Universal Technical Institute Inc (UTI) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Universal Technical Institute Inc.’s Fiscal Second Quarter 2006 Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question-and-answer session. Anyone needs assistance at any time during the conference, please press star followed by the zero.

As a reminder, today’s conference is being recorded. A replay of this call will be available for 90 days at www.uticorp.com or the call will be available through May 16, 2006, by dialing 1-800-405-2236, or 303-590-3000, entering the pass code 11058963 followed by the pound key.

At this time, I would like to turn the conference over to Jennifer Haslip, Chief Financial Officer of the Universal Technical Institute.

Please go ahead.

Thank you. Hello and thank you for joining us today for Universal Technical Institute’s quarterly conference call. During the call, we will discuss the results of our fiscal second quarter ended March 31, 2006, and then open the call up for your questions. The Company’s earnings release was issued after the market closed today and is available on UTI’s website at www.uticorp.com.

Before we begin, we would like to remind everyone that except for historical information presented, the matters discussed today may contain forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based upon management’s current expectations and are subject to a number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements.

Factors that could affect the Company’s actual results include changes to federal and state education funding; construction delays for new or expanded campuses; possible failure or inability to obtain regulatory consents and certifications for new campuses; [pent] or increased competition, changes in demand for the programs offered by the Company; increased investment in management and capital resources; the effectiveness of the Company’s recruiting, advertising and promotional efforts; changes in interest rates and low unemployment.

Further information on these and other potential factors that could affect the Company’s financial results may be found in the Company’ filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

In addition, the Company adopted Statement and Financial Accounting Standards No. 123R, effective October 1, 2005. SFAS No. 123R requires the Company to recognize equity-based compensation expense for all stock option and other equity-based awards. Prior to its adoption of SFAS 123R, the Company accounted for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25.

As a result of the Company’s adoption of 123R, the Company’s conference call includes certain financial measures that may be deemed non-GAAP financial measures, under rules of the Securities and Exchange Commission. These non-GAAP financial measures are provided to enhance the reader’s overall understanding and provide greater comparability of the Company’s interim and annual financial performance for fiscal 2006.

This information should be considered in conjunction with the Company’s financial results prepared in accordance with GAAP.

At this time, I would like to turn to call over to Kim McWaters, CEO. Kim?

Thank you, Jennifer. Good afternoon, ladies and gentlemen. Thank you for joining us to review our second quarter fiscal 2006 results. On today’s call, I’ll begin with a brief overview of our Company, followed by a review of our second quarter for fiscal 2006.

Then I’ll provide a summary of our five-point plan to address both internal and external issues that have recently impacted the Company’s performance. I will also give an update on campus expansion efforts and other operational activities. Jennifer will follow with a more detailed review of our financial results before opening the call to your questions.

Universal Technical Institute has enjoyed more than 40 years of success as a respected quality brand in the education sector. We provide recruitment, training and placement services to the automotive, truck, collision repair, motorcycle and marine industries.

We have 10 geographically diverse campuses serving approximately 16,000 students. Our student population is primarily male, with approximately 60% being recent high school graduates and the remaining 40% adult learners pursuing career changes. In addition, we have 20 manufacturer-sponsored training centers, providing both graduate-level training and corporate training for automotive and diesel manufacturers throughout the United States.

Our net revenues for the second quarter were $88.7 million, up 14.5% from the prior year. Net income for the second quarter was relatively flat to the prior year quarter at 9 million, excluding equity-based compensation. This is primarily due to increased staffing costs in preparation for expected higher student population.

In addition, we had higher depreciation and occupancy costs during the quarter. As a result of lower-than-expected capacity utilization, increased staffing levels and higher occupancy costs, margins for the quarter were under pressure. Expansion losses for the quarter were in line with expectations. They were $1.1 million higher than the prior year quarter and were primarily related to our Sacramento, California, and Norwood, Massachusetts, campuses.

Average undergraduate enrollment for the second quarter of 2006 was 16,642, compared to the same quarter a year ago of 15,517, an increase of approximately 7.3% year-over-year. We ended the first quarter at approximately 73% capacity utilization, including the new capacity created with the opening of Sacramento, California, and the expansion of our diesel program in Exton, Pennsylvania. This compares to planned capacity utilization of 75% and an 83% utilization rate in the same period a year ago.

Our average undergraduate student population was approximately 3.2% or approximately 550 students lower than our internal expectations, due to a lower number of leads, applicants and starts. As we progressed into the first quarter of fiscal 2006 and for the remainder of that quarter, we had fewer leads than expected due to insufficient and/or ineffective media buys, as well as aging advertising creative.

