Aramark (ARMK) 2011 Q1 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the ARAMARK Corporation first-quarter 2011 earnings conference call. At this time I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. At the request of the Company we will open up the conference for questions after the presentation.

I will now turn the call over to Chris Holland, Senior Vice President and Treasurer. Please proceed, Chris.

Thank you and welcome to ARAMARK Corporation's conference call to review the results of our first quarter of fiscal 2011. Here with me today is Fred Sutherland, our Executive Vice President and Chief Financial Officer. Fred and I will present an overview of our first-quarter results and business operations, after which there will be an opportunity for phone-in participants to ask questions.

I would like to remind you that any recording or other use or transmission of this audio may not be done without the prior written consent of ARAMARK. As we discuss the results for the quarter you may want to refer to the Form 10-Q we filed earlier today, which contains our first-quarter results for fiscal 2011. This Form 10-Q can be found on our website at www.ARAMARK.com.

In today's discussion of results we mention certain non-GAAP financial measures. The Form 10-Q as well as schedules we have to our website earlier today include reconciliations of these non-GAAP financial measures to the most comparable GAAP measures as required by SEC rules.

Our discussion of operating income during today's call will in each instance exclude the incremental intangibles amortization and property and equipment depreciation expense resulting from the going private transaction and the impact of stock option expense. These items are detailed in the schedules posted to our website before the call.

Various remarks that we may make in this call relating to matters that are not historical facts, including remarks about future expectations, anticipation, beliefs, estimates, plans, and prospects, constitute forward-looking statements. Actual results may differ materially from those expressed or implied as a result of various risk, uncertainties, and important factors including those discussed in the Risk Factors, MD&A, and other sections of our Form 10-K and the Form 10-Q filed earlier today. We disclaim any duty to update or revise such forward-looking statements whether as a result of future events or otherwise.

I would like to now turn the program over to Fred.

Good afternoon and thank you for joining us for our first-quarter 2011 results call. As Chris said, I would like to review our business and operating results, and then Chris will cover a few additional details on our performance for the quarter.

Overall we were really quite pleased with our start for fiscal 2011. The economic environment remained somewhat uncertain, but the stability and signs of improvement we saw emerging late in 2010 have continued into our first fiscal quarter. Our efforts in recent quarters on driving operating efficiencies and more effectively managing our cost structure, together with benefits we are seeing from our new sales wins over the past 12 months, have helped us get off to a solid start for the year.

While we remain cautious in our expectations for future economic growth and are not yet seeing signs of material improvement and employment levels, our balanced portfolio has and should continue to provide us a strong foundation. So now let me turn to our consolidated results for the quarter.

We achieved sales of $3.3 billion, up 4% from the prior year quarter on both an as-reported and organic growth basis. Operating income, which is adjusted to exclude the items Chris described earlier, increased 10% to $205 million. The impact of currency translation was minimal in the quarter.

In our North American Food and Support Services segment, first-quarter sales were up 4% also on a reported and organic basis to $2.3 billion, led primarily by higher education, K-12, and our business and industry group.

Our business and industry sector had sales increase at a mid-single-digit rate, primarily from a solid base business growth in both food and facilities services. During the first quarter we did see a continuation of improved discretionary spending on the part of our corporate clients that started in late fiscal 2010, while employee population levels in most of our accounts remained relatively flat. While these trends are generally positive, we will likely need to have increasing employee populations within our client locations in order to generate sustained improvements in organic sales in this sector.

The education sector had low double-digit growth led by strong base business growth in the higher education food and facilities business and excellent new business growth in K-12 food, as a result of a strong new sales year for the business in fiscal 2010.

In the healthcare sector, sales grew in the low single digits, primarily as a result of solid base and new business growth in our clinical technology services business.

Our sports and entertainment sector had a sales decline at a high single-digit rate, primarily due to the impact of prior-year lost business and as well significantly fewer major league baseball playoff games this year versus last year. Across our portfolio of stadiums and arenas, we have in general seen somewhat improved levels of attendance and per capita spending in comparison to the prior year, although the results are as always further affected by individual team performance.

Adjusted operating income in the North American Food and Support Services segment increased 14% to $156 million, with higher education and healthcare delivering strong profit growth in the quarter. Results for the quarter include other income recognized related to a compensation agreement signed with the National Parks Service under which they agreed to pay down a portion of our investment in one of our concession contracts. This other income contributed approximately 6 percentage points of the segment's growth for the quarter.

