International Business Machines Corp (IBM) 2006 Q4 法說會逐字稿

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  • Operator

  • Please stand by, we are about to begin.

  • Good afternoon, ladies and gentlemen.

  • Thank you for standing by.

  • Welcome to the Kenexa Fourth Quarter 2006 Earnings Conference Call.

  • At this time, all participants are in a listen-only mode.

  • Following the presentation, we will conduct a question and answer session.

  • Instructions will be provided at that time for you to queue up for your questions.

  • I would like to remind everyone that this conference is being recorded.

  • I would now like to turn the call over to Mr. Don Volk, Chief Financial Officer.

  • Please go a head, sir.

  • Don Volk - CFO

  • Thank you, Robbie.

  • Today we will review Kenexa's fourth quarter and full year 2006 results which were announced after the market closed this afternoon.

  • We will also provide guidance for the first quarter and for the full year 2007.

  • And then we will open up the forum to questions.

  • Before we begin, let me remind you that this presentation may contain forward-looking statements that are subject to risks and uncertainties associated with the company's business.

  • These statements may concern, among other things, guidance as to future revenues and earnings, operations, transactions, prospects, intellectual property, and the development of product.

  • Additional information that may affect the company's business and financial prospects, as well as factors that would cause Kenexa's actual performance to vary from our current expectations is available in the company's filings with the Securities and Exchange Commission.

  • Also, I would like to remind you that today's call may not be reproduced in any form without the express written consent of Kenexa.

  • We may also refer to certain non-GAAP financial measures on this call.

  • I will later discuss the reconciliation of adjusted numbers to GAAP numbers and a reconciliation schedule showing the GAAP versus non-GAAP financial measures is currently available on our company website, with the press release issued earlier today.

  • Our website is located at www.kenexa.com.

  • I will now turn the call over to our Chairman and Chief Executive Officer, Rudy Karsan.

  • Rudy Karsan - Chairman and CEO

  • Thanks, Don, and thank you for joining us on the call as we review our fourth quarter and full year results.

  • This was a strong finish to a record year at Kenexa along many fronts.

  • Market awareness continues to increase and customers are increasingly viewing talent management solutions as a strategic purchase decision.

  • We believe Kenexa is well positioned to continue growing faster than the market on an organic basis, while adding strategic acquisitions to expand our market opportunity [inaudible] in depth of our talent management suite and leadership position.

  • As a result of these factors, we're optimistic about our outlook as we enter 2007 and are increasing the full year 2007 guidance as compared to the preliminary forecast that we provided a couple of months ago.

  • Taking a look at the numbers.

  • Our fourth quarter total revenue came in at $36.4 million, an increase of over 100% year-over-year.

  • On a pro forma basis, if we were to subtract from our fourth quarter revenue the revenue run rate of companies at the time we acquired them in the past year, Kenexa's organic revenue growth would have been strong at over 40% on a year-over-year basis.

  • We expect to continue sharing this metric with investors to the extent that it is a meaningful acquisition in comparable periods.

  • The most important component of our business, subscription revenue, came in at $29.8 million, 104% year-over-year increase.

  • The strength of our subscription revenue is being driven by continued strong bookings across all of our key product categories and the inclusion of the recent BrassRing and PSL acquisitions.

  • From a profitability perspective, we generated non-GAAP operating income of $8 million or a margin of 22%.

  • This represented another record quarterly operating profit and margin.

  • Finally, our cash from operations, excluding the tax benefit associated with FAS 123(R), was $9.1 million during the quarter, an increase of 63% on a year-over-year basis.

  • And free cash flow of $17.2 million for the full year 2006 was in line with our initial target.

  • From a high level perspective, we believe we're still at the very early stages of a multi-billion dollar market opportunity.

  • Customer interest in talent management solutions continues to grow.

  • And consolidation activity has increased as companies in numerous sectors try to participate in the growth of the market.

  • One of the proof points to the growing awareness of the market, and Kenexa, in particular, is the fact that the number of in-bound inquiries from customers that we're fielding continues to grow by a multiple on a year-over-year basis.

  • Companies of all sizes are increasingly realizing the potential benefit of talent management solutions including reduced external recruiting costs, training costs and turn-over, in addition to shrinking time, too, and greater productivity.

  • For example, a large national retailer used Kenexa Selector and realized a gain in productivity of more than $2,000 for a full-time hire.

  • After hiring over 2,500 associates last year, this organization increased their productivity by over $5 million in a one-year period.

  • The same customer also realized the productivity gain of nearly $4,500 per full-time hire at the management level resulting in more than $1 million of additional productivity gains.

  • In additional to a strong ROI profile, we believe there are positive long-term demand drivers for the talent management industry such as the aging of the work force, declining tenure of employees, increased globalization and mobility of organization structures and pressure on the HR Department to minimize costs.

  • We believe these combined factors will continue to provide a favorable demand environment for Kenexa.

  • During the fourth quarter, we continue to see small and large customers turn to Kenexa as their talent management solutions provider.

  • Across all of our solutions, we added over 30 preferred partner customers during the quarter.

  • On the talent acquisition side, we added customers such as Barclay's Real Estate, Bank of Nova Scotia, Quicksilver, British Petroleum, Andrews Corporation, Volvo, Nova Nordisk, and Corning.

  • While on the performance management side, we added business with customers such as Toyota Motor Credit, Deere & Company, Hallmark, Baxter Health, [Monsanto], Limited Brands, United Airlines, Yellow Book, Metronic, Agilent, Gap and Kellogg's.

  • The number of new customers we are winning is increasing and our retention rates continue to be strong.

  • We believe the customers are looking for much more than just a software solution and Kenexa is differentiated by the breadth of our solutions across both talent acquisition and performance management and by a domain expertise, proprietary content, services and outsourcing capabilities.

  • Independent validation of the strength of Kenexa's technology was our placement in the Leader's Quadrant of Gartner's Magic Quadrant for E-Recruitment Software.

  • Moreover, we have two products in the Leader's Quadrant as a result of our acquisition of BrassRing, which was considered a leader even before its acquisition by Kenexa.

  • And we continue to enhance the capabilities of our talent management suite.

  • During the fourth quarter, we launched an updated version of Kenexa Career Tracker which is our flagship performance management solution.

  • The latest release of Kenexa Career Tracker features a new user interface designed by Cooper, a pioneer in interaction design.

