APOLLO EDUCATION GROUP INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - July 7, 2016

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Exhibit 99.1
Apollo Education Group, Inc.
News Release
Apollo Education Group, Inc. Reports Third Quarter Fiscal Year 2016 Results
Phoenix, July 7, 2016 - Apollo Education Group, Inc. (NASDAQ: APOL) (“Apollo” or the “Company”) today reported financial results for the three and nine months ended May 31, 2016, with third quarter revenue of $558.0 million and diluted earnings per share from continuing operations of $0.19, or $0.37 excluding special items.
“We remain committed to our transformational plan at University of Phoenix, which we believe will result in a higher retaining and more focused and trusted university,” said Greg Cappelli, Chief Executive Officer of Apollo Education Group. “We also continue to grow internationally through Apollo Global where we serve more than 150,000 students on six continents. While we have significantly reduced the cost base of the company, we will continue to look for additional efficiencies, as necessary, in order to support our long-term strategic plan.”
Third Quarter 2016 Results of Operations
Apollo Education Group reported net revenue for the third quarter 2016 of $558.0 million compared to $676.4 million for the third quarter 2015. Third quarter 2016 University of Phoenix New Degreed Enrollment was 17,900 and Degreed Enrollment was 155,600, compared to New Degreed Enrollment of 29,400 and Degreed Enrollment of 206,900 for the prior year third quarter. Operating income for the third quarter 2016 was $32.0 million, compared to $93.3 million for the third quarter 2015. Income from continuing operations attributable to Apollo Education Group for the third quarter 2016 was $20.7 million, or $0.19 per share, compared to $50.3 million, or $0.46 per share, for the prior year third quarter.
Excluding special items, income from continuing operations attributable to Apollo Education Group for the third quarter 2016 was $40.5 million, or $0.37 per share, compared to $59.7 million, or $0.55 per share, for the third quarter 2015. Adjusted EBITDA was $90.7 million for the third quarter 2016 compared to $132.2 million for the third quarter 2015. (Special items and Adjusted EBITDA for the respective periods are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)
First Nine Months of 2016 Results of Operations
Net revenue for the first nine months of fiscal year 2016 totaled $1.6 billion, compared to $2.0 billion in the first nine months of fiscal year 2015. In the first nine months of 2016, University of Phoenix Average Degreed Enrollment was 171,400, compared to 220,400 for the prior year period. Operating loss for the first nine months of 2016 was $94.1 million compared to operating income of $120.0 million in the prior year period. Loss from continuing operations attributable to Apollo Education Group for the first nine months of 2016 was $97.2 million, or $0.89 per share, compared to income of $63.1 million, or $0.58 per share, for the first nine months of 2015.
Excluding special items, income from continuing operations attributable to Apollo Education Group for the first nine months of fiscal year 2016 was $40.3 million, or $0.37 per share, compared to $101.7 million, or $0.93 per share, for the first nine months of 2015. Adjusted EBITDA was $160.9 million for the first nine months of 2016 compared to $268.5 million for the first nine months of 2015. (Special items and Adjusted EBITDA for the respective periods are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)



Balance Sheet and Cash Flow
As of May 31, 2016, the Company’s unrestricted cash and cash equivalents and marketable securities (including current and noncurrent) totaled $643.2 million, compared to $794.2 million as of August 31, 2015. The decrease was primarily attributable to $101.2 million paid to acquire Career Partner GmbH and capital expenditures.
Total debt outstanding (including short-term borrowings and the current portion of long-term debt) was $62.1 million as of May 31, 2016.
Business Outlook
Due to the pending merger transaction announced February 8, 2016, the Company is not providing an updated financial outlook at this time.
Conference Call Information
In light of the pending merger, the Company will not be hosting an investor conference call following the issuance of its fiscal year 2016 third quarter earnings press release.
About Apollo Education Group, Inc.
Apollo Education Group, Inc. is one of the world’s largest private education providers, serving students since 1973. Through its subsidiaries, Apollo Education Group offers undergraduate, graduate, certificate and nondegree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad. For more information about Apollo Education Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company’s website at www.apollo.edu.



