宏盟集團 (OMC) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Omnicom first quarter 2008 earnings release conference call. At this time, all participants under a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. (OPERATOR INSTRUCTIONS) As a reminder this conference call is being recorded.

At this time, I would like to introduce today's conference call host, Executive Vice President and Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead, sir.

Thank you all for taking the time to listen to our first quarter earnings call. We hope everyone has had a chance to review our earnings release. We posted to our website both the press release and a presentation covering the information that we are planning to present this morning. This call is also being simulcast and will be archived on our website. Before we start, I have been asked to remind everyone to read the forward-looking statements and other information that's included on page one of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements, and that these statements are our present expectations and actual events or results may differ materially. We are going to begin the call with some brief remarks from John Wren. Following John's remarks, we will review our financial performance for the quarter and then John and I will both be happy to take questions at the end.

Good morning, and thank you for joining our call. Let me start by saying that the first quarter was a great start for 2008 and for the group across all of our regions. As Randy has just mentioned, he will take you through all the details in just a couple of minutes, but there's just a couple of areas that I would like to highlight. Our revenue growth in the first quarter was very strong in the U.S., and is also supported by strong growth in Europe, as well as Asia and South America. During the fourth quarter call, I mentioned that growth in the UK and France did slow a little bit. However, as I expected, this wasn't a trend as the two regions performed well -- the two countries performed well during the quarter. This quarter we didn't see any unexpected shift in client spending patterns. Our revenue growth continues to be strong in all of our markets and disciplines, except for recruitment advertising and a small Yellow Page advertising business.

We believe that we're well positioned for the remainder of the 2008. This is principally supported by our agencies who continue to be the creative leaders in our industry. Like most of our clients, we remain cautious about the economy, but to date, as I said, we have not seen any significant reductions in client spendings and nonU.S. growth remains strong. I think a key component to our success lies in our ability to continue to invest in our business. During 2007, we invested at a record level and we have continued that pace into 2008. Separately, acquisition activity or opportunities picked up a bit. We closed, I believe, four deals during the quarter, and we're starting to see pricing, although, I believe this will take a little longer, to come more in line with our historic expectations and that should create additional opportunities for the company.

Switching to net new business, Randy will cover it in a lot more detail, but our net new business wins for the quarter are just about $1.2 billion, and we are continue to see that back again, after the hiccup in the fourth quarter of the last year. With this, I will turn it back to Randy, and then we will both be available to answer your questions later on.

Thank you. As John noted, we are very pleased with the strong performance of our agencies and while it's only the first quarter of the year, we believe we are off to a solid start. Revenue in the first quarter increased $354.8 million to almost $3.2 billion. That was an increase of 12.5%. Operating profit increased 11.2% to $350.8 million, that's an operating margin of 11%. Operating costs and incentive were in line with our expectations and prior year with the exception of severance costs, which were somewhat higher, due primarily due to our desire to make sure that staffing levels are tight going into the year. Net interest expense for the quarter was $11 million. That was down $7.3 million from the first quarter of 2007. It was also down about $3.3 million from the fourth quarter of last year.

The year-over-year improvement is primarily the result of not needing to make a supplemental interest payment on our 2032 bond last July, offset by higher interest rates on our euro and yen denominated short-term debt. The quarter-to-quarter improvement was primarily the result of our cash management initiatives and higher interest income on our foreign cash balances. On the tax front, our reported tax rate for the quarter was about 33.9%, which was in line with last year's full-year rate. Affiliate income increased almost $3 million year-over-year. The most significant increases coming from BBDOs affiliates in Australia and the Middle East. Both are well-managed agency groups that performed consistently.

Minority interest increased just over $5 million. The primary drivers were BBDO, and DDB in Germany and Brazil, and OMG in eastern Europe. In addition, since almost all of our minority interests are in international markets, FX had a meaningful impact as well. Net income for the quarter increased 14% to $208.7 million, and most important, fully diluted earnings per share increased 18.2% to $0.65 per share. Analyzing our revenue performance, FX in the quarter was positive 5.1%, adding $145.6 million to our revenue. Growth from acquisitions net of divestitures added about $28 million to revenue the quarter or about 1%. And organic growth continued to be very strong in the quarter, coming in at 6.4%, and adding $181.2 million to our revenue. And as John mentioned on the new business front, again, it was a very solid start to the year with net wins totaling $1.2 billion.

