Perdoceo Education Corp (PRDO) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Career Education Corporation second-quarter 2005 earnings conference call. At this time, all participants are in a listen-only mode, and we will be conducting a question-and-answer session during today's conference. (OPERATOR INSTRUCTIONS).

At this time, I would like to read the following Safe Harbor statement. Statements made by CEC or its representatives on this call that are not historical facts are forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on information currently available to us, and involve risks and uncertainties that could cause our actual growth, results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.

These risks and uncertainties, the outcome of which could materially and adversely affect our financial condition and operations, include but are not limited to risks related to our ability to comply with and the impact of changes in legislation and regulations that affect our ability to participate in student financial aid programs; costs, risks and effects of legal and administrative proceedings and investigations and governmental regulations, including the pending Securities and Exchange Commission and Justice Department investigations and class action, derivative and other lawsuits; risks that are related to our ability to comply with accrediting agency requirements or obtain accrediting agency approvals; costs and difficulties related to the integration of acquired businesses; risks related to our ability to manage and continue growth; future financial and operational results; risks related to competition; general economic conditions; and other risk factors related to our industry and business, as detailed in our annual report on Form 10-K for the year ended December 31, 2004, and from time to time in our other reports filed with the SEC. We disclaim any responsibility to update or revise these forward-looking statements.

I would now like to turn the presentation over to Jack Larson, Chairman, President and Chief Executive Officer of Career Education. Please proceed, sir.

Good afternoon, everybody, and thank you for taking part in our 2005 second-quarter earnings call. With me today are Pat Pesch, our CFO; Steve Fireng, President of our Online Education Group; Janice Block, Chief Legal Officer; and Robert McNamara, Chief Compliance Officer. We would like to discuss several important items on today's call, including our solid financial performance during the quarter, which I will briefly overview before Pat Pesch provides more detail later in the call -- operational performance at our two segments, our Colleges, Schools and Universities Group and our Online Education Group; introduction of our new Chief Internal Auditor; our share repurchase program; corporate governance enhancements; and an update on certain pending litigation and regulatory matters.

We are pleased to share with you our continued solid financial results for the 2005 second quarter. Our revenue and earnings growth was further strengthened by continued strong margin and operational performance in our Online Education Group.

In the second quarter, revenue grew 23% to 498 million, from 404 million for the '04 second quarter. And earnings per share grew $0.50 a share from $0.35 a share for the '04 second quarter. These strong bottom-line results led to EPS outperformance of $0.03 compared to company guidance for the quarter.

Operationally, we continue to see a high level of interest in our programs, as evidence by the strong trends in lead generation. We ended the quarter by generating 1.9 million leads, representing a 59% increase from last year. We have also been pleased with the mix of our lead generation and our ability to obtain leads at a reasonable cost. Our Online Education Group lead cost grew in the 15 to 20% range, and CSU lead cost decreased slightly. We strive to maintain a diverse mix of media sources and work with many vendors to insure cost efficiencies in volume.

The Internet has been very productive for us. We also have our own internal agency which produces many of our television advertisements and other ads. While we have seeing strong ways, we are seeing slight declines in overall conversions and show rates, mainly in our CSU group. We believe that this is primarily due to negative press surrounding the Company in some markets, self-imposed tightening of credit standards for students and a stronger economy.

To address these issues, we have implemented a strategic five-point program centered on our student lifecycle. This five-point program focuses on the selling premise, lead conversion rates, bill rates, good retention and improvements in margin. Through this focused five-step program, we're able to consistently strive to provide the highest quality education in our classrooms.

The first point of our program revolves around the selling premise. We recently conducted a comprehensive study which included 600 interviews in 18 markets throughout the US. The people selected for the interview were between the ages of 17 and 39 and open to furthering their education. The survey results told us that the single most important factor in selecting a college is finding an institution that can help a student achieve their lifelong passion. There were also seven other very strong factors that were identified. This new concept is currently being incorporated in our CSU marketing campaign for the upcoming fall starts.

The second point of our program focuses on improving lead conversion rate. We know time is of the essence in working leads quickly to maximize lead conversion. Due to our large volume of leads, we are beginning to use technology to identify leads with the highest possibility of conversion and get those leads into our 3,000-plus representatives' hands sooner. At both CSU and OEG, we have initiated a program of 24-hour calls, in which a representative makes a contact and sets an appointment in the same day or within 24 hours of initial inquiry. We have also implemented an online hiring system that helps in identifying new admissions representatives that have the strongest quality traits. In addition, we have implemented extensive training and retraining of our rep force. We also have a new, more aggressive mystery shopping program at all of our schools. Our enhanced program includes in-person, Internet and phone shopping to measure both the effectiveness and compliance in our admissions process.

The third point of our program focuses on improving show rates. We have re-introduced our 16-step save-our-student program, which includes a dedicated student coordinator at each school to assess the students in all of their activities related to starting school. For example, students needing housing, financial aid, transportation and part-time jobs are contacted within 48 hours of signing up for school by a representative. The schools hold pre-orientation activities and open houses at least once a month to answer questions, assist in financial aid processing and introduce the students to the school's administration. We are pleased that we're starting to see some early improvement from some of these programs, and that 28 of our schools have improved their show rate from the same period last year.

The fourth operational point of the program is focused on retaining our students. We are starting to see the results of our previously mentioned retention programs, such as our student career success survey, our student -- our retention symposium, and our moral (ph) report cards. Retention for the CSU group was higher than in prior year, offset by a slight decline at OEG. In CSU, our understanding of the student needs and how to address those needs have allowed us to help our students stay in school. We have a dedicated Vice President of Student Management at the corporate level who works with all groups across the organization to understand and expedite issues to improve student satisfaction. We work with our community partners such as transportation providers, child care facilities and counselors to help eliminate any barriers that might hinder the completion of their education.

In addition, we implemented student advising on 80% of our campuses, and have been active in providing tutoring services to students that may have need additional help in their academic studies. At OEG, we have recently lowered our student-to-advisor ratio show during the students' first term, when they are at more risk at dropout. Additionally, a new OEG survey initiative was launched to determine areas of student need earlier in the process. OEG also has put a Director of Student Management in place to better service our students.

The fifth and final point of our program is focused on improving margins. Pat will address the specifics of this point later in the call.

