宏盟集團 (OMC) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Omnicom Group conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. If you do need assistance during the call today please press the star followed by the zero. As a reminder this conference call is being recorded. I'd now like to turn the conference call over to the Executive Vice President and Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Good morning. Thank you all for taking the time to listen to our first quarter 2004 earnings call.

We hope everyone has had a chance to review our earnings release. We've also posted to our Web site both the press release and a presentation that covers the information that we will be presenting this morning. This call is also being simulcast and will be archived on our Web site.

Before we start we need to provide one accounting reminder. As you're already aware effective January 1st, 2004, we adopted SFAS-123, which is "Accounting for Stock-Based Compensation". As a result, we're now including the cost of employee stock compensation in our reported results.

In connection with the adoption of SFAS-123, we've also restated our 2002 and 2003 annual results, and our 2003 quarterly results, to make them more comparable. Therefore, today's earnings release and our comments reflect the impact of this restatement.

For those of you who have not already reviewed it we filed a Form 8-K on March 15th that provides the detailed restated figures. That information is also available on our Web site.

Now with that out of the way we're going to begin the call with some brief remarks from John Wren. Following John's remarks we'll review our financial performance for the quarter in more detail and then both John and I will be happy to take your questions.

Good morning, and thanks for joining us.

We're very pleased with our performance in the first quarter. For the first time in nearly three years advertising, specialty advertising, PR, and CRM all performed well and contributed to our overall growth.

From a geographic perspective, our businesses in North America, Asia, South America, were strong across the board, reflecting the improvements in those economies and the economies in those regions.

Growth in Europe was a bit slower. Specifically revenue from Germany and France were flat and we saw a continued weakness in the Netherlands. Besides those, except for those three markets, business virtually everywhere else was strong and seems to be improving.

As Randy will report in more detail, we also made further adjustments to our business in the quarter, and we believe we've re-established our cost models more in line with the way they were pre-recession, and we're very pleased with the individual efforts of our agencies around the world to get their costs in line with their revenue models at this point.

New business activity across the board in the first quarter was very strong and it remains strong into the second quarter. For the first time the trend to have clients review their full marketing accounts seems to be catching hold and increasingly as clients approach us they want to know more about the holistic services we can provide rather than the specific services we can provide, which if the trend continues, which I expect that it will, will be very good for companies like ours.

Clients' spending and budgets showed continued improvement, and the trends remain positive. As our clients' profitability improve, those budgets will be released, and we expect that trend to continue into the year as well.

At this point, I'll turn the call back to Randy, who will be a lot more specific and take you through the company and our performance for the quarter.

Thank you.

As John mentioned the first quarter remains strong and the year is off to a very good start. More importantly we're very pleased with the progress that our agencies have made over the past several quarters in both re-establishing their cost models and in business development initiatives. As a whole our agencies today are clearly better positioned and stronger than they were even several years ago when economic times were much more forgiving.

In summary, revenue for the quarter increased $294 million to $2.2 billion, which was an increase of 15.2%. Net income increased 17.4% to $135.6 million and diluted earnings per share increased 16.1% or 10 cents to 72 cents per share.

Analyzing our revenue performance, organic growth continued to be quite strong at 5.8%, accounting for $112.2 million of our revenue growth. Acquisition revenue totaled $52.2 million in the quarter, adding 2.7% to our revenue, and foreign exchange continued to have a significant positive impact adding $129.8 million to a reported revenue or about 6.7%.

As for our mix of business, traditional media advertising accounted for 43.8%, and marketing services 56.2% of our revenue. As for their respective growth rates, traditional media advertising grew 13.9% and marketing services grew 16.2%.

The breakdown of our marketing services revenue was approximately 33.6% CRM, 10.7% public relations and 11.9% specialty communications.

As for their respective total growth rates, CRM continues to be strong and steady, increasing 19% in the quarter, public relations, which began to recover in the second half of 2003, continued to gain momentum in the quarter growing 7.8%, and specialty communications, driven principally by the strong performance of our health care agencies, increased 16.6%.

Our geographic mix of business in the quarter was 54.7% U.S. and 45.3% international. The significant changes in foreign exchange rates, specifically the weakening of the U.S. dollar versus the euro and the British pound, have impacted these ratios over the past several quarters reducing the relative mix of our business from the United States.

In the United States, total revenue growth for the quarter was $121.6 million or 11.1%. Acquisition growth totaled $43.6 million of this, and organic growth totaled $78 million.

