Harte Hanks Inc (HHS) 2003 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Harte-Hanks Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press "" then "0" on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Richard Hochhauser. Mr. Hochhauser you may begin sir.

Thank you. Good morning everyone. With me today are Dean Blythe, our Chief Financial Officer, and Jessica Huff, our Vice President of Finance and Controller. The comments we make on this call forward-looking statements that involve a number of risks and uncertainties, which can cause actual results to vary materially. After I make the few opening comments, Dean will give us some financial details and then we will take your questions.

We were pleased with out third quarter results. Both Shoppers and Direct marking had solid revenue increases. We showed EPS growth of $0.02 above Q3 '02 or $0.26, which puts our EPS goal of increased earnings per share for the year in closer reach. In the quarter, we generated $21.4m of free cash flow, which we define as net income plus depreciation and amortization less capital spending. We are trending to hit around $80m in free cash flow for the year, which is in line with our earnings and capital estimates provided earlier in the year and this continues to make our financial health a competitive advantage. Free cash flow this year has been impacted by increased capital spending for investments in our businesses, including our strategic initiatives in both Shoppers and Direct marketing.

Direct marketing had a solid quarter with operating income up 10% on a revenue increase of 5%. Comparisons to the prior year were relatively easy, but we were still pleased that Direct marketing's leverage and revenue growth was the strongest it has been since Q4 2000. New customer revenue continues to be strong and we saw a net increase in existing customer revenue for the first time since Q3 2000. Positive revenue growth trends were observed in both high-tech telecom and select markets. In the third quarter, our pharma and healthcare market was also up double digits. Retail and financial continued to struggle, both down single digits. Retail is still our largest vertical representing 27% of our Direct marketing revenue closely followed by high-tech and telecom at 24%.

Shoppers had another strong 6 plus percent revenue growth quarter. Operating income was negatively impacted by higher employment related costs, which we mentioned in our press release. Also the comparisons with last year were quite difficult and we had a significant expansion in Southern California and Florida of 233,000 homes. As we have said before, new circulation does not have the same margins as our more mature circulations and often starts out at a loss. Over the past year, we have delivered our Shoppers product into 345,000 additional homes in new areas. This expansion coupled with the investment in our new building in Northern California will negatively impact Shoppers bottom-line in the fourth quarter as well, although we do expect Shoppers revenue to remain strong in part due to a 53rd week this year.

Before turning it over to Dean, I would like to summarize a few key points. Our Direct marketing clients remain uncertain about their marketing investments and this creates delays and erratic behavior, but we are seeing a light at the end of the tunnel and we are forging ahead. Clients are more demanding today than ever and we will manage our business to meet their expectations and their needs. We will deliver reasonable profits regardless of the environment. We've made great progress in growing Shoppers circulation over the last year and have significant expansion plans for our Northern California market in '04 as we ramp up in the new facility. Our goal continues to be increased earnings per share this year. We are exited about our two new directors Judy Odom and Bill Farley, a special welcome to them. I am confident that both will add a lot to Harte-Hanks. We are also very excited about the future, I am proud of our people who make it happen for all of stakeholders. Dean, over to you.

Thank you Richard and good morning. As Richard indicated, we turned in a respectable third quarter performance. On a company wide basis, revenue was up 5.7% for the quarter with solid year-over-year increases in both Direct marketing and Shoppers. Direct marketing revenue was up 5% and Shoppers revenues continued to be strong, up 6.8% in the quarter. Operating income company wide was up 5.1% driven primarily by our Direct marketing business, which had a 10% increase at the operating income line. Shoppers operating income was only up slightly at 0.3%. As we stated in the press release, both Direct marketing and Shoppers were negatively impacted in the third quarter by employment related expenses, but it was especially prevalent in California where most of our Shoppers business is located.

For the quarter, free cash flow, which we define as net income plus depreciation minus capital expenditures, was $21.4m versus $24.8m in the third quarter of 2002. As we mentioned last quarter, we still expect free cash flow for the year to be around $80m impacted by higher capital expenditures of approximately $35m in 2003, up from $17.4m in 2002.

