Kelly Services Inc (KELYB) 2014 Q2 法說會逐字稿

Good morning, and welcome to Kelly Services' second-quarter earnings conference call. (Operator Instructions). Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host, Mr. Carl Camden, President and CEO. Sir, you may begin.

Thank you, Nick, and good morning, everyone. Welcome to Kelly Services' 2014 second-quarter conference call. And with me on today's call is Patricia little, our CFO.

Let me remind you that any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the Company's actual future performance.

Turning to Kelly's Q2 results, I'm pleased to report that our performance was in line with our expectations, and we delivered solid results while continuing our aggressive strategic investments. Revenue was $1.4 billion, up 3% year-over-year. Our gross profit rate for the second quarter was 16.2%, up 10 basis points from the 16.1% delivered in the same period last year. As planned, second-quarter adjusted expenses were up 9% year-over-year, as we accelerated our investments in the US and continued our aggressive investments in OCG.

As anticipated, these investments impacted our second-quarter earnings and we delivered an operating profit, excluding restructuring, of $7.7 million, down compared to adjusted earnings of $18.9 million for the second quarter last year, but up from the $6.3 million earned in the first quarter.

Kelly's second-quarter earnings from continuing operations, excluding restructuring, were $0.10 per share compared to adjusted earnings of $0.33 per share for the same period last year.

Patricia will cover our quarterly performance in more detail a bit later, but I can tell you that overall we are pleased with Kelly's performance during the second quarter. We are doing precisely what we set out to do: deliver a profit while acting on investments that will accelerate our long-term growth objectives.

Now let's take a closer look at our performance in each of our business segments, beginning with the Americas. Revenue demand in the Americas rebounded a bit during the second quarter. Combined staffing revenue for the region was up 1% year-over-year compared with the 4% declines we reported in the last three quarters.

Americas commercial revenue was up 2% year-over-year for the second quarter, a nice improvement from the 4% decline reported in Q1. Light industrial was down 2% from a year ago, but also an improvement from the 8% decline we reported last quarter. Adjusting for the two sizable accounts we chose to exit in the US last year, as we discussed in our fourth-quarter call, light industrial revenue increased 1% during the quarter, year-over-year.

Office clerical was down only 2% for the quarter, which was an improvement both year-over-year and compared to the 6% reduction we reported Q1 of this year, and the 10% reduction we saw in Q4 of 2013. And once again, we continue to see significant growth from our new customer wins in our Kelly educational staffing unit, which reported revenue growth of more than 60% year-over-year in the quarter, up from the 43% growth in Q1.

Americas PT revenue was down 3% from the prior year, consistent with the 3% decline we reported in the first quarter. Our science and engineering businesses continue to be the strongest performers during the quarter. Science revenue increased 4% year-over-year and engineering revenue was also up 4%, adjusted for a sizable project we exited last year in Mexico. Sequentially, our science and engineering businesses grew 6% and 4%, respectively, compared to the first quarter.

Our overall Americas PT results were offset by lower revenue in our IT and finance business lines, which were both down 12% year-over-year, and continue to underperform the market. Commercial fees and PT fees were both up 5% from a year ago, and up 3% sequentially.

Americas gross profit rate was up 20 basis points from the previous year, primarily due to better pricing and customer mix, somewhat offset by higher workers' compensation cost. Expenses were up 10% year-over-year in the Americas. As expected, the majority of this increase is due to planned investments which include additional headcount in our sales and recruiting staff, as well as last year's salary increases. We believe the investments we are making in the Americas position us well for the second half of the year and beyond to better capitalize on growth opportunities in the PT specialties and vertical markets we serve.

Even with these increased investments, Americas achieved earnings of nearly $23 million for the second quarter. And while this is a decrease from the previous year, it is well within our performance expectations, given our accelerated investment spending during the quarter.

