Universal Technical Institute's (UTI) CEO Kimberly McWaters on Q4 2016 Results - Earnings Call Transcript

| About: Universal Technical (UTI)

Universal Technical Institute (NYSE:UTI)

Q4 2016 Earnings Conference Call

November 29, 2016 4:30 PM ET

Executives

Jody Kent - Vice President of Communications and Public Affairs

Kimberly McWaters - Chairman and Chief Executive Officer

Bryce Peterson - Chief Financial Officer

Analysts

Peter Appert - Piper Jaffray

Barry Lucas - Gabelli & Company, Inc.

Operator

Hello, and welcome to the Universal Technical Institute’s Fourth Quarter 2016 Conference Call. [Operator Instructions] At this time, all participants are in a listen-only mode. And after today’s prepared remarks, we’ll open up the lines for questions. As a reminder, today’s conference call is being recorded. A replay of the call will be available for 60 days at www.uti.edu, or through December 9, 2016 by dialing 412-317-0088 or 877-344-7529 and entering pass code 10096553.

At this time, I would like to turn the conference over to Ms. Jody Kent Vice President of Communications and Public Affairs for Universal Technical Institute. Please go ahead.

Jody Kent

Hello and thank you for joining us. With me today is Kim McWaters, Chairman and CEO; and Bryce Peterson, Chief Financial Officer. During today’s call, we’ll review the results of our fourth quarter and full-year and then open the line up for 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 21E of the Securities Exchange Act of 1934 and Section 27A of the amended Securities Act of 1933. I’ll 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 this 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, and depreciation and amortization. The schedule provided in the earnings release reconciles EBITDA to the nearest corresponding GAAP measure, net income or loss.

And now, I would like to turn the call over to Kim McWaters, our Chairman and Chief Executive Officer.

Kimberly McWaters

Thanks, Jody, and good afternoon, everyone. We appreciate you being with us. The purpose of today’s call is to review our fiscal 2016 results, our outlook for 2017, and to update you on our business strategy for the future. In just a moment, I’ll ask Bryce Peterson, our CFO to give you an overview of the quarter and fiscal year. From there, we will focus the majority of our time together on our plan for 2017 and our business strategy for the future.

First, for those of you who are new to our story, UTI is the nation’s leading provider of technician training for the automotive, diesel, motorcycle, and marine industries. We have been in business for more than 50 years and have graduated more than 200,000 technicians.

We are very proud of the relationships that we've built with industry leaders, such as BMW, Cummins, Ford, Freightliner, GM, Harley-Davidson, Honda, Mercury Marine, NASCAR, Peterbilt, and Porsche just to name a few. These companies help give our students relevant training and valuable certifications and credentials. We believe our focus on industry, the primary customer, has served our graduates well.

Last year, 88% of our graduates went to work in the fields for which they trained at UTI. Despite the very strong demand for our graduates, our enrollment revenue and earnings have declined during the past several years reflecting changing attitudes about education, employment, and debt as well as the countercyclical nature of our business.

We know that during periods of economic recovery as the labor market improves, our prospective students tend to choose work over education. These factors have certainly contributed to our results over the past few years, but more importantly they've informed our thinking about our future and what is necessary to operate profitably and grow during both good times and bad, and we will talk more about that in just a minute.

For now, Bryce can you please walk us through 2016?

Bryce Peterson

Yes. Thank you, Kim. Despite a lot of hard work by our dedicated team members, we were disappointed in our financial performance in 2016. For the fourth quarter, we recorded revenues of $86.9 million and operating loss of $5.2 million, a net loss of $8.9 million and net loss available for distribution of $10.3 million, which is calculated as net loss less preferred stock dividends. This compares to revenues of $90.7 million, an operating loss of $13.2 million, and a net loss of $9.8 million last year.

