Aug 8, 2017
Operator
Good day ladies and gentlemen, and welcome to 2U, Inc. 2017 Second Quarter Earnings Conference Call.
Currently at this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.
[Operator Instructions] Also as a reminder, this conference call is being recorded. I would now like to turn the call over to your host to Ed Goodwin, VP, Investor Relations.
Sir, you may begin.
Ed Goodwin
Thank you, operator. Good afternoon everyone, and welcome to 2U's second quarter 2017 earnings conference call.
By now, you should have received a copy of the earnings release for the company's second quarter 2017 results. If you have not, a copy is available on our website, investor.2u.com.
The recorded webcast of this call will be available in the Investor Relations section of our website. Also, we routinely post announcements and information on our website, which we encourage you to access and make use of.
Today's speakers are Christopher -- Chip Paucek, CEO and Co-Founder; and Cathy Graham, CFO. During today's call, we may make forward-looking statements, including statements regarding the company's future financial and operating results, future market conditions, and the plans and objectives of management for future operations.
These forward-looking statements are not historical facts but rather are based on our current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements is subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results anticipated by these forward-looking statements.
This includes, but is not limited to, those risks contained in the Risk Factors section of the company's Annual Report on Form 10-K for the year ended December 31st, 2016 and other reports filed with the SEC. All information provided in this call is as of today.
Except as required by law, we undertake no obligation to update publicly any forward-looking statements made on this call to conform to statements or actual results or changes in our expectations. Also, it is 2U's policy not to update our financial guidance other than in public communications.
Non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release. I would now like to turn the call over to Chip.
Chip Paucek
Thanks Ed. We've been on a great run since we last spoke to all of you, 2U is firing on all cylinders and that feels great.
We're eliminating the back row in higher education and doing it now on a global basis. With the addition of GetSmarter, the scope of our opportunity is now larger, more on that later.
This has been, without question, one of the most active and exciting periods in our nearly 10-year history. From a financial standpoint, in Q2, we had another great quarter.
We had a solid beat on the topline. Revenue came in at $65 million, a 32% improvement year-over-year.
We had another adjusted EBITDA beat with an adjusted EBITDA loss of $1.5 million and improvement of approximately two percentage points in margin year-over-year. And as you know, on July 1st, we closed our acquisition of GetSmarter, which means that our guidance now includes the impact of that business.
So, looking forward, we expect $282.7 million to $285.7 million in full year 2017 revenue, which would mean at the midpoint of the range, revenue growth of 38% year-over-year. We've also had some pretty impressive developments in our core domestic graduate program business since we last spoke.
Our existing partners continue to deepen their relationships with 2U. The George Washington University extended two contracts, each to 2034, when my son will be 30 years old.
This includes MPH@GW, which was number five on our top -- on our annual top 10 list of new student enrollments for 2016. In total, we've now extended the contracts for seven of our first 11 programs.
Our next contract is not up for renewal until 2021, four years from now. One of our original partners, the University of North Carolina at Chapel Hill, had a third school announce a program with 2U.
The Gillings School of Global Public Health, the second ranked school of public health in the country according to U.S. News & World Report, will launch MPH@UNC, which includes a suite of degrees in the public health vertical.
We also previously announced three new partners, Fordham University, Rice University and, as you heard this morning, Harvard University. Let's touch on the Harvard relationship for a minute.
The Harvard Business Analytics Program is groundbreaking in a bunch of ways. It's an intense, cross-disciplinary new offering from a school founded in 1636.
The field of Business Analytics is new and totally responsive to the needs of the workforce of the future. The offering of a complex, blended certificate is new, and it's a team effort led by Harvard Business School along with the John A.
Paulson School of Engineering and Applied Sciences as well as the Faculty of Arts and Sciences, all blessed by the central administration. And it's powered by an external company that's 10 years old.
This was really hard to pull off. The Harvard Business Analytics Program will match the same high-quality and rigorous standards of the other campus-based HBS executive education offerings.
Harvard Business School has a rich history of offering long, intensive executive certification programs. Unlike most other business schools, HBS offers only one Master's Degree, it's MBA.
Its executive certificate programs are designed like many degree programs and aim to offer the types of life-changing outcomes one gets by earning a degree. The program has all of the hallmarks of a 2U program.
It's Harvard's faculty and curriculum, there will be weekly live classes, and students will participate in two on-campus learning experiences at HBS' campus in Cambridge. The impact and value of the program is clear.
You will become a leader in Business Analytics and you'll have Harvard on your resume. A few things to highlight from a business standpoint.
First, we believe that certificates, short or long, will be part of our story, as indicated by our acquisition of GetSmarter. The Harvard Business Analytics Program is the DGP within the business vertical.
Remember, DGP is a financial term. The length; tuition level, which in this case is $50,000 and contract terms are all in the ranges of a typical 2U program.
Therefore, we believe it will have the financial characteristics of a typical DGP. And working with one of the best known brands in higher education should have a great impact on the prospect generation we can apply to our MPV strategy.
Elite institutions continue to choose 2U. In fact, we're now partnered with half of the top 20 national universities, as ranked by U.S.
News. Wow, how about that, half.
And that doesn't include Oxford, Cambridge and LSE. But we aren't quite done with the announcements for the day.
I have two more DGPs to share with you right now. First, I'm excited to say that we're expanding our speech pathology vertical with a new partner, Emerson College.
The Speech@Emerson program is expected to launch in September 2018, pending faculty and accreditation approvals. This will be our second DGP in this rapidly growing field.
Located in Boston, Emerson is a top 20 speech and language pathology program and we're extremely proud to call them a partner. Second, I'm very pleased to announce that we're expanding our relationship with the University of Dayton to include their School of Education and Health Sciences.
This DGP will include a suite of degrees in the education and behavioral science verticals, with the first expected in the spring of 2018. It was just over a year ago that we extended our contract with USC Rossier to eliminate exclusivity in the education vertical.
Now we have education DGPs in each of the four regions of the U.S.; the East Coast, South, Midwest and West Coast. Looks like a pretty smart move to me.
I love that since the last time spoke, we've added rams, lions, owls, and crimson to our portfolio. An update on existing partnership because I know you're going to ask.
The Yale PA Program is moving along in its accreditation process. Yale recently took a step forward on its path by successfully completing its site visit with RPA, the accreditor for the potential program.
This is an important step in most accreditation processes. Remember, this is not our process.