  • We believe Kenexa's proposition and competitive position are further strengthened by our recent acquisitions of BrassRing and PSL.

  • Both acquisitions are performing in line with, or better than, our expectations and feedback from customers has reinforced the strategic reasons behind both acquisitions.

  • As I just mentioned, BrassRing was recognized as a leader by Gartner Group and during the fourth quarter, we released Version 9 of Kenexa Recruiter BrassRing on time and on-spec.

  • From an operational perspective, we have not skipped a beat from a customer implementation perspective, as evidenced by the move into production, at large customers, such as UBS and Lockheed Martin, during the fourth quarter.

  • We believe that BrassRing customers have been reassured by the increased financial stability of our combined organization and have begun to experience our extreme focus on customer service and satisfaction.

  • We are in the early process of gaining synergistic benefits from a revenue perspective.

  • But there have already been positive signs that we hoped to build off of.

  • In less than three months of having BrassRing integrated into Kenexa's operations, we have closed three enterprise deals in which Kenexa was initially not considered in the bidding process because we did not have the required languages.

  • In addition, there are two other deal opportunities of similar scale that come to mind.

  • With the addition of our Kenexa Recruiter BrassRing solution has both gotten us back into the competitive valuation and the customer has given us verbal indication that they wish to move forward with Kenexa as their global vendor of choice.

  • In summary, our fourth quarter results were strong and 2006 was a record year from a revenue profitability, cash flow and customer perspective.

  • Market awareness continues to grow as does Kenexa's brand and business momentum.

  • We believe the integration of strategic acquisitions during 2006 further improves our position to continue gaining share in 2007 and beyond.

  • We are optimistic about our outlook which is reflected by our increase in guidance.

  • I will now turn it over to Don to review the financials in more detail.

  • Don.

  • Don Volk - CFO

  • Thanks, Rudy.

  • I will now review our results for the fourth quarter and the full year 2006, both of which were very strong and better than our initial expectations.

  • Let me start with the details of our fourth quarter results beginning with the P&L.

  • Total revenue for the fourth quarter was a record $36.4 million, an increase of 101% over last year and above our guidance of 34 to $34.4 million.

  • Subscription revenue is the majority of our revenue, and it is the strategic component of our business that encompasses our on-demand solutions.

  • During the fourth quarter, our subscription revenue was a record $29.8 million, representing 82% of our total revenue and growth of 104% on a year-over-year basis and 28% sequentially.

  • The significant increase in our subscription revenue run rate was driven by the integration of BrassRing into our operations, combined with continued strong momentum in our business during the third and fourth quarters.

  • The remaining $6.6 million of total revenue in the December quarter came from other and professional services which increased 91% over last year and 37% compared to the prior quarter.

  • The majority of the revenue from this line comes from discreet professional services though we occasionally have a perpetual license that will go into this line item.

  • During the fourth quarter, we signed one perpetual deal for approximately 1% of our fourth quarter revenue.

  • This was the first perpetual deal Kenexa completed in over a year, and we did so as an entry point into the telecommunications vertical.

  • On a geographic basis, our revenue continues to be heavily skewed toward the U.S. at over 90% of total revenue.

  • Our clients typically purchase multi-year subscriptions with an average length of approximately two years.

  • Our revenue continues to be highly visible as a result of our diverse customer base, long-term contracts, renewal rates that continue to be in the 90% plus range and the growing number of new customers that we are adding to our overall customer base.

  • During the quarter, we added over 30 preferred partners, some of which Rudy discussed earlier.

  • Our average annual revenue from our top 80 customers, what we refer to as Pcubed, was over $800,000 which is a significant increase from the $550,000 level at the end of 2005.

  • We believe that there is still significant upside to this number from a long-term perspective given the growing breadth of our talent management suite, the fact that we are under-penetrated within the majority of our customers and the consolidation that we believe will continue to happen at customers and across the talent management industry.

  • Turning to profitability, we will be providing non-GAAP measures for each fourth quarter 2006 expense category which excludes the stock base compensation charges associated with the implementation of FAS 123(R) and amortization of intangibles associated with previous transactions.

  • All comparisons will be using the non-GAAP current period results.

  • Non-GAAP gross margin was 72% in the quarter, which is up more than 1% from the prior quarter and the year ago quarter and is within our long-term target for gross margins.

  • The perpetual deal that we closed in the quarter did not have a material impact on our gross margin during the quarter, given its relatively small size and higher costs that are associated with deals entering a new market.

  • Looking at operating expenses, non-GAAP sales and marketing came in at $7.1 million, or 20% of revenue; a reduction from 21% in the prior quarter and 24% in the year-ago quarter.

  • The increase in sales and marketing on an absolute basis from the previous quarter was primarily due to the acquisition of BrassRing; and secondarily due to the continued increase in our worldwide sales operation.

  • Sales and marketing declined as a percentage of sales due to the benefits of the on-demand model as the revenue scales over time.

  • We continue to invest in sales and marketing to pursue new clients and to expand relationships with existing ones.

  • And we are focusing on continuing to optimize the productivity of our sales organization.

  • We ended the quarter with approximately 140 people in sales and marketing, up approximately 40 people due mainly to the acquisitions of BrassRing and PSL.

  • Similar with prior quarters, approximately 75% of these employees carry a quota.

  • Given the significant expansion in our sales organization, we will be primarily focused on optimizing our sales productivity in the near term.

  • And we will increase our focus on expanding the size of our sales organization as the year proceeds with an eye towards growth in 2008.

  • Non-GAAP G&A expenses were approximately $7.2 million or 20% of revenue; in line with the prior quarter and below the 22.6% a year ago.

  • Non-GAAP R&D expense came in at $3 million or 8.2% of revenue, an increase when compared to 7.8% in the prior quarter and 5.3% in the year-ago quarter.

  • The increase in R&D in absolute terms and as a percentage of revenue is partly attributed to the BrassRing and PSL acquisitions, but also because we continue to invest in broadening and deepening our solution suite from an overall perspective.

  • We believe that Kenexa has a highly efficient R&D organization that is a result of our significant off-shore presence.

  • And we believe the efficiency of our ISO certified and high quality R&D processes is a key competitive advantage.

  • At less than 10% of our revenue, we believe our R&D organization continues to be among the most efficient in the software industry.

  • The combination of better-than-expected revenue, increased mix of subscription revenue and a focus on close expense management led to record non-GAAPing income from operations of $8 million for the fourth quarter.