Let's turn now to our operations outside the Americas, beginning with EMEA. Revenue in EMEA was up 9% in the second quarter compared to last year. On a constant currency basis, revenue was up by 6%, with 10% growth in our professional and technical businesses on a year-over-year basis.

For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency.

Sales increases in EMEA during the quarter were driven by accelerating growth in our local business. Large account revenue grew by 3%, while local revenue grew by 13% for the quarter. We achieved growth of 8% year-over-year in Western Europe, primarily due to the solid performance of our operations in Portugal, Italy, and France.

Our UK operations continued to show improvement, with a 9% increase for the quarter year-over-year. Combined sales in the Nordics and Eastern Europe were down by 3% year-over-year. Russia continued to perform well, with a 7% year-over-year increase, but current political and regulatory conditions are beginning to impact our business there. Many employers throughout the country are becoming uncertain due to the current economic sanctions, and plans for business expansion are being delayed.

During the quarter, fee revenue was down by almost 3% year-over-year. However, we are starting to see signs of improvement in the market, with commercial fees up 1% year-over-year.

EMEA's GP rate for the second quarter was 16% compared to the 16.9% for the same period last year, a 90 basis point decline. The overall GP decline is primarily attributable to lower fees as well as an unfavorable country mix, and a one-time adjustment last year in the Benelux region.

Excluding restructuring, expenses increased 6% year-over-year. This is primarily driven by investments in selected countries, as well as the expansion of our regional sales team; the restructuring charge of $800,000 related to our decision to exit the staffing business in Sweden, where will continue to serve that market through our OCG solutions business. Netting that all out, EMEA reported a profit of $3.5 million for the second quarter, excluding restructuring.

We expect that conditions across Europe will continue to improve slightly, but will remain challenging for the staffing industry in 2014, especially with regard to fee revenue.

Next we'll turn to APAC. Revenue for the APAC region grew by 2% in constant currency year-over-year. This is largely due to continued growth in temporary staffing volumes in Singapore and India. Fees declined by 14% in constant currency compared to the prior year due to the weaker economic climates in Australia and New Zealand, combined with staff turnover in Singapore. Our gross profit rate for the region was 15.5%, down 110 basis points compared to the same period last year. This decline was primarily due to lower staffing fees across the region.

During the second quarter, we closed several offices in Australia and incurred restructuring charges of $1 million. Excluding restructuring, our APAC region did a nice job of holding expenses roughly flat for the quarter. We concluded the quarter with a small profit, excluding restructuring charges, down slightly from last year.

Now we'll turn from our geographic results to our results for OCG, an important driver of our global talent supply chain management strategy. Revenue was up 17%, and OCG gross profit was up 19% in the second quarter compared to last year. We had growth in all three of our key solutions -- contingent workforce outsourcing, CWO; recruitment process outsourcing, RPO; and business process outsourcing, BPO.

Gross profit in our CWO practice was up 24% year-over-year. This was attributed to growth in both our contingent workforce outsourcing and our payroll process and solutions. RPO gross profit for the quarter increased 31% over last year, driven by growth within both new and existing customers. And BPO gross profit grew 13% over the prior year, mainly due to our contact center outsourcing solution. Overall, OCG's gross profit rate was 23.9% compared to 23.4% a year ago. The year-over-year increase was primarily due to higher margins in our RPO and contact center solution practice areas.

Excluding restructuring, expenses were up 15% year-over-year, the result of investments and new client implementations; servicing costs associated with expansion of existing customer programs; and several planned strategic projects, such as talent supply chain analytics. OCG had an operating profit of $1.8 million for the second quarter, $1 million higher than the same period last year, excluding restructuring and impairment.

As we look out to the third quarter, we expect to further accelerate our planned investments in OCG beyond current levels, as well as investing in current strategic accounts. As such, we anticipate lower operating earnings in OCG year-over-year. The progress we're making in this segment is a key element of our overall strategy, and we are pleased to continue making the investments to support the strong revenue and GP growth we are seeing.