Apollo Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Net revenue
$
558,002

 
$
676,358

 
$
1,609,371

 
$
1,965,986

Costs and expenses:
 
 
 
 
 
 
 
Instructional and student advisory
274,486

 
294,841

 
836,453

 
907,348

Marketing
87,530

 
116,839

 
279,128

 
369,120

Admissions advisory
30,192

 
52,994

 
94,500

 
167,919

General and administrative
59,066

 
64,437

 
192,300

 
206,215

Depreciation and amortization
28,330

 
29,969

 
82,478

 
95,705

Provision for uncollectible accounts receivable
15,716

 
13,005

 
43,812

 
42,372

Restructuring and impairment charges
22,366

 
11,444

 
149,578

 
52,722

Merger, acquisition and other related costs (credit), net
8,317

 
(455
)
 
25,188

 
4,506

Litigation charge
—

 
—

 
—

 
100

Total costs and expenses
526,003

 
583,074

 
1,703,437

 
1,846,007

Operating income (loss)
31,999

 
93,284

 
(94,066
)
 
119,979

Interest income
1,041

 
762

 
2,883

 
2,091

Interest expense
(1,569
)
 
(1,715
)
 
(4,997
)
 
(5,116
)
Other loss, net
(273
)
 
(2,038
)
 
(2,229
)
 
(4,480
)
Income (loss) from continuing operations before income taxes
31,198

 
90,293

 
(98,409
)
 
112,474

Provision for income taxes
(11,399
)
 
(40,667
)
 
(3,796
)
 
(53,797
)
Income (loss) from continuing operations
19,799

 
49,626

 
(102,205
)
 
58,677

Loss from discontinued operations, net of tax
—

 
(2,186
)
 
(3,259
)
 
(14,906
)
Net income (loss)
19,799

 
47,440

 
(105,464
)
 
43,771

Net loss attributable to noncontrolling interests
945

 
624

 
5,047

 
4,468

Net income (loss) attributable to Apollo
$
20,744

 
$
48,064

 
$
(100,417
)
 
$
48,239

Earnings (loss) per share - Basic:
 
 
 
 
 
 
 
Continuing operations attributable to Apollo
$
0.19

 
$
0.47

 
$
(0.89
)
 
$
0.59

Discontinued operations attributable to Apollo
—

 
(0.02
)
 
(0.03
)
 
(0.14
)
Basic income (loss) per share attributable to Apollo
$
0.19

 
$
0.45

 
$
(0.92
)
 
$
0.45

Earnings (loss) per share - Diluted:
 
 
 
 
 
 
 
Continuing operations attributable to Apollo
$
0.19

 
$
0.46

 
$
(0.89
)
 
$
0.58

Discontinued operations attributable to Apollo
—

 
(0.02
)
 
(0.03
)
 
(0.14
)
Diluted income (loss) per share attributable to Apollo
$
0.19

 
$
0.44

 
$
(0.92
)
 
$
0.44

Basic weighted average shares outstanding
108,658

 
107,678

 
108,567

 
108,140

Diluted weighted average shares outstanding
109,444

 
108,623

 
108,567

 
109,124




Apollo Education Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
As of
($ in thousands)
May 31,
2016
 
August 31,
2015
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
361,526

 
$
503,705

Restricted cash and cash equivalents
185,320

 
198,369

Marketable securities
242,301

 
194,676

Accounts receivable, net
193,477

 
198,459

Prepaid taxes
29,165

 
38,371

Other current assets
53,201

 
48,823

Assets of business held for sale
—

 
40,897

Total current assets
1,064,990

 
1,223,300

Marketable securities
39,323

 
95,815

Property and equipment, net
343,094

 
370,281

Goodwill
265,765

 
247,190

Intangible assets, net
200,756

 
143,244

Deferred taxes
93,772

 
92,105

Other assets
29,926

 
29,129

Total assets
$
2,037,626

 
$
2,201,064

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Short-term borrowings and current portion of long-term debt
$
19,514

 
$
14,080

Accounts payable
56,297

 
64,100

Student deposits
213,986

 
245,470

Deferred revenue
185,025

 
186,950

Accrued and other current liabilities
248,863

 
280,847

Liabilities of business held for sale
—

 
40,897

Total current liabilities
723,685

 
832,344

Long-term debt
42,597

 
31,566

Deferred taxes
16,924

 
7,729

Other long-term liabilities
182,491

 
172,452

Total liabilities
965,697

 
1,044,091

Commitments and contingencies
 
 
 
Redeemable noncontrolling interests
7,204

 
11,915

Shareholders’ equity:
 
 
 
Preferred stock, no par value
—

 
—

Apollo Class A nonvoting common stock, no par value
103

 
103

Apollo Class B voting common stock, no par value
1

 
1

Additional paid-in capital
—

 
—

Apollo Class A treasury stock, at cost
(3,915,279
)
 
