 7%. New students scheduled to start for this period increased almost 20% year-over-year and exceeded our pre-COVID expectations by almost 15%. That momentum has continued into the first quarter of fiscal 2021, with thus far through our most recent start we have seen strong double-digit year-over-year growth in new student starts and we are currently seeing the same year-over-year strength and the pacing of new students scheduled to start for the first and second quarters. For fiscal year 2020, we started to 11,283 new students. While this was down 2.4% compared to fiscal 2019, I will point out that we started two-thirds of these students during the pandemic directly into our new blended learning model. Additionally, we saw growth in three of the four quarters of the fiscal year in -- above last nine most recent quarters. In the fourth quarter we saw improved show rate performance versus the…

Thank you, Troy. To summarize, the outlook for our business is bright, as we are seeing significant growing interest in our highly valued programs across the country. We are making key investments in our core value proposition, our programs, industry relationships and talent. We are continuing to engage our prospective students via new pathways and methods and they are responding. We are continuing to innovate our educational delivery model in ways that support us today, but also opened new opportunities for the future. We are adapting every day to changes occurring in our market, political and business environment and have demonstrated our ability to operate effectively even when faced unprecedented challenges. We are proud that the innovations and improvements that we have made and will continue to make have made a stronger UTI today and a better UTI positioned for the future. Our business remains resilient and we continue to make meaningful improvements. Our financial position is strong and clearly superior to many in our industry. Finally, the academic and employment proposition we offer is more valuable than ever to our students, potential employers and industry partners. Thank you all for your time and attenvertion this afternoon. I’d now like to turn the call over to the operator for questions-and-answers. Operator?

Our first question is from Steven Frankel with Colliers. Please go ahead.

Good afternoon. Thank you. Jerome, could you give us a little more detail on the contract growth. I know last quarter you talked about it being up 20% year-on-year. Has it accelerated from that and to what extent do you think you have seen any benefit from the uptick in unemployment bringing more adult learners to you?

It’s good question. I think, Troy, can get you some of the numbers on that, while I talk a little bit about unemployment. I think it may still be a bit too soon to call out sort of the fleshed out effects of unemployment. It is true that from a growth standpoint, that there is a slightly disproportionate amount of our growth coming from adult population right now. And that begins to show the signs of that activity. But I think the COVID effects that we have talked about this quarter the quarter before, still sort of mask the real outcomes, and that’s something that we think will still be coming down the line.

Yeah. Steve, this is Troy. What we said last quarter was that, in the third quarter our contracts were up 20% year-over-year in the quarter. That also has the benefit of that extra start in the third quarter and we said that our fourth quarter enrollments were pacing ahead of our pre-COVID expectations, but our pre-COVID expectations, they were down on a year-over-year basis in Q4 to cut that extra start. We did comment on for this quarter because we got a lot of feedback that the extra start between the two quarters was creating some confusion. So we did comment more on an apples-to-apples basis this quarter starts being up 1.1% and that the contract -- the new student enrollments were up 6.9% on a comparable basis.

Okay. What are current contracts look like today?

So for -- go ahead.

Sure. In my comments, I mentioned that for Q1 and Q2, we are currently pacing at a double-digit clip ahead of last year, which keep in mind was this pre-COVID last year. We are currently pacing at a double-digit clip ahead of last year for Q1 and Q2. Now that’s the progress to-date. Q1, where -- will only be taking enrollments for another few weeks, another week or two, actually, really for Q1 and then push most of that for Q2. But so, Q1 is pretty fully subscribed at this point from a -- what we would expect to enroll. But we are pacing very strongly for Q1 to Q2 and for the full year overall.

Okay. And what was the graduate employment rate for the fiscal year?

We ended up at 84% for the fiscal year. We were 86% last year, we were 84% year before that and we are very consistently in the mid ‘80s plus minus.

Okay. And then going back to your comments around the incoming administration, there has been some talk about a change in the 90/10 rules, that would rule the GI portion into the 90. How would that impact you and how would you benefit from an increase in Pell Grants?

So, 90/10, we are 70/30, generally speaking, you will actually see that in the ‘60s, in fact, we added some of that detail on our investor deck, which is posted on the Investor Relations website. We are at 56%, because of some of the delay of the tighter core revenues of VA and cash pay or a little bit higher percentage this year, because of that. VA normally is around 15%, cash pay is normally around 15%. So when you talk about our 70/30, it’s 70 kind of four 15 and 15. If they just purely change to 85/15, then we would be fine. If they flip the VA then we start getting close, but again us, we are in pretty good position relative to other players and there would have to be some adjustment across the industry to address that. But we will be fine, I think, day one.

Okay. Great. I will jump back in the queue. Thank you.

Thanks, Steve.

Thanks.

The next question is from Eric Martinuzzi with Lake Street. Please go ahead.

Yeah. It was good to see the sequential progress there, I know slightly shy versus consensus, but a big step up versus what you guys had to deal with there in June. So good to see the trends headed in the right direction? And also…

Thanks, Eric.

