Bright Horizons Family Solutions Inc (BFAM) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for holding. Welcome to Bright Horizons third quarter earnings release call. Your host today is Mr. David Lissy. Mr. Lissy, you may now begin.

Thanks, Chris, and hello to everybody on the call today. Joining me on the call is Elizabeth Boland, as usual, our Chief Financial Officer and we will begin today's call with Elizabeth going through a few administrative matters. Elizabeth.

Thanks, David. Our earnings release went out over the wire just a short while ago after the close of the market. And it is available on our website at BrightHorizons.com. This call is recorded and is being simultaneously webcast and a complete replay will be available in either medium. Anyone wishing to replay the telephone call may call 973-341-3080 and use pincode 657-8923, while the webcast will be available at our website under the Investor Relations section.

In accordance with Regulation FD, we use these conference calls and other similar public forms to provide the public and the investing community with timely information about our business operations and financial performance, along with our current expectations for the future.

We adhere to restrictions on selective disclosure and limit our comments to items previously discussed in these forms. Certain non GAAP financial measures may also be discussed during the call and detailed disclosures, relative to these measures, are included in our press release as well as the Investor Relations section at the website.

The risks and uncertainties that may cause future operating results to vary from those that we described in our forward-looking statements made during this call include one, our ability to execute contracts for new client commitments to enroll children, to retain client contracts and to operate profitably abroad. Two, our ability to successfully integrate acquisitions. Three, the effect of governmental tax policies, fiscal policies on employers considering worksite child care. Four, the capital investment in employee benefit decisions such employers are making and, lastly, the other risk factors which are set forth in our SEC filings including our Form 10-K for 2004.

Back to you, Dave.

Thanks, Elizabeth, and hello to those of you who may have just joined us.

Let me begin today with a recap of our third quarter results and then review our outlook for the remainder of this year and the look ahead to 2006. Elizabeth will then discuss our financial result in more detail before I join you again during Q&A.

Revenue for the quarter of 154 million was up 11% over last year's third quarter, while operating income rose 27% to 14.7 million, up from 11.6 million. Net income of 9 million generated earnings per share of $0.32, up 33% over 2004's third quarter.

This was an exciting quarter for us at Bright Horizons as we completed our previously announced acquisition of Children First on Sept. 12th, opening our first center in Puerto Rico and celebrated the opening of our 100th center outside of the continental United States.

In total we now manage 616 centers, having added 47 new centers, closed six and combined two others into newer, larger centers during the quarter. I am really pleased with the manner in which our team has continued to execute on our plan to expand our operating margins, which has enabled us to deliver strong earnings growth once again this quarter.

Included in our new center openings with the addition of our first center in Puerto Rico, which is our second center for our biotech client Amgen (ph). We have another center for our financial services organization that will open in Puerto Rico next year and have active discussions with several large customers of ours who have locations on the island.

We have also added new centers this past quarter for the Gap in San Francisco, Young Brands in Louisville, Unilever in Connecticut, Union Pacific in Omaha, (indiscernible) Holdings, the owners of the Tigers and the Red Wings in Detroit, the Milton Academy in Massachusetts, Overlook Hospital in New Jersey, the law firm of Covington and Burling in D.C. and a new larger center for Lucas Films at their new headquarters at the Presidio in San Francisco.

Overseas, we added Quick Bit insurance in Glasgow, our sixth center for Pfizer which is in Sandwich, England and our 100th center outside the United States on the campus of the new world headquarters of the Royal Bank of Scotland in Edinburgh.

The 33 ChildrenFirst centers bring an additional 250 client relationships, an important presence in major cities and, when combined with our existing network of backup centers, give us 70 dedicated backup centers across the U.S., Canada and in London. We are particularly excited about the talented team of professionals from ChildrenFirst who've joined the Bright Horizons team.

The addition of their network of high-quality consortium backup centers in cities such as New York, Boston, D.C., Chicago, Minneapolis, L.A. and San Francisco provide for important cross-selling opportunity of backup memberships to legacy Bright Horizon clients.

In addition Bright Horizons' multinational network of centers provides a similar opportunity for the children first legacy clients to serve their work forces across a broader platform. Our sales teams are now combined and are focused on this area.

In addition this consortium network opens up a new market of smaller employers in the 300 to 500 employee range that we never previously targeted as qualified prospects by Bright Horizons.