Now I will turn the call over to Patricia, who will cover our quarterly results for the entire Company.

Thank you, Carl. Revenue totaled $1.4 billion, up 3% compared to the second quarter last year. Staffing placement fees were down 4% year-over-year as we continue to experience declines in EMEA and APAC that more than offset growth in the Americas. Our gross profit rate was 16.2%, up 10 basis points compared to the second quarter last year. Overall GP was up nearly $7.5 million, about 3%.

During the quarter, we recorded $1.8 million in restructuring costs to exit branches in Australia and the staffing business in Sweden. This is consistent with our willingness to optimize our footprint as our supply-chain capabilities mature. During the second quarter of 2013, we recorded restructuring charges of $800,000 and impairment charges of $1.7 million as a result of our decision to exit our executive placement business in Germany.

Excluding restructuring and impairment charges, expenses were up 9% year-over-year. The increase is due to a number of factors, including higher costs due to additional headcount related to investments in PT recruiters, OCG, and centralized operations. Excluding restructuring and impairment costs, earnings from operations were $7.7 million compared with 2013 adjusted earnings of $18.9 million.

Income tax expense for the second quarter was $2.8 million, or 50%, compared to $4.8 million, or 32%, in 2013. The rate reflected the cessation of US work opportunity credits in 2014, as well as a valuation allowance for foreign tax credits.

Excluding restructuring and impairment charges, diluted earnings per share for the second quarter of 2014 totaled $0.10 per share compared to $0.33 in 2013.

Looking ahead, for the full year we now expect revenue to be up 4% to 6%, down slightly from the 5% to 7% we were expecting last quarter. We expect the gross profit rate to be relatively flat, and we expect SG&A to be up 6% to 8%, also down slightly compared to the 6% to 9% we were expecting last quarter. As we complete the buildout of our central operations in the US, we will be looking closely for opportunities to reduce the cost of our service delivery. So I expect that expenses will be in the low end of the range.

I would also like to reiterate that at this level of economic growth, we would normally expect SG&A to be much lower. However, there are three factors impacting our expected expense growth: regulatory pressure, including the impact of implementation of the Affordable Care Act; investments to drive growth in our PT staffing business; and investments to continue to build our solutions capability in OCG. We are on track with our milestones on these strategic initiatives.

As I've previously noted, we expect that revenue will lag these investments, and that our full-year earnings will also be down compared to 2014. Over the last several years, we have managed our expenses closely. And while the investments we are making are very important to the long-term growth of Kelly, we will continue to focus on expense management in all areas.

Our 2014 annual income tax rate is now expected to be slightly negative, assuming work opportunity credits are renewed. Work opportunity credits expired at the end of 2013, which puts us in the same situation we were in two years ago. At this point, we don't know if or when they will be renewed. If work opportunity credits are not renewed, our tax rate is expected to be about 30%.

For the third quarter, we expect revenue to be up 5% to 7% on a year-over-year basis; up 1% to 3% sequentially. We expect our gross profit rate to be flat, both on a year-over-year basis and sequentially. And we expect expenses to be up 11% to 13% on a year-over-year basis.

Turning to the balance sheet, I will make a few comments. Cash totaled $63 million compared to $126 million at year-end 2013. A portion of the decrease, approximately $20 million, was due to payments we received very late in our fiscal 2013, most of which were paid to suppliers in the first few days of fiscal 2014. Accounts receivable totaled $1.1 billion, and increased $110 million compared to year-end 2013.

For the quarter, our global DSO was 57 days, up three days compared to last year. The increase is largely due to the timing of our month-end cut off, as well as extended terms and invoicing complexities for certain large customers.

Accounts payable and accrued payroll and related taxes totaled $629 million, down $8 million compared to year-end 2013. At the end of the second quarter, debt stood at $90 million, up $61 million from year-end 2013. Debt to total capital was 10%, up from 3% at year-end 2013.

