Strategic Education Inc (STRA) 2018 Q2 法說會逐字稿

Good morning, everyone, and welcome to Strategic Education, Inc.'s conference call in which we will discuss Strayer Education, Inc. and Capella Education Company second quarter 2018 results.

With us today to discuss results are Robert Silberman, Executive Chairman for Strategic Education; Karl McDonnell, Chief Executive Officer for Strategic Education; and Daniel Jackson, Executive Vice President and Chief Financial Officer for Strategic Education.

Following the remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties and risks that Strategic Education, Inc. has identified in today's press release that could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Capella's 10-Q filed today and other filings with the Securities and Exchange Commission as well as Strategic Education, Inc.'s future 8-Ks, 10-Qs and 10-Ks. Copies of these filings and the full press release are available for viewing on our website at strategiceducation.com.

And now I'd like to turn the call over to Robert Silberman, Strategic Education, Inc.'s Executive Chairman. Mr. Silberman, please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. As we reported in today's press release, this morning, we closed on our previously announced merger of Strayer Education, Inc. and Capella Education Company. And so I'm delighted to welcome you to this, the first earnings call of our new company, Strategic Education, Inc. We want to particularly welcome to this morning's call the former shareholders of Capella Education. We're honored to have you as owners and rest assured that we, as a management team and Board of Directors, are committed to being good stewards of your invested capital.

We also want to warmly welcome all of Capella University's faculty and staff. We have a tremendous amount of respect for the educational institution, which you've built, and we look forward to providing you with all the resources you need so that you can continue to provide the highest level of academic outcomes to the students of Capella University.

We have a lot of material to cover this morning. Karl will first run you through the operating results of both companies for the second quarter, bearing in mind, of course, that they were separate organizations for that time period. He'll also walk you through our merger integration plans as well as how we intend to organize the new Strategic Education, Inc. or SEI, as we call it in shorthand here. Dan will then provide more detail on each company's Q2 financial results before I wrap up with a couple of comments. And finally, we'll stay for as long as you have questions.

So with that, let me introduce SEI's CEO, Karl McDonnell.

Thank you, Rob. Good morning, everyone. Before I begin my comments on the second quarter and the merger, I'd like to make everyone aware that in addition to our earnings announcement, which is available on our new website, strategiceducation.com, we've also made available a supplemental packet of information that you can download. These slides contain some additional information that you may find helpful, including information on future SEI segment reporting, which will mirror our post-merger organizational design.

Moving forward operationally and as we previously stated, we will be operating 2 separate universities, Strayer University and Capella University, each with its own Board of Trustees and management team. We will also have a third operating and reporting segment for non-degreed revenue streams, which will include our 3 coding schools. Supporting all of these entities are SEI corporate functions delivering shared services such as finance, HR, IT and legal.

And now I'd like to make a few comments on our second quarter results. Both Capella University and Strayer University had very strong enrollment results with both institutions posting multiyear highs in their performance. This is particularly noteworthy, I believe, that given large portions of both management teams have been spending the past 9 months in detailed integration planning, devoting literally hundreds of hours of their time over that time period. And I'd like to once again thank everyone at both Capella and Strayer for their dedication and hard work and all of the professionalism that has gone into generating the results that we've announced today.

Capella's 15% year-over-year increase in new student enrollment is the strongest performance in more than 3 years and is the second strongest in more than 10 years. FlexPath, Capella's fastest-growing offering, continues to perform extremely well and now comprises 23% of Capella's Bachelor's and Master's degrees enrollment.

Strayer University's new student enrollment increased 7% from the prior year, representing the university's eighth consecutive quarter of new student growth. Strayer's total enrollment increased 8% versus the prior year, which is the highest growth rate for the University since 2010.

Strayer Education revenue increased 2% from the prior year as our enrollment growth was partially offset by a 6% decline in revenue per student, which was slightly more than what our original expectations were. Future revenue-per-student declines will be partially offset by a 1% tuition increase being implemented in the fourth quarter. We also announced this morning that Strayer University plans to open 2 to 3 additional new campuses during the balance of 2018. This is in addition to the successful opening of the Macon, Georgia campus last quarter, which actually has already achieved breakeven status.

