Universal Technical Institute Inc (UTI) 2011 Q1 法說會逐字稿

Good afternoon and welcome to the Universal Technical Institute, Inc. first-quarter 2011 conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions.

As a reminder, today's conference call is being recorded. A replay of this call will be available for 60 days at www.uti.edu. Or alternatively, the call will be available through February 15, 2011, by dialing 877-344-7529 or 412-317-0088 and entering passcode 447284.

At this time, I would like to turn the conference over to Ms. Jenny Bruso, Director of Investor Relations of Universal Technical Institute. Please go ahead, ma'am.

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 first quarter ended December 31, 2010, 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.uti.edu.

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. I refer you to today's news release for UTI's comments on that topic.

The safe harbor statement in this 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 any projection or forward-looking statement, are subject to this safe harbor statement.

In the prepared remarks you'll hear today, we will make reference to EBITDA. EBITDA for all periods discussed during our remarks is a non-GAAP measure representing net income exclusive of interest, income taxes, depreciation and amortization. The schedule provided in the earnings release reconciles EBITDA to the nearest corresponding GAAP-measured net income.

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

Thank you, Jenny. Good afternoon, ladies and gentlemen. Thank you for joining us.

On today's call, I will give a high-level overview of the quarter with a focus on our key operating results. Eugene Putnam, our CFO, will follow with a more detailed review of our financial results and provide an update on 2011 forward-looking information. We will close with regulatory commentary before opening the call up for your questions.

Overall, our financial and operating results for the first quarter of 2011 were strong. Our average student population increased 9% for a record high of 20,400 students. Our net revenues increased 13% to $117 million, and net income was up 10.5% for a total of $10.3 million or $0.42 per diluted share. This compares to $9.3 million or $0.38 per diluted share last year for the same period.

Moving to key operating results and business strategies, let's begin with advertising and marketing. Our advertising spend during the first quarter was 6.8% of revenues compared to 5.7% in the prior-year quarter, when advertising rates were significantly lower and there was much greater ad space availability. During the previous quarter, our advertising expense was 7.4%, so we have seen some improvement on a sequential basis.

Advertising costs in total increased 37% year over year, due to higher overall advertising rates for television, but primarily due to an increased investment in testing various lower-cost Internet vehicles.

On a per-inquiry basis, our costs increased 18%.

Overall, we continued to see strong levels of student interest in our brands and programs during the quarter. We adjusted our media mix in response to higher advertising rates for television and tighter availability during the holidays. Specifically, we invest more on lower-cost media sources, primarily via the Internet. As a result, our student inquiries increased 22%. However, our conversion rates declined on a year-over-year basis.

During the quarter, we implemented a couple of initiatives to improve the conversion rate, which we believe will enable us to utilize some of the lower-cost media sources going forward. While not burdening our admissions teams with low-quality student prospects.

In short, we will continue to optimize our media mix with a focus on quality and those students who have the greatest propensity to succeed at UTI.

Looking forward, we expect our advertising expense to remain in the range of 7% to 8% of revenues for the full year.

Student applications during the quarter increased roughly 5% year over year, all of which came from our high school and military effort, as the adult student segment declined 1% year over year. So we saw some improvement overall from the previous quarter, but less than what we expected, given the continued growth in student inquiries both in the quarter and in previous quarters.

It is probably worth reminding everyone that a major difference between our field admissions channels and our campus admission channel is the source of student inquiries. Both field channel representatives, including high school and military, are in large part responsible for generating their own student inquiries through their efforts in high school and on military bases. Media-generated inquiries supplement their efforts.

Comparatively, campus-based representative inquiries are 100% media-generated. Therefore, to improve our conversion rates with adult students, it is of critical importance for us to effectively target our media efforts on those students who have the greatest propensity to enroll and graduate from UTI and ultimately become employed in the field for which they trained.

So, what are we doing to address the conversion issue? From a marketing standpoint, we are working with our admissions and marketing experts to better understand who these prospective students are, what's different about them than a year ago, what hurdles must they overcome to enroll and attend UTI, and if we can help them, how do we do so most efficiently and effectively?

Two, we have successfully transitioned to a new advertising agency and will now use the feedback and data to adjust our marketing mix accordingly.

