Kelly Services, Inc. (KELYA) Q2 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to Kelly Services Second Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Carl Camden, President and CEO. Sir, you may begin.

Thank you, Ernie, and good morning to everyone. And welcome to Kelly Services' 2012 Second Quarter Earnings Report and Conference Call. With me on today's call is Patricia Little, our CFO. Let me remind you that any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. Now let's move on to our Q2 results. We entered the second quarter anticipating it would be tougher than the first, and the struggling global economy and sluggish labor market confirmed our prediction. Job gains sputtered and stalled in the second quarter. U.S. economic growth is tepid, and the recession in Europe continues to erode confidence. Threatening to keep growth rates subpar across much of the globe. Despite these headwinds, Kelly made positive strides in the second quarter, turning in solid results. Although revenue growth was anemic, we increased our GP rate, continued to keep tight control on expenses, improved our operating profit and we saw good progress on our targeted strategic focus areas. Revenue for the quarter was down 3% year-over-year or flat in constant currency, a deceleration from the 1% growth we saw in the first quarter. However, by leveraging well, we generated an adjusted operating profit of $22 million compared to $21 million for the second quarter of 2011. As we expected, our earnings per share were significantly impacted by a higher tax rate. Adjusted earnings from continuing operations were $0.34 per share compared with last year's earnings of $0.52 per share. Our gross profit rate was 16.3% for the quarter, a strong improvement compared with the 15.8% for the second quarter of last year. Despite lackluster revenue growth, our quarterly performance showed steady sustained progress in key strategic areas. Our higher-margin OCG segment continues to deliver solid results, with earnings improving by nearly $2 million and a healthy increase in revenue of 23% year-over-year. These gains confirmed that more companies are using Kelly to manage their workforce programs and validate our status as a leader in the talent supply chain management. Professional and Technical performed well on a global basis, with improved revenue and gross profit year-over-year. For the fifth consecutive quarter, our PT growth rates outpaced our commercial staffing growth rates, reflecting our continued focus to meeting the growing demand for mid to high-skilled workers. Perm fees also improved, with year-over-year growth of 9% on a global basis. And we continued to hold costs in check. Our expenses were down compared to the first quarter. We are encouraged by this measured progress, especially given continued economic uncertainty and weakness in the labor market. The Eurozone crisis, slowdown in emerging markets, and concerns over U.S. labor tax and health care policies are weighing heavily on employers' minds. Without question, confidence is shaken. Employment gains average just 75,000 a month in the second quarter, after growing nearly 3x that fast in the first quarter. Companies remain leery of enterprise investments and shy away from full-time hiring. While we remain cautious, we believe the U.S. is in a slow, sustainable recovery. Our tempered optimism is rooted in several industry-specific economic indicators that show signs of life in an otherwise listless climate. In June, the U.S. temp penetration rate inched up to 1.9%, its highest level in 5 years, and ticked up a bit more to 1.91% in July. After a disappointing dip in May, the number of jobs created in temporary staffing increased to more than 20,000 in June, representing 1/3 of all the jobs added for the month. Despite persistently high unemployment, demand for skilled talent remains strong, with more than 1/3 of employers having open positions for which they cannot find qualified candidates, reinforcing Kelly's PT growth strategy and boding well for improvements in fee performance. Unlike these bright sprots -- bright spots in the fiscal U.S. labor market, most European economies slipped further into recession. Low business confidence and government austerity measures are projected to constrain hiring in the Eurozone throughout 2012. Though pockets of resilience are evident in Germany and Russia, where unemployment was at 15-year lows in June, much of the region is falling prey to rising unemployment levels as prolonged uncertainty and economic contraction takes its toll on the labor market. We expect that recessionary conditions will persist through the second half of the year. With that, let me provide some quarterly highlights beginning with the Americas region. Combined revenue for the region increased 1% year-over-year and sequentially. Americas' Commercial revenue was flat year-over-year. Without Tradicao, Commercial revenue would've been down 2% for the quarter, with light industrial trending 2% below prior year. We saw stronger revenue growth from our Americas PT, which grew 6% year-over-year, increasing 5% sequentially. Within PT, the strongest year-over-year growth came from engineering, finance and IT. For the Americas region, combined temp-to-perm direct placement and other fees increased 29% year-over-year and