Omnicom Group Inc. (OMC) Q1 2008 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and welcome to the Omnicom First Quarter 2008 Earnings Release Conference Call. At this time, all participants are in 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've posted to our website both, the press release and our 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'll 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 the 2008 and for the Group across all of our regions. As Randy has just mentioned, we'll take you through all the details in just a couple of minutes. But there is just a couple of areas that I'd like to highlight. Our revenue growth in the first quarter was very strong in the U.S. and is also supported by the strong growth in Europe, as well as Asia and South America. During the fourth quarter call, I mentioned that growth in U.K and France did slow a bit. However, as I expected this wasn't the trend as the two regions performed well, two countries perform well during the quarter. This quarter, we didn't see any unexpected shifts in client spending patterns. Our revenue growth continues to be strong in all of our markets and disciplines expect for recruitment advertising and the small Yellow Page advertising business that we own. We believe that we're well positioned for the remainder of 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've not seen any significant reductions in clients spending... clients spending and non-U.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've 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 are starting to see pricing, although I believe this will still take a little longer to come more inline with our historic expectations and that should create additional opportunities for the company. Switching to net new business, Randy will cover in a lot more detail, but our net new business wins for the quarter just about $1.2 billion and we will continue to see that back again after the hick-up in the fourth quarter of last year. With this, I will turn it back to Randy and then we'll both be available to answer your questions later on.

Thank you. As John noted, we're very pleased with the strong performance of our agencies and while it's only the first quarter of year, we believe we are up 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 incentives were in line with our expectations in prior, with the exception of severance costs which was somewhat higher due primarily to our desire to make sure 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 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 in the 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 BBDO's affiliates in Australia and the Middle East. Both are well managed agency groups that perform 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. Analyzed in our revenue performance, FX in the quarter was positive 5.1%, adding a $145.6 million to our revenue. Growth from acquisitions net of divestitures added about $28 million to revenue in the quarter were about 1%. And organic growth continue 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 year with net wins totaling $1.2 billion. As far as 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 and services 11.7%. Within marketing services, COM continue 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 rate 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 by $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 a $103 million to our revenue. The international side revenue increased $237.5 million, or 18.3%. FX was very strong adding a $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 U.K and France which had been weak in the fourth quarter of the last year, showed strong improvement. Cash flow for the year was strong and consistent with our historical 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 totaled $285.2 million. Our primary uses of cash were dividends which were $49.1 million in the quarter, CapEx 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 autumn option exercises and stock sold under our 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 a decline in our net interest expense over the last the 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 $0.5 billion. And with that, now I'll ask the operator to open up the call for questions. Question And Answer

Thank you. [Operator Instructions]. And our first question comes from the line of Troy Mastin with William Blair & Company. Please go ahead sir. Troy Mastin - William Blair & Company: Good morning. Thank you. There has been bit of a slowdown that seems in new business activity lately, like pitch level was down. I am curious if there is anything in this that you would note it's worth of being concerned about, or may be it's a positive sign or anything else that might be driving it.

I think you have seen pitch level of big accounts whose names are household names. You've seen that activities slow across the board, I think in the first quarter. Although, I might say that we announced on Friday that we have just picked up a significant part of the HP's business which was conducted without a review. So there is activity going on, but I could see that 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 the world and I am not sure that that activity is really what generates the significant gains quarter-after-quarter that we do report, result in revenues if you look out few past back. So... but I would agree with 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 don't have the luxury of going through that, the very lengthy process that most of business activity takes for these big accounts. It will come back. Troy Mastin - William Blair & Company: Does that mean we might see more of wins, like the HP win where there is no review or?

we have never been able... we don't go out and solicit per se as much as we participate when clients make the decision to make a change. So there is always a constant amount of activity going on. There is no way to easily predict when accounts move. Troy Mastin - William Blair & Company: And the underlying smaller wins within the DOS and marking services sides of the business that continues at fairly consistent level?

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

Also from a diversity standpoint that is an extremely large number of small wins, happening or relatively small wins happening all over the world. We have a couple of thousand agencies that are out looking for new business and winning new business all the time. Troy Mastin - William Blair & Company: It might be hard to answer this, but have you seen any change in the nature of those wins that you've seen of the smaller accounts, or the smaller wins in terms of geography or business mix?

No, I wouldn't say. It's a very constant machine as Randy refers to it. And there hasn't been any real, significant shifts or changes in it. Troy Mastin - William Blair & Company: 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 record levels in 2008. I want to make sure that 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 kind of flexibility you have soaked into this model, in the event that things were to slowdown a bit.

I don't 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 and we continue to spread that to the Asian markets and to some other markets which didn't have specific focus in the past. So that continues at a very strong pace. And odd times what we do when we invest a lot of money in this, is we look it at market opportunities and if our... if in our opinion buying something was it might because medically okay today. We pass on our things that we believe are overpriced. And if we are interested in the area what we've tended to do is invest and people and talent which ones to our P&L, which provides our entry into those businesses and allows us to prepare for a future growth in those areas. We'd say we are very comfortable with that strategy, because as Randy mentioned, the leverage in our company is being kept on a very, very conservative basis, compared to many others in the industry and we haven't overspent in hope of the market developing. We've invested in the individuals needed to grow those over a longer more consistent period of time.