And last, we will continue to test new, lower-cost media sources and qualify the student inquiries before turning them over to our admissions team. At the same time, we will quickly eliminate low-quality providers. Again, our focus is on quality.

From an admissions standpoint, we continue to provide our representatives with the training tools and leadership necessary to adapt to a changing environment. Our campus admissions representatives have faced greater challenges with the adult student segment. Representatives have identified a decline in motivation and willingness to do what is necessary to overcome some of the economic challenges our students are required to endure when they physically relocate and attend school.

We are seeing similar tendencies with the adult segment from a show rate standpoint as well, and I will discuss that in a moment.

During the quarter, we started 3300 new students compared to 3900 a year ago. This decline of 13% is largely attributed to having an insufficient number of student applications written for the quarter.

As mentioned on our last call, we entered the fiscal year with fewer students scheduled to start in the quarter than in the prior year, and for some of the reasons I just discussed, we were unable to make up the shortfall. While we experienced an increase in student applications from the field team, a majority of those are not scheduled to start until the fourth quarter, after the students complete high school.

At the end of the first quarter, we had approximately 10% fewer students scheduled to start during the second quarter than we had last year. Traditionally, our second- and third-quarter student starts are largely dependent upon the adult student population. Given some of the challenges we faced this quarter and through January with the adult segment, we now fully expect starts to decline on a year-over-year basis for the next couple of quarters.

We are very focused on reversing this student start trend in the second half of the year, but wanted you to know that it is unlikely that we will experience any growth in starts until the fourth quarter, when high school students traditionally begin.

Let's talk about our new student show rate for the quarter as we are seeing some interesting trends here as well. Against a very tough comparison, our show rate for the first quarter declined 190 basis points. As a reminder, our show rate a year ago was the highest show rate we had achieved in three years.

Again, we saw significant differences between the high school-aged population -- those who are 19 and younger -- with the adult population. The show rate for the adult population actually decreased nearly 500 basis points across virtually all programs, income levels, age, etc., while the high school show rate increased 350 basis points, for the highest show rate in that student segment in the first quarter since 2005.

With that said, we continue to focus on the important measure of efficiency, recognizing that we are beginning to face some headwinds while acknowledging there is opportunity to improve our execution in marketing and admissions.

During the quarter, our student persistence rate improved 190 basis points. We graduated 3600 students, an increase of 17.5% year over year.

While employment remains very challenging for motorcycle, collision and marine specifically, we are seeing some very good progress in the auto and diesel segment. In fact, four out of nine automotive campuses are currently at 90%. Six are at 88% or better. So we have really seen some nice progress inside of the quarter.

On a consolidated basis, our employment rates improved 725 basis points through the first quarter compared to the prior year's quarter.

Also, I'm excited to announce that we have a new automotive OEM partner, Honda Motor Company. We will be offering a new Honda automotive elective at our Glendale Heights campus beginning sometime this summer.

Honda is the second-largest Japanese manufacturer of automobiles and maintains a 10.6% US market share based on automotive sales for 2010. We are the only private proprietary education company to offer the Honda PACT program.

We are also pleased to be adding the Nissan elective at our Norwood campus beginning this month. With the addition of the elective at the Norwood campus, we will be offering Nissan at five campuses. We chose to add the elective at the Norwood campus as a result of Nissan's interest in bolstering its certified technicians for the approximately 240 dealers represented in that region. Nissan has a US market share of 7.8%.

Just as our reminder, there are numerous benefits to the student-paid elective form of training. More students have access to manufacturer-specific training; both students and dealers are free from any contractual financial or employment agreement with the OEM; and electives provide UTI greater flexibility with instructor/student ratios. The level of OEM support for elective-based training is very strong, with product and curriculum support, as evidenced with all of our OEM-specific electives.

OEM-specific training programs remain a key differentiator for our brand and strengthen the UTI value proposition for both our students and employers.

In summary, it was a good quarter financially, which is largely reflective of the continuing student population. We were disappointed that our applications and new student starts were not where we expected them to be for the quarter. While we know this is partly due to certain economic factors and perhaps the uncertainty in the regulatory environment, and all the negative publicity for for-profit education companies, we realize there is an opportunity to improve execution in marketing and admissions.