In addition, leads generated from advertising were not effectively processed and transferred to our admissions representatives. Recognition of these factors resulted in a change in advertising agency and the cost center at the end of December 2005. By end of January, the transition was primarily completed and performance had improved.

This continued throughout the second quarter. In fact, lead generation improved by approximately 19% for the second quarter, as compared to first quarter of fiscal 2006. The number of leads for the quarter was slightly behind the prior year quarter. According to our advertising agency, the month of April has been difficult for all direct response advertisers. And we were not spared, as lead generation activity for April was challenging on both the year-over-year comparison and sequentially. Conversely, May is off to a good start, trending positively to goal.

Today both the call center and ad agency are meeting our expectations. We continue to see better clearance rates for ad placement and have started to run a new creative for a collision program at NASCAR Technical Institute with positive results. We plan to air our new 30-minute automotive infomercial in June and we’ll monitor our new creative to measure the success and response rate. We anticipate continued improvement in lead generation activities and future quarters, as we fully implement new media buys and new creative.

We continue to search for a new senior vice president of marketing. We have recently engaged a new search firm, as the initial firm did not provide the quality and quantity of candidates desired. Fortunately, we have a solid marketing and advertising team in place that allows us to be highly selective in this critical hire.

Slower-than-expected starts for the second quarter of fiscal 2006 totaled approximately 640 students, of which 300 we reported in our first quarter earnings call in February 2006. This is approximately 160 fewer students starts during the quarter, as compared to the same quarter in fiscal 2005.

The fewer number of starts are attributed in part to insufficient leads and applicants, as well as the declining show rate. Lower applicants were the main contributor to the shortfall. Our show rate for the past 10 months was 160 basis points lower than our historically measured period. For the second quarter, our show rate was approximately 250 basis points lower than the prior year quarter.

We are focused on stabilizing and improving key operating trends, such as lead generation and student recruitment efforts, as well as student show and persistence rates. We have implemented a five-point plan to address both internal and external factors affecting our performance.

Point number one is to increase the quantity and quality of leads. Our primary focus is to develop new advertising creative and enhance local, regional and national media buys to drive students to specific campuses. The benefits of these strategies are to improve student enrollment and retention rates by reaching an untapped market within close proximity to our existing sites.

Point number two is to streamline lead distribution to better serve our student population. The intent is to distribute the leads to the type of representative best able to serve the students needs. Typically, we have distributed leads based on type of lead and age of the potential students. Our objective is to increase the number of face-to-face interviews for dependent students, where parental support is critical.

Point number three is to develop shorter, yet relevant program offerings with lower tuition. This is a strategy UTI has used historically and one that a number of our competitors offer today. This strategy enables a student to enroll in a shorter program, which is more affordable for an independent student.

Once in school, the student is given the opportunity to upgrade his or her program to a longer, more valuable program. The student is more inclined to do so with the encouragement of employers who require the training and are willing to support the student through our tuition reimbursement program.

Point number four is to improve the future student experience. This effort centers around enhancing the effectiveness of the interaction with the student from the time of the student’s application to the time that the student begins classes. This involves a higher level of customer service at specific campuses and increased financial aid assistance to help with relocation and living expenses.

Point number five is to improve student retention. This initiative focuses on improving the overall educational experience. It involves instructor training, further curriculum refinement and the system wide role out of the flex-tech tutorial.

We recognize that we are in a changing environment and must adjust our sales and marketing strategies to appeal to a different generation of students with changing values, and the need to be communicated with differently. The key to our future is building on the lessons we have learned over the last four decades and complimenting that with innovative strategies to help drive our future growth.

Next, I will provide a brief update on new campus openings and campus expansions. We are building our student population in our newest Sacramento, California, location. Today the student population at this campus is approximately 200 students. During the summer of 2006, we plan to move our automotive training program to its permanent site, approximately one mile from our temporary location.

We expect to retain possession of our temporary facility for another 12 to 15 months to temporarily house our diesel program. Transition of our diesel program to the permanent facility is expected to occur during the third quarter of fiscal 2007. Approximately 7 to $9 million of capital spending expected to occur during fiscal 2006 is now planned to shift to fiscal 2007 as a result.

Our collision training is expected to begin during the first quarter of fiscal 2007. The permanent campus, once fully constructed, will accommodate automotive, diesel and collision repair training for a total capacity of 2,100 students.

At our Norwood, Massachusetts, campus we have reached a student population of approximately 550 students since its opening in late June 2005. We have begun to stabilize our persistence rates and significantly improve overall student satisfaction. In addition, we have successfully hired a new school director who has started and is in training. He was previously a regional vice president of campuses for the University of Phoenix. Our regional vice president will remain at the campus while the new school director completes his training to facilitate a seamless transition of leadership.