  • This represented an increase of 175% on a year-over-year basis and an all-time high margin of 22%.

  • During the fourth quarter, our non-GAAP tax rate for reporting purposes was 19%, below our expectations of 22% due to an R&D credit.

  • As such, our non-GAAP net income was $6.5 million.

  • Based on 21.2 million shares outstanding for the quarter, we generated non-GAAP diluted EPS of $0.31, an increase of 82% on a year-over-year basis.

  • It is worth pointing out that the lower than expected fourth quarter tax rate did add $0.01 relative to our guidance.

  • However, we also took on a higher mix of debt to originally finance the BrassRing transaction which cost us $0.01 relative to our guidance.

  • So these two factors were a wash.

  • Turning to our results on a GAAP basis, which include $1.1 million related to the allocation of stock-based compensation and $200,000 related to the amortization of intangibles associated with previous acquisitions.

  • The following were expense levels determined in accordance with GAAP: Cost of goods sold, $10.3 million; sales and marketing, $7.7 million;

  • R&D, $3 million; and G&A, $7.5 million.

  • For the fourth quarter, our GAAP income from operations was $6.7 million or a margin of 18%.

  • For the December quarter, the GAAP net income applicable to common shareholders was $5.2 million resulting in GAAP diluted EPS of $0.24.

  • A reconciliation of GAAP and non-GAAP expenses and income from operations can be found in our press release and current report on Form 8K filed with the SEC.

  • We ended the quarter with a strong balance sheet; cash and investments of $42.5 million at December 31st, 2006, a decrease from $83.1 million at the end of the prior quarter.

  • The decrease in cash was primarily a result of cash payments of $115 million related to acquisitions completed during the quarter, off-set partially by $7.5 million in positive cash from operations and $65 million from financing operations.

  • For comparative purposes with the prior year, cash from operations would have been $9.1 million in the fourth quarter.

  • Excluding the impact of approximately $1.6 million due to the excess tax benefit associated with the implementation of FAS 123(R).

  • This was up over 63% on a year-over-year basis.

  • For the full year, our cash from operations would have been $21.4 million excluding the full year impact of approximately $2.8 million due to the implementation of FAS 123(R).

  • This was close to our target of cash from operations in the mid 20s, which we commented would have a certain degree of variability associated with payments and collections down the stretch of the year.

  • To that point, our collections were over $5 million in the first four days of January.

  • Moreover, because of the timing associated with some investments, our free cash flow of $17.2 million was right in line with our full year target.

  • We have said many times that a snapshot view of cash flow at any point in time can be skewed by the timing of payments and collections.

  • And that is a primary reason we do not have a practice of providing specific cash flow guidance.

  • We are pleased that our strong cash collections have continued since the beginning of the year, which has us right where we expected to be at this point.

  • But what is important is the foundation that is in place to drive long-term cash flow, solid controls and processes, significant profitability and business momentum.

  • Looking ahead, we believe the company will continue to generate significant and growing cash from operations as a result of these factors.

  • Accounts receivable ended the quarter at $32.5 million, a significant increase from the previous quarter due to the inclusion of BrassRing and PSL's receivable balance.

  • Given that we include the entire balance of BrassRing and PSL's receivable balances, but only gain the benefit of a stub-period for their revenue, it is not particularly relevant to evaluate our DSO on an as-reported basis.

  • If we adjust our DSO to normalize for these differences, our DSO would have been approximately 68 days in the quarter, which compares to 54 at the end of the prior quarter and at the end of the year-ago quarter.

  • We believe the increase in the adjusted DSO will be short-term in nature as it was impacted by the integration of BrassRing's back office processes into Kenexa's during the second half of the quarter.

  • We expect to make meaningful progress with DSOs and get them back in line with historical levels in the first or second quarter.

  • Our deferred revenue at the end of the quarter was $31.3 million, an increase of approximately 150% on a year-over-year basis and 67% sequentially.

  • Excluding the impact of acquisitions that closed during the fourth quarter, our deferred revenue would have increased over 80% on a year-over-year basis and over 20% on a sequential basis.

  • The strong increase in our deferred revenue under either method was a result of strong bookings and renewals.

  • Because the majority of our contracts are based on quarterly payment terms, the majority of our multi-year contractual commitments are not placed on the balance sheet.

  • At the end of the December quarter, if you looked at the amount of backlog, we have contractually committed, but not yet billed, and assume a 90% renewal rate on deals coming up for renewal in 2007, we have strong visibility in to approximately $133 million as we enter 2007.

  • This is an increase from $70 million that we entered in 2006 with and it represents just over 70% of the total revenue forecast we are sharing for 2007.

  • And now for a quick summary of our full year 2006 results.

  • Our total revenue was $112.1 million, an increase of 71% over the full year 2005.

  • Subscription revenue was $90.5 million, an increase of 78%, while professional services and other revenue was $21.6 million, an increase of 48% over the full year 2005.

  • Non-GAAP income from operations before income taxes and interest expense, which excludes stock-based compensation expense and amortization of intangibles associated with recent M&A transactions, for the full year ended December 31st, 2006, was $22.4 million, compared with $10.1 million during the full year ended December 31st, 2005, representing a 120% increase on a year-over-year basis and a record full year operating margin of 20%.

  • Non-GAAP diluted earnings per share were $0.96, an increase of 66% compared to $0.58 for the prior year.

  • On a GAAP basis, Kenexa generated net income of $15.9 million in 2006, and GAAP diluted earnings per share were $0.78.

  • More detail on our full year 2006 results and its comparison to prior periods can be found in our press release.

  • I'd like now to turn to the guidance for the full year in the first quarter of 2007.

  • For the full year 2007, we expect the following; total revenue of 184 to $188 million, which is an increase from our preliminary guidance of 183 to $187 million; subscription revenue to be 147 to $150 million; non-GAAP operating income of $40 million to $42.5 million.

  • Assuming a 30% tax rate for reporting purposes and 25.7 million shares outstanding, we expect our diluted non-GAAP EPS to be $1.17 to $1.24, which is an increase from our preliminary guidance of $1.15 to a $1.22.

  • For the first quarter of 2007, we expect the following; revenue to be 40.6 to $41.7 million; subscription revenue to be 33 to $34 million; non-GAAP income from operations to be 7.4 to $7.8 million.

  • Assuming a 30% tax rate for reporting purposes and 24.8 million shares outstanding, we expect our diluted non-GAAP earnings per share to be $0.21 to $0.22.