And I am confident we can and will do that. Meanwhile, we are pleased with the improvement in our in our persistence and employment rates.

Now I would like to turn the call over to Eugene.

Thanks, Kim. As mentioned, revenues for the first quarter were $117.4 million, up 13% to last year. The improvement over the period was primarily driven by an increase in average students in school of approximately 1600. That's about a 9% increase.

During the quarter, we had $1.8 million in tuition revenue from our loan program that was not recognized. That amounts to about 1.6% of revenue. Average revenue per student for the quarter increased 4.3% to approximately $5750 per student.

Operating income for the first quarter was $16.9 million compared to $15.1 million in the same period last year, and the margin for the first quarter was 14.3%, about the same as last year.

Compensation and benefit costs increased $4.5 million to $53.9 million. The increase is primarily attributable to an increase in the number of instructors to support the need for the growth of the student population, as well as an increase in IT staff to support the development and rollout of the new blended learning curriculum.

Advertising expense increased $2.2 million to $8 million and is attributable to the marketing spend to generate additional high-quality inquiries to support future student enrollment, as well as the overall increase in media costs.

Our bad debt expense increased $785,000 for the quarter, from $1.5 million to $2.3 million. As a percentage of revenue, bad debt increased from 1.4% to 1.9% and was mostly a result of an increase in outstanding balances related to students leaving school, mostly as a result of life-changing events stemming from difficult economic conditions.

Looking at Dallas, we continue to be very pleased with its results. As a reminder, that campus opened at the end of June last year. As of December 31, we had approximately 370 students in school. And at the end of January, we had 420 students in school, which is in line with our expectations. Additionally, the development of the new blended learning curriculum continues to be on track and is scheduled to be completed by the end of the fiscal year.

For the three months ended December 31, the Dallas campus recognized $1.8 million in revenue and incurred $3.2 million in expense, of which $1.4 million was corporate allocations. So the campus was basically at breakeven for the quarter prior to allocations.

And as mentioned before, we had anticipated that this campus would become profitable on a quarterly basis nine to 15 months after its opening, and we fully expect to hit that milestone during the second quarter of this year, ahead of schedule and less than nine months after last June's opening.

EBITDA for the quarter was $23.3 million. That's up from $19.8 million for the first quarter of last year.

And finally, net income for the quarter was $10.3 million, up from $9.3 million last year, and our EPS was $0.42 per share, up 10.5% from the $0.38 last year.

In summary, the growth in net income was primarily driven by revenue growth, offset by increases in compensation, advertising, depreciation and bad debt expense. Return on equity for the trailing four quarters was 25.8%.

Moving to our balance sheet, it continues to be extremely strong and liquid. We had cash, cash equivalents and investments of roughly $86 million at December 31. That's up from $81 million at September 30. We generated $11.7 million in cash flow from operations during the quarter. And we continue to have no debt on the balance sheet, and during the quarter we did not purchase any shares of our stock.

During the quarter, we did invest $6.5 million in fixed assets, which was up from $5.3 million in the same period last year. The investment is primarily related to the investment in new curriculum, the investment to begin teaching our diesel curriculum at our Rancho Cucamonga campus, as well as new and replacement training equipment for our ongoing operations.

Our private loan program continues to help students who don't have sufficient access to traditional credit-based loan products and who are otherwise fully qualified to attend UTI. As of December 31, we have committed to provide approximately $26.3 million under the program, and we have $22.5 million in loans outstanding. The average loan per student is now about $4800. And since the inception of the program, we have not recognized tuition and interest revenue totaling $23 million through December 31.

As more and more participants enter repayment, our cash collections continue to improve. During the first quarter, we recorded $142,000 in revenue and interest from cash payments that were received from this program, which was up from $110,000 in the previous quarter. And to date, we have collected $453,000 from the program.

A few updates on the regulatory front. First, the Department of Ed released estimated three-year fiscal year '08 cohort default rates. As expected, our default rates increased from the two-year rate to the three-year rate, but are fairly consistent with the three-year rates from prior periods.