It's Yale's. So, we must be very thoughtful in our comments here.
We'll keep you posted, but we'll also remind you we're not relying on it to hit our target. So, for those of you keeping score, we've now slotted 12 DGPs in 2018.
This is one shy of meeting our launch target of 13 new DGPs, and that doesn't include Yale PA. If Yale launches in 2018, it would make it 13, but we have others close enough to fill that spot.
And for context on how impressive this is, we didn't announce the last of our 2017 launch schedule until the first quarter of 2017. Andrew Hermalyn and the new partnerships team are finalizing the 13th DGP for 2018, and we're very close.
Because of this, we're now actively recruiting for 2019 and 2020. We've simply never been this far along in pipeline pacing.
So, why does this matter? While we're getting more and more confident in our long-term pipeline cadence, these are targets we believe we can make.
So, why does that matter? Well, our long-term confidence in 30-plus percent revenue growth for the foreseeable future continues to increase.
We really like where we are. Now, while pipeline is accelerated, keep in mind that the step-up in program launches really only began this year when we jumped from six to 10 new programs.
So, this all takes time to show up in our revenues. While we could see an upward inflection in revenue growth rate a couple of years out, you should not expect that impact right away.
So, hold your jets a bit on that. Regardless, the progress is excellent.
And we have one negative note to discuss for the DGP business. And as you know, we don't shy away from bad news.
Everyone knows that the possible Syracuse Law program we've been working on had its request for variance denied by the ABA, the accreditor of that program. Well, after much discussion, we decided to cancel that contract with Syracuse.
Our relationship with the university remains spectacular, but it became very apparent that the law school's appetite for dealing with the ABA on something scalable, once the denial came through, wasn't really there. So, we're moving on.
We're discussing this opportunity with some of our other partners. For now, JD is off the books.
But just like we told you when we announced it, we haven't relied on it. I still believe that this vertical and others that are complicated will be part of our future, but change is hard and some will be harder on others.
You can't win them all. It takes patience.
We do intend to address the JD vertical longer term. Moving on now to the acquisition of GetSmarter.
We're big believers in the power of the degree and its ability to deliver life-changing outcomes. We've got the runway to prove it, but this is a story of and, not or.
Not everyone can afford a degree or has the time to complete a degree or a long certificate, and there are people that need to close targeted skills gaps. With GetSmarter, we now have the ability to offer high-quality short courses to meet the needs of these students.
Strategically, we love how this complements our core business. We now have a product offering that attracts students not looking for full graduate programs and it provides a better product market fit for international students.
And GetSmarter's partners are truly legendary. Look who they signed since we announced the acquisition; the London School of Economics and University of Oxford.
With LSE and Oxford, GetSmarter is now offering short courses through three of the top universities in the U.K., three of the top universities in the U.S., and three of the top universities in Africa. Think about that.
One of my favorite phrases is appropriate here, boom. We remain excited about the potential synergies between our businesses.
We expect significant cross-selling opportunities in our MPV strategy. Course selection algorithm, anyone?
Probably most importantly, we've seen great traction with both companies' client bases. More on that in future periods.
But suffice it to say, the combination further solidifies our position as the leader in helping universities cross the bridge to digital transformation. We firmly believe that we'll be a better business together for our partners and their students.
While we're excited about our future, I'd ask you to please not get ahead of us with near-term expectation. GetSmarter is in a much earlier stage in their evolution.
Practically every client they have is super new except for University of Cape Town and there'll be much more enrollment variability and brand new courses. They don't have the type of data architecture and analytics that we have, on top of which the short course business is inherently less predictable than our DGP business.
While GetSmarter's business is accelerating, it's very, very early in its client adoption and course roll-out. Cathy will give you some additional color on how to think about GetSmarter, but I want to call your attention to an opportunity to learn more.
On October 5th, we'll host Investor Day at our headquarters in Lanham, Maryland. The GetSmarter leadership team will be there from South Africa to discuss the business they've built, the short course market, and the impact these courses will have on student lives.
Please save the date and look for a formal invitation in the near future. Now, I'm going to pass it to the best CFO in show business for a further discussion of our financial results.
Cathy Graham
Thanks Chip. 2U's trend of strong financial performance continued in the second quarter.
Revenue came in nicely ahead of guidance, and that, along with continuing efficiencies, produced higher than anticipated adjusted net income and adjusted EBITDA. At $65 million, second quarter revenue exceeded the comparable 2016 period by 32%.
Revenue growth was once again driven primarily by an increase in full course equivalent. Compared to the prior year period, second quarter FCEs increased by 27%, while average revenue per FCE increased by 4%.
Other earnings measure, GAAP net loss was larger than forecasted solely because of a onetime $1 million foreign currency loss we recognized as a part of moving almost $95 million funds to South Africa, converting them to rand and delivering them to the sellers on the July 1st closing date. The purchase price for GetSmarter was set in U.S.
dollars. So, any impact of exchange rate fluctuation was actually borne by the sellers.
For us, this was a timing-related book loss only and it did not impact the actual price we paid or cash we distributed for GetSmarter. At $11.8 million, second quarter net loss widened year-over-year by $3.4 million due to the acquisition-related foreign currency loss and expected increases in both stock-based compensation expense and depreciation and amortization expense.
As we have said previously, we're in the fourth year of moving to an annual equity grant cycle with four-year vesting. So, year-over-year stock-based compensation increases remain higher than would be expected once that vesting cycle anniversary is lapped.
Also, you'll recall that we told you to expect an accelerated rate of increase in depreciation and amortization expense for 2017 related to the build-out of our Maryland headquarters, the New York offices we expect to occupy later this year and additional floors in our Denver facility. Year-over-year, second quarter net loss margin declined by one percentage point to 18%, but without the recognition of book-only foreign currency loss, however, net loss margin for the quarter would have improved by approximately one percentage point from the prior year period to 16%.
We do not anticipate exchange rate fluctuation impacts going forward that are near the magnitude of the acquisition-related book loss we recognized in the second quarter. It should be extremely rare that we're holding such a large amount of cash in a currency other than the U.S.
dollar. However, we will continue to have much smaller exchange rate impact related to our ownership of GetSmarter, which are both difficult to forecast and could make period-to-period comparisons of our earnings measures difficult.