We're also pleased to announce that we have opened up two new campuses. In June, we opened up Sanford-Brown College in Milwaukee. The school opening was extremely successful and included approximately 100 current students. In mid-July, we opened up the first Kitchen Academy in Hollywood, California and are excited about the prospects that this concept brings.

Our online population growth remains strong. The credibility of an online education to potential students and employers has never been higher. Our superior technology is one of our key competitive advantages. As of July 31, '05, we had just over 30,000 online students, a 70% increase from the 17,600 students at the end of '04 second quarter.

We continue to firmly believe that OEG represents a significant long-term growth opportunity. Some industry experts have recently said they expect by early '08 that one in 10 postsecondary students will be enrolled in an online distance learning program. We believe that it could be higher. I personally made the statement that 25% of all Bachelor and 50% of all Master's Degrees will be obtained online over the next ten years. Those are degrees that are awarded in the US.

In addition, we're excited by the current success our partnership programs are having, both corporate and military. We are continuing to expand our military partnership by increasing the number of bases and students that we serve. The goal is becoming a preferred provider. One of the ways we're accomplishing this is by hiring recruiters with strong military backgrounds. On the corporate side, we currently have corporate partnerships with about 30% of the Fortune 500. Our goal is to expand this to 50% within the next 18 months.

We're in the early stages of exploring the concept of hybrid learning, involving both on-campus and online courses. We believe that this could pose a significant opportunity for our campus-based students who are looking for an additional flexibility during the course of their program studies.

We have recently strengthened our senior management team with the addition of Steve Calbi. Steve joins us as Chief Internal Auditor and reports directly to the Chairman of the Audit Committee. Steve most recently served as Vice President at Freddie Mac, and during his career he has also worked at E*TRADE Financial and Wells Fargo. Steve joins Robert McNamara, our Chief Compliance Officer, and Janice Block, our Chief Legal Officer. These three well-credentialed compliance leaders work closely together and form the foundation of our world-class compliance organization.

Based on our continued strong balance sheet and ability to generate positive cash flows, I am pleased to announce that the Board of Directors has authorized a $300 million share buyback program. Our superior free cash flow generation capacity and strong balance sheet provide Career Education with considerable financial and strategic flexibility. Our management and directors believe this new share purchase program is a sound use of cash and represents an excellent opportunity to enhance the shareholder value.

I would like to turn the discussion over to Pat Pesch for him to discuss the financial performance.

Thank you, Jack. Before I begin, I'd like to mention for those of you who might not be aware that we filed our 10-Q prior to the call in an effort to provide additional timely insight into our quarterly activity.

Let me start by highlighting some of the financial information that Jack discussed. Second-quarter revenue was 498 million, a 23% increase from the same period last year, as restated. The increase was due primarily to an increase in population and higher revenue per student, with those increases dominated by the growth in our online business. Revenue was approximately 12 million less than our previous guidance, due to continued weak new student starts in our CSU group.

Our operating margins increased approximately 150 basis points from last year's second quarter. Strong online margins more than offset a decline in CSU margins which was largely attributable to lower-than-expected CSU revenue. This margin improvement, along with the increase in revenue, contributed to an increase in net income of 44% and earnings per share growth of 43%. Cash generation continued to be strong, with cash from operations up to 71 million from 44 million in the second quarter last year, driven primarily by higher net income.

I would also like to discuss some additional information that may provide better insight into evaluating the Company's current performance and future prospects. We continue to focus our efforts on financial decisions that enable us to grow our bottom-line performance this year and into the future. We are maintaining discipline in our credit and collection policies and continually improving our lending and cash collection practices, which is visible in our receivables and bad debt trends. Accounts receivable days sales outstanding remains at a solid low of 13 days, which compares favorably to last year's second-quarter DSOs of 23 days.

Bad debt is at 4.3% of revenue, down from 5.1% during the same period last year. If you recall, I commented on the last quarterly call that I did not expect bad debt to remain at the 3.4% realized in the first quarter. I indicated that the strong reduction in days sales outstanding during the first quarter, coupled with the low absolute level of receivables that had been obtained, would limit the opportunity to match first-quarter bad debt expense levels. I further indicated that we would, however, see year-over-year improvement, and we did see that in the second quarter. I anticipate that we will continue to see improvements in our year-over-year bad debt performance, with opportunity for further gradual improvement from second-quarter levels.

Occupancy costs and depreciation expense as a percentage of revenue are up almost 200 basis points for our CSU segment on a year-over-year basis, primarily due to lower-than-expected student population and the resulting lower revenue.

Overall population was 92,000, up 12% from second quarter last year of 82,450. All numbers exclude teach-outs and include externships. CSU population was down 4% on a year-over-year basis. However, if we exclude the Gibbs division, population was flat on a year-over-year basis for the quarter.

In addition, I should note that the CSU population at July 31 reflects the impact from some of our schools with traditional academic calendars like INSEEC and AI Dubai, which have a seasonally low summer period. Population numbers include weaker-than-previously-expected start activity, since we reported the April 30 population levels. Improving trends in year-over-year student attrition rates at our CSU schools has continued, but is offset by declines in our year-over-year OEG retention levels.

Addressing Gibbs, we have seen significant progress in the Gibbs division's rebuilding efforts. The attrition rate has improved 250 basis points from last year's second quarter, with six of our nine Gibbs schools showing improvement. This has resulted in some stabilization of our population at Gibbs, despite continued weak start performance. We have seen significant year-over-year improvement in DSOs and a corresponding strong improvement in bad debt expense for Gibbs. While improvements are clearly in evidence, a full financial recovery is going to take time and certain fixed costs, primarily occupancy expenses, cannot be fully absorbed without renewed growth in student population. We know we are taking the right steps and expect to see a positive impact on the Gibbs division in the longer term.

I would also like to provide updated guidance for full year 2005, as well as for the third quarter. No acquisitions are contemplated by these forward-looking statements. Current weakness in new student starts, coupled with capacity increases in anticipation of stronger start results, has limited profitability improvements in our CSU segment and is reflected in this guidance. We expect full-year 2005 revenues to be approximately 2.04 to 2.07 billion and full-year 2005 earnings per share to be approximately $2.20 to $2.29. This guidance represents an increase of 18 to 20% from 2004 revenues of 1.728 billion and an increase of 29 to 34% from prior-year earnings per share of $1.71.

