Bread Financial Holdings, Inc. (BFH) Q2 2012 Earnings Report, Transcript and Summary

Good morning and welcome to the Alliance Data second quarter 2012 earnings conference call. At this time all parties have been placed on a listen-only mode. Following today's presentation the floor will be open for your questions. (Operator Instructions) It is now my pleasure to introduce your host Ms. Julie Prozeller of FTI Consulting. Ma’am you may begin your conference.

Thank you, operator. By now you should have received a copy of the company's second quarter 2012 earnings release. If you haven't please call FTI Consulting at 212-850-5721. On the call today we have Ed Heffernan, President and Chief Executive Officer; Charles Horn, Chief Financial Officer of Alliance Data and Bryan Kennedy, President of Epsilon. Before we begin I would like to remind you that some of the comments made on today's call and some of the references to your questions may contain forward-looking statements. These statements are subject to the risks and the uncertainties described in the company's earnings release and other filings with the SEC. Alliance Data has no obligation to update the information presented on this call. Also on today's call are speakers who will reference certain non-GAAP financial measures which we believe will provide useful information for investors. A reconciliation of those measures to GAAP will be posted on the Investor Relations website at www.alliancedata.com. With that I would like to turn the call over to Ed Heffernan. Ed?

Great, thanks Julie. Alright, we’re going to get right at it today and joining me as always is the ever popular Charles Horn our CFO and also Bryan Kennedy the Head of Epsilon. Charles is going to discuss our consolidated LoyaltyOne and Private Label results. Bryan will walk you through Epsilon’s results and I will wrap it up by walking you through our updated guidance for 2012. Charles?

Thanks Ed. To use an idioism it was a boomer of the quarter. For the second quarter of 2012 revenue increased 17% to $866 million, EPS increased 37% to $1.63 per share; core EPS increased 22% to $2.13 meeting the company’s guidance of $1.85 and lastly adjusted EBITDA net of funding costs increased 33% to $264 million. As noted above, the 30.8 million share increase in Phantom shares dampened core EPS for the second quarter. Excluding Phantom shares from the calculation of core EPS for both periods presented pro-forma core EPS was $2.46 for Q2 2012 compared to $1.91 for Q2 2011, a 29% increase year-over-year. We expect the overhang from Phantom shares which is directly correlated with the average ADS share price to continue throughout 2012 and as such have increased our share count guidance for 2012. Ed will talk about this further as part of his update later on the call. Let’s turn the page and look at LoyaltyOne. LoyaltyOne had a solid second quarter with both revenue and adjusted EBITDA growing by double digits over the second quarter of 2011. Revenue was up 13% compared to the second quarter of 2011 and up 18% when excluding the unfavorable impact of foreign exchange translation. The growth in revenue was driven by robust increases in both redemption and marketing related revenue. Adjusted EBITDA in the second quarter was up 14% over the same quarter last year. Again excluding the unfavorable impact of foreign exchange translation and incremental international operating losses adjusted EBITDA was up 25% in the second quarter. Adjusted EBITDA margins in the core Canadian operation were very strong and slightly over 29%. Miles issued grew by 8% for the quarter marking six consecutive quarters of growth. In the second quarter, we saw the continuation of the strong…