And those investments is... unlike to say manufacturing operations that you will be going out building, you know 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. Troy Mastin - William Blair & Company: Okay I will let someone else.

Thanks Troy.

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

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

There is 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 with that the timing of cash flows. The second quarter is the quarter that we pay out our cash balances, 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 is always a little bit of seasonality. We obviously think our stock is undervalued, but our first preference would be to make acquisitions. We have always pointed out people, we take our cash, we pay our dividend, we have some CapEx. Our first priority would be to make good solid acquisitions on the basis that we do them; to the extent those acquisitions aren't available. We take our cash and we buy in stock.

Okay great, thanks.

Thank you.

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

Yes good morning. Do you mind just elaborating a little bit further where you say you are not seeing any significant slowdown in the revenue trends of your various clients. I mean just given the economic environment U.S and on the world, do you mind sharing with us what's in the commentary generally from your customers, why they are not slowing down in this sort of environment?

Well to the most part it's an industry-by-industry valuation. 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 over exposed 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 margins concerns which they are addressing themselves to. But there are not abandoning and they have learned this from prior recessions, the opportunity to continue to growth their top lines and expand their market share during periods of uncertainty and that's how I characterize the period we are currently in. We also have very good mix of business. So we have some clients shift the focus of their marketing maybe from long-term brand oriented activities to sell-oriented activities. While maybe the specific message or the tone may change, we benefit from those shifts as well. And we're not suggesting we are immune from what's going on. It's just that we are reporting that we haven't seeing the shifts yet.

So, when you sort of think out your visibility for the remainder of the year. I mean, how many months out you lookout here and feel pretty confidently with the revenues that are coming at based on the projects that are already slated to go.

I think if you look at... our organic growth is 6.4%, within a couple of percentage points to 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 as company-by-company and market-by-market to see if trends are developing or if movements are more clients-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 have said this many times in the past as well, our business is very predictable. You start the year with may be, 90 a little bit over 90% of our business is very well known, going in t the year, which frankly is very comforting. On the same token, it seems sometimes they are plus or minus 100 basis points low, while we don't think that should be viewed as material sometimes others do so. At one level 90% is great and than another level, if you think plus or minus 1% is really important... and 10% we don't know where it's coming from when the year starts.

So then 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 ensure that we have high quality capabilities in all of the areas that our clients want services.

It sounds like from your earlier comments that your investment spending... people who are working in your company, you planned to do that for the remainder of the year here, just a bit long term viability of your company, is that fair statement?

Yes, that's very fair. I mean 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 are continuing to do that. We do... if things shifted from what we see today, we do a flexibility on some of these areas. But that's not what is not included in part our expectations 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.

Welcome.

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

Good morning. Thank you for taking my call. I have 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 with following some of the protest we are seeing coming out here in the early relay, that will be all. Thank you.

I'll do the first one because our reporting is what it is. And I have... again we 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 revenue come in that way consistently. Over the last, say four or five years say at least, some of these definitions are not pure any more. 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 prospective, with lot of people, my view is digital marketing which if it was standalone digital agency those revenues would be coming through the CRM category. So there is giving some, I will say some, blending going on or blurring of these historic discipline collections. So I think that's probably. I will say confusing some of the numbers a little bit. I certainly, where we look at our, so call traditional agencies, the percentage of their revenue that's related to the internet is growing quite rapidly, and their business 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 will be inappropriate to discuss any specific clients. I mean everybody is a bit concern and we will see what happens. I think just from reading the newspaper, I don't have any more knowledge than you that people are increasingly decided that this is sporting event and not exactly the forum for political activity. So we will remain watching but, but everybody has specific plans related to the Olympic Games.

Okay. That's great, thank you.

Thank you

Next question comes from line of Karl Joe with Merrill Lynch. Please go ahead.

Hi, good morning. Randy you had 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 can continue in to the second quarter. And also picking up one what you said, have you actually seen a pretty big shift in client activity away from brand building towards more promotional-type activity. Or that so far has been more isolated. Thanks.

Let's see the first one. We have severance every quarter, every year, just the nature of the business, being a service company. The year-over-year increase in severance was really in sort of $3 million to $4 million range. Whether that carries on throughout the year, don't know wouldn't expect it. But we obviously work 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 certainly in 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 sort of the historic rule of thumb, that the clients do everything all the time and their mix or balance of spending moves around, or can move around. And the good news is with our balance of business, we likely pick-up revenues when that mix... when that shift happens or 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, remember over the last couple of years we've made a couple larger divestitures which have sort of muted the positive acquisition numbers. This quarter we didn't have that. So the acquisition revenue picked about 1%. I think absent a divestiture, we should be in sort of that 1%, 1.5 % range next quarter.

Great. Thank you.

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

Thanks you. Just couple of minor ones. Just similar to... just what you think about a FX in the second quarter and interest expense in the second quarter or may in the full year? Thank you.

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

Foreign exchange?

Yes.

And then second one is on interest expense, if you could give outlook about those. Thanks.

