Q3 2024 Stride Inc Earnings Call

Participants

Timothy Casey; Vice President, Investor Relations; Stride Inc

James Rhyu; Chief Executive Officer, Director; Stride Inc

Donna Blackman; Chief Financial Officer; Stride Inc

Alex Paris; Analyst; Barrington Research Associates Inc

Jeff Silber; Analyst; BMO Capital Markets

Greg Parrish; Analyst; Morgan Stanley

Thomas Singlehurst; Analyst; Citi

Stephen Sheldon; Analyst; William Blair & Co

Presentation

Operator

Good day, everyone, and welcome to the Stride third-quarter fiscal 2024 earnings call. Today's call is being recorded. I would now like to turn the conference over to Timothy Casey, Vice President of Investor Relations. Please go ahead.

Timothy Casey

Thank you and good afternoon. Welcome to Stride third-quarter earnings call for fiscal year 2024. With me on today's call, are James Rhyu, Chief Executive Officer; and David Blackman, Chief Financial Officer.
As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on Australia's Investor Relations website.
Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. The reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website.
In addition to historical information, this call may also involve forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to several important factors as described in the company's latest SEC filings.
These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them, and the company assumes no obligation to update any forward-looking statements made during this call. Following our prepared remarks, we'll answer any questions you may have.
I will now turn the call over to James. James?

James Rhyu

Thanks, Tim, and good afternoon. The state of education in the United States continues to evolve, but more importantly, the way parents and students view that education is evolving. Every survey and research I have seen this year confirms that customers want choice. A recent survey by the National school choice awareness foundation, strong supporters of those surveys, almost three quarters indicated that they at least considered a new school for their child over the past year. And that is up from just over half one almost two thirds look for a new school for their child and over half said they were likely to consider a different school over the coming year and the paradigm on college as a default option for students is beginning to show real correct. In a recent survey of high school students, more students sell that on the job training courses leading to licensure and courses leading to professional certifications for a better value than to a four year college degrees. That value equation between college and skills training is swinging in favor of skills, training the Wall Street Journal also recently published a number of articles on this. They reported 52% of college graduates are in jobs that don't make use of their skills or credentials They also reported on the growing trend of Gen Z students entering skilled trades, leaving the traditional calls out behind to pursue high-paying skilled jobs. The article survey that showed the growing rise of generative. Ai has changed the equation when it comes to college with a majority of the respondents saying they thought blue-collar jobs offered better security and white-collar jobs, given the growth of the one of the most compelling findings was that the most critical factors for college graduates finding success are the things that strike an offer at the high school level a choice of major internships and getting the right first, we, at Stride are delivering tomorrow's education today. Artificial intelligence also continues to dominate the new cycle in education as well as other industries. We are building a foundation to support our AI efforts and are developing and testing ways to improve the customer experience for the teachers and students we serve. Initial feedback is very encouraging. We remain committed to incorporating AI and other technologies into our program, but we will do so by putting the right tools into the hands of teachers and students to supplement their work and empower all parties.
Now we just finished another incredible quarter. We reported record quarterly revenue and on-road hit a new all-time high of 198,400 students sequentially higher than last quarter and higher than the pandemic levels of fiscal year 21. Our in-year enrollment growth now for two years running indicates that the landscape of education choice is expanding and more fluid and that the fall is just one indicator of customer centers. Many of you are already wondering about the upcoming fall season while we are focused on delivering for our customers this year and ending the year strong, if the trends we're seeing in enrollment during this year continue, we've set ourselves up for a strong fall season application volumes as a proxy for demand continuing to trend strongly and conversion rate indicators are positive. As of today, we have the largest cohort of free registered students in STRIDE history. There's still a lot of work to be done before next school year, but we feel we are well positioned to continue to grow enrollments given the landscape of education today, I believe STRIDE represents one of the many emerging trends on the future of education by delivering on tomorrow's education today that is accessible technology driven flexible, career-focused and proven.
With that, I'll pass the call, Dan, Donna?