Our revenue direct growth rate for the quarter was somewhat muted due primarily to comparability with last year's third quarter, whereas as you might remember when we had our first full quarter's contribution from our acquisition of Child & Co in the UK; and we added a much higher than usual number of new centers with a transition to our management of the 26 UAW Ford family centers.

As I have discussed with you in the past, the timing of acquisitions will never be linear. And in most cases, we are not in full control of the exact opening dates of new organic centers given they are being built by our client partners.

The other factor is that the third quarter is also the time of year when we experience our typical seasonality as our older preschoolers graduate in the summer months and we replenish that enrollment in the fall. The impact of this normal cycle has been offset in the last few years due to the timing of newly added transitions and acquisitions.

Thus, the economy of new center additions has in the past and will continue to create some quarter-over-quarter comp variability. That said we'd expect to see an uptick in our top line growth next quarter to approximate the levels we achieved in the first half of the year.

Earnings growth this quarter was driven by revenue growth and by continued expansion of our operating margins. The major factors that continue to influence this strong performance include, first, our ability to maintain optimal staffing patterns and to keep staff turnover low, achieving efficiencies without compromising our high-quality standards.

Second, continuing to pace tuition increases slightly ahead of average wage increases. As expected, we have increased average tuitions by 4 to 5% this year and leverage that against wage increases which continue to be in the 3 to 4% range.

The third factor in our margin improvement is the immediate contribution from centers we outsource and transition to our management and centers we acquire as most of these centers bypass the ramp up phase associated with new centers opening, that open for the first time.

The fourth factor is the contribution from our European operations which continue to perform on plan and provide modest operating margin contribution, as we execute better and leverage the overhead investment we have made with steady growth in both the UK and in Ireland.

Lastly, we have been controlling overhead spending which has remained steady after several quarters of increases, related to our spending for Sarbox compliance.

As we look ahead we continue to see positive trends in sales activity within the more cyclical sectors, such as financial services, professional legal services and consumer goods, resulting in strong activity in our base of precommitment prospects. Our pipeline of more than 50 committed centers now extends through the second quarter of 2007 adding good visibility through 2006 and beyond.

As I have mentioned previously I do want to point out that, given the natural length of our sales cycle, much of this activity may not begin to manifest itself in a meaningful way until later in 2006 and beyond. Acquisitions will continue to play an important role in our growth going forward, as we would expect to see our growth mix continue to approximate 2/3 organic and 1/3 through acquisitions over the next few years.

To that end, we have a team focused on that area and maintain a pipeline of relationships that we expect will form the basis of deals that fit our stringent criteria for acquisitions.

I also wanted to briefly update you today on our schools division and on our European operations. As you know, September marks the start of the school year and this fall, we've seen strong enrollment at our schools with total enrollment up just over 5% from last fall.

We are encouraged by this great start to the year and anticipate another successful school year across our network of six elementary schools. We hope to add to that network in the next year or two as we view schools as an attractive growth area, both because of the natural extension of our educational offerings to children and because of the strong financial performance.

To that end, we are actively pursuing expansion opportunities in existing markets and exploring new locations that make sense for us to either acquire or to build new schools.

In Europe we continue to see revenue growth in improving operating margins as our movement towards newer larger centers provides a platform for topline growth and leverage at the margin level. We view our investment and overhead as an important piece of our long-term strategy such that our management team and infrastructure in the UK and Ireland is largely self-sufficient.

Last month, Mary Ann Tocio, our President and Chief Operating Officer, and I attended our European leadership conference where all of our managers from the UK and Ireland gathered over a three-day period. We came away more convinced than ever that we are building an organization in Europe for the long run that reflects the strong mission orientation, commitment to quality, sense of urgency and focus on results that have been the hallmarks of our success here in the U.S. over the past 19 years.

Let me now turn turn and update you on our guidance for the rest of this year and give you an early view on 2006.

We are projecting revenue for fiscal year 2005 to approximate 630 million and are again raising our full year earnings per share projections to a range of $1.27 to $1.28.

As we look ahead to 2006, we expect revenue growth to continue in the midteens and to improve our operating margins once again next year through a combination of center margin improvements and overhead leverage. We have been very pleased to exceed even our own earnings expectation for the past few years.

In fact we started this year with an EPS projection of approximately $1.15. As we think about the business and the long-term three to five years out, we believe we can sustain 25 to 50 basis points of annual operating margin improvement.

For 2006, we expect this margin expansion to approximate 40 to 60 basis points and are therefore targeting 2006 earnings per share in the range of $1.51 to $1.56.

