Kelly Services Inc Q3 FY2023 Earnings Call

Good morning and welcome to Kelly Services Third Quarter Earnings Conference Call. All parties will be on listen-only until the question-and-answer portion of the presentation. Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. A webcast presentation is also available on Kelly's website for this morning's call. I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO. Please go ahead.

Thank you, Kailey. Hello everyone and welcome to Kelly's third quarter conference call. Before we begin, I'll walk you through our Safe Harbor language which can be found in our presentation materials. As a reminder, 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 these 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. In addition during the call certain data will be discussed on a reported and on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. Finally, the slide deck that we're using on today's call is available on our website. We have a lot to cover today so let's get started. Before we turn to Kelly's third quarter results, I'd like to cover our recent announcement regarding another transformative and bold step in our specialty growth journey. On November 2nd, Kelly entered into a definitive agreement to sell our European staffing business to GI Group for €100 million with €30 million of additional earn-out potential. Under the terms of the agreement, we'll transfer the European staffing business within Kelly's International operating segment to GI Group, while retaining our MSP, RPO, and FSP business with customers in the EMEA region. We expect the transaction to close in the first quarter of 2024 after which Kelly will maintain its global footprint and continue to provide MSP and RPO solutions customers in the EMEA region through Kelly OCG and our fast-growing FSP solutions through Kelly set. This transaction will unlock significant capital to pursue organic and inorganic investments in our chosen specialties. Furthermore, it sharpens our focus on our higher-margin higher-growth MSP and RPO solutions globally and specialty outcome-based and staffing services in North America. Together we expect these outcomes will accelerate our transformation efforts to significantly improve Kelly's net margin. I'm joined today by Olivier Thirot, our Chief Financial Officer, who will share more details about our expectations later in the call. Turning to the third quarter, we continue to make progress on the business transformation initiative we launched earlier this year. Following the implementation of strategic restructuring activities at the outset of the quarter, we remained laser-focused on sustaining these structural improvements across the enterprise. Our continued emphasis on organizational efficiency and effectiveness throughout the quarter resulted in a 9.1% decrease in SG&A on an adjusted basis, a substantial year-over-year improvement. With the efficiency phase of our transformation on track and delivering results, our expectation of an adjusted EBITDA margin around 3% exiting 2023 is within sight. As we shared in August, our expectation assumes no change to the market conditions we faced in the second quarter. In fact, macroeconomic headwinds in the third quarter proved to be more pronounced than anticipated. Amid a more challenging operating environment, we remain focused on what we can control achieving significant improvements on an adjusted basis to EBITDA margin and earnings. As market conditions begin to improve, we're confident that the structural changes we've made across the enterprise will continue to deliver significant improvement to Kelly's bottom line. Notwithstanding persistent headwinds, we're keeping our sights trained on the horizon. As I shared with you in August, we've undertaken several strategic initiatives that are positioning Kelly to accelerate profitable growth over the long-term. We've made progress since then, which I'm pleased to share with you today. At the enterprise level, we've developed a comprehensive strategy to deliver the full suite of Kelly offerings to our largest enterprise customers. This strategy is transforming the culture, capabilities and technology across our segments to serve critical accounts more efficiently and effectively. We've begun to operationalize this approach within our large enterprise account teams, and I'm pleased by the way they have embraced the change. By successfully implementing this strategy, we’ll accelerate our progress on increasing our share of wallet improving our business mix and optimizing expenses over a large subset of our business. In our Professional and Industrial segment, we're enhancing service delivery to industrial and commercial staffing customers and building our new business pipeline by enhancing our localized delivery model. At the heart of this model is a network of branch locations enabled by new technology through which our teams are meeting customers and talent closer to where they are. Our approach is designed to yield several benefits, accelerated responsiveness to customer and talent needs, deeper insights into local market dynamics and greater collaboration empowerment and accountability among branch team members. In the third quarter, we completed a successful pilot of this delivery model in branches in select markets across the US. The outcome validated our assumptions. Our pilot markets delivered both top and bottom line improvements along with a healthy pipeline of new business opportunities. Feedback from customers and talent was positive as well. Based on this success, we're moving swiftly to implement this strategy in additional US markets and early results continue to be encouraging. We're also aligning our capital allocation priorities to support our growth ambitions. In the third quarter, we completed our $50 million share repurchase program, which returned considerable value to our shareholders. While we're pleased with the outcome, we're confident that the best way to create value in the current environment is by reinvesting in our business. We continue to have ample capital available to deploy towards organic and inorganic growth initiatives with improved free cash flow driven by the efficiency phase of our transformation further strengthening our position. And as I mentioned previously, the sale of our European staffing business will add more than €100 million of liquidity when the transaction closes in the first quarter of 2024. As such, we're continuing our efforts to identify high-margin high-growth inorganic opportunities. We remain focused on pursuing additional acquisitions in our set and education segments and more opportunistically OCG. With a strong balance sheet, a disciplined approach to evaluating opportunities and clear Board-approved inorganic priority, Kelly is positioned to pursue deals notwithstanding the macroeconomic environment. We're also investing in technology, having developed a comprehensive road map to transform our business processes, tools, data and the way technology is delivered to our people. Our vision is to leverage technology to both enable growth by improving efficiency and generate growth through innovative offerings that create value for customers and talent. With our road map focused on maximizing business impact at each step, we're committed to a disciplined approach to evolving our technology infrastructure, prioritizing opportunities through, which there is greater potential for Kelly to differentiate itself in the market. I look forward to sharing more about our expectations for growth in 2024 on our fourth quarter earnings call in February. With that, I'll turn the call over to Olivier to provide details on our financial results for the third quarter.