The $2.20 to $2.29 earnings per share range includes a $0.05 loss from discontinued operations recorded in the first quarter 2005, primarily related to the sale of the International Academy in Montreal. We expect the Online Education Group's full-year 2005 revenues, included in the 2005 revenue estimate, to be approximately 660 to 675 million. We expect full-year 2005 operating profit margin improvement to be approximately 150 basis points. We expect third-quarter 2000 in (ph) revenue to be approximately 498 to 505 million, and third-quarter 2005 earnings per share to be between $0.50 and $0.52. The guidance represents an increase of 14 to 16% from 2004 revenues of 436 million and an increase of 25 to 30% from prior-year earnings per share of $0.40. We expect diluted weighted average shares outstanding to be approximately 105 million for the third quarter 2005. We expect our 2005 effective income tax rate to be approximately 39.25%. Capital expenditures should approximate 7.5% of total revenue.

Jack discussed with you our five-point program centered on our student lifecycle. But this point in the program focuses on improvements in margins. A primary component of our efforts to improve margins is a focus on targeting growth in our population, particularly at our CSU group, at levels which we believe we can consistently attain or exceed. We expect those targets to yield organic population growth in mid single digits, on average. These levels, which on average are lower than those previously set, should enable us to focus on more efficient operations and a more consistent alignment of revenue growth and resource expansion, including capital spending. We believe that more modest revenue growth will enable a more rapid improvement in operating margins at the CSU segment level than we have experienced in prior years, and therefore should position us for continuing the strong growth in earnings and earnings per share that our shareholders have seen from us in the past, as well as in 2005.

Jack announced that our Board of Directors has improved a new share repurchase program for up to 300 million of our common stock. This repurchase program illustrates the confidence that the Board and management have in the future of the Company. The stock repurchase program will be funded using our working capital. At June 30th, we had cash, cash equivalents and investments of approximately 459 million, and expect to continue to generate cash on a strong basis throughout the remainder of 2005 and into 2006.

With that, I'll turn it back over to Jack for a discussion of our corporate governance enhancements.

Thanks, Pat. As Chairman of the Board, I am pleased to discuss our newly-announced early termination of our poison pill and other corporate governance enhancements. At our recent shareholders' meeting, the Board of Directors announced it was going to review the Company's current corporate governance policies and communicate proposed changes by the end of August. We are proud to say that we have accelerated our timing and are announcing the changes today. The changes include termination of the poison pill, minimum stock ownership guidelines for top management and Board of Directors, limitations on Board members' anticipation in outside Boards and mandatory training for Board members.

In addition, the Nominating and Corporate Governance Committee announced that their formal search for two additional independent Board members is progressing well, and that they have a number of viable candidates. We will provide an update once the Board members have been named.

We strongly believe that the approval of the corporate governance enhancements and the share buyback illustrate both the Board's and management's commitment to heeding our shareholders' message and increasing shareholder value. We have visited and spoken with many of you over the past couple of months. We have greatly appreciated your suggestions and feedback.

Before we go into our Q&A session, I would like to turn the discussion over to our Chief Legal Officer, Janice Block, to provide a brief legal and regulatory update.

Thank you, Jack. As Pat mentioned, this afternoon we filed our Form 10-Q for the second quarter of 2005. Included in the 10-Q is a detailed legal and regulatory update, and I will be highlighting several of those legal and regulatory matters now.

On the legal front, as previously reported, we have had two recent court victories. The first occurred in June, when a Federal Court in Texas dismissed a qui tam court proceeding which had been filed against our Whitman Education Group. The second legal victory also occurred in June, when an Illinois State Court denied a plaintiff's motion for class certification in a suit against our AIU Online campus.

I will now provide a brief update on the securities class action pending against the Company in Federal Court in Chicago. Briefing is underway on the Company's motion to dismiss that suit by way of a recap. The original complaint in that matter was filed in June of 2004, but dismissed without prejudice by a federal judge in February of this year. On April 1st, the plaintiffs filed another amended complaint which we moved to dismiss on May 20th. The plaintiffs have now filed their response, and we will file our reply brief on the 8th of August. We will then await the judge's ruling on our motion to dismiss.

As we previously disclosed, the allegations raised by the plaintiffs in the securities class action were the subject of an independent, in-depth investigation conducted by a special committee of the Company's Board of Directors. This investigation found that neither CEC nor its senior management engaged in the securities laws violation alleged in the lawsuit. In addition, the Company has undertaken a number of steps to improve our controls in the areas of finance and compliance, including the further development and expansion of our compliance, legal and internal audit infrastructure and processes.

In the regulatory area, I would now like to provide an update on investigations by the US Department of Education, the SEC and the Department of Justice. As previously disclosed, the Department of Education notified us in June that it is reviewing our previously announced restated consolidated financial statements, along with our annual compliance audit opinion for the years 2000 through 2003. The Department also advised us that it is reviewing other open issues and concerns at our institutions, including pending Title IV program reviews that have taken place at three of our schools.

The Department of Education has indicated that until these matters are addressed to its satisfaction, it will not approve any new applications for additional locations, pre-acquisition review or change of ownership. The Department of Education has, however, confirmed that it will not delay its review and certification of certain previously submitted and pending applications for additional locations. We are cooperating fully with the Department of Education on all matters.

With respect to the pending SEC investigation, we are currently complying with an information request regarding our students' proof of graduation. As we have previously stated, we intend to fully cooperate with the SEC and provide whatever documentation is requested.

With regard to the Department of Justice investigation, we do not have an update on the matter. As previously disclosed, we were able to confirm last year that the DoJ has made an inquiry into the Company, but we have not been told the nature of the inquiry.

Turning now to the state regulatory matters, as announced recently, the Brooks Institute of Photography in Santa Barbara, California has received a notice of conditional approval to operate from the California Bureau of Private, Postsecondary and Vocational Education. On July 22nd, Brooks Institute filed a request for an administrative hearing to contest what we believe to be unfair, unwarranted and unsupported findings and conditions in the Bureau's notice letter. This notice only relates to Brooks Institute and does not impact operations at any of our other schools. The Bureau's notice also is not a final order, and the conditions in the notice are stayed until after this matter is resolved, either by agreement or by final order issued after the administrative hearing. We are currently awaiting a date for the hearing, and we look forward at that time to presenting the facts about the work-winning Brooks Institute of Photography.

On another regulatory note, and as disclosed in our 10-Q filing today, our Lehigh Valley College in Allentown, Pennsylvania has recently received an information request from the office of the Pennsylvania Attorney General. The letter requests documentation relating to Lehigh Valley College's recruitment practices, student complaints and financial aid policies. The college is cooperating fully with this request.

