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Edited Transcript of MYCC earnings conference call or presentation 12-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 ClubCorp Holdings Inc Earnings Call

Dallas May 29, 2017 (Thomson StreetEvents) -- Edited Transcript of ClubCorp Holdings Inc earnings conference call or presentation Wednesday, April 12, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Curtis D. McClellan

ClubCorp Holdings, Inc. - CFO and Treasurer

* Eric L. Affeldt

ClubCorp Holdings, Inc. - CEO and Director

* John A. Beckert

ClubCorp Club Operations, Inc. - Chairman of the Board of Directors

* Mark A. Burnett

ClubCorp Holdings, Inc. - President and COO

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Conference Call Participants

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* Carlo Henry Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* George Arthur Kelly

Imperial Capital, LLC, Research Division - Analyst

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Stephen White Grambling

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Steven M. Wieczynski

Stifel, Nicolaus & Company, Incorporated, Research Division - MD and Gaming and Leisure Research Analyst

* Susan Kay Anderson

FBR Capital Markets & Co., Research Division - VP of Consumer Research Group and Analyst

* Timothy Andrew Conder

Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to ClubCorp Holdings Fiscal 2017 First Quarter Earnings Conference Call. Please note, today's call is being recorded and is being broadcast live from ClubCorp's website, and a replay will be available on the ClubCorp website after this call. (Operator Instructions)

At this time, I will turn the call over to Curt McClellan, CFO and Treasurer.

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [2]

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Thank you, operator. Good morning, everyone, and welcome to today's call. Joining me this morning are Eric Affeldt, our CEO; and Mark Burnett, our President and COO. Also on the call with us today is John Beckert, our Board Chairman.

Earlier today, we issued our financial results for our fiscal 2017 first quarter ended March 21, 2017. We also issued press releases regarding the board's strategic review and our CEO's succession plan. These releases and our earnings presentation are available online at ir.clubcorp.com.

The first quarter of fiscal 2017 and fiscal 2016 consisted of 12 weeks. All growth percentages, unless otherwise stated, will refer to year-over-year results. Following our prepared remarks, we will open the conference call for questions and answers.

ClubCorp Holdings desires to take advantage of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, and certain statements in this conference call may be considered forward-looking statements within the meaning of that act. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For a list of these factors, please refer to the Risk Factor section of our 2016 Annual Report and Form 10-K filed with the SEC on February 27, 2017.

Our discussion includes certain non-GAAP financial measures. And more information regarding our forward-looking statements and reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in our earnings release and in our SEC filings.

I'll now turn the call over to Eric.

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [3]

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Thank you, Curt. Good morning, everyone, and welcome to our first quarter earnings call for 2017. The purpose of today's call is to discuss our fiscal 2017 first quarter financial and operational results. However, I'd like to take a moment to address 2 other press releases we issued this morning.

First, the board announced an update regarding a review of strategic alternatives. During the past 4 months, the board's strategic review committee, along with the board's independent financial and legal advisers, conducted a robust and thorough process, which included discussions with a wide array of potential counterparties regarding an outright purchase of potential investments in, partnerships with and/or asset purchases from the company. While we did not receive a purchase proposal for the entire company, the strategic review process has been useful in identifying opportunities and potential partners. And our strategic review committee and board will continue to consider all available alternatives to enhance value for our shareholders. At this time, the board has determined the best option is for the company to continue operating as an independent company and execute our strategic plan.

Additionally, I have announced my intention to retire from my role as Chief Executive Officer upon the appointment of my successor. As you would expect, the board has an established succession planning process, and we have a strong internal candidate whom we will continue vetting, along with external candidates to be provided by a leading search firm. I'd like to say that it's been a tremendous privilege to help lead the world leader in private clubs for the past 11 years. We've achieved so much since our IPO in 2013 and have set the industry bar for reinventions within the modern club management sector. I'm so proud of our 20,000 employee partners and the outstanding service they provide to all our members and guests each day. Our valued members and employee partners have been the primary reason we have achieved the best 10 years of financial performance in ClubCorp's 60-year history.

Now on to the first quarter in which we delivered solid results supported by continued momentum in our Golf and Country Club segment, partially offset by the performance of our business, sports and alumni segment. We're pleased with the 4.2% growth in the first quarter consolidated adjusted EBITDA, which was in line with our expectations versus last year's impressive growth of 8.2%. For the first quarter of 2017, revenue was $221.3 million and adjusted EBITDA was $43.7 million.

