Lionbridge Technologies' CEO Discusses Q3 2013 Results - Earnings Call Transcript

Lionbridge Technologies, Inc. (NASDAQ:LIOX)

Q3 2013 Earnings Call

October 31, 2013 9:00 AM ET

Executives

Sara Buda – VP, IR and Corporate Development

Rory Cowan – Chairman and CEO

Donald Muir – CFO

Analysts

Ben Rose – Battleroad Research Ltd

George Sutton – Craig Hallum

Vincent Colicchio – Noble Financial

Kevin Liu – B. Riley & Co.

Operator

Welcome and thank you all for standing by. I would like to remind the participants on today’s call your lines will be on a listen-only mode until the question-and-answer session. (Operator Instructions) Today’s conference call is being recorded. If anyone has objections, you please disconnect.

And I will be turning the conference call over now to your first speaker for today, Sara Buda. You may begin.

Sara Buda

Hello, thank you. Welcome everybody to the Lionbridge Investor Call to discuss financial results for the third quarter of 2013. During this call, we may make certain statements that may be considered forward-looking statements under federal securities laws and which involve risks and uncertainties. Our actual future results may differ significantly from the matters discussed in any forward-looking statements. We have disclosed in greater detail in our Form 10-K filed with the Securities and Exchange Commission on March 15, 2013 the factors that may cause such differences.

And now I will turn the call over to Lionbridge Chairman and CEO, Rory Cowan.

Rory Cowan

Great. Thank you, Sara and hello from the City of Champions that was quite a game last night. And today, I think I will also talk about our positive Q3 results, and it’s clearly one of our strongest quarters we have ever reported. I want to talk about the positive trends driving underlying momentum in the business and then Don of course will put a finer point on the numbers and talk about our increasingly positive outlook for Q4 and give you window into 2014. It feels as if we have really the right strategy, the right team and the right model really to execute on some of the growth opportunities ahead of us.

So let’s start with a quick overview of the quarter. Our revenue for the quarter was about $125 million or $124.6 million well ahead of expectations once again. This marks an 11% increase or $12.6 million from last year. It’s also the first Q3 in our history that revenue has been up sequentially from Q2, first Q3 in our history that revenue has been up sequentially from Q2 and Q4 is looking increasingly firm as well. So we are delivering a strong second half. And I will discuss the positive trends behind this revenue momentum shortly.

Margins were also strong in the quarter. Our gross margin was over 33%, an increase of 130 basis points year-over-year and 160 basis points sequentially. And as you know, how our model works here, revenue drives increased gross margin. These increases were driven by work mix and by volume in our GLC translation and marketing services business. You are starting to see that conversion to profit with revenue growth as we transformed our core translation business into more of a marketing services business. And the model seems to be working. That’s why we are so encouraged by the solid revenue trends that we are seeing across all offerings, verticals and end markets.

So operating profit ex-restructuring also improved last year with growth of about $2.5 million and that’s even after about $1 million of non-recurring items in G&A this quarter. As expected, we did initiate some restructuring in the quarter with expenses about $1.3 million and this restructuring will continue in Q4 as we align our cost structure. We delivered GAAP earnings of about $5 million or $0.08 within the quarter. Non-GAAP adjusted earnings of about $9 million or $0.14 within the quarter. We also delivered record cash flow from operations of about $17 million, $17 million cash flow from operations this quarter. So in all fronts, Q3 was a good quarter, delivered good GAAP earnings and cash flows and our outlooks feels strong.

So let’s talk a little bit about our growth strategy here. We are driving growth across all of our businesses. The strategy is really pretty straightforward as you know new offerings and new markets. We are applying new strategy to do three things. We are increasing our share of wallet or the land and expand idea in large accounts derived at new businesses and opened some new sales channels.

Let’s talk about each of those. First, our large accounts, our top clients are growing very, very nicely. Microsoft, Google, Rolls-Royce are all up year-on-year and sequentially. In each case, I think we are executing better and I also think that our new offerings are resonating with these new customers vary very well, in particular, our largest plan is indicative of the overall transformation of client reach. For example, in the past 18 months, we have taken the core product translation skills, applied these to new offerings for new buyers in their marketing departments.

