Universal Technical Institute Inc (UTI) 2015 Q2 法說會逐字稿

Hello and welcome to the Universal Technical Institute's second-quarter 2015 conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. A replay of the call will be available for 60 days at www.UTI.edu, or through May 13, 2015 by dialing 412-317-0088, or 877-344-7529, and entering the pass code 10064029. At this time, I would like to turn the conference over to Mr. John Jenson, Vice President and Corporate Controller of the Universal Technical Institute. Please go ahead, sir.

Hello, and thanks for joining us. With me today are Kim McWaters, Chairman and CEO; and Eugene Putnam, President and CFO. During today's call, we'll review the results of our second quarter, and then we'll take your questions.

Before we begin, we must remind everyone that, except for historical information, today's call may contain forward-looking statements as defined by Section 21-E of the Securities Exchange Act of 1934, and Section 27-A of the amended Securities Act of 1933. I will refer you to today's news release for UTI's comments on that topic. The Safe Harbor statement in the release also applies to everything discussed during the conference call, including initial comments by management, as well as answers to questions.

During today's call, we will make reference to EBITDA, which 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 measure, net income.

Now, I'd like to turn the call over to Kim McWaters, our Chairman and Chief Executive.

Thank you, John. Hello to everyone on the call and thank you for joining us today. During the second quarter, our quality educational and student support programs, combined with the growing demand for well-trained technicians, once again translated into more jobs, higher wages, and more opportunities for our graduates to build rewarding careers.

Our work to manage costs and improve operating efficiencies, while rebuilding our student population, continued to strengthen our bottom line. We are pleased that we are now beginning to see some positive traction with our marketing and admissions strategy, and that in the month of March, our applications grew year over year for the first time in more than a year. While our new student starts remain behind last year, as we expected, given the previous quarter's shortfall in applications, we continue to believe we are on track to see new student growth during the second half of the year, as our inquiries and applications begin to grow, and our show rates remain strong.

Our strategy is aimed squarely at leveraging employer demand to enhance our student value proposition, to break down the barriers that stand between students and a UTI education, and to rebuild our student population, and ultimately the number of graduates who are trained, and ready to go to work. We are clearly at a point where demand and competition for our graduates so far exceeds the supply of trained technicians, that employers are increasingly willing to invest in our students, and help pay for their education, their tools, and even relocation expenses.

To that end, we have launched a focused effort with our employers across the country, to encourage their support for our students. Their response has been extremely positive. In fact, today 8 of the 10 largest automotive dealer groups in the country, companies like Penske Auto Group with more than 170 US dealers, and Group One with more than 150 US dealerships, now offer comprehensive programs to help our graduates start their career, and pay for their education, in part or in full.

As we continue to work with employers, and they see the power of these programs, and how they can help to fill the critical need for skilled technicians, we expect to see this kind of financial support for our students continue to grow. The difference we are seeing today from employers is that they are now increasingly willing to communicate directly with prospective students and their families about the value of a UTI education, the job opportunities available, their earning potential, and the return that they can expect to see on their investment in a UTI education.

In the past, employers were talking to our students weeks before they graduated. Now, they are talking with them months before they make the decision to come to school. We believe that hearing directly from potential employers, combined with their growing financial support, can help alleviate students' ongoing affordability concerns, and give them greater assurance that the risk of leaving a low-skill, low-wage job to go back to school will be well worth it.

The demand for technicians is going to continue to grow, as more and more baby boomers retire and technology becomes increasingly more complex. In markets with strong and unmet demand from both students and employers, we are opening new campuses that offer greater convenience and access to our programs. Our next campus in Long Beach, California, is on track, and preliminary considerations and planning for additional new campuses in key markets is underway.

At the same time we are expanding our educational offerings through new industry partnerships, like Roush Yates, to add new programs that complement our core offerings, and train students for fields where there is strong demand for their skills. Our new partnership with Roush Yates will yield a new CNC machining program that will be applicable to all kinds of industries, from racing, to healthcare, to aerospace.