Absent this other income, profit and margin performance was still very solid in the quarter, reflecting the improved levels of organic sales growth, the strength of our higher education business, which has particular prominence in our first fiscal quarter, as well as our efforts to continue to efficiently manage our cost structure.

Now turning to our International Food and Support Services segment, first-quarter sales of $672 million were up 6% on both a reported and organic basis. Strong sales growth in many of our countries, particularly Germany and in South America, more than offset negative organic growth in the UK and Ireland. We also saw especially strong sales growth in China, which benefited from our operations at the Asian Games during the quarter.

First-quarter adjusted operating income was $15.4 million compared to $24.4 million in the prior year, with Germany and Japan delivering solid profit performance in the quarter. Now included in the results for the quarter was approximately $7 million of expenses related to efficiency and cost reduction initiatives, including severance charges taken across several of our country operations.

The comparison to the prior year is also negatively affected by, as we mentioned last year, the continuing challenging operating environment in the UK, as well as approximately $2.6 million in VAT income that was recorded in the first quarter of fiscal 2010.

In our Uniform and Career Apparel segment, first-quarter sales of $384 million were up 1% from a year ago, primarily driven by improved sales performance at Galls. This segment's overall organic sales growth was comparable to the reported increase.

The uniform business, which as you know is sensitive to employment levels, and while we continue to see headcount stability among our clients, we ultimately need to see growth in employment among our clients for this segment to begin to generate materially improved levels of sales performance. Therefore, our sales outlook for the segment will remain cautious until we see signs of meaningful and sustained employment growth.

In the meantime, our team has focused to continue to drive efficiencies throughout the business and aggressively manage our cost structure while delivering quality service to our clients and customers. Price competition remains difficult, but we will continue to be disciplined as we sign new business and seek to retain profitable business.

Uniform segment adjusted operating income was $42 million, up 30% from $32.4 million in the year-ago quarter. About half of the year-over-year profit increase was due to a reduction in insurance reserves due to favorable claims experience resulting from our strong safety programs and improving safety performance. Adjusting for this item, profit results were still strong, reflecting the full realization of operating efficiencies from the integration of our direct marketing business, which we completed last year; a continued focus on driving cost efficiencies across the rental operations; and improved profit performance at Galls.

Corporate expenses, adjusted to exclude the items that Chris described earlier, were $8.2 million in the quarter compared to $7.1 million in the year-ago quarter, primarily as a result of expenses associated with cost reduction and efficiency initiatives, which will benefit future quarters.

So at this point let me turn it back over to Chris for some additional details.

Thanks, Fred. I would like to make a few comments on our capital structure and cash flow. We are pleased that for the trailing 12 months ending December 31, 2010, our adjusted EBITDA increased to $1.051 billion, up from $1.036 billion at October 1, 2010.

Interest and other financing costs were $109.1 million for the first quarter, level with the year-ago quarter's expense. Approximately 75% of our debt portfolio is at fixed interest rates, and our overall weighted average cost of debt at quarter end was approximately 6.5%.

Total reported debt at the end of the quarter was $5.779 billion. Our secured debt, as defined in our credit agreement, totaled $3.47 billion including a term loan balance of $3.296 billion and a revolver balance of $129 million. Our $250 million accounts receivable securitization facility was also fully utilized as of quarter end.

Beginning in fiscal 2011, new accounting guidance changed the way we record our accounts receivable facility on a prospective basis. The funding under this facility is now accounted for as a secured borrowing and not a sale of receivables and, as such, is reflected in our total reported debt balance of $5.779 billion. The funding has always been included as part of our secured and total debt calculations under our senior secured credit agreement and as described in prior quarterly calls and various analyst conference presentations. So there is no change to any of these calculations.

While this change is cash-flow neutral, it is reflected on the cash flow statement as a use of cash in operating activities and a source of cash in financing activities during fiscal 2011.

We continue to enjoy a strong liquidity position. As of quarter end we had approximately $450 million of available borrowing capacity under our revolving credit facility. Based on our growth in trailing EBITDA and lower debt levels compared to the same quarter last year, our secured debt ratio improved to 3.47 times as of December 31 compared to 3.70 times at the end of the year-ago quarter.

Net capital expenditures for the quarter were $54 million compared to $58 million in the prior-year quarter as we continue to maintain a disciplined approach as we evaluate and invest in new opportunities. For the full year we would expect that net capital expenditures would be somewhat higher than prior-year levels.