Recognizing this and beginning with this second quarter, we have amended our definitions of adjusted net income or loss and adjusted EBITDA, whether positive or negative, to exclude foreign currency gains or losses in addition to the other items we typically exclude. On this basis, after adjusted for -- adjusting for the foreign currency loss and for $5.5 million in non-cash stock-based compensation expense, second quarter adjusted net loss was $5.2 million or 8% of revenue.
This represented a year-over-year widening of adjusted net loss by approximately $850,000, driven by the expected increases in depreciation and amortization expense. On a margin basis, however, second quarter adjusted net loss margin improved year-over-year by one percentage point.
Adjusted EBITDA loss for the second quarter showed both year-over-year dollar and margin improvement. At $1.5 million and a negative 2% margin, adjusted EBITDA loss improved by approximately $600,000 and two percentage points over the prior year period.
From a balance sheet perspective, we ended the second quarter with $138.4 million in cash, $101 million of which was committed to, and subsequently used for the GetSmarter acquisition. We also had $23.4 million in receivables.
As we have said previously, we do intend to access the capital markets to replenish cash at some point in future. Also, for the first time, you'll see debt on our balance sheet.
In conjunction with occupying our new headquarters building, we received $3.5 million in state and county incentives in the form of forgivable loans. These loans, along with any accrued interest on them, will be forgiven if we hit certain job growth targets over multiple years and otherwise comply with the terms of the respective loan agreements.
Now, as you know, we announced our agreement to acquire GetSmarter in early May, and the transaction closed on July 1st. We have, therefore, included our expectations for this new short course business in guidance for both the third quarter and full year 2017.
Before we get to those details, however, I'd like to remind you of the model and economics underlying our new short course business. I'll also give you some insight into how the GetSmarter economics compare with the economics of our DGP business and tell you how we intend to talk about our expectations for the expanded 2U going forward.
Our new GetSmarter subsidiary creates courses with leading university partners in the U.S., U.K., and South Africa and offers them directly to students around the globe. These courses are priced in the currency of the partner university, and per course prices currently average around $2,500 for U.S.
and U.K. based courses and $1,000 for South Africa-based courses.
These courses were offered largely in partnership with South African universities through mid-2016 when GetSmarter began its expansion into U.S. and U.K.
universities. Partnerships with U.S.
and U.K. universities continue to materialize, and we expect course offerings with these universities to make up an increasing percentage of GetSmarter revenue.
So, you can better understand this change in course mix over time, we intend to provide full course equivalent and average revenue per FCE for the short course business just as we do for the DGP business. As in the DGP business, our GetSmarter business share tuition with university partners.
This revenue share is accounted for differently between the two business lines, however. In our DGP business, students enroll with and pay tuition to our university partners.
The universities then pay us our percentage share and we recognize only that share as revenue. In our GetSmarter business, students enroll with and pay tuition directly to GetSmarter, and we recognize the full amount as revenue.
We then pay the university partners their share upon course completion and this expense will make up the first part of a new cost line on our P&L called curriculum and teaching. Revenue share percentages in the GetSmarter business are generally in the range of what we have typically received under our DGP agreement to somewhat better.
One reason that our short course business can command a better revenue share is that GetSmarter compensates the university-approved course tutors who interact directly with students during these short courses. Therefore, GetSmarter bears teaching cost that are -- in our DGP business, are borne by the University.
This teaching cost will make up the second part of our new curriculum and teaching cost category. Beyond teaching, the services we provide around these short courses largely parallel what we provide in our DGP business, so course creation, technology platform, student acquisition, and student support.
However, you should think of the timeframes around and economic life cycle of these courses as being significantly shorter than for our DGPs. While, for DGP, it takes an average of seven months from our first contact with the student until they are seated in their first class, GetSmarter students are generally taking their courses within a month.
And where our degree program generally takes two or more years to complete, GetSmarter courses average 10 weeks in length. The shorter cycle of investment to recovery means that short courses do not require the substantial investment over a multiyear period that characterizes the early years of DGP, and therefore, achieve profitability more quickly.
Given the shorter economic cycle -- life cycle of the GetSmarter business, however, we will not generate the revenue backlog from short courses the way we do from DGPs. Historically, a significant portion of 2U revenue in current and upcoming periods has been related to students already enrolled in existing programs, making revenue very predictable.
By definition, the short course business has no carryover revenue from existing students from one presentation of a course to another. So, it does not have the same enrollment and revenue predictability.
Fortunately, enrollment patterns generally become more stable and predictable within the first few course presentations. So, we expect revenue visibility to improve as the short course business grows and matures.
In addition, our data sophistication should be able to assist in short course predictability overall. While the GetSmarter business is in this expansion phase where a large percentage of revenue is from first and second course presentations, you will note that we have widened our guidance ranges to account for the added variability.
We will be providing guidance from this point forward on a consolidated basis. We will call out business drivers or other pieces of information applying specifically to either the DGP or short course businesses when we believe it is useful to your understanding of a trend or expectation, but we will not provide separate guidance for our two business lines.
We are net -- with that background, let's review our guidance, and I'll also give you some context around how we've incorporated GetSmarter into our expectations for the combined company. We are now expecting revenue of between $282.7 million and $285.7 million for the full year, which, at the midpoint, implies 38% year-over-year growth.
If you think of our prior guidance updated for second quarter results as a baseline, the majority of the increase from that to our new guidance is related to GetSmarter. By this point in the middle of the year, we have significant visibility into our DGP revenue stream for the remainder of the year and do not expect material upward adjustments to guidance related to that business.
For the incremental GetSmarter expectations, there are a couple of things I want to point o.t; First, our implied guidance for the second half short course business -- short course revenue includes the expectations that approximately $700,000 of GetSmarter's deferred revenue balance at June 30th will be eliminated in purchase accounting and will never run through the P&L. GetSmarter would have recognized this revenue as a standalone company.
So, you should consider this amount when thinking about the size of the short course business and the trajectory of revenue moving into 2018. A second observation is that a significant majority of expected second half GetSmarter revenue is related to new courses, with new university partners being launched in the late third and early fourth quarters.
By definition, the first presentations of new courses have the least certainty around student enrollment, and therefore, revenue. So, with regard to the implied second half revenue for our short course business, I would caution you to give us some room to see the results of this early course presentation.
Don't immediately assume that results will come in at the top end of the range. For the third quarter, we now expect revenue of between $68.8 million and $69.8 million, which, at the midpoint, represents a 33% year-over-year improvement over third quarter of 2016.