Donna Blackman

Thanks, Jane, and good evening, everyone. As James talked about, we continue to see strong in-year returns in the third quarter, coupled with our strong retention numbers, we feel comfortable increasing both our revenue and profitability guidance. For the full year, we now anticipate revenue growth between 10% and 11% and adjusted operating income growth between 39% and 44% base growth rate to keep the annual growth rate we outlined in our 2020 targets in November.
Turning to our quarterly results, we reported revenue of 520.8 million, an increase of 11% from the third quarter of fiscal year 2023. Adjusted operating income of 96.4 million, up 20% from the same period last year. Earnings per share of $1.60, up $0.3 from last year and capital expenditures of $16.3 million, an increase of $1.1 million from last year. Korea volume, middle and high school revenue grew 11% to 167.9 million This performance was driven by enrollment growth of 10% year over year and revenue per enrollment growth of 2%. We continued to see enrollment growth in the quarter, up over 1,000 from the second quarter. This is a continuation of enrollment trends we've seen in the second quarter and third quarters over the last two years in our general education business, revenue was 328.9 million, up 14% from last year. This strength was also driven by continued enrollment growth in the quarter with average enrollment finishing the quarter, up almost 4,000 from last quarter. Revenue per enrollment in the quarter was up 7.5% from last year. As you think about the fourth quarter, it's important to remember that we anticipate enrollment declines from the third quarter high as most of our programs noted, except new enrollments during the quarter. There's always the opportunity for us to convert. These leads into enrollments for the upcoming school year, but we still expect a sequential decline in Q4 per people. Revenue continued to be impacted by timing and particularly for Korea Line. We have got, I guess, a strong comp from last year when we finished the year up 16%. We continue to see good funding increases across general and career. However, in any given quarter. These can be impacted by a number of things, including mix, yield and timing impacts from prior year catch-ups that we've previously discussed. While it's still very early in the process of year's funding. As of right now, we see an overall positive funding environment at the state level for fiscal year 2025. So not as strong as we've seen over the past few years, they are also grappling with the amount of funding in the coming school year, which could impact how they decide to allocate funds across all schools, our adult learning business continued to see impacts from a slowdown in our coding programs. Revenue for the quarter declined 5.9 million to 24 million net or our allied health programming continues to see strong growth, but not enough to fully offset the declines in our boutiques.
Next Third, to finish the year with revenue growth of more than 20%. Gross margin for the quarter was 38.7%, up 140 basis points from last year. We're still seeing benefits from the efficiency efforts we put in place last year, but not as strong on a year-over-year basis as some of these efficiencies took hold in the back half of last year. Importantly, we're not content with those efforts, and we continue to drive improvements and gross margins while supporting strong academic outcomes. For the full year, we still expect to see gross margins improve by 200 to 250 basis points. Selling, general and administrative expenses for the quarter were 113 million, up 10% from last year. Stock-based compensation for the quarter was $5.3 million. We now expect to finish the year with stock-based comp in the range of 28 to $31 million. Adjusted operating income for the quarter was 96.4 million, up 20% from last year and our strongest quarter ever. Adjusted EBITDA was 120.5 million. As with every year, we expect fourth quarter profitability to be less than the third quarter as we began to ramp up marketing and other spend in anticipation of the upcoming fiscal year.
Interest expense for the quarter was 2.4 million. Our effective tax rate for the quarter was 26.1%. Diluted earnings per share for the quarter was $1.60. Capital expenditures in the quarter were $16.3 million, $1.1 million above our spend last year. Free cash flow, defined as cash from operations less CapEx was 52.2 million down from the prior year period, mostly due to timing of cash receipts. We expect fourth quarter free cash flow to be up significantly from last year as a result, we finished the third quarter with cash and cash equivalents of $376.6 million and marketable securities of $194.1 million. Based on the continued a year enrollment and retention trends, we are raising the low end of our full year revenue guidance and bringing up our profit guidance. We now expect revenue in the range of 2.025 to 2.04 billion, adjusted operating income between 280 and $290 million capital expenditures between 60 and 65 million and an effective tax rate between 24% and 26%.
Thank you for your time, and now I turn it over to our operator for Q&A. Operator?

Question and Answer Session

Operator

(Operator Instructions) Alex Paris, Barrington Research.

Alex Paris

Thanks for taking my questions and congrats on the beat and raise on. I just have a couple of questions here. First off, how well Career Learning is still growing enrollment faster than general education in general education has accelerated and now the growth rates are kind of comparable. Is that how we should think about the growth rates regarding the respective segments going forward?
Comparable growth rates now that you've rolled out Career Learning so significantly?