Finally, consistent with historical patterns, working capital was a use of cash for us during the first quarter and was in line with our expectations. As we have previously mentioned, for the full year of fiscal 2011 we anticipate that working capital will be a more typical use of cash for us overall.

Now let me turn to call back to Fred.

Thanks, Chris. Considering the still uncertain economic environment, we are pleased with our solid overall performance during the first quarter and with our start to fiscal 2011. Both our top- and bottom-line performance has improved sequentially as we continue to see stability in our cyclical businesses and more typically solid performance in our other sectors.

While we remain cautious given the still unclear outlook for employment growth, we are benefiting from a portfolio of sectors, geographies, and clients that provides us with a good balance overall. We also have and will maintain a heightened focus on managing our cost and cash flow as we move through 2011.

Having come through a very challenging environment in recent years, we continue to be quite excited about the longer-term growth opportunities we see as we look across our portfolio of businesses and sectors. In addition, we also have a more efficient cost structure now, and we are continuing to look for ways to further improve the efficiency and the effectiveness of our operations.

So thank you again for your time this afternoon and for your continued support of ARAMARK. At this point we would be happy to take your questions.

(Operator Instructions) Karru Martinson, Deutsche Bank.

In terms of the price competition that you are seeing, I am wondering -- how does that fit in with what we are reading about higher input costs and raw materials? And what is your view on gross margin going forward?

This is Fred, let me answer that business separately with respect to the food and facilities business and the uniform business. In the food and facilities business we actually have a fair amount of flexibility in the menus that we offer and how we move items on the menu from one week to the next. We can do that in response to differential increases in various food items.

Our overall -- the overall food cost inflation that we are seeing right now year-over-year is in the range of about 3%. So while it is clearly up from where it was a while ago, it is still very manageable.

Increasingly, in the food business more and more, a greater and greater percentage of our sales are really direct to the consumer, to the user. So we typically have pricing flexibility there and it doesn't involve a negotiation with a client.

With respect to the uniform business, we are seeing increases in raw material prices, fabric prices, particularly cotton. I think everybody has read about that; it has been written about with respect to the retail clothing industry.

There again, just as we did with fuel costs a few years ago -- which are also up somewhat year-over-year, by the way -- it is something that is generally known throughout the markets in which we compete. We have developed a pretty specific pricing increase strategy, so that we can recapture a good portion, if not, all of those cost increases.

When we go in and talk to our customers they certainly understand what we are talking about and don't disagree with the issue. So we think that both of those are things that we can navigate. We are hopeful that we can.

Okay. You guys have been successful in terms of taking costs out of the business and creating the more efficient cost structure that you referenced. How much more room do you feel is there to take costs out?

Actually we feel there is a fair amount of additional room. The room comes from more systematic operation of the businesses, both the food facilities business and the uniform business, and more standardization of process with regard to labor management and food cost management. That is a multiyear project that we think will continue to benefit us for some time.

Okay. Thank you very much, guys.

Micah Kaplan, Bank of America.

Good afternoon, guys. I guess the last couple quarters the sales growth is not quite as good as this quarter, but it's been pretty good. But you've had I guess -- and especially in the healthcare you mentioned some of the margin compression issues. So it seems like obviously the margins were better this quarter.

Do you feel like you are lapping that on a year-over-year basis, you are mostly through some of those concessions? Or how would you characterize that at this point?

I think we've talked about healthcare the last several quarters. We did about the middle part of last year make some changes to the cost infrastructure within that business, which we are benefiting from now. Also, as we had talked about needing to help existing clients through challenging budgetary situations, I think the team has gotten much more adept at managing those discussions in a way that we are able to maintain levels of profitability through, again, capturing or helping clients reduce costs in other areas where we may have not been servicing them yet.

So I think it is a combination of the business having a much better cost structure and one that is more appropriate for the current environment, as well as the teams in the field much more proactively, aggressively, and I think adeptly dealing with these case-by-case situations where existing clients are, again, trying to work through still-challenging budgetary environments.

So I think we feel certainly better about the business sitting here today and feel good about how we think it will perform the balance of the year.

I see. Is that still primarily -- or even if you are past it now, is it still primarily a healthcare issue? Or has that seeped into some of the other portions of your business?