Note that the purchase accounting-related reduction in revenue I referred to earlier is entirely a reduction to third quarter revenue. With a 10-week average course length, all deferred revenue on the balance sheet at June 30th, should have been recognized by the end of the third quarter and will not affect revenue recognition in any subsequent periods.
Now, by definition, when we give third quarter guidance, we also give implied guidance for fourth quarter. One comment I would make to help you better understand the pattern of revenue between the two quarters is that GetSmarter has a large number of courses being offered for the first time beginning in late third and early fourth quarters.
As a result, we expect that short course revenue in the fourth quarter should more than double compared to third quarter results. You should use this fourth quarter as a baseline for developing your thoughts around 2018.
Also, with regard to GetSmarter revenue, I would caution you against trying to construct a pattern of seasonality for this business based on information from GetSmarter financial statements, our pro forma statement and this guidance. First, the U.S.
and U.K. university portion of the GetSmarter business is only about a year old.
So no pattern would be reliable. And second, because of negotiations to move the oversight of certain courses either within or between universities, two popular courses that were offered in the second half of 2016 were not offered in the first half of 2017.
These courses are being relaunched in the -- later in 2017, but this hiatus resulted in first half 2017 revenue that was less than revenue for the second half of 2016. While we do expect some seasonality in the short course business and we'll give you more direction when we provide a first look at 2018 with our third quarter results, we do not expect the pattern of the last year to repeat itself.
Now, before we discuss our specific earnings expectations, I'd like to remind you of several items that will affect how we calculate or what is included in one or more of the measures in the guidance we've presented. First, as there are no cost reductions associated with the approximately $700,000 purchase accounting-related reduction in revenue in the third quarter, this entire amount will impact all of our earnings measures for both third quarter and full year 2017.
Second, to aid in period-to-period comparability following the acquisition of GetSmarter, we are amending our definitions of adjusted net income or loss and adjusted EBITDA, whether positive or negative, to exclude foreign currency gains or losses. Third, and also for purposes of period-to-period comparability, we will further exclude from these measures gains or losses we may recognize specifically related to expected or actual adjustments in purchase price and any other transaction-related adjustment.
This could include any earn-out adjustments which would occur between October 1st, 2017 and December 31st, 2018. Fourth, as a part of the GetSmarter acquisition, we agreed to provide members of the GetSmarter management team with initial equity grants under our equity compensation plan and expect to add them to our normal equity compensation framework.
Initial grants were made upon acquisition, and in some cases, the initial grant amounts were divided to be granted partially at acquisition and partially upon the first anniversary of the acquisition. These grants vest over periods of two to four years and the related additional stock compensation expense will impact net loss.
And finally, as I said when I was talking about revenue, a disproportionate amount of GetSmarter's financial results for the remainder of the year will be related to new courses at new university partners. The higher level of uncertainty around the resulting revenue could clearly impact earnings measures as well.
Please give us some time to see how these early course presentations will perform and don't immediately assume that near-term earnings results will come in at the top end of the range. Looking at earnings measures, we now expect adjusted EBITDA for full year 2017 of between $10.3 million and $11.2 million.
As with revenue, a good way to think of the impact that GetSmarter has on our expectation is to start by thinking about prior guidance updated for second quarter results as a baseline. The visibility we have in our DGP business by this point in the year would have cost us to provide a meaningful increase to our full year adjusted EBITDA expectations if we have been guiding on a legacy 2U basis only.
With the addition of GetSmarter, we now believe that a substantial majority of the increased adjusted EBITDA expectations on our DGP business will go to offset the loss earnings created by the approximately $700,000 purchase accounting-related reduction in revenue. For the third quarter, we now expect an adjusted EBITDA loss of between $4.1 million and $3.7 million.
We expect that our DGP business will remain adjusted EBITDA positive, but on a consolidated basis, we will cover losses related to the acquisition and operation of our short course business. In addition to the purchase accounting impact to our earnings measures described previously, GetSmarter is now marketing heavily for new course presentations that begin in late third and early fourth quarters.
Enrollments generated by this marketing will have little impact on third quarter revenue, but drive substantially higher revenue in the fourth quarter. As you can see from our implied fourth quarter expectations, we expect to return to adjusted EBITDA profitability in the fourth quarter.
With respect to our DGP business, I want to remind you that our patterns have not changed. We typically experience material cost seasonality in the fourth quarter related to a reduction in our marketing activities during the year-end holiday periods.
Our margin increases during this period -- our margins increase during this period, so fourth quarter margin should not be viewed as a run rate going into the early quarters of 2018. We now expect an adjusted net loss of between $9.1 million and $8.2 million for the full year and between $9.9 million and $9.5 million for the third quarter.
And moving from adjusted EBITDA gain or loss to adjusted net loss, the difference is the add-back of depreciation and amortization expense. As in the legacy 2U, GetSmarter capitalizes certain technology and content development cost and expenses them over their useful life.
The expense related to these capitalized assets is currently not material. However, we will now be recognizing additional amortization expense related to inquired intangible assets, which we expect to be approximately $1.7 million per quarter or $3.4 million for the remainder of 2017.
You should consider this amount in your long-term adjusted net loss expectation. With the addition of GetSmarter, we are now guiding to a net loss of between $32.1 million and $31 million for the full year and between $16.3 million and $15.8 million for the third quarter.
These loss expectations have expanded relative to our prior guidance in part because net loss captures the effect of all acquisition-related expenses and impacts, including the $1 million book-only foreign currency loss we recognized in the second quarter. The equity grants we have made and will make to GetSmarter management create a permanent step-up in our base level of stock-based compensation expense that should be considered in your long-term net loss expectations.
Further, other acquisition-related transaction losses, if any, could negatively impact net loss in subsequent periods. And with that, I'm tired of talking and you must be tired of listening to me.
I know I've given you a lot of detailed information today and you'll undoubtedly have to look back at the transcript, but I hope it will help you develop good understanding of how the combined business should look financially. And with all of the level-setting now out of the way, I'm looking forward to being able to talk more about the exciting opportunity we see in this business combination as we move through the next few quarters.
Chip?
Chip Paucek
Thanks Cathy. I always close with a story about our business.
This time, I simply leave you with five dates; 1096, 1209, 1636, 1701, and 2008. I just gave you the founding dates for the following institutions; Oxford, Cambridge, Harvard, Yale, and 2U.