At our Exton, Pennsylvania, campus we have approximately 1,260 students currently enrolled, which compares to approximately 780 students a year ago. We have reached 52% utilization at the campus after approximately two years of operations. Average undergraduate enrollment for this location is in line with our new campus model.

The campus can accommodate up to 2,400 students, including the recent expansion of 500 seats for our diesel program. We expect over time that approximately 25 to 40% of automotive students will add diesel to their program. It typically takes several years to achieve that level.

As mentioned in prior calls, we are in the final stages of completing our national footprint expansion project. This project is expected to help us identify future campus locations and program offerings beyond 2008. More information from this project will be forthcoming. While we focus on filling in capacity that exists in our current campuses, we will delay adding any new locations until fiscal 2008.

Next I will provide an update on our progress, on building new key industry relationships. On Monday, we announced the addition of Nissan as our newest automotive OEM relationship. The new training covered under the contract will take the form of a nine-week branded elective. Nissan is providing UTI training aids in support of Nissan and Infinity lines, as well as specialty tools as part of the program.

The elective training will be offered at Houston, Texas; Morrisville, North Carolina; and Orlando, Florida. Training is expected to begin during the fourth quarter of fiscal 2006. Students who successfully complete their training will be eligible to receive credit within the Nissan Technician Certification system. In 2005, Nissan sold more than one million trucks and cars and was ranked sixth in the United States by JD Power and Associates. Nissan North America Inc., markets 11 vehicle lines in 1,100 dealers throughout the Continental United States.

This relationship will directly open up hundreds of Nissan dealers as potential employers of our graduates. Our relationship with Nissan is part of our strategy to create high-value relationships with OEMs and their dealers. We uniquely view our primary customers as the employers of our graduates, which enables us to tailor our training to the changing needs of industries, while enriching our graduates’ opportunity and enhancing our brand equity.

Now I’d like to turn the call over to Jennifer Haslip, our CFO, for a detailed review of our financial results for the quarter and fiscal year. Jennifer?

Thank you, Kim. As noted in our press release, net revenues for the second quarter of fiscal 2006 were $88.7 million. Up 14.5% from $77.5 million reported in the same quarter last year. Revenue growth was primarily driven by higher student enrollment, an additional earning day during the quarter, as well as tuition increases.

Our operating income for the second quarter of fiscal 2006 was $13.6 million, excluding equity-based compensation, as compared to $14.4 million, which did not include equity-based compensation a year ago. The year-over-year decrease relates to lower-than-expected students, higher operating costs, as well as increased expansion costs during the quarter at the Company’s new Norwood, Massachusetts, and Sacramento, California, campuses.

Income from operations for the second quarter of fiscal 2006 was $12.5 million, including equity-based compensation, compared to $14.4 million for the first quarter of fiscal 2005. Fiscal 2006 includes equity-based compensation expense of $1.1 million. Operating margins for the second quarter of fiscal 2006, excluding equity-based compensation expense, was $15.3 million, compared to 18.6% for the same period last year. Lower-than-planned students, as well as higher compensation related costs and depreciation, lowered margins as compared to the second quarter of fiscal 2005.

In addition, operating losses associated with the expansion of the Norwood, Massachusetts, and Sacramento, California, were $1.19 million during the second quarter of fiscal 2006. Operating losses associated with the expansion of Exton, Pennsylvania, and Norwood, Massachusetts, and Sacramento, California, were $0.8 million during the second quarter of fiscal 2005.

Operating margin for the second quarter of fiscal 2006, including equity-based compensation expense, was 14.1%, as compared to 18.6% for the same period last year. The second quarter of fiscal 2006 includes equity-based compensation expense of approximately $1.1 million.

Net income for the second quarter of fiscal 2006 was $9 million, excluding equity-based compensation expense, or $0.31 for diluted share, for net income of $9.2 million, or $0.32 per diluted share, for the same quarter in fiscal 2005. Net income for the second quarter of fiscal 2006, including equity-based compensation expense, was $8.3 million, or $0.29 for diluted share, as compared to net income of $9.2 million, or $0.32 per diluted share, for the same quarter in fiscal 2005.

Our net revenues for the first six months of fiscal 2006 were $174.2 million, a 15.5% increase from $150.8 million for the same period in the previous year. Income from operations for the six months ended March 31, 2006, was 30.9 million, excluding-equity-based compensation, as compared to $29.9 million in the same period in the previous year, which did not include equity-based compensation expense.

In addition, operating losses associated with the expansion of Norwood, Massachusetts, Sacramento, California, were $4.1 million during the six months ended March 31, 2006. Operating losses associated with the expansion of Exton, Pennsylvania; Norwood, Massachusetts; and Sacramento, California were $1.8 million during the six months ended March 31, 2005.