As for our mix of business, traditional media advertising accounted for 43.5% of our revenue, and marketing services, 56.5%. As for their respective growth rates, advertising grew 13.5% in the quarter and marketing services 11.7%. Within marketing services, CRM continued to be very strong growing 14.8%, public relations was up 7.1%, and specialty communications 5.8%. It's worth noting in the PR and specialty communications disciplines, our geographic mix leans heavily to the United States. As a result, in times like these, where the FX impact is more significant, the total growth rates in these disciplines, at least on a relative basis is skewed a bit low.

Our geographic mix of business in the quarter was 52% U.S. and 48% international. In the United States, revenue increased $117.3 million or 7.6%. Acquisitions accounted for 1% of that growth or $14 million. And organic growth remained very strong at 6.7%, adding just over $103 million to our revenue. The international side, revenue increased $237.5 million, or 18.3%. FX was very strong adding $145.6 million, or about 11.2% of that growth. Acquisitions added almost $14 million, or just over 1%, and organic growth, again, came in very strong at 6%, adding $78 million to our growth. As the growth rates indicate, in the United States the business remains very solid, despite the overall market turmoil. Internationally, the business performed in line with the fourth quarter, with strong performances in the emerging markets of Asia, the Middle East and eastern Europe, as well as in the established markets of Asia, like Australia and New Zealand and Hong Kong. We also continue to have good results across most of the euro markets and the UK and France, which had been weak in the fourth quarter of last year showed strong improvement.

Cash flow for the year was strong and consistent with our historic trends and our cash management programs have continued to perform very well. Our primary source of cash was net income, adjusted for stock-based compensation and related cash tax benefits, as well as depreciation and amortization. Those amounts total $285.2 million. Our primary uses of cash were: dividends, which were $49.1 million in the quarter, CapEx which totaled $42.2 million, acquisitions including earn-out payments on prior acquisitions totaled $89 million, and share repurchases in the quarter totaled $316 million, but we also received $33.2 million of proceeds from option exercises and stocks sold under employee stock purchase plan. That resulted in net repurchases of about $282.8 million. As a result of our repurchase activity over the last 12 months, our average diluted share count for the quarter declined about 4.3%, to just under 321 million shares.

We finished the quarter in a very strong credit position. As you can see at the top of the current credit picture slide, with the decline of our net interest expense over the last 12 months, combined with about a 12% increase in EBIT, our operating leverage improved sharply. From a liquidity standpoint, our current liquidity position is very strong. We finished the quarter with cash and undrawn, committed facilities totaling over $3.3 billion and we had uncommitted facilities of an additional $.5 billion. And with that now I'll ask the operator to open up the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) And our first question comes from the line of Troy Mastin with William Blair & Company. Please go ahead, sir.

Good morning. Thank you. There's a bit of a slow down it seems in new business activity. It seems like pitch level is down. I'm curious if there's anything in this that you would note is worth of us being concerned about it or maybe it's a positive sign or anything else that might be driving it.

I think you are seeing pitch level of big accounts whose names you are household names, you have seen that activity slow across the board, I think, in the first quarter. Although I might say that we announced on Friday that we've just picked up a significant part of HP's business, which was conducted without a review. So there is activity going on, but I could see how you might reach that conclusion. What often gets not reported is the vast marketing service activity which occurs, and that occurs not only domestically here, but throughout the rest of the world. And I'm not sure -- that activity is the -- is really what generated the significant gains quarter after quarter that we do report, and result in revenues, if you look out a few months past that. So -- but I would agree with the observation that there isn't a lot of big account movement today in the first quarter. I think it's just a pause, and I think it's probably related more to the economy where people are -- don't have the luxury of going through the very lengthy process that most new business activity takes for these big accounts. It will come back.

Does that mean we might see more wins like the HP win, where there's no review, or --

We've never been able -- we don't go out and solicit business per se, as much as we participate when clients make the decision to make a change. So there's always a constant amount of activity going on. There's no way to easily predict when accounts move.

Okay. And the underlying smaller wins within the DOS and the marking services side of business, that continues at fairly consistent levels?

Yes, that's generally -- it's much simpler for clients to make those decisions and make those moves.

Also from a diversity standpoint, that's an extremely large number --

Yes.

-- of, small wins happening or relatively small wins happening all -- or relatively small wins happening all over the world. And we have a couple thousand agencies that are out, looking for new business and winning new business all the time.

It might be hard for you to answer this, but have you seen any change in the nature of those wins that you have seen of the smaller accounts and the smaller wins in terms of geography or business mix?