In addition, Roush Yates will enhance our very popular power and performance courses in our automotive program, and offer strong marketing support with Doug Yates serving as a spokesperson for UTI and NASCAR Tech. This new industry partnership will give our students even more options for high-tech, industry-specific training, that prepares them to get good jobs and build successful careers.

Demand for our graduates, along with our commitment to student outcomes, quality training programs, and regulatory compliance, set UTI apart from others, and from the negative news and commentary surrounding our sector. We are making the most of these differentiators, and working to shift perceptions about private technical education in careers in the skilled trades, with encouraging results.

So while the environment we operate in continues to be very challenging, there are things clearly in our favor. We are the leading provider of technician training for students seeking careers in automotive, diesel, motorcycle, marine, and collision repair.

By a pretty significant margin, we are the leading supplier of entry-level technicians for the transportation industry, and have been for several decades. Why? Because we partner with industry to ensure there is demand for what we do, and that our training programs are developed to the specification of the industries that employ our graduates. We are grateful for the support of our industry partners, and the employers who are helping our students pay for their education that they need, to become gainfully employed as technicians.

Last, on May 5, we will celebrate our 50th anniversary. I am very proud of what we have accomplished during the past 50 years and the true difference we have made for hundreds of thousands of students. I am proud of the difference we have made for the transportation industry and our country, but I am most proud of our people.

Our brand, our reputation, our strong student outcomes, and the success of our graduates, are because of our talented, committing, and caring team members. They truly are a force for good. Thank you, team, and happy 50th, UTI.

With that, lets hear from Eugene, who will give us a review of the second quarter's results.

Thanks, Kim. Our continued efforts to control costs resulted in operating income of $2.4 million for the quarter, which is a significant improvement, compared to an operating loss of $1.6 million in the same period last year. We began this quarter with approximately 1,000 fewer students than we had at this time last year.

Our show rate was up 500 basis points, but new student starts were down about 13%. The decline in new student starts was not quite as large as anticipated, and was due to a lower volume of new students scheduled to start in the quarter. The combination of a lower beginning student population and lower new student starts led to an overall decline in average student population of approximately 8.8%.

The lower student populations, offset somewhat by higher average revenue per student, led to revenues of $91.2 million in the quarter, which were down 3.7% from last year. Average revenue per student was up from $6,500 to $6,800 per student. Tuition excluded $5.7 million related to our loan program, compared to $6.6 million in the second quarter of last year.

For the first half of 2015, revenues were approximately $187 million, down about 2.5%, compared to $191.8 million for the same period last year. Tuition for the six months excluded $11.4 million this year related to our loan program, compared to $12.8 million last year. Advertising expense was $11.7 million for the quarter, which was down from $12.4 million last year.

As a percentage of revenue, advertising expense was 12.8% for the quarter, compared to 13.1% for the same period last rear. Our bad debt expense decreased $1.3 million for the quarter. During the three months ended March 31, we reversed approximately $1 million of bad debt reserve recorded in 2011 and 2012, for processing issues related to student funds received from a non-Title IV federal funding agency.

Finally, we generated $7.8 million in EBITDA in Q2, which is compared to $4.2 million last year. And for the first half of 2015, EBITDA was $18.9 million, compared to $13.1 million in the first half of 2014.

Our second-quarter net income was $600,000 or $0.02 per diluted share, compared to a net loss of $1.6 million or $0.07 per diluted share, in the second quarter of last year. Year-to-date net income is $3.6 million or $0.15 per diluted share, compared to $100,000 or $0.00 per diluted share last year.

The provision for income taxes for the quarter was $1.6 million or 74.7% of pretax income, and our provision for the first half of the year was $3.9 million or 51.5% of pretax income. As we've disclosed before, the impact of non-cash adjustments to the deferred tax asset related to stock-based compensation continued this quarter, and was approximately $700,000.

It is likely we will continue to experience variability in income tax expense, depending on the price of our common stock. Assuming our common stock price remains relatively consistent with last quarter's average price, the impact of any adjustment to the deferred tax asset and related income tax expense for the year is expected to be in the range of $900,000 to $1.4 million.