We continue to execute our growth strategy and in particular, we're very excited about the pace of acquisitions. We have already added 4 new clubs to our broad portfolio this year. The first 3 acquisitions increased density in our Upper East Coast network, which now consists of 24 clubs. The fourth, and most recent acquisition, expands our Detroit, Michigan community. In each case, these clubs add value to our overall network and are situated in prime locations where we are excited to expand our membership growth. These clubs have great demographics with meaningful population density and high household income and fit perfectly with our reinvention strategy to drive additional return on investment.

We're confident in our ability to continue growing our pipeline and bringing additional deals to fruition. With approximately 3,800 private clubs in the United States, this remains a very fragmented industry. While we cannot predict exactly when a member equity club or a private owner is ready or willing to sell, we do know that our success in closing deals is based both on our strong balance sheet and on our nearly 60-year history of adding value to our members and their communities.

The members and former board members at our recently acquired clubs are eager to provide valuable testimonials. They could personally attest to the progress, professionalism and improvements these clubs have made under ClubCorp ownership. We greatly appreciate their continued support.

We're committed to our three-pronged growth strategy of organic growth, reinvention and acquisitions. This strategy is working, and we will continue to execute this strategy to deliver long-term shareholder value.

Before turning the call over to Mark to review our first quarter results, I want to remind you that our first quarter is the smallest quarter of the year and historically represents less than 20% of our revenue and EBITDA contribution for the full year. We are reiterating our outlook for the full year, which Curt will discuss in his remarks.

And I'll now turn the call over to Mark.

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Mark A. Burnett, ClubCorp Holdings, Inc. - President and COO [4]

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Thanks, Eric, and good morning, everyone. As just mentioned, from a revenue and adjusted EBITDA contribution standpoint, our first quarter is our smallest quarter of the year. That said, we are pleased with the positive momentum we are seeing in our Golf and Country Club business. We are gearing up for what we expect will be a busy golf season this spring and into the summer.

Our growth is dependent on the execution of our three-pronged strategy across all of our clubs. In addition to our new ClubCorp Travel offering we announced last quarter, we have also began piloting a new O.N.E. Plus program that provides further benefits to members bringing guests to the club. During the quarter, penetration of our O.N.E. offering remained at approximately 54% of total memberships.

Also our reinvention work is progressing well and continues to gain traction. In regards to last year's acquisitions, we just completed the reinvention of Marsh Creek in St. Augustine, Florida. We are in process of finalizing reinventions on the remaining 2 clubs as well that we acquired last year and hope to have these completed soon.

Additionally, as Eric mentioned, we are very pleased with the pace of acquisitions at the start of this year. In March, we announced the acquisition of Norbeck Country Club in Rockville, Maryland, which is just outside of Washington, D.C. And today, we announced the acquisition of Oakhurst Golf and Country Club in Clarkston, Michigan, which is just outside of Detroit. These 2 additions bring our acquisition count this year to a total of 4 clubs. We are already well ahead of our pace of 3 club acquisitions for all of last year. And our acquisition pipeline remains very strong.

For the first quarter, same-store golf and country club revenue grew 3%, while adjusted EBITDA grew 5.1%. Our Golf and Country Club segment continued its momentum in the first quarter with favorable weather, encouraging more rounds of golf played that resulted in increased à la carte food and beverage revenue and increased golf operations revenue. Golf and country club same-store food and beverage revenue increased 1.9%, while same-store golf operations revenue was up 4.7%. Same-store golf and country club adjusted EBITDA margins also expanded 60 basis points to 29.7%.

We are well positioned for growth across our entire network with newly completed reinventions of golf and country clubs coming online. We're experiencing an uptick in member club usage, and we look for this momentum to continue throughout the remainder of the year.

The economic benefit of reinvention is undeniable. At our legacy golf and country clubs, which we owned prior to 2010, our cumulative cash-on-cash return 3 years post reinvention is an impressive 44%. This includes clubs reinvented between 2008 and 2013, where reinventions have matured at least 3 years.

Also at our legacy Business, Sports and Alumni Clubs, our cumulative cash-on-cash return 3 years post reinvention is 26%. Through the first quarter of 2017, we have reinvented 89 clubs, including 63 in the golf and Country Club division and 26 in the Business, Sports and Alumni division.

In the Business, Sports and Alumni segment, our same-store revenue grew 0.6%, yet adjusted EBITDA fell 8.4%. Our business clubs segment continued to feel pressure from membership resignations that began during the second quarter of 2016, particularly at a handful of clubs in Houston.