In terms of operations from the six months ended March 31, 2006, was 28.8 million, including equity-based compensations, as compared to $29.9 million for the six months ended March 31, 2005. Fiscal 2006, six months of activity includes equity-based compensation expense of approximately $2.1 million.

Operating margins for the first six months for fiscal 2006 was 17.7%, down from 19.8%, excluding equity-based compensation for the first six months of fiscal 2005, which did not include equity-based compensation expense. Lower-than-planned students as well as higher compensation related costs and depreciation lowered margins, as compared to the first six months of 2005. Operating margins for the six months ended March 31, 2006, was 16.5%, down from 19.8%, including equity-based compensation expense for the six months ended March 31, 2005. Fiscal 2006 six months of activity includes equity-based compensation expense of approximately $2.1 million.

Net income for the six months ended March 31, 2006, was 19.9 million or $0.70 per diluted share, excluding equity-based compensation. A 4.6% increase from net income of $19 million, or $0.67 per diluted share for the same period in fiscal 2005, which did not include equity-based compensation expense. Net income margin for the first six months of fiscal 2006 was 11.4%, excluding equity-based compensation, and was 12.6% for fiscal 2005, which did not include equity-based compensation.

Net income for the six months ended March 31, 2006, was 18.6 million, or $0.65 per diluted share, including equity-based compensation, a decrease from net income of $19 million, or $0.67 per diluted share, for the same period in fiscal 2005. Net income margin for the first six months of fiscal 2006 was 10.7%, including equity-based compensation, as compared to 12.6% in the first six months of fiscal 2005.

Net interest income for the second quarter was $849,000, compared with net interest income of $316,000 for the same period last year, due to favorable interest rates and higher interest income related to the investment of our [export] cash. Our tax rate for the second quarter of fiscal 2006 was 37.8%, compared to 39.6% for the previous quarter and 37.9% for the second quarter of fiscal 2005.

Turning now to our balance sheet, we have cash and cash equivalents of $76.3 million, as of March 31, 2006, compared with $52 million at September 30, 2005. We recently announced the approval by our Board of a $30 million share repurchase program. We have not repurchased any shares to date. However, we expect to begin utilizing our authorized repurchase program.

Capital expenditures for the six months ended March 31, 2006, were approximately $16.4 million compared with approximately $22.1 million for the same period last year. We’re planning to spend approximately 65 to $75 million for capital expenditures during fiscal 2006. The range includes approximately 50 to $55 million of expansion capital spending, primarily related to our Sacramento, California, facility as well as our two [MMI] expansion projects.

Our capital expenditures typically vary with our student population, as well as planned programs enhancements and expansion. [Campus] placement service are slightly ahead of when they are required for training purposes. We expect capital expenditures to increase over the coming quarters, as we upgrade current equipment, expand existing facilities and open new locations. We anticipate ongoing capital expenditures to range from 5 to 6% of total revenues. New and expanded facilities add to our ongoing our maintenance capital expenditures.

Now I’ll provide an update on student statistics for the quarter. Our average undergraduate enrollment for the three months ended March 31, 2006, was 16,642, as compared to 15,517 for the three months ended March 31, 2005. Our average undergraduate enrollment for the six months ended March 31, 2006 was 17,036 students, an increase of 9.8% from 15,521 students for the same period a year ago.

Undergraduate enrollment at March 31, 2006, was 16,206 students, compared with 15,155 students at the end of the prior year. As we discussed in previous calls, we have seasonality that impacts our operations. And our operating income is typically the lowest during the third fiscal quarter ended June 30, due to a lower population of students.

As our program length continues to expand, and our adult population grows, we are seeing better utilization of our facilities during non-peak periods of the year. The Company’s costs do not significantly vary the changes in student populations. We expect quarterly fluctuations and operating results to continue, as a result of seasonal enrollment pattern. These patterns may change, however, as a result of new school openings, new program introductions and increased enrollment of adult students.

Now, I’ll turn it back to Kim for a quick summary.

Thank you, Jennifer. Although our Company is currently facing a number of external and internal challenges, I am confident that our people are focused on creating solutions that will benefit our students, the industry we serve and our shareholders.

And with that, we would now be happy to take your questions. Operator?

Thank you. (Operator Instructions.)

Our first question comes from Mark Marostica from Piper Jaffray. Please go ahead with your question.

Thank you, this is actually A.J., for Mark. Kim, I wanted to know, I know you highlighted the impact and the issues of lead, but what about demand? What about-- what do you see in terms of impact of the strong economy, reconstruction in the South on student demand for UTI services?