Our quarterly results included a $3.9 million charge for severance related to our September reduction in force, $1.3 million in preferred stock dividends, $2.5 million income tax expense or 39% of pretax loss, $4.2 million of excluded tuition revenue related to students participating in the Company's proprietary loan program, which will be recognized as revenue when payments are received, $700,000 of operating income from our new Long Beach campus and an increase in revenue per student from 7,100 to 7,500.

Our net quarterly loss per diluted share was $0.42 compared to a loss of $0.41 per diluted share last year. We began the fourth quarter with about 1,200 fewer students than we had at the same time last year. Our show rate was down 160 basis points and starts declined by about 400 student’s year-over-year. In all, our average student population was down about 8.6% compared to the fourth quarter of last year.

At the end of the fourth quarter, about 35% of the students in school were benefiting from the UTI scholarship or discount, which reduced tuition revenue by 3.4% compared to 3.8% in the fourth quarter of last year. For the full-year, we recorded revenues of $347.1 million and operating loss of $18.6 million, a net loss of $47.7 million and a net loss available for distribution of $49.1 million compared to revenues of $362.7 million and operating loss of $9.2 million and a net loss of $9.1 million last year.

In addition to the severance charge and preferred stock dividend mentioned previously, our annual results included $26.2 million income tax expense or 122% of pre-tax loss. This was primarily due to our recording of full valuation allowance on our deferred tax assets, a non-cash charge which impacted income tax expense by $34.3 million.

$1.4 million operating loss from on boarding our new Long Beach campus, $18.7 million of excluded tuition revenue related to students participating in the Company's proprietary loan program which will be recognized as revenue when payments are received, and $7.2 million of tuition and interest revenue from proprietary loan program payments received which is up from $5.4 million last year.

Our net annual loss per diluted share was $2.02 compared to a loss of $0.38 per diluted share last year. From an adjusted EBITDA perspective, we had a loss of $0.9 million in the fourth quarter compared to earnings of $4 million in the fourth quarter of 2015. For all of 2016, our adjusted EBITDA was $0.8 million versus $24.1 million last year.

From a liquidity perspective, at the end of the fourth quarter, we had cash, cash equivalents, and investments of roughly $120.7 million compared to $59.2 million at the same time last year, primarily due to the issue of our Series A Convertible Preferred Stock on June 24, which provided cash proceeds of $68.8 million net of issuance costs.

When we outlined our financial improvement plan in September 2016, we set a target of $25 million to $30 million in annual expense reductions for fiscal 2017. To date, we have implemented initiatives to drive over $30 million in annualized cost savings which for the most part will flow ratably throughout the year.

This includes reduced compensation and benefits expense from a 27% reduction in our corporate staff and campus students, the move to graduate-based compensation for our admissions team which takes a portion of our compensation expense from fixed to variable, ongoing process improvements and a more cost efficient marketing and public relations plan. This work combined with a capital investment we secured in June will allow us to continue investing in the business and remain compliant with our regulators and our creditor.

As brief contacts for those who are joining us for the first time today, the Department of Education evaluates each institution’s financial responsibility using a prescribed composite score calculation. For fiscal 2015, our composite score was 1.4. If an institution falls below the responsibility threshold of 1.5, Ed can impose additional reporting and/or cash management requirements which we have been operating under since October 10, 2016.

For 2016, we have calculated a composite score of 1.7. We believe that this score, pending review and recalculation by the Department of Education will be sufficient to exceed the required threshold of 1.5 for establishing our institution’s financial responsibility and could result in Ed no longer imposing the additional reporting and cash management requirement.

Let me take a minute to talk about our outlook for 2017. We expect that our average annual enrollment for 2017 will be down mid-to-high single-digits and our revenue will be down low-to-mid single-digits given one, a smaller continuing student population at the beginning of the year and two, fewer students currently scheduled to begin school in the first half of the year.

As it stands now, we expect new student starts will be down in the low single-digits for the full-year. Our goal is to grow new student starts in the back half of the year, but it will likely not overcome the shortfall experienced during the first half of the year. Finally, we anticipate spending approximately $12.5 million to $13.5 million in CapEx in FY2017.

