Good afternoon. And welcome to Universal Technical Institute Fiscal Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions.

As a reminder, this event is being recorded and a replay of the call will be available at www.uti.edu or through December 2, 2020 by dialing 877-344-7529 or 412-317-0088 and entering passcode 10149609. I would now like to turn the conference over to Ms. Jody Kent, Vice President of Communications and Public Affairs. Please go ahead..

Good afternoon, and thanks for joining us. With me today are CEO, Jerome Grant; and CFO, Troy Anderson. During the call today, we will update you on our fiscal fourth quarter 2020 business highlights, our financial results and our vision for the future. Then we will open the call for your questions.

Before we begin, we want to remind everyone that today’s call will contain forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Please carefully review today’s press release for additional information and important disclosures about forward-looking statements.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes and circumstances that are difficult to predict, and many of which are outside of our control. Our actual results and financial condition they differ materially from those indicated in the forward-looking statements.

Therefore, you should not rely on any of these forward-looking statements. As a reminder, the session entitled Forward-Looking Statements in today’s press release also applies to everything discussed during this conference call.

During today’s call, we will refer to adjusted operating income or loss, adjusted EBITDA and adjusted free cash flow, which are non-GAAP measures.

Adjusted operating income or loss is income or loss from operations adjusted for items that affect trends and underlying performance from year-to-year and are not considered normal recurring cash operating expenses.

Adjusted EBITDA is net income or loss before interest expense, interest income, income taxes, depreciation, amortization, and adjusted for items not considered as part of the company’s normal recurring operations.

Adjusted free cash flow is net cash provided by are used in operating activities less capital expenditures, adjusted for items not considered as part of the company’s normal recurring operations.

Management internally uses adjusted operating income and loss, adjusted EBITDA and adjusted free cash flow as performance measures and those figures will be discussed on today’s call.

As a reminder, we have provided reconciliations of these non-GAAP measurements to the most directly comparable GAAP financial measurements in today’s press release and we encourage you to carefully review those reconciliation.

Starting with the third quarter of fiscal 2019 and through fiscal 2020, we have reported operating metrics such as student applications and starts, excluding our Norwood, Massachusetts campus.

As we have shared previously, Norwood stopped accepting new student applications in the second quarter of fiscal 2019 and the campus was fully closed in July 2020. So we believe it is appropriate to exclude its impact..

Thank you, Jody. Good afternoon, everyone, and thank you all for joining us today.

Before I jump in, please indulge me, while I once again share a heartfelt debt of gratitude to the UTI team, who in 2020 represented the very best in human spirit and dedication, while helping our institution, our students, our industry partners navigate some of the most challenging conditions imaginable.

Thank you all for your dedication, hard work and passion. This afternoon, I will be focusing my comments in three areas, after which, Troy, will briefly review for you some of the highlights and key takeaways from our fourth quarter and full year results. Troy will then provide some guidance on handful of key metrics for 2021.

The three areas I’d like to focus on is -- in the next few minutes our outcomes, accomplishments, accomplishments and our vision for the future of UTI. Outcomes are metrics and standards that have truly set us apart in the industry for the past five decades.

Continue to underscore our unique value proposition today and will be critical to the success of our business strategies going forward.

With respect to accomplishments, I will share with you some thoughts and examples of the effectiveness and importance of the credentials our students earned, as well as innovations we have put into place to help our students succeed more efficiently and effectively in the workforce.

And finally, I’d like to share with you our vision for the future of UTI by updating you on our growth and diversification plans. Let me start with outcomes. At the very heart of our operating model and UTI’s unique value proposition is the relentless focus on improving the employment and career outcomes for our current students and graduates.

This starts with ensuring that they succeed in their vocational curriculum and successfully graduate. Our keen eye kept on the number of students who persistent in their education and graduate is one of the ways which we prove our value every day.