Thank you, Peter, and good morning everybody. For the third quarter of 2023, revenue totaled $1.1 billion, down 4.3% from the prior year including 150 basis points of favorable currency impact. So revenues for the quarter were down 5.8% in constant currency. As we look at third quarter revenue by segment, our Education segment continues to report significant year-over-year growth, up 23% due to our improved fill rates strong demand from existing customers and net new customer wins. Overall, continued double-digit revenue growth demonstrates that our education business including our market-leading pre K-12 and PTS therapy solutions is a significant growth engine even as broader staffing market trends remain challenging. In the SET segment revenue was down by 8%. During the third quarter, we saw a continuation of the deceleration of demand for our staffing specialties, as well as lower revenue trends in our outcome-based business. Permanent placement fees were also impacted by a continued deceleration in market demand and declined 39%. In our OCG segment, year-over-year revenue declined 4% on a reported and constant currency basis. Year-over-year declines in RPO continued as slower hiring in certain markets sector has had a disproportionate impact. MSP revenue declined year-over-year in the quarter but was flat sequentially and PPO year-over-year revenues improved. Revenue in our Professional and Industrial segment declined 11% year-over-year in the quarter. Revenue from our staffing product declined by 15%, reflecting the impact of economic headwinds, which are more noticeable in this segment. The segment's outcome-based business revenue grew by 3% year-over-year, which is a moderation of the trend we have seen in the past few quarters. Excluding our contract center specialty where demand for certain customers has decelerated. The segment's other outcome-based revenues have continued to grow at a double-digit pace. Placement fees in P&I declined 50% and continued to be impacted by lower demand for full-time hiring. Revenue in our International segment increased 2% on a nominal currency basis and was down 6% on a constant currency base. Performance varies depending on geography and product. For the quarter, we had good constant currency revenue growth in Mexico and Portugal that was more than offset by revenue declines in Switzerland, France and Italy as well as the impact of the sale of our Russian operations, which was completed in July of 2022. International placement fees were consistent with last year on a constant currency basis. Overall gross profit was down 5.1% on a reported basis or 6.3% in constant currency. Our gross profit rate was 20.4%, compared to 20.6% in the third quarter of last year, a decrease of 20 basis points. The primary driver was a 40 basis points unfavorable impact from lower term fee and 20 basis points of higher employee-related costs. These impacts were partially offset by 40 basis points of continued improvement in structural business mix. SG&A expenses were down 1.2% year-over-year on a reported basis. Expenses for the third quarter of 2023 include $15.4 million of charges related to our ongoing transformation efforts. So on an adjusted constant currency basis, expenses declined by 9.1% or $21 million in the quarter. The reduction reflects the positive impact of our transformation efforts which are designed to reduce cost on a structural basis as well as lower performance-based incentive compensation. For the third quarter, on a reported basis, we produced breakeven earnings from operations. This compares to a loss of $21.4 million in the third quarter of 2022. As noted, our 2023 Q3 results include $15.4 million of charges related to our transformation activities, so adjusted earnings from operations in Q3 of 2023 were $15.5 million. Our 2022 Q3 loss includes a $30.7 million