Well, the demand from the employer side remains very strong. I think the economic and the economy that we talked about with the stronger labor market and especially the recovery efforts in the South has been an issue for us from a recruitment standpoint. And that’s what we have talked about in changing our advertising strategy, the messaging, to reach these students to say, “you’re only postponing what you could be doing today.”

And they’re chasing a quick buck and they’re able to make good money doing it without making an investment in their education today. And our challenge is to get them to commit to their education today, as opposed to postponing while they can make good money, putting roofs on houses in the South.

So it is impacting our recruitment efforts. I do think that there continues to be demand for our program. They’re excited about what these industries offer them, in terms of, their longer term career opportunities. But they’re having a difficult time saying no to the money they can make today.

Okay, so would it be fair to at least characterize what you-- your thoughts on April 12, it sounds like there’s [inaudible] in regarding the impact of the economy and the labor market costs on UTI.

I would say that that is true. That we are still feeling those factors in the South primarily, but in some other markets as well. And we are adjusting our advertising messages to accommodate that.

Okay, and then just a follow up here. How would you characterize the impact of competition on regeneration retention versus maybe just poor lead management at this point?

Well, in talking to our representatives, we don’t hear competition cited as, the top three concerns for not getting students to enroll or show to school. I do think when you look at the advertising channels, whether it be television, or through the Internet, it is very crowded. And so I do think it’s more challenging to reach the students. I also think that the new generation requires a different form of communication. And we are continuing to experiment with ways to-- ways to reach them that are not necessarily the traditional methods. So I do think competition, whether it’s a direct competitor or just education in general, is creating the noise in the airwaves and the channels to reach these students.

Okay and then just lastly, to Jennifer, is any of the previous guidance you gave on net income profiled on net income margin guidance and revenue guidance? Is that still valid?

That’s something that we’re going to be updating as we move forward, as we’d indicated in our pre-announcement.

Okay, very good, thank you.

Thank you.

Our next question comes from Howard Block with Banc of America Securities. Please go ahead with the question.

Thanks, operator. Good afternoon, Kim, and, Jennifer.

Hi.

I wanted to just ask for clarification on-- I think you [just gave] statistics on the show rate. You said that the show rate was down 250 bits from 2/3/05 to 2/3/06?

That’s correct.

And then what was the 160-bit change, I think you’d mentioned just before that?

That was a cohort group that we have that-- it measures the last ten months of activity.

Okay. And how about the share rates so far in maybe April, May? Any updates on them?

It’s about the same.

It’s about the same; we haven’t seen much impact to that.

So about the same, you mean down 250 bits, or the same from last year?

It would be-- if you were to take the period forward, it would not have changed from the 10-month period.

So, no further deterioration.

No further deterioration, okay. And then if you were able to sort of control, or look campus by campus, is the deterioration that you’ve seen year-to-year, is that still mostly postal state deteriorations?

I’d say that we are seeing some rebound in Florida, which is a positive sign. But, we have some ways to make up with the southern state. So yes, North Carolina has been an issue for us. Texas has been an issue. And it’s spotty throughout the rest of the United States, but that’s primarily been our focus point from a show point-- from a show rate standpoint.

Maybe just an indication of that, Howard, the 250 basis points that we talked about on a quarter comparison basis, if you look at just the southern states, there was a 400-bit deterioration. And although that only equates to 65 students roughly, it is an indication of the struggles that were having in the South.

Okay. And then when will the [Elly Kay] consulting report that we’re waiting on-- is that right?

Yes. We’ve actually met with Elly Kay last week. We are-- we’re in the final stages. I did delay this last meeting with them for some time, due to the focus that we needed to have as a team on filling existing capacity. And I have slowed that down slightly because I want people to be focused on filling capacity at the sites that we have today. I do expect that it will be wrapped up within the next couple months and we’ll report on that.

The study or project is-- it’s steadily progressing and there have been no changes to the model in what we’re looking at. It’s just simply been delayed due to the focus at hand.

Okay. And what’s the timing and where would the shorter programs be rolled out?

The shorter programs, I’d say, are probably four months away because we do have to get those licensed at an individual state level. The intent is to make them available at all of the campuses to appeal to the independent student who does not have the ability or the willingness to pay for it at the current rate. And so I would expect that in four-months’ time you would be able to see that across the system.

Okay, and then one last one, but then I’ll jump back into the queue-- just on the flex-tech tutorials, how many campuses have them now and when will all campuses have them?

Two campuses have it today and that is Norwood and Avondale. And it’s going to take us several months, because we have to train the instructors. So I’d say over the next six months, you’re going to see that roll out the other sites.

Okay.

And that would be automotive campuses only, not the motorcycle and marine programs at this time.

Great, thank you.

Our next question comes from Jeff Silber with Harris Nesbitt.