Nationally, just 40% of college students earn a certificate or degree within six years of beginning their post-secondary studies. Yet, a UTI nearly 70% of our students graduate within two years. This is in no small part due to the investment our faculty and support teams make in the success of our students.

We work closely and individually with them to work through the many challenges that life brings so that they can stay focused on their passion, finish their studies and go on to rewarding careers..

Thank you, Jerome. As Jerome outlined, we are very pleased with the progress we made during the quarter and with our operating results for the quarter and the fiscal year, given the many challenges presented by COVID-19.

Starting with student metrics, we started 5,772 new students in the fourth quarter, which increased 1.1% year-over-year when adjusting for the extra start that occurred in the 2019 fiscal fourth quarter and was down 10.3% year-over-year including it.

New students scheduled to start increased 6.9% year-over-year for the fiscal fourth quarter, excluding the prior year extra start. We saw a significant positive shift in the momentum of new student starts earlier in the quarter to later in the quarter.

We are looking at start dates from August 31st through the end of September, when over 3,200 new students started the program. We saw a 14.8% year-over-year increase and exceeded our pre-COVID expectation by almost 7%.

New students scheduled to start for this period increased almost 20% year-over-year and exceeded our pre-COVID expectations by almost 15%.

That momentum has continued into the first quarter of fiscal 2021, with thus far through our most recent start we have seen strong double-digit year-over-year growth in new student starts and we are currently seeing the same year-over-year strength and the pacing of new students scheduled to start for the first and second quarters.

For fiscal year 2020, we started to 11,283 new students. While this was down 2.4% compared to fiscal 2019, I will point out that we started two-thirds of these students during the pandemic directly into our new blended learning model.

Additionally, we saw growth in three of the four quarters of the fiscal year in -- above last nine most recent quarters. In the fourth quarter we saw improved show rate performance versus the third quarter, with the show rate down 360 basis points year-over-year versus down 400 basis points from the prior quarter.

Similar to starts, we saw markedly better results from the August 31st start date through September, with the year-over-year show rate down only 180 basis points for that period. So far in the first quarter of fiscal 2021, the overall show rate for our most recent start has improved 140 basis points versus the same prior year pre-COVID period.

For fiscal 2020, show rate was down 220 basis points, with the decline all due to COVID impact in the third and fourth quarters.

We attribute the impact primarily to the fact that roughly 50% of our students relocate to attend our programs, but this increases to 55% to 60% in the fourth quarter, when we start more than half our students for the year, most of them from the high school channel.

Throughout the third and fourth quarters, we have worked extensively with our admissions and campus teams and our students and their families to address any COVID-related concerns they may have. We are seeing the benefits of those efforts through the improved show rates over the past few months.

As far as student progression through the curriculum, we are incredibly proud of the progress our team and our students have made since our last earnings call.

During the fourth quarter, we graduated approximately 1,900 students and as of the completion of the most recent course rotation, the percentage of students fully current and not be in makeup labs was 78% versus 40% at the time of our last earnings call.

The percentage of students who were exclusively participating online decreased to 3% versus 13% at the time of our last earnings call. This progress allowed us to recognize approximately $8 million of the $11 million revenue deferral from last quarter.

However, the net deferral as of the end of the quarter stood at approximately $6 million and reflects additional deferrals during the quarter based upon the varying stages of progression for students who are still at makeup lessons. We have also seen measurable improvement and stabilization and the number of students lease of assets or LOAs.

As of the end of the quarter, the total number of students on LOA was approximately 700 or 5% total students, and are at a consistent level currently. This compares to approximately 12% at the end of the June quarter and 9% at the time of our last earnings call.

Given the dynamics of COVID, we will likely remain around 5% to 6% of total students in the near term, which is a few points above pre-COVID levels. Average students for the quarter were 11,251, an increase of 2.9% versus the same period last year. Total end of period active students was 12,524, a 1.3% increase versus the comparable period.

Ending the year positive on these metrics is a testament to the resiliency of the UTI team and the incredible progress they have made working with our students since COVID initially impacted our campus operations in late March. Turning to the financials for the quarter and full-year.