We believe this small rate increase is a reflection of the economy, significant structural changes in student lending over the past few years, and a limited focus on a population that entered repayment three years ago. We have expanded our default management focus to better serve this population. And we do believe that an improving economy, a more stabilized lending environment and a greater focus on service level from both UTI and the loan servicers will drive continued improvement in the future.

Second, the Department is expected to publicly report preliminary cohort default rates for 2009 federal fiscal year in the middle of February this year. In the fourth quarter of 2010, the Department reported that cohort default rate data with respect to the FFELP programs that were purchased by the Department from the FFELP lenders had inadvertently excluded the CDR data that had been made available to postsecondary institutions.

These purchased loans, referred to as put loans, were sold by the lenders to the Department, who then assigned these loans to the servicer of the direct loan program. Soon thereafter, the servicer of the direct loan program had changed, and the put loans were transferred yet again to one of four new direct lending servicers.

The shuffling of these put loans among the three different servicers most likely had a negative impact on the overall service and quality of these loans and thus a negative impact on the overall cohort default rate for the put loans.

And finally, quickly, on the 90/10 rule, this rule is not of any immediate concern to us as we derive approximately 73% of our revenue from Title IV funds.

As for the new program integrity rules, our teams are working diligently to develop and implement policies and process changes as well as new compensation and performance management plans to comply with the new rules that take effect July 1. That said, there remain many open questions and interpretive issues with respect to the final regulations. We are fully engaged, meeting with policymakers, regulators and legislators at both the national and state level in an effort to influence thinking, given the unintended consequences of the new rules and the yet-to-be-determined outcome on gainful employment.

Meanwhile, despite the distractions and additional expenses, we are focused on the business of education and student outcomes, investing in a quality educational experience for our students to provide them with good career prospects and earnings potential.

As we look to the remainder of the year, the economic, regulatory and legislative, and political environment are creating headwinds, which Kim spoke to, which have the potential to produce lower revenue growth rates than we had previously planned for. At this point in the year, while we are aggressively working to close the application shortfall and improve closure and show rates, we believe new student starts for the year will likely be below the levels of 2010. And while it remains critical for us to continue to invest in our business to generate quality growth and student outcomes, we will proactively be much more frugal with our cost structure.

While we are not at this time planning any Company-wide layoffs, we will more aggressively manage our headcount through reduced hiring, attrition, consolidation of positions, and performance management. Given our ability to reduce variable costs at our campuses, to manage our discretionary expenses Company-wide, and to reprioritize major initiatives, we believe that even with the potential for lower-than-planned revenue, we will be able to deliver on our previously announced guidance of full-year operating margins in the range of 11% to 13%.

In summary, even with the headwinds discussed, I believe our Company is in excellent shape. We have a fortress balance sheet with plenty of capital and liquidity. While we haven't seen the final data or regulations, we believe we are well positioned regarding any potential regulatory risk from proposed gainful employment metrics, both in terms of repayment rates and debt to income ratios.

Our market share of graduating students is strong. Our employment statistics have improved this quarter. Our industry relationships expanded this quarter. Our new Dallas campus is surpassing expectations, both in terms of financial results and student feedback.

We have the largest number of students in our history. And while I don't want to underestimate the revenue challenges we discussed, I do believe that we will have meaningful revenue growth for the year, and I'm confident that we can manage the Company to balance both the educational needs of our students with the hiring demands of our industry partners, while producing the improved operating margin goals that we set for the year.

And now, operator, I think we are ready to open the lines for questions.

(Operator Instructions). Peter Appert, Piper Jaffray.

Kim, I'm wondering if you have any specific feedback from enrollment counselors or elsewhere in terms of the challenges in the adult population. Is it that the students are doing elsewhere, the community colleges are more competitive, or these students are just not going anywhere?

I think it's the latter. What we've heard is that the students are lacking motivation and resources to make a change with their life. And so we are seeing them being less motivated at the end of this economic cycle, if you will, and more challenged to come up with the resources to physically relocate and attend school.

So it's not that they're opting for a lower-cost option; it's simply that they're not doing anything. And I think that's what's been most frustrating for the representatives, is because there's interest there; they just cannot seem to convert them to enroll at UTI and begin school as planned.