So here is an example of what this means. For our recent project, our teams launched $249 million global e-mails, delivered 916 localized videos, created 4,000 images published almost 8,000 web pages, certified over 100,000 app store – apps for their app stores and completed over 6,000 hours of in-market testing. Most importantly, with all this activity, there were about $15 million more to translate. So this global marketing services with language at its core. So we are seeing – we are embedding translation a feature of a much, much larger outsourced offering. And I should mention with this activity was just for a point release update, not a major product launch. And we do hundreds of these programs for this client each year, so these successes are indicative of the underlying transformation of Lionbridge. And we are also bringing new offerings to new buyers within these customers who are a global scale. And this intersection of code and content, we understand the engineering and we understand translation. These skills give us a clear competitive advantage.

Going forward we will replicate the success across other major accounts. I have made some organization changes to facilitate this as we announced during the quarter and moving one of our senior leaders to focus solely on accelerating our large strategic accounts. We have recently brought in a new GM, Senior VP of Operations Rich Tobin. And he has a deep background in digital marketing services, which will service well as we continue to expand our skills in this fast growing market. So I feel as if we have the right leadership structure to accelerate the growth even further in ‘14.

So the second part of our strategy, some new businesses. Our investments in new offerings are really paying off. Our GMO offering which we launched two years ago is driving new businesses across end markets from manufacturing to luxury retail to travel and hospitality. And as we look at all of our services sold to the marketing buyer, it’s now about $75 million of our business. So in addition to the GMO revenue stream, that offering is also driving more revenue from our traditional marketing translation services as well. So we expect this growth in marketing services to continue in ‘14 as well.

So we are also seeing new business from our crowd offering. So as a reminder, this is our business process crowd sourcing offering that’s targeting the financial services and information services market. And we will really begin to see this one ripen in ‘14. Here we are taking the global crowd management skills we developed for the translation and testing business and applying this capability to other applications such as data enhancement or enrichment. We have established a strong – we have secured several pilot programs with new clients and expect to convert these into contracts. We have established a strong pipeline and we will ramp this in ‘14 as I have said, so the strategy of bringing new offerings to end markets really feels pretty good.

Finally, let me talk about the third part of our growth strategy, new channels. As you know Lionbridge has a successful enterprise sales force that sells highly customized service offerings to large global accounts. We are now complementing this model with a new web based sales channel for productized service offerings. This is where our new Lion on demand site comes in. Line on demand is an online model for us to market, sell and deliver packaged point solutions around certain content types. It could be a video with global – with international subtitling, an e-mail campaign, an e-learning demo or an SEO campaign. Think of on demand is a way for us to capture globally distributed spend from global brands, but they get to leverage the data and the product names across their entire enterprise worldwide and across each of the functions.

So if a department has a target – if a department or a team has an immediate short-term need for translation, it’s essentially a drag-and-drop model you put – deposit the content onto the website and anywhere from 3 days to 5 days all are online, they will get it – they will receive it, translate it into the appropriate – translated and tested into appropriate languages that they have requested.

We launched on demand about four months ago and we are seeing significant traction adding about two to three clients a week. So this is another channel that will complement existing enterprise sales force and drive additional revenue streams for all of our offerings from GMO, to GeoFluent to traditional translation. So think about this we decided to take some of our own medicine and use digital marketing to augment or even replace the enterprise sales force in the B2B space.

In sum, Q3 marks another strong quarter. Our strategy of bringing new offerings to new markets is working. We are growing our large accounts. We are driving new business. We are opening new channels. At the same time we are growing margins, expanding profitability and generating record cash flows. As we look forward to 2014 I really think we are beginning to hit an inflection point that we are moving from this point solution translation company to a globalization services company with integrated global crowd-in-the-cloud solutions. So it feels as if the right strategy, the right team and the right model are in place. So Don I will turn it over to you to put a finer point on the numbers.

Donald Muir

Thanks Rory and hello everyone. Today I am going to walk through a very strong Q3 results and some of the positive trends driving our revenue and profit. I will also provide an outlook for Q4 and our expectations for a strong 2014. Let me begin with an overview of Q3. In the third quarter we delivered revenue of $124.6 million, exceeding the high end of our previous revenue guidance. That marks 11% or $12.6 million of year-on-year growth. And as Rory mentioned this is the first Q3 in our history that we have grown sequentially from Q2. So I am pleased with the solid execution by our sales teams.

Our GLC language and marketing segment improved about $6 million year-on-year with strong performance from our large accounts and revenue from our GMO offerings. Our global testing GDT segment grew about $7 million from last year, interpretations is about flat. Overall, we are delighted to see the revenue strength across our major segments and the momentum seems to be continuing.