Revenues for the fourth quarter decreased 12.9% year-over-year to $76.3 million and increased approximately $22 million, or 40% sequentially versus the third quarter.

The year-over-year change was primarily driven by the pace of student progress in completing in-person labs due to disruptions from the pandemic, which drove the decrease in the average revenue per student of approximately 15%, inclusive of the revenue deferral. Sequentially, we saw an approximately 13% increase in the average revenue per student.

Based upon the current trajectory of students completely makeup labs, we expect to see measurable quarterly improvement in the net revenue deferral in a revenue per student throughout fiscal 2021.

For the full year, revenues decreased 9.3% to $300.8 million, also primarily driven by the revenue deferral, the overall pace of student progress in completing in-person labs, as well as lower average students due primarily to the COVID-related LOAs in the third quarter.

We prudently controlled costs throughout the quarter, with operating expenses for the quarter decreasing 14.7% versus the prior year to $70.2 million. The decrease fan both education services costs, as well as SG&A.

It was attributable to lower headcount and related compensation and benefit expenses along with lower occupancy, depreciation and travel expenses. Operating expenses for the fiscal year were $304.6 million and decreased 10.2% versus the prior year.

Productivity improvements and proactive cost actions have been a key part of our operating model the past several years and we continue to identify and execute on efficiency opportunities throughout our cost structure, while improving and investing in the overall student experience.

Operating income for the quarter was $6.2 million, compared to an operating loss of $5.4 million in the prior year quarter. Net income for the quarter was $6.5 million, an 18% increase versus the prior-year period. For fiscal year 2020, net income was $8 million, compared to a net loss of $7.9 million in 2019.

As previously noted, our full-year net income includes a $10.7 million tax benefit resulting from the application of revised net operating loss carry-back rules from the CARES Act. Basic and fully diluted earnings per share were $0.10 and $0.09 for the fourth quarter, respectively and both were $0.05 for the full year.

Total shares outstanding as of the end of the quarter were 32,647,000, slightly higher than the prior quarter. Adjusted EBITDA was $9.7 million for the quarter, as compared to $10.4 million in the prior-year period. For fiscal year 2020, adjusted EBITDA was $14 million, compared to $17 million for fiscal year 2019.

For the year-over-year comparison, recall that we implemented the new lease standard in fiscal 2020 and did not adjust prior year results. Taking this into account, full-year adjusted EBITDA increased by approximately $2 million year-over-year on a comparable basis.

This is despite $31 million of lower revenue and is a very strong outcome, considering all that transpired in fiscal 2020. Note our adjustments for fiscal 2020 reflect costs associated with the Norwood campus closure and with our CEO transition, while in fiscal 2019 they reflect costs associated with Norwood and a consultant termination fee.

Our balance sheet strengthened further in the quarter, with available liquidity of $114.9 million as of September 30th, which includes $76.8 million of unrestricted cash and cash equivalents and $38.1 million of short-term held to maturity securities.

This is a $23 million quarter-over-quarter increase, which is consistent with the increase in liquidity we generated in the fourth quarter of fiscal 2019. This is a notable outcome considering the challenging operating environment during the quarter.

For the fiscal year, operating cash flow was $11 million, while adjusted free cash flow was $4.3 million, including $9.3 million of CapEx.

We estimate that cash flow was negatively impacted by $10 million to $15 million for the year due to the timing of tighter fund flows tied to COVID and related delays and student progression through the curriculum.

You can see this impact and the increase in our tuition receivables versus this time last year, most of which we expect we realized in fiscal 2021. We believe that our strong balance sheet and ability to generate free cash flow provides us with a solid foundation to execute on our growth strategy as we enter into fiscal 2021.

We are actively working on number of strategic initiatives that will create value for our business, our students and our shareholders and that we plan to share more details on in the months ahead. I will also provide a brief update on our use of the CARES Act HEER funds.