Okay, fair enough. And Eugene, can you help us think about how to assess the private loan repayment data? How do you think about what these repayment rates could look like? Is there enough data yet to get an assessment of how this could go?

No, Peter, I don't think there is yet, although what we have been seeing is what we expected. As the population that enters repayment becomes more and more representative, and it's not there yet, but as it becomes more and more representative of the mix of our normal population of graduation, I think we are seeing better and better collection rates.

So the collection rates when we first started getting people into repayment were as low as 15%, 20%, because the vast majority of those in repayment were people that had dropped out of school as opposed to those who had graduated, and that has been trending up. So has the collection rate, and that collection rate now is north of 40%. I would expect it to continue to improve, but I think it will stabilize somewhere, 50%, give or take.

And when you recognize the revenues associated with the repayment, are there any costs associated with that?

No, the costs are recorded as expensed when the loan comes on the books, if you will. So all the revenue or the cash collection just flows to revenue. There is no associated expense at that same time period.

And can you give us any color on how the maturities will come over the next, say, year or two, so we get a sense of how big the number could be?

Yes, I don't have that right in front of me. I know at the end of the year, at last quarter I gave it, but I think we were expecting about $2 million in new payments that could be expected by the end of this calendar year, calendar year 2011.

$2 million in gross, though, so --

Correct. So obviously we will collect a significantly smaller portion than that.

Got it. Okay, great. Thanks. I'll let someone else ask a question.

Gary Bisbee, Barclays Capital.

I guess the first question on, Eugene, your comments on costs, I caught one line that was interesting -- the ability to reduce variable costs at the campuses. I think of your business, in a lot of ways, this may be higher fixed costs at the campus than some of the others in the industry. Can you give us some examples? Is that headcount, or are there other things at the campuses?

No. Well, there are other things, but -- and you are correct, Gary. The campus is mostly fixed cost. But just as we've seen an increase in compensation for financial aid, instructors, and as student growth has come up, if we are not seeing the same level of student growth that we planned for, then we won't have the same level of expense growth that we would have planned for.

So I would expect to see, if those revenue pressures remain, I would expect to see slower growth in the headcount than planned at the campuses. And, obviously, the nonpersonnel piece of that is truly variable. But that, to be fair, is a small piece of what goes on at the campus.

Okay. And I guess one thing that helps quite a bit potentially this year in terms of the year-to-year margin change is just it sounds like the new campus will be breakeven to profitable, and you had several million of losses last year. Are there any other areas, other than being careful with headcount, that you're really focused on right now, or is it going to really depend on how revenue trends in the next couple quarters?

Well, it's going to be both. We are clearly focused on it right now. I would say discretionary expenses are under a very tight focus of the microscope, as will be -- as is headcount. So this is not a reactionary measure down the road. It's in effect now. And we will continue to manage and adjust as results come in and as we see the business unfolding for the rest of the year.

Okay, thanks. And then just one last question for me. When we think about the period-end enrollment, that continues to be nicely up. But is it safe to say, based on what you are thinking with starts, that that number could be more sort of flattish as we get into next quarter and then potentially dip down a bit before maybe benefiting from a stronger high school population at the end of the year? Or would you think that might still be up for another quarter or so?

I think they are going to be -- I don't have the exact quarterly data, but I think we are going to be kind of flattish by the end of the year on average numbers of students. So it may go up -- I think it will probably go up a little bit in Q2, down a little bit in Q3, and then depending upon how successful we are with the high school students, back up in Q4.

Okay, thanks for the color.

Jeff Silber, BMO Capital Markets.

If I remember correctly, you instituted a price increase in November. Given what you're seeing with the adult student market, I'm just wondering if you are rethinking increasing prices going forward, if you can just tell us maybe what your pricing strategy might be over the next year or so.

As we mentioned on our last call, we did implement the tuition increase, do not plan on increasing tuitions for the remainder of this fiscal year, and will evaluate it sometime in the fall. And I think that will vary by program and geography, as it has in the past. But our thought is that we would likely have an increase in the fall. I just am not prepared to speak to what that percent might be. But nothing for the remainder of the year.