goodwill impairment charge, resulting in adjusted earnings from operations in Q3 of 2022 of $9.5 million, so on a like-for-like basis, 2023 earnings from operation increased by 60%. Adjusted EBITDA margin for the quarter also improved at 2.3%, compared to 1.6% a year ago, a 70 basis point improvement. Income tax benefit for the third quarter was $4.9 million consistent with our 2022 income tax benefit of $5 million. And finally, reported earnings per share for the third quarter of 2023 was $0.18 per share, compared to a loss per share of $0.43 in 2022. Adjusted EPS for the third quarter of 2023, excluding the transformation-related charges net of tax was $0.50. And after adjusting for the 2022 goodwill impairment charge net of tax, Q3 2022 EPS was $0.25, so on a like-for-like basis, EPS in Q3 of 2023 doubled from the prior year. Now moving to the balance sheet as of the end of Q3, at the end of Q3 cash totaled $117 million compared to $154 million at the end of 2022. And we ended the third quarter of 2023 with no debt consistent with substantially no debt at the end of 2022 with our $300 million in available capacity on our credit facilities and our cash balances as well as the outcome of our EMEA transaction we continue to have ample capital available to deploy in the near future. As of the end of Q3 accounts receivable was $1.4 billion and decreased 9% year-over-year reflecting a year-over-year decrease in revenue as well as a decrease in DSO. Global DSO was 63 days, up-to-date from year-end 2022, due primarily to the impact of seasonality in our education business. DSO is one day lower than the same period in 2022. For the third quarter of 2023, we generated $7 million of free cash flow and year-to-date free cash flow now totals $21 million. For the quarter, we have continued to maintain lower accounts receivable balances in line with our revenue trends and DSO improvement. A portion of those receivables are related to our MSP programs and are funded with supplier payables. So the lower net position has a limited impact on free cash flow generation. In the quarter, we completed the $50 million share repurchase program that we announced in November of last year, buying approximately 3 million shares during the program. Now I will move on to our expectations for the rest of 2023. We assume a continuation of the current market conditions, which as Peter noted are more challenging than we had anticipated a quarter ago. We now expect fourth quarter nominal revenue to be down 50 to 150 basis points year-over-year. We expect our Q4 GP rate to be down 50 basis points year-over-year to about 19.8%, as continued softness in demand for full-time hiring compresses permanent placement fees. The lower Q4 GP rate also reflects the normal sequential trend due to the seasonality of our education business and continuation of the structural business mix improvement that is expected to keep our full year GP rate above 20%. We expect fourth quarter adjusted SG&A to be about 9% lower than the same period last year consistent with Q3 and better than our expectations that we shared a quarter ago. We reacted to the more challenging top line trends and accelerated our transformation efficiency actions. As a result, we expect adjusted EBITDA margin in the fourth quarter to be between 2.8% to 3%, reflecting the more challenging market conditions. For additional perspective with the benefit of full year of expected transformation-related savings, the impact of the sale of our European staffing business, and our current top line expectations, we would expect to reach a normalized adjusted EBITDA margin in the range of 3.3% to 3.5%, as discussed three months ago. That is more than 100 basis points of improvement from our historical levels of adjusted EBITDA margin, all since we began the transformation journey earlier this year.

