Universal Technical Institute Inc (UTI) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Universal Technical Institute Inc.'s fiscal fourth quarter 2007 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. (OPERATOR INSTRUCTIONS). As a reminder, today's conference call is being recorded. A replay of this call will be available for 10 days at www.uticorp.com. Once again, that is www.uticorp.com, or alternatively the call will be available through December 4, 2007, by dialing toll-free 1-800-405-2236 or 303-590-3000 and entering the pass code 11100261 followed by the pound sign. At this time, I would like to turn the conference over to Miss. Jennifer Haslip, Chief Financial Officer of Universal Technical Institute. Please go ahead.

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 fourth quarter and year ended September 30, 2007, and then open the call up for your questions. The company's earnings release was issued after 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 the 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. I will refer to you today's news release for UTI's comments on that topic. The Safe Harbor Statement in the release, which I will not repeat here in the interest of time, also applies to all statements made during this conference call. Information in this conference call including the initial statements by management, as well as answers to questions related in any way to a projection or forward-looking forward-looking statements, are subject to this Safe Harbor Statement.

At this time I would like to turn the call over to Kim McWaters, Chief Executive Officer. Kim.

Thank you, Jennifer. Good afternoon, ladies and gentlemen. Thank you for joining us to review our fourth quarter and annual 2007 results. On today's call, I will provide a high level overview of the quarter, and discuss operating trends. Jennifer will follow with a more detailed review of our financial results, and I will close with an update on key business initiatives before opening the call up for your questions.

Our net revenues for the fourth quarter were $87 million, down 1.9% from the prior year. Net loss for the quarter was $1.3 million, as compared to net income of $4.3 million for the same quarter a year ago. Our operating performance suffered during the quarter in comparison with the same quarter last year, due to under-utilized capacity, and higher compensation benefits, and contract services costs. Also impacting the quarter were costs associated with our reduction in force in sales reorganization. These factors contributed to a $0.05 loss per share for the fourth quarter, compared to earnings per share of $0.16 a year ago. The net increase in reduction in force costs and sales territory realignment expense, was approximately $4.5 million, as compared to $1.1 million a year ago and impacted EPS by $0.08. In addition, we recorded a net $0.02 charge to reverse tax credits no longer available once we closed our sale lease-back transaction on our Norwood Massachusetts property, and released tax reserves that related to periods no longer subject to audit during the fourth quarter.

Students contracts declined year-over-year by approximately 5%, and 18% for the fourth quarter. The majority of the decline for both the quarter and fiscal year is related to continued challenges with adult student recruitment efforts. Approximately one third of the quarters decline was related to the consolidation of the 24 field territories, which we believe can be made up over the course of this year, as the high school territories are now fully realigned. Average undergraduate enrollment for the fourth quarter of 2007 was 15,464, compared to 16,278 a year ago, a decrease of 5%. The decrease was primarily attributed to lower student starts during prior periods.

You may recall as we entered the fourth quarter, we reported on our third quarter earnings call an 8% year-over-year decline in starts for the month of July. By the end of the quarter we improved the year-over-year decline to less than 1%, starting more than 6,600 students. While we did see year-on-year improvement for individual starts at specific campuses, our overall show rate for the quarter was 220 basis points lower than the prior year. It was, however, a sequential improvement from the third quarter decline of 410 basis points. Approximately 75% of the starts during this timeframe are recent high school graduates, and 25% are adults.

Consistent with prior years, as we move into the next few quarters, we will depend on a higher concentration of adult students. Given the challenges in recruiting adult students, specifically current application and show rate trends, it is likely that we will see greater deterioration in year-on-year starts during the first quarter of fiscal 2008, as we experience the start decline of about 8% through November 5, 2007, during the first quarter of fiscal '08. We believe that the primary factors impacting both the number of starts, and the volatility of our show rate are low unemployment rates, affordability concerns, and internal process challenges.

For the year, our average undergraduate population averaged 15,856 compared to 16,291 in the prior year. In fiscal '07 we had 570, or 3.6% fewer starts for the year, and 400 or 3.7% more graduates. We ended the fourth quarter at approximately 61% capacity utilization, compared to 65% for the same period a year ago. The decline of 400 basis points was due to both a decline in student enrollment, as well as the 1.5% increase in capacity. The additional 370 seats completed the expansion of our Sacramento campus, and various manufacturer specific electives. On a positive note student persistence remained stable for both the quarter and the year, which reflects the commitment of our staff and instructors to provide a quality educational experience for our students, despite a challenging environment.