Again, you'll find a more complete update of legal and regulatory matters in our 10-Q filing. Thank you, and I would now like to turn the discussion back over to Jack.

Thanks, Janice. Operator, we will now take questions, please.

(OPERATOR INSTRUCTIONS). Greg Cappelli, Credit Suisse First Boston.

The first question is on the starts that you talked about. Just looking over the past four quarters, you've gone from 28 to around 8%. And you guys talked about lead conversions, and I know in the past, online or interactive-based lead generation versus TV, and then lending less money to students. Can you maybe talk about, Jack, just an order of magnitude, what's having the biggest impact on the deceleration of the starts, out of those sort of areas?

Lead flow is very good. That's a real bright spot. We continue to generate large volumes of leads. Both Internet as well as television has done, frankly, very well here in recent times. That must show people are watching TV. We have also somewhat dramatically changed what we're doing in our TV ads, with more testimonials, if you will, more action-oriented response type of advertising. And we have been very, very pleased with that.

Certainly, funding is a critical part of any student's education, as it is typically of any college student. And we have done surveys that we know that sometimes the reason students don't enroll is because of money, and we know sometimes the reason they don't start school is because of money. So I guess I would say that you have got to find the markets that can afford the programs and kind of align those with people that at this time in their life, that's what they want to do with their education.

One thing -- you know, we have talked about kind of these different factors before, and we have talked about the economy, we have talked about tighter credit standards on our part. And I think, to a certain extent, they are not entirely separable issues, in that at a time that we have kind of restricted the credit that is available for the Company is also a point in time where certain conditions in the economy are forcing students to make that decision, in terms of what they are willing to do from a financial standpoint and what is the trade-off of perhaps continuing to work or go into the workforce. And with us having kind of stricter standards in terms of what is available, I think we're seeing somewhat of a compounding of those two factors in the start activity.

And when you talk about the -- I have not heard you guys talk about the economy before. So is that new data that is coming from your students? And are you specifically talking about a tighter labor market that's having an impact?

Well, I think the economy is improving in different parts of the country. I can't say the whole country, but I think what it does is it gives students perhaps other options at different points. And we kind of follow the trend that we know that in some markets, we have more students that want to start night school now as opposed to day school, which is fine; we offer numerous sessions each day. And I think one of the reasons is there's more people that, frankly, have that opportunity to work in the daytime.

But I think what we have tried to do is really, through surveys and other types of things, kind of position our ads also to really let people know that there are some great opportunities out there, despite maybe having employment that they might currently have, but to even have a better life, if they will, by obtaining education.

Just one final one. Given the value that the online group represents for the Company, I heard you mention a couple of times retention. Can you give us an idea of the magnitude of the decline in the retention rate there? And is it something that you are particularly concerned with, or is it just something that you feel like needs to be tweaked or whatnot?

Let me turn it over to Steve Fireng here in just a minute. We definitely have a handle on it. I think we're constantly surveying students where they are trying to find out what types of services that we can give them. As I had indicated in my remarks, we do have somebody that is kind of a retention czar, if you will, that oversees some of the services and is able to bring that to bear, to make sure that students are truly getting that 24/7 customer service orientation.

But let me ask Steve Fireng, the President of that group, to make a few comments on that.

I really think it's just a tweak. I think we jumped on it really, really early in terms of where we saw some increases in our attrition. We jumped onto that. As Jack mentioned, I think where we find a lot of the students is in that first term. So we jumped on that, and we put a lower advisor-to-student ratio really in that first term, and really didn't have to change our metrics too much, because we obviously -- our later students, we had that a little higher, so it gave a huge impact in our first time we do that.

We also resequenced a lot of our course load, really to kind of offer up some courses of passion at the very beginning of their term. As students kind of jumped into it, we want to make sure they are in kind of their career passion, and I think that's had some huge -- and then, as Jack said, the survey initiative, where I think it found -- as now we survey earlier in the process, we find high-risk students. We find kind of what they are looking for, and we can jump in with our student advisors, really, to kind of solve the problem earlier. So I feel good about the kinds of direction that we're going with the retention rates with online.

So I'm assuming that means you wouldn't expect to see online growth fall off dramatically in any of the next couple of quarters?

No, I would not.

Mark Marostica, Piper Jaffray.

I wanted to follow up on Greg's question regarding the retention in OEG. I'm wondering, as you look over the last couple of quarters, has the retention rate essentially been about the same, or is it getting any worse than what it had been?

Well, I think I would say most recently and most currently we have seen some improvement related to the initiatives that Steve has talked about. But I think we don't have kind of a long enough trendline to kind of really say that we have got it licked at this point. But we are seeing some good reaction, and the one thing that we noticed, in terms of kind of the research or the analytics, was it appears that the issues are a little more pronounced with students who have a lesser level of previous education. And so that's one of the reasons we have developed some of the programs getting to the students early; kind of identifying who are the students that need that attention has been important.

And then, onto the start growth topic, I was wondering if you could give us a little bit more detail around start growth, excluding Gibbs?

You mean in terms of the types of activities, or --

Well, if you were to look at the start growth that you put up in the quarter and strip out Gibbs, what would the start growth have been?

Stripping out Gibbs would not make a dramatic change on things. I think what we have really talked about in terms of the start results, that they have been weak within CSU, so it's not -- I wouldn't look at the Gibbs impact as being as dramatic on the population. The Gibbs did have a 5 percentage point impact on the population growth, but that is more kind of a cumulative impact, as opposed to current period starts.

Some of the things that we are doing that I think are going to have a dramatic impact -- we kind of went through our five-point plan, but I really think the big leverage point for us is to really work on that show rate. I think that we have found that by putting in that system that we have had out there for a number of years but really intensifying it, that it in my opinion had a fairly dramatic effect in 28 of our schools, improvement kind of quarter over quarter. I look forward to seeing what we can do here in the fall, and I think it's going to have a pretty dramatic impact at that time.

We are doing a lot of other things, too, by using technology to kind of work some of the best leads first; getting it into our representatives' hands much, much quicker; and, certainly, just our emphasis on training and some of the retraining. The selection of our representatives, I also think is going to have a dramatic impact, to make sure that the right profile is in there.

So I think there's many factors that are working in our favor, and I think it's going to have a positive impact as we move forward. Of course, the starts by and large in the online thing are very, very strong.

