Strategic Education Inc (STRA) 2016 Q4 法說會逐字稿

Good morning, everyone, and welcome to Strayer Education, Inc.' s fourth-quarter 2016 earnings results conference call. This call is being recorded. For those of you who wish to listen to the conference via the Internet, please go to strayereducation.com, where the call will be archived. With us today to discuss the results are Robert Silberman, Executive Chairman for Strayer Education; Karl McDonnell, Chief Executive Officer; and Dan Jackson, Executive Vice President and Chief Financial Officer. Following Strayer's remarks, we will open the call for questions and answers.

I would like to remind everyone that today's press release contains and certain information on this call may contain statements that are forward-looking And are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. The statements are based on the Company's Current expectations and are subject to a number of assumptions, uncertainties, and risks that the Company has identified in the paragraph on forward-looking statements at the end of its press release and that could cause the Company's actual results to differ materially.

Further information about these and other relevant uncertainties may be found in the Company's annual report on Form 10-K and its other filings With the Securities and Exchange Commission. Copies of these filings and the full press release are available online and upon request from the Company's investor relations department. And now, I would like to turn the call over to Robert Silberman. Mr. Silberman, please go ahead.

Thank you, operator and good morning, ladies and gentlemen. We're going to begin this morning with Karl discussing our company's operating results for the fourth quarter and Dan will report the financial results for both the fourth quarter and the full year of 2016 and I'll conclude with comments on capital allocation. After we're done wile stay for as long as you have questions. Karl.

Good morning every one. I'd like to begin this morning by offering some comments on the three main drivers of our financial performance which is our enrollment, our revenue per student and our operating expenses. Regarding enrollment with the winter term enrollment results that we announced this morning and which I'll provide a little more color on momentarily we've now grown our total enrollment for the past seven consecutive quarters. In 2016 our total enrollment growth averaged 3% and improved sequentially in every quarter throughout 2016 ending with the 6% growth that we had in the fourth quarter.

That growth was driven in part by increases that we had in our new students but more substantially from the gains we had in student retention which has improved on year-over-year basis ever year since 2013. These improvements are the result of the many investments we made in our academic programs and services over the years and while we don't provide a forecast we are very confident the improvements in our teaching capabilities will continue to improve both student learning outcomes and retention over the long term. Second, with regard to revenue per student the 120 basis point decline we had in 2016 was essentially right in line with our expectations.

At this point nearly all of our undergraduate students are on the reduced undergraduate tuition that we implemented in the fourth quarter of 2013. Not withstanding this fact it is still possible that we could see a slight decline in revenue per student of between 50 basis and 100 basis points due to other factors such as growth in our degrees at work students which have lower tuition levels as well as a continued mix shift to undergraduate students who have slightly higher drop rates.

Turning now to the operating expenses, the 5.2% increase in 2016 was attributable to our decision midway through last year to accelerate our investments and various growth initiatives. Those investments are now in our current expense run rate which we anticipate to be between $96 million and $98 million per quarter in 2017, barring increased variable expense associated with substantially higher enrollment. One last point on our expenses. In the first quarter of last year, our operating expenses were $91 million or roughly $4 million below the run rate we had at the time. The lower about expenses last year were attributable to a one time gain in lease related accounting as well as the timing of various expense items. On a comparative basis when we report our 2017 first quarter financial results later this year it will show a negative variance to prior year on operating expenses of roughly 8%. That variance will normalize through the balance 2017.

But based on that variance as well as some of the variability in our tax rate which Dan will come comment on in a minute we expect to report a double digit decline in EBIT in the first quarter. However, subject to our current enrollment trends continuing we would expect to report double digit gains in EBIT for quarters 2, 3 and 4 as well as the full year. Just a few other comments on our operational results. For the winter term we had an 8% increase in new students a 6% increase in continuing students and our national account students increased 10%. That resulted as I said momentarily ago a 6% growth overall.

Regarding the Jack Welch management institute they continue to do very well. They had new student growth of 27%, increased their continuation rate by 270 basis points to roughly 95%. And for the winter term we also implemented a 6% tuition increase for new JWMI students. And lastly we were very pleased to announce the Strayer University's President, Brian Jones was appointed by US Speaker of the House, Paul Ryan to serve on the National Advisory Committee on Institutional Quality and Integrity or NACIQI, a public body that serves to advise the US Secretary of Education on matters of accreditation and matters regarding institutional eligibility for federal student aid. Dan, can you review the numbers.