In addition, we are in the process of evaluating a physical student support location for Capella University, and we should have more details on that in coming quarters. Also in the second quarter, Strayer's results include a $6.2 million noncash write-down of our New York Code + Design Academy's asset value as we begin to rationalize our now combined company's investments in the coding bootcamp space.

And one final comment on operational results, Strayer University completed its summer term enrollment during the second quarter. These are students who enrolled in the second quarter, but who are attending now in our summer term, so we have some visibility into our third quarter enrollment results. And we expect that new student would grow approximately 12% versus the prior year and total enrollments to grow approximately 9%.

Now turning to an update on our merger. After spending the past 9 months working with leaders of both Capella and Strayer on our integration plans, I can tell you that I have a very high level of confidence in achieving our previously stated objective of realizing $50 million in synergies and capturing those synergies within 18 months of today. Steve Polacek, our Chief Integration Officer, has led a process that has resulted in very detailed plans by function and by quarter. Based on these plans and on a run-rate basis, we expect $20 million of the synergies to be implemented in 2018 with the remaining $30 million implemented in 2019. We also estimate, within these savings, approximately $5 million to $7 million will actually be realized in 2018 and approximately $30 million to $40 million will be realized in 2019. Implementation expenses are still estimated to cost $1 for every $1 of synergies. And now that we've closed the transaction, our team can also work more closely on potential revenue synergies, which might include physical locations for Capella University, improve marketing optimization and more integrated B2B offerings. We'll report progress on these and other items in future quarters.

And in closing, and once again, I just want to thank everyone in our now combined company for all of their efforts over the past 9 months since the announcement of this merger. We're fortunate to have an incredibly talented group of individuals, and we wouldn't be where we are today without their hard work and dedication.

And now I'd like to turn it over to Dan to walk through the financials.

Thank you, Karl, and good morning, everyone. First, as Rob mentioned, we changed our name this morning to Strategic Education, Inc. However, to avoid confusion in both our earnings release and on this call, we'll refer to Strayer Education, Inc. when describing the second quarter results. This morning, I will also comment on Capella Education Company's second quarter financial results, which are included separately in our earnings press release and also were filed this morning with the SEC in a separate Capella Education Company 10-Q.

Please note, as I've mentioned in the last few quarters, our earnings release references as reported or GAAP results and adjusted or non-GAAP results. This format is intended to illustrate the financial performance of the core business as reflected in the adjusted numbers in addition to our GAAP results. Adjusted results for both Strayer Education and Capella Education exclude fair value adjustments to intangible assets, onetime asset impairments, adjustments related to facilities no longer in use, costs associated with our merger and certain discrete tax adjustments.

Now for a few comments on Strayer Education's Q2 adjusted results. Strayer's GAAP income from operations for the second quarter was $4.2 million, which as Karl mentioned, includes a $6.2 million noncash impairment to intangible assets associated with the New York Code + Design Academy and also $2.8 million in merger-related costs. Strayer's comparable Q2 2017 income from operations was $13.9 million, which included a $2.3 million noncash benefit resulting from the elimination of contingent liabilities associated with the New York Code + Design Academy and a $300,000 noncash charge resulting from an adjustment to the value of leases for facilities no longer in use. Excluding these items, Strayer's adjusted income from operations for the second quarter of 2018 was $13.2 million compared to $11.9 million for the same period in 2017. Strayer's adjusted operating margin was 11.5% for the second quarter 2018 compared to 10.5% in 2017.

Strayer's adjusted effective tax rate for the second quarter was 27.5%, which excludes the impact of merger costs and other discrete tax adjustments. We're reporting a GAAP tax benefit for Strayer for the second quarter due primarily to the favorable tax impact of stock-based compensation that vested during the quarter and accelerated deductions enabled by the new federal tax law.

Now for a few notes on Capella Education Company's Q2 results. Capella revenue for the quarter grew 1.8% to $111.6 million from $109.6 million last year, driven by higher enrollment and slightly higher revenue per learner. Capella's GAAP income from operations for the second quarter was $15.1 million compared to $15.4 million last year. Capella's GAAP income from operations in the second quarter of 2018 includes $900,000 in merger-related costs and a $900,000 write-down of capitalized software development costs associated with the Job-Ready Skills segment. Excluding these costs, adjusted income from operations was $16.9 million. Capella's adjusted operating margin was 15.1% for the quarter compared to 14.1% in 2017. Capella's adjusted effective tax rate for the second quarter, excluding the impact of nondeductible merger costs, was 24.9%.