Great, thanks Charles. Epsilon posted a nice Q2 with revenues up 25% to $235 million and adjusted EBITDA up 24% to $49 million. On an organic basis, both revenue and adjusted EBITDA were up 8% versus Q2 of 2011 and up a very healthy 13% after one-time costs related to datacenter relocation and infrastructure investments are excluded. So if we break that down our database and digital offering continued it’s growth trend of 7% as in Q1 and we had a number of key wins in this offering this quarter, including an exciting loyalty engagement with Canadian Tire, which is one of Canada's most shopped general retailers with over 1,700 locations as well as a solid renewal and expansion with Patagonia, a premium outdoor lifestyle brand in the retail sector. Data, slightly down this quarter with strength in Abacus, offset by an ongoing softness in compiled data, driven by a small number of industry verticals that have experienced contraction in 2012. And then lastly, our agency and analytic offerings Aspen have continued to contribute nicely and we are seeing solid growth in the automotive industry in particular. This quarter, we announced the global expansion with Jaguar Land Rover as we take proven data driven CRM marketing communications program here in the US that operates across a number of channels including direct mail, email and mobile and we are rolling that out internationally for Jaguar’s global after sales division which operates in 177 countries. It’s a great example of how Epsilon can amplify the reach of the Aspen business by leveraging our global footprint and it’s a first international roll-out for auto motive solution and our agency offering. So looking beyond Q2, I would like to provide some additional color on Epsilon’s year as we hit the halfway point and we…

Thanks Bryan. Private Label continued a strong 2012 performance with revenue up 15% and adjusted EBITDA net of funding cost of 44% compared to the second quarter of 2011. Positive trends continues to be seen in four primary areas. The first would be receivables growth which accelerated as average credit card receivables increased 13% compared to the second quarter of 2011 while ending credit card receivables increased 16% from June 30, 2011. We expect this growth to continue to accelerate for the remainder of 2012. Card holder spending remained strong up 18% from the second quarter of 2011. After years of decline credit card spending is again increasing. The on-boarding the new programs over the last 12 months contributed approximately 10% of the growth. Portfolio quality continues to improve as principal charge-off rate of 4.9% for Q2 2012 compared to 7.2% for Q2 2011 and 5.3% for Q1 2012, improvements is on both the year-over-year basis as well as a sequential basis. Trends are now suggesting 150 basis points to 180 basis points improvement in charge-off rates for full 2012 compared to 2011. Funding costs continue to improve as older tranches of debt mature and are replace with new cheaper longer tenure paper. Our cash funding rates for all cargo related borrowings which excludes non-cash items was 2.7% in Q2 2012, 100 basis points better than last year. Overall the outlook for 2012 remains positive, solid fundamental coupled with a strong top line of potential new programs, similar to 2011our goal is five new programs for 2012. We remain confident this is an achievable number. Let’s flip the page and now I talk about little bit about liquidity. At the corporate level, liquidity increased to $1.6 billion at June 30, 2012 increasing about $300 million during the quarter. Cash has increased to slightly over $600 million while available borrowing capacity approximates $1 billion. Net corporate debt was approximately $1.8 billion at June 30, 2012 a moderate amount given the leverage ratio defined as corporate debt through adjusted EBITDA was 2.2X compared to the maximum loans covenant at 3.5X. We expect the leverage ratio will decrease as 2012 progresses and we keep our free cash flow. At the bank subsidiary level, we have approximately $2.4 billion of available liquidity at June 30, 2012. During the quarter we renewed two conduits totaling $1.6 billion in commitments at favorable times. The largest conduit of $1.2 billion renewed for 21 months versus the traditional 12 months. This is the longest conduit tenure ever for ADS. Continuing our dividend trend, our two banks paid ADS parent $57.5 million in dividends during the second quarter. This was accomplished while maintaining strong regulatory capital ratios. Lastly, we acquired approximately 500,000 shares of ADS stock during the quarter as we took advantage of temporary dips in our share price. I will now turn it over to Ed to walk you through updated guidance and our outlook.