Looking at our balance sheet, we had cash, cash equivalents, and investments of roughly $74.6 million at the end of the second quarter, compared to $96.1 million last year. In the six months ended March 31, we generated cash from operations of $8.7 million, and we continued to have no long-term debt on our balance sheet.

During the quarter, we invested $12.5 million in fixed assets, which was up significantly from $2.5 million last year, primarily due to the purchase of the majority of the buildings and land for our Houston campus, whose lease was expiring, and the construction of our new Long Beach campus. During the quarter, we opportunistically repurchased 748,000 shares, at an average price of $8.15 per share for a total cost of $6.1 million, and also returned $2.4 million to shareholders during the quarter through dividend payments.

With that, I'll turn it over for Kim for some details on our marketing and admissions efforts.

Thanks, Eugene. Let's look at our key performance metrics for marketing and admissions, and the work we are doing to build on some early momentum that we're seeing. Growth inquiries were down in the second quarter, 13.4% year over year, reflecting the complex, competitive, and certainly more costly environment.

Given the increasing costs in advertising, we were careful where we invested our resources, testing and building confidence that there was an acceptable return on our investment. While the costs of certain advertising created some limitations on our ability to grow the volume of inquiries this quarter, we made good progress determining what types of advertising were worth the investment.

During the quarter, we launched new advertising creative, and tested different spot formats. We optimized our media mix and improved our website landing pages, to better serve prospective students on mobile devices.

Although marketing costs more and is less efficient in this environment, now that we know more about what is working, an increased spend is warranted during the second half of the year. The increased spend will help us grow inquiries in applications this fiscal year, and new student starts in FY16.

We now estimate that our advertising expense will be 13% of revenue during the second half of the year. Advertising expense for the full year is estimated at 12%. During the quarter, new student applications were down 12.5% year over year, due to fewer inquiries, the elimination of certain underperforming territories, and a difficult comparison to a period with lower registration fees.

As we gained some momentum with our marketing efforts and lapped the anniversary of the registration fee change in March, we saw 5% growth in applications, compared to the prior year. What was most promising is that our adult channel grew 18% in the month, with fewer inquiries, and 27% fewer people. This suggests our marketing to generate higher propensity inquiries is working, and our representatives' productivity is improving.

We now need to grow our inquiry volume. While one month does not make a trend, it does give us greater confidence that we are on the right path.

For the quarter, and as expected, our new student starts were down 12.9% year over year, reflecting fewer applications written in prior periods. However, new student starts were slightly better than we had anticipated, due to continued strong show rates.

Our show rate was up 500 basis points compared with last year's same quarter, and is at a level we haven't seen since the second quarter of 2012. This trend reflects a change in the registration fee, as well as success in generating inquiries and applications from students with the highest propensity to start school, and as important, keeping students engaged throughout the enrollment process.

Based on the high school applications currently on the books, and with continued growth from our adult channel, we anticipate new student start growth in the fourth quarter. As I mentioned during my opening comments, across all segments, high school, adult and military, we continue to engage with students and their families to demonstrate there is a good return on a UTI education, and to minimize the perceived risk of financing school and to turn the student interest into action.

This is more difficult than it sounds, as students and prospects are looking for guarantees of a job and salary in return for their educational investment. Of course, we cannot guarantee jobs or wages, which is why it is so critical that employers who are ready to offer jobs to those who have a UTI education are working with us, to help prospective students and their families understand the type of career opportunity that awaits them.

In our marketing materials, in our employer-hosted future tech events, and during open houses at our campus, employers are making the case for UTI and the technician career pathway directly to prospective students. This motivates more students to enroll, to start school, and graduate.

Our military admissions team has established strong relationships at military bases across the country. We continue to help our veterans evaluate educational and career paths, as they transition into civilian life. Many of the large employers we work with are dedicated to hiring our nation's heroes.