International revenue increased $172.5 million or 20.6%. That was made up of acquisition growth totaling $8.5 million, organic growth being positive at $34.2 million and foreign exchange, as I mentioned, had a positive impact of $129.8 million.

On the new business front this was an excellent quarter with strong results distributed broadly around the company.

In aggregate net new wins totaled $1.227 billion. Some of the larger, or more significant wins and losses in the quarter included DirecTV, the California Lottery, finally the California Lottery, Braun, which was extending our relationship with Gillette, Pedigree and Sara Lee, the Jimmy Dean sausage brand. Losses in the quarter included AT&T Wireless and Ralph Lauren.

Moving on down to income statement, operating income for the quarter was $229.3 million up 13.4%. This was an operating margin of about 10.3% and net income was $135.6 million which was an increase of 17.4%.

Included in operating income are several unusual transactions this quarter. Due to the reworking of its capital structure by Seneca Investments LLC and recent trends in accounting rules, we were required to adjust the carrying value of our investment in Seneca from our historic basis to fair value.

At 12/31, 2003, the net book value of our investment in Seneca was zero and it was our policy to record gains only when they were actually realized. However, as a result of the changes I mentioned, our accountants required us to record an unrealized net pretax gain in the quarter of $24 million.

Offsetting this gain in the quarter we elected to accelerate the disposal of two nonstrategic equity investments which resulted in a pretax charge of $10.9 million. In addition we disposed of two under-performing low-margin subsidiaries which resulted in a pretax charge of $9.9 million.

The net result of these transactions was a pretax gain of $3.2 million, an after-tax gain of approximately $1.1 million, and on the EPS basis these transactions added just about 1 cent to our earnings per share.

To make our operating results more comparable, we've provided a schedule adjusting our operating income, net profit, and diluted EPS to eliminate the effects of these transactions. The adjusted figures are non-GAAP measures but we believe they provide a more meaningful basis to compare our year-over-year results.

On the adjusted basis, operating income for the quarter was $226.1 million, which was an increase of 11.8% over last year. Net profit was $134.5 million, that was an increase of 16.5%. And diluted EPS was 71 cents per share which was an increase of 9 cents or 14.5% over last year.

Taking a minute to analyze our operating margins for the quarter, our adjusted operating margin was approximately 10.1%, which was down about 30 basis points from last year. On a dollar basis that decline was about $6.7 million.

In prior quarters we've been asked to provide more information about some of the individual items that impact our operating margins. And while we strongly believe it's most appropriate to evaluate our performance on an EPS basis and to evaluate our cost structure taken as a whole, especially given the number of natural offsets that exist in our cost structure, a few of the larger items that impacted margins this quarter included the following.

First, increased cost associated with our implementation of Sarbanes-Oxley 404. While these are primarily internal costs at this point we estimate these costs to have been between 5 and $10 million in the quarter.

We also had about a 31% increase in costs related to our various new business initiatives which in many ways is good news as it's a sign of increased market activity.

And as we've discussed previously as business continues to improve we expect to increase our aggregate incentive compensation. This quarter our charge for incentive comp reflected an increase of approximately $10 million bringing the total to about $61 million in the quarter.

In addition our mix of business and foreign exchange had a negative impact on margins. These increased costs were offset primarily by the benefits achieved from prior cost actions and generally improving business conditions.

In addition, in the quarter, there was a modest reduction in severance costs which declined about $4 million to just over $25 million in the quarter. Although that savings was itself partially offset by a $2 million increase in recruitment costs which is also somewhat good news as it's a sign of increased business activity.

As we've explained on several prior occasions every quarter we expect to have both severance costs and recruitment fees. At this point in the economic cycle we would expect to see reductions in severance costs and modest increases in recruitment costs.

Moving on, interest expense in the quarter was approximately $10.4 million which was similar to the fourth quarter of 2003 and up from $8.3 million reported in the first quarter of 2003. The increase over prior year is due primarily to the amortization of the sweetener we paid in August, in August of 2003 on our 2032 convertible bond issue as well as the FX impact on the euro-denominated interest that we pay on our outstanding euro notes.

Our tax rate for the quarter was 33.6%, which is in line with our 2003 full year rate.

EPS, as we previously mentioned, diluted earnings for the quarter was 72 cents per share. That was a 10 cent or 16.1% increase from 62 cents we earned last year. However, we believe the more comparable number would be the adjusted EPS figure of 71 cents which was an increase of 14.5%.

As for the share count, the weighted average number of shares outstanding for the diluted calculation was approximately 188.8 million for the quarter.