Thanks for those insights, Olivier. Change at this scale and speed is never easy. But together, team Kelly is proving that it is achievable. When I announced this transformation in May, I committed to you that we would optimize our business and functional operations in a sustainable manner that we would unlock additional value-creating opportunities and most importantly, that we would find new avenues of growth. Six months into our journey I can confidently say that we are delivering on our commitments. The measures we implemented in July to further optimize the company's operating model have taken root, catalyzing a significant improvement in our EBITDA margin with additional runway ahead. We further strengthened our balance sheet and with significant capital available to us, we committed to unlocking value through organic and inorganic growth. And through our large enterprise account strategy, we formulated a comprehensive approach to sales and delivery across business segments that will unleash the full revenue-generating potential of our blue-chip customer base and accelerate profitable growth over the long term. Through these efforts, we're closer than ever to realizing our collective ambitions for this great company. I'm grateful for the work of each and every member of Team Kelly, for embracing this moment and acting with urgency and agility to deliver on our commitments. With our team moving forward together, united by our noble purpose, I'm confident that Kelly's best days are ahead of it. Kailey, you can now open the call to questions.

Thank you. We'll now take questions from Kevin Steinke with Barrington Research.

Good morning, guys.

Good morning, Kevin.

I wanted to start off by asking about the growth initiatives that are part of the transformation, you mentioned driving early results or favorable early results. I think you touched on the local branch initiative. I guess is that part of the transformation and maybe any others that you'd want to highlight?

Yes, Kevin thanks for the question. Yes, that is a significant part of the transformation. As I mentioned, we are revitalizing and reengaging our local branch network, adding resources to local markets the high-growth local markets, adding new technology and essentially creating our resources or putting our resources closer to the talent and customers as opposed to supporting them in a more centralized manner. And we've seen successful results in the pilot markets and that's why we're moving quickly and aggressively to roll it out in more US markets, as we speak.

Okay. Yes. I was going to ask about that, if this signals the emphasis of the centralized staffing model or how meaningful that will continue to be going forward?

We will keep delivering large enterprise customers through a centralized model in markets with very large or a few locations. For large enterprises with distributed facilities, local delivery has proven to be more efficient and effective, leading to greater customer and talent satisfaction. We plan to optimize both models and will seek opportunities to do so, anticipating significant benefits once macroeconomic conditions improve.

Can you discuss the macro headwinds? They seemed to be more significant in the third quarter. What have you observed in the environment since you reported the second quarter results?

Well, we typically as you know Kevin in our industry typically see an improvement in Q3 and then in Q4 in terms of demand and that just hasn't materialized this year. I don't think, there's a significant change. It's just a continuation of customers being more cautious. They're uncertain about their own economic outlook. So they're taking longer to make decisions. They're dialing back on permanent hiring and being very judicious about how they spend their dollars. So, again, we don't expect any significant change relative to what we've seen in the last few months.

Okay. Yes. I wanted to dive down into a couple of the segments here. Really, when I look at education the operating leverage you're getting there on SG&A has been impressive in terms of improving operating margin over time. It doesn't look like you really took cost out there related to the transformation. But maybe just speak to the operating leverage you've been seeing there and the opportunity for further leverage going forward in education?

Thank you, Kevin. I'll pass it over to Olivier for more details. We're very pleased with the strong growth in education, not just with our existing accounts but also with new school districts we're acquiring. Our pipeline is looking robust. Our business is expanding rapidly, necessitating more personnel to support the new wins and implement large programs. Furthermore, the education business unit was involved in the transformation review and analysis, and they have taken steps to optimize their processes, which will enhance their overall results moving forward.

Yes, we continue to see top line growth despite a growing base, achieving 22% to 23% revenue growth in Q3. Regarding leverage, we continue to leverage one of our key performance indicators, the incremental conversion rate, which remains very good. We expect this to continue in the near future. On the transformation, I agree with Peter; it’s a high-growth business. We have undertaken some transformation initiatives focused on streamlining and simplifying our structure while continuing to invest in our people, as our top line continues to grow rapidly.

Thank you. I wanted to ask about the OCG segment, which continues to generate strong gross margins of about 36%. However, SG&A expenses as a percentage of revenue are in the low 30s, and they have consistently been higher compared to some other segments. It seems there was a small transformation-related charge this quarter. Can you provide an update on the SG&A expense base? Is there potential to reduce that over time to enhance profitability from those high gross margin profit dollars?

Yes, definitely, yes. I mean in terms of the efficiency side of our transformation you are going to see it in a more visible way in OCG in Q4. And that's going to continue in the near future in terms of optimizing our delivery model in various locations and various products. So that's something that is more a timing point than in signals. You are going to see more of that in Q4 and later on. Now having said that it's a high-margin business, especially around RPO and MSP. Of course, the cost to deliver especially MSP is also the cost of our footprint outside of the US, but we are still confident that we can continue to leverage this business in the future. Our pipeline is very good in OCG as it is in most of our segments. And I believe we are going to start to see some additional traction in the next coming months on the top-line as well.

Okay. Great. That's good color. Just lastly just from a reporting perspective going forward once the sale of the European staffing businesses closed does the international segment just completely go away? I know you still have Mexico in there. Just wondering what happens there?