Turning to each of the two businesses, in the third quarter of '03 Direct marketing revenue was up 5%, operating cash flow up 3.6%, and operating income up 10%. These comparisons while they are encouraging are for the quarter -- the third quarter of 2002 that was not good for us. In this year's third quarter, net customer spending from our existing customers was positive for first half since the third quarter of 2000. While operating income margins improved 60 basis points year-over-year, our operating cash flow margins dropped 20 basis points. Higher workers' compensation and healthcare cost negatively impacted these margins. On the favorable side, operating income margins were helped by lower deprecation cost resulting from a relatively lower level of capital spending in 2002 and even in 2001. We are not pleased with the year-over-year operating cash flow margin compression and our goal is for sequential improvement in operating cash flow margin going forward in Direct marketing. Well the vertical markets, retail our largest vertical represented 27% of Direct marketing revenue, high-tech/telecom 24%, financial 20%, select markets 18%, and healthcare/pharma 11%. As I mentioned earlier, net customer spending that is existing customer spending more minus existing customer spending less, was positive overall in the quarter in Direct marketing. In our verticals that have year-over-year revenue increases, high-tech/telecom, select, and healthcare/pharma, the net existing customer spending in each of these verticals was positive, while the verticals that showed revenue declines retail and financial, net existing customer spending was negative. In the third quarter our international business represented 8% of our $148m of Direct marketing revenue. Top 25 Direct marketing customers represented 41% of Direct marketing revenue in the third quarter and our largest customer in the third quarter of 2003 represented approximately 8% of total Direct marketing revenue.

Turning to the Shoppers side of the business, revenue growth continued strong at 6.8% year-over-year up for the quarter. Revenue increases once again driven by strong growth in ROP. Operating cash flow was up 3.6%, while operating income increased 0.3% compared to the prior-year quarter. Margins decreased 140 basis points in Shoppers at both the operating cash flow and operating income line. Higher workers' compensation and healthcare cost contributed to this margin erosion. I mentioned earlier that the Direct marketing comparisons are against the weak quarter in the prior year for Direct marketing. The Shoppers, however, the year-over-year comparison is against the strong quarter in 2002 that yielded a historically high margins, 25.6% of the operating cash flow line, which were helped by the timing of certain G&A expenses that were favorable in that period in 2002.

We have talked in the past about plans for increasing circulation in Shoppers through continuous geographic expansion. Much of the expansion beginning in 2004 will be in Northern California supported by the investment we are making in a new facility. We did add 233,000 homes in circulation in this quarter through a geographic expansion by the new zones (ph.) in Southern California and Florida. New zones initially came to generate less revenue per thousand circulations in existing zones and in fact are typically expected to loose money at the outset. And this will impact margins in Shoppers as expansion is rolled out.

On the balance sheet, at September 30, we have shown a net cash balance of $5m. Book equity at 9/30/2003 was $530m. Net accounts receivables 144m versus 138m at December 31, 2002. And DSO at the end of September '03 was 55 days against 56 days at September 30, 2002. To answer the question that has been asked for several quarters now, looking at our statement in cash flows, net cash provided by operating activities for the quarter was $27.5m. During the quarter, we have repurchased 1.4m shares at a cost of $27m and there were no acquisitions completed in the quarter. With that operator we will be happy to take questions.

Thank you. If you have a question at this time, please press the "1" key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the "#" key. Again, if you do have a question, please press the "1" key. One moment for question please. Our first question is from the Alexia Quadrani from Bear Stearns. Please go ahead.

Hi. Good morning. I want to ask about your comments on the Shoppers business, the new circulation with profitability obviously being a bit lower when you started off. Is there any way of quantifying your [inaudible] how long you should take this for new circulation begin (ph.) to existing profitability of the business?

I will take a quick step at it and then give it to Dean. The key piece of the answer here is that every piece of circulation that we expand into is different. We have a grid which shows wide ranges of success and therefore the predictability of expansion is unknown and that's why we don't try to quantify what's going to happen. On average we do know that the profitability is lower in all expansion compared to the profitability overall. We do know that in some cases we loose money in the initial expansion for may be three quarters or four quarters on average and then it begins to turn more positive again on average. And with those general comments Dean do you have anything to add?

No not really, we do track circulation, aging of circulation and new revenue, and the trend generally is for revenues to increase overtime in those new zones. And again it depends on specific expansions that new zone will (ph.) go into.

And just a second question on the pricing pressure that you are seeing in the direct marketing side, is there again -- as I got in many words and sort of stabilized and this might be difficult to quantify, but is there anyway to quantify maybe how much pricing is down versus, maybe the Hay Day of 2000?