Finally before I turn it over to Elizabeth, Working Mother magazine recently announced its 2005 list of the 100 Best Companies for Working Mothers. This year nearly two-thirds of employers on this prestigious list are Bright Horizons' clients including nine of the top 10.

This list, along with Fortune's list of Best Places To Work serve as the gold standard scorecards for companies who exemplify best practices around attracting, retaining, and maximizing the productivity of working parents.

Women with children under the age of 6 have been the single fastest-growing segment of the American workforce since 1980 and are a vital part of our economy today. While it is true, as some in the media would point out, that this growth rate has slowed in recent years, the fact remains that economies around the world are dependent and will continue to be dependent on the contribution of working mothers and dual working parent families in order to continue to grow and thrive.

When you couple these demographic forces with the lack of supply of high-quality child care and early education in virtually every area in which we operate, the business case that supports the continued demand for our services is clear.

Now let me turn it over Elizabeth to talk to you a little more about our financial results in more detail and I will be back with you again in Q&A.

Again to set the stage for the financial discussion, revenue of 154 million was up 16 million or 11% from the third quarter of '04. Operating income in the quarter increased to 9.5% from 8.3% in 2004 while net income rose 2.3 million to 9 million. EPS of $0.32 a share is up 33% from the $0.24 a share we reported for Q3 of last year on about a 2.5% increase in weighted average shares outstanding.

Revenue growth continues to be driven by three main components. Growth in the number of centers or the capacity that we manage, additional enrollment in ramping as well as mature centers, and price increases. We have added a total of 61 centers net of closures over the last 12 months.

In addition to the first-year revenues contributed by this class of new centers, we added over 50 centers in 2004 that also further contribute to revenue growth this year as they ramp up enrollment and/or contribute a full year of operating performance.

Lastly, annual price increases continued to approximate 4 to 5% across our network.

As Dave explained, the timing of center openings and specifically of acquisitions in transition is not linear. This is reflected in the slightly lower revenue growth rate this quarter as the high level of additions early in Q3 of '04, coupled with the incremental effect of the full quarter of the Child & Co. acquisition set a relatively higher revenue base we comparing against this year.

The new centers we've added this quarter and the ChildrenFirst acquisition will contribute more significantly in the fourth quarter of 2005.

In addition, we typically have a modest seasonal school year effect arising from the departure of older preschoolers and kindergartners over the summer months. This enrollment churn affects revenue modestly but has a lesser effect on profitability as we adjust staffing levels accordingly. Of course, many of you might remember that in our cost-plus contracts, this enrollment seasonality has a direct impact on revenue with a 0 effect on our profitability due to our fixed management fee arrangement.

With this normal seasonality enrollment levels continue to be strong but has stabilized at levels again consistent with the prior year, much as we would expect at this time of year.

The backflowing of enrollment occurs throughout the fall both from new children entering our program, as well as current attendees ageing up into older classroom brackets.

The trend in center margin improvement continued this quarter with margins increasing to 18% versus 16.5% in the third quarter of '04. Dave touched on the primary factors in improved margins. First, pricing discipline such that tuition increases modestly exceed personnel cost increases. Second, labor cost management in operating efficiencies. And third, contributions from new cost-plus centers, acquisitions, and transitions in management of existing programs which contribute right away as well as improved performance in our UK operations compared to the prior year.

Turning to overhead, SG&A as a percentage of revenue was 8.2% in the third quarter of '05, up over prior year levels but essentially flat with the last several quarters. As we've previously discussed the ongoing spending for Sarbanes-Oxley compliance, which is now embedded in our quarterly spending, caused an uptick in overhead rates in late 2004. We do expect to regain our trend in overhead leverage with future growth.

At this point, let me give you some specific information about the financial impact of adding the 33 ChildrenFirst back-up centers to our mix.

This acquisition closed on Sept. 12th, therefore contributing modestly to the current quarter. These centers generate approximately 31 million per year in revenue. In future periods, they will affect several of our key income statement metrics.

First, gross margins will be higher because 24 of these backup centers operate for a consortium of employers, serving more than 250 clients through memberships in the centers. And they generate margins of approximately 30%. The remaining nine centers are for individual clients and operate at margins closer to the 20% we see in the rest of our backup centers.

Secondly, the SG&A will also be higher because the overhead required to support the sales in client relations efforts are proportionally more intensive than our existing base business. We therefore estimate that these centers will contribute operating income after the effects of amortization for the -- associated with the purchase price at rates slightly ahead of the 9.5% we are targeting for this year for our existing base.

