Perdoceo Education Corp (PRDO) 2010 Q2 法說會逐字稿

Welcome to the second quarter 2010 earnings conference call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please not that this conference is being recorded. I will not turn the call over to Mr. Jason Friesen. Mr. Friesen, you may begin.

Thank you, John. Good morning, everyone. Thank you for joining us on our second quarter 2010 earnings call. With me on the call this morning are; Gary McCullough, President and Chief Executive Officer and; Mike Graham, Executive Vice President and Chief Financial Officer.

Following remarks made by management, the call will be open for analyst and investor questions. This conference call is being webcast live on our investor relations section of our web site at careered.com. The replay will be available on our site. If we do not get to your question during the call, please call our investor relations department at 847-585-3899.

Now, before I turn the call over to Gary, let me remind you that yesterday's press release and remarks made today by our executives may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on information currently available to us and involve risks and uncertainties that could cause our actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified in our quarterly earnings release, our annual report on form 10-K for year end December 31, 2009, and our quarterly and other filings with the Securities and Exchange Commission. Accept as expressly required by the securities laws, we undertake no obligation to update those risk factors or to publicly announce the results of any of these forward-looking statements to reflect future events, developments or changed circumstances, or for any other reason.

Please also note, once again, that the results of operations include one remaining transitional school, our AIU Los Angeles school. All other transitional schools are now classified in discontinued operations. We expect to complete the teach out of AIU Los Angeles within the second half of 2010, at which time it too will become part of our discontinued operations.

Now let me turn the call over to Gary McCullough.

Thanks, Jason. Good morning, everyone. Thank you for joining us on this morning's call.

I'll begin by summarizing some of our significant accomplishments from the second quarter of 2010 then I'll be followed by Mike Graham, our Chief Financial Officer, to provide more details on our financial performance. After Mike concludes his commentary on our results, I'll share with you a few remarks regarding the ongoing MPRM process before opening the lines for questions.

The second quarter represented a continuation of the positive momentum generated at the end of last year and in the first half of 2010. We'll face more difficult comparisons beginning in the third quarter and have started to see some signs of new student enrollment trends, returning to levels more consistent with those we've stated as long-term goals at our 2010 analyst and investor day. That said, our first half performance has positioned us to finish 2010 in line with the revenue and operating income expectations we communicated earlier this year. We continued to invest in efforts that will enhance quality across our institutions, which we believe in turn, will lead to sustained long-term growth in our student population. As a result of our efforts to ensure high-quality student experiences and outcomes, in the second quarter of 2010 we increased the number of professionals in our career services team by 15%, and our academic resources 23%, compared with the second quarter of 2009.

I'll spend time during this call discussing some of the other things we have done to improve student success. Now, there are inherent differences between distance and classroom learning and our approach to student success differs by learning modality.

To support our student success efforts in distance learning, we continue to require completion of our orientation course with an AIU and CTU. We have required this course for a number of years and it's designed to help students better prepare for a successful online experience. We find that this orientation course typically results in 10% to 13% of prospective students realizing they may not be well-suited for the program. There is no financial obligation for the course and the students who don't complete it are never counted in any of our reported new student start numbers or our student population.

In addition to orientation, university students who have never attended college are required to take a college prep class as their first credit course. Although this results in a first term drop rate of 5% to 10% for this group of students, we believe this is the right approach because it also helps in the early identification of students who are less likely to persist. Our data indicates that student attrition is highest during the first six terms of study. Accordingly, to assist students we recently realigned our student advisor resources to provide more support for students during this critical period.

We believe highly qualified faculty is a key to institutional effectiveness and we have continued to invest in this area. At AIU and CTU, 98% of our faculty have master's or doctoral degrees. At CTU, we've revamped our faculty performance management and development program to line more closely with student satisfaction and course completion. Said another way, we've worked harder and more systematically to ensure the best teachers have the opportunity to teach the most students. AIU will rollout this program later this year. In short, we believe this focus on the quality of our academic team will improve our students academic experience, improve graduation rates and increase student satisfaction.

Obviously, a great deal of our leadership attention in the second quarter was taken up by issues emanating from Washington, DC. During the quarter, we continued to engage with the Department of Education, members of congress and others to help ensure that the proposed and final rules impacting our sector are grounded in solid facts, that they are in the best interest of students and that they are -- that they limit unintended consequences. During this period, I have continued to impress upon our teams that we can't control external events but, rather, our job is to maintain a clear and intentional focus on our purpose of changing lives through education. We can best accomplish this by continuing to provide students with broad access to quality education through an open enrollment model.

To be successful, we'll remain focused on a few priorities. We will maintain and continue to improve the culture of compliance we've nurtured during my tenure at the company. To do this will ensure prospective students have clear information about the programs, including their financial obligations, that they understand the demands of our programs and the range of potential outcomes, and that they truly desire the education they're seeking. We'll continue to ensure our programs prepare students for success in their chosen field.

Now, let me turn to our second quarter accomplishments. Our performance for the second quarter was in line with expectations which we shared with you in February. Total revenue increased by more than 20% in the second quarter versus the same quarter in 2009. Our new student starts for the quarter were up 18% versus a year ago. We also achieved a 23% increase in student population over the second quarter of 2009. And we finished the quarter with over 104,000 students.

This growth resulted in operating income of $95 million, an increase of 157% from the second quarter of 2009. It continued gaining operating leverage as we expanded our operating margins by 960 basis points to 18.1%. And a 200% increase in earnings per share from continued operations to $0.81 cents from $0.27 cents in the second quarter of 2009.

Health Education continued this growth momentum and margin expansion. The second quarter of 2010 marked yet another quarter of sequential growth and operating income for our Health SBU. The four start-up schools that we have opened this year in Illinois, Rhode Island and Indiana are performing well. We anticipate that we will open at least two more locations this year to further expand our geographic reach, which is consistent with our strategic plan.

The topic of programmatic accreditation and health care institutions came up recently in Washington. Our goal in health related programs is to gain program accreditation for all the programs where such accreditation will lead to tangible student benefits. Gaining these programmatic accreditation's is an important part of our strategy to improve student outcomes and we've continued to make progress in this area. We currently have over 60 programs with programmatic accreditation in more than 50 are in varying stages of programmatic approval. This represents approximately 75% of our eligible programs. The remaining programs are primarily in our start-up schools.