James Rhyu

Yes. I mean, I think on directionally, that's probably right, Jeff, sorry, Alex, on I think the US, the only maybe distinction really is going to be sort of really on two levels. One is obviously our mix, meaning predominantly our career programs are high school oriented, right? So they're sort of grade mix that shifts we've seen we've seen strength in some of our lower rate programs recently. So some but obviously, that can shift and then and then our schools opening, right. So to the extent that we have new programs opening, we've really tried to make sure that they open with current programs, but there's some dynamics that could maybe make that not as high as even necessarily as we would want, but dumb. But yes, I think that I think that we see that both of those will continue to grow and they're going to continue to have some strong market dynamics for us.
Speaking of opening schools, what's the plan for fiscal 2025? If you could talk about it either in terms of new states or new programs and number of new career learning programs versus number of new general lead programs.

Donna Blackman

So so what I think we laid out as part of our Investor Day back in November is a number of states that we are focused on looking at continuing to tried to expand in the states where we're not currently and to continue to grow programs in states we currently are I don't have anything to announce on today, as you might, as you might recall that when we talked about 2028 guidance, that guidance was not predicated on the fact that we will add new states, but we are certainly having great conversations with states to add new programs. We'll have more to talk about that in Q4 and in Q1, we want to get ahead of ourselves before we have any deal signed.
I also would one thing I'd add is that from the new states versus new programs equation for us sometimes is sort of it's not obvious where the better benefit isn't. Meaning we have some states, for example, where and our programs are pretty restricted in terms of the ability to grow in size and things like that. And so in some of those states that have a lot of demand characteristics, it's actually better for us to open a new program in that state than open up a new state. So it's not that it's not necessarily a trade-off one for the other. It's not a zero-sum game here, but just the opportunities it presents of off often for us, we more aggressively pursue where we think that there is a strong demand characteristics, things like that, that may not be a new state, but actually had better growth opportunity for us.
Well, I will let me I'll add to that. If there are we have a couple of states, we have some we have some caps that we're pushing up on our caps, one of the growth opportunities for us to either have to catch eliminated or have the cash expanded.

Alex Paris

Well, thank you that's the color is helpful. One last question and I'll get back into the queue. It seems like data further up the other income line item is increasing at a pretty rapid rate both in the quarter and year to date. What is in that line, other income and beneath that after operating income.

Donna Blackman

And I'm glad you asked that question because as you know, we generate a lot of cash in the business. And so we're taking that cash and investing it and marketable securities. And so that's what's driving that increase. That's primarily what's sitting in the other income line item. If you look at our cash number, it may be lower than you would expect because we're actually investing that cash. And so you'll see some of that in our marketable securities and short term with assets as well as our long-term assets as well.

Alex Paris

Great. Super helpful. Thank you. I'll get back into the queue.

Operator

Jeff Silber, BMO Capital Markets.

Jeff Silber

Hey, thanks so much. This is Ryan on for Jeff. I just had a question on the funding environment. We saw some data that districts are beginning to cut back on tech spend. Just to get ahead of the cliff in September. I was wondering if you could give any more color on your confidence on the funding environment for next year? Thanks.

James Rhyu

I think there's two separate issues at play here. One is the asset class you referenced and the other is actually just overall funding environment, right? Because the asset class is really a federal government funded program, whereas the baseline funding is largely the state based funding. And those again are two separate things. I think that for sure, districts are feeling on a little bit under pressure because of that federal funding that is that cliff that you mentioned, that's going to go away. And that does, I think on the I think the intent of the funding was always temporary and it was not to be sort of for a lot of structural ongoing costs. I think that every districts made their own sort of decisions for the best, what they thought cited time products for their district. But I do think for a lot of them, they are their structural cost increase and now they're finding themselves having to sort of figure out ways to scale back. I don't think that we are under the same kind of pressure because we have not had it's not that we haven't benefited from. And that funding we have sort of indirectly benefit from some of it, but we haven't taken the same sort of approach maybe to it. And I don't think that we have a cost structure that's going to on that's going to be need to be rightsized because of extra funding going away.
Now, having said that, I think Donna mentioned in her remarks that still means we continue to pursue cost efficiency. We want to run an efficient business here and but those are that's a distinct thing altogether on the funding environment, state level and I think continues to be in line with our expectation, meaning and it's positive. It's trend continue to trend positive. And we think that the funding environment going into next year is it is stable and we will see positive funding increases.
Now how that actually translates to our business next year based off of mix and flow through things like that on, we don't know yet. I think we're going to see a robust strength in our business going into next year on the mix of funding and how that impacts us, you know, I think remains to be seen, but data but sort of whatever is going to be, it'll be I say if it impacts us, it will be somewhat temporary, meaning one you're seeing and then we'll sort of revert to a normalized pattern the year after that. So I'm not too concerned about it, although there's an offer there is a potential for a loop based on mix and things like that, some one-time impact to us. But I don't think as severe as you might the hearing from districts and things like that.