No back row, indeed. And with that, I'm open to receive your questions.
Operator
Thank you. [Operator Instructions] Our first question comes from Michael Nemeroff of Credit Suisse.
Your questions please.
Michael Nemeroff
Hey guys. Thanks for taking my questions and congratulations on a good quarter.
Chip, I was wondering if you could just maybe go into a little bit more detail about Harvard, how long it took, how long you've been working on that. And it looked like a certificate course based on the commentary and the press release this morning.
So maybe you could touch on that as well. And then also, you mentioned a couple of renewals.
Maybe you can give us a sense on how the economics have changed on the renewals on average for those that have renewed? And then for Cathy, thank god for transcription services, right.
If you could maybe give us a sense of the numbers on GetSmarter, maybe full-time course equivalent and the revenue full course equivalent so we can just kind of baseline from this quarter going forward. Thanks.
Chip Paucek
Thanks Michael. So, first, on Harvard, we've been working on it a long time and we've been talking to Harvard for substantially longer than we were talking to GetSmarter.
I mean, ironically, you may know that GetSmarter occurred in part because I saw an ad for one of their courses and then things went reasonably quickly. We were not out looking to acquire a company, but it became something we couldn't pass up.
And so we have been talking to Harvard about this, that it's clearly DGP regardless of it being a certificate so for some time. So, a couple of comments.
First, we do have a certificate in our business elsewhere with UNC, at Chapel Hill. This is a DGP because that's a financial term, and this looks very similar to what we would launch with our degree programs.
And Harvard has one degree program, the MBA, and that's not this. But they recognize the power of business analytics, and it turned into a great bit opportunity once they became convinced that quality would be there.
This is really a story of Harvard doing a lot of work, candidly, to determine that they really believed in our quality. And that makes me extremely proud because it's Harvard.
So, they liked the concept pretty early on. So, it's been a couple of years.
I got to know a particular faculty member there named Bharat Anand that actually had created their HBX platform, and we became friends. And it just turned into a longer conversation, eventually led to the Dean, Nitin Nohria, and here we are.
So, while it isn't certificate, it's long, much longer than a GetSmarter course. A GetSmarter course is, let's say, $2,400.
This is a $50,000 program and it looks exactly like they're very rich Exec Ed program, super intense, high quality, great faculty, so on and so forth. So, I've been working on a long time and thrilled to be able to bring it to the table here.
Cathy Graham
All right. With regard to your question about FCEs and average revenue per FCE, we actually chose not to provide the metrics for the period that we did not own them or forecast them for one specific reason.
And that's given that the revenue pattern that I talked about in my prepared remarks about not running certain courses from the end of -- in the first half of 2017 that they ran in the second half of 2016, the pattern is -- the numbers would actually not be significantly relevant to what you're going to see in the third quarter, but more so in fourth quarter. So, what you would see now is an average revenue per weighted closer to the South African pricing, which is closer to $1,000 per course and you would -- by the time you get to fourth quarter, you're going to see that move more towards the international pricing.
So, for the moment, this is part of the reason that we gave you the guidance of talking about how we expect revenue in the fourth quarter to relate to revenue in the third quarter, and we think for the moment you should use that.
Chip Paucek
I mean, Michael, I can comment on the renewals just -- well, we were super excited to get that GW renewal done. 2034 is a long time, and we can't talk about the individual components of any of them.
They are all different, but it stayed within the typical 2U revenue share range. So, I do think -- the reason we hit Rossier and the extension we did there in the script is when we do these, sometimes, we get a lot of questions about it.
And every time we've done it, it's been not only worth it for simply the renewal length, but even more work than in terms of what it does for us in the vertical. So, Rossier, we now have four programs across the country.
And we also just announced the Gillings School of Public Health at UNC, our second public health program, so within the range of 2U. And then one final comment for the rest of the group that's on the phone, just to make sure we know, we have a lot to say here, and it's pretty dense.
So, we're going to let the call go well after 5 o'clock until questions are done.
Michael Nemeroff
Great. Thanks for taking my questions guys.
Ed Goodwin
It's 6 o'clock.
Chip Paucek
It's 6 o'clock. You know what I meant.
Operator
Thank you. Our next question comes from Tom Singlehurst of Citi.
TomSinglehurst
Yes, good afternoon. It's Tom here from Citigroup.
So, a couple of questions. To give the basic measure of them, but I just wanted to circle back on the guidance.
On the revenue side, obviously, a relatively significant uplift, but -- so I wanted to clarify. I think -- did you say the majority of it or all of it was the impact of GetSmarter, i.e.
is there any sort of change on an underlying basis? And then briefly on the net income, I know the net income guidance is mildly down.
I just want to disentangle the impact of the slightly higher stock compensation expense because I vaguely remember you indicating that the GetSmarter transaction, initially at least, is anticipated to be sort of net income neutral. So, just a couple of questions there.
And then a very quick follow-up on the seasonality of the core to the DGP activities. I noticed that [Indiscernible] KPIs, the full course equivalent enrollments were up in the second quarter, but not half of as much in previous years.
I was just wondering whether you could just talk to any seasonality on the core business and whether there's anything unusual happening in 2017. Thank you.
Cathy Graham
So, nice to meet you, Tom, and-
Chip Paucek
Welcome to the party.
Cathy Graham
Welcome to the party, exactly. So, let me address the first couple here.
On revenue, as we said, at this point, visibility in our DGP business for the rest of the year is really high. So, we would not expect to give significant bump-ups from our last guidance, the last guidance that we gave in the first quarter.
It is -- if you think about sort of our first guidance plus second quarter performance as being the baseline, the vast majority of the increase is related to GetSmarter. So, if you think first quarter guidance plus second quarter performance, most of the increase from there is related to GetSmarter.
On the net income line, the net income line is actually down -- has expanded, has widened from our past guidance, and there's a few reasons here. First of all, in -- for the year, we're running that book-only net loss of about $1 million through that.
It is also feeling the impact of the $700,000 worth of revenue that drops immediately to the bottom-line because it's being eliminated in purchase accounting. But more -- I think the big two items are depreciation and amortization and our -- and stock compensation.
So, if you look at adjusted EBITDA, what you see is that adjusted EBITDA is relatively in the range of what you would have -- what our last guidance was adjusted for what our second quarter performance was. So, what we've said here is that if you take about -- if you take the fact that we would have given you on our core business quite a step-up, most of that is going to cover that $700,000 loss in revenue in the third quarter that falls to the bottom-line.