Last February, at our analyst and investor day, we previewed our exclusive Simpro technology. It demonstrated advancement in the use of computer simulation and cognitive learning in certain health care procedures. We've expanded the use of this exclusive technology to almost 2/3 of our health schools since then. This technology enhances our students educational experience, it better prepares them for their future careers and it's proven to be a differentiator with employers, as well.

The university segment performance for the quarter was in line with our expectations and Mike will provide more details during his comments. But I do want to cover a couple of items. On July 9, we announced that the Higher Learning Commission's board of trustees had validated the HLC's advisory team's recommendation related to AIU. This means AIU continues to be in good standing with the HLC and that the institution will have a focused visit in 2011 or '12 to evaluate AIU's now completed transition to its new undergraduate credit hour structure. AIU is prepared to submit a number of new programs for approval. They'll begin to work with HLC and appropriate state authorities on new program approvals. We currently are not anticipating new program introductions at AIU this year.

Late last year, AIU underwent a program review by the Department of Education. We received the Department's preliminary report July 14. It contained six findings which we've disclosed. Four of the findings related to processing errors and involved immaterial amounts. The other two findings relates to a student's last day of attendance in online courses for the purposes of determining refunds. AIU's methodology has been consistent through other Department of Education reviews without issue or findings and the method is consistent with policies of both traditional and proprietary online institutions. AIU has 90 days to respond to the preliminary report and intends to contest the Department's findings.

In addition, in the second quarter, we received notification from the office of Inspector General of the Department of Education, Audit Services Division that it would conduct a Title 4 Compliance Audit of the Colorado Technical University covering the 12 months ended June 30, 2010. The audit is ongoing and we have not yet received a preliminary or final program audit report. I do want to give you some perspective on what we know about these types of audits. First, I feel that the audit is being conducted by the Audit Services Division, not the Investigative Division. Second, there are between 100 and 200 of these types of audits conducted annually. Finally, I am aware of three previous audits of this type conducted within our company. On one, no report was ever issued. On the other two, the final reports found no liability.

Now, turning to Culinary Arts. In Culinary I continue to be pleased with the adoption of the 21-month program which now comprises over half of our students. I am also pleased with the continued expansion of Culinary's operating margins. Our research has reaffirmed the strength of the Le Cordon Bleu brand awareness and the strong reputation with LCB's prospective students. What really differentiates an LCB education from other institutions and community colleges is the technique-driven teaching methods, hands-on curriculum and highly experienced and passionate chef instructors. Another example of LCB's commitment to quality was the recent addition of Edward Leonard as our Master Chef.

Chef Leonard is one of only a handful of certified master chefs in the United States, is a past President of the American Culinary Federation and has spent the last 25 years working in culinary arts. His responsibilities include, faculty training and development, and providing technical leadership for all of the Cordon Bleu campuses throughout the US. We are fortunate to be able to combine Chef Leonard's talents with those we already have in-house including, Chef Kirk Bachmann, who only a few days ago was inducted into the American Culinary Federation's American Academy of Chefs. Chef Bachmann is responsible for LCB's academic programs.

We worked hard to communicate our concerns about the initial gainful employment language, particularly because of its potential impact on the culinary field of education. We're encouraged that there was some movement in the recent language, in our assessing its ramifications, as I will discuss later. In any event, there are a couple of things I'll remind you of, as it relates to Culinary. Our team is flexible and creative and they've worked through significant past business challenges, such as the major reduction in private lending in 2008 and '09. And they've maintained our high-quality programs with the lowest [] fall rates and the highest placement levels, in our company.

Our international segment's results were in line with expectations and integration efforts related to the April acquisition of the International University of Monaco are progressing well.

So overall, our first half was another positive step towards meeting our 2010 and our longer-term goals. Our first half results have positioned us to meet our objectives for the year. We will continue to implement the actions that are necessary to achieve the milestones we laid out in our strategic plan. As I said before, we'll grow in a manner that's responsible, measured and replicable over the long term. Now, let me turn the call over to Mike who will provide you with more detail on our financial results.

Thanks, Gary.

Let me share with you an overview of our second quarter financial highlights. During the quarter, the Company generated revenue of $528 million, an increase of 21% over the prior year. Our operating margin increased 18.1% in the quarter, which represented a 960 basis point improvement over last year's second quarter. New student starts were up 18% over last year and student population grew 23%.

Now let me turn to quarter results by operating segment. In university, second quarter revenue grew 19%, over last year to $297 million. This is primarily attributable to our 18% increase in student population and 11% growth in new student starts. Operating income for the quarter was 79.5 million, up 73% from last year's second quarter. And operating margin increased 840 basis point to 26.7%.

Revenue for AIU was $120 million, an increase of 15% from the second quarter of 2009, reflecting a 14% increase in student population as well as a 14% increase in new student starts. AIU's operating margins for the second quarter were 33.3%, a 910 basis point improvement over operating profit in the second quarter of last year and up 520 basis point over this year's first quarter. As a result of student population growth and improved margins, operating profit in the quarter was $40 million, up 59% versus last year's second quarter.

As we mentioned last quarter, the new credit hour structure at AIU for the undergraduate degree programs can benefit our students by providing; increased flexibility, in terms of credit loads; credit hour transfer ability; and allow students to move from an accelerated pace of study to a more traditional full time pace. We have seen a moderate level of deceleration from the new credit structure which was announced in the first quarter 2010. In this second quarter, revenue per student was in line with our second quarter 2009 levels. If these trends continue, we would expect our RPFs to be even with 2009 levels and AIU, for the balance of the year.

CTU revenue grew by 32% from the second quarter of 2009 to $115 million. This performance reflected a 27% increase in student population and a 26% increase in new student starts. CTU's operating profit was $32.5 million in the second quarter, up 96% versus last year. Operating margin was 28.3%, an increase of 930 basis point over the prior year.

Revenue for the art and design schools within the university segment was $62 million, up 6% from the second quarter last year. In the second quarter art and design new student starts were down 36%, but as a reminder, the first quarter this year including three art and design new student starts versus two last year. That timing shift balanced out in the second quarter with two starts this year versus three last year. So, for the first half of the year, new student starts for art and design were relatively flat with the first half of 2009. Art and design operating profit was $7 million in the second quarter, up from $4 million last year. Operating margin was 11.2%, up 420 basis points over the prior year.

Culinary arts revenue increased 25%, to $93 million. 34% in new--student population and a 21% increase in new student starts to the quarter. Culinary arts operating income's $12 million in the second quarter 2010 compared to an operating loss last year in the second quarter of $3 million. Our operating margin this year in the second quarter was 13.4%.