In our cash flow, we used $108 million of net cash for operating activities compared to $14 million used for operating activities last year. The change was due in large part to the increase in accounts receivable. Again, about $20 million was related to the payments which crossed over year-end.

I will turn it back in to Carl for his concluding thoughts.

Thank you, Patricia. Reflecting on Kelly's second-quarter performance, we are pleased with our progress against strategic objectives. We have accelerated our targeted investments to drive continued growth in OCG, adjusted our service delivery models, and positioned the business for higher-margin growth. And given the long-overdue lift we are seeing in recent jobs reports, it appears the US economy is finally on track to start producing jobs needed to sustain the recovery, and our strategy is well aligned with market demands.

The ongoing success of our OCG segment is confirmation of this market alignment. OCG continues to deliver double-digit revenue, GP and earnings growth, as evidenced in our second-quarter results. Our OCG specialties are performing above expectations. CWO, BPO, and RPO are key drivers of Kelly's talent supply chain management approach, which delivers strategic global workforce solutions for the world's largest companies. OCG's sustained performance reaffirms the significant investments we are making to continue to accelerate this segment's growth. We are seeing increased demand for integrated talent supply chains across our large clients' global enterprises, and our OCG roadmap is designed to capitalize on these trends.

With this in mind, we are accelerating our OCG investments and talent analytics that will help drive predictive workforce planning, strengthening the breadth and depth of our global supplier network, and evolving the independent contractor and Statement of Work solutions that will also drive higher-margin PT growth.

Even as we expand our solution set in OCG, we continue to strengthen our staffing services with increased emphasis on winning higher-margin specialty business. As discussed in our last two earnings calls, we are introducing a new approach to PT recruiting in our local US markets. I am pleased to report we have launched a planned center of recruiting excellence in the US ahead of schedule, and they are now supporting flexible teams of targeted recruiters and sales resources for Kelly's IT, engineering, science, and finance specialties across the country.

It is still too early to see the results of our PT investment, but with these recruiting and sales teams in place to secure PT talent, we are now turning our investments to adding PT business development resources in local US markets to aggressively pursue new higher-margin business.

We also continue to invest in centralized service delivery for our large account base. We have completed the planned transition of all targeted large accounts into the centralized model, giving us added visibility into the opportunities for additional growth among key clientele. We will continue to redouble our recruiting and sales teams' efforts to expand our relationships and margins in these large accounts.

With the bulk of our delivery model investments behind us, our focus during the second half of the year will shift to delivering results from these investments. As we do so, we will continuously evaluate our new operating models to ensure we are operating at peak efficiency and that we are making adjustments accordingly.

Ultimately, we expect these investments in centralization, staffing, and OCG to yield long-term efficiencies and additional revenue and gross profit growth opportunities late in 2014 and beyond, particularly in OCG and in our PT staffing business.

Looking ahead, we are encouraged by the rate of job growth in the steadily improving US economy, and we do not anticipate a slowdown among our large customer base. Above all, we are confident that Kelly is well positioned to meet the growing demand for flexible talent and strategic workforce solutions. We are pleased with the progress we have made thus far. We have executed on our strategy as planned in the first half of 2014, and we continue to make aggressive investments that will enable Kelly's long-term growth.

Patricia and I will now be happy to answer your questions. Nick, the call can now be opened.

(Operator Instructions). Tobey Sommer, SunTrust.

You've talked about investing to drive the specialty staffing, and your approach to the market. When is a reasonable time period to start to see the impact on growth, and assess the effect of the new strategy? Thanks.

Yes, thanks, Tobey. Good question. Substantively, in quarter four, you should expect us to begin to talk about results. And in Q3, we'll probably begin to texture with some of the early signs that we would be seeing. But Q4 is when we expect to see substantial results.

And based on these investments in the growth in SG&A this year, should we expect less growth in expenses next year, and, therefore, some leverage in the model?