(3,928,419
)
Retained earnings
5,061,631

 
5,153,452

Accumulated other comprehensive loss
(82,286
)
 
(80,579
)
Total Apollo shareholders’ equity
1,064,170

 
1,144,558

Noncontrolling interests
555

 
500

Total equity
1,064,725

 
1,145,058

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
2,037,626

 
$
2,201,064






Apollo Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
Operating activities:
 
 
 
Net (loss) income
$
(105,464
)
 
$
43,771

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Share-based compensation
27,318

 
29,768

Excess tax benefits from share-based compensation
—

 
(236
)
Depreciation and amortization
82,478

 
101,779

Accelerated depreciation included in restructuring
12,262

 
7,207

Impairment charges and loss on asset dispositions
76,470

 
22,228

Non-cash foreign currency loss, net
492

 
1,722

Provision for uncollectible accounts receivable
43,812

 
42,372

Deferred income taxes
(6,175
)
 
(12,471
)
Changes in assets and liabilities, excluding the impact of acquisitions:
 
 
 

Restricted cash and cash equivalents
13,567

 
5,529

Accounts receivable
(37,296
)
 
(51,555
)
Prepaid taxes
8,104

 
21,038

Other assets
(684
)
 
(1,974
)
Accounts payable
(8,872
)
 
7,753

Student deposits
(32,002
)
 
(25,918
)
Deferred revenue
(28,564
)
 
22,677

Accrued and other liabilities
(35,813
)
 
(89,987
)
Net cash provided by operating activities
9,633

 
123,703

Investing activities:
 
 
 
Purchases of property and equipment
(51,414
)
 
(74,254
)
Purchases of marketable securities
(203,504
)
 
(156,465
)
Maturities and sales of marketable securities
208,360

 
156,337

Acquisitions, net of cash acquired
(101,196
)
 
(21,166
)
Other investing activities
(727
)
 
(14,216
)
Net cash used in investing activities
(148,481
)
 
(109,764
)
Financing activities:
 
 
 
Payments on borrowings
(63,785
)
 
(605,214
)
Proceeds from borrowings
56,961

 
4,515

Share repurchases
(732
)
 
(40,700
)
Share reissuances
638

 
995

Excess tax benefits from share-based compensation
—

 
236

Payment for contingent consideration
—

 
(21,371
)
Net cash used in financing activities
(6,918
)
 
(661,539
)
Exchange rate effect on cash and cash equivalents
3,587

 
(3,991
)
Net decrease in cash and cash equivalents
(142,179
)
 
(651,591
)
Cash and cash equivalents, beginning of period
503,705

 
1,228,813

Cash and cash equivalents, end of period
$
361,526

 
$
577,222

Supplemental disclosure of cash flow and non-cash information:
 

 
 

Cash paid for income taxes, net of refunds
$
1,144

 
$
36,545

Cash paid for interest
5,081

 
5,134

Restricted stock units vested and released
2,083

 
7,407






Apollo Education Group, Inc. and Subsidiaries
Segment Data and University of Phoenix Operating Metrics
(Unaudited)
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Net revenue:
 
 
 
 
 
 
 
University of Phoenix:
 
 
 
 
 
 
 
Degree seeking gross revenues(1)
$
474,749

 
$
625,949

 
$
1,412,637

 
$
1,825,254

Less: Discounts and other
(61,010
)
 
(79,362
)
 
(188,741
)
 
(219,315
)
Degree seeking net revenues(1)
413,739

 
546,587

 
1,223,896

 
1,605,939

Other revenues
10,740

 
14,105

 
28,156

 
35,375

Total University of Phoenix
424,479

 
560,692

 
1,252,052

 
1,641,314

Apollo Global
125,007

 
109,622

 
334,135

 
305,862

Other
8,516

 
6,044

 
23,184

 
18,810

Net revenue
$
558,002

 
$
676,358

 
$
1,609,371

 
$
1,965,986

Operating income (loss):
 
 
 
 
 
 
 
University of Phoenix
$
59,681

 
$
103,395

 
$
33,099

 
$
216,776

Apollo Global
(459
)
 
5,465

 
(29,677
)
 
(26,918
)
Other
(27,223
)
 
(15,576
)
 
(97,488
)
 
(69,879
)
Operating income (loss)
$
31,999

 
$
93,284

 
$
(94,066
)
 
$
119,979

(1) Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs or certificate programs of at least 18 credits in length with some course applicability into a related degree program.
University of Phoenix Enrollment Data:
(Rounded to the nearest hundred, except per degreed enrollment)
Three Months Ended May 31,
 