No. I wouldn't say -- it's a very constant machine, as Randy referred to it. And there hasn't been any real significant shifts or changes in it.

Yes, then John, you mentioned in your initial remarks that you are continuing to invest in the business at record levels. I think I could infer from that, that you are investing in record levels in 2008. I want to make sure that's clear. And then I don't know if you can give us any perspective on how substantial this investment is, so we can understand what type of flexibility you have built into this model in the event that things were to slow down a bit.

I don't know have a specific number for you, Troy. The activity comes in a number of areas. First, we continue to expand our training and development of our people. We think it's more critical today than at any time in the past. I mean, we continue to spread that to the Asian markets and to some of the markets which didn't have specific focus in the past. So that continues at a very strong pace. And off times what we do, and we invest a lot of money in this, is we look at market opportunities. And if in our opinion buying something, while it might be cosmetically okay today, we pass on things that we believe are overpriced. And if we are interested in the area, what we tended to do is invest in people and talent, which runs through our P&L, which provides our entry into those businesses and allows us to prepare for future growth in those areas.

We think we are very comfortable with that strategy, because as Randy mentioned, the leverage in our company has been kept on a very, very conservative basis, compared to many others in the industry. And we haven't overspent in hope of a market developing. We -- we've invested in the individuals needed to grow those over a longer, more consistent period of time.

And those investments, it -- unlike, say, a manufacturing operation that you would be going out and building another manufacturing facility in order to develop new product or level of sales, our business is investing in people and frankly a large number of, I will say relatively small initiatives, focused on building capabilities around our clients and what their needs are going forward.

Okay. I will let someone else ask.

Thanks, Troy.

And our next question comes from the line of Alexia Quadrani from Bear Stearns. Please go ahead.

Hi, this is actually Monica [Dichenzo] for Alexia. A question regarding the buybacks. We saw that they picked up a little bit in Q1 versus the fourth quarter. I'm just wondering, should we expect this pace to continue through the year given where the stock is? And given your comments earlier about acquisition prices coming more in line with what you are looking for, how are you balancing buybacks versus acquisitions going forward?

There's always some seasonality -- a little bit of seasonality to our buybacks. I think we've consistently bought back more stock in the first quarter. Most of it has to do with the timing of cash flow. Second quarter is the quarter that we pay out our cash bonuses. Also most of our earn-out payments are due in the second quarter. That's when the local audits and things get completed. So there's always a little bit of seasonality. We obviously think our stock is under valued, but our first preference would be to make acquisitions. We have always pointed out to people, we take our cash. We pay a dividend. We have some CapEx. Our first priority is to make good solid acquisitions on the basis that we do them. To the extent those acquisitions are not available, we take our cash and we buy in stock.

Okay. Great. Thanks.

Thank you.

And our next question comes from the line of Craig Huber with Lehman Brothers. Please go ahead.

Yes. Good morning. Do you mind just elaborating a little bit further when you say you are not seeing any significance slowdown in the revenue trends for your various clients. Just given the economic environment in the U.S. and around the world, would you mind just sharing with us some of the commentary generally from your customers why they are not slowing down in a slowing environment?

Well, for the most part, it's an industry-by-industry evaluation. So what I made was a general statement. There are -- car sales in North America are not strong. Car sales around the world are strong. You have clients who, I believe, are very much focused on sustained revenue growth, and taking advantage of the opportunities that growth outside the U.S. lends itself to. We have never been overexposed to financial services and/or the housing markets. So we have not participated in that decline. I would say clients are cautious. I would say clients are suffering from increased commodity prices and ultimately market -- margin concerns, which they are addressing themselves to. But they are not abandoning, and they have learned this from prior recessions, the opportunity to continue to grow their top line and expand their market share during periods of uncertainty, and that's how I characterize the period we are currently in.

We also have a very good mix of business. So if some clients shift the focus of their marketing maybe from long-term brand-oriented activities to salary-oriented activities, while maybe the specific message or the tone may change, we benefit from those shifts as well.

I mean, we are not suggesting we are immune from what's going on. It's just that we're reporting that we haven't seen the shifts yet.

When you sort of think out your visible for the remainder of the year, how many months can you look out here and feel pretty confident with the revenues that are coming out, based on the projects that are already slated to go?