There had better be, yes. (laughter) Yes, Tobey. The short answer is yes. Yes, that's what we are expecting. That's the whole point of, in fact, trying to speed up the investments as early into this year so that we could obtain maximum leverage as we walk forward.

So what kind of expense growth might you envision in 2015, not relative to guidance? Even some sort of qualitative commentary would be helpful.

Do you know what the economy is going to be doing in 2015?

No, I didn't get that email. (laughter)

Neither did I. You know, I think we'll have a better handle on that as we get deeper into the year. Without being joking about it, we really need to see whether we -- how are we exiting 2014 in terms of, what type of growth rates? What are the programs doing? What type of investments would you need, internal, to some of the programs? But do I expect the investments to be substantially less than they were in 2014? Yes.

Okay. How much have you increased sales-related headcount as a result of the new strategy in the investments? Just trying to get a sense for order of magnitude.

About 60 individuals.

And how might that compared to a base, just the judge the growth, or --?

We weren't --.

Well, I can ask another question maybe; and if you come up with something during the call, you can get back to it.

I'd say about one-third.

One-third?

Yes, an increase of about one-third, yes.

Okay. Perfect Are there any other offices that you might anticipate closing at this point? Or have you sort of optimized your footprint, relative to what you see in the market right now?

Yes, the optimization effort is never done, regardless of what's taking place. Every year we close offices. So, do I expect there to be more? Yes. Part of the issue that -- not issue, but part of what we look at is -- what does our improvements in our supply-chain capabilities do, to where we need to have a staffing footprint? As we just said, we were able to exit the staffing market in Sweden because the OCG capabilities there took away the need for that.

Do I expect that, over the course of time, there will be a further reduction of staffing footprint in some countries? Yes. And inside the US, as we look at the centralized delivery and local service delivery, will we end up with some branches that can be closed, out of that effort? Probably over the course of time, when we understand what's taking place in the market.

Okay. And just a couple more from me. What other kind of regulatory pressure are you facing other than ACA?

Yes, as we mentioned, in Russia -- which, as you know, has been historically a nice market for us -- every 2 to 3 years they go through a round of looking at the nature of employment in Russia, and how does temporary staffing fit that. And we've gone through various versions of builds as we look at that, versus outsourcing. And so there is always of a constant -- there is always some country somewhere that is looking at the nature of employment regulation.

Inside the United States, there's always constant pressure here lately in terms of sorting out wage hour issues. Everything from, when does somebody technically go on the clock? Do they go on the clock from the moment they enter the parking lot, from the moment they enter the door, from the moment they approach the time machine? There's lots of little issues like that, but are big issues for employment firms being sorted out by Department of Labor and the courts.

Okay. And then just two questions about OCG, and I'll get back in the queue. Do you expect growth to reaccelerate in the third quarter and fourth quarter, or might it continue to moderate from the growth level in the first quarter of 2Q? And I didn't catch the RPO growth that you cited, so I'd love to get that number.

Yes, we have programs that have seasonality in them. You have -- and so we've tended to have Q4 be a strong -- a very strong quarter for us. So do I expect there to be some acceleration deeper into the year? Yes, but more so in the fourth quarter than in the third, just given the nature of some of our business. And in terms of the RPO, again we report this in terms of gross profit increases, given the structure of that business. And we gave the number, 31%, Tobey.

Thank you very much.

Josh Vogel, Sidoti.

First question, what would you say is your longer-term target of where you want PT and OCG to get to, in terms of your overall revenue mix?

We would tend to talk more about gross profit than we would revenue, because you have accounting rules as to which ones are denominated in payroll dollars, and which ones in gross profit. In terms of gross profit dollars, the next stopping point that we're trying to aggressively get to is where PT and OCG account for half of our gross profit dollar mix.