 
 
Nine Months Ended May 31,
2016
 
2015
 
% Change
 
 
 
2016
 
2015
 
% Change
Degreed Enrollment(1), (2)
155,600

 
206,900

 
(24.8
)%
 
 
Average Degreed Enrollment(2), (4)
171,400

 
220,400

 
(22.2
)%
New Degreed Enrollment(3)
17,900

 
29,400

 
(39.1
)%
 
 
Aggregate New Degreed Enrollment
59,600

 
97,300

 
(38.7
)%
Degree seeking net revenues per degreed enrollment
$
2,659

 
$
2,642

 
 
 
 
 
 
 
 
 
 
(1) Represents students enrolled in a degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter; students who previously graduated from one degree program and started a new degree program in the quarter (e.g., a graduate of an associate’s degree program returns for a bachelor’s degree); and students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.
(2) As described in Footnote 1, Degreed Enrollment includes students who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter. The proportion of students included in Degreed Enrollment who have completed their academic work but not yet formally graduated (“academically complete students”) increased during the third quarter of fiscal year 2016 compared to the prior year period due to changes in the manner in which graduation applications are processed. We estimate that the number of academically complete students reflected in this increase is approximately 2,000 - 3,000.
(3) Represents new students and students who have been out of attendance for more than 12 months who enroll in a degree program and start a credit bearing course in the quarter; students who have previously graduated from a degree program and start a new degree program in the quarter; and students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program.
(4) Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective periods.







Apollo Education Group, Inc. and Subsidiaries
Reconciliation of GAAP Financial Information to Non-GAAP Financial Information
(Unaudited)
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
(In thousands, except per share data)
2016
 
2015
 
2016
 
2015
Net income (loss) attributable to Apollo, as reported
$
20,744

 
$
48,064

 
$
(100,417
)
 
$
48,239

Less: Loss from discontinued operations, net of tax
—

 
(2,186
)
 
(3,259
)
 
(14,906
)
Income (loss) from continuing operations attributable to Apollo
20,744

 
50,250

 
(97,158
)
 
63,145

Special items:
 
 
 
 
 
 
 
Restructuring and impairment charges(1)
22,366

 
11,444

 
149,578

 
52,722

Merger, acquisition and other related costs (credit), net
8,317

 
(455
)
 
25,188

 
4,506

Litigation charge
—

 
—

 
—

 
100

Special items before income taxes
30,683

 
10,989

 
174,766

 
57,328

Less: income tax effects of special items
(10,972
)
 
(4,532
)
 
(37,262
)
 
(21,747
)
Tax expense from resolution with tax authority
—

 
3,002

 
—

 
3,002

Special items, net of income taxes
19,711

 
9,459

 
137,504

 
38,583

Income from continuing operations attributable to Apollo, excluding special items
$
40,455

 
$
59,709

 
$
40,346

 
$
101,728

Diluted income (loss) per share from continuing operations attributable to Apollo, as reported
$
0.19

 
$
0.46

 
$
(0.89
)
 
$
0.58

Diluted income per share from continuing operations attributable to Apollo, excluding special items
$
0.37

 
$
0.55

 
$
0.37

 
$
0.93

(1) During the first quarter of fiscal year 2016, we recorded $73.4 million of goodwill impairment charges.

Reconciliation of Adjusted EBITDA to Net Income (Loss)
 
Three Months Ended
May 31,
 
Nine Months Ended
May 31,
($ in thousands)
2016
 
2015
 
2016
 
2015
Adjusted EBITDA:
 
 
 
 
 
 
 
University of Phoenix
$
93,326

 
$
129,644

 
$
205,345

 
$
315,986

Apollo Global
11,374

 
12,481

 
2,221

 
771

Other
(13,961
)
 
(9,921
)
 
(46,617
)
 
(48,225
)
Adjusted EBITDA
90,739

 
132,204

 
160,949

 
268,532

Less: Special items before income taxes (see above table)
30,683

 
10,989

 
174,766

 
57,328

Less: Depreciation and amortization
28,330

 
29,969

 
82,478

 
95,705

Less: Interest expense, net of interest income
528

 
953

 
2,114

 
3,025

Less: Provision for income taxes
11,399

 
40,667

 
3,796

 
53,797

Plus: Loss from discontinued operations, net of tax
—

 
(2,186
)
 
(3,259
)
 