We have just finalized the lease agreement on our first Avenue Club, which is a new concept business/social club targeting the growing active urban dweller market. This street level club will feature collaborative work areas, a day and night bar, live music, urban spa, and [boutique boulder] and gym. We anticipate opening this club, named The Collective, based in Seattle, Washington during the second quarter of 2018.

And additionally, we are also making progress on the China-U. S. Sky Club, which is being built on the 89th floor of One World Trade Center in New York City. We anticipate this club will open during the second quarter of 2018.

I will now turn the call over to Curt to give you more financial details on the quarter.

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [5]

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Thank you, Mark, and good morning, everyone. As Eric mentioned, we are pleased by the start of this year and remain focused on the execution of our strategy and on delivering quality results throughout the remainder of 2017.

In the first quarter, consolidated revenue increased 3% to $221.3 million and adjusted EBITDA increased 4.2% to $43.7 million.

Looking at segment results, starting with the Golf and Country Club segment. For the first quarter, same-store golf and country club revenue increased $5.2 million to $177.2 million, up 3%.

Same-store dues revenue increased $3.3 million, up 3.5% due primarily to an increase in same-store memberships, greater club participation in the O.N.E. program and a rate increase in dues per same-store average membership.

Same-store food and beverage revenue increased $0.7 million, up 1.9% due primarily to a 2.7% increase in à la carte revenue.

Same-store golf ops revenue increased $1.4 million, up 4.7% due primarily to favorable weather, which resulted in higher rounds played and higher cart fee, green fee and retail revenues. Recovery from last year's inclement weather continues and we look for this pattern to continue as we progress through the spring.

Same-store adjusted EBITDA increased $2.5 million to $52.6 million, up 5.1% due primarily to higher-margin dues and golf operations revenue combined with well-controlled variable operating costs and expenses. Same-store adjusted EBITDA margin increased 60 basis points to 29.7%.

Recently acquired clubs in 2016 and 2017 contributed $2.7 million in revenue and $0.2 million in adjusted EBITDA. In total, our Golf and Country Club segment revenue was up 4.2% to $179.9 million.

Total adjusted EBITDA was $52.8 million, up 5.4%. Total adjusted EBITDA margins were up 40 basis points to 29.4%.

Finally, total memberships, excluding managed club memberships, was 122,177, up 3.8%.

In our Business, Sports and Alumni Clubs segment. For the first quarter, same-store business, sports and alumni club revenue increased by $0.2 million to $39.9 million.

Same-store dues revenue declined $0.1 million, down 0.3% due primarily to a decline in memberships at certain clubs, as discussed by Mark during his comments earlier, partially offset by an increase in upgrade dues related to the O.N.E. program.

Same-store food and beverage revenue increased $0.4 million, up 2.2% due primarily to an increase in private party revenue.

Same-store adjusted EBITDA declined $0.6 million to $6.7 million, down 8.4% due largely to an increase in club operating costs and a decline in same-store memberships. Same-store adjusted EBITDA margin the decreased 170 basis points to 16.7%.

Total memberships, excluding managed clubs, were 51,893, down 2.1%.

Looking at other items. For the first quarter, our SG&A expense increased $1.6 million to $21.3 million, largely due to a $3 million increase in legal settlements; a $1.8 million increase related to design, implementation and centralization of certain administrative processes; and $0.4 million increase in equity-based compensation. These amounts were offset by $1.6 million of lower costs related to our initial compliance with SOX 404b; a $0.7 million decrease in capital structure costs; a $0.4 million decrease in ongoing support, software and service fees related to the centralization and transformation of certain administrative, finance and IT-related systems and processes; and a $0.4 million decrease in severance expense; and a $0.4 million decrease in acquisition costs.

As we look at CapEx, during Q1, we spent approximately $20 million on maintenance CapEx. This amount includes $12 million net of insurance proceeds to maintain our existing properties, less than $1 million to maintain our existing information technology systems and $7.3 million on information technology projects related to the centralization of administrative processes. During fiscal year 2017, we anticipate spending $60 million on maintenance CapEx net of insurance proceeds. This amount includes $45 million net of insurance proceeds to maintain our existing properties, $4 million to maintain our existing information technology systems and $11.1 million on information technology projects related to the centralization of administrative processes.