were up 23% compared to the prior quarter. Americas' gross profit rate for the quarter was 70 basis points higher than the same period last year. This increase was due to lower payroll taxes and higher fees. And we remain committed to improving our margin. We continue to carefully manage expenses throughout the region. Expenses were up 3% year-over-year. However, excluding our Brazil operation, expenses were down slightly year-over-year. On a sequential basis, expenses decreased 4% compared to the first quarter. Americas achieved earnings of $38 million for the second quarter, a solid 15% improvement over the prior year and a 9% sequential improvement over the first quarter. We are very pleased that given the tough economic environment, with virtually no revenue growth, we were able to improve our GP, control expenses and significantly leverage our operations in the Americas, a job well done. Now let's turn to our operations outside the Americas, beginning with EMEA. Reported revenue in EMEA was down 16% in the second quarter compared to last year. On a constant currency basis, revenue was down 8%. And for the remainder of my EMEA discussion, all revenue results will be discussed in constant currency. Economic conditions worsened through much of the region, and staffing markets continued to experience revenue declines in the range of 5% to 10%. For Kelly specifically, Eastern Europe was down 13% year-over-year, while our operations in Western Europe faired a bit better, with a decline of nearly 7%. The declines are attributable to a pullback in commercial temp sales. After trending positive in the first quarter, PT revenue growth slowed and was flat compared to the same period last year. During the quarter, fees weakened within the region. Fee revenue for Q2 was down 2% year-over-year and down 1% sequentially. Fees within EMEA's PT segment had been the hardest hit, while the Commercial segment continues to see positive growth. The GP rate for the second quarter was 17.6%, down slightly from the 17.9% for the same period last year. At constant currency, expenses decreased by nearly 2% year-over-year and nearly 6% sequentially excluding restructuring. Netting it all out, EMEA reported an adjusted profit of $3.2 million for the quarter, a decrease of more than $4 million compared to last year. Given current conditions across Europe, we expect results to continue to be below last year. The macroeconomic headwinds are also beginning to spread across parts of the APAC region, impacting our operations there. Combined revenue for the region declined roughly 13% in constant currency. As you may recall, we exited a number of low-margin customers in late 2011 in Australia and India, which has a negative impact on revenue in this region. Fees declined by 4% year-over-year. Our GP rate for the region increased by 130 basis points to 18.4% compared to the same period last year. This improvement was primarily due to strengthening temporary margins in Australia and India as we exited unprofitable accounts. We're also seeing fee improvement in the average fee for placement, resulting from our strategy to deliver higher-level skill sets. Expenses were well controlled and down more than 2% in constant currency for the quarter. We concluded the quarter with a loss of $1.2 million as we continued to invest in the region. As an example of the types of investments we're making, last week, we entered into a joint venture with Temp Holdings. The joint venture, TS Kelly Workforce solutions, provides both companies with accelerated growth opportunity, larger presence and added leverage to compete in this important region. We're happy to report that the second quarter marks the third consecutive quarter for positive earnings for OCG. OCG revenue was up 23% in the second quarter compared to last year. Revenue growth and demand for OCG services is strong in many of our practice areas. Fee revenue was up 57% year-over-year in our contingent workforce outsourcing practice. Revenue in our BPO unit was up 33% year-over-year, driven primarily by high demand in KellyConnect, our contact center solution, as well as an increase in our more traditional BPO solutions within the Americas. Our payroll process outsourcing practice reported year-over-year revenue growth of 12%. And finally in our recruitment process outsourcing practice, revenue was up 27% versus a year ago due to new client programs in the Americas, coupled with continued strong revenue growth in our EMEA programs. Overall, OCG gross profit rate was 25.9% as compared to 25.7% a year ago. Expenses were up roughly $3 million, or 15% year-over-year. This increase is the result of servicing costs associated with the expansion of customer programs, as well as costs associated with new customer program implementation. But all in all, we continue to realize operational leverage. For the quarter, OCG reported earnings of $900,000 compared to a loss of $800,000 a year ago. The addition of new client programs in our RPO practice area, as well as strong revenue and earnings growth in PPO, helped boost our second quarter earnings above our initial expectations. We're very pleased with the strategic progress we're making in this important segment. And now I'll turn the call over to Patricia, who will cover our quarterly results for the entire company.