Quickly before I turn the call over to Jennifer, I would like to provide a brief update on our newer campus statistics. As a reminder in our earnings call we provide student statistics for campuses until they achieve 60% utilization rates. As our Exton campus, we had approximately 1,450 students enrolled through November 9, 2007, down 8% from 1,570 a year ago. For the fourth quarter Exton averaged 1,240 students down 6.5% to 1,325 last year. Both fewer starts and higher graduates impacted the student population at this campus.

Our Norwood, Massachusetts campus had a student population of approximately 1,130 students as of November 9th, up 13% from 1,000 students a year ago. For the fourth quarter Norwood averaged 985 students, up 19% from 830 students last year. During the past twelve months we doubled the student population at our Sacramento campus. As of November 9th student enrollment approximated 1,210 up 101% from a year ago. Our overage student enrollment during the fourth quarter was 900, up 120% from 410 students a year ago. We are very pleased with our growth in Sacramento, and our market share gain, given the close proximity of the primary competitor and the 12 to 18 month lead entering the market.

Now I would 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 Kim mentioned, net revenues for the fourth quarter of fiscal 2007 were $87 million, down 1.9% from $88.7 million reported in the same quarter last year. The decline was primarily driven by lower average student enrollment, of approximately 500 basis points for the quarter, and higher scholarships and discounts of approximately 160 basis points, partially offset by higher tuition rates of 3% to 5%.

Our operating loss for the fourth quarter of fiscal 2007 was $1.9 million, compared with operating income of $6.3 million in the same period during the previous year. The loss in the fourth quarter of fiscal 2007 includes costs associated with our reduction in force of sales restructuring of $4.5 million and compares to $1.1 million in the same quarter last year. Operating loss percentage for the fourth quarter of fiscal 2007 was 2.2%, compared with operating margin of 7.1% for the same period last year. On a percentage basis, the change primarily relates to increased compensation and related benefits of 473 basis points, contract services of 271 basis points, and occupancy costs of 136 basis points as well as a variety of less significant categories. The reduction in force in sales restructuring costs impacted operating margin by 520 basis points, and 130 basis points in the fourth quarter of fiscal 2007 and 2006 respectively.

The operating loss for Sacramento was $1.3 million during the fourth quarter of fiscal 2007, and is the only campus for fiscal 2007 that is still considered a new campus in our 10-K, which will be filed later this week. As expected, Norwood, Massachusetts, was profitable for the quarter. The combined net operating loss was $2.4 million in the same quarter a year ago for both Sacramento, California, and Norwood, Massachusetts.

Net interest income for the fourth quarter was $864,000 compared with net interest income of $566,000 for the same period last year. Income tax expense for the fourth quarter of fiscal 2007 included a valuation allowance of approximately $0.9 million related to the October 10, 2007, sale of our Norwood facility. As a result of the sale, the company will no longer be entitle to do a portion of the Massachusetts State investment tax credit that was previously recorded. As such, we have recorded approximately $0.9 million of additional tax expense during the fourth quarter of fiscal 2007. The $0.9 million tax expense was offset by $0.3 million related to the release of prior period reserves for tax years that is are no longer subject to audit. The net increase to income tax expense of $0.6 million, decreased earnings per share by approximately $0.02 for the fourth quarter.

Net loss for the fourth quarter of fiscal 2007 was $1.3 million or $0.05 per diluted share as compared with net income of $4.3 million or $0.16 per diluted share for the same quarter in fiscal 2006. During the quarter we recorded a tax benefit of 24.9%, compared with tax expense of 36.9% for the fourth quarter of fiscal 2006. Our fourth quarter 2006 tax rate also included a release of tax reserves. In the future we would expect our tax rate to range from 37% to 39% absent unusual items.

Looking at our balance sheet, we had cash and cash equivalents of $75.6 million at September 30, 2007, compared with $41.4 million at September 30, 2006. Even with our challenges, we generated $39.6 million in cash flow from operations, for the year ended September 30, 2007, as compared with $45.4 million in the prior year. During October we announced the completion of our Norwood sale leaseback transaction. The transaction closed on October 10, 2007, and the sales price was roughly $33 million. We recorded a small gain on the transaction, that will be amortized over the term of the lease.