Great. Thanks Charles. Obviously, the message continues to be quite positive and as such, we’re once again going to raise our guidance. First, we moved our expected top line up to a nice around $3.5 billion, which is up 10% compared to 2011 and versus what we initially had was up 9% from our previous guidance. So top line looks it is coming in nicely. And second, we also increased our core earnings to $542 million, which is another $6 million higher than our previous guidance and if you were to go back to our original guidance, it’s $40 million higher than that guidance set in October of last year. So overall, core earnings are up a very robust 23% versus last year. From a reported core EPS basis however, nothing changes at the moment since the continuing increase in our share prices added more shares to our share account, making the increase total earnings equal our previous per share guidance of roughly $8.45 per share. This of course is driven by the phantom shares, which disappeared at no cost to us, when our converts mature in 2013 and 2014. The phantom shares added an additional 400,000 shares to our 2012 diluted share count versus our assumptions last quarter. What we have essentially assumed is we increased our full year average stock price expectation from our $125 to $130 which factors in the actual $122 for the first half and then we picked our high point which was a $137 for the back half which gives us a full year average of $130. If you net all that stuff out the bottom line is when you exclude the phantoms our guidance increased by roughly $0.06 versus the prior call. So let's step back and look at our earnings on an…

(Operator Instructions) Your first question comes from the line of Jim Cassin of Credit Suisse.

Ed I think you just touched on it, but just want to confirm with all this phantom stuff, that your intention is to settle all the converts, the ones in 2013 and 2014 with cash?

Yes.

And then Bryan, since you are on the call and there is a low here in the third, may be the fourth quarter, how much of it's related to the sales force reorganization. Typically you have kind of some slippage when you reorganize and restructure sales. Is that part of it? And then may be just following on to that, what portion Epsilon is from the pharma industry?

Sure Jim. I would not say that the low has anything to do at all with the restructuring of the sales force. The restructuring of the sales force is really about on a go-forward basis making sure that we capture all the growth opportunities that are out there and if you think about as our business grows and gets substantially bigger than it was at few years back, a higher percentage of our growth going forward comes from existing clients and making sure that we have a really sort of methodical approach to how we pursue those clients from a sales perspective. We believe really it is critical to driving incremental growth. The low of this point is not really related to that. Pharma is around 10% of our business and the math is pretty simple on something like that. It’s been growing at a very healthy clip, double digit even higher than that at times. It kinds of pulls back and drops to a decline, that pull back is definitely a major driver here in the performance that we are expecting to see in the back half. So hopefully that answers your question.

And that is persistent to 2013 and some of the new business that you are adding will offset that, is that a way to think about it?

Yeah, first of all from a pharma perspective we see things as stabilized for now. So as we move through this phase we would expect to see growth returning to that vertical, which should be key and then as Ed indicated earlier, our pipeline is shaping up nicely, a number of very solid signings that we have in the works and our year to date wins as I mentioned earlier exceed where we were at this point last year. So as you might recall, it takes a while for Epsilon to actually get to a point in revenue recognition on new wins as we build out new platforms and then roll them out, that's when we begin to see the lift from that and that's why we are comfortable with the outlook rolling into 2013.

Yeah, I think also Jim I mean the one thing we do want to stress is like every year in every business, you know you've got plusses and minuses and surprises here and there and you know it's just has been the case over the last seven to eight years at Epsilon that anything that comes up a little bit short for whatever reason we've had a nice wave or two come in on the sale side that has covered that off. We just haven't had it this year. It doesn't mean we are not going to have it next year and that could accelerate things, it's just you know this year we had an AIR Ball and we didn't cover it off.

And then last question for Charles, can you maybe walk through the math on the Bon-Ton deal, when would you expect it to be accretive to earnings? Is that right away in the first quarter of 2013 or does the fair value account in kind of hit the first half of next year as well?

I would answer it in two ways. One, we expect to close the portfolio converted probably late in July, based upon what we've seen in the portfolio, it turns about every six months. So to get the full income production, it would be early or if not the beginning of January. So what will happen with the portfolio is, it will be a little bit of a drag in Q3 and turn positive in Q4, so it nets out to be basically zero benefits in 2012 with full benefit rolling into 2013.

Your next question comes from the line of Sanjay Sakhrani of KBW.

So I got one question on each of the segment, so bear with, sorry. Could you on private label, could you talk about how surcharging may affect you guys. I would think it may benefit if retailers actually choose to do it, but I was just hoping you could talk about that and just on the fee income practices, that the CFPB has been looking into with Capital One and Discover, I was just wondering how it affects you guys?