As a reminder to what we discussed last quarter, with the additional amount of performance data for student payment plans, we began analyzing that data in two distinct categories, students who've dropped out of school and students who've graduated. In the first quarter, we increased our estimate of uncollectible accounts, primarily related to these students who drop out of school prior to completing their program of study. We continue to monitor the graduate performance closely as the date becomes more seasoned. So, in the second quarter of 2010, bad debt for our culinary segment as a percentage of revenue, was 10.4%, up from 9.2% in the second quarter last year. Again, this increase is primarily attributable to our change in estimate related to students who've dropped out of school. For the year, we continue to anticipate culinary bad debt expense to be likely consistent with our previous guidance.

Health education student population grew by 31%, over the second quarter last year and new student starts increased 32%. As a result, revenue was 25% higher. Excluding start ups, the student population in our health schools increased 22%, in the second quarter over last year. Operating income for the second quarter is $12 million and operating margin was 10.7%. This included $6.4 million in operating losses from those new start up campuses. The operating losses for the start up campuses in the second quarter 2009 was $2 million. Excluding start up losses in both these years, operating margin for health education would have been 17.5% this year, an increase of 670 basis points.

As Gary mentioned, we plan on opening two more health schools in 2010. As of June 30, we were operating 38 health schools, 11 of which are currently classified as start up schools. Schools that are included in the start up definition until one year after the first new students start.

Revenue for our international segment increased 14%, on a 12% increase in student population. Operating income was nearly flat to last year's second quarter due to unfavorable impacts of foreign currency. As a result of the changes in exchange rate versus the same quarter last year, revenue was negatively affected by about $2.8 million and operating income by $800,000. International operating margins were 10% for the second quarter. This is down 170 basis points versus last year, primarily related to our higher allocation of our shared services expenses. Also, the international results for the quarter, include $1.4 million of revenue from Monaco and a related operating loss of $100,000.

Turning to corporate, remember, beginning in 2010 we began allocating our cost based on key cost drivers. As a result, the costs which remain unallocated in the corporate area represent only those stewardship costs required to run the overall business. For the second quarter of 2010, our stewardship costs were $9.7 million compared to $14.7 million in 2009. Our second quarter 2010 effective tax rate of 31.1%, included a $4.2 million tax benefit for credits associated with curriculum development, which was accounted for in the current period as a result of a recently closed Federal Income Tax Audit. We expect our annual effective tax rate for 2010 to be approximately 36%.

One additional point of note, we also continue to expect approximately $10 million of 2010 expenses related to our move to our new campus support center. We have incurred roughly half that amount through the second quarter and the remainder will be incurred evenly over the next 2 quarters.

Let me update you on our financial position. As of June 30, 2010 the Company had cash, cash equivalents and short-term investments of $313 million. Our cash flow from operations for the six months ended June 30, 2010, was $48 million compared to $52 million in 2009. As of June 30, 2008 and also as of June 30, 2009, looking back two years, our working capital at this point was around a $0.75 billion. As of June 30, 2010, our working capital has decreased to approximately $110 million, due to a few factors. One, our cash was significantly impacted by our significantly higher 2010 share repurchase activity in the first half of the year versus prior years.

Second, our student receivable balances were approximately $30 million higher, partially due to timing of the draw down of Title 4 funds available to be drawn down on June 10, which we did not draw down until early--in July of 2010. We've also had more a significant reduction in liabilities, due to payment of bonuses related to the 2009 performance, which we've discussed last year. As well as about $9 million in leasehold payments and terminations for our discontinued operations. The balance of the change in working capital is related to our institutional growth and various timing changes within the balance sheet.

Capital expenditures in the first half of the year, increased to $43 million or 4.1% of revenue, from $30 million in the first half of 2009, due primarily to the investment in start up schools. Our annualized DSO was 17 days, versus 16 days last year. Again, reflective of the Title 4 timing that I spoke to. The Company continues to have only modest growth in our receivables, from our extended payment plans with total balances as of June 30, 2010 of $6 million sequentially from last quarter to now, about $56 million. We continue to expect approximately $5 million to $7 million of internal payment program receivable growth, per quarter, for the balance of the year.

We continue to focus on the best use of our cash balance and intend to use our cash to support the DOE, financial responsibility ratio, working capital needs, make required and high-return capital expenditure investments, such as the start ups. And in 2010, for one year, invest in the build out of the new campus support center. We will continue to return cash to shareholders as opportunities arise. We will also pursue strategic acquisitions like we did with Monaco.

In the second quarter of 2010, we repurchased 2.1 million shares for approximately $65 million at an average price of $31.57. This brings our total shares repurchased in 2010 to 5.4 million shares for $155 million at an average price of $28.56. As of June 30, the Company has remaining authorization to repurchase approximately $290 million of shares.

So, in summary, our growth has been consistent with our goals outlined earlier at the investor and analyst day in February. As Gary said, as we enter the second half of 2010, we will compare again, significantly higher new student start growth rates than the first half of the year, especially in university and the legacy health schools, excluding startups. Additionally, in this second quarter, given the current economic and regulatory environment, we slowed the rate of our advertising expenditures, with growth of only 3.5% over 2009.

For health, we expect to see year-over-year growth slow in the second half of the year. This traces less to new student demand levels, which remain solid, but rather, as we indicated before, we're reaching physical and externship-related capacity limits at some of the locations. Accordingly, we anticipate most of our new student start growth in the second half of 2010 will be driven by the '11 start up schools.

For university, we believe that given that first half growth, we are well positioned to meet the annual university objectives outlined earlier this year.

Our online student populations have traditionally been comprised of a relatively higher mix of associate degree students with approximately 60% to 65% of all students enrolled in associate degree programs. While 50% to 60% of the associate degree graduates continue on to master's programs with us, we also have terminal degree programs at the associate degree level. While our strategic focus has been to continue to increase our higher degree mix, this is a longer-term shift. And our current trend data indicates a reduced leap flow for students pursuing associate degrees.

The more difficult comps, our lower growth in advertising expenditures, and reduced lead volumes, while continuing to maintain the upfront orientation of preparatory classes will result in significantly lower third- and fourth quarter new student start levels, mostly likely showing growth in the single digit range for university.