During the quarter, we completed disbursing the $16.6 million of emergency student funds. We also allocated $600,000 of the institutional funds for emergency grants to students. For the remaining institutional funds, we utilized $9.1 million of these funds in the fourth quarter. Of this amount, $5.7 million was for our student laptop PC program.

The remainder was for technology and curriculum investments, health and safety on our campuses and costs associated with additional lab sessions to allow for social distancing. We have approximately 900,000 in institutional funds remaining. Now let me touch on our real estate footprint optimization efforts.

To recap the actions completed in fiscal 2020, we completed our Exton campus rightsizing of 71,000 square feet in the first quarter and our home office relocation in 16,000 foot reduction in June.

We gave back the remaining 152,000 square feet for the Norwood campus after closing it in July, and we’ve signed a new lease for our Sacramento campus in September, which will reduce that campus by 128,000 square feet at the end of calendar 2021.

Combined these actions reduced our annual occupancy cost by over $8 million, with all that Sacramento captured in our Q4 run rate. We are actively negotiating with landlords in other campuses for similar actions and we will share more details when the negotiations are finalized.

Our total lease facility portfolio currently stands at 1.85 million square feet. We are also exploring owning versus leasing certain campus facilities, given the strength of our balance sheet, the potential opportunities in the commercial real estate market.

Another topic to touch on is the 8-K filed in September regarding the distribution of the preferred shares held by Coliseum Holdings to certain affiliated and non-affiliated entities. We view the distribution as very much in support of our strategic objectives and as an overall important step towards further bolstering UTI’s capital structure.

We appreciate the efforts Coliseum went through to initiate and implement the distribution, as well as their overall support of the company to focus on long-term value creation for all shareholders.

The net effect of this distribution was to reduce Coliseum’s direct and indirect holdings to 24.9% of total UTI outstanding shares on an as converted basis.

This ownership threshold is important to the company, at any action involving 25% or more of the company’s total outstanding shares would require a change in control review by the Department of Education. This type of review could take as long as six to nine months and could delay any future organic or inorganic strategic actions we may be pursuing.

The shares held by Coliseum and their affiliates are currently limited by a 9.9% voting and conversion cap which can be lifted through further actions by them and the company.

We have communicated with a few of the larger preferred shareholders, while we can’t see for them or their attention at any specific point in time, we understand that they are supportive of the company and our long-term growth strategy, thus in tend to be long-term holders.

Lastly, for the terms governing the preferred shares, the company has the option to require to conversion of any or all outstanding preferred shares, if the volume weighted average price of the company’s common stock equals or exceeds $8.33 for 20 consecutive trading days. This price could change over time based upon certain adjustments.

Looking forward, given our business model, we already have considerable visibility into fiscal 2021 and we feel very positive about the outlook based upon what we are seeing right now.

Students we have currently generate a significant portion of the fiscal year revenue, new student enrollments and starts are pacing very strongly so far for the year and we have visibility into and control of the key components of our cost structure, as well as planned investments and productivity improvements.

However, the potential for ongoing impacts from the pandemic cannot be fully determined to quantify. Impacts could be on new student enrollments, show rates, LOAs, withdrawals and overall student progression through the curriculum, all of which could negatively impact revenue.

Regardless, we would expect to manage costs to limit potential impacts to profitability and cash flow, as we did through the actions we took just for 2020.

Additionally, with our blended learning model fully functioning and the enhancements we have planned, we have the ability pivot rapidly in the event of any future campus disruptions, which is a capability we did not possess back in March when the pandemic struck. With that backdrop, I will now provide our guidance for fiscal 2021.

For both new student starts and revenue, we expect year-over-year growth of 10% to 15%. For net income, we expect a range of $14 million to $19 million. For adjusted EBITDA, we expect a range of $30 million to $35 million.