I will take a shot at surcharging, obviously it doesn’t, it's not really relevant to private label itself, these are all negotiated contracts with the merchants themselves. So it's completely (inaudible) when it relates to private label. Now that being said, you know if merchants do decide to surcharge for general purpose bank cards, obviously we would like to think that there is an added incentive for folks to use private label and so I would say on the margin from an incremental basis, it's probably a little bit of [kiss], but again it's too early to tell at this point, it's certainly not a negative. I would say it's probably a slightly positive.

And on the second issue Sanjay remember we talked about this several months ago as it related to Discover and I think we have to break it down first as to what the issue is and what the issue is that the Consumer Financial Protection Bureau is looking at deceptive marketing. They are not really questioning the validity of the product, so if you look at us, specifically it's really not an issue for us and I will tell you why in four ways. One, it's not a big number for us, if you look at our total of the revenue for private label, it's right around $90 million of which any type of credit monitoring and payment protection is just as piece of that, so it’s not material to us overall. The second thing is and this is the most important piece, we do not do outbound marketing either internally or through a third party. So we are not out soliciting the product. So what happens is if we have a consumer, current customer call in to one of our customer service reps, we will bring it up and then we will walk him through a pre-prepared script that’s been agreed to with our private label customer. So again no outbound marketing, only inbound, it's a very strict script. The third piece is we record every authorization; we have to make sure it’s fully documented. And the last piece is we make it very easy for the consumer that if you receive fills that they didn’t gave appropriate approval to cancel it and get out very quickly. So with us not a big number for us, we do not do outbound marketing. So we are not subject to deceptive marketing or deceptive trade practices. And then the third piece of it is, we just make it very easy for consumer, if they did approve but changed their mind to get out of program.

And then may be just one on Loyalty, I was just wondering the conversions of the counts from Banco do Brazil to Dotz. I mean where are we right now and how fast can that fully ramp and I guess what I was trying to think about is for next year do you guys actually recognize any breakage?

On the breakage Sanjay, we will probably look first to do that in 2014.

In terms of Banco, there is couple of stats. There one obviously is Banco is the dominant player down there and they have relationships depending on how you define it somewhere between 30 million and 40 million different household, of which a little less than 10 million have some type of call it credit card product. Those are the ones we’re going after. And so what we will do obviously is as we flow into each new region, we will do a very strong push to align those cardholders who are in the region, who are Banco customers with the benefits of joining the coalition. But we have to have the other members of the coalition on board. So as rolling though this different areas of Brazil, there is an installed base at Banco that once we team up with the petroleum player and the pharmacy player and the grocer etcetera, etcetera, we’ll hopefully drag along the Banco’s to convert over to us. So it will be part of the roll-out and in each region it goes in, a big chunk of those converts will be the already installed Banco customers. Eventually, we will move beyond the 9 million or 10 million cardholders and hopefully move much more aggressively into just the overall general relationships that Banco has which is between 30 million and 40 million households.

Alright, so right now you are around to?

We’ve got about 3 million collectors at this point.

Okay, wonderful. And then just one for Bryan; I am sorry if you touched on this before, but how much reverse inquiry are you getting on mobile payments and everything that comes with that? Thanks.

I am not sure I fully understand the question, Sanjay, can you……?

Are the financial firms and other partners of Epsilon kind of looking to Epsilon to provide some assistance in terms of marketing and mobile payments environment?

Yes, yes they are; it gets into a fair level of complexity I described, but I think obviously all of those financial players are looking at mobile payments, mobile wallet and their conversations take place on a regular basis about the right way to provision messaging into that environment from a marketing perspective so our data comes into play in that conservation pretty frequently in terms of how that data could be helpful to personalize; any sort of marketing message that may take place in mobile environment like that. And then of course the mobile device is a pretty natural channel extension to customer data bases that we are managing for clients so the connectivity and the integration back into the information about those consumers tends to play into those discussions that has well. So I would say there is in an awful lot of talk about there right now among some of our clients and in the industry there is less action, but we are certainly actively engaged with a lot of our clients in terms of thinking through their strategies.