The Hay day of 2000. You know pricing is just a reality of our environment, it is one of the factors that we have to deal with, there are many operating factors that we have to deal with and we are going to deal with them. The key is meeting our customer needs, the key is growing our accounts, the key is creating more revenue for customers if in fact pricing is going to decline, and it is a factor in business and we are just dealing with it.

Is it -- does it continue to get worse? Or is it just sort of, you know, just toughest as always has been?

You know, it is not a friendly environment yet, there is still capacity (ph.) out there and you know, you sort of get used to tough after a while and you deal with it.

Okay. Alright and thank you very much.

Thank you.

Thank you. Our next question is from Fredrick Searby with JP Morgan. Please go ahead.

Good morning Richard, Dean. Thank you for taking my question. Couple of questions, can you give us some kind of do not call update, there is a lot of confusion right now and kind of, is it impacting your inbound at all and I know you had a tiny bit of outbound that's gone a way? And then secondly the employment you mentioned picked up at Shoppers, the advertising there and that is a head of the newspapers, and I wonder whether you think that is a trend or you kind of, you know pick up a little earlier? And I have a bunch of other questions; don't want to hog the lines, maybe I will circle back.

Well on the employment side, one quarter does not a trend make and so we are little bit unsure about what it pretends but we are excited about the fact that it did increase for the first time in quite sometime and I am glad that we are ahead of competing media in that area. In telemarketing, as you know we are not a large outbound consumer telemarketer and almost all of the consumer telemarketing we do is to our customers. So, it is not affected by the new legislation.

I am more sort of interested generally on what your thoughts are, and what is happening and whether dollars are flowing out and sort of, you know generally macro than -- I know it is small for you?

Well we anticipate over the long term to see more revenues returning to the traditional media of mail. We don't know what that timing is going to look like; we really don't because this is such a new phenomenon. We do think there is going to be experimentation that takes place as dollars get pulled from outbound telemarketing efforts. That experimentation likely will be in non-targeted media because these same clients understand the targeted media, so they will play for a while and we think overtime they'll return to those targeted media of mail in particular.

Very briefly that you know there is talk obviously of bubble at real estate and may be some linking (ph.) there and that's been a great category for you. How much is that now of Shoppers' revenues is real estate related? How volatile is it, I mean, is there some asymmetry here that you know, all the upside you had there that we won't see as much downside, they'll continue to advertise when homes don't sale as fast, just give us a quick update on the percent of revenues there for Shoppers?

It is below 10% of revenue, kind of 5% (ph.) 10% of revenue. We -- certainly with what happened with mortgage refinancing, yeah, you think that's something we have not yet seen a slowdown in that advertising however. That was up for us this quarter as well.

I think I will circle back. Have a great day Charles.

Thank you.

And your next question is from Lauren Fine with Merrill Lynch. Please go ahead.

Great thank you. I'm wondering if you can dig deeper into the Direct marketing and give us a sense of how the different services performed, if there were areas that were doing better than others and then related to that can you dig into the [inaudible] select markets and tell us which were doing better than others?

Well, we once again in select markets are seeing growth in automotive and we have been excited about that and we continue to be excited about that. So, we are encouraged that what we started is continuing and is continuing strong. Our automotive clients were also beginning to look at some of our new strategic initiatives, which is exciting because we are going to be rolling out some of those products and that's going to serve us well in addition. There is a fair amount of, you know, the numbers are small when you break it down into the subcategories or the type of revenue. I wanted to talk about the numbers, but, you know, the technical support part of our business showed some nice strength. Some of the business-to-business, outbound telemarketing showed some nice strength but overall with the 5% increase that wasn't a lot movement in and out, at least any more than the normal quarter.

Richard, is auto big enough to be broken out as a separate category yet and could you also comment on which strategic initiatives are they looking at?

It is not big enough yet. We are anxiously awaiting that. Another couple of good quarters and we will be considering it. The marketing portal is the specific strategic initiative that I was referring to. There is some interesting demand developing for it we, you know, it's really early, we don't know what's going to happen with it; we are still in the development mode of a number of modules. So, it's very premature but we are seeing interest from automobile manufacturers who have actually sold a couple of systems to them and we -- and I have personally seen a demonstration of one of them and it's pretty exciting.