Again, I think where it has seeped in -- and we've talked about this for a while -- is in those parts of the economy and primarily in the public sector we are seeing very significant sales pipelines where still self-operated school districts, correctional facilities, public-sector hospitals, etc., are increasingly looking at outsourcing as a way to help them deal with what is a challenging environment today and one that sounds like it is going to be with us for a while.

So I think healthcare is I think reasonably unique in that regard; but across a number of those sectors we continue to see very good opportunities on the new business side.

I see. I guess just to clean up it looks like in the EBITDA, in what you guys call your covenant EBITDA I guess, you have the gain from the National Parks Services backed out. But is the risk insurance benefit, is that included in the kind of $305 million EBITDA number that you guys are showing?

It is; and think about that. That is insurance-related expenses that we've incurred in the past really in support of a lot of programs on the safety side that are bearing fruit. So they are real savings we are realizing. And frankly we feel good about our ability to continue to generate improved safety performance over time that will really result in lower insurance, lower claims, etc.

So that amount, which is in the $5 million range just to put a number on it, is not backed out of adjusted EBITDA.

Okay. Then just lastly, you guys obviously have been chipping away at the debt here. Just given where the high yield market is, is potentially putting additional debt on the structure -- is that at least on the table at this point in terms of how you guys think about potential strategic options here?

I think as we have talked about for a long time we are trying to manage the capital structure prudently. We will continue to do that. As we've talked about, we are and have always been looking at acquisitions that we think will strengthen the Company. We want to maintain the flexibility to do that.

Again, in considering other alternatives, the key focus for us is continuing to maintain a capital structure that will allow us to move the Company forward, invest in strategic opportunities, and -- as we've talked over time -- improve the credit profile of the Company over time.

Okay. Thank you.

Bryan Hunt, Wells Fargo Securities.

You mentioned, Chris, a little bit about new contract opportunities. Can you talk about retention rate for the quarter and whether you all picked up any new contract wins during the period?

Retention rates were on plan and very consistent with prior year, so no issues there. As we look out across the rest of the year, we are focused on achieving again a retention target that is in the mid-90% range.

We had a good new sales quarter, and both our gross new sales and our net new sales are up compared to the prior year in the quarter. We've got, again, good wins in healthcare, higher ed. Across a number of our countries, Germany and Chile where we've seen stronger growth on the back of the mining business, we've continued to generate good rates of new business.

As I mentioned, a good pipeline in sectors like corrections and K-12, which we think will bear fruit over the course of the year.

Based on the organic sales growth you all saw in the quarter of a little over 4%, is that reflective of the run rate of your new wins? Or should we expect an accelerating top line?

The thing about Q1 that we always like to caution you about is the higher ed business, which had again a very strong quarter, is an attractive margin business for us. And as Fred said, the education sector grew low double digits for us. It is very prominent in the first quarter; much less prominent in the second and third quarter.

That business, both K-12 and higher ed, had good new sales years last year. That is all reflected in Q1; but it just doesn't represent itself the same way in Q2 and Q3. So that impacts the mix of growth. As we look out over the quarter we would expect to see comparable levels of growth.

Again the new business wins in some of the sectors that occurred during the course of the year only really represent them in the financials in the beginning of Q4, in the education business and K-12 business. So again, we will see what the economy does; but in general I would caution you against thinking that you would see continued acceleration of organic growth as we moved into the second quarter.

Okay. Then shifting gears and looking at the cost line item, Fred, you mentioned about the leverage you have to deal with food inflation in terms of adjusting pricing directly to the consumer and adjusting menu mix.

Do you feel like those levers are less in this environment than they were three years ago when we saw significant food inflation? Or could you talk about maybe what you are doing different today versus three years ago?

I think actually the levers are pretty much the same, and we are really following the same procedures that we followed before. I think we are probably a little more effective and a little quicker and a little more standardized in how we roll them out, because that overall function increasingly is led by a central operation in terms of menu engineering and planning.

Of course we have always had a centralized supply chain function. So I would say those tools are just as effective as they were before.

Of course before we were seeing -- at one point I think it peaked out, inflation rates were probably high single digits year-over-year. So as I mentioned earlier, our inflation is up clearly over the last three to six months, but it is way short of where it was a few years ago as you point out.

I think the other point is the environment is a lot more stable. Think about the end of our fiscal '08, at the time of the Lehman bankruptcy and the uncertainty in the environment. Clearly our clients were in a different mindset than they are today.

So I think the conversations and the ability to move through price increases is somewhat easier today, just given I think what is a much more stable environment and a more stable mindset that both clients and consumers have vis-a-vis again late 2008.