Although we now begin to compare against higher growth rates in the second half of last year and expect some near-term moderation in growth consistent with industry trends we're observing, we believe that we're on pace to achieve our annual growth objectives for 2010. Specifically, to grow our student population and revenue 15% from the 2009 levels. Most importantly, we remain on track for achieving the $350 million to $370 million of 2010 operating income milestone we shared. As we stated in the past, our philosophy is to adjust student facing costs with the level of student population and hold all other costs to the rate of inflation. With moderating start trends, we will continue to work to hold the operating leverage we've experienced over the last few years.

Now, let me return the call back to Gary for a few additional comments before we open the call to your questions.

Thanks, Mike.

Prior to opening the call to questions, I want to spend a couple of minutes addressing the ongoing negotiated role making process. First, I think it's important to continue to put into context the importance of our sector in the marketplace. President Obama has set important educational goals for our country. As you might recall, his call was for every American to have at least one full year of college education, for the country to have the highest graduation rate among developed countries by the year 2020, and to encourage a life-long learning among our citizens. Our company and our sector support these goals. However, we don't believe there is any chance to achieve these goals without a vibrant for profit education sector. Our sector meets the needs of students that are simply not met by the traditional education system.

In 2009, our Company graduated nearly 50,000 students. And as we presented at our investor day, we placed approximately 78% of those who graduated by June 30 of last year within their field of study or a related field by December 31, 2009. All of this was accomplished in a 10% unemployment economy. So, we are very proud of that.

We spent a great deal of time in the past six to eight months considering and analyzing many potential new rules, those that were actually proposed by the Department and all the rumored variations that came after that. When the process and the proposed rules are in the best interest of our students, we remain fully supportive. To that end, earlier this week we submitted our comments to the Department on the proposed rules that were put out for comment in June. Our submission was balanced, recognizing the Department for progress in select areas and supporting proposals that provide positive clarification and which benefited students. For a number of the proposed rules, however, we continue to have significant concerns and we shared them in our comments. We hope that each of our comments will be appropriately considered and that changes to the proposals will be made before the rules are finalized.

We're also closely studying the impact, on a program-by program-basis, of the gainful employment metrics released in the Federal Register on July 26. One of the more significant challenges is the fact that the data required for some of the calculations is not readily available either in an institution system or from third parties. As a result, until we can obtain the required data, it's too early for us to speculate on the specific impact, understand the ramifications to students or, constructively comment on the proposed rules. In particular, we don't believe key data required to assess the federal four year repayment rate calculation is readily available. Similarly, we do not currently have direct line of sight into and I quote, "currently available actual average annual earnings obtained from the Social Security Administration or other federal agencies" unquote, for students who complete our program. We will continue to do our assessment over the coming weeks and plan to submit our comments on the proposed gainful employment rule within the defined comment period in early-September.

At the same time, as I did in the second quarter, I'll continue to meet with officials and work to ensure our viewpoint is clear and to minimize the potential negative impact on our students. We will be transparent with you on the impact to our programs, once we complete the analysis and when we have a final rule to react to. We've discussed in the past, that based on the proposed gainful employment tests that have been circulating since January, certain of our programs were potentially more at more risk. We have begun with the process of internally assessing what actions we might take, but the results of the new repayment test could significantly impact how or whether we respond at all.

I listened to the senate hearings as I will I'm sure many of you did yesterday. It's my understanding that Senator Harkin will be sending a request for information to a number of companies. Should we receive the request, we will complete it without delay and if appropriate. I'd be happy to discuss it with the senator and his staff. I say this because the ramifications of the debates in Washington are too important for the discussions not to be balanced. We applaud the recent request for an independent study by the GAO and we fully support many of the disclosure requirements outlined by the Department to increase transparency and to help ensure students make well-informed decisions about where to or whether to attend school. Let me say again -- I'll stress it as I have before, that our Company supports what's in the best interest of students and our efforts every day are centered around improving educational quality, improving student outcomes and doing what is right for the students that have entrusted their futures to us. And with that, I'll open--I'll ask the operator to open the call for questions.

Thank you. We will now begin the question and answer session.

(Operator Instructions)

The first question comes from Corey Greendale from First Analysis. Please go ahead.

Good morning, Corey.

Hi, good morning. A couple of questions, I wanted to start with the comment about the demand for associate degrees within university. Can you talk a little bit more about what you think is driving that, how dramatic the change is, and whether you are talking about single digit start growth in the back half of the year en route to potentially going negative as we enter 2011 given what you are seeing?

Sure. This is Mike. We did--in my remarks I did say that we are anticipating single start growth on the online programs in the second half of the year based on the trends that we're seeing.

We have, as I talked about, moved our advertising spend growth down based on trends and given the 65% of our starts and that we enroll our students in a two plus two program, where we have seen the economic effects, we believe, on those programs. In terms of longer-term guidance in 2011, I think given one, the regulatory environment, the economic environment; two, the fact that we don't give out guidance we gave out some milestones earlier this year for longer-term trends. It's hard to look forward and just give guidance on a quarter, which we won't do. That said, our guidance longer term was 8% to 10%, which we think, given the need to educate the Americans where the general trends are, then the long-term that's a sustainable level for the Company.

Okay. So, if I'm hearing you right, it sounds like you don't think that that goes negative any time soon?

The guidance I gave you for the back half of the year is--our best estimate right now is to be in the single digits for university. I can't say will it go negative will it go higher that that, that's just estimation based on the trends are and how the market responds.

Mike, can I also ask you, the guidance which you reiterated, if you just annualize operating income in the first half of the year, you get to above the $350 million to the $370 million range? And generally, the second half of the year, would you expect to be seasonally stronger than the first half? Are you saying that you think the $350 million to $370 million is a floor on where you can get or are there reasons to think that back half operating income can actually be weaker than the first half?

I think--if you look at the amount of carry and population, the population levels have started to slow, you will lose some revenue. We are going to keep the operating leverage we have. Second, remember our Company has a good deal of operations in international and international, in the summer quarter we lose money, where we make money in the first half of the year. So, there's a good deal of seasonality that you need to model through in terms of half-over-half comparisons. Also, I encourage you to look at RPS and earnings days. Because in the online businesses, especially around the holidays, the RPS does change and the number of earnings days so change. So, it's not a fair comparison simply to analyze the first half to the second.

Okay, I'll follow-up, (inaudible) regulatory question. Thanks.

Thank you, Corey.

Our next question comes from Gary Bisbee from Barclays Capital. Please go ahead.