At October 31, 2007, our cash and cash equivalents were approximately $108 million. As noted in our press release, earlier today our Board of Directors authorized the share repurchase plan of up to $50 million in common stock, in both open market and privately negotiated transactions. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements and other prevailing market conditions. The plan may be limited, or terminated without prior notice.

Moving to capital expenditures, we recorded approximately $44.2 million for the year ended September 30, 2007, compared with $53.7 million in the prior year period. Of the $44.2 million, approximately $32.8 million was related to expansion activities. The majority of the expenditures in both years related to our Sacramento, California build out. Capital expenditures as described include both cash and accrued purchases. Our planned capital expenditures are expected to be roughly $16 million to $18 million for fiscal 2008. We're continuing to look for potential opportunities to optimize our footprint, which could include reallocating a portion of existing space to OEM retraining programs, new product offerings, or sub-leasing facilities with excess capacity.

From a regulatory perspective as we discussed in our prior earnings call, and in an effort to proactively comply with expected new federal regulations, we selected five federal lenders upon completing our request for information at the end of August. In addition, we added five alternative lenders, including a subprime provider, to help support student financing needs. We also updated our website to include links to the new lenders, and additional information to support students choosing their preferred lending option. During October 2007, we received a request for information from the Department of Education, as did many other schools, primarily related to our lender relationship, selection process, and other related information requests. We have responded to the information requests, and are awaiting the Department of Education's response.

Also, we did receive some good news related to our default rates. All three of our funding numbers for 2005 came in below 10%, and ranged from 4.7% to 7%. We're proud of these statistics and our placement rate, which continues to be 91% for the fiscal year ended 2006.

Lastly we have a number of requests from investors to provide historical business statistics, as part of our earnings call. We have posted a slide presentation on our website that can be accessed at www.uticorp.com under the Investor Relations section, to provide greater transparency on key operating statistics. Now I will turn it back to Kim for a few minutes to talk about progress on key business initiatives.

Thanks, Jennifer. While fiscal 2007 quarter and annual results reflect a challenging operating environment, they're not reflective of the focus and progress driving our improvement efforts. I would like to take just a few minutes to provide an update on the key initiatives in the area of marketing and sales, student finance, and operational efficiency.

Let's start with marketing. Our advertising expense for the quarter was approximately 8.5% of revenue. Our lead volume was down 20% for the quarter year-on-year, as we intentionally cut unproductive advertising expenditures that produced a higher volume of lower quality leads last year. Average cost per lead for the quarter increased 5% year-over-year. During the past nine months we have invested in upgrading our marketing infrastructure to fundamentally change our go to market approach, our lead acquisition and qualification processes, and to align high cost sales channels in correlation with the student prospect value. We made investments in detailed quantitative and qualitative segmentation and positioning research, across multiple audiences and influencers. Sales process analyses, lead qualification systems, and an enhanced infrastructure to support our website in internet lead generation.

As a result of our research and test pilots, we have recently implemented a number of significant changes. One, we have transitioned all media buying, which was originally limited to primarily short form television to Halogen Media, a division of Starcom USA, the largest media buying group in the U.S. This should continue to increase buying efficiency, and media placement benefiting from Halogen's size in the marketplace, and their relationship with UTI over the past couple of years. Two, we have placed greater emphasis on short form advertising and more broadly viewed day time programming. This further complements our integrated multi-media strategies, and key markets. Three, we continue to improve our low cost lead qualification processes to improve rep productivity, and to reduce lead acquisition costs from lead vendors.

The next series of fundamental changes will be unveiled in January 2008, that will further strengthen our market leader position. First, a new short form advertising campaign focused on UTI's core distinction, versus the competition will be launched. The campaign integrates the segment research and positioning that rated highly in all quantitative tests. Second, a revamped internet channel expected to lower lead acquisition costs, and shorten the selling cycle, will be launched with the new website incorporating multiple audience messaging, full motion video, and new storage relating to the schools in our industry. Further more, the search engine strategy will be optimized to increase natural search engine productivity, and lower costs associated with unproductive lead vendors. This strategy should allow the company to increase its internet lead volume while targeting a better return on investment from online lead vendors. Third, increased emphasis on local market support will continue to promote local campus awareness, site visits, and local events. This strategy is designed to capitalize on our brand, exploiting both national campaigns, and internet efficiency, with local visibility and proximity.