And then just going back to the earlier question I asked from the different things with indirect marketing, could you comment on here sort of more, I guess just a direct mail versus database or any kind of commentary or anecdotal comments that you could make on those categories?

Well, you know, if you think about the industries that were up, the high tech industry and you sort of know the kinds of services, that's business to business orientation to a large degree and that's why that the things that I mentioned at customer support were up; some business to business telemarketing was up. So, it sort of follows the kinds of services that supportthe industries. In the case of select markets there tends to be a wide range of services sold and so there is nothing definitive is happening in that market.

What about on the pharma side, sort of what was the you know, what kind of categories were they using?

When you start breaking the vertical market by the service categories you get into pretty small numbers.

I am not looking for exact numbers. I am just trying to understand where they are increasing your activity.

Well, I don't have a specific answer for you by vertical market and I am going to ask some of our people here to see if we can find one Lauri [inaudible] and if I get one now as a part of our subsequent answer I will answer your question.

Terrific. Thank you very much.

You bet. Thank you.

And your next question is from Troy Mastin with William Blair & Co. Please go ahead.

Hey guys, this is Wes Selky (ph.) for Troy Mastin. I have a question about your payroll expenses, I calculated that they actually declined not as a percentage of revenue by about 80 basis points and that's, you know, given higher workman's comp related expenses and just wondering what's kind of offsetting the higher workman comp expenses in the quarter? I guess you made some comments on your ongoing headcount reductions?

Yes. Wes this is the workers comp expenses actually aren't -- is not in our labor line synergy in A line.

Okay. Then can you comment on I guess continued, I mean, you have talked about, you know, headcount reductions and, you know, right sizing in last couple of quarters, can you comment on any progress made in that in this latest quarter?

No, I think from the perspective of headcount reduction, we actively managed the business to make sure that we are adequately staffed. You know, there is a component of labor that is variable based on revenue volumes, but from a overall headcount perspective, I mean, I think we feel that we have managed that in our -- and going forward, its going to based on level of business and activity that will determine them.

Okay, and then a quick question on Shoppers. Obviously a stronger top line growth that didn't flow to the bottom line and it sounds like that's accounted two fold with the expansion of Shoppers contributing to higher expenses as well as the workmen's comp. Out of those two accounting causes for higher expenses what -- are they about 50-50 or which one is kind of causing that lack of leverage in that business right now?

Well, you know, one thing here is looking at any one quarter with margins it's hard to tell as things come in and out. You know if there is some margin increase that happens in certain items and then there are some good things that happen to you and some bad things that happen to you in the course of the quarter. I mean, I think that from the two in the third quarter that the negative -- the impact to the margin was more related to these employment related expenses we talked about as well as a strong fourth, excuse me, third quarter 2002 that related to the timing of some G&A expenses that were favorable in that period. I mean those were the 25.6% margin in the third quarter that too was a historical high and it was well above kind of the next margin level we have seen.

Okay, so out of the overall higher cost related to workman's comp, the majority of that is for the Shoppers?

Yes.

Versus Direct marketing?

Yes.

Okay and then quickly could you provide kind of an update on your expansion plan for Shoppers. I know that you guys have added about 233,000 households in the quarter, is there anymore commentary on that?

Our plans are now focused on Northern California where we are feeling good about a move -- even better about our move in the fourth quarter than we did the last time we spoke a quarter ago because the building is pretty close to me and finished. When we were in that building and we have consolidated and we have operated successfully, we are looking towards the end of the first quarter for our initial expansion in Northern California. We have not firmly decided on the size of that expansion but we are within just 3 or 4 weeks of the new planning cycle starting and we are going to get to that.

Okay, thanks guys.

Well, just as an addition that part of the circulation expansion stuff that I am talking about, you know, one of thekeys to it from a longer term context for our Company is the excitement that it generates for our people and for the advertisers in the market that know that they have a new place to advertise and the fact that we have a driver of growth of many years to come.

Thank you. Our next question is from Chris Owens with ThinkEquity Partners. Please go ahead.

Good morning. It looks like you had a good -- a relatively good quarter on the direct marketing side, but that it reflects strength in certain key verticals. Do you see the growth in those verticals as accelerating and sustainable, and also did you see any pickup outside of those verticals you identified?