You also mentioned, Fred, that pulling cost out of the business has been a way that you are dealing with some of this inflation. Is there a way you can quantify for us maybe how much cost you pulled out of the business last year?

And then maybe with some of your severance and restructuring charges you took in Q1, what you are looking for in terms of cost savings for this year?

I can say that it is in the -- over the entire organization, certainly in the tens of millions of dollars. I think we are -- in terms of making the overhead structure, the above-the-unit structure more effective we've accomplished a lot of that. Not that there isn't more opportunity.

Where we are more focused really over the longer term is at the unit level, in improving our food cost percentage and improving our labor cost percentage. That is literally through systems at thousands and thousands of locations. So that is something that really requires process change and it takes a while.

When you said tens of millions was that over last year? Or is that something --

No, over the last several years.

Okay. My last question is, you mentioned, Chris, taking additional opportunities to grow the business through acquisition. Has the acquisition environment changed at all with the activities we are seeing from private equity and strategic buyers? Have the multiples got out of hand? Or how are you all looking at the acquisition environment today relative to maybe a year ago?

I think there is certainly more activity as sellers I think now see an environment in the capital markets that will support transactions at more attractive levels, they hope. I think from our perspective, again, multiples are going to need to make sense for us to participate in an acquisition. Right? So I don't think we have yet seen multiples run away in any respects.

I would say that there is more activity, as I think sellers that have been wanting to sell but have had to wait for some period of time are now again more aggressively pursuing that possibility, just given the strength of the capital markets.

Thank you for taking my questions this afternoon.

Carla Casella, JPMorgan.

Most of my questions have been answered, but I guess can you give us a sense for how much of your education business today is in the higher education versus the K-12, and how you see that balance adjusting over time?

It is predominately higher ed, so that is a combined business that is pushing $3 billion overall, and more than two-thirds of that is going to be in the higher ed sector. And higher ed is a higher-margin subsector compared to K-12, so it is much more prominent and important within the education vertical.

Again, we have had terrific performance really over a long period of time in the higher ed business, growing as we talked a lot about -- just growing the base within the existing accounts by capturing more and more of the spend from that on-campus population. We've continued to do that.

I think over the last 12 or 18 months we've had a renewed focus and increased investment in the new sales resources within the business. That paid fruit for us in fiscal 2010. We had a very strong new sales year, and that has certainly contributed to the growth we saw in Q1.

K-12, it was a very nice quarter. We've talked about K-12 over the last couple of years as having some retention challenges. It had a strong retention year in 2010, and a very strong new sales year. So it is very nice to see it contributing to the education sector's growth.

As I said earlier, the pipeline and really the size of the opportunity over time in converting the self-op part of the market in K-12 we think is quite significant.

And just to add to that, there clearly is a significant pressure as we all know on various municipalities and other governmental entities that are in the schools business. And we think that while that put some pressure on our existing relationships, we think net-net, given the fact that as Chris said the vast, the significant majority of the overall market is self-operated and we have a very balanced capability actually and base of business between food and facilities in that, in K-12, that there is a real, very interesting long-term opportunity there given all of those circumstances.

That's great. Thank you.

Reza Vahabzadeh, Barclays Capital.

Good afternoon. Obviously we are talking about the higher education business, and it has been a successful business for you in the past. But the rate of growth in this quarter was certainly above the last couple of years. Anything unique going on in terms of winning share of the pie in this quarter? Was there any changes in number of service days, anything, any kind of color that you can provide on that?

As I had mentioned, historically we've really relied on base business growth as the predominant contributor. Clearly the business was somewhat impacted by the recession, like every part of the economy. So the retail portion of that business we saw come under a little bit of pressure through the depths of the recession.

We've seen some better performance there. And as I said, 2010 was a very strong -- I think historically strong new business year for higher ed. Again, on the back of us making some strategic investments in new business resources. So the contribution from new business in the quarter was certainly much higher than it was in the year-ago quarter.

Got it. As far as the B&I sector, it seemed like this quarter was one of the better quarters in recent times. Is that due to populations, or is that due to spend per person? Any color on the B&I segment?

It is not due to employment increases or population increases in any significant way. So it is due to a combination of an increase per capita or consumer spending, because increasingly these operations are retail operations.

Then secondly, it is due to our corporate clients loosening the purse strings with respect to meeting, catering events, and that sort of thing.