Sure, thank you, Karl and good morning every one. I'll start with revenue which for the fourth quarter was $119.3 million an increase of 5% from 2015. The increase was driven by 6% enrollment growth for the fall term partly offset by lower revenue per student which was down 1%. The decline in revenue per student was primarily related to the continued shift in our enrollment mix to undergraduates paying our lower rate. Our income from operations was $19.7 million compared to $21.7 million for the same period last year. Our income from operations in the forth quarter includes a $1.3 million non-cash benefit resulting from our adjustment of the value of a contingent liability related to our acquisition of the New York Code and Design Academy.

Excluding this adjustment our income from operations for the quarter was $18.4 million. Our operating margin was 15.4% for the quarter. Excluding the non cash adjustment compared to 19.1% in 2015. That debt expense was 4.6% for the quarter compared to 3.3% for the same period last year. Net income for the quarter was $11.7 million or $10.5 million excluding non-cash adjustments compared to $13 million in 2015. Diluted earnings per share for fourth quarter was $1.07 or $0.95 excluding non-cash adjustments compared to $1.21 for the same period in 2017. Diluted share outstanding increased to 10,971,000 from 10,782,000 for the same period in 2015.

Moving on to our full year results, total enrollment for the year was up 3% while average revenue per student declined by about 1% contributing to a 2% increase in total revenue to $441.1 million. Income from operations was $57.5 million for the year compared to $69.7 million in 2015. Excluding non-cash adjustments income operations was $54.3 million in 2016 and $69.3 million in 2015. Excluding the non cash adjustments our operating margin for the year was 12.3% compared to 15.9% last year and net income was $34.8 million for the year compared to $40.0 million in 2015.

Excluding non-cash adjustments net income was $32.3 million this year compared to $39.8 million in 2015. Earnings per share for 2016 was $3.21 compared to $3.73 last year a decrease of 14%. Excluding non- cash adjustment EPS was $2.98 this year compared to $3.70 last year and diluted weighted average shares outstanding for the 2016 increased to $10,845,000 from $10,740,000 in 2015. A quick note on our tax rate. Our higher effective tax rate of 40.3% for Q4 was the result of a true up to our provision to account for non deductible and non cash expenses associated with the purchase accounting for our NYCDA acquisition.

In 2017 we expect our tax rate to be about 39.5%, the likely slightly higher in Q1 as we adjust for new accounting rules regarding the tax treatment of share-based compensation. Moving to the balance sheet, we ended the year with $129.2 million of cash and no debt. We generated $44.5 million in cash from operations during the year compared to $77.5 million in 2015. And as I mentioned the last few quarters cash flow from operations this year was impacted negatively by a few trends that should have a reduced impact on 2017. These include our investment in NYCDA of which a portion was treated as a reduction of operating cash flow.

Higher benefits associated with the sublet of the facilities we closed in late 2013 and the unfavorable timing of cash tax payments and other payables. As the impact of these trends were seized in 2017, we expect the increase in our cash low from operations to be more in line with earnings. Regarding CapEx, we spent 13.2 million during 2016 compared to 12.7 million in 2015. We expect CapEx in 2017 to be slightly higher than 2016. Finally, we continue to maintain $150 Million in available credit on our revolver. Rob?

Thanks, Dan. I've got just a few comments on our capital allocation. And I'll trend over some of the same material that Dan has covered from the standpoint of the way the Board and I as owners think about the business. So in 2016, we started the year with $107 million in cash. During 2016 we generated $76 million in pre tax cash flow from operations. That's what the business produced. We used that cash during the year as follows; First we paid $32 million in federal, state and municipal taxes it's our largest single use of operating cash flow and at our high effective cash tax rate of over 40% it is pretty clear that a reduction in corporate tax rates would be valuable to our enterprise.

We don't make decisions on the basis of what may happen but we have it in the back of our mind that is a -- that could be a significant upside. Second, we invested $13 million as Dan said in academic technology, routine maintenance and CapEx. Third we paid $9 million to acquire the New York Code and Design Academy and finally we retained the remaining $22 million leaving us at year end 2016 with, as Dan described, with $129 million of cash on our balance sheet, no debt and roughly 11 million diluted shares outstanding. Now, during 2017, we will use some of our owners cash that $129 million that we started the year with plus the surplus capital we intend to generate during the year.