Total company gross margins were 33.3%, an improvement of 130 basis points from last year and 160 basis points from last quarter. This is the highest gross margin we have seen in several years largely due to strong revenue volume in our GLC translation and marketing segment. In fact GLC margins were 35.8% in the quarter. The strongest gross margin I am seeing from that business since I joined the company about six years ago. Gross margins in our GDT testing segment were 30.2% and interpretations gross margins came in at 15.3%. With these strong margin trends particularly in GLC, we converted about 45% of incremental revenue to gross margin profit year-on-year.

Looking at operating expenses, sales and marketing was up about $800,000 year-on-year as we invest in growing the business that was in line with revenue growth. G&A grew about $1.6 million from last year. And this quarter did include some non-recurring items, so I would expect G&A to come down a bit in Q4 returning to that kind of $19.5 million to $20 million range we have seen in the past quarters. As expected we incurred about $1.4 million in restructuring expense during the quarter as we continue to reduce our expenses in high class locations. I would expect to see about another $1 million of restructuring in Q4 and as Rory said we might have a bit more in 2014. So for modeling purposes for next year, it will be prudent to expect plus or minus $500,000 a quarter as we continually look at ways to streamline our operations. And I am sure that our new SVP of Operations will also weigh in on his plans the cost reductions as we head into 2014.

Moving down to income statement, our other expense category was only $66,000 this quarter despite the currency volatility in the quarter. Year-to-date we have seen about $1 million of expense in that line, so it seems reasonable to model about $300,000 a quarter for the other expense line going forward as global currencies will always have some ups and downs.

Our tax provision was about $1.3 million in the quarter, a bit higher than expected in dollar terms due to a high level of profitability, but still only 20% of pretax income for the quarter. So 2014, it seems that we can expect a tax provision in the mid-20s range as a percentage to pretax income. On a GAAP basis, we reported record net income of $5 million or $0.08 per share again well above the expectations. Adjusted earnings were $0.14 per share in the quarter. So across all measures Q3 was a terrific quarter for both revenue and earnings. We also improved our balance sheet this quarter with our focus on working capital as DSOs improved to 51 days which is down about four days sequentially. Combined with a high level of third quarter profitability, we generated record quarterly cash flow from operations of $17.4 million. This drove a $15 million sequential increase in cash to $32 million for the quarter.

Capital spending was about $2.3 million in the quarter and debt remained flat at $26.7 million. So we ended the quarter with $5 million net cash positive. We spent about $830,000 on stock buyback in the quarter bringing our total share repurchases to almost $5 million year-to-date. In early October, we completed a small tuck-in acquisition of E5 Systems, a private U.S. based company that had strong delivery operations in Jinan, China. E5 brings us two benefits; one, about $4 million of annualized revenue with some large recurring clients in the hospitality sector; and two, a third delivery center in China in a lower cost location than our current facilities in Beijing. This will be a nice complement to our China operations and it will allow us to meet growing demand for China based delivery while reducing our total costs, so it’s a win-win for everyone. So we are pleased to have the E5 teams joining Lionbridge. We have a very strong balance sheet and we are generating record cash flows. And as you saw from the press release, we also renewed our bank lines. This gives us added financial flexibility with favorable terms. Going forward, our priority for uses of cash include continue funding investments in the business, execute share repurchases and continue to focus on small strategic acquisitions that give us access to new skills and greater scale in certain growth areas.

Let me wrap up by talking a bit about our outlook for the fourth quarter. For Q4, we are estimating revenue of between $120 million and $123 million marking a bit more firmness than our last call. So we are having a strong second half with revenue growth returning to the high single-digits. As you look ahead to 2014, we expect revenue growth of between 5% and 10%, full year gross margin improvement of at least 50 basis points year-on-year. And as we work to keep our G&A expenses relatively flat in dollar terms, you see significant growth in operating profits. So you can see the leverage in our model is continuing to show through.

In summary, I am pleased with that business momentum. Q2 was a good quarter followed by Q3, which I categorize as a great quarter. When we began the year, we committed to driving revenue growth, improving margins through cost reduction and buying back stock. I am pleased with that progress in all three areas year-to-date and we are driving record earnings in cash flows.

So Rory, back to you.