Together, UTI, its OEM partners and large employers, are visiting our military bases to explain the opportunities available to skilled technicians. Employers explain the opportunities they offer technicians, and the types of support they offer in terms of relocation expense, tools, and sometimes tuition reimbursement. This work is just part of a focused effort to highlight our successful student outcomes, and increase the positive perception of technical careers and UTI, along with influencing the policies that regulate our work.

We are working to build relationships on military bases and in high schools, with local and state businesses, as well as education and policy leaders. To educate them on what suspects us apart from the for-profit education stereotypes, as well on the value we create for our students, local employers, the economy, and the community.

While this initiative is still young, we are encouraged by the early results in market like Long Beach, where we have already developed strong advocates and student interest, and the new campus is on pace for our enrollment goals. And, our efforts to leverage employers as our advocates have been showing positive results in differentiating us from our competitors, and others in the for-profit space.

Earlier this week we announced a change in leadership in our admissions organization. I am very pleased that Sherrell Smith, our SVP of Operations, has assumed responsibility for the admissions function. Sherrell has significant experience in this industry, 20-plus years at our Company, and has previously successfully led our admissions team, albeit in a very different regulatory environment.

Although our results have not been what anyone would want in recent years, this change reflects more of what is needed to build on recent successes, and to reinvigorate the engagement of all those helping to drive our business forward. Full engagement and a laser focus is paramount in this environment, and I know Sherrell will bring that type of leadership and energy to our admissions team, which is why I remain confident in our ability to grow applications and new student starts, specifically in our fourth quarter.

With that, I will turn it over to Eugene.

Thanks again, Kim. Well, we are also continuing our efforts to manage the business efficiently, and to reduce costs where appropriate. We believe our path to growth includes bringing our education to reach more students and markets. Construction is well underway and on schedule for our new campus location in Long Beach, which is scheduled to open later this summer.

We have begun enrolling students to start upon opening, and we are currently on pace to our plan. To date, we have received the necessary approvals from our accreditor and the state of California, and are in the process of obtaining the final approval necessary for our new collision repair program. Pre-opening costs have impacted operating income in the first half of the fiscal year by approximately $700,000, and we anticipate operating income to be impacted in the second half, in the range of $3.9 million to $4.3 million.

We are also teaching our new state of the industry blended learning curriculum at our campuses in Avondale, Dallas, Sacramento, and now in Orlando. And we have completed our expansion in Orlando to include diesel. And with limited marketing, the first two diesel programs are already at capacity.

Our industry relationships continue to be a very important market differentiator for us, and are becoming even more important in assisting students financially in the pursuit of their education, particularly as demand for professionally-trained technicians intensifies. As Kim mentioned, our newest agreement with Roush Yates reflects our ongoing work to expand, renew, and extend these relationships.

In response to the increase in demand for skilled CNC machinists, we are partnering with Roush Yates to develop a comprehensive machining and manufacturing technology program. CNC machining is widely used to make high precision parts for the transportation industry, but also in industrial applications, such as aerospace components and medical and surgical equipment.

The program will build on Roush Yates's experience in the CNC machining area, which strongly differentiates it from competitive offerings, and will prepare students to succeed as entry level machinists. We intend to offer the CNC program, beginning in 2016, at one location in North Carolina, with the opportunity to expand beyond that over the next several years.

We continue to offer scholarships, our loan program, and are approaching more employers and OEM partners to assist in sharing the UTI opportunity with potential students. Employers of our students are increasingly more willing to participate in describing the UTI opportunity, and assisting students with paying for their education. As Kim mentioned, 8 of the 10 largest dealer groups in the country are now investing in UTI graduates, to attract the professionally-trained technicians they need, and these programs can include relocation assistance, signing bonuses, free or discounted tools, and tuition reimbursement plans at various levels, with some employers actually paying the entire cost of a student's UTI education.

Our loan program continues to help students who are well-qualified to attend UTI, but have a gap in their financing, after completing the financial aid packaging process. This year, we have extended approximately $11.2 million in loans under the program, compared to $16.1 million in the same period last year. The average loan amount continues to be around $4,700.