So, if you think of that as being neutral to slightly up after that fact, so on sort of a business operating basis kind of neutral to our -- neutral to slightly up for our performance for the year, the difference in going to adjusted net loss is about $3.4 million in widening of our guidance, which is the fact that purchase accounting is giving us about $1.7 million in additional amortization of acquired intangible assets each quarter. So, that is moving from adjusted EBITDA to adjusted net income.
And then in going to net income, the additional items that we are adding there are primarily stock compensation expense and all of the things that are not eliminated in our adjusted metrics. Does that help?
Tom Singlehurst
That's perfect. That's super clear.
And the -- I would say I might be just -- I'm new to this, as you know, but any sort of strong take on the sort of seasonality of full course equivalent enrollments and revenue sort of 2Q or 1Q, was 2017 unusual in any way -- or has 2017 been unusual in any way?
Cathy Graham
So, on the core businesses, FCEs and average revenue per FCE, we saw growth in FCEs below 30%, at around 27% this quarter. We've seen growth of FCEs below 30% twice before since we went public.
It is largely timing related and doesn't really have a whole lot to do with what revenue growth is in that quarter or is going to be in that quarter over -- on a year-over-year basis. The step-up of four percentage points in average revenue per FCE on a year-over-year basis is related to probably two things.
The first one is that in one of our programs, we saw two things happen; one, they had a pretty significant tuition increase, and this is a fairly large program. They had a pretty significant tuition increase.
And also, just because of where timing is in terms of students flowing through the program, students are taking more expensive courses. There are more credits in those courses so that they are more expensive.
The second piece of it is related to last year, at this time, we actually had a -- we had to establish a bad debt reserve for student bad debt on one of our larger programs. So, it was a one-time thing that happened in 2016.
So, it's kind of a step-up that is a little bit fallacious in that regard. What I would suggest for you to think about is that if you look sequentially, the average revenue per FCE on the core DGP business is pretty flat sequentially and that's kind of the way you should think about it going forward as opposed to what any changes are on a year-over-year basis.
Tom Singlehurst
That's super clear. Thank you very much.
Chip Paucek
No problem. Next?
Operator
Thank you. Our next question comes from Kerry Rice of Needham.
Kerry Rice
Thanks a lot. Great quarter.
A lot of my questions have been answered already at this point, but I was curious. When you talked about program developments in the press release and you highlighted seven, although you've slotted 12 or so and -- particularly things like University of Denver, is there any reason why you called out this versus the others, just the significant size, anything that you would highlight there?
And then two kind of clerical things. Cathy, can you give us what LTV to TCA was in the quarter and maybe what backlog it ended with?
Thanks.
Chip Paucek
So, quickly on those, I can give them to you. 2.9 was LTR/TCA ratio, slightly down.
But candidly, given the number of new verticals we've launched, it should be -- it continued to be in the low 3s. We would want -- you should be -- look inside what does that mean.
In other words, we want to continue to invest. So, that should come down a little bit.
And then backlog was $277 million and pretty impressive. So, the reason we highlighted the ones in our release very simply, Kerry, is, believe it or not, that's since the last call.
So, that's why it's a lot.
Kerry Rice
Okay, great. That's an easy, simple answer.
And I think that's it for me. Thank you,
Chip Paucek
Thank you.
Operator
Thank you. Our next question comes from Jeff Meuler of Baird.
Jeffrey Meuler
Yes, thank you. On GetSmarter, I guess any reason for why the courses that were held, I think many of them for the first time in the back half of 2016, did not repeat in the first half?
And related to that, roughly what are the typical contract lengths at GetSmarter? And what are they exactly -- what gets contracted in terms of the commitment for how many times they're going to on the courses for them?
Chip Paucek
Okay. So, Jeff, taking that in order, first, I would say they are a very new business.
It's important to know. And we have a much larger business that has inherent variability that you just wouldn't see, at times, inside each degree.
So, there are moments where courses don't run for particular reasons; maybe a faculty member went on sabbatical, maybe a faculty member left and went to a different institution. Those kinds of things happen.
And when you talk about a full degree program, it's really not as noticeable. When you're talking about a course, look, if a faculty member leaves, they have to figure out how to run that course, and that may take some time.
As the business gets larger, we actually think that's something we can be particularly helpful to GetSmarter in terms of how you manage those types of things. They've done a pretty incredible job of getting this business really rolling.
So, the courses that didn't run, as Cathy mentioned, we're now expecting those to run and some of them already are running. So, it's just a matter of it being a reasonably small assortment of courses.
On the contrast, they're substantially shorter than ours. We're not going to talk about the individual contracts, and we really can't talk about what they look like by university.
There are some differences, but in general, you're talking about signing university and then offering a certain number of courses. And just like with 2U, in our case, it's a big lift to get an initial contract because it's very -- it's a major commitment, it's very expensive.
GetSmarter, just like 2U, once we've gotten a contract, we very often expand it with new opportunities, like you see on this call with both Dayton and UNC, and we've got a pretty good track record of expanding. So, in GetSmarter's case, they often expand with the university once they've proven that concept.
So, the initial contract may have a smaller number of courses with an option for more. We're going to -- we're not going to get into individual course discussions, number one, just tremendous variability.
While we think that's something we can be really be helpful with in terms of the core selection algorithm, helping GetSmarter over time, have greater confidence going into and while they're working on them, forecasting those courses, it's just so new. So, we just have to remind everybody that while the strategic imperative of this relationship has already, in many ways, proven itself to us and their team is excellent, it's just very, very new.
So, we have to -- we got to be careful there.
Jeffrey Meuler
Okay. And then with only one spot that's unslotted for 2018, are you firm on the 2013?
Is there a potential to increase it? Or if not, I guess, how receptive are university partners to waiting those that are ready to go?
Chip Paucek
So, we're actively selling 2019 and, believe it or not, 2020 now. We have a good number of conversations happening for 2020 because these things take time for a variety of reasons, could be faculty approvals or accreditation.
But with regard to the 13th slot, we're extremely confident on that 13th slot. Obviously, if it's Yale, that -- if Yale, PA goes forward, that will be 13th.
But the -- we've got a solid number of conversations at an advanced stage enough that we do believe that the 13th at this point is strong and safe.
Jeffrey Meuler
That's all right.