And Pat, you mentioned earlier a more measured approach to CSU organic growth going forward. And my question is, how fast would we expect the CSU margins to recover to show year-over-year improvement? Is that a one-quarter thing, or how fast --?

I guess, if you look at the guidance, what really is implicit in the guidance -- and particularly the guidance range that we provided -- is that some of the costs that we've put in place, particularly in terms of capital spending, occupancy, et cetera, that we have either spent or committed to this year really creates a level of fixed costs that will adversely impact the margin on a year-over-year basis for the remainder of this year. With the population for CSU where it is year over year, we can't recover fully to where we really targeted the population before the end of the year. So when I talk about improvement, we're really talking about 2006, where we think some more measured level of growth would be there.

And essentially, where that's really going to come through is being much more judicious in terms of capacity expansions on the existing campuses -- we have a very strong level of capacity within those campuses now -- and really into 2006 and beyond, really taking up that existing capacity and really adding increments there on a much more measured basis, or perhaps more through additional locations, as opposed to expanding the existing locations.

Kevin Sankey, William Blair & Co.

Hi, it's Matt Litfin. Can you make an estimate of the capacity utilization in your ground-based schools, and give us a sense of what that is down from two to three years ago? I heard your comments to the last questioner there.

And related to that is you mentioned slowing down the growth and kind of not adding as much in terms of CapEx. As we look to '06 and beyond, what do you think is the long-term earnings growth rate for this company at that point going forward?

Let me just talk about capacity here for just a minute. One of the nice things about the school industry is the fact that with good scheduling, you can run your facilities -- very often, you can run morning, afternoon, evening classes, weekend classes. And we always try and maximize that. I think there are different times of the day -- there are certain times of the year that you may not have as much capacity.

I think that our facilities are probably in the best shape they have ever been in. I think our ability to put the necessary capital expenditures in there -- we have really undertaken a very dramatic effort here in the last number of years. So I think the system itself is in really excellent shape. I think there's probably a few locations that maybe have a little bit bigger capacity than what we would like. But I think there's also probably some schools that, frankly, we will give the go-ahead to this year to add additional square footage.

Pat, maybe you want to comment on some of the other points?

Historically, I've always looked at capacity -- when you look at a total company basis, with the growth that we have had, we have always have a certain level of capacity kind of baked in. Because we had schools -- let's say schools that were full and schools that had recently added capacity. So you kind of add blocks of new capacity at a time.

When you averaged it out, I would look at that that we were probably -- versus some type of not optimal standard but some type of practical level, we were probably in the 80 to 85% utilization level at any point in time, again, varying across the individual campuses. I would say we are probably running 10% less than that, currently. And so that really does give us a very ample level of opportunity to grow our populations across the board. As Jack indicated earlier, it's going to be individual campuses that are varying from those averages.

In terms of the long-term growth in profitability, when we look at the opportunity of margin expansion within CSU, and along with a more modest level of revenue growth, and we look at a continued strong level of revenue growth in a very profitable online business, we expect that we can be comfortably above 20%, in terms of year-over-year earnings per share growth.

Trace Urdan, Robert Baird.

I am wondering if -- I know that you're not intending to report differences in OEG between Colorado Tech and AIU Online, but I'm wondering if you perhaps have or can offer us a snapshot, in terms of what the makeup of the population looks like right now, in terms of the type of program that the students are taking, either the type of degree program or the type of discipline that they are studying. We have had such rapid growth there. It would be helpful to get kind of a take on what the population looks like, these days.

Let me ask Steve Fireng to answer that question.

I guess I'll put it in a couple of different ways. We continue adding new programs and concentrations in both of the schools. We just recently added a Bachelor's in Science and Accounting at our CTU campus, which on the AIU it's a full accounting kind of Bachelor's degree program, which is not offered at the AIU campus. They have a lot of the similar programs. We obviously -- Associate Degree, Bachelor's Degree and Master's Degree at the AIU, and just Bachelor's Degree and Master's Degree only at the CTU program.

Certainly, there's a lot of similarities. Both colleges offer criminal justice; they are doing very, very well at the school. Both of the colleges offer kind of a Master's level and MBA program that are doing -- but they have some differences. The Colorado Tech brand has some embedded certificate type of programs, and it's at a kind of a slower pace. So they kind of attract to a different market. AIU is kind of, obviously, the full acceleration type of model. And so, really, even though we are out there kind of in the same space, we really do attract a different market. And sometimes, students might apply to or look into AIU but might end up at CTU because that fits their mode. So I think kind of having that is a growth. But really, even though we have added CTU and added a lot of resources at CTU, it has not, certainly, slowed up any of the growth over at AIU.

One of the things to maybe keep a perspective on, too, is that we have made this prediction before. But just the very vibrancy of online education -- boy, it's here to stay, people like it, it's got tremendous credibility. And I think just a variety of programs that we offer and the ability to, as Steve said, have the accelerated versus maybe the more traditional pace really has caught on. We have been very pleased with the growth in both universities.

If I could just ask a follow-up, Steve, are you finding that the demand for the Associate level programs online is equivalent to the demand for the Master's level programs, in your experience?

You mean just as a percentage of our inquiries, or a percentage of --?

Yes, I guess, just as an engine of growth. Do you find that those are sort of two equally attractive buckets, from your prospective?

Yes, I mean, we have a whole different kind of bucket. Obviously, the Master's Degree, especially through our corporate partners program -- that continues to be a vibrant alternative in that arena. Obviously, in our military and some of the -- there's a lot of first-time learners. We have added some, obviously, recent high school grads that may be a younger student in our Associate Degree. So that has continued to grow. So I think they are kind of growing kind of at the same rate of opportunity.

Keep in mind that the offerings, for instance, at AIU is the Bachelor's program is kind of on a two-plus-two basis, so the presumption is that you already have an Associate Degree. So we have a good number of students that are in the Associates program as a first step, perhaps with an intention of getting a Bachelor's. But in order to enter the Bachelor's program, they have got to finish that first step first, if they have not done that in previous education.

Gary Bisbee, Lehman Brothers.

My question, I guess -- if you look at the campuses, ex Gibbs you said enrollments were basically flat, which is a bit of a slowdown from last quarter. So I'm wondering if you can comment on performance by curriculum area and geography, and then specifically wondering if you could quantify the impact that you think reputation damage has had at the schools that have had some of these legal and regulatory issues?

