Hello, and welcome to the Universal Technical Institute Fiscal Third Quarter 2021 Earnings Conference Call. With us today are Jerome Grant, Chief Executive Officer; and Troy Anderson, Chief Financial Officer. All participants will be in a listen-only mode Please note, this event is being recorded. I would now like to turn the conference over to Matt Kempton, Vice President of Corporate Finance. Mr. Kempton, please go ahead.

Thank you, operator. Before we begin, we want to remind everyone that today's call will contain forward-looking statements within the meaning of the safe harbor provisions 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 in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may 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 section entitled forward-looking statements in today's press release also applies to everything discussed during this conference call.

Thank you, Matt. Good afternoon, everyone, and thank you all for joining us today. First, I'd like to express my gratitude to our students and staff for their ongoing efforts and diligence during this quarter. All of our campuses were fully operational this quarter and have returned to normal class densities. It's my sincere hope that I'll be able to retire this particular reminder shortly as we emerge from the pandemic. You see, being fully open and operational is our natural state and not something I'd like to regularly update our stakeholders on going forward. Though it feels like a long time ago, it was just a little over a year ago that the COVID-19 pandemic basically shut down much of our economy and that of the world as well. As a reminder, a quick review, for most of this quarter, last year, all of our campuses were closed for hand-on instruction. Metrics such as student withdraw rates, leaves of absence, CARES Act funds and student progression rates were either introduced into our reporting or increased substantially, temporarily becoming the focus of our business health for some. For UTI and our management team, however, these were just short term, though critical challenges to address. Our financial strength, track record for success and industry-leading outcomes continue to be the foundational pillars we are building upon even through COVID-19. Our focus is and always will be on raising the bar for ourselves and our students.

Thank you, Jerome. As Jerome mentioned, we performed well this quarter and delivered solid growth across our key operating and financial metrics. While the year-over-year metrics benefit measurably from the prior year pandemic impacts, we continue to be very pleased with the underlying performance and trajectory of our business. I'll start with a discussion of this quarter's results and then move to our fiscal 2021 outlook and longer-term strategic road map before handing the call back to Jerome for closing remarks.

Thank you, Troy. Before opening the call up for Q&A, I'd like to again express my gratitude for the progress we've made as an organization and for what our students have been able to accomplish throughout the past year. Like all great organizations, our response to the unprecedented challenges of the past year was to view this as an opportunity, an opportunity to come out the other side stronger, raising the bar on our already industry-leading outcomes, an opportunity to accelerate innovation through our business, creating additional capacity and flexibility at a time when the demand for our services is growing in both importance and need. And finally, an opportunity to begin to execute on our growth and diversification strategy as we position UTI for the future; as I said, we feel the outlook for our business is bright and are very excited for what the future holds. We look forward to keeping the investment community updated on our strategy and initiatives and closing out the year with considerable momentum as we head into fiscal 2022. I'd now like to turn the call over to the operator for Q&A. Operator?

Thank you. We will now begin the question-and-answer session. And the first question will come from Austin Moldow with Canaccord. Please go ahead.

Can you walk through the puts and takes on average revenue per student and what that should look like through fiscal 2022 with MIAT baked in?

Austin, this is Troy. Thanks for the question. What we've said -- well, what we showed this quarter, and we had said coming into this quarter was we would see steady progression from earlier in the year to -- leading towards pre-COVID levels, which was around $8,000, $8,100 per quarter per student. And so, we're on that right trajectory, and that's what we're expecting as we exit the year to be essentially at that pre-COVID level. I would expect FY '22 and the longer-term outlook that we provided would be operating at those levels. We typically bake in a little bit of an annual price increase. So you see some nominal change in that. We haven't factored in the variability or any variability, I should say, that might occur with the different mix of programs from MIAT. But I think once we get closer to the closing of that transaction, we'll provide combined metrics on what they may look like.

Okay. And a two-part advertising question. Firstly, can you talk about how your localization efforts are going? And secondly, when do you typically begin to spend ahead of -- spend on marketing ahead of new campus openings like you'll have in Austin and Miami?