Moving forward, we expect the adjusted effective tax rate for the consolidated SEI to be in the range of 26% to 27%.

Moving to the balance sheet and cash flow. Strayer Education generated $30 million in cash from operating activities in the first 6 months of 2018 compared to $32.8 million during the same period in 2017 and ended the quarter with $171.6 million of cash and no debt. The decline in Strayer's cash from operations was primarily due to cash merger costs, offset by lower cash taxes.

Capella generated $39.4 million in cash from operating activities in the first 6 months of 2018 compared to $36.2 million during the same period in 2017 and ended the quarter with $189.9 million of cash, including marketable securities and no debt.

Regarding capital expenditures, Strayer spent $8.6 million during the first 6 months of 2018 compared to $8.4 million during the same period last year. Capella spent $9.1 million through the first half of 2018 compared to $12.1 million during the same period last year. For the full year, we are estimating consolidated capital expenditures in the range of $35 million to $40 million.

And finally, today, SEI amended Strayer Education, Inc.'s existing credit facility to reset the maturity for another 5 years through July of 2023 and increase available borrowings from $150 million to $250 million. Currently, there are no outstanding borrowings under the amended credit facility. For more information on that credit facility, please see the 8-K exhibits we filed this morning.

Rob?

Thank you, Dan. Just a couple of final points from my perspective before we throw it open for questions.

First, on capital allocation. Today's merger of Strayer and Capella into SEI creates a very financially strong institution with healthy free cash flow and a rock-solid balance sheet. We, therefore, announced this morning that SEI's Board of Directors set its initial annual dividend at $2.00 per share to be paid quarterly. The Board will review our annual dividend each year at our February board meeting, when we know the actual distributable cash generation of the company for the previous year and after we have committed to our planned investments and academic outcomes and our operating budget for the upcoming year. However, as 2018 is only a partial year, this initial $2.00 per share dividend is intended to be in place through year end 2019.

My second point regards the very positive student enrollment results, which Karl reported for both Strayer University and Capella University. Both institutions were clearly buoyed by a very strong U.S. economy in the second quarter. The May and June employment numbers were both very positive with national labor participation rates continuing to increase. More importantly, in both months, the number of domestic job openings exceeded the number of unemployed adults looking for work. This is likely to further increase labor participation rates and employment confidence, which, in turn, leads to more motivated prospective adult students. Indeed, job openings exceeding the number of adults looking for work is partly a measure of friction in the labor markets, and we feel the best way to ease that friction is through increased educational achievement.

Now we don't forecast or provide guidance on either our enrollment or financial results, but I did want to say that if these favorable economic conditions persist, they do bode well for strong enrollment growth through the balance of the year.

Finally, as this is SEI's first earnings call, we want to state as a first principle, our belief that the achievements of our students and alumni are the only true long-term generator of increases in the value of our shareholders' invested capital. We, therefore, as both the management team and the Board of Directors, are committed to our students' academic success first, foremost and always.

And with that, operator, we'd be pleased to answer any questions.

(Operator Instructions) Our first question is from Jeff Silber from BMO Capital Markets.

Congratulations on the closing of the merger. I was wondering if you could share with us some of the goals maybe over the next 12 months for the combined entity, I know you're not going to give us specific issues, but at a high level, what should we expect in terms of what this company will look like over the next year?

Sure, Jeff, we have a number of goals. One of them is relating to activities that actually was pre-closed, which was just business continuity. We wanted to make sure that we didn't create any distractions or disruptions and I think with the results that we've announced today, that's a real testament to the management teams of both organizations to be able to focus on their students. We want to successfully implement our detailed integration plans. As I said in my prepared remarks, we estimate that, that will take us all the way through 2019. We want to explore any and all revenue synergies that we can. We want to look for ways that we can cross-purpose all the innovations that both organizations have had to benefit our students. And we want to create as healthy and as vibrant of a culture that we can, and we feel that the new scale that this merger brings provides us with a great opportunity to accomplish all those things.

