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 investment in highly accretive new campuses and program offerings such as our newest metro site campus in Bloomfield, New Jersey, and our third welding program in Dallas, Texas; and continuing to rationalize our real estate footprint and cost to support more profitable operations and to best serve our students. Now I'd like to turn to our transformation plan and provide an update on key workstream progress made in the first quarter. We'll begin with our marketing workstream. Raising the visibility of UTI's brand as a leading provider of technical training to efficiently generate student demand is the main objective. Through this workstream, we have increased our investment in brand awareness advertising, including television, streaming video, radio and event marketing. Further, we have continued to improve our website and landing page performance while optimizing all of our digital channels. Overall, our efforts are producing very positive results. From a demand generation standpoint, we continue to execute well on our overall media strategy, optimizing digital channels to support reinvesting in brand awareness. We have increased the number of inquiries generated from the highest converting media channels such as uti.edu and page search by more than 30% year-over-year. In fact, nearly 50% of our inquiries are now coming from these higher converting channels. Inquiries from these channels generally convert to enrollments at 4x the rate of other media sources. This will continue to drive increased starts and improved cost efficiencies throughout the year, ultimately supporting our goal of lowering student acquisition cost. Next, let's turn to our admissions workstream. On a consolidated basis, new student applications were 2.5% of the prior year. The growth is attributed to a 6.1% increase in high school application, which offset a 3.6% decline in adult and military. The success in the high school market is driven by deployment of new marketing strategies, increased headcount and overall productivity improvements. Economic pressures continue to weigh on our adult segment. Were the unemployment rate to increase, we would expect an acceleration of our start growth, particularly with this segment. Overall, implementation of our transformation plan has been quite successful to date. We have been able to test various initiatives, determine what worked, what did not. And under our larger objective of growing new student starts, we have refined our strategy and our processes as a result. Over the course of this year, in addition to continuing to execute on successful initiatives, we will identify and implement process and productivity improvements across our entire organization to maximize operational efficiency and effectiveness. Our second strategic initiative is investing in accretive metro campuses and new program initiatives. Our metro campuses are very attractive to our students who are able to live and work at home while pursuing skills training. We know that students are more likely to pursue in education when they do not have to give up their job, leave home and relocate to a new city. Metro campuses are a good investment for UTI as they are typically accretive to earnings in the first 18 months and are cash flow breakeven by year 4. We have a target IRR of greater than 35% for our newest metro campus, which opened in Bloomfield, New Jersey during Q4 of '18. We are very pleased with Bloomfield's initial strong operational results. The campus continues to track ahead of plan, and demand from prospective students is very strong. Our third key strategic initiative is to rationalize our national footprint from primarily large destination campuses to smaller commuter campuses when and where possible. Transitioning from large destination campuses to smaller metro site campuses is one of the most important transformative changes we can make to operate profitably at any point in an economic cycle. We are accomplishing this objective by consolidating existing space, subletting excess space and are offering new and expanded programs to better utilize existing capacity. This plays an important part in the profitable growth of our business, as it reduces underutilized space and associated rent cost and drives improvement in student starts. In the first quarter, we successfully consolidated the Houston campus, reducing the size by approximately 52,000 square feet. In fiscal '19, we will start to see total run rate savings from our recent real estate optimization efforts of between $2.5 million to $3 million. On January 14, we opened our third welding program at our Dallas campus, driving growth in new starts and improved utilization of our campus facility. In addition, we are aggressively pursuing additional rightsizing opportunities to build on our recent successes in Rancho Cucamonga in Houston. This includes reductions upon lease expiration as well as options to reduce midterm. Rightsizing space requirements to match student population levels, and thereby reduce -- reducing occupancy cost is the key strategic priority for our business. We look forward to announcing more transactions when they are complete. As I stated at the beginning of the call, in 2019, we are very focused on achieving our operating income, EBITDA and cash flow objectives through new student start growth, improving operating efficiencies and the continued rationalization of our campus footprint. As a result, we believe we will finish the year strong and be well positioned for impressive growth in 2020 and beyond. And now, I'd like to turn the call over to Scott Yessner, our Interim Chief Financial Officer, for a review of our financials. Scott?

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 a growing student population added $1.6 million of direct cost year-over-year. We are on track to meet our operating expense objectives from 2019. Our operating loss was $7.2 million compared to an operating loss of $3.6 million for the prior year period, with a net loss for the quarter of $7.7 million compared to a net loss of $1.1 million for the prior year period. The prior year period did include a $2.8 million tax benefit in contrast to the current quarter. Our adjusted operating loss was $3 million compared to an adjusted operating loss of $1.8 million for the prior year period. The consulting fees for the transformation initiative were adjusted for the first quarter 2019 and the first quarter of 2018. And the startup costs for Bloomfield, New Jersey campus were adjusted for first quarter of 2018 in the earnings release tables. In future reporting periods, the adjusted results reporting tables for the comparison periods will include the consulting fee for the full project, the strategic transformation and the Bloomfield campus startup costs up to the first student start date. Adjusted EBITDA was $1.3 million in the quarter compared to $2.6 million in the prior year. Cash flow from operating activities were $4.4 million. Adjusted free cash flows were $5.6 million in the quarter. Now this is an improvement of $8.7 million over the prior year's quarter. On our balance sheet, we had cash and cash equivalents of $58.6 million at December 31, 2018 compared to $58.1 million at September 30, 2018. We do not have any bank debt at this time. The first quarter operating results are a strong start to 2019 and are in line with our expectations for 2019. With the strong first quarter and our views of student inquiry and enrollment flows for the rest of the year, we are reaffirming our previously stated 2019 outlook metrics. We expect student starts to grow in the mid- to high single digits and the average student population to grow in the low single digits in fiscal 2019. We expect full year 2019 revenue to range between $322 million and $332 million compared to $317 million in fiscal 2018. Operating expenses are expected to range between $337 million and $347 million. We expect an operating loss and net operating loss of between $10 million and $15 million. Adjusted operating loss is expected to be $6 million to $11 million. Adjusted EBITDA is expected to range between a positive $9 million and $15 million. We expect to be operating cash flow and free cash flow positive in fiscal 2019 with our ending cash balance at or above our year ending 2018. Capital expenditures are now expected to range between $6 million to $8 million, lowering the previous guidance from $8 million to $10 million. Growing EBITDA and free cash flows coupled with our strong cash balance puts UTI in a strong position for the future. With that, I'll turn it back over to Kim for a few final thoughts.

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.