Hi guys. Good morning. The first question, how much, if any of this commentary around slower trends in the second half has to do with you deliberately taking your foot off the gas a little bit as it relates to the regulatory uncertainty that's out there? Have you made any changes yet to begin to anticipate or prepare for central rule changes?

Sure. It's hard to say how much is the environment versus how much is the spend. Obviously, with the spend down to just a 3.5% growth you will see that in the subsequent quarters. We have been and we continue to be mindful of the enrollment trends that we have in our programs. We have been shifting our emphasis towards bachelor's programs versus our online programs. That shift in marketing mix will also impact our associate degree level. We haven't seen the same kind of leap flow change or softness in some of our other associate programs, be it culinary or be it the health business. It's more on the online business from what we're seeing currently.

Gary, the only thing I would say to that, as Michael alluded to in his comments, in health we have deliberately pulled back on starts that we probably could have in our more established schools because we are not confident that in those places we would have the externship sites that we need to have to support the students. So, we have deliberately done that and focused on our new start ups in health. So, that's one of the deliberate choices we are making.

And we also knew, again, the comparables in the second half last year are comparables were around 20%. Our first half comparables were nowhere near that. We did expect the second half comparables to be in line to get us the annual 15% revenue target that we gave and the 15% population target we gave.

Okay. Continuing that line of thought down to profitability, your margins have been terrific. Are there reasons to think that the margins would pull back a bit? I understand less operating leverage from slowing top line, but are there incremental investments that you are planning, other than the ones you've outlined like new campuses and what not?

A few things. I think we always look for new investments if they are in the benefit of the Company, the return also benefits the student. There is nothing specific about large material in nature that we lay out--besides we laid out. As we go forward in the second half of the year, remember, as you model last year and our third quarter, we had a significant expense related to bonus programs in 2009. As you model the fourth quarter, we had significant pick up in the fourth quarter based on a legal settlement with our insurance carrier. If you normalize those out and look carefully at some of the disclosure made last year on real estate, we continue to see flat to improving operating margin in the third and fourth quarters but nowhere near the operating leverage we've gained off the softer first and second quarters.

The last question, can you give us a sense or do you track at all what the starting salaries for grads look like in the key program areas?

Yes. Within our programs, both the nationally accredited and regionally accredited businesses, our career services people do survey the graduates, find out whether they are pursuing work, whether they are pursuing additional higher level degrees. We do different efforts between e-mail and calling to find the salaries. We do gather as much salary data, particularly in the nationally accredited schools, the vocational schools, or career focus as we can from the students. So, we do have a database. I won't say that we get 100% of the students because that's very difficult. Which makes it difficult to use that data toward the gainful employment proposals because it's not 100% complete.

Gary this is--the only thing I would add, as I indicated in my remarks, we have added to our career services capabilities as we progressed this year and looking forward knowing that a number of questions will be out there as rules potentially do change, this is an area that we want to bring more rigor to going forward which is one of the reasons we've increased our resources here. So, I want to see us do this on a more consistent basis and in a way that we can verify in a better way. Right now we get self-reported data inconsistently. We've got to do a better job here, as I think the industry has to do a better job here.

Okay. Thank you.

Thank you.

Our next question comes from Sara Gubins from Merrill Lynch. Please go ahead.

Hi, thank you. I'm hoping to get some more details on the program review findings around AIU. You mentioned that the two that were systemic were related to the way that your calculating the last day of attendance in online programs. Can you just give us more details about how do you that and maybe what other ways to do it might be that are deemed more acceptable?

Sara, I'll just try to take you through some of the things that we do. Among other activities, one of the things that AIU does is they look at whether an online student has electronically entered their portal, the portal of a particular online course as evidence that they're continuing on in the program and their engaged in a program. Now, the portal is an online equivalent to a combination of a classroom, a course syllabus, an assignment list, and it's also a place where students can interact with both the instructor and other students that are in their course. AIU believes that this method of assessing a student's enrollment status in an online course has been consistent because we've tracked whether they've actually entered the portal. It's been consistent with common practice among other folks in the online education industry, whether for profit or not for profit. So, in effect, we're looking to see whether a student has entered to engage.

There are a number of things that they also track. We also track a student's review of course materials, to make sure that they entered and they are engaged in what is going on, the submission of assignments, participation in discussion boards and the launching of a live chat or the engagement of live chat. So, there are a number of things that we engaged in. We've done this for quite some time. It's been through this type of methodology, it's been through previous reviews, as I've indicated before, and at least what we've gotten back indicates that the department doesn't believe those things are sufficient. We're trying to better understand that, we're trying to help them understand why we believe that this is the right thing to do.

Honestly what I've likened it to, because the department wants to see, apparently, more engagement. But, I've likened this engagement in an online portal to the quiet student in a large classroom setting in a large institution. So the quiet student who sits in the back of a large lecture hall, who doesn't participate in the conversation, but does read the materials and gets pretty good grades. So, the level that they would hold us to would be higher than that level and I think that's very challenging in an online environment. That's the best I can tell you.

Okay, thank you. In terms of enrollment advisor compensation, are you planning any changes to it, with likely removal of the Safe Harbors?

Yes. Given where the Safe Harbor language is currently in the proposed regulations, we would, in all likelihood remove our program, which we think is a very good program, that we pay the advisors on satisfactory academic completion of our programs and upon graduation. So, our compensation is well aligned with the success of the students. We'd be very disappointed if our representatives were not able to share in the student success that way, but we'll have to see where the rule making goes. We put in comments that encouraged the Department to look at the students' success factors that we use.

Okay. And then, just last question. Regarding expectations around starts within university, are you seeing much of a difference between AIU versus CTU in terms of the demand trends for associate degree programs?

Not materially different. Remember that CTU is health, business, IT programs. AIU is business programs and some other programs, criminal justice and other things. We are seeing the trend pretty consistent. It's not materially different across the two institutions. Nevermind, Sarah.

Oh no, sorry, go ahead.

I think that as I've looked at results across the industry, I think where people have associate degree programs, they're seeing a slow down and what we are seeing is not inconsistent with what is going on in the marketplace.

Thank you.

Thank you.

Our next question comes from Jeff Silber from BMO capital markets. Please go ahead.

Thanks so much. I'm going to follow-up on this associate slow down in lead flow. Mike, I think in your comments you talked about economic effects potentially being one of the reasons. Can you just clarify what you meant by that?