  • Of note, our non-GAAP EPS guidance includes a non-recurring charge of $0.02 per share associated with the modification of our debt facility put in place at the time of the BrassRing acquisition.

  • This charge will be reflected on our interest income and we are calling it out for analysts that wish to exclude the impact of non-recurring, non-operating items.

  • In summary, we are very pleased with our fourth quarter results which capped off a very successful and record year for Kenexa.

  • We continue to build a strong operating track record and we have, again, increased our top line in operating income forecast based on our fourth quarter results and continued momentum.

  • We'll now turn it over to the Operator to begin the Q&A session.

  • Operator.

  • Operator

  • Thank you.

  • The question and answer session will be conducted electronically today.

  • [OPERATOR INSTRUCTIONS].

  • And we'll take our first question from Jason Maynard with Credit Suisse.

  • Jason Maynard - Analyst

  • Afternoon, guys, and good quarter.

  • Don Volk - CFO

  • Thanks, Jason.

  • Rudy Karsan - Chairman and CEO

  • Thanks, Jason.

  • Jason Maynard - Analyst

  • You mentioned three, I guess, enterprise deals that have closed post the acquisition.

  • And I'm just curious to maybe dive in a little bit more on what you're seeing now that you've got BrassRing under your operational control.

  • And just sort of how that's changing the engagement model with customers?

  • Rudy Karsan - Chairman and CEO

  • Okay, so I'll just respond to that, but before I do that, just for the benefit of everyone else on the call, Don and I are in separate locations because of the weather situation.

  • And so we may just be doing hand-offs that may not be as smooth since we're not across the phone from each other.

  • Generally, what we have seen from a customer perspective, the BrassRing application was a, or is a top-of-the-line application and highly, highly respected by our customers.

  • The issue with BrassRing was their financial statements were a little on the weak side prior to the acquisition from Kenexa, or by Kenexa, rather.

  • And so what has happened is as we approach our customers, the level of comfort with the customers is that they have a tremendous product in a financially-stable organization.

  • And that has allowed us to maintain a great dialogue with them and you've seen some of the results.

  • Jason Maynard - Analyst

  • Well, you guys have had a good model of starting relatively small with one or two modules and growing it over time.

  • I mean, are you starting to see customers come to you and take on larger commitments right out of the gate?

  • Is that a dynamic that's starting to play out?

  • Or is this just a couple of isolated instances?

  • Rudy Karsan - Chairman and CEO

  • Just give you a couple of data points on that.

  • On Pcubed, the mean number of solutions, I think it was in 2004, was at 1.2 and at the end of '06, we're at about 2.4 on that number.

  • I would say probably, I can think of about five or six instances of Pcubed, or preferred partners coming in last quarter with a multiple order.

  • So it would be like an ATS plus Testing or an ATS plus Selector or what have you.

  • So we are seeing more of that up front.

  • The PSL acquisition gave us the content in Europe to allow us to continue the same strategy which is software, services and content in terms of our go-to-market strategy.

  • We now have validated data in England and in Europe to allow us to say the Kenexa that you see in the U.S., primarily is now going to be the same entity, if you will, in Europe.

  • And so we're pretty excited about that.

  • Jason Maynard - Analyst

  • Maybe just one question for Don on the EPS guidance and just around sales force hiring.

  • I think it makes sense, obviously, to maybe take a breather and integrate BrassRing, but just how should we think about sales force hiring maybe in the back half of the year?

  • And I would assume that that's somewhat implied or captured in your guidance at this point, that we'll see some additional capacity brought on, maybe in Qs 3 and 4.

  • Don Volk - CFO

  • Yes, Jason.

  • We typically say that we're going to increase head count by 50 to 60% of what we expect to grow.

  • And so we are continuing to evaluate the sales people in the combined organizations, and those numbers are baked into our guidance.

  • Jason Maynard - Analyst

  • Is there any chance you accelerate that and hire sooner than you anticipate or maybe what are the factors that might contribute to that?

  • Rudy Karsan - Chairman and CEO

  • If the sales force gets integrated appropriately and we see a continued increase in our in-bound calls at the accelerated pace and our revenues continue to grow and we see healthier margins, we would consider doing that.

  • Jason Maynard - Analyst

  • Okay.

  • Great, thank you, very much.

  • Operator

  • Thank you.

  • We'll go next to Peter Goldmacher with Cohen & Company.

  • Peter Goldmacher - Analyst

  • Hi, guys.

  • Can you hear me okay?

  • Rudy Karsan - Chairman and CEO

  • Sure can.

  • Peter Goldmacher - Analyst

  • Just three quick questions.

  • Don, last time we spoke on the call, we had asked for operating cash flow guidance and you talked about guidance in the mid 20s.

  • So you're close, but how do you feel about that number?

  • What do you think's going on that your, arguably, a couple of million dollars light?

  • And then, also, just as follow-ups, you had previously given sequential updates on Pcubed and modules per customer.

  • So, Rudy, I know you just gave the '04 to '06 number, but can you refresh us on the Q3 number and then give us the Q4 number?

  • Thank you.

  • Rudy Karsan - Chairman and CEO

  • Okay.

  • So, Don, do you want to take the cash flow and then I'll take the Pcubed?

  • Don Volk - CFO

  • Sure.

  • You know, Peter, from a full year perspective, we generated strong cash from operations and strong free cash flow.

  • Only a minor difference in cash from operations because some collections came in during the first couple days in January which is kind of in the normal range of variability in cash collections.

  • In addition, integration of BrassRing's back office processes and billing took a couple weeks and we didn't close until the mid-quarter, which is why our adjusted DSO was higher from a short-term perspective.

  • You bring back the DSO to our normal terms and we're spot on in cash.

  • And our free cash flow in the high teens was also spot on for what we planned to do in 2006.

  • So if we take all that into consideration, we're right where we hope to be.

  • Rudy Karsan - Chairman and CEO

  • And from a Pcubed perspective, Peter -- because what has happened at the end of '06, is now we have 56 of our customers having multiple solutions in Pcubed, which means now we're approaching the three-quarters mark.

  • So what we're going to do in the future is give the average number of offerings, per customer, for the entire Pcubed group, like we did at 2.4.

  • And we'll continue to update that number in our earnings column.

  • Peter Goldmacher - Analyst

  • I'm sorry, Rudy.

  • Didn't you give that number for Q3?