(14,906
)
Net income (loss), as reported
$
19,799

 
$
47,440

 
$
(105,464
)
 
$
43,771





Use of Non-GAAP Financial Information
The Company’s non-GAAP financial measures are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because: (i) such measures provide an additional analytical tool to clarify the Company’s results from operations and help to identify underlying trends in its results of operations; (ii) as to the non-GAAP earnings measures, such measures help compare the Company’s performance on a consistent basis across time periods; and (iii) these non-GAAP measures are employed by the Company’s management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in the non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate non-GAAP financial measures differently, limiting their usefulness as a comparative measure across companies.
“Adjusted EBITDA” is earnings from continuing operations before interest expense and interest income, income taxes, depreciation and amortization, and special items. It is intended to provide an indicator of our operating performance across time periods.
Forward-Looking Statements Safe Harbor
Statements about Apollo Education Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Education Group’s future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including, without limitation: (i) the timing of the completion of the previously announced pending merger transaction with AP VIII Queso Holdings, L.P., an affiliate of Apollo Management VIII, L.P., which is a fund managed by an affiliate of Apollo Global Management, LLC, an entity unrelated to Apollo Education Group; (ii) the inability to complete the merger due to the failure to satisfy customary and other conditions to completion of the merger, including receipt of required regulatory approvals; (iii) the risk that regulatory agencies impose restrictions, limitations, costs, divestitures or other conditions in connection with providing regulatory approval of the merger; (iv) the outcome of pending or potential litigation or governmental investigations; (v) disruptions resulting from the proposed merger making it more difficult for Apollo Education Group to maintain relationships with its students, customers, employees, suppliers and strategic partners; (vi) competitive responses to the proposed merger; (vii) unexpected costs, liabilities, charges or expenses resulting from the merger; (viii) the inability to obtain, renew or modify permits in a timely manner, or comply with government regulations; (ix) the inability to retain key personnel of Apollo Education Group or its subsidiaries; (x) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, including a termination of the merger agreement under circumstances that could require Apollo Education Group to pay a termination fee; (xi) unexpected expenses or other challenges in integrating acquired businesses, student, consumer or regulatory impact arising from consummation of such acquisitions, and unexpected changes or developments in the acquired businesses; (xii) diversion of management’s attention from ongoing business concerns; (xiii) limitations placed on Apollo Education Group’s ability to operate its business by the merger agreement; (xiv) the impact of increased competition from traditional public universities and proprietary educational institutions; (xv) the impact of the initiatives to transform University of Phoenix into a more-focused, higher-retaining and less-complex institution, including the near-term impact on enrollment; (xvi) the impact of Apollo Education Group’s ongoing restructuring and cost-reduction initiatives; (xvii) impacts from actions taken by our regulators that could affect University of Phoenix’s eligibility to participate in or the manner in which it participates in U.S. Federal and state student financial aid programs, including the recent requirement that all substantial changes be approved by the U.S.



Department of Education in advance; (xviii) further delay in University of Phoenix’s pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs, or any limitations or qualifications imposed in connection with any recertification; (xix) the impact of any reduction in financial aid available to students, including active and retired military personnel, due to the U.S. government deficit reduction proposals, debt ceiling limitations, budget sequestration or otherwise; (xx) changes in regulation of the U.S. education industry and eligibility of proprietary schools to participate in U.S. Federal student financial aid programs; (xxi) changes in University of Phoenix’s enrollment or student mix; (xxii) the impact on student enrollments of the announcement of the proposed merger and general economic conditions; (xxiii) the impact of third party claims that Apollo Education Group’s products and services infringe their intellectual property rights; and (xxiv) fluctuations in non-U.S. currencies that could impact reported operating results of foreign subsidiaries. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Education Group’s Form 10-K for fiscal year 2015, filed with the Securities and Exchange Commission (the “SEC”) on October 22, 2015, Form 10-Q for the quarterly period ended May 31, 2016, filed with the SEC on July 7, 2016, and other filings with the SEC which are available at www.apollo.edu. The cautionary statements referred to above also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by Apollo Education Group or persons acting on Apollo Education Group’s behalf. Apollo Education Group undertakes no obligation to publicly update or revise any forward-looking statements for any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, Apollo Education Group cannot guarantee future results, events, levels of activity, performance, or achievements.
Investor Relations Contact:
Beth Coronelli, (312) 660-2059
beth.coronelli@apollo.edu
Media Contact:
Media Relations Hotline, (602) 254-0086
media@apollo.edu

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