Thank you, Carl. Revenue totaled $1.4 billion, a decrease of 3% compared to the second quarter last year but flat on a constant currency basis. On a sequential basis, revenue was up 1% compared to the first quarter, up 3% from a constant currency basis. Our acquisition of Tradicao in Brazil late last year added about 1% to our second quarter revenue. Overall, second quarter revenue came in lower than our expectations due to weakness in Europe. Worldwide, our fees were up 9% year-over-year, 15% on a constant currency basis. On a sequential basis, our fees were up 7%. Our gross profit rate was 16.3%, up 50 basis points compared to the second quarter last year. The improvement was due to continued growth in fee-based income and, as Carl discussed, improvements in our temp GP rate in the Americas and in APAC. During the second quarter of both 2012 and 2011, we made adjustments to our existing restructuring accruals, reducing expense and improving after-tax earnings by $2.2 million and $600,000 respectively. Excluding restructuring from both periods, expenses were flat year-over-year, up 3% on a constant currency basis. Again, without Tradicao, expenses would have been down 2%, up 1% on a constant currency basis. On a sequential basis, again, excluding restructuring, expenses were down 4% or down 1% on a constant currency basis. In the second quarter, our adjusted earnings from operations were $21.6 million compared to adjusted 2011 earnings of $20.7 million. That's good leverage on a small decrease in revenue. The income tax rate in the second quarter was 36%, about where we expected, but significantly higher than the 3% rate last year. As I've noted before, the increase in the rate is due to the expiration of both the HIRE Act and work opportunity credits. Adjusted diluted earnings per share from continuing operations for the second quarter of 2012 totaled $0.34 per share, compared to an adjusted $0.52 in 2011. The decrease is due to the income tax rate. Looking ahead to the third quarter of 2012, we now expect revenue to be down slightly on a year-over-year basis, up slightly sequentially. We expect the gross profit rate to continue to be up year-over-year and relatively flat sequentially. We expect only modest increases in SG&A. On both a year-over-year and sequential basis, expenses will increase in the low single digits, due largely to annual merit expenses effective July 1, and additional recruiters to continue to take advantage of our PT focus. As I've mentioned before, our income tax rate will be much higher than in 2011. As we look forward on the tax rate, it will depend on the extenders being passed before the end of the year. And I just don't know what will happen on that, although my expectation is that it will be after the election. Turning to the balance sheet, I'll make a few comments. Cash totaled $65 million, down from $81 million at year-end 2011. Accounts receivable totaled $985 million, an increased $40 million compared to year-end 2011. For the quarter, our global DSO was 53 days, up from 52 days last year. Accounts payable and accrued payroll and related taxes totaled $523 million, an increased $15 million compared to year-end 2011. At the end of the second quarter, debt stood at $89 million, down $8 million from year-end 2011. Debt to total capital was 11% down from year end. In our cash flow, we generated $6 million of net cash from operating activities compared to a use of $7 million last year. The change primarily reflects lower additional working capital requirements in 2012. With the weak revenue situation, it's a strong operational performance this quarter. And I'll turn it back over to Carl for his concluding thoughts.

Thank you, Patricia. And let me add a personal thank you to our Kelly employees for delivering a great performance in a tough economic environment. The second quarter confirmed that 2012 will continue to be a challenging year. The lackluster U.S. recovery reflects a global malaise that's holding real economic progress at bay. Weakening European economies are shaking confidence worldwide, and large companies are not making significant investments and creating jobs at a pace that moves the needle in any meaningful way. For Kelly, these macroeconomic headwinds continue to mute our strategic process. Beyond the somber headlines, we see positive long-term trends that do play to Kelly's strengths. The secular shift towards flexible labor is here to stay. The demand for highly skilled workers will increase as the populations age and the talent mismatch heightens. And more of these workers are choosing a flexible work style. And more of the companies around the world are seeking a workforce partner who can design customized solutions that connect them with the talent they need to achieve their business goals. And our second quarter results show that we're leveraging these trends and staying true to our strategy. We do remain committed to delivering a competitive ROS of 4%, and we continue to make progress on the strategies that will enable us to achieve that goal. We're growing PT, fee-based, and other higher-margin offerings and maintaining our lower cost of service delivery. However, in order to make more meaningful progress, stronger economic growth and greater demand for labor is required than what is projected in 2012. We will deliver exceptional service that opens the door to capturing new business, broadening customer relationships and generating competitive profit. We will meet our customers' demands for flexible workforce solutions from commercial staffing to professional and technical specialties to a growing portfolio of innovative options for outsourcing and managing the workforce. And finally, we'll execute this strategy through our exceptional team of Kelly experts, connecting our customers with a flexible talent supply chain that helps them execute their business goals in 2012 and beyond. This concludes today's report. Patricia and I will now be happy to answer your questions. Ernie, the call can now be opened.