We're going to use that of to invest in our continuing effort to improve our student's academic performance as well as to fund other strategies to grow the intrinsic value of our enterprise. But as Karl mentioned our expense budget is relatively fixed right now except for variable costs and we have a pretty good idea what that is. Now, given the strength of our balance sheet, and the anticipated growth of our business during the year, our Board of Directors feel it's appropriate to reinstate our annual common dividend at $1.00 per share in 2017 to be paid quarterly starting on March 20th here in the first quarter.

We do not anticipate that this dividend will utilize more than 20% to 30% of our distributable cash flow in 2017 even at the current corporate tax rates which we feel will leave us with plenty financial resources to fund both our increased growth as well as take advantage of any external opportunities which may present themselves during the year. We will analyze and judge those external opportunities the same way we do our internal opportunities as what's the highest return for our owners for the use of our cash and as Karl has described what we have found over the last -- well, couple of decades almost of running this, over time the best use and highest returned use for our owners is investing in the improved academic outcomes of our students and we'll start to harvest some of that here in 2017 as these higher retention rates start to flow through our income statement.

With that operator we'd be pleased to answer any questions.

Thank you. (Operator instructions). Our first question is from Peter Appert from Piper Jaffray. Your line is open.

Thanks, good morning. Can you give us any color on the momentum you're seeing at the coding academy?

Sure, Peter. We're seeing quite a bit of interest on several new programs that we just launched at the tail end of 2016. It's still very small and proportionately a tiny part of our income statement but we're pleased with the interest that we are seeing.

Actually it was more than a tiny part for 2016 but because it has such a diluted impact. But what we're hoping it will be a small part of 2017.

Can quantify those numbers in terms of what the investment last year was and what the expectation for next year might be?

Sure. We had roughly $0.50ish dilution in 2016. We expect to do substantially better than that in 2017. And we've kind of set a stretch goal to get it to zero delusion actually.

In 2017.

In 2017.

Got it. Is it possible to share with us what the current enrollments look like and just the trajectory you've seen in that?

Well, it depends on the number of classes that we teach and depending on whether it a he a full-time class or a part-time class. Any one of them will have between say 15 and 30 students and we try to run, call it, 3 or 4 of those a month per site. It's something we'll be tracking closely throughout this year.

You're in 9 locations, correct?

We're in 9. One of the things we have done in 2017 is we're trying to concentrate our marketing resources on the more established sites that are predominantly on the east coast and that would be sites like New York, Amsterdam actually when is way east coast and Philadelphia. That's where a lot of the demand is concentrated right now.

Got it. And then on the cost side of the equation, the ability to keep costs flat even as you're building out NYCDA and some of these other programming initiatives. I'm impressed with that but I'm wondering how you're able to execute on that?

Well, part of it is just the investments that we've made throughout call it the last year some of those expenses were one time in nature and they're not going to repeat. Some of them are needed to sustain the ongoing performance of NYCDA or the university itself. It's just a combination of the timing of those expenses, Peter and as well as our ability to find productivity savings as we go through the year.

Understood and then last thing. Any comment on the increase in the bad debt expense this year?

Yeah, Peter that was a reflection of the increase in the fourth quarter of new undergraduate students who pay slightly, at a slightly lower rate than the rest of our students.

Great. Thanks very much.

Sure. Thank you, Peter.

Thank you. Our next question is from Jeff Silber of BMO Capital Markets.

Thank you so much. Appreciate the caller regarding operating expenses for the current year. Can you just remind us in terms of the variable cost impact kind of what the incremental margins are on new student when you get them or new group of students.

Sure, Jeff. We believe that -- it depends frankly on the modality of the students it is a different cost structure on ground versus online and we have seen a shift for more and more of our students taking online instruction. But on a marginal basis the margin -- the contribution margin on an incremental student could be as high as 60% to 70%.

Great. That's helpful. And I think rob, when you were talking earlier you mentioned about the priorities for capital allocation and I think you used the term other strategies for growth, can give us more color on what you're referring to.

New York Code and Design Academy is a good example. We're looking for opportunities to diversify our revenue base-- in areas in addition to traditional university enrollment which comes with Title IV revenue. We look for areas where our ability to teach and our ability to achieve learning outcomes is generally -- can be replicated. But we tend not to get too far afield from what we think we know we can do. One thing Karl didn't mention this year we have coming online -- we've been teaching in 2016 our RN to BSN our nursing program and we expect to receive full accreditation for that in 2017, we hope to and at that point we expect at that program will grow significantly and will require some further investments. So it's both internal opportunities as well as external potential acquisition opportunities. But they tend to be in the -- they don't tend to be, but we focus on areas that we believe we bring some managerial expertise and we can get above average returns.