We're excited about what we have learned, tested and developed. We believe we understand our student segments, where to reach them, and how to reach them. It is important to understand that the level of marketing investment and lead growth will be closely coordinated with admissions to ensure sales processes change, staffing and training are in place to fully optimized our lead generation efforts.

From a sales or admissions perspective, specifically our campus-based adult recruitment channel, we have accomplished the following. We have new management in place. We have decentralized the reporting structure to improve accountability and cross functional teamwork at our campuses in support of our local market strategy. Sales processes have been analyzed, and additional training is being developed to address deficiencies. We continue to improve the lead qualification, and lead nurturing processes designed to improve our representative productivity levels.

Moving to the field representatives, which includes our high school and military base reps, we have completed the territory realignment to eliminate nonproductive territories. We believe the business from the better high schools in these territories will be worked effectively this year, by our remaining representatives. All of our new representatives and the vast majority of our veteran representatives have received training that appears to be making a difference. In October individual high school rep productivity improved by 9%. These reps have received additional training on how to work the high schools, more productively in the vocational and academic classes, and are armed with new multi-media tools to reach high school students. We believe there are significant opportunity to improve sales performance, and are encouraged by the changes under way with new sales leadership, representative training, process improvement, and the strong focus on local market promotions and sales efforts.

The second area of focus has been in the area of student finance and customer service. Again, we have taken significant measures to improve our processes and operational efficiency, while better serving our students. First, we outsourced front end financial aid processes, which are more transactional with limited customer interaction. The UTI team-member step in once initial financial aid documents are ready for Title IV packaging to begin. We've been very pleased with this transition and expect it to be fully transitioned in January 2008. With respect to our financial aid and future student services team, we completed our process mapping and analysis in April, developed training and desktop manuals during May and June, and launched our first pilot in July, with continued rollout expected over the next several months.

Our first pilot which is very limited in scope, one campus out of the ten that we have currently, has shown encouraging signs with over 300 basis points improvement in show rates during their first start since the pilot launched. To help address affordability concerns for our students, we have expanded our lender list, and secured an alternative subprime lender for students who need one. We've had good success with our need-based scholarship program, and have awarded more than 2,000 scholarships to students who have been accepted to our schools and specific criteria. The need-based scholarship awardees have a show rate, that is nearly double those students who did not participate in the program. We have launched a short program at a single campus as an entry point for students unable to afford our more traditional programs. As students matriculate through their programs we will attempt to up-sell them with the encouragement and financial support of prospective employers in the area. These efforts have enabled UTI to keep it's retail prices stable.

While we rebuild our student population, we're very focused on our cost structure, and improving operational efficiencies at our campuses. A companywide employee bonus plan has been approved by the board this year that is driven by EBIT targets at specific locations, which will keep revenue generation and cost controls top of mind for all of our team members. We have implemented a number of actions to improve class density, such as session balancing, class consolidations, as well as changes to our scheduling policy, core sequencing, and elective entry points.

We're also rationalizing our facilities with targeted re-purposing or reduction of 160,000 square feet across our facilities over the next few years. As an example we're relocating some of our home office teams to our Avondale campus, and sub-leasing 20,000 square feet of our home office facilities, saving approximately $1 million over the life of the lease. Another example is sub-leasing space to Ford at our Exton and Sacramento campuses. We're also developing revenue generating electives such as Toyota at Exton, Sacramento, and Freightliner and (inaudible) Power Generation at the Avondale campus. We continue to believe our campuses are in the right location, that there is untapped potential in the surrounding markets, and at the same time, there is opportunity to optimize our existing space at some of our campuses, while addressing the needs of our industry customers and students.

In summary, I would like to share just a few remarks on the year. While our operating outcomes may have suffered in 2007, the academic outcomes of our students did not. We graduated 11,200 technician this is year, which is an all-time high. The vast majority of those graduates found rewarding employment with other key customers, the manufacturers, dealers, and our employers. The academic quality that is the source of our brand equity, and the foundation of our industry relationships has evolved over a long period of time, and that academic quality remains high as evidenced by our graduation and placement rates, and the satisfaction of our industry partners with our graduates.