Sure. That's a good question. Some of the PR, if you will, the negative PR that we described -- that's not in every campus, obviously, but it's in some campuses. And it does have kind of a negative effect. We certainly have undertaken to go out ourselves and kind of explain the facts or do some other positive types of PR, but that takes a period of time. So I would say it's probably in, I don't know, six to eight of the markets and maybe it spills over onto a number of others, also.

I think as we go out there and you look at all the factors, I think we have got a large rep force. I think they are well-trained. I think, as we go forward, we're ready to put in some of these technology things that will make us much more efficient. Show rate is probably the single biggest undertaking or leverage point that we have to tackle here going forward over the next quarter.

And then, the other part of that was are you seeing any weakness by particular curriculum area or geography, or has that been, other than the reputation damage issue, pretty steady across the campuses?

I would say that the schools that have gotten some of the negative press, if you will -- those probably were the ones that I would say they have been hurt far more than schools that have not been hurt with it. I can't say there's any geographics to it, necessarily.

And in terms of curriculum, no real strong trends there. I would tell you, as has been the case in the past, not every curriculum area is growing at the same rate. But we are not seeing anything out of the ordinary in terms of varying growth rates, you know. You had a few point differences here and there, but I would consider that normal, based on historical patterns.

If I could just sneak one last one in, did you buy any stock in the quarter, or is this sort of looking forward, this repurchase authorization?

We have not bought any stock in the quarter. We are required, before the Company would undertake a repurchase program, to make a public announcement of it, which we are doing now. And the Company, as well as any employees, would normally be precluded from any transaction in the stock during a blackout period every quarter, which begins late in the quarter and ends two trading days after our earnings release. So normal company policy would preclude any activity until -- really, until Thursday. I would say any time after that, we could be in the market making purchases.

Bob Craig, Legg Mason.

Just to follow up, Pat, on that last question, I take it, then, that -- sort of a study in contrasts here, but you do plan on being active in the share repurchase program, even without the resolution of some of the legal and regulatory issues that are currently outstanding?

That is absolutely correct. The authorization by the Board was not a theoretical exercise. It was clearly with the intent to acquire shares, particularly shares trading in the current price range. Certainly, with significant movement in the price, that appetite would be different, but clearly in the price range where it is now, we would expect to be acquiring shares.

Just a very quick follow-up -- is brand or infrastructure concentration or consolidation or even rationalization a component of this lower level of expected CSU growth? In other words, will you close more schools? Is that planned?

Right now, there is no thought to do that in the immediate future. Certainly, we always keep our options open. And as you saw saw last year, we made a few changes. But I think right now, we have got a lot of vibrant programs underway in each one of our campuses and have a lot of faith in them.

Jeff Silber, Harris Nesbitt.

I've got a few questions about your military initiative. Some of the other companies in the space have been talking about how competitive this market is. I was wondering if you can comment on that. Are you providing any discount to those students, and roughly what type of discounts? And I believe you said in the past that about 25% of your online enrollees are in the military, either active or have served in the military at one point. I was wondering if you could just break that out a little bit further. How many active military personnel do you have registered online?

Sure. Let me ask Steve Fireng to answer that question, if I could.

Let me kind of talk a little about our military initiate, just real quick. I think it's important to kind of understand. We are committed to that, we have an entire team of ex kind of military personnel that head up that team. We have an executive advisory committee that includes education officers from all of the military branches that meet on a quarterly basis to impact, certainly, the decisions that we might. Obviously, our military program, our relationships -- we have increased from 146 relationships or partners in January of '05 to over 300 in June of '05. So we have seen a significant increase in that.

Our enrollment, had considered stable over the last six months, so just about 26% of our enrollments in January were military, and we look here today, and it's flat with our military enrollment. So we have seen just that it's stable, it's strong. We feel good about it, and in fact we're adding more personnel to kind of interact with that military group. In fact, we were selected one of five preferred schools by the US Special Operations Command, and we are one of five schools that was elected to participate in that program.

So we feel good about the strength. In terms of kind of the percentage, we kind of put all the military into one group, one long group. So I don't have a breakout in terms of percentage of the active, veterans and so forth; we put them into the one group, and they are all handled as one group.

Would you be able to tell us -- is it a majority of those folks active or a majority of those folks veterans?

I wouldn't be able to tell you off the top of my head. But I would say that the discount -- I'll answer your second question, though. We offer -- for active duty personnel, they get their application fee waived, and they also get 5% off their tuition. If they are part of one of our military education programs -- so they are one of the 300 and they are active, so it's a combination of active and part of the program, they'd receive a 10% grant off their education cost.

And in terms of veterans discounts?

Veterans would, if they are part of the military base. If they are not, then there is no discount for the veteran group.

Richard Close, Jefferies.

I wanted to hit on Pennsylvania a little bit. You mentioned there at the end about Lehigh Valley College and the Attorney General. Can you talk a little bit where maybe the genesis of that came from? Is the Attorney General -- have they asked about anything else in Pennsylvania? And maybe what are the start trends or enrollment trends at Lehigh Valley?

Let me ask Janice Block to answer that question.

Yes, I'm going to start. You asked about the genesis of the Lehigh Valley request from the Pennsylvania Attorney General. Speculation is that it could very well stem from a series of negative articles that have been running in a local publication there called The Morning Call. Other than it, we don't know; the request was not preceded by anything else.

And you asked if there's anything else going on in Pennsylvania. Not that we are aware of. The letter was simply a request for certain categories of documentation.

Okay. Is there more clarity on -- could you provide any more clarity on the documents they are seeking?

As I indicated earlier, the documents focus really on three areas -- student complaints, financial aid policy and recruitment practices.

And then I guess a follow-up, Jack or Pat, to the talk about starts in CSU. You mentioned bad press, economy. There was a third one I did not jot down; I apologize. But I think the first one you mentioned was bad press. If you classified the three reasons for the decline in the conversion or show rate, what would you put as -- maybe attribute as the number-one cause?

I think show rate is probably the biggest thing. It's probably credit or students' ability to fund their education, if you will. It's an effort that we put a lot of effort in that area. I think it's working the leads quicker. I think it's trying to identify those leads that we feel that those people might have the best ability to kind of start and finish school, if you will. There is a lot of attention that we have put in our 16-step program. It's very detailed, it's very thorough. It's both electronic at the schools, but there's a lot of kind of human touch points, too. We want to make sure that people get a contact within 24 hours from a representative. There's a whole series of things that take place within 48 hours, too, and it really helps a student with that decision.