After that, you take a breath, stop and assess -- what are product demands out there, and what's happening to the nature of the job market? But I would expect to see the proportion of our gross profit dollars being delivered by PT and OCG to continue to improve proportionally every year.

Okay. And, Carl, you talked about how the IT and finance divisions were underperforming the market. Can you talk to that little bit, and also the investments that you are making in PT recruiters today? Are they geared towards improving the results of IT and finance?

Yes. (laughter) You've clearly heard us bifurcate kind of our specialty units, where we talk about engineering and science performing well against the market, and IT and finance underperforming the market. We have focused on the leadership. And we have focused in some of the areas for each of those, adding to the recruiter base; and in others, in particular, where we had a sufficient recruiter base, but not enough order volume increasing in our business in our salespeople, our BDRs. And we now think we are approaching Q3 with a good set of the salespeople in place, and the recruiters ready to go. So I would say Q3 is the first quarter that you begin to see us more fully staffed, and leadership repositioned in those two units.

Okay. And just lastly, we're a month into the quarter, and it's good to see revenue growth is accelerating. As we look to your guidance, both for Q3 and full-year, what assumptions are you using or assuming to get to the high end of this range, outside of the growth we are seeing in OCG? What other areas of strength would get us to the high end of that range?

As Carl said in the beginning of his remarks, we see a slowly improving economy, and that's a big part of the assumption that we are making. We are also expecting to see, at least while the bulk of the improvement in PT comes in the fourth quarter, we should be and are already seeing some good traction of those initiatives, and continued strong performance in EMEA as well as OCG. So it's a little bit of everything, but underlying the basic economic growth.

And the other thing I will point out for the third quarter, is Carl talked about the impressive wins in our education unit. And, of course, the third quarter and fourth quarter are seasonally helped a lot by those, since the school year kicks in. And in the third quarter, we will start to see the benefit of those wins.

Okay. How big is the education unit today?

We haven't dimensioned it in dollars, but it's becoming a really significant part of our business.

Okay. That's all I have right now. Thank you.

(Operator Instructions). Andrew Morey, Lee Munder.

Could you just -- I know in the past you've given a lot of detail about the expenses on the centralization. And you mentioned, you called out a little extra expense for ACA rollout and some extra spending on OCG.

Is there any way to give just a kind of a short summary of if the magnitude of the extra expenses, just as far as -- what are the biggest buckets in order? It is still centralization? Is it several other initiatives, expanding specialties? Could you just give us a two-second review of that, please?

Yes, I would be happy to. So this year, we are spending, on all of those, about $25 million. We haven't broken them down by pieces, but let's sort of tick through what's included in that, in total.

Carl talked about it, but basically the first two pieces relate to the Americas. One is improving our -- or moving more of our large customers into centralized service delivery. The reason that is an investment is because what that does is it takes business away from our branch structure, which leaves them at an overcapacity situation. So we need to invest into those local branches to -- with the business development representatives, as well as specialty PT recruiters, in order to fill up their capacity; and, most importantly, grow that PT business that Carl was just talking about.

We have three areas in OCG where we are very focused on. First is expanding our global supplier network. That is the situation that Carl talked about. It has a lot of benefits. It's what our large customers demand. It also means that we get to be more selective about where we supply staffing around the world. We can supply staffing in many, many countries now where we don't -- I'm sorry, we can supply our large customers with OCG capabilities in many countries around the world where we don't provide staffing.

We are also working on account supply chain analytics solutions. There's a lot of demand for workforce planning amongst these very large, sophisticated customers. And we have a lot of flow-through of data that's very helpful for them.

We are also expanding beyond the traditional temporary staffing base in our OCG world, as well as recruiting and business processing, to include Statement of Work and independent contractors in our suite of services that we can help our large customers manage. That's something that may no longer see boundaries between those different ways of bringing talent into their organization, whether it's full-time; temporary staffing; or, importantly, Statement of Work and independent contractors.