Your next question comes from the line of Darrin Peller of Barclays

Hi thanks guys; Ed I think for you the first question, overall all three of your business has obviously performed extremely well and particularly as you said earlier Private Label has been outstanding and that contributes to more or like 16% of the company’s earnings versus I think around 14% in the past. Ed can you just give us a sense as to the mix of business you are looking at for the company over the next few years especially if another nice Bon-Ton like portfolio may become available, can we just maybe more specifically around you know should Brazil be a line item and its going to help that out or you know is there any kind of deals in Epsilon or like Epsilon businesses that you can do to maybe change the mix bag or what is your goal in terms of business profile?

Yeah, I mean obviously our goal overall is to grow organic cash flow at a very nice healthy double digit cliff. I think a lot of this will cycle at different times. There is no question that this year and next year with probably its trailing off a bit as we go into ’14 will probably be the years of huge over performance in Private Label. What we are seeing and you know you've got to go with the trends right and what we are seeing if pipeline right now is that there are a number of retailers who are very interested in this as a loyalty product. There is also as I have talked about in prior calls a number of disaffected clients of some of the other players in terms of how they were treated through the great recession and we are going to make hay on that and essentially the Bon-Ton’s and the Pier 1’s and names like that, my I guess is you are going to see a number of those continue to move over to us which would suggest exceptionally strong performance in Private Label this year, next year and into ’14. So therefore that doesn't really address you know mix issue and so what we need to do is we need to look at the other two businesses and I do expect Epsilon in Canada to do what they need to do, to hit their numbers and that by itself will not be enough to -- if you talk about shifting where things are coming from, what will do it, however would be if Epsilon and LoyaltyOne their Canadian business continues to do what they need to do for us if Brazil finally kicks in and pulls up the way we think it will in a couple of years that’s going to be a very, very big program. And then as we head into 2013 there is no question that Epsilon as that we talked about took this year to be one in done and get their thing ready to rock and roll for next year, you will most likely see a restart of some of these bolt-on type acquisitions in between Epsilon, Canada, Brazil and some bolt-on acquisitions what you will see that combined with as Private Label begins to moderate going into ’14, you will see a shift back to the more traditional 50% or less so more of a 50-50. But we are certainly not stepping away from the trend in Private Label; it is a great place to be right now and it gives us the free cash flow to build up the other businesses as well. So it’s going to gradually go back the other way and I think probably as early as ’14, you will probably see something more in the 50-50 level.

Okay, that’s helpful Ed; I mean by ‘14 we can expect probably the Brazil to be -- the Brazil opportunity to maybe become its own line item would you say?

Yes.

I mean just in size and scale relative to what’s in Canada right now?

Yeah, if you look at Brazil there was nothing last year. We’re going to be between 4 million and 5 million by the end of this year in terms of collectors, if we double that the following year, actually being talk about some big norms given that Canada itself has a total of 15 million collectors and throws up for quarter billion dollars of EBITDA. So this thing is folding up very quickly and your point is on.

Just one follow-up to that, I mean, it’s amazing how much opportunity there use to be forming around a Private Label from a portfolio standpoint. I imagine a lot of that like you said was sort of mystery during eight or nine other timeframes and merchants looking for a change. I am surprised there aren’t other credit card issuers or other banks that recognize how amazingly profitable Private Labels become, if you imagine the right way. Can you just give us a little color as to what you are seeing from a competitive landscape in terms of going after these kinds of portfolio, like maybe what you saw with Bon-Ton, what you’re seeing with maybe things coming out of GE or HSBC or others?