Well, I think if you look at -- you mean, our organic growth is 6.4%. Within a couple of percentage points of that, we have great confidence about what our revenue is going to be. It's the last couple of percents that you can't accurately predict, because there is flexibility on the part of clients to shift or move or to do things. You have to, I think, take a view in what we do periodically is company-by-company, market-by-market, to see if trends are developing or if movements are more client-specific in a particular marketplace. And that's an ongoing process. So the information that I have today will be different two weeks from now.

Our business, we've said this many times in the past as well, our business is very predictable. You start the year with maybe, 90% -- a little bit over 90% of your business is very well known going into the year, which, frankly, is very comforting. On the same token, it seems sometimes that plus or minus 100 basis points, while we don't think that should be viewed as material, sometimes others do. So at one level, 90% is great, at another level, if you think plus or minus 1% is really important, yes, there's -- and 10% we don't know where it's coming from when the year starts or don't know exactly where it's coming from when the year starts.

So we continue to watch it, but we are more focused on the long-term growth of the company and our consistent returns and net income.

And making sure that we have high quality capabilities in all of the areas that our clients want services.

It sounds like in earlier comments that your investment spending, and the people that work at your company, that you plan to do that for the remainder of the year, just the long-term viability of your company. Is that a fair statement?

Yes, that's very fair. We have been very consistent over a very long period of time about this, and we think -- we believe it's the right strategy and it's proven out in the results. So we're continuing to do that. We do -- if things shifted from what we see today, we do have flexibility on some of these areas, but that's not what -- not included in parts of our expectation as we sit here this morning.

And that investment spending shows up in the consistency and, I guess, industry-leading levels of organic growth. In this business, to drive the organic growth, it takes investment in your people and business development on a consistent basis. Our investment spending today will result in organic growth later this year and next year and probably even the year after. If we were to look to dial that back, our concern would be the impact on organic growth.

Great. Thank you very much.

Thank you.

You're welcome.

And our next question comes from the line of Dan Salmon with BMO Capital Markets. Please go ahead.

Good morning. Thank you for taking the call. I have got just two quick questions. The first is if you could provide some color on the -- what I thought were particularly strong results from the advertising segments specifically. And then secondly, if clients are having any early worries or concerns regarding some spending in Beijing around the olympics concerning -- following some of the protests we have seen coming out here in the early relay. That would be all. Thank you.

I will do the first one, because our reporting is what it is, and I've -- again, we've said this a few times. We designate each one of our offices as a discipline. So if it's a traditional media advertising agency, its revenues come in that way consistently. Over the last, say, four or five years at least, the -- some of these definitions are not pure anymore. Certainly in the traditional media advertising area, all of our traditional agencies, they provide, brand advertising work across disciplines. So you are seeing greater and greater growth from a digital perspective, what a lot of people might view as digital marketing, which if it was a stand-alone digital agency, those revenues would be coming through the CRM category.

So there is getting some -- I will say some blending going on or blurring of these historic discipline collections. So I think that's probably, I'll say, confusing some of the numbers a little bit. I certainly -- when we look at our so-called traditional agencies, the percentage of their revenue that's related to the internet is growing quite rapidly and their businesses are really transforming. They are using every marketing medium out there to help their clients brand their business and deliver the message to consumers.

With respect to participation in the olympics, I would say that all of our clients that we service all have plans and some concerns about the current activity. It would be inappropriate to discuss any specific client. I mean, everybody is a bit concerned and we'll see what happens. I think just from reading the newspapers, I don't have anymore knowledge than you that people are increasingly deciding that this is a sporting event and not exactly the forum for political activity. So we remain watching, but everybody has specific plans related to the olympic games.

Okay. That's great. Thank you.

Thank you.

The next question comes from the line of Karl Choi with Merrill Lynch. Please go ahead.

Hi, good morning. Randy, you mentioned that there was some severance in -- incremental severance expense in the quarter. I wonder if you can quantify that and if we should expect that to continue into the second quarter. And also picking up on what you said, have you actually seen a pretty big shift in client activity away from brand building to what's more promotional-time activity or that's still (inaudible) more isolated? Thanks.

The first one, we have severance every quarter, every year. It's just nature of the business being a service company. The year-over-year increase in severance was in a $3 million or $4 million range. Whether that carries on throughout the year, I don't know. I wouldn't expect it, but we obviously look to adjust our staff levels consistent -- continuously with the change of business. The latter point, no, I don't think the way we collect data we can really track client by client shifts. We want to make sure that our business is serving all of the different needs that our clients may have. The point that I was making was really more a matter of -- some of the historic rules of thumb that the clients do everything all the time. And their mix or balance of spending moves around or can move around. The good news is with our balance of business, we likely pick up revenues when that mix -- when that shift happens, or I should say when and if that shift happens.