Not including purchase price on acquisitions in Q1, we invested $3.3 million on ROI expansion capital on major reinventions. During fiscal year 2017, we anticipate investing approximately $44 million on ROI expansion capital and reinvention, including approximately $26 million on same-store clubs and approximately $18 million to reinvent certain recently acquired clubs, including 3 clubs we acquired in Q1 of 2017.

Regarding our capital structure and liquidity. As of March 21, 2017, we held cash and cash equivalents totaling $53.9 million, and we had $145 million available for borrowing under our revolving credit facility for total liquidity of $198.9 million.

Turning to our outlook for this year. The company reiterates its outlook for fiscal year 2017. The company anticipates revenue in the range of $1.095 billion to $1.135 billion and adjusted EBITDA in the range of $255 million to $265 million.

As a reminder, our estimated guidance is based on current management expectations and may be subject to change. Again, please refer to our forward-looking statements cautionary language in our earnings release and 2016 10-K and the Risk Factors section of our 2016 10-K.

Before we open the call for your questions, our Chairman of the Board, John Beckert, will make a few remarks. John?

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John A. Beckert, ClubCorp Club Operations, Inc. - Chairman of the Board of Directors [6]

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Thanks, Curt. I know shareholders have a lot of questions about the strategic review process and while there isn't much more I can add, I thought it was important for me to join the call today and provide our board's perspective.

First, I want to underscore the board's strategic review committee remains in place and will continue to consider all options to enhance shareholder value. With regard to the process itself, as Eric briefly mentioned, the 2 investment banks retained by the company cast a very wide net, and we talked with dozens of potential counterparties domestically and internationally. In addition to the potential sale of the company, a wide range of other alternatives were also considered. At the end of the day, however, we didn't identify a strategic alternative that we believe would create more value for shareholders. As such, the board will remain open-minded, while the management team continues to execute its proven strategy to drive growth and value creation.

Now I want to take a moment to personally thank Eric for his strong leadership. Under Eric Affeldt's leadership, ClubCorp has delivered outstanding growth and progress. And today, the company is stronger and better positioned than ever. Eric helped significantly improve the company's financial performance, setting the stage for ClubCorp's continued success.

On behalf of the board and all of ClubCorp's other stakeholders, thank you, Eric, for your many contributions to the company's success.

Now I'll turn the call back over to you.

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [7]

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Thanks very much for the kind words, John. Operator, we'll go now to open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question this morning comes from Tim Conder from Wells Fargo Securities.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [2]

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And just a few here, gentlemen. First of all, on the Business, Sports and Alumni Clubs, you cited some issues in a couple of particular clubs. Any more detail that you could provide on that? And when do you anticipate these leveling off? And then if you could just remind us all, I think your easiest weather comparison is Q3 given a lot of the high heat indices and you also had some significant greens changes going on during that period. If you could just confirm that. And then final question relates to the legal fees. Any additional color on that? And when those -- or we anticipate those abating or [for] through that?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [3]

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Tim, thank you. It's Eric. On the legal fees, we don't comment on those type of fees, so I won't get to any details there, nor do we get into any discussion of any particular legal activity going on in the company, unless we believe it's material. Second on the weather-related issues, I think the reality is at the end of Q2 last year, we had the flooding in Houston. And so that caused some drag in Q2. Yes, we had also weather, I think, at the end of Q3, and I'm about to turn it over to Mark to confirm that as well as to discuss the Business and Sports Club question you raised.

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Mark A. Burnett, ClubCorp Holdings, Inc. - President and COO [4]

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Sure. Tim, thanks. Yes, Eric's right. So the golf side, we did have some impact in weather last year in Q2, particularly in Texas and largely down in Houston and South Texas. So as we look at this year, we're hoping to have some good opportunity there. And then we did have some storms along the East Coast with some of the hurricane and tropical storms impact Q3 last year. So that's the set up there. On the business and sports side, the membership decline that we reported here, largely due to just a handful of clubs. We've got -- and I think we reported this in the quarter or 2 ago, the impact and drag from last year in Houston, one of our biggest fitness clubs, our Downtown Met Club, is under a reinvention process right now. Things are stabilizing there nicely here during the quarter. But as far as the comp to prior year, there's some impact. And then I think we mentioned on our previous call, our Met Chicago Club, we were down with fitness -- there was a fitness closure that impacted us from a membership count standpoint, not as much on EBITDA. And now that is back open. So we're looking forward to some good growth back at Met Chicago as we go forward.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [5]

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And speaking of Houston, any color commentary? I know the weather is improved year-over-year here and the impact of the repairs had to be done there. The core business of the golf and country club side, how is that looking if you can separate out weather or changes -- in particular, I guess, the changes in membership that you're seeing there, renewals?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [6]

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Yes, again, feel really good in our Golf and Country Club segment, our clubs down there. We have now gotten through all of the improvements that were done from the damage last year. The courses are in great shape. We're as positioned as well as we've ever been from a product standpoint here going into Q2 and onwards, so we feel really good about it.