With that, I'll turn it back over to Kim for deeper look at our business strategy and our outlook for 2017.

Kimberly McWaters

Thank you, Bryce. Certainly 2016 was a challenging year by any measure, but it was also a pivotal year for the Company as we took important steps to return our Company to profitability to exceed the Department of Education's composite score requirements and to raise the capital necessary to invest in our future.

As Bryce mentioned, we are on track to deliver better than $30 million in cost savings this year primarily due to a thoughtful yet significant restructuring our workforce and a more efficient investment in marketing admissions and public relations.

We believe these reductions will help generate operating income and significantly improve levels of EBITDA during the year. This plan is essential to achieving our goal of returning our Company to profitability. From a marketing perspective, we’ve continued to decrease our advertising spend searching for more cost efficient and effective ways to engage with our prospective students.

Our advertising spend was down 4.1% for the quarter and 7.8% for the full-year primarily driven by a reduced investment in national television offset by increased spending in other digital and local media channels. For 2017, we plan to reduce our advertising expense by 10%. Advertising expense as a percentage of revenue should run between 11% to 12%. Student demand remains soft, but we're working to drive greater awareness among our target audience and improve levels of engagement with prospective students.

As I mentioned on our last call, we have been encouraged with our ability to generate more cost efficient inquiries from certain news sources, but we continue to balance our media mix to effectively grow student demand at a reasonable cost. We will gain greater confidence in our evolving strategy as our execution improves and we see the demand for our programs continue to grow.

Moving to admissions, this year we should realize savings of approximately $4.5 million in admissions and related expenses as we reduce the size of our admissions team by 13% flatten the leadership structure and implement a new variable pay plans based on graduates. For the fourth quarter, our total new student applications across all channels were down 3% to the prior year.

Even with fewer inquiries from marketing and smaller team applications for our adult segment, we are effectively flat with last year's fourth quarter showing significant individual and collective improvement for the team. We need to see steady and consistent increases in our inquiry generation to grow the student segment, but we believe the team is appropriately sized and structured and certainly more efficient and effective.

Our high school field admissions teams is back in the high schools, better equipped to articulate UTI’s value proposition in a clear and compelling way using the Department of Education College Scorecard data which demonstrates that our outcomes including our students tenure median earnings compared quite favorably with other educational institutions.

We still face high school access issues in several geographies, but we're working hard to overcome these barriers and get in front of prospective students and their families often working in concert with local employers. We're helping our admissions team leverage our employers unprecedented demand and support to give prospective students and their families’ real world examples of the career opportunities available to them and just show them how a UTI education can pay off.

Our employers continue to support our tuition reimbursement incentive program which is very appealing to students and families who are looking for an affordable education and help paying back their student loans. Last our military segment has been under the most pressure with applications following 12% during the quarter compared to the prior year. The regulatory environment has made it much more difficult to share the value of the UTI education with soldiers transitioning to civilian careers and we expect the pressure to continue in 2017.

As a reminder, on October 1 we successfully transitioned both our adult and high school admissions representatives to our new graduate-based compensation plan. This is the first time in about five years that we've been able to implement a variable cost graduate-based compensation plan. We believe this change will play an important role in rebuilding our student population and graduate pipeline for our employers.

Above all in aligns our pay practices with our purpose giving students a quality education that leads to good jobs in careers they love. Given that our students scheduled to start we’re down heading into this year. Our current guidance as Bryce mentioned reflects new student starts for the full-year to be down low single-digits given what we know today. You should expect to see a higher percentage decline in the first half of the year with improvement coming back in the second half.

Let me be clear. Our goal is to grow new student starts during the back half of the year and we are working very hard to lay that groundwork for a much better 2018 having more students scheduled to start in 2018 than we did in 2017. We know that every incremental start and student in school is very valuable to us and to our employers who are in great need of skilled technicians.