It's the biggest decision somebody is ever going to make in their life, and we just find in this day and age that you certainly have to put all the time and attention necessary to help those students. Kind of the nice thing about what we're doing for the fall is I think we will have longer to impact that. Keep in mind, we have tens of thousands of students that have already enrolled that are ready to start school, that are scheduled to start school here this fall. And I just think we have a much better handle on who those students are and what their needs are. And I think we have aligned, probably, our ability to not only get a higher conversion rate out of our leads, but also then really get those students to be able to start school at greater numbers. It is definitely something that I have found over the years, that you can impact in a very dramatic way.

I guess my question was, do you think bad press is relating or causing the softer start numbers, the economy or the third reason you gave? (Multiple speakers).

The third reason was credit. Obviously, the bad press in some markets -- I had stated that there's probably six or eight markets that I think that some of the press definitely did have an effect on the show rate at those schools, and then it probably spilled over onto a variety of other markets that might have been in that press, in kind of a regional or statewide basis.

Chris Gutek, Morgan Stanley.

I just wanted to follow up on the question with Gibbs. And I hate to beat a dead horse; I just want to make sure I understand this correctly. If the negative impact on the total student population growth was 5 percentage points, and therefore the impact on the CSU student population growth was just more than 6 percentage points, so if you make that adjustment, the CSU adjusted student population growth would be modestly positive, which would be a slight improvement from what you reported in Q1. Did I do that correctly, or did I make a mistake?

You might have to run it by me again, Chris. CSU, ex Gibbs, is basically flat year over year. So I threw out a 5% number, and that's kind of a round -- it was a round number. So maybe that's the issue there. (Multiple speakers).

But roughly similar to what you reported in Q1, then? Are you confident that in Q3 or at least by Q4 that you're going to be back into positive growth territory, given your initiatives?

Well, I think, if you kind of look at the guidance that we provided in the revenue guidance, there is a range there. And really, when you look at that range, you could argue that kind of the end of the range has to do with kind of continued weakness versus some level of recovery. And Jack talked about some of the initiatives we have that gives us some optimism in terms of improving show rates and everything. We think improving show rates will end up having a positive impact on the population. So kind of that is where we are at. I think we could be into some modest improvement from where we are at today, looking into next quarter. But the guidance really only implies a modest level of improvement from where we are at.

And the majority of those Gibbs schools are improving; there still are a couple that are apparently not improving. And at what point would you consider just shutting down some of the poorly-performing campuses?

I think one of the things we would look at is, even the ones that have not improved their attrition on a year-over-year basis have seen some level of financial performance, improvement in their bad debt, some stabilization in the attrition rates, although not better on a year-over-year basis. So I would say at all the campuses, we are seeing signs of improvement.

But to more directly answer your question, and as Jack indicated before, certainly we will look at and evaluate all of our campuses from time to time. And if we think it's not a proper investment of our resources, both dollars and people, we would make decisions if we needed to in terms of teaching out a campus. That's not anything we're anticipating right now.

Let me throw out another thought here, kind of a perspective on it. Over the years, as we have either acquired schools or schools have had issues or whatever that we are looking for growth opportunities, sometimes it takes a little bit to get these things implemented. And I've got to tell you, there's too many schools today that are very successful that, even two or three or four years ago, if we would have given up on them or not put the needed efforts into them, these frankly are schools that have grown dramatically, have served their markets well, have taken on the different programs. So that's something that we are very conscious of, too, because we have a long history of being able to get things turned around and, frankly, really put in the right programs and the right people in them.

Corey Greendale, First Analysis.

I wanted to ask for a more detail on the efforts to roll out hybrid online, on-ground programs -- kind of where that effort stands, how widely you think you would roll that out and over what timeframe. And then, that's been an initiative, and it has helped margins at some of the other public companies. Any reason to think that wouldn't be true for you? And any sense what the margin contribution could be?

We are really excited about it. Obviously, we've done a great job with our online efforts. It's got a very unique platform. This has certainly given us a competitive advantage, so we know how to do online. We have got a number of our courses now that we do online in our general education area. There's literally thousands of students that takes some of that each year. But we want to expand beyond just general education, and we are really excited about it because we think, through surveys and other things, there's a lot of students that, for a number of reasons, either to help them complete school or want to start school, that the hybrid online program will be extremely attractive. I think it brings a certain marketing capability that some of our brick and mortar schools, frankly, don't have right now. So we've got the capability, we have got the resources to do it.

I might ask Steve Fireng maybe to comment on that just a little bit, in terms of some of the things, but we look at starting that program on maybe a modest basis here somewhat soon.

I'm with you 100%. I think there's some tremendous opportunity at the CSU schools to offer this as an option. It doesn't always replace kind of what you're doing, because there's a lot of students that need 100% on-ground. But there's some of these nontraditional students that are kind of asking for convenient education and this hybrid and kind of online/on-ground model do that. So we are in absolute talks and development of this, and I really feel like in '06 we certainly could have some sort of option out there.

To give you a little flavor for what we're looking at, we're essentially looking at how to leverage what we consider an outstanding online platform with our online group, and to really how to leverage our investment in that platform across a variety of campuses that we have today. And we would expect development activities in that area to bring us sometime into early 2006 before we would roll something out at any of our campuses, and probably later in 2006 before we would really have a meaningful number of those campuses involved. But we definitely think this will have opportunity in a number of areas.

You mentioned margin opportunity. I think, clearly, we have seen efficiency in our online business that we think will translate into improved profitability at our CSU schools, but we also think it has value in terms of broadening the market somewhat that you can attract to the schools, and also being an aid in terms of retention efforts.

Jack Shirk (ph), SunTrust Robinson Humphrey.

First off, I just wanted to confirm that was 1.9 million leads generated during the quarter, up 59% year over year?

Yes.

And then, on your target now for campus growth being mid single digits, I take it -- refresh my memory -- historically it was low doubles?

Well, if you look at where we have been historically, depending on the period you look at, we have been in the high teens and early 20's at points in time. But most recently, we have been in either high single digits to low double digits over the last couple of years.

And then, as far as just online conversion rates, how would you characterize those? You mentioned that ground conversion rates were down or show rates. Would you characterize online as being stable, though?