Well, the outside would probably fall into select markets because that's a somewhat of a catch-it-all, but we are reporting the high-tech/telecom market as being up now for a number of quarters consecutively. And we are seeing a decline in the negative on the financial side, which we just hope is the beginning of a long awaited turnaround in financial. I would also like to see if I can answer Lawrence's question from a while ago and that is there is no material difference in the pharma/healthcare revenue distribution in this quarter than they were in prior quarters.

There is no change then in the retail?

Well, retail is down, it has been down. Retail is somewhat stagnant market as we've talked about. We sure hope that it will begin to stabilize as well. We have not yet planned for next year so we don't know what those numbers are going to look like or feel like. We traditionally have a strong fourth quarter in retail. We are expecting that to happen again this year. How it compares to last year's strong fourth quarter is something, you know, we don't know yet.

Right and then just a quick question on SG&A. If you look at the increase and try to split it between workers' compensation and new investments, how would you split that?

You know, if you look at the increase in SG&A and the fact that it was higher than the revenue increase, a significant portion of that negative leverage was driven by the workers' comp issue in third quarter.

Thank you.

Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press the "1" key at this time. One moment for further question. And our next question is from Mark Bacurin with Robert W. Baird. Please go ahead.

Good morning gentlemen. I jumped in the call a little late. I apologize if this has been asked, but was there any specific large project oriented revenue in the quarter that would have been or should be related to the nice uptick you saw in the direct marketing business?

There is always project revenue that's part of our mix and the definition of project revenue is really tough, I'll give you an example of that. We had some, what we thought, was project revenue that for a couple of months worth and we were told by our client that it was going to get extended for at least another six to nine months. And so defining what a project is versus what a program is, and we think of programs as longer term revenue is difficult but I don't see any material difference in what happened in the third quarter than what has happened in prior quarter. Dean, do you see anything?

No, I think it represented as always a mix but certainly that wasn't what we have -- any shift in that mix was not what was our driver revenue.

I guess the nature of my question is sort of -- we saw a similar nice improvement in the fourth quarter of last year and we were hopeful that that was an indicator of reversal of trend and than fell back in this kind of small decline for the next, kind of, couple of quarters. So, I am just trying to figure out whether or not there was anything specific that might not be recurring that would be litigable, that maybe -- this is another just temporary blip and that we are going to be back to more stagnant growth again or do you really think this might be the first part of an indicator of a significant turnaround?

Well, I guess there are a lot of environmental factors that we have no control over and as we've finished the fourth quarter of last year we are actually being -- I think we were up 1% in revenue which is certainly not particularly significant. We thought of it is one of the three flat quarters that we had up one, down one, kind of stuff, but we were beginning to sense that maybe things were getting and the environment changed materially in the first quarter on us. So, I think the change that you are talking about maybe more environmental than anything else and we sure can't predict what that would look like in our life going forward but we feel the same way and even a little bit better perhaps with a 5% revenue increase in this quarter than we do in the fourth quarter of last year.

And Rich, could you comment specifically on the financial services, given you do a fair amount of business for the brokerage industry and the market has certainly been a lot stronger, are you seeing any improvements in that specific piece of financial verticals...?

We are not and one of the reasons for that is that our success comes with the launching of new funds, there have been very few of those. One of our success also comes from the exciting funds that are performing well, that are driving revenue and there are not a lot of those around compared to the go-go years of just three or four years ago when those were more prevalent. So, we are actually seeing declines there on a continuing basis.

Okay and then from, you know, you have commented in the past about competitors, -- competitive environment -- a lot of fragmented players, small players out there and you guys have certainly chosen to use your free cash flow more for share repurchases but, you know, where do you think you stand from a M&A front? Are there interesting deals out there that, you know, could be done accretivly and when do you think consolidations might start to heat up?

There is -- as most people on this call -- I am sure, you know, we have a goal of making acquisitions. And we have been unsuccessful in doing that in the past six quarters. It is not for a lack of trying. There is a backlog of acquisition opportunities that we are looking at today as we looked at last quarter, as we looked at in the quarter before. Whether something happens, you know, there is always a variable probability of the deal happening, so whether something happens anytime soon enough, we have no idea. We are looking and we are using the same criteria as we've always used. There is a financial component of that, you mentioned that, we will see how long it takes to be accretive. There is a business and strategic component of it, which says what new industries can we get into or what industries can we support and what new products and services can we add to our mix of capabilities and so we continue to explore using those strategic guidelines in our exploration.