And finally, we didn't talk a lot about it on the call, but all of that added complexity comes with a technology component. So we're looking at improving our processes for our large accounts, including things like, in my world, back office processes that allow for payroll and billing; and revamping our front office systems, which are proprietary systems that needed to be -- have a fair amount of it. It's processes reengineered to improve our ability to handle the sophistication of the market these days. So we expect those to increase efficiency and productivity.

And I think in response to Tobey's question, Carl mentioned there would be -- we are certainly looking for leverage next year. Would that, then, imply that the peak in the investment spending has already happened in this quarter? Or no, that would be necessarily -- the rate of change, the peak of that, might be in the third or fourth quarter?

I understand year-over-year, next year, then you would gain leverage. But I'm just trying to think more sequentially, and somewhat adjusted for the seasonality of your business, when pretty much all of these expenses would have started and would have really ramped up.

Yes, we entered the year viewing it as a pretty even spend of our expenses. We have pulled ahead. We are pleased that we've pulled ahead. Some of those expenses we delivered earlier than our original plan on some of the initiatives. So we are probably -- a little bit of that money, we've probably pulled ahead; a little bit more than half of it spent through the first half of the year. But yes, there will be expenses for those investments that continue in the third and fourth quarter.

That's it for now. Thank you very much.

Tobey Sommer.

I'm curious about your long-leadtime business, in sense of demand, as we work into the kind of more active seasonal work that you do leading up to the holidays. Do you have a sense for the kind of growth that clients are planning for, and what kind of build-up to the 4Q you may be seeing?

Yes. Mixed. And you're still kind of early in the year, you're still a little early for all those plans to coalesce. But to the extent some numbers are beginning to be emitted here, it's a mixed; some looking for more aggressive above-norm growth, and others looking for a very tepid season. No particular help for you there, Tobey.

Okay. When would be a reasonable timeframe upon by which you would kind of have a more wholesome sense for that?

Yes, so probably towards the end of Q3, beginning of Q4. But we probably wouldn't tell you what that was going to be until we were on a quarterly call there.

Okay. Thanks for your help.

Andrew Morey.

You mentioned discontinuing Sweden and some business in Germany. I think there was one other I'm forgetting. But I get that the earnings would have backed out restructuring charges and things like that, whatever, shut down expenses. But you have some guesstimate or rough number of any impact that may have had either in the quarter, or maybe just for the third or fourth quarter, as far as revenues?

Yes. Just, first of all, to be clear: it was Australia, and not Germany.

Sorry.

That's okay. You know, the reason that we, frankly, exited those branches and those markets is because they were not a big driver of revenue or profits for us. So there won't be an appreciable impact in our results.

Okay. All right. Thank you.

Oh, Andrew, somebody just waved her hand and pointed out, you're right. Last year, we exited executive placement in Germany. So yes, that's where you got the Germany. And again, it wasn't -- the reason we exited it is because it wasn't significant enough to have a big impact, so we didn't call out the impact of that in our results.

And actually, one last follow-up. I think Carl had mentioned earlier that -- and I hope I paraphrase this correctly -- that the revenue impact of many of these initiatives and spend would start to be seen, or I guess seen somewhat, in Q4. Could you give us any more granularity on specifically where -- whether it's geographically, or whether it's by business line -- where your hint is that that would really first show up?

Yes, you listen to where we talked about, you would expect -- we would expect to see it in US PT operations, and then secondarily in OCG, which we report not by geography, but as a consolidated report.

That's right. Okay. Thank you.

And there are no further questions at this time.

Great. Thank you, all, and thank you, Nick.

Today's conference call is being recorded, and available for replay beginning at 11:30 today and running through September 6 at midnight. You may access the replay system by dialing 800-475-6701, or international with 320-365-3844 and an access code of 277695. (Operator Instructions). That does conclude our conference for today. We thank you for using AT&T TeleConference. You may now disconnect.