Thank you. Just another question-- I know you’re not updating your guidance, but there were a few of us that just wanted to get some clarification on that guidance. Can you tell us what kind of enrollment growth assumptions you’re using for the back half of the year to get to your full-year guidance?

Well, basically you would wind up having, obviously, a lower enrollment growth at the back part of the year. But we really haven’t broken that up by period. So, you basically just have to use the math for the six months and project it forward.

So it’s not that you’re expecting any kind of rebound towards the end of the fiscal year?

No, not necessarily.

Okay, great that’s helpful, thank you. The tax rate was a little bit lower than I think you had previously guided to. Any specific reason why and what tax rates should we be using for the rest of the year?

I think that, from of tax rate perspective in the quarter, it was lower primarily because of some lower state rates that we saw. We’re in a couple economic areas where we received better credit, than we had originally thought for those particular areas. So that’s what it came through at.

And, again, for the rest of the year should we be using the second quarter, first quarter blended?

I’d say a blended rate would be fine.

Okay, great. And then just one more question-- the $1.1 million in stock-based comp, if we wanted to allocated by the specific expense line items, where would that go?

The vast majorities of that is going to be in the selling, general and administrative category. And for the quarter-- bear with me just a second-- there was roughly a million dollars that was in the G&A category and then the other piece would be in the ad services line. So, and that would be consistent for both quarters.

Okay, great, I’ll let somebody else jump in, thanks.

Our next question comes from Trey Cowan with Stanford Group. Please go ahead with your question.

Thanks, good afternoon everybody. On the 65-student deterioration in the southern states, was that a number based on starts or the student population?

Starts.

Okay. And then the number that you threw out there, as far as being below plan, I’m sorry I didn’t catch that. What was that number? Was it like around 500 that you said, but I--?

Actually it was 600-- it was-- well, there were 642 at starts in the quarter, according to plan, and it was about 550 students on average.

Okay. And then, if you looked at that 550 students, how would you slice that up as far as external versus internal issues causing what you thought could not get those students?

That’s difficult to say. I mean, we do believe it is a combination of the external environment as well as our own internal misses. We do believe that we have the internal issues addressed, for the most part, but it’s going to take time to address the external ones. So, I think it’s a combination-- it is really difficult for me to say 50% is related to external and 50% to internal because it’s the combination of the two that really created these challenges for us.

Okay. And when we’re looking ahead to the high school enrollments this fall, what’s your sense of those enrollments? I mean, what is changing with those younger students as far as why the marketing message isn’t grabbing them now, or as much as it used to?

Well it’s-- with the younger students, I don’t think it’s so much the marketing message, that is primarily the adult students who are, they’re in career changes, or they’re trying to increase their earnings.

I do think that the younger student is very interested still in the passion of the industry and the opportunities that a job in the industry affords them. I think what’s most important and relevant for the younger group is the way in which we interact with them. So television for the younger student is becoming less appealing and they’re not watching it as much as they used to.

I think response rates are down from television. More of their activity is moved to the Internet. They’re living in a digital world and it requires a different interaction between, our Company and them to appeal to them. The message I don’t think changes so much as to the how you reach the younger generation.

Okay, and, switching gears-- I apologize, I’ll clean my ears after this conference call. What did you say the CapEx was for the quarter?

CapEx was actually a little over $16 million.

Okay. And whenever we look out to 2007, would it be fair to assume that the maintenance CapEx-- or what the full CapEx is going to be, if you’re not opening or expanding campuses-- of roughly about $20 million?

Yeah, that was about what was included in this fiscal year, from a maintenance CapEx spending perspective, yes.

All right, thanks a lot guys.

Thank you, our next question comes from [Jack Shirk] with SunTrust; please go ahead with the question.

Hi, good afternoon. Couple questions for you. First off, your revenue for students for the quarter was higher than we were looking for. What’s driving that? Is it just the shift towards your current population being in more graduate programs or something else?

Actually, there was an additional earning day in the quarter that contributed significantly to that rise in percentage. And it was-- it would have equated about a million four in revenue for the quarter.

Okay. And then, also to-- in point number two of your five-point program, was streamlining feed distribution, you mentioned something about buying or having more leads that are more, in shorter driving distances, or more locally in touch with the college in a local area. Are you seeing any sort of things out there on behalf of, not current students, but possible enrollment and possible new student starts, in terms of pushback from gas prices or fuel, anything like that would be showing in those no shows?

We are seeing that and I’d say specifically in Southern California, where you have a higher commuter population, that we have had some feedback from the students-- that gas prices, over $3 a gallon, is becoming cost prohibited for them. And we are working on carpool strategies and other things to help over come that.