So turning to amortization. Amortization of intangible assets that are identifiable and require that treatment totaled approximate 450,000 in the third quarter. Now considering the expected effect of acquisitions for the remainder of this year we're projecting amortization to approximate 2 million for the full year in 2005 and 2.8 million on an annualized basis in 2006.

Our strong financial performance so far this year has driven a 27% increase in EBITDA to approximately 55 million for the nine months while capital spending has totaled 10 million so far this year.

We ended the quarter with approximately 29 million in cash as we satisfied the full purchase price of approximately 50 million for ChildrenFirst in cash.

Now I will recap our usual operating statistics. At Sept. 30, we operated 616 centers with a total capacity of 66,300. As in prior periods, 60% of our contracts operate under profit and loss structures, and 40% are cost-plus contracts.

Excluding our 70 backup centers, for whom center capacity is less central to the relative operating performance and the family service and learning centers over the UAW Ford -- which do not have a capacity that is conventional like child care centers -- the average capacity per full-service center is now 129 in the U.S. and 56 in Europe.

Turning to our guidance. Based on the core business performance through September and incremental growth from new center openings including the ChildrenFirst centers, we expect to generate revenue growth of approximately 14 to 15% in Q4, with revenue for the full year approximating 630 million. We expect to be able to sustain the improvement in operating margins for the remainder of 2005, expanding operating income by approximately 100 basis points to 9.5% for the full year.

With an estimated tax rate of 41% and outstanding shares averaging 28.6 million, we are projecting earnings per share for the full year to range from $1.27 to $1.28 per share. For the fourth quarter of '05, that translates to an estimated EPS in the $0.32 to $0.33 range.

At this stage in the year, we are currently completing our annual budgeting process and will come back back to you next quarter with more detailed guidance for '06. In terms of our general outlook, however, the pipeline of new centers under development and the opportunities inherent in the ChildrenFirst performance, we know they will be contributors to our 2006 performance.

We expect to continue this year's revenue growth rate, generating growth in the midteens in 2006 and leveraging operating margins.

Considering the variables that do impact margins such as the tuition and salary pricing power, labor management, enrollment levels, other personnel costs, contract mix, timing of new center openings, and general inflationary conditions, we believe that we will generate 40 to 60 basis points of operating margin improvement in 2006.

The combination of topline growth and margin leverage leads us to project EPS in the range of 151 to 156. That is $1.51 to $1.56 for 2006.

In Q1 of '06 we are estimating EPS at the rate of $0.36 to $0.37 a share.

My last caveat before we turn it over to Q&A is that these figures do exclude the effects of expensing stock options. We will be adopting FAS 123R in January in Q1 of 2006. Given the options currently outstanding and what we project to grant on a routine basis in 2006, we expect the FAS 123 option expense to approximate $0.08 a share for the full year in '06.

With that we will open the call for questions. Chris, we are ready for that first caller.

(OPERATOR INSTRUCTIONS) Michael Lasser of Lehman Brothers.

I'm trying to get little bit more color on the topline I guess by a look at capacity growth throughout this year, you seemed in the high single digits and yet, which is similar to the growth that you achieved last year and perhaps revenue growth was a bit slower than last year so is the reconciliation there enrollments?

And maybe you could provide a little bit more commentary on how enrollments are trending? Are they essentially flat? Is that what it's implied?

A couple of factors. I'll lead off and Dave can interject as well, Michael. The primary factors are really timing of when centers are opening. I think you are right to look at the capacity figures and that's a good quick thumbnail for what we expect to do from the components of revenue growth, new center openings and/or capacity along with rate increases and enrollment ramp in our new -- and ramping centers as well as a mature base.

So the primary factor there is that we had relatively lower openings in Q2 of this year. And we had really strong openings in Q3 of this year, many of which including the ChildrenFirst centers opened in September, so the timing of that just does have an influence on the overall revenue growth rate in what contributes for the quarter.

I think it is a fair point to identify the seasonality effect which is just more visible because of that timing. We do see enrollment fall off in the summer, the older preschoolers actually leave the center's program and our enrollment declines in this quarter in that mature base. It's not a -- as we have said a couple of times in the prepared remarks, it's a normal effect.

What we are seeing the enrollment levels to be right now is, we're consistent with where we were a year ago. Again, so we are back to where we would expect to be at this time of year. It's just not at the same pace of 1 to 2% above which we had seen earlier in the year. So it is just a normal cycling to levels we would see as consistent.