  • Rudy Karsan - Chairman and CEO

  • Which one?

  • Peter Goldmacher - Analyst

  • I'm sorry.

  • I may be getting confused on what we're talking about.

  • You had given the average number of applications per Pcubed customer.

  • Rudy Karsan - Chairman and CEO

  • Right, right.

  • Peter Goldmacher - Analyst

  • You gave that number in Q3.

  • Rudy Karsan - Chairman and CEO

  • We said it was 2.3 to 2.4.

  • It's a little north of 2.4 now, so a couple customers were added with multiple solutions.

  • Peter Goldmacher - Analyst

  • Okay.

  • So basically Pcubed--the revenue from Pcubed customers and the average modules are relatively unchanged Q3 to Q4?

  • Rudy Karsan - Chairman and CEO

  • The average has climbed, yes.

  • The average has climbed.

  • Peter Goldmacher - Analyst

  • Okay.

  • Rudy Karsan - Chairman and CEO

  • And again, it's one of those things that quarter-over-quarter, it's not like--you can't go from quarter-over-quarter and watch systematic changes.

  • Having said that, I'm fairly confident that we'll see a 30 to 50% increase in '07.

  • Peter Goldmacher - Analyst

  • 30 to 50% increase in what?

  • Rudy Karsan - Chairman and CEO

  • On the $800,000 number.

  • Peter Goldmacher - Analyst

  • Okay.

  • Okay.

  • Thank you.

  • Operator

  • Thank you.

  • We'll take our next question from Brendan Barnicle at Pacific Crest Securities.

  • Brendan Barnicle - Analyst

  • Thanks.

  • Rudy, you had mentioned you had an increase in in-bound inquiries.

  • And I know, in the past, you've kind of given us some anecdotal metrics on that.

  • At one point told us what you'd done in sort of a week in August versus a year ago and I know you had some days that were big post-the BrassRing.

  • Can you give us anything comparable on that so we can look at some of that in-bound inquiry data?

  • Rudy Karsan - Chairman and CEO

  • Couple of data points on that, Brendan, would be there was a day in November, I think it was November 2nd or 3rd, where in one day we got 30 in-bound inquiries.

  • So now what we did in the quarter, we did in a week and we did about the same in a day.

  • One of the numbers we track internally is a full-week moving average of in-bound inquiries.

  • From late-November on, that number has now reached north of 40 and bear in mind, it was in the single digits seven quarters ago.

  • And we've seen that number nudge 50.

  • It hasn't crossed 50, but it's never dropped below 40, either.

  • But that's such a volatile number.

  • It depends on ads that are hitting.

  • It depends on a press release that goes out.

  • Or the Wall Street Journal picked us up in one case.

  • So it's not a metric that has any level of kind of smoothness to it.

  • It is highly, highly volatile.

  • But it's moving north and moving north fairly quickly.

  • Brendan Barnicle - Analyst

  • Great.

  • And then you mentioned you'd picked up three deals post the BrassRing and that there were two more that you got verbal confirmations on.

  • What does that mean in terms of where you were with these deals that got pushed out from Q4 at the end?

  • Or are they deals that, for some reason, didn't get closed and are now pretty much done for Q1?

  • What does that mean about the verbal commitment level?

  • Rudy Karsan - Chairman and CEO

  • Let me answer that and then I'll kind of answer it in the BrassRing application.

  • I think we've told the street it takes about, call it, four to six months to implement a BrassRing application, maybe three to six months on the large, complex deals.

  • So you won't see the revenue numbers in a lot of these until either Q2 or Q3.

  • The reason for the delay from kind of Q4 to Q1, after you get the verbal, is there's still an approval process within the client.

  • And we're negotiating.

  • And sometimes those things take four weeks and sometimes they take longer.

  • Brendan Barnicle - Analyst

  • Okay, great.

  • And then, lastly, any change in the pricing environment at all within the turn of the quarter?

  • Rudy Karsan - Chairman and CEO

  • Margins are continuing to climb, both at kind of the operating level, so I would say at the highest level, we're seeing --they're holding.

  • You have to continue to increase and improve your features and functionality, but you can't really move up your prices, but we don't have downward pressure.

  • Brendan Barnicle - Analyst

  • Great.

  • Thank you, very much.

  • Operator

  • We'll go next to James Friedman with Susquehanna.

  • James Friedman - Analyst

  • Hi.

  • Thank you.

  • Rudy, based on some publicly available court documents, it seems like one of your competitors, who will go nameless, may have violated some of your source code.

  • Without naming them, I was just wondering if you could describe the company's philosophy with regard to patent protection and whether you'd consider enjoining them from selling that type of competitive solution.

  • Rudy Karsan - Chairman and CEO

  • It's something that we have talked about internally.

  • It is one of those things that we're going to be looking at.

  • It's right now, we're discussing it with counsel.

  • It may take a few months and then we'll make a decision.

  • It'll become -- for us, Jim, it'll become a math problem.

  • What's going to be the cost of prosecution?

  • What's going to be the affect on our sales?

  • If it comes up positive, we'll go; if it doesn't, we won't.

  • James Friedman - Analyst

  • I guess it's just a practical approach.

  • Rudy Karsan - Chairman and CEO

  • Yep.

  • James Friedman - Analyst

  • And then I had a housekeeping question.

  • If you happen to have, Don, the current head count and the head count number in India, as well, that would be helpful.

  • Thank you.

  • Don Volk - CFO

  • We have over 1,100 employees and approximately 270 in India.

  • James Friedman - Analyst

  • Thank you, very much.

  • Operator

  • We'll take our next question from Laura Lederman with William Blair.

  • Laura Lederman - Analyst

  • Yes.

  • Just a few quick questions.

  • One is when you're out there selling BrassRing, who do you see the most to lay over?

  • Any sense of who's starting to increase more in the pipeline and, obviously, ADP and Kronos made acquisitions.

  • Do you see them much at all, because one thought would be that they would lose some share in those acquisitions?

  • And, also, can you talk a little about what internal or organic growth rate would have been if you took out acquisitions out of both periods.

  • Thanks.

  • Rudy Karsan - Chairman and CEO

  • From a competitive standpoint, it's the usual suspects, [Verv], Taleo, Peopleclick, a European company called StepStone.

  • I mean it's still a fragment of space.

  • In every situation, we're always discovering new names.

  • So it is a fragment of space, there's no doubt about that.