We know that we can't control the macro environment and some of the demand softness that we're experiencing, but we're focused on the things that we can have greater control over. And to that end we're implementing two initiatives focused on improving our student show and retention rates. These programs are both grassroots campus driven efforts to better identify at risk students earlier and to do everything possible to help them show to school, stay in school and ultimately graduate and go-to-work.

To give you an idea of the power of these initiatives for every 100 basis points improvement in our plan show rate beginning in the third quarter. We help approximately 170 more student start school and improve our bottom line by 700,000. For every 100 basis points improvement in retention beginning in the second quarter we help a 100 additional students move towards their end goal of graduating and going to work and improve our profitability by $1.5 million.

Now let's talk about our longer-term view for our business and the investments we are making for our future. First, you should know that we remain bullish on our business, our key differentiators and our relative positioning in the industry. We have benchmarked UTI against our primary competitors and are more confident than ever in the strength of our product offerings in curricula, the legal and regulatory attributes of our business and the quality of our brand.

We also know that student demographics and preferences about education are changing how and where they want to learn, but student demand for technical education is clearly present and industry demand continues to be strong for skilled techs. As I said the demand for technical education is there, but the product and delivery model is changing. What we are seeing now is much like the shift that we saw in the automotive industries in the 1980s. People needed personal transportation, but they stopped buying Gas Guzzlers and the automotive industry began to offer smaller, more efficient cars.

The demand for cars didn't go away. People simply wanted them in a modified form just the students still want and need technical education, how and where they want to learn is changing. Today students prefer to stay closer to home where they can live and work while they go to school. This preference is really exaggerated in the wake of recessionary periods when students are reluctant to give up a job even a low skill, low paid job to pursue their education.

Today, most of our campuses are destination campuses meaning the majority of the students must relocate to attend school, leave the comforts at home, give up their job and incur additional costs as they set up residency in a new city. As we look to the future, we plan to adapt our national footprint by accelerating the opening of additional smaller commuter friendly campuses like Dallas and Long Beach.

In addition, we will rationalize the size and space in some of our larger existing campuses as leases expire or we are able to sublease or repurpose excess space for new program expansion. We have recently repurposed space at our Rancho Cucamonga campus to house a new welding program and have readied our NASCAR Tech campus to launch a new CNC machining program. We currently await approval from the Department of Education. We will let you know our official launch date and most of the program specifics once we hear from the Department of Ed.

Now, let's talk a minute about our newer smaller campuses. These smaller campuses are roughly a third of the size of our existing campuses and they primarily serve a student population that lives and works in close proximity to the campus. Here is how we are thinking about newer, smaller campuses like this. It will cost us between $10 million to $12 million to open a smaller campus.

Based on our experience with Dallas and Long Beach, we believe the campus could be accretive to earnings within the first 18 months of operation and achieve cash flow breakeven during year four. Once the campus fully ramps, we believe it could generate up to $7 million to $8 million in annual EBIT, pre any corporate allocation.

As a point of reference, Dallas was accretive to earnings within 16 months of opening and with cash flow breakeven in year four. Long Beach is on track to do the same. We have been very pleased with these results from our smaller campuses and believe that a continued focus on smaller campuses in locations where there is strong demand from students and employers will aid in our goal of generating profitable growth even during difficult cycles.

We have already identified priority markets and we will be narrowing our site location preferences for our next campuses, but for competitive reasons, I am not going to disclose that on the call today. We anticipate our next campus will open in the summer fall of 2018 and we will keep you apprised of the key milestone achievements over the course of this year.

Remember, we now have the capital we need to adapt our national footprint and educational delivery model for the future. The work we are doing today, positions us to make the most of the significant operating leverage we have in this business. We have taken out significant costs without compromise to our educational quality.

We are working on rebuilding our average student population through new student growth and retention initiatives. For 51 years, we have been laser focused on exceeding the expectations of our students and industry partners and we are equally committed to delivering strong shareholder returns for you.

And with that, I think we are ready to open up the lines for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first questioner today is Peter Appert from Piper Jaffray. Please go ahead.