Just from the slow down that we've been seeing in lead volume from the competitive data that we've seen put out in terms of the environment and from some of the trends we have seen a little bit on retention of students potentially going back into the workplace as well as just the start trends. We've just anticipated that based on those economic trends that we're going to pull back on our advertising spend.

I thought you said something about economic effects affecting lead flow, not necessarily affecting your spending? Did I misinterpret what you said?

I said given the background environment around the economic environment, we pulled back on the growth of our advertising spend. I also said that in the second quarter we've seen softening on lead flow for the associates. Some of that is due to the reduced advertising spend, some due to the reduced demand just from macro-economic trends, we believe. Does that help?

Thank you for clarifying that. I want to go back to the hearings yesterday and some of the film clips that we saw. How do you know that you don't have any representatives doing those kinds of things at your schools?

Well, I would say that I can't say with 100% certainty that we don't. Here's what I can tell you. We have made great strides in our Company at laying out expectations, at being clear at every one of our schools and every one of our admission sites about what the expectations are, what they can do, and not do to make sure that we are compliant and we are overt with students around what our programs are. And based upon what we have done and what we have attempted to model in the Company, I can say that I sincerely hope that we don't have them. We mystery shop.

We will continue to do that, probably step-up our mystery shopping to make sure that we don't have these activities. Where we find things that are incompliant, we take action against those individuals, and in many cases dismiss them from the Company. I can't sit here and say with 100% certainty, across 90 plus campuses and in our online environment that we don't, periodically, have someone that does something like that. We have been as clear as we can possibly be and we will continue to step up the effort to be clear, to make sure that they don't do these types of things, and that they understand that the types of things that we saw on those tapes are inappropriate in our industry and in our Company.

I think the other thing to add to that, is also that on the back end, in terms of the process, we have very, very broad and wide ranging disclosures for the student. So, hopefully in the unlikely event that something may not have been said the proper way at the front end, we do ask the student upon enrollment to go through comprehensive set of disclosures, acknowledge what they told, acknowledge what they understand the agreements to be, to make sure from the back end control process that everything is in line before they start their classes.

One additional comment I would make on those disclosures is that when we sat down, this is probably 18 months ago, to look at things that has happened in the Company in the past or allegedly happened in the past and think through what we could do to ensure that we were doing the right thing on the front end. There was significant discussion and there was concern that the disclosures, which took things to a completely different level, would negatively impact our ability to enroll. Yet, we still went forward with that, at that point in time, at a time when we were being pushed for growth because we believed it was the right thing to do to make sure that we're clear with students about what to expect in our schools.

That's very helpful. Just a quick numbers questions. What are you expecting for capital expenditures for the rest of the year?

I think the capital expenditures will probably range right around 4% of revenues and then on top of that add the $40 million that we've talked about before for the build out of the campus support center.

Great. Thanks so much.

Thank you.

Our next question is from Brandon Dobell from William Blair and Company.

Hi guys, thanks. I wanted to see if there's any particular programmatic areas within the associate's or bachelor's, within university primarily, where you are seeing particular strength or weakness? You said associate's slow down, is it across the board or any particular programs?

I wouldn't say there is any particular program that is demonstrating more or less than the other ones. There is nothing specific that we can point to right now.

Okay. Within the university, in particular, but I guess more broadly, your perspective on the ability or the effort to try and council students to not max out the Title 4 Loans that are available. And if any color on where that may have been last year or a couple of years ago and are you making progress in trying to keep that average debt level down for people who are--in the system?

Sure. I think if you look at what we've done, art and design, lengthening-out programs, allowing access to less private loans, somewhat more Stafford Loans, allowing the debt levels to drop, the interest levels to drop. The culinary program, having students be in school longer, working. Student success manages that we put in place. We've done a lot of work there. We fully support any legislation that would exist that would allow a student not to over-stipend. The ability for a student which I don't think has been addressed that widely in NegReg, but the ability to limit the student to only take on costs that are directly related to their education, I think would be very helpful for the government to look at versus other measures in terms of loan balances.

Within the health program, obviously on the back end of somebody graduating, the ability to fund an externship or even during school is pretty critical. What can you do to expand the number of slots in those local markets, or is it really just a function of the marketplace and there's not much you can do to try and increase that pipeline?

Are you speaking to job prospects, placement prospects or externship prospects?

Externship prospects primarily.

A couple of things. Within the programs themselves it's hard to expand it. One, with programmatic accreditation you have certain limitation of the class sizes and instructor levels and you want to make sure that the externship sites are there. So, it's not in the best interest, necessarily, to expand those out.

Second, we want to make sure our students have a broad access to externships and we have to consider geography of the student, around the school and around where they live. As we go forward and place new start up schools we look really carefully at the externships sites and size of the school and size of the population of the school around what the externships could be. Quality programs like ours, our Simtech program in terms of technology, relationship with large health care chains. There is probably an opportunity to keep working hard with those relationships and show the employers how we may be able to get even more externships at larger sites for students, large hospital chains versus specific doctors' offices or specific smaller chains. Maybe somewhat of an opportunity to do that.

Follow up question for you. Primarily for the university, but also within culinary, -- how much visibility do you have into the number or amount of deferments and forebearances, default rates are one measure, but I was trying to get a feel for what the default plus the people who are on deferments would look like, give us some frame work of the potential repayment rates. Any color you can give us there?

Sure. It's extremely difficult. We have worked hard with Sally Mae we've worked hard with other agencies to gather data. Obviously on a four year payment model, as the department has suggested versus a two-year now with the forebearance and deferments, at two years it's difficult to get data. The people asking the agencies and Sally May and other people for data right now has probably been overwhelming.

It's hard to get data out. In fact, a lot of the agencies are now pushing us to the Department of Ed and saying go the Department of Ed to get that data. So, especially when you have to do that, not on an OPID number basis which is what the CDRs, are but on a program basis and we have 1300 programs, it's very, very difficult to do. Some databases we even access require you to pull it by student instead of by masses of students so, it's a really intense process. We're really looking forward to the government showing us the data sources that we use in industry we'll be able to turn to measure these.

Our next question is from Trace Urdan from Signal Hill, please go ahead.

Hi, thanks very much. I hate to go back to this topic one more time but I'm still, Mike, trying to parse the discussion around online associates degrees. I thought I heard you say earlier that you pulled back on the marketing spend, in part, because of regulatory issues. Then I know you said you pulled back on the spend because of anticipated slow down and what you have been seeing elsewhere, but then I think I also heard you say that the slow down was in part caused by the pull back in the marketing spend. Could I, without being too obnoxious, could I ask you to go through that one more time.