  • I guess if I look forward and see the competitive space, we haven't really seen ADP with virtual edge yet; maybe in one or two situations.

  • But if I was looking at '07, '08, I'll see there'll be fewer and fewer names and they'll be kind of the usual suspects as all of us will continue to take advantage of this marketplace that's growing.

  • As far as our organic growth rate, what we have done is we just simply take our total revenues for the quarter.

  • We subtract the meaningful acquisitions revenue from the preceding quarter and, as I mentioned in the prepared comments, that organic growth worked out to be over 40% in the fourth quarter of 2006.

  • In 2007, we'll continue to report it.

  • We'll continue to subtract it and give you what we know is our organic growth rate.

  • Laura Lederman - Analyst

  • I was trying to understand what are you including from the acquisitions in either period?

  • Are all acquisition revenues out for both periods, including--so I'm trying to understand the math of how it's exactly calculated.

  • Rudy Karsan.

  • Okay.

  • So let me use Q1 as an example 'cause I've got those numbers in front of me.

  • Let's assume the guidance is at 40.6 to 41 and change.

  • If it turns out to be around $41 million, and this is just for illustration purposes, the combined revenue from [Gance Wiley], PSL and BrassRing, if I look at Q1 '06, it will be about $11 million.

  • Therefore, our organic growth rate would be $41 million minus $11 million, those three meaningful acquisitions, divided by $23 million, which was our revenues in Q1 of '06.

  • Laura Lederman - Analyst

  • Okay.

  • Got it.

  • Rudy Karsan - Chairman and CEO

  • Did that help?

  • Laura Lederman - Analyst

  • Yes, thank you.

  • Laura Lederman - Analyst

  • If you look, also, at--following up on the earlier question on pricing, just specifically pricing in the ATS space or Applicant Tracking, how is that tracking?

  • Rudy Karsan - Chairman and CEO

  • Same as the general answer.

  • That is, if the increased features and functionality as we roll out Version 9, we're getting ready to roll out 5.0 on Kenexa Recruiter in the kind of second half of this year, you got to have to continue to keep up with the competition.

  • Laura Lederman - Analyst

  • Okay.

  • Thank you, so much.

  • Operator

  • We'll go next to [Patrick Wallravens] with JMP Securities.

  • Unidentified Participant

  • Hi, this is [Monty], actually, filling in for Pat.

  • How you guys doing?

  • Rudy Karsan - Chairman and CEO

  • Good, Monty.

  • Unidentified Participant

  • Question for you on performance management.

  • Is that an area that you guys are looking at expanding into [technical difficulty] performance management going and hearing from the market to know that that space is on fire?

  • Are you looking at making any other acquisitions in that area to kind of expand your portfolio?

  • Rudy Karsan - Chairman and CEO

  • Our application's pretty strong.

  • We think it's one of the best in the country.

  • We don't have languages in it.

  • As far as acquisitions, I mean, we're not going to comment on that until the deal's done.

  • Unidentified Participant

  • Okay.

  • And then kind of what's the fastest growing space in town, management that you're seeing?

  • Is it still ATS stuff or just a general market question, Rudy?

  • And then second what do you see as far, I know you always say you're not a columnist, but what do you see as far as the spending environment and just general spend on account management?

  • Rudy Karsan - Chairman and CEO

  • If I look at the space in kind of Q3 of 2006, we had 58% of our revenues from talent acquisition; 42% from performance management.

  • That number is going to be skewed because of the acquisitions.

  • We think Q1 of this year, it's going to come out to be like 70/30.

  • We're seeing both halves increase.

  • Performance management solutions is on fire.

  • You're right.

  • On the talent acquisition side, our Selector product is doing fairly well.

  • I don't know what to say about the economy.

  • I've answered that question three or four times.

  • We just don't know.

  • We've never seen it.

  • We don't know how to react.

  • We are simply confident that given our leadership position in this space, that we'll be able to be in a good position.

  • Unidentified Participant

  • That's fair.

  • Great.

  • Thanks.

  • Operator

  • We'll take our next question from Andrey Glukhov with Brean Murray.

  • Andrey Glukhov - Analyst

  • Yes, thank you.

  • Don, as far as the cash flow is concerned.

  • Since in the beginning of the year, you guys historically pay out your incentive payments, maybe can you comment on the seasonality of the cash flow?

  • Maybe what should we expect here in the cash flow from operations short-term?

  • Don Volk - CFO

  • Sure.

  • We are going to experience the same type of seasonality in 2007 that we've experienced in the past.

  • We will have a slower Q1, a slower Q2 and better Q3 and Q4.

  • And in Q1 and Q2, we traditionally paid out our bonuses.

  • We're paying all our bonuses out in Q1 of '07 for tax purposes.

  • So that will be the same as it's been.

  • Andrey Glukhov - Analyst

  • Okay.

  • Just housekeeping.

  • The $130 million that you cited in to which you have visibility, does it still assume 90% cancellation rate?

  • Don Volk - CFO

  • Yes.

  • Andrey Glukhov - Analyst

  • And then, lastly, as far as your pro forma tax rate, would you anticipate that half of '07 you would go to kind of full corporate tax rate?

  • Don Volk - CFO

  • Well, I think we'll stay in the 30% range, Andrey, because we have some treaties with foreign entities and special treatment in properties in India and Malaysia.

  • And as long as those treaties stay in place, then we'll be in the 30% range.

  • Andrey Glukhov - Analyst

  • Great.

  • Thank you.

  • Congrats on the quarter.

  • Rudy Karsan - Chairman and CEO

  • Thanks, man.

  • Operator

  • We'll take our next question from Richard Davis with Needham & Co.

  • Richard Davis - Analyst

  • Hey, thanks.

  • So, Rudy, you've done, I think, a great job of kind of leaping a head in the space, big organic growth and things like that.

  • And at the same time, you've tripled your revenue base really since '05.

  • So if you kind of step back and so, instead of asking you a question about models and stuff like that, how are you managing the firm differently?

  • Because, I mean, this is a business that's three or four times bigger than it was a few years ago.

  • And, specifically, I remember meeting a lot of your management team and stuff like that, but just how are you handling that?

  • And then the second part of the question would be, and I realize you're a talent acquisition company, but how are you ensuring that you're hiring the right people while growing so fast?

  • Because no matter what it is, if you're hiring at 40 or 50% new people in a year, in a given year, that's a lot of folks.

  • If you could kind of talk to us at that level, that would be helpful.