Well, if you think about it basically if you want to look at some of the numbers and figure out a little bit the scope of what we are selling to GI. It's basically the total international segment excluding Mexico. Just to give you an idea on revenue if you extrapolate our international business the revenue is at about $880 million I would say Mexico is around $70 million. You can see that on our 8-K. So what basically we are transferring to GI or selling to GI is about $810 million to $820 million of revenue. The Mexican business basically is going to move to P&I. So the international segment will no longer exist.

We'll have 4...

4 business units. So the big change is going to be P&I is going to include Mexico because that's where it is best fitted for the future in terms of synergies and continue to accelerate growth. Our Mexican business now is very successful. We grew at a very fast pace base and we expect that to continue.

Okay. Perfect. Thank you. I will turn it back over. Appreciate.

Thank you, Kevin.

Thank you, Kevin.

We'll go next to the line of Kartik Mehta with Northcoast Research.

Good morning, Kartik.

Good morning.

Can you hear me?

Now…

Sorry.

Good morning.

Sorry about that. Congratulations on the sale of the European business. And I'm wondering as you look to deploy that money are there opportunities in the marketplace, which would enhance maybe the revenue growth the margin profile of the company? And is the pricing at the current time something that makes sense? Or is it something that you would wait on considering what's available out there?

Kartik, as I mentioned earlier, we are unlocking significant capital with the deal signed with the GI group, along with our strong balance sheet. We believe there are opportunities to enhance our portfolio with high-margin, high-growth businesses, and we are actively looking to identify those properties. Currently, the pipeline for properties is not as robust as it was about 18 months ago, but we anticipate a turnaround as we gain better visibility into future economic conditions and as companies become more active. Nevertheless, there are still quality properties interested in a combination or sale to a company like Kelly, and we are pursuing these opportunities to add to our portfolio, especially in our science, engineering, technology, telecom, and education sectors, as well as opportunistically in OCG.

And then as you look at the trends throughout the quarter and into October any changes? Are they getting better or worse the same?

I would say when you look at our September exit rate, we are in constant currency basically at minus 2.4%, which is basically the midpoint of our guidance. If you move it from nominal currency to constant currency we expect about 140 basis points of favorable FX. So this is where we have ended the quarter. One of the points to consider of course for September, but also Q4 is basically the Education seasonality that we have started to see again in September that is going to continue to get us some good traction on the top line. Apart from that when you really look at without education or excluding Education we have not seen a lot of changes between total Q3 revenue-wise by segment versus September exit rate. We have not seen of course improvement either but not really something that would tell us that the trends are going to be significantly different in Q4. The main item is of course for Q4 high seasonality indications that of course with the same type of growth we have seen so far would contribute more dollar-wise to the total revenue simply because of the fact that Q4 is high seasonality for Education.

And then just one last question. Are you seeing any change in competitive behavior pricing or anything that the market continues to struggle a little bit?

We often notice that some competitors respond to a challenging macroeconomic environment by changing their pricing. We remain committed to maintaining our pricing discipline and emphasizing the value of working with Kelly, and we will continue to do so. There haven't been widespread changes among the largest players; typically, it's the smaller regional companies that try to address slower demand by lowering prices temporarily. Overall, we haven't observed this on a large scale.

Okay. Thank you, very much. I really appreciate it.

Thank you.

Thank you.

Thank you. We’ll go next to the line of Joe Gomes with NOBLE Capital Markets.

Good morning, Joe.

Good morning.

This is Joshua filling in for Joe. I want to start by noting that everything in your segments seems neutral, although there is a slight decline. Can you provide some insight into what happened this quarter that caused that?

The main concern is clearly in the Education sector, which we have already covered. The tough macroeconomic conditions affect our cyclical business, leading to a significant decline in our fee-based revenue as clients reduce their permanent hiring. As I mentioned earlier, clients are wary about their outlook, resulting in longer decision-making times and a pause on adding new projects. They're primarily focused on maintaining their current operations, and this is reflected in our results. As Olivier and I have pointed out, we haven't observed any major changes and do not anticipate significant shifts in the near future. Nevertheless, we plan to continue our growth initiatives to capture market share in this environment. Additionally, I shared that we are encouraged by the early results of some initiatives we've launched, whether at the enterprise level or in our P&I business segment. We are actively working on initiatives across all our business units to seize opportunities during this relatively slow demand period.

Okay. Great. Regarding the international staffing sale, I know you touched on it briefly, but how does that sale impact Kelly in terms of revenue and EBITDA? What should we expect in 2024? Any additional details would be helpful.