Okay great. And one big question, Dean could you comment on the -- you have had a couple of quarters now of declining depreciation expense and has there been specific write-off or is that just a function of your CAPEX being below where it was a couple of years ago and so you are starting to roll off some?

There are no write-offs. What is the function -- if you look at 2002, CAPEX was relatively historically lower levels; 17/4/2001 was even below average and some of that has to do with the types of assets that we have been putting up on the books which have been longer lived than assets in prior periods. But it is not a question of assets being written down prior periods.

So, if you look at the Q3 level, was that a -- is that a decent run rate to look at going forward or do you think we will see continuing sequential declines and then when might (ph.) that bottom will start to move higher again?

It -- I think obviously if you look at 2003 CAPEX, we have told you around $35m versus 2002 CAPEX with 17m, at some point it is likely that that will cycle in and there will be some increase on a going forward basis. But, I think kind of the levels that you have seen and the levels that you see are kind of where they are going to be over the next few quarters.

Great, thanks a lot.

Thank you. Our next question is from Sarah Gubens with Merrill Lynch. Please go ahead.

Hi, I just had a quick follow-up question. I think you had mentioned when you were talking about cash flow margin in direct marketing that you were hoping that they would improve sequentially, and probably just trying to understand that in a little bit more detail, given that last year cash flow margins in direct marketing jumped from 17.5% in the third quarter up to 19.8% in the fourth quarter, does that mean that we would expect if we are looking at the fourth quarter for this year that cash flow margins might actually decline significantly on a year-over-year basis but improve sequentially?

No.

Okay. So it -- were you suggesting perhaps that -- just that the operating cash flow margin then in Q4 might be down year-over-year but not -- but it would be sequentially pretty significant?

Yes, I was talking about this sequential improvement. I wasn't commenting around the year-over-year margins.

Okay, but there is no reason to think that it would just be a very small sequential improvement from Q3 to Q4. Sorry, I am not being clear. What I am looking at it just seeing that the 17.3% cash flow margin in Q3 and thinking that if that only goes up slightly in Q4 then that would actually be on a year-over-year basis down quite a bit?

Yeah, I mean, it goes up slightly, yes, it would be, yes, because in the fourth quarter we did have high margins last year. [inaudible] sometime to work in the first quarter, obviously, we look at the couple of periods that tend to be higher margin in the fourth quarter than in the third quarter. So, if that trends were to continue and we have talked about sequential growth, then yes we would see higher margins in the fourth quarter than the third quarter, you know, kind of inline with trends that have happened in the past.

Okay thank you.

Thank you, and we do have a follow-up question from Fredrick Searby with JP Morgan. Please go ahead.

Richard, just a follow-up. Can you comment on the grocery store strike and, you know, this news is spreading but right now is being contained in Southern California, give us your view on any potential impact in Shoppers?

Although, you know that the strike is certainly less than the need for grocers to advertise which has reduced our revenues but as you also know, Shoppers have thousands of customers which helps when any one category of customers experience a decline. So, is it bothering us, yes. Is it material, probably not material yet. We [inaudible]sure hope that there is a resolution to it but there is some competitive issues out in California and we don't know how long it is going to last.

Do you have an enlightened view, I guess, on whether it is going to expand beyond Southern California?

I don't have the view and therefore I can't possibly be enlightened.

Alright.

Finally, can you comment at all on any kind of pressures or anything you're feeling from foreign competition on the direct marketing side?

Foreign competition.

I mean there has been a lot of talk of kind of lot of the service sector and kind of walking across the ocean and then moving to Mumbai kind of issues and if there are any -- if there are any areas we do think that are on the direct marketing side, you know, you see beyond what we have seen IT outsourcing announcement [inaudible] analytics and other things increasingly moving to lower cost centers?

Well, we don't see those things competitively but we do have opportunities in the way we run our own businesses and we are experimenting for example with some of our telemarketing in lower cost locations, as we speak, but we don't see it from a competitive point of view, we just more see it as an opportunity for us to add to our mix.

Fine, thank you.

Thank you gentlemen. I am showing no further questions at this time, I would like turn the conference back to you.

Well thank you very much, we appreciate all your questions and being with us this morning. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect and have a nice day.