Okay, great. And then if we can just circle back to the quarter that just ended, the enrollment results were pretty strong, especially the new enrollment numbers at Capella. Can we get a little bit more color, were there specific programs, I know you called out FlexPath at Capella, but I'm just wondering even on Strayer side, if there are some items to highlight?

Actually, we saw a strong enrollment growth across really all degree levels. At Capella, they saw growth across all three degree levels that they have. We've seen the same thing on our side. JWMI continues to perform quite well. Our Macon, Georgia campus had a significant enrollment increase. So it was really quite balanced across the board, Jeff.

Okay, great. And from a modeling perspective, are you guys going to be breaking out, I guess, the pro forma historical results on a quarterly basis so we can build up a quarterly model that's something we can get before you report your third quarter numbers?

Jeff, we'll report an updated pro forma similar to what we disclosed in the S-4 last year, but it will not be a part of our normal quarterly disclosures.

And I'm sorry, when will that be reported?

In October.

In October? So nothing before then -- I'm sorry.

It'll be in October, just before we report our Q3 results.

Before you report the results. Okay, great. And then one final question, I'll jump back in the queue. Rob had mentioned the dividend policy and your dividend going forward. I'm just wondering in terms of other uses of cash besides investing in the business, is there anything else that you might be looking towards?

Well, Jeff, we, each quarter as a board, look at cash utilization and capital allocation. And as you stated, the primary and the first objective is investing in the academic outcomes of our students because, over time, that really has produced the highest return for our owners. The outside of the business, the use of capital for acquisitions is always on our agenda. I would have to say that we were not the most prolific acquirers over an 18-year period, but we've just done a fairly large one. So the horizon that we look at is pretty broad, but there hasn't been a whole lot of things that we've seen besides Capella that really attracted our interest. I can't say that something might not in the future, but it's -- it would be inaccurate to say that our intent is to be a prolific or a serial acquirer. And then after we get done with use of capital inside the business and potentially investing it outside of the business, we want to return it to owners in the most value-enhancing way. We think that over a long period of time, a predictable dividend policy is probably the best way to manage an institution that owns universities. And then we have a share repurchase authorization, which is available to the board in those circumstances, where we feel that the intrinsic value of the stock is -- or the actual -- the trading value of the stock is so far below its intrinsic value that we can take that option away from our owners that we gave them by just giving them a dividend. So we'll continue to go through all 4 of those things at each quarter. And then, obviously, as we have developments, we'd report them if and when we were able to accomplish any of that.

Our next question is from Peter Appert from Piper Jaffray.

So back to the start performance. The numbers at Capella University, I think, are particularly noteworthy, given that they've basically been struggling for a while to get to sustained positive growth and the move to double-digit growth this quarter is, as you say, the best in, I think, 8 years. So any more color in terms of specific programmatic offerings that are driving it or other marketing initiatives might be driving that and your confidence in the sustainability of that better start number?

Well, the first thing I would reference, Peter, is Rob's comments that we've heard from both of our teams that there is a sense that the economy is stronger. And I suspect that definitely played a role in the enrollment results that both Capella and Strayer generated. Specifically to Capella, I know that they're always working in terms of crafting the right messages and campaigns from a marketing standpoint. I know that they were quite pleased with the level of interest in terms of the demand that was being generated in the quarter, FlexPath continues to grow. I think it's a combination of just solid macro conditions combined with a very effective marketing team, robust programmatic offerings and the continued strength of FlexPath.

Okay. So nothing new this quarter specifically in terms of marketing initiatives, program offerings...

No, there was -- there was no sort of silver bullet, if you will. They did one thing and it sort of generated these results. It's a combination of, I think, everything that I just referenced.

Right. So your comments, Karl, and Rob's earlier comments are a little bit counterintuitive in terms, I think, of how people have thought about the education sector historically, right. We've historically thought about this business being countercyclical, you're seeing it being more procyclical these days. Is that a function of your increased focus on the corporate channel and these corporate partnership deals? And can you remind us what percent of enrollment that is currently?