Rory Cowan

Great, thanks John. I don’t need to repeat the numbers. Again, it was a pretty good quarter, but I would just like to say that you know these services businesses really are a little bit like a retail or a hospitality business, where you have to do a lot of little things right. And when it all comes together, it works very well. It takes a lot to get all those things aligned. And I’d like to take a moment really thank I know I can see from the screen here a lot of our leaders from around the world, around this call I would like to thank them for a great quarter before I open the call up to questions. So questions?

Sara Buda

Operator, you can open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Ben Rose (Battleroad Research Ltd). Sir, your line is open.

Ben Rose – Battleroad Research Ltd

Good morning. I want to first congratulate you on the timing of your conference call on the heels of the Red Sox victory last night, so that was great choice. Couple of questions. Could you, Rory, discuss the significance of the Microsoft acquisition of Nokia specifically has this opened up some new opportunities?

Rory Cowan

Yes, that’s a great question. Just to remind everybody that Nokia is a large account of ours as is Microsoft. We have a very deep relationship with Nokia. Our anticipation having been through acquisitions before is it the Microsoft team will integrate this into their overall global platform. We have a very strong relationship in global device testing. And as Microsoft moves into more devices, I can expect that we will be able to share some of that Nokia knowledge with the core Microsoft device teams that we perhaps haven’t had a close traction as we thought. I think that’s point one. Point two is we will have to see where that shifts in terms of decision-making whether they maintain field offices or not, but I think that we are feeling very, very comfortable with our Nokia relationship and we don’t expect much change. As you know, over the past four or five years, our Nokia relationship has shrunk considerably as their product portfolio has been trimmed, but it feels as if Nokia has bottomed with us now.

Ben Rose – Battleroad Research Ltd

Okay. And then on the GMO offering, would you say at this point that the sort of the industry vertical adoption of the product maps, your traditional business or is it being embraced by some newer industries disproportionately?

Rory Cowan

Yes, I think that’s a great end market question, because clearly in my chair, you worry about adjacencies. You want to make one move at a time, a new offering to existing markets or existing offerings to new markets. If you bring new offerings to new markets, it’s a little bit more difficult, which is what we are doing with some of our crowd activities, but where our largest drive down has been with our traditional tech appliance is although we are getting a lot of traction in high-end retail and hospitality as well. So we are beginning to effective ‘14 I think our general sales force will begin to embrace this offering and also embrace the new set of buyers, because we are selling to the front of the house, the marketing BPs, not the back of the house the product development people.

Ben Rose – Battleroad Research Ltd

Okay, thanks very much.

Operator

Thank you. Our next question comes from George Sutton (Craig Hallum). Your line is open.

George Sutton – Craig Hallum

Thank you. As a lifelong St. Louis Cardinal fan, I apologize if my tone is not very cheery this morning, but congratulations on your numbers nonetheless. So Rory, typically this is a seasonally slow quarter. And if we were just to simplify the message and explain why the results were so strong in a seasonally slow quarter the answer would be what?

Rory Cowan

I think the answer would be first, a greater execution among our large clients. Our new portfolio of offerings is really being taken down by the clients that we have the deepest relationships with.

George Sutton – Craig Hallum

Okay, got it. Now, relative to the broadening of the services, can you give us a little picture of the relationship you would have with one of these larger customers in terms of who the actual buyer is at the organization that you are targeting and how that might be changing?

Rory Cowan

Yes. So think about, let’s just talk about our largest customer, Microsoft, that’s an easy one. We probably touch them in 20 some countries across all of there, I think there are now six sort of lines of business, I have forgotten if it’s five or six or seven, because it sort of shuffles a little bit. And within that group, we are touching product people, we are touching marketing people, we are touching – there are sort of corporate services people. And so we touched three buyers within every vertical in many countries. So it’s a very deep and broad relationship in a tech company. Now if you wanted to go to a retailer or a large coffee chain or someone, there you are going directly into marketing as people are controlling their global marketing message, because remember now the language is now available in the cloud through someone like Lionbridge, you can run global marketing locations from – global market programs from one location, you don’t need it in seven or eight countries. So you don’t replicate that around the world, you can release that product worldwide or that offering worldwide from one location. So that’s the marketing group that we deal with.

George Sutton – Craig Hallum

Okay, perfect. And then lastly with the very strong cash flow this quarter, I am curious how that might alter your perspective on M&A and/or share buyback programs?