Peter Appert

Thanks. So Bryce a numbers question that the revenue per student calculation if I just do sort of the easy calculation the way we get the numbers, it looks like you're seeing some fairly significant growth. I'm wondering how much that's distorted by these loan receipt numbers and how should we think about revenue per student next year?

Bryce Peterson

Yes. Revenue per student again, there's several factors that go into that calculation, but I think directionally you're on track. Essentially as we've given the guidance, I would expect that revenue per student is going to remain flat with some slight increases, but some of the variance that you see quarter-over-quarter is driven primarily by the drop in the average student population more so than by tuition increase.

Peter Appert

Okay. And is there any issue around mix that would be impacting it?

Kimberly McWaters

Yes, Peter. This is Kim. Certainly mix is a driver of that as shorter programs typically will generate higher revenue actually inside of the quarter, but we're seeing trends toward longer programs. So, I think it is more a reflection of the loan program as you talked about offset by the slight tuition increases. So I think if you think about it in terms of as you usually have with 2.5% tuition increase that that would be a fair driver for growth in the future.

Peter Appert

Got it. Kim, can you talk about the thought process behind cutting the ad spend, it seems like it might be slightly counterintuitive in the context trying to drive a reacceleration of enrollment growth?

Kimberly McWaters

It’s a very good question. It is counterintuitive and something that we continue to balance in terms of lowering our student acquisition costs while driving growth. And we believe given the information and data that we can see in the marketplace, we know when we're getting a good return on investment and we're trying to make certain that we're not spending extra money if we're not getting anything for it.

So we will continue to invest in marketing as we start to see good returns on that investment, but right now we're trying to make certain that we are creating awareness and driving demand at a reasonable cost given the environment. I think when you look at what we're doing and I talked a little bit about this on our last call is that we historically have been heavily reliant on national television. And while we believe it’s a critical part of the mix, we have been transitioning more of our marketing spend to digital and local channels in response to how we believe our prospective students see us and want to engage with us.

So as I said before, marketing is an art as well as a science and we'll continue to evolve that in line with the customer preferences and learning. But if we see good returns on that, we will continue to invest. We're just going to balance what we're spending our money on given what we're getting back.

Peter Appert

Understood. And then on the welding and some of the other new programs, Kim, any color in terms of early responses and how big an opportunity to sink some of these newer programs could be for you?

Kimberly McWaters

That's a good question as well, as we considered adjacent programs to fill in some of the existing capacity, we try to look at those programs that were complementary to what we were doing, really serving the same type of students as well as understanding the student demand drivers.

And welding has been something that's very strong interest from a student perspective, and I think you see the end market demand changed with the cycle, so there might be a little softness from an employment perspective, but the student demand right now is really strong.

We're limited in terms of how we can promote these programs until we have license and approval from the Department of Ed, so what we have been doing is surveying students to determine student interests, and I can tell you that welding gives strong indications of good small programs at a number of locations. It won't be the size of our automotive or diesel programs but it's certainly something that’s complementary.

The CNC machining program, I think that there's more opportunity to expand beyond NASCAR Tech is starting out relatively small in partnership with Roush Yates given the employment demand in that region. And I think it's something that we can continue to modify into new markets as we see that program growing across the country and are excited about the prospects. But we just have initial research, we don't have the type of student interest that I could compare to our other programs given our limitations on promoting at this time.

Peter Appert

Right. Understood. And then just two other things one gainful employment I think you might have gotten the preliminary data at this point, anything to report on that?

Kimberly McWaters

Yes, I'll say at a high level we have 12 programs, the headline is none of them failed, nine of them passed and we have three in the zone. So we're working on strategies there to make certain that we're not in the zone on a go-forward basis, so [indiscernible] fail and as you know you can't fail more than one year out of four, so we are continuing to look at those programs. There wasn't really a surprise, we saw this sort of trend on the preliminary data and are working to address it.

Peter Appert

Can you tell us what percent of enrollments are in the zone programs?