During the first half, we have recorded approximately $2.5 million in revenue and interest from cash payments received, which was up from $1.5 million last year, due to a higher volume of loans in repayment, as well as some improvement in our collection rate. In addition to offering this program, we continue to offer both merit-based and need-based scholarships, as well as scholarships for certain groups of students, such as our military veterans.

At the end of the quarter, approximately 36% of students in school were benefiting from a scholarship or discount. These scholarships and discounts reduced tuition revenue in the quarter by 3.5%, which is basically flat from last year.

Now let me turn to the continued success we are seeing, most importantly in our graduate employment. In the second quarter, our overall consolidated graduate employment rate was higher, trending by about 2 percentage points versus last year. All of our programs, with the expectation of collision repair, experienced increases from last year's employment rate, and we also continue to see growth in overall starting wages for our graduates, reflecting the increased demand that we have been speaking about.

Finally, as an update, in late April, the Department of Education was on site to conduct a program review for our Avondale campus, and additional locations of that campus. Their field work was completed last week, and covered the 2013-2014, and 2014-2015 award years. We anticipate receiving their initial report, even though we have already had an exit interview, in the next 75 days.

Finally, let me take a minute to talk about our outlook for the remainder of the year. Although we have had a strong first half, our guidance for the full year remains relatively unchanged.

We expect revenue to decline approximately 3% to 4% for the year. However, excluding the impact of pre-opening costs for our new campus, we expect to see year-over-year growth in operating income.

We expect new student starts, as well as our average student population, to be down for the full year, in the mid-single digits. And we expect to see year-over-year growth in both new student applications, and starts in the second half, with all of the start growth occurring in the fourth quarter.

Capital expenditures are expected to be approximately $35 million for the full year. And as always, I will remind you that due to the seasonality of our business and normal fluctuations in student populations, you should expect to see volatility in our quarterly results.

And now with that, Dan, I think we are ready to open the line for any questions that we might have.

(Operator Instructions)

Our first question comes from Jason Anderson of Stifel.

A question on the guidance, then. So I think it's pretty clear, but just the way it's framed, we should probably see second-half operating income, am I correct in thinking that should be down probably $8 million at the least? Because it looks like your first half is up about that. So the second half should probably be down. I mean, that would be including your investment costs?

Are you saying down from last year?

Yes, versus prior year. Year over year.

Yes. If you included the Long Beach costs that I laid out there, of call it roughly $4 million, that would be correct.

Great. Okay. Just wanted to make sure on that. I'm intrigued by the employer outreach that's going on, and them getting involved in the front end of the process. You mentioned you're seeing some results there.

Was that impacting the March start at all, or the March numbers? Or is that still pretty early, or do you see that having tangible benefits to actually getting -- seeing the starts, or at least registrations happening?

I think it is very early in the process, and did not necessarily drive the increase in the March applications. I do expect that it will help our students who are scheduled to start in the latter part of the year, because employers are participating in the future tech events and mid year meetings and open houses, and talking to students with their families present, about the opportunities we discussed in the prepared remarks. So early on, excited about what's to come. And we'll likely see some benefit of it in the starts in the second half of the year.

Okay. And then also, on the machining program, can you give us any maybe flavor of what's the market opportunity look like there? I am trying to get how big that type of program area is, and maybe what the competition is like, or if there is much of it, or not. I don't know if maybe you could go into that at all?

It's a little premature to talk about that, in terms of where we expect to expand it to. But I think, clearly in line with what we have done historically, employer demand is driving the need for this. In fact, that's why we want to open it in North Carolina, because that's where the early demand is.

But I think there are clearly other parts of the country that need machinists, and I think the numbers are in the hundreds of thousands over the course of the next decade. So, yes, there is competition out there. But I think with the Roush Yates name, and more importantly, with the level of precision that their programs lead to, that, we think, is a competitive differentiator.

If it's helpful, there are about 397,000 machinists employed in the US today, and growth is expected of 9% between 2012 and 2022, to Eugene's point.

Great. That is very helpful. Thank you for taking my questions.