Chip Paucek
With that said though, Jeff, we're going to be careful. I want to make sure that you guys don't presume that, that means that we've already decided we're doing more than 13.
We have not decided that. There is a financial implication to it.
There's sort of staffing implications to it. We've not yet decided that.
When we get there -- if we get there, we'll tell you. But we're not there yet.
And we have set up those conversations in a way that, we believe, we could move those schools to the first quarter of 2019 if we needed to.
Jeffrey Meuler
Excellent. And then just finally, the -- I think the $17 million of 2016 revenue that you previously cited for GetSmarter, is that gross revenue including the university partners portion of it?
Cathy Graham
Yes. So, it actually turned out to be about $17.6 million in 2016 and it is gross revenue, including the university partners.
These -- the students actually contract with GetSmarter. And as I said it is one of the reasons why GetSmarter can command a higher percentage than -- in rev share sometimes than we can in the DGP business because they are not only paying after, but they are paying for the course tutors as well.
Jeffrey Meuler
Got it. Thank you, both.
Chip Paucek
No problem.
Operator
Thank you. Our next question comes from Jeff Silber of 2U [ph].
Jeffrey Silber
Thanks. I didn't realize I changed companies.
Chip Paucek
Well, [Indiscernible]
Jeffrey Silber
I didn't get the memo, but that's okay. I know it's late, just -- I'll go through the transcript, Cathy, but I just want to double check something.
On GetSmarter going forward, are you going to be reporting full course enrollment and revenue separately from the short courses versus your typical longer courses? Or are they just going to be coming--
Cathy Graham
Yes.
Jeffrey Silber
You will be doing that, okay, good.
Cathy Graham
So, we're going to give them to you separately because as they -- the big reason here is as they move further into the international business, their average revenue per FCE should change and we want you to be able to track that.
Jeffrey Silber
That will be great. But everything else will, I guess, be combined.
You're not going to be giving us adjusted EBITDA between long and short courses?
Cathy Graham
We are not.
Jeffrey Silber
Okay. All right, great.
I just wanted to clarify that. You mentioned in your prepared remarks a potential capital raise and I just was wondering -- and I know there may not be any time limit or timing on this, but what are you thinking or what have you been mulling around or discussing?
Cathy Graham
So, we are looking at all possibilities here. As you can imagine, there's lots of people who want to talk about a lot of different structures.
And we're considering all of those. We have not made a decision, a final decision on a structure or on timing at this point.
Jeffrey Silber
Okay, great. I'll jump back in the queue.
Thanks so much.
Cathy Graham
Thanks.
Chip Paucek
Thanks Jeff.
Operator
Thank you. Our next question comes from Corey Greendale of First Analysis.
Corey Greendale
Hey, good afternoon. Congratulations on the nice program additions.
So, I appreciate you taking all the questions. I'll make it easy.
To start, Cathy, just I'm going to make this like a true or false first. You said that the majority of the revenue increase was from GetSmarter other than the beat in Q2, is that correct?
Cathy Graham
That is what I said.
Corey Greendale
Good. So, since you didn't give Q3 or Q4 guidance before, I'm trying to get -- I think you said looking at Q4 and the increase in Q4 is kind of the run rate of GetSmarter, is that correct?
Cathy Graham
Yes. So, if you would think about the implied guidance for the year on revenue that is imputed to GetSmarter.
And then you would think about the fact that I said that fourth quarter should be more than double, third quarter. You should use that fourth quarter as your baseline for moving into 2018.
Corey Greendale
Okay. So, -- and I just want to be clear.
So, -- and feel free to argue with the specific numbers. I'm getting that -- I think what you're saying is that the Q4 run rate of GetSmarter is something in kind of the $9-ish million, $10-ish million range and we should assume that as the starting point for quarterly number in 2018?
Is that more or less right?
Cathy Graham
I'm afraid that's not something that I can answer, but I think your -- probably, your process, if you go through your process, you will get to a good number.
Corey Greendale
Okay. And then I don't think you touched on this piece and forgive me if you have, but -- so I understand you're recognizing 100% of the revenue as opposed to after your share.
So, there's one higher cost in the teaching expense that you talked about. On the other hand, there is, I assume, lower marketing cost.
So, can you give us some sense of what GetSmarter's margin looks like at maturity?
Chip Paucek
Not yet.
Cathy Graham
We're not prepared to go there yet. They are very, very early here in moving into this new business.
And so at this point-
Chip Paucek
We just can't. Corey, we're just not there yet.
They're new. We just bought them.
We need time.
Corey Greendale
That's fine. And one other GetSmarter question, which is -- I totally hear you that we shouldn't automatically gravitate to the high end of the range given that it takes a month, you said, on average from first contact to enrolling and some of these courses aren't starting until early Q4.
How much confidence do you have in the low end of the range or how much risk is there around that?
Chip Paucek
I mean, we gave you a range and we are typically confident in that range. I mean, I -- we've never not been confident in a range.
So, I've never been asked that question.
Corey Greendale
I mean look at it differently--
Chip Paucek
Clearly, compared to 2U, there is inherent variability in GetSmarter that we do not have in the DGP business. Now, if you talk to me in 2010, my God, did we have variability in the 2U business?
So, -- which is why I appreciate our early partners putting up with us. So, I do believe over time, there will be less variability because we will all learn more about how to create greater predictability.
But today, we gave you the range. We feel good about it.
And we obviously feel very good about -- I think the interesting thing about the pipeline pacing is for 2U, pipeline pacing and the cadence with some people really thought was ambitious when we did the 2013, 2016, and 2019. We didn't do that because we were guessing.
We did that because we believe this was going to happen. The fact it has now happened and happened this early is a big win, but that just sets up the long-term expectation of the 30% plus growth for a long -- for the foreseeable future, as we said.
So, GetSmarter, we just can't give that kind of visibility yet.
Corey Greendale
Understood. And then just one last one for Cathy and I appreciate you taking all these questions.
I think the one metric we didn't touch on in detail is the free cash flow. So, historically, Q2 has been positive and I know there's like the build-out of headquarters and things.
Can you just give us some sense of where free cash flow comes in for the year or what we should be expecting in the back half of the year?
Cathy Graham
So, historically, actually, Q2 is our worst-performing quarter in the core business across all of our sort of quarters because we have -- as we said before, we have certain seasonal cost in the second quarter that don't reoccur in other parts of the year. From a free cash flow basis, I would look mostly at the adjusted EBITDA guidance for the back end of the year.