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Operator [7]

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Your next question comes from Shaun Kelley from Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [8]

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And Eric, congratulations, and pleasure working with you over the years. So maybe just to start off. If you could provide a little bit more color on sort of the timing for the CEO transition. So appreciate that you're looking at both an internal and external set of options. But when should we expect to hear more or think about kind of the next step there?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [9]

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Shaun, it's Eric, and thank you for -- thank you for the thank you. I think the board, we've said in the release that we have a strong internal candidate. The board wants to make sure that we discover -- or exploit all -- explore all opportunities. So I can't tell you that it will be 30, 60 or 90 days, but it is obviously very high on the board's agenda.

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John A. Beckert, ClubCorp Club Operations, Inc. - Chairman of the Board of Directors [10]

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And if I may, let me reiterate that Eric is staying on during the transition. We're excited to have his continued involvement. And one of the things that's not lost on the board at this point is the second quarter is our busiest quarter of the year. And we're very focused on making sure that it's a great quarter as it relates to our financial performance.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [11]

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Appreciate that. And then I guess, the second thing I just wanted to ask about and kind of totally understand it, there are very limited things you can probably say here. But kind of curious as you think about the response to the strategic review. Was there any commonality in responses from some of the counterparties you spoke with about, whether it was features in the business that were more attractive or less attractive or anything that kind of came back as the feedback as it relates to sort of not receiving kind of any interest in the company as a whole? I guess, the specific language around the company as a whole is unique. And I guess, that's sort of the piece that I was curious if there was any feedback on as you spoke with potential counterparties, likely private equity and strategic.

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [12]

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Shaun, Eric again. I'll start, and then I'll turn it over to John. As we said when we started the process, nothing was off the table. I do believe that there were speculators, if you will, who were thinking that perhaps, we were going to sell the whole company. That certainly was a possibility, but not the only possibility. So I wouldn't -- we're not going to -- and you pointed about, we're not going to get into a lot of detail as to what specifically was discussed with any of the people involved in the process. But with that said, I'll see if John has any additional color.

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John A. Beckert, ClubCorp Club Operations, Inc. - Chairman of the Board of Directors [13]

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Well, we thought it was important to be transparent. And we did not receive a offer for the whole company at this point. So we felt it was appropriate to include -- I do want to say the whole process has been very valuable for the company. As 5 - 6 months that the board, the strategic review committee and management have worked this very hard. And as Eric just pointed out, the goal was not to find a buyer for the whole company, but to truly look at all of our alternatives. And I think it's been a very positive experience, the whole process. And a lot of hours and weekends and nights through it all. But I think the company is in better shape with better strategies today than we've been in some period of time. And it's really going to allow us to go back and focus on our growth strategy, which we've articulated many times, the three-pronged growth: organic, reinvention and acquisitions.

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Operator [14]

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Your next question comes from Carlo Santarelli from Deutsche Bank.

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Carlo Henry Santarelli, Deutsche Bank AG, Research Division - Research Analyst [15]

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And congratulations, Eric. This question maybe is for John. John, as you think about the process and obviously, you guys have cited a strong internal candidate. But if you were to look externally, and as part of that search, does someone with public company experience kind of come at the top of the list? Or how would you think about the identification of that individual, if you were to go outside of the company?

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John A. Beckert, ClubCorp Club Operations, Inc. - Chairman of the Board of Directors [16]

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Well, the process is twofold. First of all, we are revisiting what the job specs really should be; what do we want in the future leader of the company and then who's the best person to match those specs? And to your question, obviously, we're a public company, so experiences within that realm in their resume is important, but it's certainly not the only factor.

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Carlo Henry Santarelli, Deutsche Bank AG, Research Division - Research Analyst [17]

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Understood. And then you guys obviously talked about learning a lot and identifying opportunities and partners. Could you maybe provide a little bit more light on some of the learnings and maybe some of the things that you guys potentially got a little bit more clarity on as you look at the business going forward from the discussions that you had?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [18]

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Carlo, Eric. I'll jump in. I think, again, without going into detail, many of the people -- many of the groups we spoke with are investors in other leisure, travel, recreation-related businesses. They had perspectives on the company and potential business adjacencies, some of which we had previously considered, some of which we had not. So it's always good to talk to other smart people who have invested in businesses similar to ours. So I would say that, that was helpful, as John pointed out, not only in reviewing our internal view of our business and potential for growth, but also other companies, again, that are adjacent to ours and what they're doing to grow their business, some of which frankly is transferable.