[Operator Instructions] We do have our first question coming from the line of Tobey Sommer with SunTrust.

I had a question about the expense control of -- I guess, maybe sequentially and year-over-year in constant currency. What proportion of that was incentive compensation that may vary with the revenue trajectory? And any sort of comments you can give on structural expense control that you implemented in the quarter or prior?

A couple of points about that. Specifically on incentive, that's a piece of it because the slowing economy and so forth showed up in there. But that's not the big driver for the quarter. What we really are seeing is a combination of 2 things: one, and most importantly, is really just good basic expense control. Everybody understands that the economy is slowing, and I just see in all the departments and all the operations around the world, just a real care about spending money. And I think that's the biggest driver. I'll also say, which I mentioned last quarter, there are places where we wish we could hire a few more people. Despite the weakness, the market for high talented really specialized recruiters at the high end, which is where we want to drive to, is a tight market. And there are some places we wish we could have spent a little more money in the second quarter on that. So those are the 3 things. But by far, the biggest is just good care by the operations in the face of the economy that we can all see.

Yes. Are there -- are you comfortable with your footprint -- are there any structural changes to the expense base that you would look to make in this kind of tepid environment? Or would that require sort of a steeper fall-off in economic growth?

We're pretty comfortable with our overall footprint. We aren't looking -- even if things weaken, to make big changes in there, we like the countries that we're in. We see them all as important. We like the investments that we're making around the world. I would say, though, that we are continuing to focus on all of our non-revenue-generating positions, as you would expect. So a lot of focus in Europe and in Asia and in the U.S. in reducing what I'll broadly call sort of the infrastructure costs, headquarters costs, costs of processing, that sort of thing. We're looking harder and harder at those things, as you would expect. And I think we'll continue to push very hard on the non-revenue-generating costs.

I'll ask you just commentary on 2 other items and I'll get back on the queue. Carl, can you describe the trends within the RPO business, the extent to which customer -- existing customers are executing on their articulated plans from prior quarters and there's follow-through there? Or are you getting growth from new customers? Kind of any commentary there. And then, I think you also cited some strength in demand for call center work. So I'd also appreciate some additional color there.

Great. So first on the RPO side. Given the hiring that you're seeing taking place in general around the country, it wouldn't surprise you that customers aren't hiring as much as they would have thought they would in those programs over the last couple of years. But not -- it hasn't fallen off the cliff. But they're lagging their longer-term goals. For sure, we're winning new accounts. And so what you see in that growth rate is a combination of implementing prior wins and new accounts, with a smaller contribution coming from ramp-ups or more existing longer-term programs. Inside the call center business, we have -- we run contact centers both from an at-home bases as well as staffing contact centers. We happen to be doing well competitively in the marketplace on that space and with our current customers.

We will go to the line of John Healy with Northcoast Research.

I had a quick question about the OCG business. Clearly, you guys are making progress there. And I was hoping you could provide a little bit more transparency regarding the components of that business that you really see executing well. And how confident are you that, that business can keep on a positive growth rate, as well as improve profits to the entity, as we kind of are in a slow-growth economic environment?

Let me piece apart some of the questions. So core to -- core to us was moving through the supply chain piece is the RPO and CWO businesses, and those are doing well and there's kind of a strong secular demand for that -- for increasing integration of different components of the talent supply chains. So I see strong steady demand for that as the adoption curve is beginning to take up, kind of regardless of what takes place in the economy. And secondly, we are more cyclical in our earnings inside the OCG segment. We've historically done better as you hit the -- as you hit later quarters. I'm not particularly fretting about a -- an inability to stay profitable over the remainder of the year inside the OCG segment. And you had a third component to the question, but I can't read my jotting down, John.

Yes. And I think you kind of -- I think you got to it, kind of along the lines of maybe how you think it can hold up in this kind of environment, as well as on the profit side.

Yes, I think, in particular, why you can fuss over any one of the silos, right now, the shift in kind of that secular shift to integrating the whole -- all the talent supply pieces into a supply chain, that's just beginning to really take off. And I would anticipate that OCG services will be a strong growth area for this company for several years.