For adjusted free cash flow, we expect a range of $20 million to $25 million, which assumes CapEx of $15 million to $20 million, approximately two-thirds of the planned CapEx support high ROI investments, including the two welding programs we are launching in fiscal 2021, enhancements to our online curriculum and our campus optimization efforts.

The remaining amount represents a consistent level of annual maintenance CapEx and new projects that were deferred from fiscal 2020. From a timing perspective, we expect starts to be higher year-over-year in every quarter, reflecting the momentum we have referenced with growth in Q1 and Q3 being more pronounced.

We expect revenue to be down a few points year-over-year in the first half of the year as we made continued progress on the lab makeup progress and up measurably in the back half of the year, particularly in Q3. Profit will also be down versus the prior year in the first half, with the growth in the back half of the year.

Cash flow should follow more normal pattern, neutral to modest cash generation in the first half, cash usage in the third quarter and a significant cash generation in the fourth quarter. To the extent any strategic actions, we now have an impact of fiscal 2021, we will update this guidance accordingly.

We will also continue monitoring the situation very closely and we will update you if it causes any material change in our expectations.

Despite this financial uncertainty, with the visibility we have into the business and the confidence we have in our operating model, we feel it is appropriate to provide guidance for the investment community as an understanding of where we see the business heading over the upcoming fiscal year.

With that, I want to congratulate UTI team for their many accomplishments in fiscal 2020 and thank them for their tremendous efforts throughout the year. I will now turn the call back over to Jerome for his closing remarks..

Thank you, Troy. To summarize, the outlook for our business is bright, as we are seeing significant growing interest in our highly valued programs across the country. We are making key investments in our core value proposition, our programs, industry relationships and talent.

We are continuing to engage our prospective students via new pathways and methods and they are responding. We are continuing to innovate our educational delivery model in ways that support us today, but also opened new opportunities for the future.

We are adapting every day to changes occurring in our market, political and business environment and have demonstrated our ability to operate effectively even when faced unprecedented challenges.

We are proud that the innovations and improvements that we have made and will continue to make have made a stronger UTI today and a better UTI positioned for the future. Our business remains resilient and we continue to make meaningful improvements. Our financial position is strong and clearly superior to many in our industry.

Finally, the academic and employment proposition we offer is more valuable than ever to our students, potential employers and industry partners. Thank you all for your time and attenvertion this afternoon. I’d now like to turn the call over to the operator for questions-and-answers.

Operator?.

Our first question is from Steven Frankel with Colliers. Please go ahead..

Good afternoon. Thank you. Jerome, could you give us a little more detail on the contract growth. I know last quarter you talked about it being up 20% year-on-year.

Has it accelerated from that and to what extent do you think you have seen any benefit from the uptick in unemployment bringing more adult learners to you?.

It’s good question. I think, Troy, can get you some of the numbers on that, while I talk a little bit about unemployment. I think it may still be a bit too soon to call out sort of the fleshed out effects of unemployment.

It is true that from a growth standpoint, that there is a slightly disproportionate amount of our growth coming from adult population right now. And that begins to show the signs of that activity.

But I think the COVID effects that we have talked about this quarter the quarter before, still sort of mask the real outcomes, and that’s something that we think will still be coming down the line..

Yeah. Steve, this is Troy. What we said last quarter was that, in the third quarter our contracts were up 20% year-over-year in the quarter.

That also has the benefit of that extra start in the third quarter and we said that our fourth quarter enrollments were pacing ahead of our pre-COVID expectations, but our pre-COVID expectations, they were down on a year-over-year basis in Q4 to cut that extra start.

We did comment on for this quarter because we got a lot of feedback that the extra start between the two quarters was creating some confusion. So we did comment more on an apples-to-apples basis this quarter starts being up 1.1% and that the contract -- the new student enrollments were up 6.9% on a comparable basis..

Okay.

What are current contracts look like today?.

So for -- go ahead..