  • Rudy Karsan - Chairman and CEO

  • So the second question is easier than the first one, which is we just eat our own dog food, as the saying goes.

  • We are applying the processes that we recommend to the clients.

  • And if you look at Kenexa kind of at the highest level in terms of our go-to-market strategy, our go-to-market strategy is we're an HR company that sells primarily applications.

  • We also sell content and we also sell services.

  • We are really HR experts.

  • We're smart about these things.

  • We train our clients on them.

  • We teach them on it and we've learned from those experiences and applied them internally.

  • If I look at it from Kenexa's perspective, do we have challenges as we continue to grow the business?

  • In a sense, we've been fortunate with some of the acquisitions.

  • We've gotten some fairly strong people with it.

  • For example, the new CIO of Kenexa is Andy Cooper that came in from the BrassRing acquisition, a just really, really good guy.

  • If I look at the way we're running the business, I would say the way we have been able to manage the growth -- if you look at it from a systems and a processes perspective, we think we were fortunate enough to make the right kind of technical decisions, like we put Oracle in three, four years ago.

  • It's embedded in the organization.

  • We have everyone filling out timesheets.

  • That discipline has been maintained from when we were quote, unquote, a smaller company.

  • We installed that when we were a 500- or 400-person company and took our medicine then. [inaudible] that sort that have allowed us to scale the organization.

  • We have processes around communication, huddles and the like.

  • If I look at it from a people perspective, our people are expected to continue to grow.

  • Their span of control is getting wider.

  • Our travel expense bills are higher.

  • And from a people perspective, it's really fun working for a winning team.

  • And so when you're on a winning team and the organization's growing and you're getting recognition from your clients, it makes for a very positive growth environment with a highly-engaged work force.

  • And we're very appreciative of that and, hopefully, we'll be able to continue that for the next few years.

  • Richard Davis - Analyst

  • Now, that's helpful.

  • I appreciate it.

  • Thank you.

  • Operator

  • We'll take our next question from Thomas Ernst with Deutsche Bank.

  • Greg Dunham - Analyst

  • Hi, yes.

  • Actually this is Greg Dunham on behalf of Tom.

  • One housekeeping one and one kind of bigger picture.

  • The bigger picture is more on the penetration side and the confidence in the 30 to 50% growth, that 800K number.

  • Just talk, kind of specifically, about the tactics you're doing to grow that category here.

  • Rudy Karsan - Chairman and CEO

  • If you look at it, we have maintained a fairly disciplined approach which is what's the most likely next solution the customer's going to purchase after they are a customer in a particular solution.

  • So if they are an ATS customer, what's the most likely next purchase?

  • We've got that down to somewhat of a science and we've continued to expand on that and use that as a way to penetrate our existing organizations.

  • And then if you think about it a little differently.

  • Because we are in the teaching mode and an HR company, we are able to get audiences within the C-suite of an organization.

  • It's not often software companies can go there and present to the highest kind of operating committee in an organization, like the Executive Committee.

  • In the last couple of years, you see there's been over 30 presentations made by Kenexa consultants to the highest level executive team in our client operations.

  • So that allows us to develop relationships at the highest level which we then continue to teach our customers the important value of our suite.

  • And as our brand gets stronger, we become the safe choice.

  • So that's why we feel fairly confident that we can build that number.

  • And kind of the other data point, Greg, is the fact that when we were a little smaller and our Pcubed number was in that three or 400,000 range, we told the street that we could take that number up to 1 million.

  • And the reason we were able to say it is 'cause we had proof points around it.

  • We had customers over 1 million.

  • Now we're saying over 2 million.

  • We can take the number up to 2 million.

  • So clearly we have proof points at the 2 million number.

  • Now what's interesting is we have more companies at the 2 million mark today than we did at the 1 million mark when we made that 1 million announcement to the street.

  • So we have a high degree of confidence in that number.

  • Greg Dunham - Analyst

  • Okay.

  • Rudy Karsan - Chairman and CEO

  • In Q4 the number climbed, we just kind of, we're bracketing it so it's over 800,000 and when it starts to grow we'll let the street know.

  • Greg Dunham - Analyst

  • Oh, okay.

  • Great.

  • That's very helpful.

  • And then, quickly on that, on the one-time hit for next quarter, I just want to clarify the modeling for the interest income.

  • You're expecting a $0.02 benefit?

  • Don Volk - CFO

  • No.

  • It's a $0.02 hit.

  • Greg Dunham - Analyst

  • Yes.

  • Don Volk - CFO

  • It's a $0.02 hit.

  • We paid off our debt with the bank and we had paid a fee to get the debt and we are in the process of re-negotiating our line of credit, but reducing it in total.

  • So we're writing off a piece of the original fee.

  • Greg Dunham - Analyst

  • And you're anticipating that the street not include that hit in their numbers or do include that hit?

  • Don Volk - CFO

  • That's up to you.

  • Greg Dunham - Analyst

  • Okay.

  • Thanks.

  • Operator

  • We'll take our next question from Brad Reback with CIBC.

  • Brad Reback - Analyst

  • Hey, guys.

  • Can you hear me?

  • Rudy Karsan - Chairman and CEO

  • Yes.

  • Don Volk - CFO

  • Sure can.

  • Brad Reback - Analyst

  • That's great.

  • I'm sorry if this was asked already, been on and off the call a little bit.

  • With respect to acquisitions, it appears from your commentary, you may be taking a breath here to integrate what you've got.

  • Maybe give us an update of where you stand or where your acquisition pipeline stands looking forward.

  • Rudy Karsan - Chairman and CEO

  • The acquisition pipeline is strong.

  • From our perspective, what we consider a large acquisition is something, say, over 100 million.

  • Until we see the BrassRing acquisition normalized within Kenexa, i.e., it's kind of the same organization and we have to do a few more turns to make sure that it's operating exactly the same way and Kenexa will all come off as part of our organization.

  • We probably would not do another large acquisition.

  • So can I categorically say we won't do another one in the first half of this year?

  • Probably.

  • Probably, unless we see something really dramatic happen.

  • I don't see that happening.

  • Talking acquisitions on the other hand, if a good one pops by, it makes sense; it meets our three standards of added solutions, geography or verticals and is accretive in the first full quarter after the transaction closes, we would pull the trigger.

  • Brad Reback - Analyst

  • That's great.

  • Thanks, a lot, guys.

  • Operator

  • We'll take our next question from Mark Verbeck with Cantor Fitzgerald.