I wanted to ask a little bit about the Asia-Pac business. I know you've talked about the JV with Temp Holdings. Does that joint venture -- how do you see that playing out in terms of the benefits to the company? Can it even help you a little bit on the cost side of things and trying to maybe improve margins in that geography maybe from, I don't know, shared infrastructure or things along those lines? I'm trying to understand a little bit more about the opportunity with the JV and maybe a little bit about -- more about your strategy in terms of how to get Asia-Pac margins maybe up. I know it's tough when revenues are down, but I wanted to understand how you think about that component of the company?

Several points. One, is that the JV doesn't go live until October 1. So its impact this year will be fairly modest and more apparent next year. Philosophically, I would hope that it would drive down the expense structure and improve the operating margins of both companies outside of their home markets of Japan for Temp Holdings and for us. But in each case, the operating base is fairly thin. One of the reasons for the JV is to give us more mass, to give us an ability to grow the top line faster and to provide some of that operating leverage. So our strategic -- if it's paying out strategically, I'm looking more forward from stop faster top line growth and earnings growth from the top line growth than I am from a reduction on the infrastructure cost. In terms of where do we go, each of us were relatively small players outside of Japan, obviously, for Temp Holdings. And putting together our operations gives us a larger footprint, a broader array of products and then we think makes us more competitive in the -- in that emerging market. And I think that, that focus of combining each of our customers sets as well as what infrastructure we have in place is more behind the JV than any attempt to reduce cost.

We'll go to the line of Ty Govatos with CL King.

Technical question. Where'd the $2.2 million go? Cost of service or SG&A?

SG&A.

So when you say flat sequentially, you're talking about roughly a $202 million number?

Yes. That's right. I've got to check real quick, but yes, that would be right.

We will now go to the line of Gary Bragar with Nelson Hall.

My questions have been partially answered, but while I'm on the line, I'd also like to just delve a little further into the growth for RPO. I believe you said was largely attributed to new contract awards in the Americas. So I was wondering if you could talk perhaps about any new clients that were won and were they for U.S. only. Or when we say Americas, does that also include U.S. and Latin America?

So first off, not only is it new accounts, one, but a maturing of kind of fairly recently won accounts that were implemented from the last few quarters. Less of a contribution from the more mature programs because you don't see a lot of permanent hiring taking place right now in the United States. In terms of the Americas RPO business, it's primarily in the U.S. as there's some extension into Canada and other parts of Latin America, sure. But I would think of it still primarily as a U.S.-intense operation.

We will go to the line of James Samford with Citigroup.

Sorry if I ask the questions that have been asked. I had to jump from another call. But I wonder if you could comment on sort of the delta between sort of what we're seeing in terms of the temp staff growths in the United States versus some of the growth rate that you're seeing? I know there's -- just a high-level of what the disconnect might be.

I'm not certain I understood the question, James. Could you do that one again?

So when I look at the temporary employment growth in the United States at double digits and I see sort of the growth rates that you're showing in the United States or in the Americas, maybe it's a mix issue of some of the other countries within Americas. But I just want a comment on how should you trend towards domestic temporary staffing growth?

Yes, so we've been fussing over that ourselves. We had some conversations inside. Because when you look at the -- when you look at so far the released numbers of publicly traded kind of generalist companies, the growth inside, in terms of hours, numbers of people, don't match the large companies. Where we do see growth in the released numbers and our own numbers is you see fairly high-growth rate in the more specialized areas of Professional and Technical. So we would like to mix heavier into that. You've heard us talk about that. That's part of the strategic plan. So that's one reason I think you see a lower reported growth in temporary staffing among the larger firms. It's a smaller mix in the more specialized PT areas. I also think that there are areas enjoying right now growth in the use of temporary employment that aren't well-represented in the larger traditional staffing firms. In particular hospitality is not a zone of strength. Some of the agriculture-related area is not a zone of strength for the larger staffing firms. But I'm not seeing a gap this size between the BLS numbers and the performance of the larger U.S. staffing firms like it is today. That's a large difference in the growth. And I think it's more of the mix issue, as you were talking about, in terms of what types of temporary employment are growing. Because it's clearly not in the mid to lower ranks of PT and Commercial staffing and so on, that's not growing. That those areas just aren't growing anywhere near the velocity that you're seeing in the BLS numbers.