Sure. In my comments, I mentioned that for Q1 and Q2, we are currently pacing at a double-digit clip ahead of last year, which keep in mind was this pre-COVID last year. We are currently pacing at a double-digit clip ahead of last year for Q1 and Q2. Now that’s the progress to-date.

Q1, where -- will only be taking enrollments for another few weeks, another week or two, actually, really for Q1 and then push most of that for Q2. But so, Q1 is pretty fully subscribed at this point from a -- what we would expect to enroll. But we are pacing very strongly for Q1 to Q2 and for the full year overall..

Okay.

And what was the graduate employment rate for the fiscal year?.

We ended up at 84% for the fiscal year. We were 86% last year, we were 84% year before that and we are very consistently in the mid ‘80s plus minus..

Okay. And then going back to your comments around the incoming administration, there has been some talk about a change in the 90/10 rules, that would rule the GI portion into the 90.

How would that impact you and how would you benefit from an increase in Pell Grants?.

So, 90/10, we are 70/30, generally speaking, you will actually see that in the ‘60s, in fact, we added some of that detail on our investor deck, which is posted on the Investor Relations website. We are at 56%, because of some of the delay of the tighter core revenues of VA and cash pay or a little bit higher percentage this year, because of that.

VA normally is around 15%, cash pay is normally around 15%. So when you talk about our 70/30, it’s 70 kind of four 15 and 15. If they just purely change to 85/15, then we would be fine.

If they flip the VA then we start getting close, but again us, we are in pretty good position relative to other players and there would have to be some adjustment across the industry to address that. But we will be fine, I think, day one..

Okay. Great. I will jump back in the queue. Thank you..

Thanks, Steve..

Thanks..

The next question is from Eric Martinuzzi with Lake Street. Please go ahead..

Yeah. It was good to see the sequential progress there, I know slightly shy versus consensus, but a big step up versus what you guys had to deal with there in June. So good to see the trends headed in the right direction? And also….

Thanks, Eric..

… thanks for the guidance. I know that sticking your neck out a little bit too given we are not -- nobody would clarify the current environment or qualify the current environment as any kind of status quo. But at least that put some guardrails on what we are thinking for the year.

I was curious to know just for the student reengagement, something that for me is key, obviously new starts matter.

But how would you characterize student engagement kind of an LOA perspective now versus 90 days ago?.

I will now comment quantitatively and Jerome if you want to add any other color from an operation and engagement perspective. But I mean, I commented that we were at about 700 and roughly 5% of students. Keep in mind, we are at peak students right now. And we are talking about, just to be clear, total LOA.

We are not differentiating between COVID LOA and a regular LOA. We are just -- we are talking about total LOAs in our business and we are -- I think we were probably -- we normally run about 4%, again plus minus a percent depending on the time of holidays, summer, spring break that type of thing. So we are probably going to be elevated a point or two.

We have students who are in or out there, quarantining, their family might have a quarantine issue, maybe they just need to take a little bit of time off with all the dynamics going on.

But I think we are at pretty stable point right now, and we would expect as we get further into the COVID world that we continue to normalize, we are probably up a point or two over time..

Jerome, any color?.

Yeah. Well, first of all, the beginning of your comment starts. I do want to make, I think, underscore that the trend we are seeing is quite positive, not only in the number of people scheduled to start or contracts, but also in the actual show rates, meaning the number of people who have signed a contract to actually show up to school.

Those numbers are at or exceeding last year’s normal show rates right now, which are indications of people’s reengagement. And I think that the question is about engagement, we are seeing some very, very positive signs that people are engaged, serious and really focused on going out there and getting a job that’s solid..

Got it. All right. And then as I look at, kind of, you talked a little bit about M&A. I was just curious to know, obviously, you are going to be looking at things that are incremental to the fundamentals of the business.

But there is kind of two directions I see you guys going, one, would be more towards a horizontal expansion into either a new geography or a complementary auto diesel mechanic type of acquisition? And then, the other direction would be into kind of the non-mechanic world.