And I guess, Michael, all I'll add to that is we had the same phenomenon happen two years ago if you look at the trends in the third quarter, where we had a very similar comp issue quarter-over-quarter. And then it rebounded in the following quarter and we're expecting to see a similar trend happen this year.

Have you already seen the trend -- revert back to the trend the 1 to 2% enrollment growth?

I think we will be in a better position to comment on that, obviously, when we talk to you next time. But I think it's fair to say we are in the time of year when enrollment is rebounding and we will be in a better position to talk about that with more clarity either.

Have you made any -- as far as your guidance for fiscal year '06, have you made any assumptions with respect to electricity costs for running your centers? I know that it doesn't only impact the P&L centers or health care costs for next year?

A couple things on that. I think it's just instructive to know that even in our P&L centers, we have only about 9% or 10% of our overall cost structure is related to occupancy-related costs. So between the majority of centers being owned by our clients, we don't have as much responsibility for those costs. So it is an element of what we're planning for but we would also look as we do with our personnel cost increases to pass that along as part of our overall assessment of what kind of a tuition increase we should do.

With respect to health care costs, our experience has been reasonably consistent with the overall market. This year, our trending in those costs which were quoted out in the marketplace, medical costs going up in the range of 8 to 15% and then coming down to more like (indiscernible), we would plan for that kind of an increase as well.

But we do pass on as I say most of those costs to our client partners. And we would have cost sharing internally. So we think we've got that covered.

Last question. Are you seeing turnover at a rate consistent with you've seen over the last few quarters in terms of your employees?

I think we are seeing turnover rates maintain the levels we have talked about in the past which is just right around the 20% range. That's held solid.

Colin McCue of Credit Suisse.

It's actually Brandon. Couple questions for you more on kind of the geographic perspective. Want to get your thoughts on Latin America and how it might relate or not relate to what you see in the UK? And within the U.S. maybe some kind of state or metropolitan area breakdowns to get a sense of the scale in certain cities where you've got more operations or less -- that kind of thing.

I'll touch on -- we've expanded obviously this quarter or this past quarter with our first center in Puerto Rico and really that came from interest by an existing clients by Amgen in asking us to come down and take a look. And through that process, much like what originally happened in the UK albeit a much much smaller place, we got a good sense for what is going on with respect to our services on the island and feel really confident that what we are doing is raising the bar dramatically for what the average worker has to choose from on the island in terms of childcare.

Having toured many of the centers on the island myself last summer, I can attest to that personally. I really feel great about what we are doing down there. As you know, it is a place where many major pharmaceutical and financial service companies have hubs. So when we made a decision to go there we did it with the fact, with the mindset that it wouldn't be just for one center.

So we feel good that there will be more centers on Puerto Rico. One more is going to open next year that we know for sure and that will have more going forward. That said, I don't expect you'll see us expand. That seems to be pretty much a natural expansion given Puerto Rico's affiliation with U.S. and the proximity of getting there.

I don't think you'll see us expand into any other countries in the short run. I think we like what is going on in the UK and Ireland and feel the need to focus on that and still felt great about the growth opportunity here. (technical difficulty) just sort of rounding a little bit.

Great and then how much of your strategy going forward do you think will involve backup centers? I know this year is also skewed because of ChildrenFirst but X ChildrenFirst just going forward.

I think the backup center growth -- we will continue to have backup center growth and I think with respect to the clients' sponsored backup centers, that will happen much like our full service centers. Contract by contract. Each of them with one new employer at a time.

I think what will change in our strategy and that will be consistent with what we've done in the past. Added a few of them every year.

I think with respect to what's going to change, that is, we now have all these cities in which we have consortium backup centers that exist and I think you're going to see us build out a national platform of having more of those centers so that we can say to clients who have pockets of employees in many places around the country, that we can serve their interests in more than just the cities we have the capability to do that in today.

So I think you'll see us add strategically a few of these ChildrenFirst type consortium backup centers every year, and then start the selling process for each of them. And as we talked about before, those can range from having a handful of clients to upwards of 20 or 30 clients who all participate in one center. And we feel good about that opportunity.

Does that opportunity have a longer sale cycle?

The selling of a single membership has a shorter sell cycle than what we would typically experience because a single membership is far less costly of an item than -- frankly for that matter a decision for a company to make than building their own center. But the whole entire process of getting a consortium center off the ground and selling all the memberships it takes to make that work that timeline approximates our sales cycle for new centers.