Okay, great. Then on the reinstatement of the dividend it was great to see, you can talk about-- is there a certain payout ratio that you're targeting. I'm wondering why you said it amounted to a dollar for the year.

Well, it was a round number. But we do -- payout ratio is part of the analysis that the board does. Essentially what the board does is say, how much capital do we need to retain in the business to maximize the value of the business as well as be -- and have resources available should opportunities present themselves. And then above that, what we have tried to do Orr the last 17 years is return capital owners in the most value-enhancing way. And we do have an outstanding share repurchase authorization and have in the past when we felt like the shares were trading at a significant discount to intrinsic value that was one way to return capital to owners.

The common dividend needs to be or is better thought of as a predictable base load of return of capital to owners and it works out in this year it will be dependent on how well we perform but somewhere between 20% and 30% of distributable cash flow. That means you got another 70% to 80% which is available to use for other purposes to grow the business that comes up during the year potentially increased return of capital to owners or as the business expands, which I mean I think the simplest way to describe is, we've been dealing with what has been a shrinking business for 5 years and we expect it to be an expanding business and having an expanding business requires or is behooved to have additional financial capital around to be able to take advantage of opportunities that comes with an expanding business.

And if I could just sneak in one numbers question. The non-cash adjustments of the contingent liability was in the general administrative expense line?

No. It's up in I&E

That was $1.3 million?

Yep.

Okay, great. Thanks so much.

Thank you, Jeff.

Thank you. (Operator instructions). Our next question is from Corey Greendale of First Analysis. Your line is open

Good morning.

Good morning, Cory.

Also I had a question related to the dividend. Congratulations on reinstating it. I assume that it is some indication of the board's confidence. In that context what are your thoughts on whether you're getting closer and when you might re-evaluate the old geographic expansion model.

Well, couple of thoughts on that and then I'll turn it over to Karl who actually has a team that is focused on that. They're not -- our decision to stop the geographic expansion model was informed by factors which are related to our decision with regard to the dividend but they are not exactly the same. In other words, I went through with Jeff sort of our thinking with regard to capital which is return to owners. The geographic expansion model--that would be invested in the business so to speak. From that standpoint it's really a question of is it a healthful way to attract and serve students. I'll let Karl go through the details. Our student population in terms of the way they desire to access the academics is shifting significantly over the last 5 years.

One of the interesting things that we see with our campuses is that just about every measure you can look at including academic measures like course completion rate and pass rate and so forth, those are all better for students that are affiliated with our campuses versus an out of area student and that's true even for students who have taken all of their classes online. They've never taken an on ground class and what we have hypothesized is that may have had something to do with the selection criteria bias on the part of the students that they're seeking an institution that has the flexibility to allow you to learn in an offline setting if you chose to do that. So we know that the campuses have value for us. We can measure that.

To Rob's point, we have seen a pretty dramatic shift in modality preference where 80 plus percent of our seats at any given time are being taught online. The implication of that is clearly that while we think we need and want physical campuses, they don't need to be of the size that they have historically been say in the 15,000 square foot range. We have a team of people that is sort of researching and identifying what we're calling our campus of the future which is likely to be substantially smaller and once we get that plan set, we will test it in a market or two just to see how it goes. But I certainly do foresee a time when we will begin opening new campuses, albeit in a different format and we look forward to that happening and obviously once it does we'll make an announcement on it.

That's really interesting, good detail. Does that imply -- if that works, that would have implications for the existing footprint that you might look to transform the campuses in the past into campuses into the future?

Yes. It does. And in any given year we'll have between 5 and 10 campuses whose lease is coming up for renewal and as part of that we'll definitely make use of trying to get much smaller space.

And Cory, if you think about it from a capital standpoint, to put a finer point on it, what Karl just said over the next five years we've got several millions dollars a year that we expect to flow through the income statement as we make this transformation. On the other hand, he's making a lot of investments of improving the caliber of the online classes that we have. I mentioned last year's letter to shareholders our Strayers Studios where-- we're essentially creating production operations to build these online classes that are significantly better. They're more engaging than our previous ones. So some of that capital will be redeployed back into improving the caliber of the online classes. Because --we said continually ultimately we want to have the best academics available for the students in the way in the way in which they want to access the academic content.