Despite our operating setbacks in 2007, we remain steadfast in our mission. We have seen nothing which lessens our confidence in the attractiveness of our academic product, or the potential size of the market we're attempting to penetrate. We have kept our momentum in strengthening and developing our industry relationships with a specific focus on diesel this year. We believe these efforts will continue to improve our sales efforts, and our operational performance overall. From a student recruitment standpoint, I am confident that we're focused on the right areas of marketing, sales and student finance, and believe that our investment in these areas will gain momentum as we move through fiscal 2008, and into 2009.

And before I take your questions I would like to take the opportunity to thank our talented and dedicated employees at UTI. The profound changes that occurred in the company during the past year, have tested the strength and character of our employees, and I am proud to be part of such a fine group of people. We expect that the combination of all of these changes we are implementing, will drive us to realize improved shareholder value, and sustained growth earnings over time. Finally, I would like to thank you, our shareholders for your patience and support during this time of change. And with that Jennifer and I are happy to take your questions.

(OPERATOR INSTRUCTIONS). First question comes from the line of Bob Craig, with Stifel Nicolaus. Please go ahead with your question.

Good afternoon, Kim and Jennifer.

Hi, Bob.

Sort of a multi-pronged question. I will cheat a little bit here. Talking about the sales force or the rep force, what is your current manpower level? I think you were at 275, as of last report. How was turnover been there, and are there any other open positions, and or if you could comment on hiring plans as you go throughout the year?

Sure. As we entered the first quarter of '08, we had 247 reps compared to 267 last year, and that reflects primarily the change in the territory restructuring. The turnover has-- it's increased by 130 basis points for fiscal '07, over fiscal '06 including the reorganization of the sales force.

Hiring plans?

Hiring plans, we have about four open territories right now with the field sales force, and we'll continue to fill those as we can. That would just depend on retention and turnover of representatives. As our leads and our efforts improve on the campus side of our sales organization, we would expect to increase our head count there, but that will happen over time.

Great. Thanks, Kim.

Thank you. The next question comes from the line of Mark Marostica with Piper Jaffray. Please go ahead with your question.

Hello, it is Mark [Skitovich] for Marostica who is traveling. A question on the October start decline you mentioned. I am wondering if you could elaborate on that, just given you had shown some pretty good start progression in September, so I am just curious what you attribute that to?

Primarily we attribute it to the shift, the population mix to the adults. As we mentioned before, we've been struggling more with our adult student recruitment efforts, and as we move out of the summer and early fall start dates, we become more dependent on the adult students, and that's what we believe is contributing to that decline, in the first part of fiscal '08.

Okay. And would that be sort of indicative through the quarter, or what are you anticipating heading through the quarter?

We don't have obviously the remainder of the quarters, but we think it could increase as a decline.

Okay. On the advertising front, can you just elaborate on what specifically you're doing on the local advertising front, and then just in general what sort of good date or time line for us to look at as when we should start seeing some leverage from these initiatives?

As far as we have-- our advertising mix to short form so the 30-minute infomercials to the 30-- 60-second spots and are running them more in daytime programming spots, in the areas where is our campuses are located, and in the vicinities around those campuses. In addition to that, we have targeted campus events that drives traffic to the schools, and by local promotions, direct mail, e-mail blasts, radio and a number of other things we've been doing locally there. It is focused on a grassroots effort, gorilla marketing in the local environment to drive our sites.

And then sort of-- what is a good and sort of target to look at where we just should start to see some improvement from these new initiatives?

We're starting to see that at various pilots that we've had at some select campuses. In terms of it being fully implemented, not going to really launch until January across the system, so it is going to take probably five months before you see those leads actually convert into starts at the school, on a system wide basis, so you're halfway into '08.

Okay, great. Thank you.

Thank you. The next question is from Gary Bisbee, with Lehman Brothers. Please go ahead.

Hi. The question you mentioned the new bonus structure. I wonder if I could ask two questions about that. I think you said EBIT targets at the campus level. How deep down in the organization would this be, campus leadership and executive leadership, or does it go deeper than that, and then wondered if you could share with us sort of directionally where these targets are, flat versus '07 or down 5%, down 10%, any type of color there would be helpful?