I prefer not to but I say a lot of it has to do with what others are offering. It is, has always been the case of us and versus the big banks. And the big banks are after what they do for a living, which is lets have big balances and make our money on finance charges and everything else. We will outsource for the most part the processing, networking, the customer care; the retailer can keep that in the marketing and database functions they can go to another vendor for that. Well, what you already always done is a 100% of our client must choose all four of those functions if they want to be part of our offering and so what we found, what we have found and what is accelerating and it’s hitting Bryan’s area over and Epsilon as well for clients who want the same stuff but don’t need the credit component to it. What we are seeing in Private Label is more and more retailers are looking at it as a loyalty tool and when you can get down a skew level information, which now have is extremely rich data that you can segment and then market to and at the same time Private Label is a perfect platform for exploiting the various distribution types that are out there whether it’s direct mail, permission based email, targeted display, social or mobile, all of those, you know are natural extensions. Once you have the skew level data all segmented and pooled up ready to go. So, I think a number of higher end type retailers which are target based recognized that. That’s why we’re seeing a lot of renewed interest in the Private Label space and I don’t think to answer your question finally, why us not in it is because of the fact that I don’t think others view the Private Label product itself holistically as a loyalty tool. They view it as a finance tool and that’s, I think, adds to our benefit.

Your next question comes from the line of David Scharf with JMP Securities.

Just a couple of follow-ups. When you refer to, I think you said significant yields in the pipeline that are related to Private Label. Are these pre-existing programs in house that maybe acquired or are you talking about significant retailers that don’t have any program that would be sort of a green field of balances?

Both and as you've known for I mean followed us for many, many years the vast bulk of our new signings have typically been retailers who started program from scratch and what we have seen obviously this year and there is no question based on what you are seeing in the pipeline going into next year to supplement that there are number of significant size files which for us are anywhere between $300 to $500 type million that seem very attracted to our model. So again it's building on the fact that you go where the trends are and you go where the business is and what we are seeing is it's a combo of both although David there aren't a lot of in house programs left so this would mainly be takeaways from some of the large banks.

Okay, just two quick ones on the other segments. On the loyalty side so now it's 25% redemption growth in the first half with the miles exploration having been put in and since that drives revenue recognition you know little bit of a sense of how we should view redemption growth in the back half of the year?

It's once your point David we do expect to redemption growth to moderate and actually drop some obviously in Q3 and Q4. So that we will put a little bit of pressure on top line growth, but it could actually somewhat stimulate profitability generally when we have lower redemptions we can generate some better surplus of gross margins. So your premise is correct you probably see a little bit of slowing in revenue growth Q3 and Q4 but I don’t anticipate it will affect our EBITDA flow through.

Okay, perfect and lastly on Epsilon, over the years listened to a lot of calls where there's a discussion of significant pipeline and kind of a two steps forward, one step back on the margins is going to have to ramp up for new assignments. It sounds like things are a little different this time, can you expand a little bit about perhaps what some of the non-core products are that maybe you've rationalized, eliminated and how we ought to think about normalized margins in that segment going forward?

Yeah sure David, I mean first of all just in terms of your comment about the pipeline and growth you think about the number of businesses that Epsilon has brought on board over the past several years and the sort of sales structure and client services structure, part of the margin focus and the margin expansion is around really getting that structure streamlined so that we have one organization that sales and services into our key client relationships. And that means being pretty focused on headcount and accountability and making sure that we've got the right folks lined up to serve clients and the right kinds of capacity and to the extent that we do that well which we've done over the course this year that's where you begin to see that margin expansion take place. I think we spent the last several quarters talking about the fact that as Aspen has come into Epsilon’s overall P&L you see a little bit of dilution now that we are starting to see that bounce back to the historic trends for Epsilon overall pretty good evidence of the kind of lift that we are getting and that we believe will continue to get over the back half of this year and into next year and then around your question on non-core products and being selective you know I would say two things. One is we've been very careful not to go out and buy business, you can go out and buy new business in any point in time if you are willing to sacrifice margin and that to us is not a winning strategy. We might get some gain in the short term but you end up with a problem in the long term, so we have been very careful to avoid that and then from an operating perspective is we kind of look across our different businesses and what we find common in our agency offering and our database and our digital offering in terms of overlap, those provide us with some opportunities to begin to streamline and cut back any of the overlaps that are redundant, unnecessary or in some cases that actually don't contribute from a margin perspective. So without getting into much more detail, that's pretty much what we are focused on from a products perspective. If you think about how that impacts us from a margin perspective in 2011, we were at 23%, 2012 getting that to 23.5% and then getting an additional 50 basis points of lift going forward keeps us nicely in the mid 20s on a go-forward basis as we thought we are after.