Got it. Then on sports and entertainment side, is that mostly due to losses from prior year? Can you recover from some of these losses in the coming year?

It is actually predominantly related to a loss a couple of years ago. The new Meadowlands is an account that we do not operate. We did operate the old Meadowlands.

That was a contract that again was awarded to somebody else a couple of years ago. It is just that we are now feeling it for the first time, as well as some convention center losses, frankly, that were not profitable last year.

So it is really the impact of those losses that you are seeing in the growth rate. So again, we planned for them; we knew about them; we've known about them for quite some time.

The base in general is more stable, as Fred had said. But clearly new business in that sector is much more spotty, just given the nature of the industry. So nothing unusual or surprising to us in the quarter. It was exactly what we expected.

And as you would expect, given that we are talking about the NFL, the impact of that loss is particularly acute in the first quarter.

The other thing we mentioned was Major League Baseball playoff games. I believe of the decline in sports and entertainment, close to half of it is simply due to a lower number of Major League playoff games for our teams this year versus last year.

Got it. Are you cycling, or have you fully lapped against the loss of Meadowlands then this quarter?

Yes.

Okay, and then the same question regarding the UK B&I sector. Is that -- have you finally bottomed out in that business segment?

Yes, I think the contracts we had talked about, we are now lapped. Now, that environment continues to not be a great environment, as you know. So we still have the challenges with respect to operating in a pressured situation.

But we've lapped the big B&I losses we had talked about last year. We've now lapped.

Fair enough. Then your CapEx guidance for this year -- I know you talked about it in the last quarter. But would it be about the same as 2009, or just somewhat higher than 2010?

I think just somewhat higher than 2010.

Got it. Thank you.

[Ben Fenton], Oak Hill Advisors.

Yes, just a quick question. I didn't catch the Food and Support International organic growth number.

It was 6%.

Great. Thank you.

Karen Eltrich, Goldman Sachs.

Getting back to the pricing, as we look at the revenue growth that we saw this quarter, was any of that pricing? I say that because I did notice that you raised pricing on our sodas here.

You can afford it.

It didn't cut my consumption either. I will say that.

There is some component of pricing; I think relatively modest. But there is some contribution in the 4% from pricing.

But it is not a dominant factor.

Yes, it is --

Getting back to the higher ed, as you mentioned, the focus on same-store sales, how much has restaurant franchising played a factor in growing comp store sales, getting more variety on campus? And how many franchises do you have at this point?

Hundreds of franchises across the portfolio. I think there's 85 Starbucks on campuses that we are now running.

I can't comment off the top of my head on the exact number of franchises but certainly across the portfolio it is hundreds. Again, it is really part of the mix. We try to provide an offering and a choice to the students that is going to maximize their satisfaction and maximize the economics to us and the university.

So it is a combination of our brands and national brands where we think that mix will drive the best outcome. So again, in a more urban environment, where they've got many more choices right out the door, national brands may make a lot more sense. In more rural environments where they are pretty landlocked to the campus, you are more likely to have as good success with our brands.

So it is really just finding the right mix. But both are important in terms of supporting how we are growing the business.

Our overall retail sales on a sector like that are not -- the national brands are important but they are not dominant.

Right.

What are some of the national brands that you tend to partner with, that you get the best results with, besides obviously Starbucks?

Chick-fil-A is a very popular franchise for us. And we've got -- again I think it will depend on the geography -- Subway is another one that we have a lot of success with.

Again, we've got everything in the portfolio, and I'm sure there's examples in locations where each have helped drive good growth.

Great. Thank you very much.

Reza Vahabzadeh, Barclays Capital.

I'm sorry if I missed this, but on the healthcare sector front, are those competitive pressures that you have highlighted in the past, are those continuing? And have you been able to generate enough cost savings to offset that?

Actually somebody had asked that earlier, and we are managing through it in a much better way than a year ago. So again, in addition to have a better cost structure overall, which is helping the results, as we talked about towards the back end of last year, having the teams again have more proactively discussions with clients to help them deal with budgetary pressures in ways that don't just include us reducing our fee or reducing our margin, we've been much more successful and proactive at leading the conversations in a way that we've been able to retain margin and retain profit.

The pressure is still there. I think pressure will be there in that sector for quite some time. But I think we are much more comfortable that we can manage through it.

Thank you much.

That concludes today's question-and-answer session.

Great. Thanks, everybody, for your attendance. We appreciate it. And we hope you have a great afternoon.

Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.