Jeff Silber

Got it. That makes a lot of sense. And then just for the follow-up, and I think you mentioned your app volumes and the conversion rates, we're looking good for the fall cohort. I know it's still kind of early on. Can you give any more color on what's what's driving that success?

James Rhyu

Yes. So I think I think my comments really are focused on if the trends this year continue into next year, this year, we are because of the full cohort seasons barely underway. I mean, there's not really a lot of data yet for that. But the in-ear season that we've seen has been very strong. Our application volumes continued to be strong our conversion rates continue to be strong. And so we do think and we saw this last year, we saw that translate into a good fall season. So we think it is a good early indicator of it translating again into a good fall season on. We are a couple of years ago for those of you who remember, we actually had I would say an operational on not a great operational fall season, and we've worked really hard over the past couple of years to improve that and we continue to improve it. And I think those operational things give us some those improvements in both our application funnel volumes as well as conversion rates. So I think a lot of it is attributed to, I say, our operational improvements that we've made on. And also, I think particularly in the in-ear side of it, the overall market dynamics, which I talked about a little bit as well. I think are strong.

Jeff Silber

Got it. Great quarter. Thank you very much.

James Rhyu

Thanks.

Operator

Greg Parrish, Morgan Stanley.

Greg Parrish

Hey, good evening. Thank you. Jan. second, Mike, congrats on the quarter, very strong results. And so I guess I'll just ask about all enrollments a slightly different way. Maybe just kind of zooming out higher level of sort of long-term financial targets out there kind of imply mid single digits to high single digit enrollment growth sorry, high single digit at the upper bound of your 2020 targets. So that's kind of the framework you have out there. If you think about next year, are there any sort of headwinds through that framework? Where do you expect to kind of growth in the long term framework, sort of knowing what you know now?

James Rhyu

Yes, I think based on what we see from, we don't see a headwind against that framework on. I think it's a really good way to think about it and the way you're framing the question I think is really smart because we are trying to build a long-term growth business here on I know everybody is concerned about the fall. And so we're we're building the long-term engine here for growth. I think that everything we see from a market dynamic perspective and our own operating sort of cadence, if you will, are indicates that we're right within that framework. And we expect I think we expect that dumb, all things being equal, we're going to we're going to continue to execute well against that it.
And if we talk about M&A pipeline, I mean that for the moment, it could you see things ramping up are seeing M&A activity kind of ramp up broadly?

Greg Parrish

And then secondly, and related, maybe kind of update us on new management and the Board's willingness to potentially lever up if the right acquisition target presents itself? Or do you sort of like the sort of very low leverage position that you're in?

Donna Blackman

Yes. So listen, we've always been very active in terms of our on our M&A pipeline on. I've been a little bit more bearish on valuation and on. I continue to be a little bearish on valuation out there on. So I don't think there's anything on the near horizon for us on. Thank you.
If we deploy capital, I want to make sure that we deploy for a good, a good return at a high probability and I think some and I think I just don't see that right now on. I think our Board is going to be supportive of the right strategic deal if that comes along and I think structuring that right strategic deal, if it includes leverage, I think they're going to be supportive of. I think they're probably more focused on ensuring that we make good strategic decisions that are the right long-term in the right long-term interest of our shareholders on. And I think they have a belief that the capital structure we put around pursuing that will have options around probably and you know, and usually we do and we'll we'll trying to find that right mix of options to us to pursue any deal that we need to come up. I personally will tell you that while I'm not a against leverage on and I think that in many instances, it's the right mechanism to do deal on. I probably don't like loading ourselves out with debt. I don't think that's I know that the textbook tells you to have certain amount of turns or whatever. And I'm just probably not as big a believer in having as much leverage as possible in the box. I think where we sit today is pretty good. We have to end the year with it's a few hundred million dollars of net cash on the books. I like that position to be and we've got a maturity here in the next few years that we're going to pay off several hundred, 400 plus million. And I want to be really comfortable. You know, if you've looked over the past 20 years to the credit markets, you know that they can seize up literally in a day. I had the list of a couple of those, and I want to make sure that we're not in a position where we're beholden to capital markets like that.