(OPERATOR INSTRUCTIONS) Jerry Herman of Legg Mason.

Elizabeth, can you give us some help in terms of the allocation. What line items 123R is going to hit in '06? Is it predominantly SG&A?

It will predominantly hit SG&A. Yes. We do -- we grant options to directors and so that element will -- because they are a direct center cost, we will have a portion of it that goes to the center line but the majority of that will be SG&A.

So should we think maybe 80/20 or something like that?

I haven't broken it down, Jerry, but that's probably in the zone.

And with regard to capacity the 66,300 did you say that excludes the backup center capacity? Or maybe the question should be --?

No the 66 300 includes backup. When we did we -- we tried to give you average center sizes excluding those centers, just because it's not -- capacity in a backup center is not particularly meaningful for the operating results there. We may serve 500 or 1000 children in a center that has a 40 capacity.

So it's just a slightly different twist on our own thinking about what the meaningfulness of capacity is and what enrollment or utilization would be. We tried to give you an overall center sized without it.

And with regard to the mix of that capacity. The backup centers and also schools. Can you maybe give us some help there? I'm thinking backup is now what? 2500 to 3000 of that?

Yes. On average those centers are around 45, 50. So, yes it's in that range. Schools are just under 2000 capacity.

Last quarter, you were kind enough to help us with the gross margins of the different businesses I'm wondering if you could help us with the operating margin of the different businesses. You gave us a little bit of a clue already with backup being slightly higher than the corporate average. Schools I am assuming even higher than that. Correct?

Well, schools, I think you need to think about the similar overhead components that we have overall would apply to schools as well. So they are generating somewhat north of 20% on average in a center growth margin arena. So with an 8 plus percent overhead, yes, their operating contribution will be slightly higher. But they have elements that are not proportionate like acquisition costs.

So a center that we have acquired has amortization expense and takes away from interest income. I mean it's a factor, too, this quarter that ChildrenFirst for example, we consumed 50 million in cash to buy it so it will be -- depends on how you want to put all the geography together. But I think the elements of the contribution from the schools is consistent with the rest of the business.

Then just, I guess, a different angle on the operating margin question. You have been averaging about 100 basis points a year for the last three years. I guess the question is how much conservativism is in your guy especially in light of the outperformance that you have had for a string of quarters here?

Let me jump in first because I've (MULTIPLE SPEAKERS). I think Dave talked about the share but it is important to consider where you are starting each year from. And I think the improvement year-over-year is the first place to talk about that. We think that, first of all, that's sustainable. And then the incremental improvement that we can get from each of those -- the elements that go into the outperformance is also sustainable but at levels that don't go on forever. I think a few people have remarked that way.

So that is where the 40 to 60 basis points of improvement comes from, continuing to have some pricing power. Being cautious about some of the elements that go into this like, how quickly will we be adjusting labor rates to how our tuition rates go up? How will enrollment play out? That is certainly something that we are examining and scrutinizing weekly and monthly. But it still is an open question mark.

So we are giving you our best look at this stage and that's -- I think that's the starting place is, we've done very well and we are keeping that performance going and then building on top of it.

I promise this is my last one, by the way. You said you guys raised prices 4 to 5% and your gauge on wage increases was 3 to 4%. It looks like -- I'm looking at government statistics here, BLS statistics. But it looks like the current increases are really at the high end of that range if not above it already. What's your daily about potentially getting squeezed next year?

I think you have to sort of have a longer-term perspective on that. Because I think if you were to follow the BLS statistics back or you track them back a few years, they would have looked like we might have been able to have much much lower wage increases that we actually pass through. And my view on it is, we had a pretty steady approach. We have a goal of being a very competitive employer. And we feel the need to pass through wage increases every year. It is one of the ways we've achieved what we have on the turnover side.

So I think if you added up what's happened is, we provided a bit of a soft landing for ourselves in this period where we consistently rose or increased wage increases, when I think others may have done no increases to very little increases if you look at what the BLS statistics show, say, a year or two ago.

So I feel good that we are in a good place and not only increasing 3 to 4% but what we are increasing 3 to 4%. We are working from a strong base.

Thank you. Congratulations on a good quarter.

(OPERATOR INSTRUCTIONS) Mr. Lissy, there are no more questions at this time.

Okay, Chris. Thank you and thank everybody on the call. We'll see some of you on the road in the fall and if not, give us a call. Elizabeth and I are here to talk more. Take care.

Ladies and gentlemen, that concludes our call for today. Thank you for joining. You have a good day.