So that's helpful and just one quickly you know when we think about the mix of services at Epsilon, obviously the agency business at Aspen is the lowest margin contributor as the least operating leverage. When we talk about the pipeline and how booming it is right now versus this time a year ago, is there anything in the mix that would weigh down margins a bit, is it more weighted towards agency or is it more weighted towards traditional data and processing database?

No, I don’t think there is anything that would shift the mix. It’s a good blend across all, you know frankly every pitch that we go into now is a fully-integrated pitch where we are bringing together our strategy and analytics, our agency capabilities, data, digital and database and then the ability to then execute messages across channels with a distribution perspective. So we like that mix, we think it’s critical to keep it healthy. In fact it goes back to our whole rational for picking up Aspen in the first place as we believe the buying decisions really are going to be centered across a span of offerings and if you get too heavily concentrated in one area, you are going to find yourself on the wrong side of the deal. So we have got good healthy representation across the board in the pipeline today.

Your next question comes from the line of Carter Malloy of Stephens.

Hi guys, it’s actually [Ben] on for Carter. Thanks for squeezing me in. A couple of quick questions on Epsilon, first Bryan can you give us some more detail on the drag and the data business?

Yeah, I mean we have had a couple of verticals, financial, insurance and telco in particular this year. In our compiled data business that have not performed in the way that they historically have and that’s been a growth drag on the compiled data business, so this is our non-cooperative, non-Abacus data products. And that’s been offset on the positive by continued growth and strength in Abacus which continues to perform very well for us as traditionally not a high growth business but solid mid-single digits growth which contributes really nicely from a bottomline perspective. And the other thing I would say about data in general is that’s also an area of our business where you've added on a number of new businesses over the past several years and the data realm, if you think about bringing together effectively new raw ingredients that takes some time to put those raw ingredients together, build new models, get those models embedded into client relationships and so as we’ve gone through that process, you get a little bit of bumpiness and that’s a little bit of what we've experienced over the past last year as well. So, good news from my perspective is that, that decline in our compiled businesses coming down as we go in to the back half of this year and we’re rolling out a number of new product offerings with this raw ingredients if you will more fully compiled in a way that we think will drive the return to growth in that compiled business.

Sorry, if you've already answered it, but do you have, can you kind of give us a sense of how big pharma is and kind of maybe your timeline, your internal timeline of when you expect pharma to kind of comeback or pick up?

Sure, pharma is right around 10% of our business. I mentioned earlier, I think that, that has traditionally been a nice grower for us, double-digit, mid-teens, even north of that at different times, shifting to a decline, right around a double-digit decline for us this year. That has stabilized to answer your question. For us as we go into the end of the year, so we would expect to see a gradual resumption of growth and you know on pharma that is an unusual scenario for us. It is not typical that we see something that is systemic, that is an industry-related impact versus something that is revolving around a specific client or our business in particular. So as the industry goes to some degree that will I think dictate how our growth plays out, but we see it pretty stable at this point.

We are going to wrap up now; we appreciate everyone hanging in there. I know you got a bunch of other stuff to do, but obviously we are pretty jazzed up and again will talk to you next quarter and sorry we couldn’t get to everyone today. So have a great day. Bye

This does conclude today’s conference call. You may now disconnect.