Greg Parrish

And yes, thanks. That's great color. And then maybe for my last question, sort of odd one, but wanted the right marketing strategy, you're ramping up your campaign for this year. I don't know if you're doing anything differently. I know you talked about this on prior calls prior question excuse me, because there is all lot of improvement last year versus a year prior. So I guess this season, they're kind of running the same game plan that gave you success last year, any material changes.

James Rhyu

And. Yes, so on, I think a little bit of both, meaning that the program that we ran last year was an improvement over the prior year, and we'll continue to do those things. And as it turns out. I think we also have we have sort of a multiyear road map of improvements we think are going to move the needle for us on they require time investment and good execution. We can do them all at once. And so I think we continue to see opportunities to improve our execution, improve the way we draw the funnel in and improve the way we convert the funnel so on. So I actually think there's more headroom to improve. I think the teams laid out a really good roadmap, both of executing against that roadmap. And um, so I actually think that we're not done here. I think we're we've got to we've got a ways to go to that. We can improve improve across the funnel metrics.

Greg Parrish

Great. Thanks and congrats again.

Operator

Tom Singlehurst, Citi.

Thomas Singlehurst

Yes, thank you for taking the question. Tom here from Citi and and a couple of questions, actually, the first one, probably slightly betraying my ignorance, but on Pearson as a competitor has announced a couple of sort of I want to call them contract wins that they've obviously sort of taking over sort of existing sort of virtual school operations. And I'm just wondering whether there are sort of similar opportunities for stride as well, whether that is sort of discrete sort of opportunities to take on sort of additional sort of if you can sort of schools that are already up and running and whether that can be a source of enrollment growth as well over time span. I'd like to give the basic question.
And then the second one is on the technology boot camps piece. I mean, obviously, I suppose the trends. So you're saying they're up a representative of what's being seen sort of across the industry are just interested what, if anything, you're going to do about I mean is it just one of those things where you just need to stick with it and wait for it to work through? Or is there some remedial action and trying to stimulate demand? And any thoughts on on on So when that turns around would be very much appreciated. Thank you.

James Rhyu

Again. Yes. So Tom, let me take that sort of Pearson question first on.
I think the first thing I would say is that maybe this Matt and I maybe I get criticized for saying I'd like so I want Pearson to succeed actually I think it's having a good, healthy, robust competitive market is really good for everybody. I think our education in this country needs that. And so I'm I'm personally rooting for Pearson I hope they hope they continue to have success with their programs on. I'm personally not a fan and again, this is probably maybe not what everybody wants. I'm personally not a fan of some sort of taking over other people's clients unless there's a situation where it's necessary. And I think we're all better off if we grow the pie than trying to split the pie up in more pieces. I think our approach largely focuses on growing the pie. And I think and again, I think our education system is need. So I think for if we're all trying to fight over the breadcrumbs here, then I think we're not doing what's best for the marketplace and we're not doing what's best for each other on having said that, if you know, if if that's the game that everybody is going to play, then of course, going to play that game and we're going to play to win but my preference is to grow the pie on eye on. I know that Pearson's, we lost some contracts and of course, they've got a business to run and they need to find ways to sort of get that growth back and on. So I respect whatever they think they need to do to do that on. But but I don't see that right now as as necessary for a path for us to continue to grow the way we've been growing. I think as Dan had mentioned earlier, our plans are not contingent on new states. They're also not contingent on winning contracts from competitors or others. So I think we feel pretty good about our plans to hit our long range targets without having to resort to those tactics as far as the to Cameco. And I think, yes, the the overall market, you know, what we're experiencing is indicative of what's happening in the overall market on I think it's changing pretty quickly in the sense that, you know, people are learning about how AI is going to impact things pretty quickly here. I think people are realized by the way how expensive, hey, I can be building a large language model can be pretty expensive. I think we are on trying to take a very foundational approach to investing appropriately but investing for outcome, investing for return, investing for our customers. It does not mean I think from having, you know, a splashy announcements around a I don't think that's the right strategy for us. I think those splashy announcements have hurt detect boot camp space a little bit on because of the promise of what I might be able to do and how it might hurt that industry. I think what we're finding as time goes on is that there will be a place there is a place for our skills training broadly specifically skills training in the tech space. And I think that the boot camp type of approach has a place long term for that skills training in the technology space on I think we're seeing now on the corporates side of it space, the B2B side on some interesting opportunities. I think people are realizing that the technology landscape in terms of development is not going to probably turn on a dime. I think the biggest technology companies have very significant competitive advantage there. I think the rest of the world, as you know on is going to be a little bit of a slower slower migration path on the war for tech talent, I think continues to be very, very challenging. I think the migration to technology talent to AI is creating some opportunities. So I guess in short, I would say that the I think that there is a turnaround here. I don't know that I could predict that is going to happen next year and per se. But I think there's a long-term strategy for growth here that does that we see and that we think we can take advantage of That's very clear.