Our next question comes from Jeff Silber of BMO Capital Markets. Please go ahead.

Thank you so much. I know it's still a bit early in the process, but wondering if you are seeing any impact from the issues that WyoTech has been going through over the past few weeks and months?

I think it's certainly got people's attention. We felt it in the field, particularly in terms of access out at high schools, as people react to the negative news, and make certain that they are protecting their students. I think what we have been continuing to do throughout the last five years in this negative cycle is focus on building the relationships, encouraging people, whether it's teachers, counselors, parents, administrators, to come out to a campus, experience it, to talk to employers, to talk to graduates.

And although it takes longer, typically, we discover and they discover, that we are different. And so I think what it's done is it slows things down and it makes it more difficult, but ultimately, I believe we will stand apart.

Okay. Great to hear. You mentioned your confidence that starts with the fall because of the strength in your high school channel. Can you just remind us of your fall starts? Roughly what percentage of your students come from that channel, and roughly what you're expecting this year as well?

Well, in the fourth quarter, it's predominantly high school students. So I'd say, probably in the 70% to 75% range. We do expect that we'll see a higher percentage of the adult population, given the traction we are gaining with the marketing and efficiencies recently.

But that is our strongest quarter in terms of starts, and significantly higher. It's typically more than double the size of another quarter start. So does that help?

Yes. No, no it does. And then just a quick numbers question for you, Gene. You mentioned the, I think it was $1 million reversal in bad debt expense. I just want to double check. That $7.8 million that you recorded in EBITDA, that's including the benefit of that $1 million reversal; is that correct?

Yes, it is.

Okay. Great. Thanks so much.

Our next question comes from Peter Appert of Piper Jaffray. Please go ahead.

Thanks. Good morning. So, Kim, I am just having a really hard time getting my head around the disconnect between this very robust employment environment you describe and the demand dynamic you see, in terms of the enrollment trends. So is it about pricing? Do you think that's the biggest issue, in terms of your ability to overcome this issue?

I do not think it is about pricing. While certainly affordability is always a concern for students and families, that they consider their educational investment, and return on that investment. I think it is about access, overcoming the negative headlines and trying to stand apart from the others.

I think that is the biggest contributor to it, from the high school side. And I think on the adult channels, it's been complex and costly, and we have been trying different things to grow the number of inquiries. If you look at our conversion rates of the inquiries we are getting, it's improving, and we are really focused on the things that we believe will drive a higher conversion rate to, again, translate student interest into student action, and that is helping the students understand that there are options, in terms of paying for their education and that walking away from a low skill, low paying job is worth the risk.

And that's why getting the employers in front of students and their families is really important, because what students and their families want to hear, we can't necessarily say. We are very careful to ensure that we stay within the compliance requirements, and believe it's probably best for students and their families to talk directly with employers, in terms of the opportunities available for trained technicians. It's just a more complicated environment, and it takes longer. That's it.

Okay. Fair enough. And then is it possible at all to quantify the financial support that employers are willing to give? So, for example, just any metrics you have?

Percentage of students that are getting some assistance from employers? The order of magnitude of that assistance. Something along those lines?

Let me just give you an example of what they're doing, because, again, it's just getting off the ground, in terms of the number of students. But some employers are taking the approach that they will make the student loan payments, let's say up to $300 a month, and it will cap out at a certain amount over time.

Others are willing to pay the entire tuition, provided the student is working for the employer, and in good standing. So it really does run the gamut, depending on what the employers' needs are, and what the student's loans are, relative to their training.

But this is just beginning to take off. Even though we have a number of examples where this has always been the case, again, as we said earlier, it's been marketed as students were coming out of school, versus as they were considering schools and career paths.

And would these programs be more applicable then like to a military person coming in, or an adult, rather than the high school student?

No. I think they are -- in terms of the tuition reimbursement, it is more applicable to high school students and adults, and relocation assistance, and perhaps tools and those types of things are more applicable to the veteran population.