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John A. Beckert, ClubCorp Club Operations, Inc. - Chairman of the Board of Directors [19]

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And again, let me add a few comments, if I may, Eric. Part of what happened is reinforced that what we're doing is the right thing. And if you look at our results over the last quarter, we were very close to or on our financial plan. We acquired 4 clubs in the first 4 months. We announced next-generation business club possibly. There's a lot of very good things happening within the organization and certainly, was not lost on us as we were proceeding through the review.

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Operator [20]

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Your next question comes from Stephen Grambling from Goldman Sachs.

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Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [21]

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I guess, the follow-up on the last 2 lines of questioning. So was The Collective one of those outcomes? And can you maybe talk a little bit more about the impetus for that club, specifically? And maybe how you think about the scalability of that as well as maybe the return profile?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [22]

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Stephen, Eric. Thanks for the question. Actually, The Collective has been percolating for 2 or 3 years and maybe a little bit longer. As you know, we went through a fairly exhaustive process a few years ago, which led to many of our reinventions, both in the Golf and Country Club sector as well as in the Business, Sports and Alumni sector. And at the time we did the research, we reviewed the concept of what we called then Avenue Clubs, or ground-floor clubs, that would really be somewhat of a cross between a Soho House and a WeWork. So with more hospitality than a WeWorks, but far more casual than a traditional business club. So we do think this has tremendous opportunity to scale. Our first club is going to be in Seattle. I know our Chief Marketing Officer was just up there. I believe Mark was just up there. It's in a great location, urban, very active, certainly catering to the next generation of business individual. So we really think this has scale, but we're -- we can't say yet whether we're going to roll out 10, 20 or 30 of these. We're going to test it first in Seattle and see where we go from there.

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Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [23]

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And then -- so it sounds like that was already percolating. So if we think about the other learnings from this process, when can we see some of those, I guess, other than maybe some of these acquisitions, come to fruition? Or are those things that are already embedded in your guidance?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [24]

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I would say they're not embedded certainly in terms of our financial projections. I would anticipate, over the next quarter or 2, that you'll hear more about some of the next-gen ClubCorp opportunities, again, many of which we have been working on for the past couple of years, some of which, we frankly learned about or learned more about through this process.

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Operator [25]

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Your next question comes from Susan Anderson from FBR.

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Susan Kay Anderson, FBR Capital Markets & Co., Research Division - VP of Consumer Research Group and Analyst [26]

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And just want to say my congrats to Eric also. I was going to dig a little bit on just kind of the member initiatives, the O.N.E. program, how much do you think is left with that? I think the penetration's been 54% for a couple of quarters now. And then also maybe just touch a little bit on what you've learned from the new travel program. Any early reads there or opportunities to roll it out to other markets? And then just any other initiative that you guys are thinking about to continue to drive the top line?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [27]

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Susan, thanks for the question. I'll begin and then I'll turn it over to Mark. First on the O.N.E penetration rates, we've said, as you know, that we anticipate that the O.N.E penetration rate will continue to increase, but frankly, can't tell you exactly how fast it will increase, as it's largely a function of people leaving the system who logically are not O.N.E. members because they're typically lower users and people joining the system who typically take the O.N.E. product at north of a 75% clip. So one of the questions that we got early on when we launched O.N.E. was, is it -- how high can it go? And our answer has been pretty consistent. I don't know. I do know that with people joining the club, and particularly golf members taking the product at north of a 75% rate and people leaving the system, again, who logically are not likely O.N.E users, the number will continue to grow higher. I'll turn it over Mark to talk about your travel question and see if he has any expansion on the O.N.E. Plus program.