And given the increased level of acquisition activity, at least in the quarter, what should we expect for revenue contribution from acquisitions in the second quarter?

The increase in acquisition revenue in the quarter largely picked up because we didn't have significant dispositions in the quarter. For the last few quarters, do you remember over the last couple of years, we've made a couple larger divestitures which has sort of muted the positive acquisition numbers. This quarter, we didn't have that. So, the acquisition revenue picked up about 1%. I think absent a divestiture, we should be at sort of 1%, 1.5% range next quarter.

Okay. Thank you.

And our next question comes from the line of Paul Ginocchio with Deutsche Bank. Please go ahead.

Yes, just a couple of minor ones. Similar, can you give us what you think about FX in the second quarter and interest expense in the second quarter or maybe the full year. Thank you.

I'm sorry, I didn't hear the first half of the question.

Foreign exchange. And then the second one was interest expense, if you could give an outlook for both of those things. Thanks.

FX is probably 4% plus in Q2, and then based upon the way FX occurred last year, probably steps down 100, 150 basis points a quarter over the balance of the year, absent I'll say further declines in the dollar. That's also based upon our last year's business mix. As far as interest rates go, I think Q2 should look probably about like Q1. Maybe plus a couple million dollars. Q2 is our larger cash outflows. We basically pay bonuses at the beginning of the second quarter. That will probably reduce our cash balances. We also make most of our earn-out payments sometime in the second quarter. So, again, we would reduce our cash balances. So, walking through that, I would guess a couple million dollars increase in net interest expense in the second quarter.

Thank you.

Our next question comes from the line of Catriona Fallon with Citi. Please go ahead.

Yes, hi, good morning. It seems that consistently Omnicom is exceeding industry average growth rates. And I'm wondering, can you help us understand what's shifting in the way clients are spending on campaigns that's kind of allowing Omnicom to capture a larger portion of that business? As clients are moving towards more online advertising or viral advertising, how is Omnicom capturing a larger portion of the market?

Well, it's really a portfolio question.

Yes.

Our objective for at least the last 15 years and certainly continues is making sure that we retain share of wallet of our clients. And we've made a very significant investment in terms of populating what would be perceived to be our traditional agencies with people who are -- can adapt and are very comfortable working in all mediums. So, as Randy was pointing out, we capture the revenue in the subsidiaries and the companies that we own, but the actual way that clients get serviced and the shifts and changes which occur have been fairly dramatic in terms of moving from what we would perceive to be traditional media uses or old media uses to a number of these areas that you are talking about.

And part of this strategy here is not only -- and I think we have a very large portfolio of these companies, not only having stand-alone experts in, say, online advertising and the whole digital environment, but at the same time simultaneously populating with leaders our -- what we perceive to be traditional companies with people who are able to service clients in the same way and to extend campaigns into a very agnostic way to whatever media reaches the consumer. So we don't get that refined in terms of what we are trying to capture to report on calls like this, because it's not part of our business objective. Our business objective is to, again, make sure that we're appropriate so we maintain share of wallet and to extend this kind of 360 holistic ability down into every one of our units.

From a revenue standpoint, in each of these different disciplines, there's a different amount of labor required or labor percentage as a percentage of the clients' overall spending. In say the internet, the labor involved in a specific level of client spending is much higher, and therefore our revenue is higher as a percentage of the clients' spend. The lowest area is probably, I will say TV advertising --

Yes.

-- where, the bulk of the money is going to either third parties or to the media itself. When you get to things online, like say, in viral, that work is being done in-house, the editing, the production, etc., is being done by our people. So we are capturing a larger percentage of the client spend, obvious with labor and costs behind that as well.

So that's the case, and more of the campaigns with kind of the newer type of CRM, services that OMC is performing, is there not a higher margin associated with that type of work than with traditional advertising?

We haven't found that to be the case.

Margins are pretty consistent across our different disciplines. Geographies can make a difference, but, it takes the labor -- we have to provide the labor to execute the work. It's not necessarily a higher value add labor from our standpoint. I mean, all of our people are -- provide quite a bit of value to the client.

Right.