Okay. And then I'm sorry. Just two more. One, do you have a number in terms of what the average starting salary is currently?

Do you have that?

It obviously differs by curriculum, and whether or not a student has had manufactured -- specific training. So rather than get in all those specifics, I will use the BLS data. The BLS data would suggest for auto, which is our largest curriculum, that those wages range from $28,000 to $32,000.

Okay. And then Eugene, one more thing. In terms of the economics of Long Beach, you gave us the start-up costs this year. Can you give us the roadmap to break even in profitability in Long Beach?

It will be, from an accounting standpoint, it will be accretive to earnings next calendar year. I am sorry. Next fiscal year. 2016.

Okay. Great. And then you had mentioned -- I lied. There is one more question. I think Kim had talked about new campuses, plural. So what's on the agenda beyond Long Beach, in terms of timing, and anything else you can tell us?

Yes, she did say that, and that was intentional. We're going to open Long Beach this summer, with the first teach, I think, in late August. I would -- we're doing some preliminary work for the next campus.

I would expect further commentary on that towards the end of this calendar year. I don't think it would open until late 2016. Probably, more likely, 2017.

Got it. Thank you.

You're welcome.

Our next question comes from Corey Greendale of First Analysis. Please go ahead.

I have a few questions. I think, since nobody had questions on your last call, we are all making up for it this time. We apologize.

So, first of all, and also, I apologize, I missed the beginning of the call. If any of this is redundant, my apologies, we can follow up offline. First of all, did you give the change in applications for the quarter as a whole?

We did. Let's see. Our applications for the quarter were down 12.5% across all channels. I'm sorry, that was our -- yes. I wanted to make certain I wasn't giving starts. Applications down 12.5%, starts were down 12.9%.

Okay. So -- and I gather, if you just look at the application trend over the last four quarters, that's actually the best, I think, in the past four quarters. It's been as negative as 27%.

It's not intuitive from looking at that, that actual starts are going to go positive in a couple of quarters. And you commented on the high school, but could you comment on the level of confidence, given the data you are seeing, that will happen?

Yes. And if you missed the first part of the call, Corey, maybe I could just reiterate that as we move through the quarter, we started to see even better momentum. And in March, we actually saw 5% growth in applications. And what we were most excited about, was the growth in the adult channel was up 18% year over year on fewer inquiries, and with 27% fewer people, which gives us confidence that our marketing is working, as well as the productivity and efficiencies with our representatives.

So now, we will continue to invest in the marketing that is working, to grow that. And if you think about the adult channel, typically they tend to start sooner, within a couple months, versus the high school, that could take up to nine months.

When you look forward to the fourth quarter and the students that have already registered that are high school graduates, we feel strongly about that. Especially given the strong show rates and the continued improvement we have seen throughout the year. So it's a combination of high school students on the books, as well as the momentum being gained with the adult channel.

Okay. That helps. Thank you. And then in the interest -- I don't know if you are willing to elaborate on the guidance at all, but in the interest of trying to set expectations, looking at where the applications have been over the last few quarters, that would suggest you have a similar negative, I would think, start number in Q3. On the other hand, the year-ago start was particularly negative, negative 24%, I think, so you have an easy comp.

Could you help us think through those things? Just set order of magnitude, what you expect the decline to be in Q3?

Well, I am not going to give you order of magnitude, Corey, but Q3 I would expect to be down a little bit. And Q4 up a little bit, percentage-wise. But, obviously, with Q4 having a much heavier load of starts, the net of those two, is if you saw in the second half together, is positive growth.

And given --

Just to give you some level of magnitude, I don't want anybody walking out thinking that we are going to see double-digit growth in the second half of the year. That's not what we're forecasting. But we do expect to see year-over-year growth.

Okay. I do appreciate that. And if that plays out as you expect, and let's just say Q1 of FY16 is also slightly positive on starts, does the math suggest you should get back to total average enrollment in positive territory by Q1 or Q2 of next year?

We are not quite that far yet.

All right. You can't ding me for trying. A couple other quick things.