Sure. We saw in the second quarter, a reduced lead flow from our existing lead sources. We attribute that lead flow reduction primarily to just macro economic and trends in the marketplace. In conjunction with that and seeing that reduced load flow from traditional sources, we reduced our marketing spend. So that reduction in marketing spend will have an impact on starts going forward in the third and fourth quarter.

We are looking at -- obviously everybody is looking at the regulatory environment and what is happening. It's not that we are changing our lead sources from different lead aggregators or different sources based on that. We're just reducing our spend. I was trying to give that commentary to look at the operating margin in the quarter with a lower advertising spend in this quarter with the starts next quarter to help you model out forward-looking start and margin trends in the business as helpful tools. So, I don't know if that helps or that frames it out a little better or not.

Perfectly. It's much clearer for me. Thank you very much.

Thanks.

Hey, Gary, I heard your comments at the beginning about programmatic accreditation. That was helpful. I wondered if you wouldn't mind addressing the point that Dr. [McComack] made yesterday in the hearings that it was his opinion that the institutions -- incumbent on the institution to make prospective students aware of the specific programmatic accreditation. Do you agree with that? Is that kind of your practice? Your practice going forward?

Yes and yes. We agree. We have worked very hard to make sure and will continue to work hard to ensure that students understand what they are signing up for, and from a programmatic point of view, that, and again, what I said was where it is in the best interest of students, make sure that we have programmatic accreditation. If we don't have it, we are open about that. Of course, all of our schools are accredited. And I think yesterday, listening to the line of questioning, there is confusion with some of that committee around school accreditation and programmatic accreditation. But, we believe it's important that students understand it and that it's our obligation to seek it where it's smart to do it and to make sure they understand where we are in that process.

Yes. That's not the only area where that committee is confused, but thank you.

I'm not going to go there, okay.

Alright. Thanks a lot.

Our next question comes from Jerry Herman from Stifel Nicolaus. Please go ahead.

Hi, thanks. Good morning everybody.

Just wanted to circle back to gainful employment. And I know that there's a lot you don't know, but maybe you can give us some feel for the, perhaps relative sensitivities in some of the programs. Broadly based business units you have at -- where there is the greatest or least head room. And in particular, culinary is always confusing. It has low graduation CDRs, low CDRs generally, yet on the hand you have very high bad debt. If you can help reconcile?

On the second part, I believe, go back as we talked about in terms of graduates versus nongraduates. Our culinary students that graduate through the program do a great job, they get placed. They have low core default rates. That said, with drops in the program, when you drop, you default. You drop on the federal loans, you drop on private loans, you drop on our payment plans. So I think that -- you see that larger default rate or bad debt expense, just because of the number of drops that we naturally have. Remember, as we've disclosed in our 10-K, 30% of all our students drop within the first year. So I think that's a good part of that.

In terms of the first question, in terms of head room, I really can't give you more. It's really difficult. Because we -- obviously, with the Title 4 money that our students are entitled to and that we help them with, the amount of work to do on this 1300 without having debt is so hard. We are pleased that we have low core default rates. We disclosed in the past our core default rates on two-year basis, on three year basis, on graduate versus nongraduate. We do a lot of good work on default management. We gave our placement rates out at the beginning of the year, which we are proud of, as Gary said in this call, given the 10% employment rate. So all the data we have suggests that we have a great deal of student success, and they are meeting their obligations on their federal loans.

That said, I don't have the data on a four-year basis on the repayment basis that they asked for to do it and then I got to go program by program and it's also increasingly difficult because, especially in culinary, if I do it on a retrospective basis where I had 9, 12, or 15 month certificate programs and now I have 21 month programs, associate degree programs now, very difficult to look backwards on the new programs we put in place for success for the students. I really -- Hard to speculate beyond that.

Okay. And then relative head room? I mean, relative head room throughout the organization?

Again. Hard to comment on the programs. You have to look program by program (inaudible) basis. We've looked at the chart, we've looked at the 8%, the 12% and the 35%. It's hard to say. Again, with the good core default rates, with the good job placements, we would hope that it doesn't have a large significant impact on our business. That said, I don't know until we get rules. Culinary and Art Design would be more effective from a head room standpoint, University and Health, less.

Just from the basic cut of some of the data we can see based on CDRs.

Okay, that's helpful. Thank you. The second question relates to the OIG audit at CTU. I'm wondering if you have any intelligence as to why there wasn't a program review conducted, and if there is any focus of that audit, specifically on attendance and any linkage to the AIU findings.

Jerry, not trying to be evasive, we don't know the answers to your questions. We were informed that they were coming. There is no specific focus. I don't know why one versus the other.

As I said, we look back. We've had three of these in our Company's history. They were inconsequential. We know that -- we've certainly learned a lot over the last several years of being scrutinized. We welcome scrutiny. I'm sure that we will do fine. But we don't know why and what the focuses are.

Okay. Great. And just one last one, just a clarification. Mike, you mentioned, the second half starts being better aligned with your long-term growth targets, is that just in University or is that throughout the organization?

No, I think throughout the organization we are saying -- long term growth targets rate to 10%. So for the Company, we'd look at 8% to 10% for the second half. In University, we look at single digit starts within the University online businesses.

Great. That's very helpful. Thanks.

Jerry, I answered your question and one of the things that I said was I'm sure we will be fine. Let me retract that. Because I -- people will look at that and say that I'm predicting the future. So let me just say that we're going to cooperate and we're going to do everything that we can and we'll be open kimono with the people who are asking the questions. Because I don't know what the focus is, I cannot, obviously, say that we will be just fine. I'm editing myself here.

Okay. Thank you.

Thank you.

And our next question comes from Amy Junker from Robert W. Baird. Please go ahead.

Hi, thanks for squeezing me in. I'll be quick since we're past the hour. But just quick question, Mike, on retention. How should we think about that 2010, for the remainder of the year, and 2011. Are there further opportunities to improve in the near term that would potentially offset any higher graduation rates, or how should we think about the different moving parts.

Sure, I think, retention wise we have done a great job over the last two years with most every quarter with increased persistence rate, if you want to call it that, or retention rate. This quarter we have seen somewhat of a pull back. The pull back was not significant. Part of the pull back was also from the changing in the credit hour structure at AIU, in terms of sequence in the classes and the changeover the credit hours structure from the 9 hours to the 4.5 hours. So I think that piece of it will be behind us.