I'll hit the second part first. We can't market the campuses until we have all the appropriate approvals. We have begun marketing Austin, at least enrollment and some light marketing, I would say. We're still a good bit of way, obviously, with Q2 fiscal '22 launch. But we are starting the efforts there and we'll be more aggressive in market as we get closer to that, but typically a few months out and after we get the approvals. Jerome, do you want to handle the localization?

Yes. Austin, Jerome here. The marketing efforts actually are going quite well. And we see the signs of that in the movement of our local adult population and show rates. Our show rates are favorable this year to our expectations, and a lot of that is attributed to less commuting, which is the aim of what we are looking at in this campaign.

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

Just a clarification before my question. Jerome, in your prepared remarks, you talked about the MIAT acquisition closing by the end of calendar 2021. And then Troy, you talked about at the end of fiscal 2021. We're still talking about October 1 close. Is that correct?

So we don't have a date certain. I wish we did. We're working -- we have no indication that we're not on track. We actually said the same thing we said slightly differently and debated whether or not we should do that. But I said by the end of the fiscal year or early in fiscal '22, which by definition would be before the end of the calendar year. But as of right now, we have no indications that it should linger any longer than that, but we don't have a date certain.

Okay. All right. And then shifting over to the channel. I wanted to go a layer deeper on the new student starts, terrific number there, by the way, for the entire -- for all channels, up 39% new student starts. You talked about 62%. I was just hoping to understand that a little bit better. I assume it has something to do with how the high school starts versus the adult starts a year ago as opposed to 2021. But can you help me understand that 62% number for the adult?

Yes. It is a reflection -- I mean, we've seen great strength, by the way, in the adult channel throughout the year. High school has been also very strong throughout the year. And just this quarter, adult had a larger uptick. I think probably because Q3 typically is not a heavy high school quarter. So last year, the dip related to COVID was probably more in the adult sector. But overall, again, we see good strength in adult and expect to continue to see good strength there.

Okay. And then lastly, on the MIAT with this -- I know the transaction is yet to close, but as far as your high school, your high school outreach, has that come up yet? Do you have the folks on the high school campuses and your -- as you reach out to them, has there already been interest in kind of programs beyond auto and diesel mechanic that's got those on-the-ground people more, I guess, interested in working with UTI?

We're doing all the planning that we can. I mean we are separate companies. And until we close, we're technically competitors. We're in the same market in Houston. So at this point in time, all we're doing is planning work. There's no cross-pollinization of any of our activities.

And to get to your question about high school interest, one of the reasons that a first priority of our growth and diversification plan was to look for a school like MIAT that brought nine new programs into our family that we can then spread across our campuses as quickly as possible. One of the main reasons is just what you brought up there, which is our high school reps talk to somewhere near 0.25 million kids a year. And the interest isn't always exclusively in the transportation and welding area, which is where we play right now. And so we think we have a great opportunity to take advantage of the interest that varies beyond transportation from high school kids. MIAT does not have a large high school presence in either Michigan. They have high school reps who are really quite good, but not a large high school presence in Michigan and Houston, nor do they have a relocation program in place the way we do. We see the ability to leverage the relationships we already have in high schools with a broader product set.

The next question will come from Raj Sharma with B. Riley. Please go ahead.

Stellar numbers. I had a couple of just questions on the 3Q starts, the apples-to-apples sort of comparison, any different number of start dates last year to this year, and does that impact 4Q? Because you are still sticking to the 10% to 15% student start growth, I just wanted to understand that a little better.

Yes. Raj, by the way...

This is much higher...

Right. Yes. Yes. It's a good question. And I tried to touch on that a bit in my prepared remarks. The start dates are apples-to-apples. So there's no differential in start dates. That was last year versus the prior year. We're on the same start cycle currently this quarter. The -- our guidance all along that we set at the beginning of the year, we knew that we would have stronger starts in the first part of the year, particularly Q3 and then more normalized in Q4. And so, we are still contemplating that. We've seen some shift, as I noted, around high school, very strong earlier in the year relative to prior -- even pre-COVID earlier in the year, a little bit less in the fourth quarter. Adult has been strong and growing, and military has been consistent. So at the end of the day, yes, we'll see a more normalized growth rate in the fourth quarter, but still a very strong year overall.