Also last quarter we were asked about headcount levels, so at the end of the quarter, our headcount was approximately 58,706 which was an increase of 165 people from year-end, and an increase 1388 from the first quarter last year.

Now I'll ask the operator to open the call for questions.

Thank you. And ladies and gentlemen if you do wish to ask a question please press the star followed by the one on your touch-tone phone. You'll hear a tone indicating you've been placed in queue and you may remove yourself from queue by pressing the pound key. If you are using a speaker-phone you may need to pick up your handset before pressing the star and then one. So once again, if you have a question, please press star then one at this time. We are showing a question from Troy Mastin with William Blair and Company. Please go ahead.

Good morning. In John's prepared remarks he mentioned about clients looking more to holistic services. I'm curious what specifically you're doing differently today as clients are making those kinds of moves. How do you expect this to benefit you over the longer term and are we seeing results from that yet or is that still on the come?

Well, Troy, we have for a very long time assembled our services as our current clients as well as prospective clients, have required them, and we have a great deal of experience within the company in responding to whatever the clients' needs are.

So this current trend of where people are no longer simply just asking for advertising services but they're asking for how do you respond to my entire marketing budget, it comes right to our sweet spot. We're very capable and very practiced at responding to clients who make these requests.

And for the first time, and that's always, it's been true certainly recently in the last few years. What's absolutely interesting is the fact more and more clients, instead of simply putting their advertise business up for review are stepping back, taking a deep breath and saying how many CRM providers do I have, what are we doing in public relations, what are we doing in other areas, and are there companies such as Omnicom that can come in and speak to my entire budget as opposed to just speaking to me about aspects of the budget. That's what we're seeing increasingly in the new business activity.

It's a trend, I believe. It will continue, and as it does, it helps a company like ours because there are very few people, or very few companies that can provide competitive services to those kinds of requests.

I assume this means an acceleration, then, in the market share gains that you might be experiencing, and I'm kind of trying to get at if we're seeing that yet? And then also if you can give maybe any anecdotes in terms of specifically what different you're doing now in this environment, if the holding company or if you personally are getting more involved in these more holistic type of pitches?

Let me answer the last part first. Omnicom is and remains a holding company, and there are very few people actually that come to me for marketing, specific marketing advice. So I don't have that level of involvement with the clients.

The role of the holding company is to provide the services, to make sure that they're available, and to set up an environment which encourages our own people to collaborate and work together on behalf of the clients. That's what our role is. That hasn't really changed, it's just intensified as these opportunities have become greater.

In terms of market share I think we are a culture of hunters. We've done a very good job, I think, in trying to increase our market share over the past couple of years. I think these trends will make it easier for us to hunt, but that culture is embedded way down into this organization, and we are constantly looking to expand our relationship with our current blue chip clients and also clients that we don't currently serve. So that's our quest, and I suspect we'll be very successful at it.

Thank you.

Thank you, Troy.

Thanks. We do have a question, then, from Jason Halstain's line with CIBC World Markets. Please go ahead.

Hi. Three questions. First, would you want to outline your acquisition goals for perhaps the full year 2004, and then would you expect acquisitions to accelerate in 2005 or be similar to this year?

Second question, do you see that the first quarter tax rate as sustainable for the rest of the year? And then lastly, just continuing with the prior question, is it fair to say, then, that you're perhaps seeing less cost pressure from clients versus a year ago, and perhaps more of their desire to spend for the sake of growing their business versus watching costs? Thank you.

I'll do some of the easy ones first, tax rate. Yes, we think the rate in the first quarter is sustainable for the year. I actually challenged our tax department to continue to find ways to make our tax structure more efficient so hopefully we'll even see some improvements as we go although I can't count on those yet.

On the acquisition front, our acquisition plans continue to make accretive strategic acquisitions that, you know, better position Omnicom to serve its clients on a long-term basis. We make acquisitions when they are good fits with Omnicom, they're accretive to our shareholders, and there's a fit with the management team.

We don't really budget specific dollar amounts for making acquisitions. We don't think that's a prudent way to go about it. We would, in general, probably, you know, think that acquisition activity would maybe naturally pick up from these levels, but that's not something that we go out of our way to plan.

Sure. I mean, just to add to that, Jason, I think we reported one acquisition in the first quarter. It's, it would be a little hard to believe that activity won't pick up from there based upon the number of conversations we're engaged in at the moment, but to echo what Randy said, for the most part those acquisitions are going to be potential targets that service our existing client base that we can easily integrate into our culture.