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Mark A. Burnett, ClubCorp Holdings, Inc. - President and COO [28]

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Sure. Thanks, Susan. First, on the ClubCorp Travel, again, we mentioned that, I think, last call. But this is more of a virtual membership product that we're piloting and have been piloting in markets where we do not have our own clubs located. And again, the driver there is for a reasonable price point to be able to travel, visit ClubCorp clubs, get access to our clubs and our affiliates in many cases, in nonpeak times, so golf during the week and dining in nonpeak times. The pilot's gone really well, so we're just now ready to start going on a larger scale rollout in other markets. And I've been planning on that here the last 30, 60 days. The other -- you mentioned questions on new products. We've got a few that we're working on. One in particular we've labeled as the O.N.E. Plus. The O.N.E. Plus product, again, takes our core benefits and values that a O.N.E. member gets some 50% off food discount as well as traveling benefits. And this is really gearing the benefits to our guest of members. So it's a motivator for members to bring guests, which is great for us because then we can use that information for prospects for new member growth and it increases the usage significantly at the clubs. So again, that is in pilot right now, and we just started here in Q1.

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Susan Kay Anderson, FBR Capital Markets & Co., Research Division - VP of Consumer Research Group and Analyst [29]

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Great. And just a couple more. Maybe if you could update us on our deleveraging strategy? Is the plan still to get below 4x times this year? Any more thought on increasing that further? And then also just on the acquisitions, looking kind of across the country, there's obviously a lot of clubs out there that you could purchase. But where do you think you're at in terms of just penetrating the top cities where you feel the income levels are right in order to add a club?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [30]

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Susan, this is Eric. I'll kick it off and then I'll turn it over to Curt to talk about the leverage question. We've said before, and we've proven this year in Dallas, it's a great actually living example. There's no right number of clubs to have in any particular MSA. Few years ago, you may recall, we added 2 clubs that were marketed, and we continue to market them as one called Prestonwood. We spent a long time considering whether or not we should add 2 more clubs because we already had 13 or 14 golf and country clubs in DFW at the time. And frankly, we asked ourselves the same question you just did, but how much is too much? We added the clubs in part to be defensive and they wound up to be very offensive. We've grown the clubs dramatically in the last 3 years. So there's not a right answer as to how many clubs we might want to have in any given MSA. With that said, we've also commented over the last couple of years that we'd like to flood -- fill in our mid-Atlantic segment, if you will. We just -- we've just done that. We've had good success in the Detroit market. We just added another club in Detroit. And lastly, around acquisitions, and as both John Beckert and I commented this morning, again, we can't predict exactly how many clubs we're going to acquire in any given year, but we've already exceeded last year's pace. And we continue to have a very robust pipeline, in addition to the Collective Club we just discussed a moment ago. So Curt, I'll talk to -- turn it over to you to talk about leverage.

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [31]

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Sure. Susan, on the leverage point, yes, we do remain on track. By mid-2018, we'll be below 4x. Keep in mind that we paid down $24 million and voluntary pay down at the end of 2016. And a year ago, we're at 4.5x levered. We're at 4.27x now. So we've chipped away at that and we'll continue to do so over the next 12 months.

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Operator [32]

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Your next question comes from Steve Wieczynski from Stifel.

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Steven M. Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD and Gaming and Leisure Research Analyst [33]

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So I guess, this question is for John going back to the strategic review. Was wondering if you guys, during this process, revisited the REIT structure again. I go -- and I know that's something you guys basically turned down a couple of years ago. But then also maybe, how closely did you guys explore selling individual assets as well?

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John A. Beckert, ClubCorp Club Operations, Inc. - Chairman of the Board of Directors [34]

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Well, let me say, we did not look at selling individual assets. We do that regularly on an ongoing basis. The portfolio is always reviewed. And if we're in a market or a position that we don't believe there's good upside, we'll consider selling. So that certainly wasn't part of this specific review. The process was incredibly robust. We looked at over -- or had conversations with over 50 different counterparties. We look at all kinds of different alternatives, including -- and -- well, as you suggested, the REIT discussion was had 2 years ago and nothing's really changed. And it's still clear in the board's opinion that, that's not a viable option for the company at this point. Again, I hope, like, that answers your question. It's obviously been discussed and it is not a viable option at this point.

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Steven M. Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD and Gaming and Leisure Research Analyst [35]

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Okay. Great. And then second question goes back to your 2018 goal of $300 million in EBITDA. And I know you've always said that's a range of $280 million to $320 million. But again, going after -- going through this review process, does the board and management still view that target as feasible at this point? I would assume if that's the case, that's a pretty big data point to show you guys still feel very comfortable around the long-term prospects for the company.

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [36]

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Steve, it's Eric. And yes, the board and management review, obviously, long-range planning on a regular basis. We stick with our guidance of that range of $280 million to $320 million by the end of 2018, and that was without acquisitions by the way. So with acquisition pacing increasing, we certainly hope that our EBITDA is going to continue to accelerate. But we're sticking with that range and not being held to a particular number within that range.