On the military -- and again, I apologize if this was covered. I heard you say that you are going to the military bases to build relationships. I seem to recall there was a time when access to the military bases was an issue, not just for you, but for everybody. Where does that stand?

Well, the access is still an issue. There have been rules put into place in terms of the frequency of visits. But again, I think that the relationships that we have are long-standing. For example, in Fort Bliss we have a representative who has been out there nearly a decade, and at Fort Hood, five years.

They know these people out there, and they are working with them to help the veterans. So it may not look exactly like it did a couple of years ago, but the partnership is there and I think the relationships with the military is improving. We're excited about an articulation agreement that we are working on with them, to recognize the veterans who are coming out with diesel training, and to articulate with them, so that they can test out of some of the courses, be in school for a shorter period of time, and of course lower their tuition costs, and get to work.

So the thing that I described with the employers being engaged, taking these employers out to the bases, and getting them in front of the veterans who are transitioning out, it's so needed. So many of our veterans are unemployed, and today we've got 5,000 open jobs, and a lot of veterans without a job. So they are interested in talking to us.

All right. That makes a lot of sense. My last question is similar, which is in the employers, the fact that they were able to help more. I understand you are going to the military bases, and that makes a lot of sense, because the veterans are leaving active duty, and there is an opportunity to go to UTI.

I just want to understand a little bit better how the message about employers being willing to help is getting to potential students? Is it like people are already employed, and there is a note in the break room, saying you can get a degree? Are you telling people already in the pipeline that it's an opportunity, so it's improving conversion rates? How is the message getting made?

That is a great question, because what you described is what had been happening previously, as students were nearing graduation. Of course, employers would come on campus and talk about the opportunities available for them upon graduation. Now, they are out in the field with our representatives, whether it's at high schools, military bases, or events being held at their dealership or place of work, to talk about the opportunities that are available, and what their commitment is.

So we now have formal marketing materials that they are using, to get into the hands of prospective students and their families, about what they will do as an employer to support them getting a UTI education, and coming to work for them. So it's far more formalized.

They are being more open in terms of putting that in writing, again, in materials that can be given to students, and they are willing to be on camera, and give testimonials about what it is they are looking for, and how willing they are to support them. So it's a dramatic difference inside of a year, with the focus on employers and their needs.

It makes a lot of sense. And thanks for the patience in taking all my questions.

(Operator Instructions)

Our next question comes from Barry Lucas of Gabelli & Company. Please go ahead.

Gene, not to quibble here, I just want to understand. I think you said you are still waiting for course approval for a collision program at the new school. Is there something new there, or why wouldn't that have been granted with the other programs?

So it was at the state and accreditor level. Since it's a new program in that OPID, it needs -- even though we teach it in other locations, it needs Department of Ed approval, where the auto and diesel programs did not need ed approval. They just needed accreditor and state.

Okay. Thanks for that clarification. A little more generally, but understanding all the negative publicity that this industry has gotten, and the press reports about the demise of Corinthian, and including WyoTech in California, why wouldn't you go out and be a little bit more proactive, and to some extent, capitalize on being the good citizen, and trying to make some accommodations for those students that have suffered a terrible dislocation?

Well, I think we are being a good citizen, in offering to help, where it makes sense, for these students. Certainly some of the locations that we're speaking about are not within close proximity to our campuses, but to the extent we can help them, we have certainly made the offer, and have reached out. I think we're doing all that we can, and should, in this environment to help.

Just to add to that, we were this week asked to be present, and were present at the two WyoTech California campuses. Not in a way to recruit students, but to provide where our locations are, what our programs are, just as informational as they go through their process of determining what to do with the continuation of their education. So we are there, shared our information with them, and made ourselves available to them, should they want to follow up.

Great. Thanks very much for that.

Showing no further questions, I would like to turn the conference back over to Kim McWaters for any closing remarks.

Thank you, Dan, and thank you all for joining us today. We appreciate your questions, and your time and interest in Universal Technical Institute. We look forward to updating you on our third quarter, the first week of August. Have a great day, and a nice weekend.

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