  • Mark Verbeck - Analyst

  • Thanks, a lot.

  • Congratulations on the quarter.

  • Rudy Karsan - Chairman and CEO

  • Thanks, Mark.

  • Mark Verbeck - Analyst

  • Can you tell me, with this acquisition in Europe, does that change your strategy in terms of how you might go after expanding your international presence?

  • Rudy Karsan - Chairman and CEO

  • The reason we did the acquisition in Europe was to make sure that the go-to-market strategy, in terms of our unique selling proposition of content, product and service, remains intact.

  • If we had not done it, our European or global operations would have been kind of standard software.

  • Now we're saying, you've got a rich selection of the content of the science that helps you make better decisions for your human resources.

  • So the PSL transaction will allow us to continue to grow our business in the same way in Europe as we did in the U.S.

  • Mark Verbeck - Analyst

  • Do you bring the products that you have built in the U.S. or some component of them and add them into the existing organization there?

  • Rudy Karsan - Chairman and CEO

  • Well, in PSL's case, they've got a testing engine and Kenexa has a testing engine and we'll bring those two together.

  • The content that they have, the questions that they have that are validated and have stood the test of time, will continue to expand our library.

  • So think of it as a library expansion with richer content and richer data.

  • Mark Verbeck - Analyst

  • Okay.

  • And then can you give us an update on the integration in the back office and in the sales force with the BrassRing acquisition; both training your existing people on that product set and integration of the BrassRing sales people?

  • Rudy Karsan - Chairman and CEO

  • Don, I'll take the sales and then you take the back office.

  • Don Volk - CFO

  • Sure.

  • Rudy Karsan - Chairman and CEO

  • From a sales perspective, what we've done is most of the marketing folks are no longer with the company.

  • We've kind of consolidated marketing under our chief marketing officer of Sarah Teten.

  • From a sales perspective, we have integrated the sales people and we are in the midst currently of cross-pollinating the product knowledge so that the entire sales force understands what our go-to-market strategy is and where our customers see value.

  • This will take another few months.

  • This is not an overnight event.

  • Don Volk - CFO

  • From a back office perspective, we're in the process of changing certain processes and procedures.

  • We use Oracle Financials.

  • We're moving all of the financial processes onto Oracle Financials.

  • We've picked up a number of very talented people in the BrassRing acquisition; as Rudy mentioned, the CIO.

  • We've also picked up a gentleman who is going to be in charge of our taxes and our treasury by the name of Ron Poore who's very, very talented and we're very happy to have him.

  • And we're in the process of integrating all of those processes.

  • Mark Verbeck - Analyst

  • Great.

  • Thanks, a lot.

  • Operator

  • We'll take our next question from Heather O'Laughlin with America's Growth Capital.

  • Heather O'Laughlin - Analyst

  • Thank you.

  • Thank you.

  • I have several questions, actually.

  • The first is have you won any deals against Taleo because you have a performance suite this year or, I should say, in 2006?

  • Rudy Karsan - Chairman and CEO

  • I didn't understand the question, Heather.

  • Heather O'Laughlin - Analyst

  • I wondered if you had won any deals against Taleo in 2006, because Kenexa has a performance suite and Taleo does not.

  • Rudy Karsan - Chairman and CEO

  • Oh, not that any comes to mind.

  • Heather O'Laughlin - Analyst

  • Okay.

  • And then, additionally, how do you think about the learning management companies entering the performance management market?

  • Is that something in terms of a market that the company's considering entering or is it something that it may be easier to do through partnering?

  • Rudy Karsan - Chairman and CEO

  • Yes.

  • Heather O'Laughlin - Analyst

  • Which [inaudible]?

  • Rudy Karsan - Chairman and CEO

  • We're in the evaluation process.

  • I mean, anytime you're looking at new solutions, you've got a matrix with three components in it.

  • Do you buy?

  • Do you build?

  • Or do you partner?

  • Right?

  • Heather O'Laughlin - Analyst

  • Sure.

  • Rudy Karsan - Chairman and CEO

  • And you're always going through the math associated it in mapping against the RFP requests.

  • And that's how we make decisions.

  • Right now, there isn't enough data coming in on the RFPs to give us a feel whether we should buy, build or partner.

  • Heather O'Laughlin - Analyst

  • Okay.

  • And then can I just sneak up a follow-up question that's totally unrelated?

  • Heather O'Laughlin - Analyst

  • Are there any duplicative products that the company is looking at closing over the next, say, 12 to 18 months to help operating margins going forward?

  • You know, given all the acquisitions the company's done.

  • I've had competitors say that Kenexa's three or four in some areas and I just wanted to know if that actually factual or was a more marketing hype.

  • Rudy Karsan - Chairman and CEO

  • Yes.

  • We've got four ATSs.

  • We've got Kenexa Recruiter--

  • Heather O'Laughlin - Analyst

  • I knew that.

  • Rudy Karsan - Chairman and CEO

  • --Kenexa Recruiter Enterprise.

  • Kenexa Recruiter Hourly or what we call Storefront and Kenexa Recruiter BrassRing.

  • From an advertising and communication perspective with our clients, we call it Kenexa Recruiter.

  • We are fairly clear when the in-bound inquiry comes in or when the dialogue begins, what's the best solution for our client.

  • From an operating expenses standpoint, our R&D's running at 8.2%.

  • I think we're just like best in class and we can manage it.

  • We haven't had significant expense-related issues around running the products.

  • So this is going to be decided by the customer.

  • It's not going to be decided by our competitors.

  • It's going to be decided by our customers.

  • Heather O'Laughlin - Analyst

  • Okay, thank you.

  • Operator

  • Thank you.

  • And we do have no further questions.

  • At this time, I'd like to turn the program back over to Mr. Karsan for any additional or closing comments.

  • Rudy Karsan - Chairman and CEO

  • Thank you, very much.

  • And I guess I'll just summarize by saying Kenexa's really fortunate.

  • We're in the space that has been growing and we've been the beneficiaries of it.

  • We've all earned the respect of our clients who continue to buy more from us and place their trust in us.

  • And we'd also like to thank the street for the support they've given us, as well.

  • So, on that note, just '07 looks like a great year for us.

  • We're excited about it.

  • And we finished '06 very, very strongly and we're very proud of that, as well.

  • Good evening.

  • Operator

  • That does conclude today's conference.

  • You may disconnect your line at any time.