I am not going to share the targets with you, because we haven't even rolled that out system wide to all of our employees, but I can tell you that our entire employee population does benefit in some way from, or participate in this type of a program, and depending on the level within the organization, determines the bonus opportunity, or the at-risk compensation component. All employees participate in this plan.

If I could just sneak one more in. The cost savings that you got from the head count reduction last month, at the time you sort of indicated that that would likely be rolled over on increased marketing and admissions type spending. Is that still the plan, or is there some sense that you might get some of that savings now, given that I believe you said leads were down pretty dramatically, you might be spending a little less?

Well, we are curtailing some of the spending that we found to be unproductive, but we do expect to redeploy the vast majority of those costs that we will save in the reduction in force, really into sales and marketing activities, and we've talked a little bit about the new website that we're launching, and doing more local advertising, as well as outsourcing a portion of our financial aid functions, and so that will take up the majority of those costs.

Okay. Thanks.

Thank you, sir. The next question comes from the line of Jack Shirt with Suncrest. Please go ahead with your question.

Thank you very much. You mentioned that marketing and advertising was 8.5 percent of revenue this quarter. What was it a year ago?

It was very close to that same number. Bear with me a second and I will look for the specific statistics. A year ago it was 8.7%.

Great. Thank you very much.

Thank you. The next question is from Ryan Mahoney, with ThinkEquity. Please go ahead.

Thanks. Was hoping you might be able to update us on capacity utilization, and how we might expect that to trend on a year-over-year basis heading into 2008?

Well, we can't really give you our indications for capacity utilization going throughout the fiscal year. I guess I would redirect you back to, just as we had the fourth quarter end, and we were off about a a point in starts for that particular quarter, and then of course entering the fiscal year, we have not had a strong showing as we entered that period showing 8% down from a start perspective, so I think that capacity is going to be under pressure for the majority of the year next year, but I can't give you specific numbers on that.

Isn't that one of the slides that is on the website as well, that shows the capacity by site?

It does, from an historical perspective going into 2008.

Great. Thanks. And just quickly, could you give us the stock comp expense for the quarter, and broken out by line items?

Sure. The stock compensation expense that was included in educational services, was roughly very minimal in that particular category, so the majority of it was recorded into the SG&A category, so let me flip to that just a second. It was $1.1 million for the quarter, and it was $1.3 million in the prior year quarter.

Great. Thanks.

Thank you. The next question comes from Jeff Silver with BMO Capital Markets. Please go ahead.

Thanks. You had mentioned some of the renegotiations you did with your lenders. I was wondering if you could comment generally. Are you seeing any push back from any of them, or any of the ones you discussed with regarding the cut in the subsidies, and people have been talking about the credit crunch issues, and I am wondering if you're seeing that, or your students are seeing that?

Actually we believe that adding the new lenders has been helpful from a funding standpoint, for our students and certainly there is quite a bit of aggressiveness on wanting to lend to students. It is certainly top of mind from those lenders. We do think that adding the subprime component, gives us an opportunity to service students who otherwise wouldn't be eligible under our traditional program, so that's kind of a new element we've added to our group, but we've not gotten push back on the subsidies from lenders. It is a pretty new change, though, so I don't think that we've seen all of the reaction that could occur.

That's fair. A couple numbers questions. The $4.5 million in the severance and related costs, reduction of force and related costs, excuse me, how is that broken out by line item?

You know, I don't have that right in front of me, from a reduction in force standpoint. Would you mind following up with me on that after the call?

No problem. Let me sneak in another one. How was bad debt expense for the quarter?

Bad debt expense was a little bit up during the quarter. As a percentage of revenue, we actually saw bad debt go to-- bear with me just a second-- 1.3% of revenue, and it would have been just under a point in the prior year same quarter.

One more follow-up. When can you be in the market for your share repurchase, what kind of restrictions do you have internally?

We would have both external and internal restrictions, and so the external restrictions would be really Friday, but we would also have restrictions from a Board perspective as we finalize our program plan.

Is there some general date you can tell us when, again I am not asking when you start, but when are you eligible to start?

We're eligible to start on this Friday, from an external perspective, and we'll report on our earnings calls as we move forward, what amount of shares we would have repurchased during those timeframes.