Great. Got it. And then you just recently announced -- well, yesterday, you announced the Rancho Cucamonga, the Toyota-Lexus program. And that's a great way to address the labor shortage. I was just wondering if there's any change you foresee in these programs in terms of the way the tuition is going to be garnered. Any change in the mix of Title IV or corporate? Or is this sort of business as usual? And what is the size of these programs that -- or what is the size of the program? How many students? Can you talk a little bit about that?

Yes. This is Troy. Maybe I'll start and Jerome may add some color commentary, but the Toyota program, we've had a long-standing relationship with Toyota. As you noted, launched it now in Rancho Cucamonga campus, that's a student-paid elective for us, but it's a great program that -- and a lot of employer and industry engagement with those kind of programs. We have Ford. We have many other programs that are student-paid electives and then, of course, the manufacturer-paid programs, advanced programs, Mercedes and Porsche and BMW and the like. We're not envisioning specifically around the student model, any change there. We constantly are looking at our partnerships and any tweaks or changes we might want to make in them, whether it'd be a student versus manufacturer paid or whether we continue a program or add a new program. But generally speaking, I'd say no change currently that we're thinking about there. But we always think about, are there other ways we can expand our relationships from a B2B perspective with the manufacturers, and that's part of our ongoing growth and diversification strategy.

Well, it's obviously -- I mean, exactly what I was trying to get to is that there seems to be a really good level of demand from the employers, and the way you're approaching this is really great of getting involvement from both sides. Does that -- do you think it's good if the employer kind of step up and also pay for it? Or that's not really that important for the employers to step in and pay for tuition?

Well, I mean, clearly, we see -- I mean, most of the employer-paid programs also come with some period of time of a loyalty agreement to go and work for that brand. And there's a lot of variability between the 30-some OEM relationships that we have in terms of where the support comes from and how they do that. Yes, we obviously see higher employment rates in brand when the employer pays for it. But this program launch was in response to a very strong dealer community that really wanted us to be more strongly recommended. And again, the difference between someone graduating with a core certification and then adding on a dealer program actually accelerates their ability to begin to do warranty work, which is where the dealers really make the money, right? And so therefore, we're monitoring every locale around our campus to see if we have an opportunity to put some of these major programs in place. We're all -- as Troy said, we're always talking with both the dealer networks and the manufacturers around sponsorship and paying for the programs. I think most of them right now are still working in the model of tuition reimbursement. As we said, we've got over 4,000 incentive and tuition reimbursement programs. So most, if not all, of the Toyota dealers have some sort of the deal in place that if you finish the program and come to work for us, we're going to be taking care of a large portion of your student debt as you're working here. So -- but haven't really -- not all of them have jumped over the line to scholarships or sponsorships.

Right. Well, this is -- maybe you won't need to because there is enough of a pull, right, that the employers are actually doing enough to be there and say, hey, we've got a job down the road for you for sure, or there's a high likelihood that, that happens.

And we've worked really, really hard at illuminating what these incentive packages are to go to work for each of the employers. And then also, through our Early Employment Program, one of the things we're doing basically is those who are participating actively by giving jobs and internships are getting earlier access to our students to bring them on in either part or full-time capacity. And that's actually starting to get people to compete with each other for our kids, which is really what we want because what we're interested in them getting good, solid, high-paying jobs. And the more the employment community competes for them, the better off they'll be.

This concludes our question-and-answer session. I would like to turn the conference back over to Jerome Grant for any closing remarks. Please go ahead, sir.

Thank you very much, and thank you all for visiting with us today. By way of closing remarks, all I want to say is that we pride ourselves on making ourselves available to the investment community as much as we possibly can. But we'd be happy to share deeper thoughts on the results from Q4 -- or Q3, Q4 and into next year if we have a chance to talk together. So thanks again, and have a great rest of the afternoon. Bye-bye.

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