I think if there's a specific geographic focus that we will look at beyond our normal activity, it is in Asia where we are equal in size to our competitors in that region but since we are really 30% larger than they are, in the aggregate and everywhere else in the world, that is an area where top management in the company is spending more time this year than they have possibly in the past looking to, how do we sustain the leadership we serve everywhere else in that region around the world. Then there were three or four other questions that you asked.

You asked a question regarding cost pressure from clients.

Correct.

It's important in every business to continue to find ways to improve our overall efficiency, provide greater value to our clients. I think our agencies have done an extremely good job of doing that.

Clients obviously, I think in every industry, they want more for less. It's our job to figure out ways of delivering that and still continuing to maintain, you know, strong operating margins so that we have, I guess, the resources to continue to invest in our business and our people and continue to achieve the long-term growth rates that we've been able to achieve.

Sure. We don't have a habit of each answering the same question so, I'm sorry, this will probably be the last time we do this on the call.

I would think those pressures, I would categorize them more as normal at this point. We are going to constantly be under that pressure, but I think there's an increasing awareness on the part of our clients that a lot of the shock of that process which started several years ago is behind us because in all cases we're only willing to work for what we believe is a proper profit and we have communicated that back to people who have come and spoken to us about how do we improve the overall spend in something, or the overall situation.

So I don't think the pendulum has swing in either favor. I think it's a more normal environment now and one that's been incorporated into our systems and most of our clients' expectations.

Just a quick follow-up on your comments on Asia. Typically when you look at acquisitions over there, would one assume lower margins, perhaps if acquisitions were to become disproportionately focused toward Asia?

No.

Or more the same as overall business?

No, not at all. We have a history of not confusing the word "strategic" with anything else that we do. So we're not a company that rationalizes the acquisition or the addition of companies which aren't integrated and integrated at a proper profitability ratio, so I don't see that as a risk.

Quite frankly it's really more of an opportunity because it's cheaper to find a quality local company that you can integrate into your system to service multinational clients than it is to import ex-patriots from other markets into a market like China or somewhere else because of the cost. So done properly, your margins, comparatively, are better if you can find something to buy rather than having to build.

Thank you.

Thanks. And we do have a question, then, from Lauren Fine with Merrill Lynch. Please go ahead.

Thank you, and thank you for the improved disclosure in the quarter. In terms of the organic revenue growth, I don't think anyone should be surprised that the growth rate was lower in the first quarter than the fourth quarter as the fourth quarter seemed abhorrently high but I'm wondering upon reflection, with having a little bit of time having passed if you know why the fourth quarter was as strong as it was and when you look at what the change was from quarter-to-quarter which businesses changed the most in terms of maybe coming back down to where they should have been? And then I'm also wondering on foreign exchange if you can quantify what the EPS impact might have been, and then I have a follow-up.

I haven't spent any time ever, but especially recently, looking backwards. So I haven't done the kind of analysis that you're suggesting in terms of we have expectations for improvement and for a long period of time last year we were trying to make sure that we could better align our staff to whatever the revenue expectations were from the client, and I think possibly in the fourth quarter last year you had a release of some pent up demand but we haven't analyzed it close enough to really respond properly.

We're constantly looking forward as to what the budgets are going to be, what the margins of our individual units are going to be, what the performance of those units are going to be.

Keep in mind, you know, the 1% difference in organic growth is $20 million.

Right.

On, you know, $2.2 billion, and then you're spreading that around, you know, a thousand agencies. These are relatively insignificant changes. I know people think of them as being significant, but we've said it for a long time, we really don't think plus or minus 1, 1.5% on a quarterly basis is something to really focus on. As far as FX, EPS impact, it looks like it was about 2 cents per share.

Great. And then I guess on the follow-up, question that we get asked a lot is--

Lauren, the severance that we incurred was primarily in those same markets.

Okay. Good. Thanks. You know, it seems to me with the change in client compensation, that one of the positives to come out of is it there's always been a perception that agencies want their clients to do more TV because they make more money from it. And I don't know if that was ever true, but to the degree that the contracts today seem not as biased towards that is it helping at all with clients that you're being viewed as more media neutral?

Yeah, I think -- every conversation is local. But, yes, by all means, increasingly we're perceived not as an advertising group but perceived as a marketing communications group. That's healthy because it's reflective of the truth and I think increasingly clients understand that.

Even in media, you know, with media unbundled, creative used to be referred only to the creators who came up with the concept for a commercial. There are quite a number of creative people embedded in our marketing companies which come up with innovative ways to make sure the clients' message is seen, and that is something which is just increasing as time passes.