FX is probably 4% plus in Q2 and then based upon the way FX occurred last year, probably steps down 100 to 150 basis points a quarter, over the balance of the year absent, I will say further declines in the dollar. That's also based upon our last year's business mix. As far as interest rate go, I think Q2 should look, probably about like Q1 may be plus a couple of million dollars. Q2 is our larger cash outflows. We basically pay bonuses at the beginning of the second quarter that would probably reduce our cash balances. We also make most of our earn-out payments sometime in the second quarter. So again it would reduce our cash balances. So I was walking through that, I would guess a couple of million dollar 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 like consistently Omnicom is exceeding industry average growth rates. And I am wondering, can you help us understand what 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. Our objective for at least the last 15 years I mean certainly continues is to making sure that we change 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 revenue in subsidiaries and the company's that we own. But the actual way that clients get serviced and shifts and changes which occur have been fairly dramatic in terms moving from what we perceived to be traditional media uses or old media uses to a number these areas that you are talking about. And part of the strategy here is not only and I think we have very large portfolio of these companies not only having standalone experts in say online advertising and the whole digital environment. But at the same time, simultaneously populating with leaders our what are perceived to be traditional companies with people who are able to service clients in the same way, and to extend campaigns into in a very agnostic way into whatever media reaches the consumer. So, we don't get that refined in terms of what we are trying to capture through report on calls like this, because it's not part of our business object. Our business object is to again, make sure that we are appropriate, so we maintain share of wallet and to extend this kind of 360 holistic ability down into everyone of our units.

Andfrom a revenue standpoint. In each of these different disciplines there is different amount of labor required, or labor percentage as a percentage of the clients overall spending. And say the Internet, so labor involved in the specific levels of clients 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. 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 and the production et cetera is been done by our people. So, we capturing a larger percentage of the clients spend, obvious with laboring cost behind that as well.

So, if that's case and your are more of the campaign with kind of the newer type of CRM your services that OMC is performing is that not a higher margin associated with that type of work than with traditional advertising.

We haven't found that to be the case.

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

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

Okay. So just two quick follow-ups, then. So then could you speak a little then to the slight, just I mean just the slight decline in margins from what I was expecting. But, is that mostly 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 am just wondering what are thoughts on that approach. Thank you.

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

Great.

And in terms of the competitors, I think in addition to all this discussion of our P&L balance sheet sheets are very interesting as well in terms of the amount of leverage and the cost, we are getting some of these areas. We have elected to be able to service our clients throughout the full range of possibilities from immediate perspective and has not and we are more inclined to partner with people than to in our view spend, to buy companies at multiples that we are 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 have heavily invested in the last decade and consistently invested through this whole period of time.

One other 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... if you push our margins down now with the expectation and hope that it's going to drive organic growth, out in the future which is realistically 6 to 18 months out. Obviously, we are focused on continuously investing in our business and having that good strong organic growth on a consistent basis. If we adjust the strategy to more of an acquisition based growth strategy, we can drive margins, you know higher in the near term because basically, you're getting that growth off of the capitalized costs. We think 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, I mean it's... there going to be increasing opportunities which develop in the market places peoples expectations in terms of pricing for potential acquisitions come more inline with what I believe are historic realities and we've 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 these activates as necessary, where as I think all this might be a bit more constrained, as we go into the future, but we are waiting for the market place to come back our principles and our disciplines.

Great. Thank you.

Thank you. We are getting kind of late, so why don't we take one more call.

And our last question comes from the line of Troy Mastin with William Blair and Company. Please go ahead. Troy Mastin - William Blair & Company: Just a quick follow up. You have said or may be I have observed historically, you've mentioned 6.5% to 7% organic growth, plus or minus 1% seems like kind of a normalized run rate. I am curious in this environment given mix shift away from advertising the marketing services given the economic back drop if you feel any more or less comfortable with this kind of level or if you have any poor visibility to this kind of level?

Troy we are affected as all of our clients are. I mean you can't pick up a newspaper or turn on a TV show; it is not talking about the world coming to an end. We are not seeing it as I said earlier in shifts of 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 of the manager and the company and we'll continue to service our clients for whatever is appropriate and over the long run, I think that's a reasonable expectation. But if you are talking in terms of what's going to happen in the next several months, I'm not really prepared to do it, prepared to forecast that.

Yes, I am not quite sure, if that's what we have said. Historically, we've said... we think we can pretty consistently outperform nominal global nominal GDP by say 150 to 200 basis points, 250 basis points. So obviously with that economic factors...

Yes coming to play.

Yes coming to play, I think the 6.5 plus or minus 100 basis points was the statement we made, probably going into '07 based upon where we felt how the economy, et cetera felt. I think to be fair right now, we all watch the news as well. I don't know what the global economies are 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. Troy Mastin - William Blair & Company: Okay good. And then I just want to confirm HP falls into the second quarter and if there is any other notable activity you have seen so far in April?

It's early.

Just in second quarter.

It's early and it's only the second quarter. Troy Mastin - William Blair & Company: But it's a good start to the second quarter.

Our machine continues the machine part of it. Troy Mastin - William Blair & Company: Okay very good. Thanks and congratulations.

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.