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Operator [37]

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(Operator Instructions) And your next question comes from George Kelly from Imperial Capital.

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George Arthur Kelly, Imperial Capital, LLC, Research Division - Analyst [38]

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One, if I could, just start with a follow-up on a previous question. You mentioned the $280 million to $320 million range by the end of 2018. So does that mean that you'll be run rating it by the fourth quarter? Or can you give more detail on that?

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [39]

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Yes, just for clarity, the range that was discussed, and we only issued it once, I believe, it was in the first quarter of 2015, but keep in mind that, that range was based on fiscal year 2018 results being in the range of $280 million to $320 million for adjusted EBITDA.

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George Arthur Kelly, Imperial Capital, LLC, Research Division - Analyst [40]

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And then a couple other questions. What are your expectations for cash taxes in 2017 and 2018?

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [41]

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We've maintained that our cash tax will be probably in the $10 million to $15 million range for this -- for fiscal 2017. That's what we expect now at this point, somewhere in that range.

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George Arthur Kelly, Imperial Capital, LLC, Research Division - Analyst [42]

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And 2018?

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [43]

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We haven't put anything out for 2018. I wouldn't do that until the end of 2017.

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George Arthur Kelly, Imperial Capital, LLC, Research Division - Analyst [44]

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Okay. And then what are your expectations for insurance recoveries in 2017?

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Curtis D. McClellan, ClubCorp Holdings, Inc. - CFO and Treasurer [45]

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I believe that we are primarily through the recovery process. We've got Kingwoods, which was the most impacted, back up and running. The clubs that were impacted with the hurricane on the Outer Banks are also up and running. So the assets are largely in place. I think we finished up small amount of capital spend in this quarter, a little less than $2 million that kind of finished that of. And we are prepared for the season and ready for it to start.

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George Arthur Kelly, Imperial Capital, LLC, Research Division - Analyst [46]

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Great. And then just one last question on the strategic review process. Wondering if you reviewed the capital structure and capital allocation, specifically around share buybacks and debt pay down and all that kind of stuff? And are there any changes to that plan? Could we see you becoming more aggressive with one of the -- those options?

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [47]

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George, it's Eric. I'll take that, and then if John wants to add on. Obviously, and as we've said every single quarter, frankly, the board is looking at capital allocation relative to dividend increases, share buybacks, reduction of debt, acceleration of acquisitions, et cetera. So the process wasn't specifically focusing on that, but that is an ongoing issue that the board looks at, I mean literally, every board meeting.

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Operator [48]

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Your next question comes from Tim Conder from Wells Fargo Securities.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [49]

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Regarding the acquisitions that you've made here today, you've given a little bit of color what you're doing with the reinventions. But has the thought process around the level of return when you're -- when you factor in the reinvention money that you're investing, the purchase price, has the thought process changed about the level of return you're anticipating or the trajectory as to when those returns should be realized? You get -- you've outlined before usually after, I think, 2 years or so, there's a nice uptick in the EBITDA. Has that trajectory changed? Or any anticipatory in that change on your acquisitions going forward? And Eric, congratulations, again, and best of luck.

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [50]

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Tim, thank you. And I'll take the question. The targeted returns have not changed. And it's actually at the end of 3 years that we're targeting 17% cash-on-cash from these acquisitions. The acceleration, frankly, has nothing to do with the relaxation of our expectations. It is rather, as we've discussed previously, that the pipeline -- any company that grows via acquisition as opposed to just construction of a new unit, the pipeline gets filled up. The pipeline empties out as you actually close on some transactions. Then the pipeline gets built up again, and you start closing again. So our acceleration is not the result of any reduction in our expectations for returns.

I think that maybe it. Operator, is that correct, no more questions?

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Operator [51]

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That's correct.

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Eric L. Affeldt, ClubCorp Holdings, Inc. - CEO and Director [52]

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Then, I again would like to thank everybody for participating in our call today. Hopefully, you had a chance to take a look at one of our flagship clubs at Mission Hills here 2 weeks ago, I think, with the A&A, the first major of the year, and the LPGA tournament. We look forward to speaking with many of you over the next several weeks. We invite you to schedule some time with us after this call, if we've not done so previously. So thank you, John, for joining. And again, I appreciate all of you on the line.

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Operator [53]

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This concludes today's conference. You may now disconnect.