It's just --

The other thing I might add is that even though we are referred to as an advertising group, 57% of our revenue comes from these other services already. So --

Yes. Okay. So just two quick follow-ups then. So then could you speak then a little bit to the slight -- just, I mean, just the slight decline in margins from what I was expecting. Is that most of the severance payments in the quarter or was there something else there? And then secondly, what's your thought on -- some of your competitors have acquired search engine marketing technology or search engine optimization. I'm wondering what are your thoughts on that approach? Thank you.

First, on the first one, we said it numerous times, we are really not margin focused. We are more EPS focused and I will say revenue focused. Margin is somewhat of a byproduct. And I think EPS was up 18.2% in the quarter. So we were pretty happy with that performance. You can look at our -- when we look at our cost structures, our cost were in line with last year and what we expected obviously location by location there's -- numbers go up and down. Looking at the broad category, severance was up in that sort of $3 million to $4 million range year-over-year. So that alone could have accounted for 10 basis points of margin difference.

Great.

In terms of competitors, I think in addition to all this discussion about P&Ls, balance sheets are very interesting as well in terms of the amount of leverage and the cost to get into some of these areas. We have elected to be able to service our clients throughout the full range of possibilities from a media perspective, and have not -- and we're more inclined to partner with people than to, in my view, spend -- to buy companies at multiples that we're not comfortable with in order to ascertain the growth and to properly service our clients from our own perspective. So there are different strategies out there. Some of them were just our clients catching up with us, because we had heavily invested in the last decade and consistently invested through this whole period of time.

One of the things that's also worth noting, in our industry, basically, any investment in our business to drive organic growth hits the P&L immediately. So it basically, has a -- it pulls your margin down now with the expectation and the hope that it's going to drive organic growth out in the future, which is realistically six to 18 months out. Obviously, we're focused on continuously investing in our business and having that good, strong, organic growth on a consistent basis. If you -- if we had shifted the strategy to more of an acquisition-based growth strategy, we can drive margins higher in the near term, because basically you are getting that growth off of a capitalized cost. We take a good healthy balance is probably the right way to go, but different people can have different strategies.

Sure. And we also think that, given the credit crisis, there are going to be increasing opportunities which develop in the market place as people's expectations in terms of pricing for potential acquisitions become more in line with what I believe are historic realities. And we have been very comfortable following our strategy. We are not opposed to acquisitions at all, and we certainly have the ability on our balance sheet to be as active as necessary. Whereas I think others may be a bit more constrained as we go into the future. But we're waiting for the market place to come back to our principles and our disciplines.

Great. Thank you.

Thank you. We're getting kind of late, so let's take one more call.

Our last question comes from the line of Troy Mastin with William Blair & Company. Please go ahead.

Yes, just a quick follow-up. You have said, or maybe I have observed historically, you mentioned 6.5%, 7% organic growth plus or minus 1%, seems like a normalized run rate. I'm curious in this environment, given mix shift away from advertising to marketing services, given the economic backdrop, if you feel any more or less comfortable with this kind of level or if you have any poor visibility for this type of level.

Troy, we are affected, as all of our clients are. You can't pick up a newspaper or turn on a TV show that is not talking about the world coming to an end. We are not seeing it, as I said earlier, in shifts of client spending, but if it continues, you never know. So, I mean, getting that refined in terms of our ability to forecast growth is impossible for us to do. All I can tell you is look at our history, look at the discipline and the management of the company, and we'll continue to service our clients and whatever is appropriate. And over the long run, I think that's a reasonable expectation. But if you talk to me in terms of what's going to happen in the next several months, I'm not really prepared to forecast that.

Yes, I'm not quite sure that's what we've said. Historically we've said, we think we can, pretty consistently out perform global nominal GDP by say 150, 200 basis points, 250 basis points. So obviously with that, economic factors come into play. I think the 6.5% plus or minus 100 basis points was a statement we made, probably going into '07, based upon where we felt -- how the economy, etc., felt. I think to be fair right now -- we all watch the news as well. I don't know what the global economy is going to do. I think we will outperform nominal GDP, but trying to predict what nominal GDP is going to be, that's really not what we are good at.

Okay. Good. And then I just wanted to confirm, HP falls into the second quarter, and if there's any other notable activities you have seen so far in April.

It is early.

Yes, it's second quarter.

It's early. And it's only the second quarter, but --

Well, good start to the second quarter.

Our machine continues, the machine part of it.

Okay. Very good. Thanks and congrats.

Thank you all very much. We appreciate you taking the time to listen to our call.

And, ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.