Okay, that's actually helpful; I appreciate that. Eugene, in terms of the guidance, you mentioned you're still comfortable with operating margins in the range of 11% to 13%. If I remember last quarter, though, you were looking or you put out some EPS growth targets and EBITDA growth targets -- looking at my notes, EPS growth of 15% to 20% and EBITDA growth of 25%. I was wondering if you can comment on those milestones.

Well, I'm not going to comment on it directly, but I think we left the margins the same and gave you some guidance that revenue is under pressure. So I think by definition that would lead those EPS numbers to be a little bit of a challenge.

So, we do intend to continue to grow revenue. I think we will see mid- to hopefully upper-single-digit growth in revenue, and if things really turn around, possibly double-digit growth in revenue at those margins. But I will let you add the probabilities that you want onto the achievement of those and do the math to get to the EPS numbers. But I would not be comfortable with that range of EPS growth at this point in time.

All right, I appreciate that. Thank you. Did you provide total capacity?

I don't know if we did. (laughter) You mean where we are, the percentage or absolute total capacity?

Usually we try to calculate capacity utilization, so anything you can help along those lines.

Yes, we are in the low 70s at the end of the quarter.

Okay, great. And then just one quick one. You are still throwing off a lot of cash. I'm just wondering in terms of your priorities for future cash usage, if you can provide some guidance on that.

Sure. I mean, the priorities -- and I'm going to group priorities rather than list them in order, but obviously, we have a history of returning excess capital to shareholders. Whether that is through stock repurchases and/or dividends depends upon a lot of factors -- market conditions, etc.

I think given the regulatory environment right now and the -- there's still some uncertainty out there. We are probably going to be a little bit more conservative with our balance sheet and keep our powder dry, but that could change.

We obviously have enough capital to run our business effectively. It's a nice problem to have. But we will continue the philosophy, all else equal, is to return excess capital to shareholders. It's just a question of timing and what we determine, based on other factors, to be excess. That's somewhat vague, but that's the philosophy.

All right, I understand. Thanks so much.

Jerry Herman, Stifel Nicolaus.

Guys, the first question is about the external environment. You gave a little bit of color with regard to what was going on there, but I'm wondering if you could talk a little bit about maybe other influences on student flow, i.e., some of the others have mentioned negative publicity being a factor.

Kim, I sensed that it was more of an issue of potential students sort of sitting on their hands as opposed to being siphoned away in this modestly improving job market. Could you add some color, please?

Sure. You know, this month, January, was actually the first time that we heard from the front lines that negative publicity was starting to enter into the conversations with students and their parents or spouses. So it is a subject that is starting to come up, and that's been the first time through all of this that we've heard that from our people.

The second is, in terms of the economy, there certainly are a lot of our target students unemployed. But what our sense is, given the feedback from representatives, is that the duration of this economic downturn or cycle is leaving people with fewer resources and means to come to school. And those students that we have been enrolling over the last couple of years are not necessarily the enthusiasts, but stood to benefit from a career change and education. And we have been serving those students to the best that we can, but now it looks like some of their resources have been depleted.

So we are still more successful with those students who live within close proximity to the school versus those that have to save money to relocate. So we think our strategy of focusing on that commuting population is the right one. But meanwhile, we still have a large population that has to relocate. And I just think the cycle itself and how long it has been is starting to weigh on our students and our families.

I would say that that's the biggest part of it, is really the student motivation and lack of resources to get here.

Great, that's helpful. And then, you talked about the media mix, and it looks like there is perhaps a shift towards the Internet at this juncture. Can you maybe compare and contrast the media mix, i.e., spending and conversion rates between the two sources, maybe year over year or some framework that gives us a reference?

Sure. I will give you as much information as I can. We did see a significant shift in our spend on a year-over-year basis. So if you looked at this quarter, less than 50% of our total advertising spend was on television compared to about 60% a year ago. And if you look at lead flow, the number of students coming to us through the Internet, that was over 80% in this quarter compared to the high 70s -- 77% -- last year.

Another thing that changed inside of this quarter was that approximately 38% of our leads were coming from third-party lead aggregators in this quarter versus something in the 20% range previously. And so as those ad rates increased and the availability to advertise on television became tighter, we were forced to try and test some what I will say lower-cost and obviously lower-quality lead-generation sources.