Is there given -- do you have a preference for either of those two directions, assuming a revenue and EBITDA contribution that was equivalent between two potential targets?.

Actually in many cases you get both, is sort of the short answer is, yes.

One of the things we have talked about over the last year, since our capital raise is that, we would like to look at the opportunity to expand our program stat in order to be able to offer more programs on the footprint that we have and optimize the square footage, optimized the opportunity for that group of people in any given area.

But often in those instances, you also have the opportunity to bring our programs like diesel or auto into the footprint of one of those as well and so it’s really a mix of thought.

We are really thinking about diversification and getting more products into the market, but doing so in the light of also expanding ourselves geographically to be able to address more of that disconnect between the supply and demand of technicians in all areas..

Okay. And then just could you revisit the seasonality here, obviously the COVID quarter, I get that that’s going to be an easy comp.

Troy, you talked about down a little bit, if we were to look at things revenue wise on a year-over-year basis, down a little bit in the first half and then up in the back half, but overall to get to your year 10% to 15% revenue growth.

Just take me through the seasonality discussion there one layer deeper?.

Yeah. Well, it really comes down to be the student lab progression and the average revenue per student, right? I mean that we will -- again, we are at peak students, we have some strong starts that have already happened and expectations for the rest of Q1 and Q2.

And then as we continued the lab progressions, but we will be down in the first quarter, more than we will be in the second quarter, maybe closer to flat second quarter. Again, this is all predicated on kind of COVID dynamics.

And then as you said, Q3 would just be a blockbuster quarter on a year-over-year basis from a percentage growth perspective, and then, but then also showing growth in Q4 as well pans out another way we have outlined..

Okay. That’s helpful. Okay. That covers it for me. Thanks for taking my questions..

Appreciate the questions..

Yeah. Thanks, Eric..

The next question is from Alex Paris with Barrington Research. Please go ahead..

Hi, guys. Thanks for taking the question. I just got a….

Hi, Alex..

Hey. I just got a couple. I wanted to dive back into the incoming administration and thoughts about the regulatory environment going forward. And I do appreciate and agree with you, the services that UTI provides are less offensive to the Democrats. In fact, they talk about investing in career learning and that sort of thing all the time.

And I was impressed to see also the 90/10 ratio 70/30, military is about 15, so that would get you to 85, if they decided to include that, still below the 90 and even if they reduced it to 85/15, you would still be in that realm. So it seems like there’s not a lot of concern there.

I also noticed in your supplementary material that your CDRs, your cohort default rates were down again in the most recent period, down slightly, but heading in the right direction and at 14.5% well below statutory limits.

The other thing that the Biden Administration or people who are watching conclude is, one of the things that they are likely to do is to reinstate the Obama era, gainful employment rules.

Can you refresh my memory, I didn’t cover the company actively at the time, but what was your gainful employment experience versus the previous set of metrics? Do you have any programs that failed or any programs that were in the zone and what did you do about it?.

So, I want to make sure we are talking as credibly and accurately about that time period as we possibly can. And so, I’m going to let Jody, who was here at the time, give you a couple of pieces of data around exactly what happened and the reaction of the company at that timeframe..

Hi, Alex..

Hi..

So back under the Obama gainful employment regulations, we had a few programs. If I remember quickly, I think, two or three that were in the zone, so sort of a yellow zone. But we had no failing programs..

That’s very helpful. And then, moving, I just had a question about guidance. Troy, you gave guidance for revenues, adjusted EBITDA, a few other things, net income, CapEx, et cetera.

Now, in getting to earnings per share, you are giving net income guidance before preferred dividends, correct?.

That’s correct. That’s the gross net income..

Okay.

And then so -- and then what number of shares should I use in the denominator? So if I take your net income guidance, subtract from it preferred dividends, what share count should we be using to calculate EPS?.

Well, as you can see, for the last few quarters there’s really been minimal change quarter-over-quarter, a few small testing events from employee’s years. Our last year grant was in January. So there will be some shares that vest -- some restricted shares that vest in January of this year, not a huge amount.