So for the second half of this year, I think retention will still be a challenge. I think everything that we are doing on the student success side helps us. The things that Gary talked about -- an online, the quality of LCB, the Health start ups, things like that. We are doing the right things. Whether the economic trends cause some retention or tuition increase, or retention or decrease, to be said. I can't give you more color than that. I just -- In this quarter, some retention pressure from AIU that should mitigate over the rest of the year.

Great. Thank you.

Our next question comes from Bob Wetenhall from RBC. Please go ahead.

Hi. Good morning.

Good morning.

I just wanted to confirm, you're still comfortable with your 2014 financial milestone of $3 billion in revenues and a low 20% operating margin?

Again, it's not the time to update guidance or do anything like that. That said, those are five year goals that we said we built top down and bottoms up based on industry trends, based on our business trends, based on start ups, the quality of our education. So, again, there is nothing to say that those long-term goals have changed based on some economic environment over five years or the regulatory environment. Too early to tell. But we're not in a position, obviously, to update five year trends today.

Well, just one other question. Slowing growth will make it hard to capture incremental operating leverage in the business. But you obviously are still affirming kind of an 8% to 10% normalized growth rate. Would you -- where do you feel from a line item standpoint looking outbound. Where will you be able to get the most leverage.

I think it's the same thing that we talked about on investor day. I think if you look at what we're doing as we're going to increase the student facing costs at a rate lower than the population. IE this quarter, population was up 23%. Our faculty were up 23%. Our Career Services people were up 15%. So we're going to gain some leverage there. We said we have a lot of work to do and a lot of opportunity on our cost per start and our marketing side of the business. We said that was an opportunity. And then we keep the administrative costs and the overhead costs at the rate of inflation. That with the student population growth of 8% to 10% will create the operating leverage that we said, about 100 basis points a year. And we will know more about 2011 as we go into the fall. We know more about NegReg and we know more about our operating plan as we build it, which we share with the board in December.

Just putting aside stuff that nobody could realistically handicap, and I appreciate that you have been as transparent as possible. Forget about NegReg, but as status quo, you still feel like 100 basis points per year is a legitimate amount to target?

We have not changed our models. We do a strategic planning process in September, the annual in December. We are going through the process now to look at what we think. There is nothing right now indicating that we are changing anything that we told you for the five year basis.

Terrific. Thanks very much.

Our next question comes from Kelly Flynn from Credit Suisse. Please go ahead.

Thanks. I'll try to make it quick.

Can you give us any preliminary color on what you are seeing for the 2009 core default rates. A couple other companies have told us what they are seeing in their data?

Pretty early to tell. We're getting as much data as we can from the agencies and from the different parties. Right now, we haven't seen a material change from the level that we were in 2008.

Okay. Alright, great. And on the starts slow down that you are talking about for the second half. I just want to clarify some of the factors that you've talked about, the reduce lead flow related to some macro economic stuff. Does that just apply to University, or are you seeing that across the board.

We are seeing it more in the associate level programs and the online programs. Again, we haven't seen it as much in our Health programs because we have start ups and we're in new locations on the start ups. So we're -- call it gaining share or new markets, we're not seeing the effects. Our Le Cordon Bleu business continues to be very strong and high student interest. We do comp off some harder numbers, so you're going to see some reduced starts in that business because of the comp from last year. But we have seen it more on the online business with the associate degrees than we have seen in Health or we've seen in LCB.

Ok. And then finally, you mentioned again this new credit structure I guess at AIU and some impact that was having. Can you just kind of clarify exactly what you did there. I know you've talked about it before. But what the changes were, and what impact. Is it just revenue for students or is it also a bit of demand impact? And then, did that play a role in the starts as well?

Two steps here. First step, from the simple standpoint, because you can now decelerate, we run at an accelerated pace, you can slow down your education, that will reduce the RPS. That has pressure. From a retention standpoint, the changeover in the students and now the sequence in the class has caused some lower retention. So that's the revenue pressure. In the interest of time, let me have you and Jason Friesen get together after the call some time in the next couple days and go through the process and some more of the details for you.

Alright, no problem. Thank you.

And we have a question from Suzi Stein from Morgan Stanley. Please go ahead.

Hi. You mentioned the placement rate of 78%. But it sounded to me like maybe that wasn't recent data. Can you just confirm what that time period was and maybe talk a little bit about how that's trending recently.

Sure, I will take the first part and give Mike the second part. The 78% that I talked about was for students that graduated as of June 30 of 2009 and the placement that we had through December 31 of 2009. Okay.

So, Suzi, what we said the investor day was, given the number of different placement rates from national accreditors, the way we measure it, that it was pretty complicated to give total Company, so we gave the total Company with the 81%, and career focus schools a 73%, and the University schools blending to the 78%. So far this year, on the [cohort] that we've seen graduating, we are not seeing material change against those numbers. We are not going to update those numbers specifically because of the cohort and the calculations that we go through, but from a trend standpoint so far in this first six months, for the cohort graduating 12-31-09, we have not seen a material change in the placement data.

And just one more quick one, and you may not have the answer to this, but do you have any sense on the timing on the OIG investigation? And maybe just from your experience in the past, when a program report isn't issued, do they tell you that they are closing the investigation, or does it just kind of go away.

I'm sorry, I can't give you really very much. On the one that we never got, we just never got it. We don't know what the status is, but it never came back on. The other two that I've talked about, we got it and they were -- there were no findings. So, I can't give you anything. What I can commit is, as we know more, we will be as transparent as we can be at those points in time.

Okay. Thank you.

You're welcome.

At this time we have no questions.

Okay. Then I'll go ahead and begin to sum up where we are at. Our leadership challenge over the last several months, obviously has been with things that are going on in the industry and ensuring that our organization remains focused on doing the right thing for students and living our purpose of changing their lives through education. We'll continue to do that. We are fully engaged in the exit processes that are going on around us.

We will continue to be there and as I said, we will be as transparent as we can everybody at the various points along the way where it makes sense to engage and let you know how things are progressing or impacting our business. I can tell you that I believe we are doing the right things. And I continue to be very optimistic about both our near term and our long term. We will continue to engage with you as it makes sense to as the next several months play out. So I do appreciate your interest in our business. Your questions about the business and look forward to chatting with you in the not too distant future. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.