Kimberly McWaters

Not really going to go there on the programs because it's specific campuses under an OPEID. I will tell you that motorcycle is more under pressure than the other programs as one might expect given the seasonal employment in the earnings and starting wages compared to auto and diesel. And then on the other end of the spectrum diesel is very strong. So that gives you some comparison motorcycles 20% I’d say of our students the Motorcycle and Marine.

Peter Appert

And one last thing, on the change in the recruitment comp how does that did against the incentive comp rules. I assume you've studied this carefully to make sure you're compliant, but is that something we should be concerned about?

Kimberly McWaters

No. I think you should be excited about it. We have spent a significant amount of time studying it since we received the news that it was something that we could consider about a year ago this month and we have been working to align a program similar to what we had previously that focuses our students on enrolling and showing and graduating students who are best suited for this industry and will be successful.

So I think the plan truly aligns what we're trying to accomplish as a business in the best interest of the students and the employers who hire them. But I feel confident about our plan being compliant and obviously you know we haven't had it for five years. So when we felt like it wasn't going to be compliant we didn't do it and now we've made that switch back because we believe it’s compliant and we believe it's in the best interest of our students and our business.

Peter Appert

Got it. Okay thanks Kim.

Kimberly McWaters

You’re welcome.

Operator

Our next questioner today is [indiscernible] from Alexander Capital Advisors. Please go ahead.

Unidentified Analyst

Hi, thanks for taking the question.

Kimberly McWaters

Good afternoon.

Unidentified Analyst

Hi. You guys have said in the past that you would like to open three or four of the newer model campuses. I was wondering what the strong cash balance. Is there anything slowing that pace of the new campus openings?

Kimberly McWaters

Yes. What we’ve said in the past is that we would like to be in position to open one every other year, but certainly the last couple of years have made that more difficult given the profitability of the company, balancing the regulatory environment and having the capital to execute on that.

So as I talked about in the call we've been really focused on returning the company to profitability, securing the capital necessary to do it, further refining the model in terms of where we - the size and where we go and we are ready to execute. So our first one we're targeting for mid-to-late 2018 and we'll keep you apprised of anything beyond that as we move forward.

Unidentified Analyst

Okay. Thanks.

Kimberly McWaters

You're welcome.

Operator

[Operator Instructions] Our next questioner is Barry Lucas from Gabelli & Company. Please go ahead.

Barry Lucas

Thanks and good afternoon. Kim, there were some comments earlier about the inquiries being down, but applications had improved. And I'm just wondering if you could walk through the inquiry rate versus applications and the show rate and where the pressure points come, where you could apply the pressure to improve each of those segments, so you get more students showing up?

Kimberly McWaters

Very good question. What I referenced in terms of our applications, if you think about our three admissions channels, we have an Adult segment which typically responding to increase generated by our advertising investment. We have high school field representative who are typically generating the majority of their inquiries by making high school presentations, attending career fairs et cetera in territories across the U.S., and then we have specific military representatives who are out working with the transitioning soldiers out at the bases and a team that is committed to those veterans who would be using GI money to come to school and there are different pressure points for all of them.

From a high school standpoint it's been challenging to get into the high schools in this regulatory environment. And what we are doing in that regard is working side-by-side with employers who are helping students and families. And educators understand those job opportunities by hosting events out at their place of employment rather than the high schools. And we feel like we are getting good traction there.

And that's something where we probably feel less pressure from an inquiry generation standpoint. If the representatives can get into the schools, they have supported employers, we feel good about the direction that we're heading there. What we need to do in that sense is make certain that our territories are full, our reps are trained and that they're equipped with the tools to provide real value to the students.

Moving to the adult channel, this is where we had most of the challenges because these students, perspective students are working perhaps in a low skill, low paid job, but they are unwilling to take the risk of giving up that job and moving away to one of our schools and so they're not really hearing our message or engaging or they're tuning it out because they're not willing yet to make the leap and invest in an education.