As I told you that fundamentally at this point, the money that they are spending on capital assets is there, but it's not exceptionally large.
Corey Greendale
All right. Thanks very much.
Operator
Thank you. Our next question comes from Brian Schwartz of Oppenheimer.
Brian Schwartz
Yes, hi. Thanks for taking my questions today.
Chip, I wanted to ask you a question. It's not on the GetSmarter topic of the call, but something a little bit more higher level than just kind of tactical on the quarters, one for you and one for Cathy.
So, the one question I wanted to ask you, Chip, was really just on the competitive landscape, just trying to understand what's out there in this category. Is GetSmarter in their category -- are they mostly evangelizing the category like what you did with the business years ago with graduate as a service?
Are they mostly competing against who could be your partners -- school partners? Or are there a lot more vendors in this category for us kind of core business that you compete in today?
So, any color that you could share just in regards to the competitive landscape out there for GetSmarter? Thanks.
Chip Paucek
Well, so it's clearly -- I mean, it substantially increases the [Indiscernible] no doubt. It's growing quickly.
There are a lot of people in the space. While they are evangelizing at times, the reality is Microsoft certification has been around for a really long time.
There's a lot of different versions of certificates. There's exec education, what portion of it is exec education.
Some of it is, some of it isn't. We do think this offers an opportunity for us to talk to companies more directly, sort of B2B-type selling over time.
It's a large, fragmented market, and we love the fact that we're now playing in it because it's very different than offering $160,000 doctor or physical therapy, right. It's just a very different thing, doing it with a company that has an 88% completion rate.
So, that's the key. It's the way they're approaching it.
We think it's super attractive. I will tell you, Brian, we will talk more about this at our Investor Day here at headquarters when GetSmarter is live because we've had that question a fair amount and we'll try to put more bean [ph] on the bone for you at that time.
Brian Schwartz
Fair enough. That was really helpful, Chip and I'm a little bit too early on my question for Cathy then, too.
I just wanted to ask you really on the opportunities as we think about in the future, maybe not this year but in subsequent years, the opportunity for operational synergies with the business. I know you've only had it now for a month, but just wondering, are you seeing any early signs that make you optimistic that there could be some operational synergies with this business here in the future that may be a surprise to hear through the first month or as you went through the closing process.
Thanks for taking the questions today.
Chip Paucek
I'll take that, Brian. I'll tell you we -- the reason we have been surprised is we were pretty blown away by the team when we did diligence.
Their team is excellent. They're great people.
The cultural fit, even though they're an ocean away, is real. We do think there are some valuable synergies longer term.
Strategically, we bought it for -- to make us a better overall, more competitive organization, as we said, sort of becoming a leader in bridging the digital transformation for schools. But there are potential synergies over time.
There's a bunch of interesting places and the integration so far has gone very well. So, I think there's a good number of our South African friends listening to the call even though it's midnight right now.
So, we're super psyched, but it is early. So, you just got to, as I said -- I think I said hold your jets instead of cool your jets.
But everyone here got a nice chuckle out of that, including Dave [Indiscernible].
Brian Schwartz
Well, thanks for taking my questions this afternoon.
Operator
Thank you. Our next question comes from Ben McFadden of KeyBanc Capital Market.
Clarke Jeffries
Hi, this is Clarke Jeffries on for Ben. I was wondering if you could give me a sense of how rare a DGP, GetSmarter course like Harvard would be in the future or whether it will be predominantly a certificate?
Cathy Graham
Excuse me, say -- can you ask that one again?
Clarke Jeffries
I was wondering if you could give me a sense of how the -- how often a DGP course like Harvard could occur in the future on sort of the proportion of DGP versus certificate for GetSmarter?
Chip Paucek
We do think there will be, over time, certificates that warrant DGP. Remember, it's a financial term.
And so DGP, we defined because it's a particular vertical that -- working with a particular school and we've sort of aggregated a variety of degrees into something that will offer the financial power of a DGP, $60 million steady state, mid-30s adjusted EBITDA margin and so on and so forth. We do think over time, there will be certificates that warrant that and there are some discipline that actually operate more in certificates than, let's say, the other extreme, where you've got the DPT with USC, the Doctor of Physical Therapy, or something like even the MD.
There are certain extremes on the side of the degree. We do think certificates are a part of the story.
I mentioned earlier we have been working on this a lot longer actually than we had been working on the GetSmarter acquisition. I'm thrilled that we have both.
So--
Clarke Jeffries
All right. And I guess just from listening to the call, it sounds like there's going to be a ramp in the actual certificates in the back half of the year.
So, I presume that there's going to be maybe that other than your short-term objective, but do you see the possibility for next year sort of going back to existing customers and selling certificates, whether that process could happen fairly quickly given maybe a short deployment time or the certificate program over a traditional DGP?
Chip Paucek
So, as I mentioned in the prepared remarks, we've had great -- really just a fantastic response from our current clients and a really exciting response from their clients. We do think there'll be crossover both directions, but we just got to -- you just got to be careful.
It's very early. I mean, they announced Oxford and LSE and we knew that they were either close enough that I actually met with LSE with them before we've announced the deal.
And they had been working on Oxford for a while. So, we knew those were coming.
We had high confidence they were coming. So they're just doing great.
Rob Paddock, who runs that for GetSmarter, has been doing a fantastic job on their pipeline. There are plenty of opportunities, and we're just going to have to be careful and walk before we run.
Clarke Jeffries
All right. Great.
Thank you for taking the questions.
Operator
Thank you. I show no further questions in queue at this time.
I would now like to turn the call over back to Chip Paucek.
Chip Paucek
Thank you, operator. I'd like to say hello to a few listeners; [Indiscernible] Paucek, Ed Goodwin Sr., Steve [Indiscernible], Roy [Indiscernible], Jim [Indiscernible], Howard Smith, Raj [Indiscernible], George [Indiscernible] Schneider, Don [Indiscernible], Mike [Indiscernible], Albert [Indiscernible], and the late [Indiscernible] who's clearly smiling down upon us.
No back row for the earnings team's fathers, nothing like a good parental shout-out to keep you motivated. Thanks, everybody.
Talk to you soon.
Operator
Thank you, ladies and gentlemen for attending today's conference. This concludes the program.
You may all disconnect. Good day.