Thank you.

Thank you.

Thanks and we have a question then, from Alexia Quadrani from Bear Stearns. Please go ahead.

Good morning. I just wanted to follow-up on your previous comments on the acquisition activity. Would you say that the pipeline for potential acquisitions is still pretty healthy, just more of a question of finding the right fit or is a question of pricing still being maybe out of whack with what you're willing to pay? If you could comment a bit on the pipeline.

I think the pipeline is pretty full. There's certainly a lot of activity going on.

Our process is, as you know, pretty detailed, pretty stringent. One, you have to have the time to actually, you know, get will you the process and execute, which, you know, over the last 12, 18 months we've had a lot of things on our plate, and obviously different things get prioritized.

Pricing, I don't think pricing has been too much of an issue one way or the other. We have an approach on pricing, and we're pretty consistent from one acquisition to another and one time period to another as to our, you know, the way we structure transactions.

Okay. And I have a follow-up. On your impressive growth we continue to see in the CRM business which seems to still do very, very well, at least on the revenue side, have you seen also improvements in profitability in that business as it's grown?

I don't necessarily, I wouldn't necessarily say improved profitability. The margins in that business are quite strong.

When we look at it on an agency by agency basis I don't see any real changes one way or the other. Obviously, you know, as the business grows, just as a number of different businesses that are involved. It's not just one company that's growing.

Lastly, I know in the past you've given us some information in terms of the growth of your top clients. Do you have a number like that for the quarter?

Well, look at it. I think maybe I'm, correct me if I'm wrong, that's something more of annual importance than quarterly importance. I don't look at it on a quarterly basis.

Would you say that the trend, though, is still in the right direction?

Oh, yes. Yeah, I mean -- yes. We're very much focused on those top lines.

Okay. Thank you.

Thank you.

Thanks. We have a question from Steven Barlow with Prudential. Please go ahead.

Thanks. Were there any options granted in the quarter? And then I guess related to all that is the replenishment of the bonus pool. It seemed like you had a $10 million extra replenishment. Is that sort of correct, and if that's the case is that a number we should use each quarter going forward?

First one, no option issued in the quarter, and, yeah, the year-over-year increase in incentive compensation was up $10 million in the quarter. We wouldn't necessarily suggest that anyone use, you know, any number in a forecast. That's not quite the way we go about it.

Obviously the performance of the individual units and the performance of the company as a whole is what drives incentive comp. We've said for quite a while that as business improves, we would expect to see our incentive compensation numbers increase.

Cash bonuses are completely discretionary within the company, and they're based upon us setting targets and objectives for people, and certainly within a quarter, those objectives can move around. I think what we've said all along is you've got a pre-recession environment, that incentive compensation was a healthy part of our overall cost base, and in building our company, restoring our margins, and in making investments for the future, part of those investments are to make sure that we maintain that flexibility within our cost structure in case there are unexpected surprises, which at this moment we're not looking for, and we don't expect, but that flexibility has always traditionally been part of our model and will be going forward.

I guess related to that also is then the replenishment of the bonus pool ahead of where you thought it would be right now as you sort of planning out '04, and then lastly did you do any stock buy backs in the quarter?

No, I mean, our compensation, we're in line towards achieving our overall goal for the year, and this was just a healthy expected amount that we put aside.

We're pretty, again, the quarter we were very happy with, we're happy with the start to the new year. As far as share repurchases, yes, I believe, and don't hold me to this exactly but I believe we spent about $141 million in the quarter on share repurchases.

Thanks.

Thank you.

Thanks. And we do after question then, from Joe Stauff with Schwab. Please go ahead

Good morning. Can you provide, what was your total stock-based compensation in 1Q? First question. What is the percentage of revenue in the first quarter from France, Germany, and Netherlands? And if I look at the FX gain of roughly $130 million in the quarter how do I sort of allocate that in, on slide six to your four divisions?

One more time on the questions.

Sure. What was the total stock-based compensation expense in your first quarter?

Joe, let me answer that. We give you I guess the total compensation, incentive comp which includes stock and cash.

Okay. And do you have a further breakout just stock-based compensation?

No, because the objective that we have, I'm saying now, the objective we have is actually to change that mix to be more reflective of giving all the arsenals we have in our portfolio to retain and reward our employees. So we're not, so we look at incentive comp, all forms of it, as one bucket. And that's what we're accruing to. We're accruing to a target in the aggregate especially as we move from options to more cash which is a near-term objective of ours.