Yes, Peter, I would say that I personally, and I think as an institution, we have never felt that what Strayer University provides was a cyclical -- was a countercyclical product or a service. And the reason being is, is that the decision to go back to school as an adult is such a large investment of time, money, emotion, that it's our belief, unlike some sort of lower level programs or job-training programs, it's not truly advantaged by a downturn in the economy. It's actually advantaged by a high level of employment confidence in a shifting economy, in an economy that's shifting from a manufacturing base to more of a knowledge base. And I think if you look at the history of both Strayer and Capella that in the period prior to the crash of late 2008 and 2009, you had pretty robust enrollment growth. That the (technical difficulty) the severity of the downturn and as I've written before in letters to shareholders, I think the most important metric is the labor participation rate. As that started to go down in 2010 and continue to go down through 2015, the willingness of students, prospective students to uproot their lives and enroll in a post-secondary program went down significantly. And I think what you're seeing is over the last 2 years and it's accelerating over the last, probably, 6 to 9 months that labor participation rate is starting to grow. As I mentioned, the mismatch between job openings and unemployed workers is just driving, I think, a more growing and healthy economy, which generates more employment confidence. And in order to make the sacrifice, both the financial and the time sacrifice, for a 35-year old to go back to school, they have -- the only reason to do that is if they feel that at the other end of that, that there is a likely opportunity for them to recover that in terms of better employment. So I would say that we're certainly not countercyclical. And I think on the last call I had a question where someone asked this, my belief is within certain bands we're acyclical. If the economy falls below the lower end of one of those bands, then you are truly cyclical. And I think that's what happened over a 5- or 6-year period from 2010 to 2016. And now we're kind of the -- we are the beneficiaries of a much stronger and healthier economy.

And can you remind me, Rob, what portion of current enrollments for the new entity is corporate partnerships?

It's about a quarter, Peter.

And any vision -- do you have a vision in terms of what that could be?

Well, we wanted to go as high as we can get it. I mean, we have extensive relationships with employers, Capella does too. One of the plans that we have with the merger, as I said earlier, is to integrate as many of our B2B offerings as we can. So that will be our primary focus going forward.

And then the coding business has been a bit of a struggle, I think, for both companies, historically. Can you just talk about your vision for that business and the opportunities there?

Well, I continue to believe that over the long term, it's going to be a viable and a great investment. My own view is that it's a nascent space, your average person on the street is not aware of coding bootcamps. When you look at the actual product and the experience the students have, I think there's a very tangible return for people. You basically invest somewhere between 12 and 16 weeks of your life, you spend somewhere between, depending on the school, $8,000 to $10,000 and roughly 90-plus percent of the time you get a job that pays for somewhere between $55,000 and $75,000 as a junior web developer. So that's a real ROI. The problem is the levels of awareness amongst the population at large is just so small, which why our strategy continues to be: Get them to a breakeven level and then be patient and wait for sort of the organic demand to come. But I still feel like over the next decade, it's going to be an important pathway for people to have to get a good paying job.

Okay. And then lastly, can you talk a little bit about marketing costs and the trajectory and marketing costs for the new entity?

Sure. Strayer -- on the Strayer side, we actually saw a reduction year-over-year in our cost to acquire new students. If you look over a more normalized period, say 2 to 3 years, I think marketing expenses have been increasing somewhere between 3% and 4% or 5%. And somewhere in that range seems reasonable moving forward into 2019 and beyond.

Just one other thing on the coding schools, I wanted to add, which is one of the real advantages, I think, of the transaction is it gives us more scale and specifically, it gives us more scale on that area where we now have 3 platforms, which are all different in terms of their approach. So we've got an area of experimentation and lessons learned that we can go after in the next several months to really try and understand that market.

(Operator Instructions) Our next question is from Corey Greendale from First Analysis.

Firstly, the guidance or the thoughts on the cadence of the synergies was helpful. I just want to make sure I understood, Karl, you're saying like $5 million to $7 million will actually hit the P&L in 2018 is your expectation?

Yes.

And is the bulk of that stuff that happens today or does even that kind of ramp in over the next few months?

No. There are some activities and changes that are being implemented today. And week by week, between now and the end of the year, additional changes will be implemented. The sum of all of those changes on a run-rate basis will equal about $20 million, and we estimate $5 million to $7 million of it will actually be realized in savings in 2018.

Okay, understood. And then if I can jump around a little bit on Capella. So I think that they are, at least based on what it says in the cues, that they've actually been net-net increasing revenue per student, like the discount per student is actually coming down. I know you've done a lot of stuff to adjust kind of the value prop on the Strayer side. Any thoughts on what tuition pricing, the strategy might be on the Capella side going forward?