So the conversion rate from just a pure Internet media source is significantly lower than those students who see our advertisements on television or in print and either call us directly or come through the Internet.

It's just getting more difficult to define that, given that the vast majority of our student inquiries now comes through the Internet, if that makes sense.

No, that's great.

They come through the Internet, but it could be the result of television advertising.

Very helpful; I appreciate that. And then just one last question and I will turn it over, and it relates to Dallas as a campus model.

You are getting more and more information on that; it's doing better than expected. What should the campus margin be at Dallas relative to a normal campus margin? And then as a bigger-picture question, how much -- I know you've talked or tried to frame this previously, but how much of your system can be deployed in that way?

Dallas, when it reaches similar capacity to the rest of our campuses, call it somewhere in the 70% to 75% range; should operate roughly 5 percentage points higher in margin. Now, that's been done in a planning purpose, so we haven't achieved that yet, obviously, so we have to prove that out. But that's what we think it is capable of doing.

I'm not sure I fully grasped the second part of your question. Was it -- does it have to do with being able to roll that out to the rest of the franchise?

Exactly, exactly. How much of the network can utilize the similar hybrid methodology, and what hopeful impact would that have on the margins in those units?

Sure. Well, the entire franchise can ultimately use that model. Now, the distinction is, the model today, the curriculum is for the auto and diesel curriculum. So that would exclude, just because the curriculum hasn't been redone, the motorcycle campuses and the collision repair and marine. But 75% of what we teach today could accept that model, if you will, the blended learning curriculum.

That said, there is -- it will be a lengthy rollout to all those other campuses. We will start that this year, but it is a lengthy rollout process to educate, train the instructors, do the logistical conversions. But that is absolutely our intention, is to roll it out. And when it is rolled out, we think when it is rolled out, it will free up somewhere between 15% and 20% of the -- or improve the capacity, if you will, by 15% to 20%.

Great. Thanks very much. I appreciate the patience.

David Chu, Bank of America-Merrill Lynch.

You mentioned that the revelatory environment is impacting starts. Do you think that enrollment counselors are also being less productive because of this?

Yes, I do believe they are being less productive, for a couple of reasons, the first being that in this environment, we've started to bring much greater attention and focus to the way in which they interacted with the students. And I think it made them overly cautious, although I think we have a very good process. We noticed this from evaluation of call flows and listening to the calls that our representatives were just not as effective in overcoming student objections and helping them make that decision. And I think it was because they were trying to navigate in a new environment, and we were pretty clear that we had zero tolerance. So I think that made it more challenging for them.

The second is, there's got to be preoccupation with change in their compensation plans. And while we have intentionally been working through this and making certain that we are defining and implementing a compensation plan and performance management plans that are best for the students and the business and our compliance, there's still some uncertainty from their perspective as to what that's going to look like.

Now, we plan to be communicating just how we're going to do that in the springtime and plan to have our existing plans transition to the new, obviously before July 1 or by July 1. So I think those two factors have certainly weighed on them.

Okay. And are you seeing increased turnover at this time?

Actually, the turnover inside of the quarter is pretty much the same as last year. It is up a little bit, but not anything of great significance. It is relatively the same year over year.

Okay. And one more question, if I may. Can you just give us some expectations or thoughts around revenue per student? I know you said that you're not going to increase pricing for the rest of the year, but I think that there should be less of a student loan impact. And I'm not sure if there's a mix shift, but just any thoughts around that would be great.

Sure. The mix shift is the wild card in it, obviously, but I would expect to see continued low-single-digit growth in revenue per student. Even though we have not -- we've done our last increase, if you will, for the fiscal year, a lot of those students have not yet started. So as they start, they start at a higher tuition, if you will.

So I think when you net out the combination of price increases that have yet to start school, the mix -- any potential mix shift, and the small amount of drag from the loan program, at the end of the day you get to low-single-digit growth in revenue per student.

Okay. Thank you very much.

Alex Chan, Signal Hill.

I was wondering, with the adult show rate, are there any programs that are being hit harder than others? Is it the marine, you said, and the motorcycle and collision?