Right. And maybe a comment on -- do you have a -- maybe you commented on it already, but sort of an organic growth rate for APAC, excluding some of the exits that you've taken place already?

We did not have that in the deck. But basically flat.

Okay. And when do you lap all of the -- all of those issues?

Q3? Yes, A lot of it was in Q3, so I'd push it on into Q1 because we continued some in Q4. So you get to the cleanest number in Q1 of next year.

[Operator Instructions] We do have a follow-up from Tobey Sommer with SunTrust.

Patricia, could you refresh us on how the mechanics of an opportunity credit being passed after the election would impact financials in '12?

Yes. So if you -- so first of all, if they don't pass an extenders bill in our fiscal year, which goes all the way up to the president signing it, then we won't book anything this year. If they were to pass, including the president signing, and it was retroactive, which is kind of the best guess as the way they've done it in the past, we would book the entire benefit for the full year's credit in the fourth quarter. If they were to pass a bill in the first quarter, right in the first few days of 2013, that was retroactive all the way back to January of 2012, and presumably at 2013, we would book in the first quarter, the first quarter's 2013 work opportunity credit, as well as the entire 2012 benefit from the work opportunity credits. So there are about 4 different permutations you can work out there. But basically, it goes down to when the bill is signed.

Do you have an expectation for cash flow in '12 and CapEx?

Yes. We haven't set a cash flow number, but our CapEx is about $20 million to $25 million, higher than it's been in the last 2 years because we're investing in some long-deferred IT infrastructure projects, which by the way, are going extremely well. So I'm very comfortable, that will be at or within our range for CapEx.

And then Carl, last question for you. Kelly entered -- or I should say, exited the recession in a nice competitive position in OCG. And we have heard from other firms that they're targeting that area as well. So I was just wondering if you could just update us on where you think -- how Kelly is situated, even the marketplace, to differentiate itself and compete for our business in that area?

There's a lot more competitors now than there were -- then there was a year ago. And we're still winning, I believe. More than our statistical share of contracts, the growth rate is still high and the contract wins are still coming through. So in terms of the marketplace -- the marketplace is we're very competitive. But you're right, Tobey, more competitors now than there have been. And I suspect that as long as we are putting numbers up, showing 25% growth and increases in profits, it will draw in even more competitors.

We will now go to the line Josh Vogel with Sidoti & Company.

A lot of your competitors talk about their large strategic or national accounts. And I was just curious, what percent of your revenue comes from these types of accounts? And could you maybe talk about the demand environment with these clients across the various regions?

I don't know that. We've put out a number lately, and I'd like to have a better, more precise number. So I get that. But it's a significant part of the business. We always note that we don't have a single customer accounting for more than 6% of our sales, more than 5% of the sales. So not overly dependent upon any 1 single account. The demand inside the large company space is intense for OCG services, fairly strong for upper and Professional and Technical and pretty -- and then negative year-over-year for inside Commercial services, kind of reflecting Kelly's overall results. But the larger companies are very outsized consumers of the OCG services and now are particularly important to us as we drive that business.

Okay. And Patricia, I'm sorry, I missed it. But can you just reiterate the comments you have for Q3 regarding revenue gross margin and SG&A?

Yes, I'd be happy to. Basically, we said that we now expect revenue to be down year-over-year. SG&A, we think it will continue to be up year-over-year but pretty flat sequentially. SG&A, small increases, low single digits, reflecting the kind of merit and comp increases you'd expect to offset by efficiencies. And the tax rate will be much higher.

Right. Much higher on a year-over-year basis?

Yes, much higher on a year-over-year basis.

And there are no further questions in queue at this time. Please continue.

Did you have another question?

No, there are no further questions in the queue. Please continue.

Okay. Well, in that case, thank you, everyone, for joining us on the call. Looking forward to further conversations with you all. Goodbye and talk to you soon.

Thank you. And ladies and gentlemen, this conference will be available for replay after 11:00 a.m. today until September 8, 2012, at midnight. You may access the AT&T executive playback service at any time by dialing 1 (800) 475-6701 using the access code 232001. International participants may dial using 1 (320) 365-3844 using the access code 232001. That does conclude our conference for today. Thank you again for your participation and for using AT&T executive teleconference service. You may now disconnect.