There is some shifting of compensation as we've said in the past from stock-based to cash and other based. As I mentioned with one of the prior questions we didn't issue any options in the first quarter and our board last year, you know, directed to us start changing our compensation structure away from options towards other forms of compensation.

Okay.

So I mean, your second question, John?

Second question was, what percentage of your revenue in the first quarter was derived from France, Germany, and Netherlands?

I don't know off the top of my head.

Ballpark.

France, Germany, and the Netherlands?

Correct.

France, Germany, and the Netherlands.

I have 15%, maybe, if I've got that right.

Great.

No, it was less. Sorry. 14%.

14%. Okay, great. If we look at sort of the FX, or the gain in the quarter, which is around $130 million, and I tried to, again, using sort of slide six as maybe a guide here, just trying to figure out where, you know, what particular divisions did the bulk of the 130 fall in? Again, just trying to figure out what is sort of an apples to apples growth in terms of divisional basis.

Divisional basis? These are not divisions. Are you talking about advertising, PR, CRM, and specialty?

Yes.

Those aren't divisions. There's a number of companies that make those groups up.

Okay. Well, revenue groups.

Flat-out global.

In terms of go to market, advertising and CRM are almost always together today. So, and they're embedded into various groups. PR could be separate and some of the specialty advertising could be separate. PR and specialty are predominantly domestic and U.K.-based businesses. I mean --

Yeah, but I mean the numbers that you're looking for is not something that, we don't, I don't aggregate the data that way. We obviously track the FX impact by agency but I don't, what you're asking for is not something that I accumulate for ourselves, so I don't have it for you.

Okay. Fair enough. And then I guess finally, could you just sort of update us maybe a little bit more in detail in terms of what you're seeing in Europe and specifically Germany? Thank you.

Germany, for the most part, it's the biggest market included in the 14% Randy just mentioned for us. It's flat. It's just dead flat, which is comparatively good news because for the last several quarters, look back to last year and a little bit into the year before, it was in decline, so it's stabilized, but it's just simply not growing at this point for us. We believe it will improve we just don't know when. The only market, France declined a little bit in the quarter, and the Netherlands declined a little bit in the quarter, but.

John's comments are on a local currency basis.

I'm sorry. I'm speaking in local currency, I've taken FX out of the equation, just so you're looking apples to apples. And so it's, you know, it's something we're going to have to continue to work through as those economies get better.

The good news is there is no evidence of declines, and I'm confident because of our position in the market places we'll come out of it, you know, and start to grow as soon as there's any life in the marketplace at all. But it's just kind of, those two economies are stalled at the moment. I don't know if that's helpful or not but that's what we're seeing.

Okay?

Thank you. Our last question comes from William Bird with Smith Barney. Please go ahead.

William Bird, CFA: Are you seeing much pickup right now in new product activity or is new business largely a zero sum gain? Just secondly, was wondering what your current thoughts are on Internet strategy and where your focus lies. Thanks.

Well, if you go to the automotive industry there's a lot of new products. If you go to some of the more traditional companies that hasn't kicked in as fully as I suspect it will do as we get further and further into the recovery.

You know, pharmaceutical companies are always a source of new products, but that is regulatory controls as to how fast it gets through the approval processes or not. Consumer good companies, certainly not at their pre-recessionary base but you're increasingly seeing new products.

The other thing I believe is, we still believe merger activity will improve, which will benefit us as we get further into the year because I think there's a lot of pent up demand for companies to do deals, and when that happens you can be on the losing side but more often than not we're on the winning side of that, so that will benefit us.

And certain of our businesses benefit more significantly than others in M&A activity. The branding companies, the PR firms tend to do very well with some of the M&A activity.

Sure. In terms of Internet, it is a growing segment, I mean, I suspect if you took, what were you saying?

I think if you aggregated all of our Internet businesses, you know, we have a very substantial share of the overall market. We obviously have numerous different brands in the Internet space in various sectors, you know, probably in the range of, you know, 400 to $500 million a year in revenues in that category.

And we expect and we're going to see that grow faster than some other segments of the business because people are getting better at it. They're utilizing it in better, more efficient ways, and it's a very measurable media, so as we get further and further into improved client budgets I think you're going to see more of the increases or percentage of the increases go to those type of activities. Because it's just a wonderful thing.

William Bird, CFA: Thanks.

Thank you all very much, and I thank everyone for taking the time to listen to our first quarter call, and we'll talk to you all soon. Thank you.

Thank you. And ladies and gentlemen that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive TeleConference. You may now disconnect.