I think that's yet to be determined, but you're right. They have had very strong revenue per student performance. On the Strayer side, as I said, our decline was a little more than we thought. But any future declines will be partially offset by the 1% tuition increase that we're putting in for all students in the fourth quarter.

All students for Strayer University.

Strayer University. And the scholarship programs that we did earlier or last year, I should say, as a result of the disruptive whether, all of those have been discontinued. So we expect revenue per student to flatten out as we begin to head into 2019.

And the lower-than-expected Q2 results, was that because of a mix in the corporate discounts? Or what drove that?

Well, it was definitely impacted by growth in the corporate channels since those students are paying an effective lower tuition rate. We have slightly fewer seats per student. So it's a combination of 2 or 3 things.

Okay. And Capella -- I think I'm just repeating what you said -- but on Capella, I know that I think you've talked about the Master's level being more competitive, generally. So is it fair to say that, that's something you'll look at whether adjustments to discounting at Capella's side make sense?

Yes. I mean, we'll look at everything, Corey. But based on the quarter that we reported today, they're seeing pretty strong growth across all degree segments, including Master's.

Okay. Then another Capella question, as you look at everything, I think another group that is looking at everything is the Department of Education and as they look at the definition of the credit hour, again, it sounds like part of the goal is to potentially somewhat opening the floodgates on competency-based programs more broadly. If and when that happens, is there anything about the experience of the technology at Capella that provides a sustainable competitive advantage in FlexPath type programs? Or does that get more competitive over time?

I think, Capella has a number of competitive advantages related to competency-based learning, everything from the design of the curricula, the core specific outcomes that are measured at a course level. So it's not just the delivery, it's the combination of the design, delivery, measurement, all of that. I feel like Capella is way ahead of most of higher education and competitively advantaged as a result.

Yes, particularly the head start. That last point, I think, is very powerful.

Okay. And then for Dan, on the -- I think, I know what's been driving the increase in bad debt at Strayer. I'd expected it would start trending down with the verification changes. Just what is still keeping it high? And when does it start trending down?

Corey, we expected to see a downturn in the volume of the Title IV processing issues by the end of this year. So I think the Q2 was about what we expected. I think the additional factors, of course, the continued shift to undergrad students. I think in the long term, we believe that bad debt can be managed back down to the 4% range. It may...

At Strayer University.

At Strayer University. It may be 2019 before we get to that point.

Okay. I appreciate that, Dan. And then going back to one of the questions Peter asked, the Capella new student result was obviously very strong. The comp was a lot easier than the prior quarter, though, so should we look to the year ago? There are new student growth that's been much more volatile quarter-to-quarter than Strayer's has. Should we kind of take that into account as we think about what's going to happen quarter-to-quarter in their new student results?

Well, I think, Corey, you should definitely assume that our policy with regard to new student enrollment hasn't changed, which is that we are comfortable with a high degree of volatility. Students come when they want to come. We're not trying to drive a particular number in any different -- in any specific quarter. We just report it when it happens. We were obviously delighted to see the results at Capella in this last quarter, but we tend not to get too wrapped around the axle on quarter-to-quarter comparisons or whether it's a tough comp or an easy comp. I think, in general, the macroenvironment is supportive of working adults going back to school right now, and I think that's helping both institutions. And beyond that, we don't really pay that much attention to it, to be honest.

Okay. And one, I think, this is my last one. I understand making the fit breakeven already, can you give us some sense of how much it contributed to the -- either the enrollment number or the new student number?

It was pretty strong. I mean, it definitely exceeded all of our expectations. It was probably 75 basis points.

To the overall enrollment number?

To strayer's new student growth rate.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Robert Silberman for closing remarks.

Thank you, operator. And again, I want to reiterate what both Karl and Dan have said our extreme gratitude to both sets of faculty and staff and the management teams of both organizations to have accomplished, as Karl stated, this closing of the transaction in all of the planning around the integration at the same time that you've had such strong performance is really a testament to everyone's commitment and hard work. And we're very, very appreciative. For our shareholders, particularly our new shareholders from Capella, please feel free to contact us if you have questions. And we look forward to talking to everybody in November with our third quarter results. Thanks very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.