… thanks for the guidance. I know that sticking your neck out a little bit too given we are not -- nobody would clarify the current environment or qualify the current environment as any kind of status quo. But at least that put some guardrails on what we are thinking for the year. I was curious to know just for the student reengagement, something that for me is key, obviously new starts matter. But how would you characterize student engagement kind of an LOA perspective now versus 90 days ago?

I will now comment quantitatively and Jerome if you want to add any other color from an operation and engagement perspective. But I mean, I commented that we were at about 700 and roughly 5% of students. Keep in mind, we are at peak students right now. And we are talking about, just to be clear, total LOA. We are not differentiating between COVID LOA and a regular LOA. We are just -- we are talking about total LOAs in our business and we are -- I think we were probably -- we normally run about 4%, again plus minus a percent depending on the time of holidays, summer, spring break that type of thing. So we are probably going to be elevated a point or two. We have students who are in or out there, quarantining, their family might have a quarantine issue, maybe they just need to take a little bit of time off with all the dynamics going on. But I think we are at pretty stable point right now, and we would expect as we get further into the COVID world that we continue to normalize, we are probably up a point or two over time.

Jerome, any color?

Yeah. Well, first of all, the beginning of your comment starts. I do want to make, I think, underscore that the trend we are seeing is quite positive, not only in the number of people scheduled to start or contracts, but also in the actual show rates, meaning the number of people who have signed a contract to actually show up to school. Those numbers are at or exceeding last year’s normal show rates right now, which are indications of people’s reengagement. And I think that the question is about engagement, we are seeing some very, very positive signs that people are engaged, serious and really focused on going out there and getting a job that’s solid.

Got it. All right. And then as I look at, kind of, you talked a little bit about M&A. I was just curious to know, obviously, you are going to be looking at things that are incremental to the fundamentals of the business. But there is kind of two directions I see you guys going, one, would be more towards a horizontal expansion into either a new geography or a complementary auto diesel mechanic type of acquisition? And then, the other direction would be into kind of the non-mechanic world. Is there given -- do you have a preference for either of those two directions, assuming a revenue and EBITDA contribution that was equivalent between two potential targets?

Actually in many cases you get both, is sort of the short answer is, yes. One of the things we have talked about over the last year, since our capital raise is that, we would like to look at the opportunity to expand our program stat in order to be able to offer more programs on the footprint that we have and optimize the square footage, optimized the opportunity for that group of people in any given area. But often in those instances, you also have the opportunity to bring our programs like diesel or auto into the footprint of one of those as well and so it’s really a mix of thought. We are really thinking about diversification and getting more products into the market, but doing so in the light of also expanding ourselves geographically to be able to address more of that disconnect between the supply and demand of technicians in all areas.

Okay. And then just could you revisit the seasonality here, obviously the COVID quarter, I get that that’s going to be an easy comp. Troy, you talked about down a little bit, if we were to look at things revenue wise on a year-over-year basis, down a little bit in the first half and then up in the back half, but overall to get to your year 10% to 15% revenue growth. Just take me through the seasonality discussion there one layer deeper?

Yeah. Well, it really comes down to be the student lab progression and the average revenue per student, right? I mean that we will -- again, we are at peak students, we have some strong starts that have already happened and expectations for the rest of Q1 and Q2. And then as we continued the lab progressions, but we will be down in the first quarter, more than we will be in the second quarter, maybe closer to flat second quarter. Again, this is all predicated on kind of COVID dynamics. And then as you said, Q3 would just be a blockbuster quarter on a year-over-year basis from a percentage growth perspective, and then, but then also showing growth in Q4 as well pans out another way we have outlined.

Okay. That’s helpful. Okay. That covers it for me. Thanks for taking my questions.

Appreciate the questions.

Yeah. Thanks, Eric.

The next question is from Alex Paris with Barrington Research. Please go ahead.

Hi, guys. Thanks for taking the question. I just got a…

Hi, Alex.

Hey. I just got a couple. I wanted to dive back into the incoming administration and thoughts about the regulatory environment going forward. And I do appreciate and agree with you, the services that UTI provides are less offensive to the Democrats. In fact, they talk about investing in career learning and that sort of thing all the time. And I was impressed to see also the 90/10 ratio 70/30, military is about 15, so that would get you to 85, if they decided to include that, still below the 90 and even if they reduced it to 85/15, you would still be in that realm. So it seems like there’s not a lot of concern there. I also noticed in your supplementary material that your CDRs, your cohort default rates were down again in the most recent period, down slightly, but heading in the right direction and at 14.5% well below statutory limits. The other thing that the Biden Administration or people who are watching conclude is, one of the things that they are likely to do is to reinstate the Obama era, gainful employment rules. Can you refresh my memory, I didn’t cover the company actively at the time, but what was your gainful employment experience versus the previous set of metrics? Do you have any programs that failed or any programs that were in the zone and what did you do about it?