Okay, that makes sense. I had a couple more questions. Try not to take advantage of your point--about staying as long as we need for questions. On the guidance on the expense -- so ordinarily there's more than a $2 million swing between the lowest quarter on OpEx and the highest quarter. So do you think you'll be in this $96 million to $98 million range every quarter of 2017.

It's possible. Any one quarter we might be a tick below maybe just a slightly above. But based on what we know we plan to spend, we have pretty detailed plans on that and I'm confident it will be between the $96 million and $98 million per quarter.

And Karl when you said barring increased variable expenses -- I think it was meaningful higher enrollment if you keep growing it in the 6%, 7% range. Would that be covered under the $96 million to $98 million?

No. That was precisely the point I was trying to make. If the current enrollment trends continue that we have seen recently, the $96 million to $98 million would be relevant. If for some reason our enrollment started to grow substantially more than that obviously we'll have to add instructional expense on top of that.

Good. And couple of points in the call -- you alluded to the fact that bachelor enrollment got better so I was hoping to get some color on sort of relative enrollment trends in bachelor versus graduate degrees and also what you saw specifically through the corporate channel.

Yeah, sure. I don't have the specific number in front of me although I do know that our growth was entirely driven by undergraduate students aided in part by the Strayer work students, the degree to work students that we get. Our graduate-- our new graduate enrollment declined. I don't have the precise number in front of me, Cory. That's something that we have seen on and off for the last several quarters. Our undergraduate enrollment, our new undergraduate enrollment was up in excess of 15%. And it's a combination of the b2b channel which again I said was up. In total about 10% in the quarter but I think it's fair to say we've seen a very improved sort of demand environment our inquiry volumes organically are up substantially. That's been the case really for the last 3-4 quarters so I think it's a combination of the continued strength in our corporate channels as well as just an overall improving economy and perhaps labor market.

I would definitely, Cory, emphasize that last statement. I mean if you think back over the last five years, where we took the biggest hit in 2011 and 2012 and 2013 was in our unaffiliated undergraduate students and that was coincident with a period of declining labor participation rates and lower consumer confidence and economic confidence. Our perspective undergraduate students were the ones who took it in the teeth the most during that time frame. Over the last 12 months that the economy is not getting a lot better but it stopped getting worse and -- it definitely feels like it's firming somewhat to us now. At the graduate level, because those students had college degrees they didn't go down as much and during that time frame they actually kind of helped us through a little bit of that trough. And now they're sort of plugging along and it's the undergraduate enrollment which is really kicked up over the last 12 months.

Great. Really helpful. Thank you.

Sure.

Thank you. Our next question is from Trace Urdan from Credit Suisse your line is open.

Thanks. I want to go back to NYCDA and the comment you were aiming to break even next year. That is really the right approach for a business that is -- it seems to be still in its early stages. I think that's how you think of it and why you got into it and I'm wondering whether break even in 2017 as a goal might be -- might represent under investment in that business and I'm wondering how you think about that dynamic.

Yes,Trace. I actually don't think break even is our goal. I think one of us --one of us--either Karl or I -- was trying to answer the question specifically about what the financial outcome would be. Being break even in 2017 would be more of a result of achieving the goals that we have for the business. As Karl mentioned, we took a business that was very, very small and in just one location and over a 12 month period both standardized a lot of its processes and procedures to make sure it complied with the regulatory concerns that we have and then rolled it out over a number of locations. The negating factor for us and the objective of the business for us is to achieve very high learning outcomes across all of those locations.

We've-- pegged the growth rate at those locations at a rate at which we are confident that Jeremy and his team can execute and get those high learning outcomes. If that happens I suspect the result would be roughly break even versus the significantly dilutive amount in 2016. If it does happen, and we're confident that we can do it at higher rates of growth, we're happy to do that in 2018 and going forward. Even if it does create some more dilution if it is creating the kind of top line growth in the ability to expand the business in a way that's value enhancing to our owners over time. But in the short run we think that's about as much as we're prepared to bite off and not put at risk the learning outcomes.

Okay, fair enough. As a follow-up question then, clearly this is sort of a first step in the process of trying to diversify your sources of revenue away from Title IV and you made comments earlier to suggest that there might be some others that you're looking at. So, without kind of giving up any trade secrets here, could you comment on what you think are the core skills or the core competencies to use the hacking phrase that you can lever into other areas? Because clearly NYCDA it sounds like it's promising but it also sounds like it's going to be a while before it is really material to your overall earnings. And so, how can we think about what other places you might go to further that goal of diversification?