Rory Cowan

Yes, I think we will just continue to stand the market the way we have. I think that I have got a little bit more confidence now, a little bit more room to – I have got some room in this income statement here. I am feeling as if I can – I’d be a little more aggressive on some small tuck-in acquisitions and you might see those everywhere from the GMO or digital marketing services part of the world or to reinforce some of our verticals at our vertical end markets and other life sciences or manufacturing. So would I like to pick up the pace on some of these? Yes, I do want to be sure that everyone understands. I don’t do rollups. We’ll buy a few companies. We will integrate them and make certain they are functioning. This is not a goal to just buy a lot of companies in the year to put numbers on the top line, because those often don’t end well. So these are strategic tuck-in acquisitions. This is not just buying a bunch of companies.

George Sutton – Craig Hallum

Alright, thanks for the perspective.

Operator

Thank you. Our next question comes from Vincent Colicchio (Noble Financial). Your line is open.

Vincent Colicchio – Noble Financial

Yes, good morning, nice quarter Rory. And as a Yankee fan, you know how that goes. So you said you had strength across service line client end market as far as top 10, could you give us a little bit more color where two or three clients you said you are getting deeper in a lot of clients driving most of the growth or was it really broad across all of them?

Rory Cowan

Yes, I think it was really as I said I am going to speak here, two, three, four, five of our top 10 clients are really up versus prior year year-on-year comparisons. And so while there was certainly a center of gravity on a couple of the big ones, but there is firmness really across the top 10. And also sequentially as well, I think it looks like eight of the top 10 were up sequentially. So both year-on-year and sequentially there seems to be firmness among our large clients.

Vincent Colicchio – Noble Financial

And in terms of your crowd sourcing strategy, could you give us a sense for where you are seeing the most traction, I know you have talked about it before, but maybe the example of what you are doing would be helpful?

Rory Cowan

Yes, now think about our crowd sourcing, we manage a crowd of translators. So we learned how to manage thousands of people in a hundred countries for micro transactions. We then took that skill and managed a crowd of testing, search relevance testing for the search industry. Now, we are taking that skill and applying that to the data services industry. And so you can see where someone has a global database that they need to maintain or they need to enhance as often a multi-lingual component of that. So it’s not very appropriate as many are trying to do now is offshoring this to Indian providers in a traditional offshore model, but you might have five or six or seven different languages in that. And that’s very hard to do offshore first.

Second, when you do it offshore, it’s a fixed expense component, not a variable expense component as we know in these developing nations. Even though you have low wages, infrastructure costs are increasing quite rapidly, real estate, tax, leadership and other issues. So this is a more flexible economic model. So skills and flexibility for crowd for global databases and this might be everything from people look trying to build databases of officers and directors of private companies around the world or maintaining press releases or financial releases for international companies didn’t have a language component and need a real-time component. So we are working closely with two or three or four information services providers for this model. And it’s really we are at that visionary customer stage, where we are shoulder is shoulder trying to prove this new model, rather than head-to-head with a bit.

Vincent Colicchio – Noble Financial

And I am hearing, there is a bit more of a pulse out of Europe not much more, but a bit more from other companies?

Rory Cowan

Yes, it seems to be our European stuff is really pretty general. I think that we have seen a bit of a pause in Germany. We have seen some strength in the UK, which is nice to see and those are also reflective customer sets as well. So it’s too early to call a trend for all of Europe, but it’s a little better than it was two quarters ago. And I don’t know and listen I can’t say is that demand or is it just the – I am just a little more vocal and we have got better execution, I can’t disaggregate that for you.

Vincent Colicchio – Noble Financial

Okay, thanks. Nice quarter.

Rory Cowan

Thanks.

Operator

Thank you. Our next question comes from Kevin Liu (B. Riley & Co.). Your line is open.

Kevin Liu – B. Riley & Co.

Hi, good morning. So certainly great news on kind of your large accounts there, given some of the product announcements we have seen out of the major tech-focused vendors, I realize it’s not reflected in your guidance at all, but what gives you the confidence that there isn’t some sort of pocket of weakness that comes, that would follow some of these major product announcements?