So I think this, the current count, the 32,647, I referenced plus a few hundred thousand shares may be -- was probably a good count..

Okay. Good.

And then I guess lastly for me, the advertising, I think, you gave us a figure in Q3, you are spending $9 million on advertising in Q3, what was that figure in Q4?.

Yeah. There is a supplemental table in our press release and the number was $9.6 million for the quarter, $39.7 million for the year..

Okay. Great. And then, I guess, I was thinking one more, and I think you alluded to it. The significant increase in employment among young males, 16 to 24, almost doubled the national rate. I know it’s hard to determine if you are getting any pickup from that cohort of individuals and COVID tends to mask it to some extent.

But would you expect to see, I mean, like you saw in last recession, every recession is a little different, but would you expect to see some uptick in new student enrollment as a result of the rise in unemployment in the coming quarters?.

I’d say if any effects of COVID may have on sort of the regular behavior of, however, this contour is of a recession. The short answer would be, yes. I think we said, some of the characteristics are different than the last recession.

One emerging trend we are seeing is, the number of high school students who were not college bound, because they believe the employment market was out there for them are starting -- we are starting to see more of a pickup of interest in the high schools around students who weren’t college bound before, which tends to make sense, right? If the unemployment is highly concentrated in that age group, they are not seeing the opportunities on the other end that they had before.

So, we are beginning to see it, but I think more of it is in front of us than behind, yeah..

Hey, Alex, I think we have one more in queue. We are going to try to sneak in one more question. So appreciate your questions..

And that question is from Austin Moldow with Canaccord. Please go ahead..

Hi. I had a quick follow-up on the LOAs.

How many COVID-related LOAs, do you think were ultimately lost and not expected to come back?.

We have seen a bit of a uptick in our withdraws, so that’s also kind of runs in that low-to-mid single-digit percentage. So we are working through the LOA. People looked in on the extended LOAs. Keep in mind, the Department of Ed loosened the LOA guidelines, so that people can take them longer than the standard six months.

And also with students who have accumulated a significant backlog in terms of their makeup labs, we are starting now to go to them and say, hey, we really need to have a recovery plan here to keep you current in the curriculum or get you current in the curriculum. So it’s not dramatic. But 100, 200 students as we are working through that.

But they cycle out of an LOA, either become active and go to withdrawal, but then we have other people who go out on LOA. It’s a really -- it’s a constant cycle..

Got it. And then my last question is on blended learning.

Can you give an update on the blended learning rollout and what the specific areas of improvement are in that? And can you also explain the differences and how you expect it will look in the future compared to what it might look like today after I imagine spinning it off relatively quickly to cope with the pandemic?.

Yeah. I mean a lot of effort now is being placed into a few different areas. Number one, putting some more sophisticated learning architecture into the workflow of the student assessment projects, things along those lines that better keep students engaged.

Those were things you just couldn’t do when on the 16th of March, you have to create and go live with nearly 200 courses and so we have been bringing more interactivity and learning design into them, hired some people into our shop that are experts in that area in order to do that.

Assessment is another area, bringing more sophisticated assessment tools into it and then also continuing to hone our communication tools to make sure that these cohorts are staying connected with the campuses and staying connected with the lab.

Because our new normal is that students are doing online learning in the same week that they would come in and do lab. So it’s not wildly disconnected by a weak online and then a week in the labs and so we want to keep that communications stream open as the students are doing both in a given week..

Great. Thank you..

Thanks for your question, Austin..

All right. Take care. Thank you. Before signing off, I once again like to express my utmost gratitude to the UTI team for their continued effort in these unprecedented times.

It was a pleasure to further express our focus on student outcomes, share accomplishments to -- at -- students in the organization and convey our vision for the future, f especially important this year to convey our warmest wishes to everyone for a safe and healthy holiday season and I want to thank you all. This concludes the call..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..