So that's the area where we have spent the most time trying to reconfigure our marketing investment whether it's our national television, through online video, through social media to make certain that we're appealing to this audience in the best way possible. But given that the demand there has been soft for some of the reasons that we talked about, we’re trying to balance that spend recognizing that we can't control the demand drivers there. So we're going to be as efficient as possible on our marketing spend to drive growth, but at a reasonable cost.

From that team we’ve restructured it, we have fewer representatives, we have a flattened management team, we've centralized some of our reps and we have a great leader leading the charge for our campus and military teams and they have retooled and skill this team. And when I talked about seeing an improvement there, if you think our inquiries for this channel were down let's just say mid teens and they had basically flat applications which means their individual productivity levels in conversion rates improved significantly.

And while our teams are working to improve that their skill and their conversion rates, ultimately there is a tipping point and so we really focus on improving or trying to grow our inquiries and improving the rate at which we convert students from inquiry to application and ultimately to start.

I'll move next to the next pinpoint which is we enroll a large number of students who have a significant interest in going to school and for one reason or another do not make it happen. Life happens and gets in the way and they don't show up to school. And we feel that given some research that we've done and our – we have the campus President here in Avondale who's leading this charge to make certain that we are reaching out earlier that we're hand-holding our students and making certain that we're providing a level of service and support to get them to show to school.

So if you think about it in terms of from a marketing standpoint can't control demand, we're going to continue to reinvent ourselves and how we go to market. We've already and we’ll continue to make improvement with our admissions teams and this year we are focused on every single student that makes application and ensuring that they have the level of customer service necessary to show to school and that will make a real difference for our Company and for our students inside of this period.

Sorry for the long-winded answer, but I know we have some new people on the call today and I want to make certain that I'm providing context for what we do and how we do it. So thank you.

Barry Lucas

Okay. Couple others, Kim if you care to our point and you may not on the new nominee for Secretary of Education and how that might impact either access to military bases or access into the high schools, any thoughts there would be of interest?

Kimberly McWaters

We are cautiously optimistic and hopeful. That's about all I can say. And we'll see what happens, but we're hopeful.

Barry Lucas

Okay. Last one for me than you are trying to come back to the rationale for – and I would say for not accelerating the smaller campuses, the openings at a faster pace you've got the question earlier, but you've got the financial wherewithal now. What are sort of the speed bumps? Is it getting people step down or is it finding the real estate modifying buildings because one school every other year a school that's a third of the size of your typical school. We're talking about a very long process here in changing the shape of the Company?

Kimberly McWaters

I know Bryce is going to chime in here. I just want to say one thing, we agree with you. We would like to open more campuses at a faster clip and we do need to make certain things are in balance. But the issues in terms of real estate and talent and those things are not the challenge is making certain that we return to profitability and that we are balancing that with our composite score requirements and that we are investing in that in a very balanced way. But the faster we return to profitability, the faster we can roll these campuses out given that we have the capital to do so, right.

Bryce Peterson

Yes, Kim hit on the two primary points that’s profitability and maintaining that composite score above the threshold and so those are our two competing goals at any given time as you want to reinvest into the business and grow it, but at the same time we have to grow it profitably and so – while we would like to go faster, we really have to maintain that good balance.

Kimberly McWaters

So 2017 will be a step in the right direction while we're improving profitability and investing for our future with the next campus.

Barry Lucas

Great. Thanks…

Kimberly McWaters

You have high commitment to figure out a ways to open up more faster.

Barry Lucas

Great. Thank you.

Kimberly McWaters

You're welcome.

End of Q&A

Operator

[Operator Instructions] It looks like we've no further questions. So I would like to turn the call back over to Kim McWaters for any closing remarks.

Kimberly McWaters

Thank you. I appreciate everybody joining us today for our call. We appreciate your interest in the Company and we look forward to updating you on our first quarter and that call is scheduled currently for February 2, 2017. So meanwhile have a great holiday season and Happy New Year. We'll talk soon.

Operator

The conference is now concluded. Thank you all for attending today's presentation and you may now disconnect your lines.

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