So you mean just to clarify the impact on a pro forma basis of basically getting international with the exception of Mexico being monetized or...

Yes, that's right.

Yes. If you take the transaction and its scope, applying it to 2023 for a pro forma analysis, there will be a noticeable effect on revenue. As I mentioned earlier, this will decrease our revenue base by around $820 million. However, it will enhance our mid- to long-term growth potential for the top line. It will also reduce our foreign exchange exposure since much of it comes from our International business. Additionally, we expect our gross margin rate to improve by approximately 100 basis points due to the strong performance of the International segment, although its gross profit rate is currently lower than the average for market reasons. As Peter and I highlighted earlier, excluding the scope of this EMEA staffing transaction will yield a positive effect of about 30 basis points on our net margin for the current year. Furthermore, historically, Days Sales Outstanding in Europe tend to be higher than in North America. Therefore, we anticipate an improvement of about two days in DSO, which will enhance our working capital and free cash flow generation.

Okay, great. And then for my final question, I'm going to rejoin the queue. I didn’t hear much about the digital workers program you introduced earlier this year, and I want to understand more about that. Have you seen additional interest since you last discussed it? How has the pipeline been looking for that program?

We are very encouraged by the digital innovation and capabilities we've shown in bringing technology into the solutions we offer our customers. I mentioned that we are deploying technology in our Professional and Industrial segment, as well as optimizing local delivery. Kelly Hilux continues to develop new tools and expand solutions within our OCG segment. The digital worker automation product we launched earlier is receiving a lot of interest from customers who are eager to explore how to leverage it. Additionally, we introduced Kelly Arc, a robotic process automation jobs platform, this quarter. All of these efforts are part of a deliberate strategy to incorporate technology, including generative AI, into our operations and solutions that not only benefit our customers but also the talent we provide.

Okay, great guys. Thanks for answering my questions.

Thanks, Josh.

Thank you. We'll go next to the line of Marc Riddick with Sidoti.

Morning, Marc.

Good morning. It has definitely been a busy year for you. I wanted to discuss the growth initiatives and our thoughts on the rollout, implementation, and timeframe. Additionally, could you talk about the incremental investments needed, such as in personnel or technology spending, and whether there is any variability or focus in those areas?

The transformation initiative I announced in May has two key components: efficiency and growth. We initially focused on our efficiency objectives, and now we are fully engaged in our growth initiatives. Each of our business segments has initiatives, and our enterprise function is also working to support the business units in those growth efforts. Additionally, we have initiatives at the enterprise level, all at different stages of development. We remain cautious about sequencing our investments to align with our top line results and to manage our spending effectively without overburdening the enterprise. Most of these growth initiatives are enabled by the efficiency measures we implemented, such as reducing spans and layers and increasing front-line resources with technology support. Therefore, I don't anticipate any significant fluctuations in our investments in technology or resources, except possibly in education, where we have the revenue to back our growth efforts.

I appreciate your question. I wanted to follow up on the potential acquisition opportunities. Congratulations on the recent sale in Europe, and with the cash flow available, could you share more details about the acquisition pipeline? I understand it may not be as promising as it was 18 months ago. Are there specific areas that you believe could improve or key targets you have in mind that might offer better opportunities in the coming months? Is the challenge primarily related to pricing or the availability of appealing targets? Thank you.

I would say that the market is still a bit cautious. There are many companies looking to enter, but the quality of opportunities is lacking. We are not interested in pursuing properties unless they demonstrate high growth potential, high margins, and align well with our goals. About three years ago, we acknowledged the need to be more proactive in identifying potential acquisition targets, and we have been working on that. Our focus areas include technology, education, and the broader fields of science, engineering, technology, and telecommunications, with some interest in OCG. We plan to invest our capital, which we are increasing, in these sectors. We believe this strategy will enhance our growth and improve our net margin organically.

I appreciate it. Thank you very much.

Okay. Thank you.

Thank you. And presenters, there are no further questions in queue at this time.

Okay. Kelly, thanks. I think we can call it a day then. Thank you.

Thank you.

Thank you. And ladies and gentlemen, this conference is available for replay beginning at 11:30 Eastern Time today running through December 7 at midnight. You may access the AT&T replay system by dialing (866) 207-1041 and entering the access code of 7027637. International participants may dial (402) 970-0847. Those numbers again are (866) 207-1041 or (402) 970-0847 with the access code of 7027637. That does conclude our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.