Operator

(Operator Instructions) Stephen Sheldon, William Blair.

Stephen Sheldon

Hey, James and Donna you have met file again for Stephen Sheldon. Congrats on the nice quarter and thank you for taking my questions. To start off, can you provide an update on tutoring and share some thoughts on when tutoring might become more material to the story?

James Rhyu

Yes.
I think on So our approach to tutoring is sort of twofold on our I'll say, more traditional tutoring solution, which is the and for us is actually, I think, still somewhat distinguished in the marketplace in the sense that our traditional tuner solution is it's an online solution that use is state certified teachers on and and we see now a number of states putting money behind those types of programs on. And I think that we are getting some decent traction there. We've won a number of new clients there. I don't think it's going to be in the next year or so. It's going to become material to a our $2 billion plus revenue line, but I think it has the potential to be a significant contributor over time on. And we've seen we saw some good growth this year. We see some good contracts coming up for next year. And then we're getting really good customer feedback on and on. I also think the competitive landscape for it and is evolving a little bit in the sense that you see some new players coming in with AI products?
I think we have yet to see a product in the tutoring space on really hit the mark if you will on that's the other pillar for us.
We are also looking at how we can deploy some of our content in an AI tool using a small language model that's proprietary that we think we can augment our tutoring offering with ARM. I think that we see what our clients saying is that some of the quality of the products in the marketplace are forcing us from some of the districts to go out for bid. There are some concerns, I think, with some some companies that have, whether it's foreign ownership or whatever. And I think we're seeing some of that. So I think that we're seeing opportunity there as well. So I think for us, tutoring is a good long-term opportunity in both the traditional sense and sort of a new technology innovative way, and we will continue to do pursue and invest in it.

Stephen Sheldon

Got it. That's helpful. Great to hear the initial traction has been strong. Just as a quick follow-up to that, though, can you remind us your plans on delivering the tutoring services to non Stride students? Is that something that students would come directly to strive for? Or could those tutoring services possibly be delivered through integrating with a learning management system or something like that?

James Rhyu

Yes, it's a great question. So our service is delivered directly right now to consumers and through districts on the integration with a learning management type system or some some back office type of system is on I think it's definitely something that we would like to pursue on. We've got nothing to announce right now, but it's definitely that's something that we think is a compelling proposition on. But but again, I think it is also on the I think what's in the news tends to focus a little bit more around the AI. prospects around that. And Tom, I think we just got to be careful about the word. I think we've got to be on deliberate about how those things get rolled out and work meet. Others is concerned. I think from student privacy. There's just there's concerns about around who's nations as concerns around the language model that can actually provide the right algorithm to learn from them. The interactions that are happening and so I think we just got to proceed cautiously.

Stephen Sheldon

Got it. That's helpful. Thank you, James.

Operator

And with that, that concludes today's presentation. Thank you for your participation today, and everyone may now disconnect.