So, I want to make sure we are talking as credibly and accurately about that time period as we possibly can. And so, I’m going to let Jody, who was here at the time, give you a couple of pieces of data around exactly what happened and the reaction of the company at that timeframe.

Hi, Alex.

Hi.

So back under the Obama gainful employment regulations, we had a few programs. If I remember quickly, I think, two or three that were in the zone, so sort of a yellow zone. But we had no failing programs.

That’s very helpful. And then, moving, I just had a question about guidance. Troy, you gave guidance for revenues, adjusted EBITDA, a few other things, net income, CapEx, et cetera. Now, in getting to earnings per share, you are giving net income guidance before preferred dividends, correct?

That’s correct. That’s the gross net income.

Okay. And then so -- and then what number of shares should I use in the denominator? So if I take your net income guidance, subtract from it preferred dividends, what share count should we be using to calculate EPS?

Well, as you can see, for the last few quarters there’s really been minimal change quarter-over-quarter, a few small testing events from employee’s years. Our last year grant was in January. So there will be some shares that vest -- some restricted shares that vest in January of this year, not a huge amount. So I think this, the current count, the 32,647, I referenced plus a few hundred thousand shares may be -- was probably a good count.

Okay. Good. And then I guess lastly for me, the advertising, I think, you gave us a figure in Q3, you are spending $9 million on advertising in Q3, what was that figure in Q4?

Yeah. There is a supplemental table in our press release and the number was $9.6 million for the quarter, $39.7 million for the year.

Okay. Great. And then, I guess, I was thinking one more, and I think you alluded to it. The significant increase in employment among young males, 16 to 24, almost doubled the national rate. I know it’s hard to determine if you are getting any pickup from that cohort of individuals and COVID tends to mask it to some extent. But would you expect to see, I mean, like you saw in last recession, every recession is a little different, but would you expect to see some uptick in new student enrollment as a result of the rise in unemployment in the coming quarters?

I’d say if any effects of COVID may have on sort of the regular behavior of, however, this contour is of a recession. The short answer would be, yes. I think we said, some of the characteristics are different than the last recession. One emerging trend we are seeing is, the number of high school students who were not college bound, because they believe the employment market was out there for them are starting -- we are starting to see more of a pickup of interest in the high schools around students who weren’t college bound before, which tends to make sense, right? If the unemployment is highly concentrated in that age group, they are not seeing the opportunities on the other end that they had before. So, we are beginning to see it, but I think more of it is in front of us than behind, yeah.

Hey, Alex, I think we have one more in queue. We are going to try to sneak in one more question. So appreciate your questions.

And that question is from Austin Moldow with Canaccord. Please go ahead.

Hi. I had a quick follow-up on the LOAs. How many COVID-related LOAs, do you think were ultimately lost and not expected to come back?

We have seen a bit of a uptick in our withdraws, so that’s also kind of runs in that low-to-mid single-digit percentage. So we are working through the LOA. People looked in on the extended LOAs. Keep in mind, the Department of Ed loosened the LOA guidelines, so that people can take them longer than the standard six months. And also with students who have accumulated a significant backlog in terms of their makeup labs, we are starting now to go to them and say, hey, we really need to have a recovery plan here to keep you current in the curriculum or get you current in the curriculum. So it’s not dramatic. But 100, 200 students as we are working through that. But they cycle out of an LOA, either become active and go to withdrawal, but then we have other people who go out on LOA. It’s a really -- it’s a constant cycle.

Got it. And then my last question is on blended learning. Can you give an update on the blended learning rollout and what the specific areas of improvement are in that? And can you also explain the differences and how you expect it will look in the future compared to what it might look like today after I imagine spinning it off relatively quickly to cope with the pandemic?

Yeah. I mean a lot of effort now is being placed into a few different areas. Number one, putting some more sophisticated learning architecture into the workflow of the student assessment projects, things along those lines that better keep students engaged. Those were things you just couldn’t do when on the 16th of March, you have to create and go live with nearly 200 courses and so we have been bringing more interactivity and learning design into them, hired some people into our shop that are experts in that area in order to do that. Assessment is another area, bringing more sophisticated assessment tools into it and then also continuing to hone our communication tools to make sure that these cohorts are staying connected with the campuses and staying connected with the lab. Because our new normal is that students are doing online learning in the same week that they would come in and do lab. So it’s not wildly disconnected by a weak online and then a week in the labs and so we want to keep that communications stream open as the students are doing both in a given week.

Great. Thank you.

Thanks for your question, Austin.

All right. Take care. Thank you. Before signing off, I once again like to express my utmost gratitude to the UTI team for their continued effort in these unprecedented times. It was a pleasure to further express our focus on student outcomes, share accomplishments to -- at -- students in the organization and convey our vision for the future, f especially important this year to convey our warmest wishes to everyone for a safe and healthy holiday season and I want to thank you all. This concludes the call.

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