Sure. But again, I'd emphasize that eliminating -- going from costing you about $0.50 to roughly break even is material given the size of our earnings. But again that's --

I was thinking more about the top line.

Got it. But the--at it's simplest level we are an educational institution we are a teaching institution. Whether that takes the place of traditional university education and things that we have in place that are more geared towards specific job preparation, things that we're doing for some of our corporate customers that really sort of morph into almost corporate training and employee skill development and then things like code academy which are a combination of the both, is those are the kind of things we look for because we think those are our -- that's what we have done well for a long period of time and we think we can do well.

I wouldn't say there is a long list of imminent targets out there. I try to answer the question on capital with regard to what's possible. When I look at this business right now, Trace, for the first time in several years the core business, Strayer University is on the verge of growing. At all levels top and bottom line and having navigated through a serious economic down turn that is fair amount of our focus over the next couple of years to make sure that we're that all the investments that we made in academic performance in a more benign economic environment-- are harvested for the both the institution and our owners. Karl, maybe you can talk more about the Strayer at work and some of the other non---

Trace, I think if we were to approach an answer to your question thematically, we're trying to further inform our perspective around where the labor market is going, five, ten plus years out ,where we see job growth. It is universally acknowledged there is going to be a shortage of coders which is why we're can interested in NYCDA and through the Strayer at work arm we're constantly talking to our corporate partners about the kinds of things that they're interested in and they are around employee skill development. Some of it is around how you can bring superior online instruction inside of companies.

That seems to be a very hot topic right now. So we are actively engaged with several of our very large clients building online universities but imbedded in a company. And that's where we want to sit. We want to kind of position ourselves between students as a consumer but also in between companies who are ultimately the purchasers of that talent and we try to iteratively inform ourselves around what companies are interested in not just from a skill standpoint but also from a technology standpoint and be a partner to them that we can assist them in hitting their goals.

Okay, that's helpful. Last question from me. Rob made reference to the ongoing effort to upgrade the online experience and Karl I'm a big fan of that. And I also know it's a gradual process and expensive. Is there some point in the future where you'll have enough of your online courses kind of revamp with that sensibility where to could become -- where it could start to impact the growth rates and might be something that you would actively market to perspective students. Can you talk about that?

Sure. We're very thrilled with the work that's been done. You'll recall our theory on this was it doesn't matter how good your adaptive learning engines are, it doesn't matter how good the predictive analytics are if people won't interact with the material. We were guilty, like every institution in the world of having online content that was not that engaging. So we stood up and internal film studio, we hired executive producers from the industry, directors, writers, paired them with academic experts and instructional designers and created this in you online format course. We tested it twice in our full academic term in a small pilot of a couple thousand students versus a control group of the rest. Everything you'd want to see better was better and by a pretty significant amount.

Our goal is to have 8 to 10 of our highest volume courses remade into this format during 2017, so we'll have more than 10,000 students going through these new courses during the course of the year. We're very optimistic it will have a favorable impact. We absolutely will market it and tell the story why we think this is a good use of capital. It is expensive initially, Trace because you got to stand up this team, but as they start building more digital assets we can deploy them with more scale and over time the cost to produce them will begin to subside and the cost will more than be offset by the gains that we have seen if you just extrapolate our pilot and even discount it and assume you don't get the same level of gains across the university even if you discount that down it will be more than enough to offset the expense that we invested.

And gains in retention.

Right. So thinking about it financially, maybe accretive in 2018?

I think it's accretive in 2017.

It should be accretive in 2017 and certainly in 2018. I know you have had some interest in this. I'm happy to -- I've go the a link I can send you that will give you a preview of 8-10 of these little small stories that we imbed in the courses and give you a sense for what they look like. I can do that after the call.

That's great.

Trace, just to -- I was going to put this in my letter to shareholders which will come out in a couple of weeks but we'll do an investor day in October and around the time of our third quarter release and by that time I think Karl and his team will have enough where we can see show it to everybody and get a sense for how powerful it is both academically and how it translates into economic performance.

Great I appreciate that.

Sure.

Thank you. At this time there is no other questions I'd like to turn it back over to Mr. Silberman for any closing remarks.

Thank you operator and thank you ladies and gentlemen. We'll look forward to talking to you again at the time of our annual meeting. And of course if owners have any other questions please give us a call and certainly stop by one of our campuses. That's the best way to do diligence.

Thank you very for your anticipation in today's conference. This concludes the program. You may now disconnect. Every one have a great day.