Rory Cowan

Yes. So your question is the pig in the python question. I mean is this – if we have this – if we are release-driven as we are with a lot of our work that in fact this isn’t just above all and then things are going to settle down. I think as you move toward significant amount of our business from the front of the house, many of these campaigns have longer – have demand tails if you will that begin after the product is released. And so I think that’s – as you know this is something I have been trying to do here is to smooth out the sort of sign wave cycles around the product release, the episodic product release world. And I think we are making some progress there. I mean, as you see we felt some firmness here. We didn’t say that Q4 was going to blow the doors off of Q3 and go sequentially up. We said it was firmness. So I think our expectations feel pretty realistic.

Kevin Liu – B. Riley & Co.

Got it. And I thought I heard you say GMO was up at a $75 million revenue rate, just wanted to clarify if that was indeed the case? And that’s certainly a much bigger number than we have heard in the past, so I wanted to get a sense for where the new business is coming from?

Rory Cowan

Right, got it now. GMO itself, that core operating is about $30 million, but all things driven from the marketing group, the front of the house that I talked about is more like $75 million. So that accounts, that’s right on the heels of your prior question that accounts for little bit more of a stability of the revenue, because we are moving toward marketing buyers that have annual budgets rather than just product people that have release budgets. So you are beginning to get a picture of our underlying revenue demand here.

Kevin Liu – B. Riley & Co.

Got it. And then just one last one on the on-demand translation business, what’s your sense as to how big that could get say in the next year or so? And what sort of impact does that have on your gross margin line?

Rory Cowan

Yes, this is still – I mean at the experimental phase, right. I want to be clear, but should it be in the many millions next year, yes. What we are surprised by the amount of what I will call spend leakage that there is in enterprises around our offerings. Most companies have a shared service where that we call on for the product side or they have a CMO, a marketing office for the marketing side. What we are finding there is so much ancillary demand throughout the organization. And all this has been going to local suppliers the small fragmented players. By taking this to a single website, procurement can then authorize this. We then leverage all their previously translated material in terms of product names, approved phrases, positioning across all items now and at the simple drag and drop with either credit card payments or corporate purchasing cards. So it’s really just I don’t want to say it’s the Vistaprint of translation, but that maybe the way to think about aggregating small orders in a large enterprise. So how large can this be? Well, now the translation industry itself is in the many billions, some say it’s about 10 billion. Is this leakage piece of it a third of that? Perhaps, so I don’t think there is any limit right now. It’s going to be execution, because the back end of the support has to be highly automated and we are using some advanced technologies and workflow we have developed and also automated translation techniques to make it very productive both in terms of term time and terms of cost. Gross margins are higher than our traditional gross margin.

Kevin Liu – B. Riley & Co.

Great, thanks and congrats on a great quarter.

Rory Cowan

Thanks.

Operator

Thank you. Our next question comes from (John Evans). Your line is open.

Unidentified Analyst

Can you help us understand your thought process, you gave us the sense of the gross margin for next year, but if you are successful at driving revenue growth, how do you think about kind of incremental margins next year and where do you think you can drive op margins over time, not next quarter etcetera, but if you continue to be successful at driving revenue growth?

Rory Cowan

Yes, I think that’s something that we have been working on here for a couple of years, John. Just to remind everybody on the call, our cost of goods sold line really has two components to it. It has a relatively fixed component, which are all of our program and project managers and that doesn’t change very much according to the size of the project and program that they are managing. Then there is the variable component, which are the words or the tasks we buy from our crowds. So as more volume comes in, our value-added revenues stays constant at about the, I don’t know, 60% or 70% somewhere in that range depending upon offering, but the gross margin is in the low 30s moving to mid-30s target over a couple of years as volume begins to increase. And so that’s how we think about it now. And that’s why Don in his script has mentioned, controlling our G&A, because we are getting more efficient in our G&A model here. And so the incremental revenue should convert to the bottom line at a much higher percentage than in a traditional manufacturing or a traditional services company just because of the underlying nature of our cost of goods sold economics.

Unidentified Analyst

Okay. So are you willing to put any kind of numbers to that or the incrementals what you think the flow-through could be?

Rory Cowan

Yes, we have been doing – we have been saying sort of 50 basis points a year just to give us some room to roam here. And if it gets any better than that, we will let you know.

Unidentified Analyst

Okay, thank you.

Operator

Thank you. At this time, I am showing no further questions. (Operator Instructions)

Rory Cowan

Listen, thanks everybody. And as always, if you have any questions, please contact Sara Buda and she will know where to track down Don or me for further details if you need it. Thanks for joining us the morning after a late baseball game.

Operator

Thank you. That does conclude today’s conference. You may all disconnect at this time.

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