For those students who have to travel across the United States to get to one of the campuses, which is the majority of our students, they are citing gas prices and what it would cost them to make the trip, as being an issue. And so, we are working with them, to help them cover expenses, et cetera, to get there that would be covered in their total educational package, if this is a barrier for them.

We do not like to do that too much because, of course, it burdens them with debt. So we try to really limit any of the financial assistance or private funding, strictly to tuition. But, in extreme cases, we now will help them with that.

Okay. And then-- but you’re seeing that mostly from new students, not current students, I take it?

We are seeing it with current students as well, and that’s the example I used in California, where it was most commonly cited.

Okay. And then, my final question is, in terms of the competitive landscape in the Sacramento market, what percentage of your, Sacramento school-- once it’s even rolled out, or eventually it’s going to be in the collision area.

It’s about 500.

It’s about 500 seats of the 2,100 capacity.

Okay. And then one of your competitors recently mentioned that they were going to expand capacity in their collision centers out there. Have you-- do you have that baked in your numbers, so to speak?

We are aware of the competitors’ plans that have been public or that we’re getting back from our field reps. And I can tell you with that information, it has not changed our commitment to building out the collision repair program.

Okay. Great, thank you very much.

You’re welcome.

Our next question comes from [Will Connolly] with [Sky] Capital. Go ahead please with your question.

Could you just clarify-- if I think I heard you correctly, you haven’t bought back any stock since you’ve made the announcement, is that correct?

That’s correct. We are waiting for the timing to clear up relative to the call.

Well, I just want to make sure I understand kind of the technicalities of that. You guys announced the buyback-- I think it was on March 6. The stock subsequently went down about 30%. From that point has since kind of recovered to down about 20%. So if I’m interpreting your answer correctly, basically, it’s been a timing issue that’s kept you out of the market?

It’s a closed window from a trading perspective.

Okay.

And so, once we’ve worked through this call and been out, in the market for several days, then that’s an opportunity that we could avail ourselves.

Let me rephrase the question. I think when I spoke to you after the pre-announcement, you had basically said you had to be out of the market for-- I think it was three business days after the news. And I think, since then, I’m not sure how many days that would have given you to repurchase shares, but it’s been several days.

I’m just wondering, what the thought process is in terms of-- obviously, the stock’s 20% lower than it was when you announced the stock repurchase. My guess would be that if you have some, at least some decent visibility with regard to trends that you’d be active in the market.

We are working through that and making certain that we have legal opinion as to what we should be doing. And originally that was the guidance, that we could do it within three days. However, with the timing with the earnings call, we were in a closed window. And the three days is subsequent to this call, not the previous call. So we are-- we’re just trying to bide by the rules.

Okay. So, is it fair to say that your inactivity has nothing to do with whether you think your stock is-- repurchasing shares is a good return here? It has more to do with kind of the technicality of when and if you can be in the market. Is that fair?

It has all to do with the technicalities of when we can be in the market.

Okay. Fair enough, thanks.

(Operator Instructions.)

You have a follow-up question from Howard Block. Please go ahead with your question.

Thanks again operator. Just wanted to ask about the new ad agency and I know under your leadership, Kim, are you more active with local spots and local spending? And if so, how are the results?

Yes, we have been more active with local spending and the shorter form spots, the 30 second versus the 30 minute-- 30 and second-- 30- and 60-second versions. And we have been very pleased with the results, not only in terms of the response rate, but the cost per lead; typically it trends higher than that that would come from our long form. And they’ve actually been equal.

So I think that is an indication of the quality and the change of the message in the advertisement, which we have changed out our collision repair and NASCAR, as well as the media buying strategies and placement from the new ad agency. So I’ve been very pleased with the progress made in that area.

Is it safe to attribute the relatively positive comments about lead flow to that change, or would it be too small of a change to attribute the scale of the improvement in lead flow?

I think it’s too small to really attribute it to that. I do think that, overall, the buys have been much better, whether it be national, regional or local buys. And our clearance rates for the long form have improved significantly. So I think all of those things are attributing to it and-- in combination with improved effectiveness with the call center.

Okay. And you’ve said quite a bit about lead flow, but not necessarily the conversion. Has there been any marked change in conversion rates for leads?

I’d say-- if you look back at the last quarter, it’s relatively flat or slightly down. And it would be down a point for conversion. And I think it is too soon for us to register the conversion for most of the newer activity.

Okay.

So it’s just too early for me to give you that at this point.

And then just lastly, a few calls ago we spoke about-- or you spoke about cannibalization. Haven’t heard any comments about that, c-word in a while. I was just wondering-- is any change there in terms of the cannibalization you’re seeing in Glendale Heights or maybe some of the more mature-- in Houston. And would the introduction of new programs, like the Nissan elective in Houston in particular, be a remedy for cannibalization?