Great. Thanks.

Thank you. (OPERATOR INSTRUCTIONS). We have a follow-up question from Jack Sherk with Suncrest. Please go ahead.

I may have missed it, but the $4.5 million, what's the breakdown between educational services and SG&A?

That was the question that was just asked a moment ago, and I do not have that handy in front of me, so if you wouldn't mind calling me back.

No problem. My bad. Sorry.

No worries. Thank you.

Thank you. The next question is a follow-up question from Gary Bisbee, with Lehman Brothers. Please go ahead.

I notice that the share repurchases half of the cash that I think you have after the most repeat or the second sale leaseback. I guess can you give us any perspective on how the Board of the thinking about using the cash, and any expected future cash flows, that it would seem to me reasonable to consider using more than half of the balance? I guess the second part of the question is just, have you thought of anything else maybe diversifying acquisitions or anything else to use your capital for? Thanks.

I will go ahead and take that one. I think that the $50 million is something that is a reasonable dollar amount to start with from a planned perspective and leaves us the opportunity to work through different funding opportunities that we might have from a student perspective, as well as consider other strategic acquisitions that might be in play, and so I think it leaves us with a lot of flexibility, and I think that is the direction the Board was heading, in setting that number.

Okay. One last follow-up if I could. You talked about the potential options to reallocate some existing space to OEMs, potentially consider new programs, or even at some point sublease space, if you don't see the utilization turning around. I guess I am trying to understand the sense of urgency you have right now, and sort of how bad it would have to get, before you would feel like you had to act aggressively on those three strategies, or maybe if some of that is already in the works today? Thanks a lot.

As I said earlier, we do have an internal goal of reducing or re-purposing 160,000 square feet across our ten facilities, and we're on that now looking at all sites, and believe that the opportunity differs by campus location, and we're exploring all of those things at this point. I would say there is a good sense of urgency around it, and we'll take it a market at a time, but we're looking at all sites at this point.

Thanks.

Thank you, sir. The next question is a follow-up question from Bob Craig, with Stifel Nicolaus. Please go ahead, sir.

In terms of the lending arrangements you renegotiated or did negotiate, any increasing risk being borne by you folks from any of those contracts?

We would be bearing additional risk, and it would be primarily related to two pools of funds we have with a couple of different lenders. I think we spoke earlier on the call about the subprime lender that we've added on, and that we would have a significant risk on for the portion that's funded through that program, up to 90% or 95% of the balance that's funded we would be at risk for, if the student did not make timely payments throughout that program. In addition to that, the new renegotiation with Sallie Mae, changed our pool that we had had with them previously, where in the past it had been limited to a 20% discount back to UTI. Now it is based on the student's credit score, and whether they attain a COVAR, so it ranges from-- anywhere from I think 15% anywhere to 40%, under that program depending upon the individual student's credit score, and the ability to obtain a COVAR.

That's helpful. Can you give us an idea of rough percentage of revenue derived from third party loan financing?

From a third party perspective if you were to incorporate the signature type loan products, as well as the discount programs, you would be probably be in the 12% to 15% of the total balance for the students. Now, that's assuming an average across all of our students. If you were looking at an independent student, the rate would be far higher than that. If you were looking at a dependent student, it would be lower.

Last question on tuition price increase side. Any decisions made for what it likely is to average out to in 2008? I think the last read was maybe low end of a 3% to 5% range.

Yes. You know, we held tuition in the fall, and we're still evaluating if and when to increase prices in 2008. We've been holding the tuition prices given the affordability challenges obviously, while we've evaluated the effectiveness of the initiatives that we've implemented to address the overall affordability. I think we would be looking at somewhere in the 1% to 3% range for certain courses at certain campuses, and that again will depend on whether or not we see these initiatives really gaining momentum. I think meanwhile, we're focused on ways to lessen our dependence on tuition increases, as the primary means to say drive revenue growth, and of course we're focused on ways to improve overall profitability. I say 1% to 3%.

That's very helpful. Thank you.

(OPERATOR INSTRUCTIONS). Miss McWaters there are no further questions at this time. Please go ahead.

I would like to say thank you for joining us today and have a good evening.

Thank you. Ladies and gentlemen, this does conclude the conference for today. You may now disconnect. Thank you for using ACT teleconferencing.