Yes. I'm going to let Steve Fireng speak to that, but just kind of globally, with the online stuff, most of their leads come in over the Internet. We have put in a number of technology things to really move those leads through our systems quickly, also trying to identify the leads that we probably have the highest opportunity to maybe work that want to take the program.

And I think that we've had a lot of success with that. Steve has some comments that (multiple speakers).

Yes. Our conversions have remained stable, so we feel good about it, even though we have grown, grown, grown -- we have remained kind of stable in our conversions. We have added a few, really, technology things to hopefully enhance, even, the future. We have added kind of a CTI dialer that basically allows representatives to kind of click on their screen to dial the phone, so it gives representatives even more efficient. Jack mentioned a lot of our getting our leads to our representatives quicker, but also the added benefit of being able to kind of qualify up that lead to make sure that you're giving the military leads to the military reps, you're giving international leads to international reps, and you're giving kind of Master's Degree leads to people who can handle kind of the Master's Degree students. And that all happens in a matter of seconds, and literally it's in the hands of the representatives. So that's something we have rolled out and we feel good about that can continue doing our conversions.

The other thing we have added is, really, kind of to take control more of our own type of leads. We've developed more internal portals, which have our highest lead conversions, and we're kind of taking the -- creating kind of our own third-party vendors, you might say, to kind of control our own lead flow and generating leads ourselves, rather than outside groups. And those actually have been our highest converting leads we have done so far.

And one thing I would also offer -- in terms of conversion activity, I should kind of footnote the comment that at times where we have introduced new admission centers like when we opened Portland, or we have opened new offices where we have had a large influx of new admissions reps, certainly at those times, those brand-new reps are not converting at the same levels as kind of the more experienced reps. So things like that, certainly in the short term, have affected conversion rates. But that's less of a -- that's more of kind of a training level issue with the staff, as opposed to convertibility of the leads.

And then, my final question is just on the SEC request for the proof of graduation. What years is that pertaining to? Is it the same years the DoE is looking at, or is it longer than that, or just the kind of timeframe there?

The timeframe there is January of 2001 through May of 2005.

Howard Block, Banc of America Securities.

On the Kitchen Academy program, can you give us a little more color on sort of the business model there, and where the revenue from those students might show up, and any sense of, I guess, the scalability of the school on Sunset Boulevard?

We are really excited about the whole concept of Kitchen Academy. Obviously, we're extremely proud of our Le Cordon Bleu brand name, and that does extremely well. But we have also found that there's a need out there that people would perhaps want to take a bit shorter program, a bit less expensive, if you will, something that is a bit different model also from how we have maybe run some of our other operations. So they're off to a very good start, and I think that as we look at the future, certainly, of putting other campuses like this and other markets out there, because there certainly is a need for it.

The scale of the Kitchen Academy location is considerably smaller than what we would normally look at with a Le Cordon Bleu school, a little more focused with the Kitchen Academy concept with more of a local market, although Jack alluded to the fact of operating the schools on a little different basis. We are really looking at a stronger use of technology and more centralized activity relating to generating leads, managing lead flow and responding to students, such that with the addition of additional locations to that concept, there would be a stronger centralized level of marketing activity for those schools.

What we have tried to look at, too, is to kind of piggy-back off of schools that might be in existing markets. We generate lots and lots of culinary leads, and our market researchers have shown that -- you know, is there something else that we can sell them other than, perhaps, some of our longer types of programs. I think this is something that came out of that. And that's why we are very encouraged by it.

And I know that you have offered some color on numerous questions already about this same-school excluding online. But you've probably seen we do a lot of checking up on the culinary programs, and they seem to be doing exceptionally well, which tells me that if you exclude the culinary, there might be some declines. But just focusing on the culinary, you probably won't endorse an estimate for what we have for culinary growth, but it seems really impressive. Can you at least comment directionally on it, as well as to say how sustainable that growth rate is?

Sure. Our lead flow continues to be vibrant. We've added capacity at our various culinary schools where we needed to. As the economy has picked up here, I guess, what we noticed certainly is people eat out more often. I think there's more openings, whether it be tourism or restaurants or things like that. So directionally, we look at that group as being something that could do very well.

Howard, I will tell you, the schools as a group are not really driving any disproportionate performance in the population. From the beginning of the year until currently, they are at a fairly stable percentage of the total population. I think there are differences campus by campus, as there are throughout the rest of the system, but removing culinary from the mix would not dramatically change any of the numbers.

So removing culinary from the mix that excludes online already, or the total mix?

If you did it on a CSU basis, it would not have a dramatic impact.

Okay. Interesting. And then, just lastly, on the share buyback, I think perhaps a couple of the preceding questions were prompted by the fact that the other companies in the group, when they have been under heightened regulatory or legal scrutiny, they have been hesitant to announce or to buy back shares. And I didn't know if this announcement suggests that your Board has some insight as to the resolution of that. I would think that they might have some fiduciary responsibility to be able to assess probable outcomes before they would be willing to invest shareholder capital.

I think it is fair to say we are very mindful of our obligations for required disclosure, if you were in the market making purchases. And at any point in time that we are making purchases, we will only do so if the necessary disclosure that needs to be made has been made.

The one other thing I would add is just companies also have the ability to enter into trading plans. So that is certainly an option, if you can enter into a trading plan at et any point in time that you would otherwise trade shares. But trading could occur under one of those programs at a time that it otherwise might be precluded.

Ladies and gentlemen, we have reached the conclusion of the Q&A portion of today's conference. I would like to turn the call back over to Mr. Larson and the group for any closing remarks.

Thank you very much. Let me wrap up the call with just a few concluding thoughts. We're proud of our solid second-quarter and first-half financial performance. The Company is strong, both financially and in terms of future growth opportunities. We are committed to enhancing shareholder value, and our new share buyback program and corporate government enhancement are steps in an effort. Management is dedicated to remaining a leader in our industry, where we have tremendous opportunity to expand our program offerings, both on-campus and online, as well as taking advantage of growth potential in the US and internationally.

Finally, and most importantly, I want to thank each and every one of our 16,000 employees who have dedicated each day to helping our students turn their dreams into futures. It is an honor to lead you, and I want you to know how much I appreciate all your dedication and your passion. Let me again thank you for joining us on today's call. Thank you very much.

Ladies and gentlemen, we thank you for your participation in today's conference. We have reached the end of the presentation, and you may now disconnect.