Yes, I do think the new programs at those campuses will definitely help, from a cannibalization standpoint. I also believe that the focus on the local market advertising is the best fix, if you will, for backfilling those sites. And we are starting to see-- I’d say improvement at NCI, and some improvement in Houston.

So I think that it’s just a matter of time as we start to deploy more of those resources into the local and regional markets that we will be able to backfill. I think we have basically just started to scratch the surface, in terms of the local and regional buys that are available to fill these campuses.

Okay. Great, thank you.

Our next question comes from [Matt Weatherbee] with MA Weatherbee and Company. Please go ahead with your question.

This is George Stay. Hi, Jennifer, and, Kim. One question regarding persistence rate. I-- could you comment on that rate or that ratio in the last quarter please?

Yes, persistence rates have stabilized and so we do believe that we have that in order and under control at this point.

I see. So-- but in your five-point strategy, you continue to say “improved retention.” So I guess the effort you are going to have in this field is going to perhaps elevate that number, instead of just keeping it flat, right?

That is our intention. The reason that we have that as one of the five point-- focal points-- is that we believe there is opportunity with the roll out of the flex-tech tutorial to the other sites. We also believe that the external factors are going to continue to create pressure for our student population and anything that we can do to stabilize or improve that persistence rate, obviously, benefits us all. So it is one of the five critical areas of focus for us.

Okay, thank you.

You’re welcome.

Our next question comes from-- our next question is a follow-up question from Mark Marostica from Piper Jaffray, please go ahead.

Yes, thanks for the follow-up, this is A.J. again. Just on your shorter length of stay programs, who are they being geared towards, the adults or the high school students? A little clarification would be helpful.

Yes, typically the shorter programs are most appealing to the adult students, or in-- what we would call and independent student. And the reason that it is more attractive to them is that they have less financial aid availability than a high school or dependent student because they’re not eligible for parental loans.

So typically, they have a wider gap between the costs of tuition and the funding that is available and they’re forced to get private financing that typically is at a higher interest rate than the government loans. And so they are geared toward the older students.

Now some say, well this is concerning, we’ll now see this migration of students to a shorter program. And I don’t believe that to be true, based on our historical trends or the sheer passion inside of our students. And that is that typically we see students who want to take everything that they can get.

And I think a good indication of this and the effectiveness of an up sell strategy is what is occurring at our Houston campus today. That campus caters to probably one of the lowest socioeconomic, populations or demographics in our system. And yet they have been very successful in upgrading their students from just an auto program to an auto diesel program.

And the way that they’ve been able to do that is by engaging employers and industry contacts by giving presentations, speaking to the value of a longer education, or something that includes automotive and diesel. Many of these employers, at that point in time, step up and are willing to sponsor their tuition or reimburse them through the financial aid programs.

At that point in the student’s training, they now are starting to realize that they’re going to have a different income, they will have the means to make these tuition payments and then they’re able to up sell it. I don’t think that this-- the shorter programs will be very attractive to the high school students, as they want to take all that they can get, and I think we’ll continue to see that.

The benefit of this strategy is to get those students who get sticker shock, right at the gate at the beginning and say, “I just can’t go.” So I think it’s going to help us get those students that today we’re losing because of the front end affordability concerns.

Okay. Thanks for the clarification

Thank you. Our next question is a follow-up question from Howard Block with Bank of America Securities. Go ahead.

I feel like the Eveready Bunny. But I’m just going through my notes again on all these statistics that I appreciate from Jennifer. But on the lead generation, just to clarify, you said it was up 19%, 2Q, ’06 versus 1Q, ’06?

Yes.

But still down versus 2Q, ’05?

Yes.

And then I think you said May turned positively.

Yes.

What does that mean-- positive year-over-year versus May of ’05?

It’s positive to our goal and it’s only a week in, but we did see a rebound, by the end of April to the end of the first week of May. And so we have goals that would be based on our original budget. And we’re exceeding what our goal is for this point in the month.

Okay. But we’re probably still down year-over-year?

Yes, we would be down year-over-year.

Okay, great thanks.

And there are no further questions at this time, please continue.

As I mentioned earlier, employees at all of the campuses and throughout our organization are very focused on the challenges at hand. I am particularly energized by the creativity and passion exhibited by UTI employees to overcome these challenges.

I remain optimistic about the Company’s future and our ability to overcome these obstacles in a way that remains true to our priorities of purpose, people and profit.

Thank you for your continued interest in Universal Technical Institute.

Ladies and gentlemen, this concludes the Universal Technical Institute’s Fiscal Second Quarter 2006 Conference Call. You may now disconnect and thank you for using ATT Teleconferencing.