Actually, it is pretty much the same across all programs and income levels and age groups. It's just -- and geographies. So, no, it is really more specific to the adult segment versus a program.

Okay. And are the high school students interested in anything more -- is it diesel and the auto more so than the other ones? You know, is there (multiple speakers) demand from high school for those?

Yes, I mean, there is demand for motorcycle and marine from the high school students, but I would say that automotive and diesel is by far more popular with that segment.

Okay. And then I think last year for career services, you guys have added, what, about 20 people? I guess what are you planning this year, and has the focus there changed at all?

We don't have any additional significant headcount increases in employment services at this point. That doesn't mean we won't invest in that area to continue to improve our level of services. But I don't think it's anything of great significance. And our strategy is to continue building on the success that we had in the latter part of the year, with more of an outbound marketing effort, to create greater awareness among employers about the availability of graduates coming back to their area.

Okay, great. Thank you.

Just to follow up on that, to be clear, the headcounts that Kim mentioned are here today. That does not mean there might not still be year-over-year increases, because they weren't -- they came on partially during last year. But I think to Kim's point, what we have today and what we had for this past quarter is what we expect to maintain.

Okay, great. Thank you.

Barry Lucas, Gabelli & Co.

A couple questions on Dallas, if we could, Eugene. Your residual or remaining cash spending that's needed, and just as an extension, where do you think capital spending is going to be for all of fiscal '11?

To Dallas specific, the capital spending has for the most part been completed. I'm not going to tell you there aren't a few things to buy, but for all intents and purposes, that has been completed and that campus is outfitted.

Capital spending for the Company, in general, we did $6 million to $7 million this quarter. I think for the full year, we will probably run around $30 million. That may get cut back a little bit, but I think it will be around $30 million.

Great, that's helpful. And just sticking with Dallas, and I know it's new and there certainly could be some pent-up demand, but are there any differences that you can point to with the entering students or conversion rates at Dallas compared to -- say everything else is fairly similar among your adult population, so was there anything different in Dallas that could point to either plus or minus?

I think the main difference is that it's convenient. There are more flexible and adaptive programs and schedules for those students. And certainly, we haven't been there for a long time, so bringing the brand into that territory has certainly made a difference.

Our marketing strategies and our admissions strategies are the same. It's just, it's a different product, and it happened to be convenient and -- yes, convenient and flexible for the students.

So, are conversions -- I'm going to guess that they are better, but is that applicable?

They are better, and it's a fair point. I mean, I think that because there is such strong demand there and it's new and it's different, we are getting some benefit that we're not going to see at some of the mature locations.

Okay. Thank you. That's it for me, Kim. Appreciate it.

Gary Bisbee, Barclays Capital.

Just one quick follow-up. I read a lot in the papers about how strong auto sales are in a bunch of countries overseas. Have you done any work or any thought process around somehow monetizing the intellectual property you have, either owning schools or more aggressively partnering with someone? Or is that not really on the radar right now? Thanks.

It's not on the radar in terms of specific plans at this point, but it is certainly something that is on the radar as far as strategic alternatives and future growth. So, is there an active team here that comes to work every day working on that? No. But we do have it as something that we are investigating, looking at, and trying to make strategic decisions about not only if we might go, but if so, where and when and in what form. So it is under consideration.

If I could just add to that, one of the significant investments from a strategic standpoint that needed to be made before we could fully consider those options was the curriculum project that we have been talking about and are close to fully launching it at Dallas. So that does give us the flexibility and convenience to translate into a different language for international opportunities. So once that is complete, that gives us a lot more flexibility in that decision.

Okay, thank you.

Ms. Bruso, Ms. McWaters, Mr. Putnam, it appears that we have no further questions at this time. Would you like me to give the instructions again?

I think we are fine with that, and we will bring it to a close. I'd like to just thank everybody for your participation. And we appreciate your time and interest in Universal Technical Institute and look forward to updating you on our second-quarter earnings call, which is scheduled for Tuesday, May 3. Have a great evening. Thank you.

And we thank you, ma'am, and ladies and gentlemen, for your time. The conference has concluded. At this time, you may disconnect your lines.