Alphabet Inc - Class C (GOOG) — Q1 2019 Earnings Call Transcript

Thank you. Good afternoon, everyone. And welcome to Alphabet’s first quarter 2019 earnings conference call. With us today are Ruth Porat and Sundar Pichai. Now, I will quickly cover the Safe Harbor. Some of the statements that we make today regarding our business performance and operations, and our expected level of capital expenditures may be considered forward-looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today’s earnings press release, which is distributed and available to the public through our Investor Relations website.

Thank you, Ellen. In the first quarter, total revenues of $36.3 billion were up 17% year-on-year and up 19% in constant currency, following a strong 2018. Once again, our results were driven by ongoing strength in mobile search, along with important contributions from YouTube, followed by Cloud. For today’s call, I will begin with a review of results for the quarter on a consolidated basis for Alphabet, focusing on year-over-year changes. I will then review results for Google, followed by Other Bets, and we will conclude with our outlook. Sundar will then discuss business and product highlights, after which we will take your questions. Let me start with a summary of Alphabet’s consolidated financial performance for the quarter. Our total revenues of $36.3 billion reflect a negative currency impact year-over-year of $1.2 billion or $1 billion after the impact of our hedging program. With respect to Alphabet revenues by geography, U.S. revenues were $16.5 billion, up 17% year-over-year. EMEA revenues were $11.8 billion, up 13% year-over-year and up 16% in constant currency, reflecting weakening of the euro and the British pound. APAC revenues were $6.1 billion, up 27% versus last year and up 31% in constant currency, reflecting primarily the weakness of the Australian dollar and the Indian rupee. Other Americas revenues were $1.9 billion, up 10% year-over-year and up 21% in constant currency, reflecting primarily the weakening of the Brazilian real and Argentine peso. Turning to profitability, in our earnings press release, we provide a table to highlight the impact of the European Commission fine on operating income, net income and EPS results in the first quarter. I will comment on results both with and without the impact of the fine as I review the results. On a consolidated basis, total cost of revenues including TAC, which I will discuss in the Google segment results, were $16 billion, up 19% year-on-year. Other cost of revenues on a consolidated basis was $9.2 billion, up 27% year-over-year, primarily driven by Google-related expenses. The biggest contributor was costs associated with our data centers and other operations including depreciation, followed by content acquisition costs primarily for YouTube and mostly for our advertising-supported content, but also for our newer subscription businesses YouTube Premium and YouTube TV, which have higher TAC as a percentage of revenues. Operating expenses including the impact of the EC fine were $13.7 billion. Excluding the impact of the fine, operating expenses were $12 billion, up 20% year-over-year. The biggest increase was in R&D expenses with headcount growth in Cloud as the largest driver. Growth in sales and marketing expenses primarily reflects additions to headcount. Growth in G&A expenses is primarily due to legal matters, including the effect of a legal settlement gain recorded in the first quarter of 2018. Stock-based compensation totaled $2.8 billion. Headcount at the end of the quarter was 103,459, up 4,688 from last quarter. Consistent with prior quarters, the majority of new hires were engineers and product managers. In terms of product areas, the most sizable headcount increases were in Cloud for both technical and sales roles. Operating income was $6.6 billion. Excluding the impact of the EC fine, operating income was $8.3 billion, up 9% versus last year for an operating margin of 23%. Other income and expense was $1.5 billion. Our effective tax rate was 18.3% for the first quarter, reflecting a sizable impact from the non-deductibility of the EC fine. Net income was $6.7 billion and earnings per diluted share were $9.50. Excluding the impact of the EC fine, net income was $8.3 billion and earnings per diluted share were $11.90. Turning now to CapEx and operating cash flow. Cash CapEx for the quarter was $4.6 billion. Operating cash flow was $12 billion, with free cash flow of $7.4 billion. We ended the quarter with cash and marketable securities of approximately $113 billion. Let me now turn to our segment financial results, starting with the Google segment. Revenues were $36.2 billion, up 17% year-over-year. Google Sites revenues were $25.7 billion in the quarter, up 17% year-over-year. In terms of dollar growth, results were led again by mobile search, with a strong contribution from YouTube, followed by desktop search. Network revenues were $5 billion up 8% year-on-year, continuing to reflect the performance of the primary drivers of growth AdMob, followed by Google Ad Manager. Other revenues for Google were $5.4 billion, up 25% year-over-year fueled by Cloud and Play and partially offset by hardware. Google Cloud Platform remains one of the fastest growing businesses in Alphabet with strong customer momentum reflected in particular in demand for our computing and data analytics products. Let me now turn to Other Bets. Revenues were $170 million primarily generated by Fiber and Verily. Operating loss was $868 million. Other Bets accrued CapEx was $59 million. Key recent accomplishments include Waymo recently announced that it will expand its activities in Michigan, opening a facility in Detroit that will be the first factory dedicated to the production of L4 autonomous vehicles. Last week, there were exciting announcements from two traditional Other Bets that were originally incubated within X. Loon announced a long-term strategic relationship to advance the use of high-altitude vehicles to deliver connectivity, with SoftBank’s telecoms group HAPSMobile, which will invest $125 million in Loon. Wing became the first drone delivery company to receive air carrier certification from the FAA, an important step toward beginning a commercial service delivering goods from local businesses to homes in the U.S. As we highlighted on our last call, there was a significant swing year-over-year in the impact of currency movements on our results this quarter, from a big tailwind in the first quarter of 2018 to a headwind in 2019. These affect both revenues and operating income given the majority of our expenses are in the U.S. Based on the continued strengthening of the U.S. dollar relative to key currencies, we expect a continued headwind to our revenues and operating income again in the second quarter. In terms of our key revenue drivers, with respect to Sites revenues, as we indicated last quarter, the timing of product changes in ads at times can have an impact on year-over-year growth rates. We will continue to make changes with a focus on the long-term best interest of users and advertisers. In conclusion, we feel confident about the opportunities ahead and we continue to invest thoughtfully for the long term. I will now turn the call over to Sundar.

Thanks, Ruth. It’s great to be here with you all. Q1 was a very busy quarter at Google and it’s only going to get busier. Later this week, we will host YouTube’s upfronts events BrandCast followed by our Annual Developer Conference Google I/O next week and our advertising summit Google Marketing Live later in the month. You will hear a lot more from each of these teams throughout May, so I hope you can join us. We will always be a company that’s focused on the long-term willing to make investments that will help our businesses and our customers’ businesses succeed as technology continues to evolve. You saw this in the transition to mobile computing years ago and we are seeing that today in the shift to AI. We feel very positive about the enormous opportunities ahead involving search and assistant, capturing new ad budgets, cloud computing, AI and other areas. What gives us these opportunities is Google’s position to help people, businesses, and society in countless ways through our products. Today, I will start by talking about our core mission of making information universally accessible and useful, then I will provide an update on our computing, video, and advertising platforms, and finally, I will discuss our hardware and cloud efforts. First, an update on our mission to make information accessible and useful is helping people every day. A big focus for us is building products that are designed to help people in their day-to-day lives. Our Duplex technology within Google Assistant can now help you easily book a table at your favorite restaurant on all Android and iOS devices in 44 U.S. states. Just tell the Assistant where you want to go and when and it will do the rest. We have also begun testing AI walking navigation in Google Maps, which uses augmented reality and gives the phone’s camera to show you where you are relative to the surroundings as you are walking. Just last week, we announced an improved job search experience in the U.S. that helps people easily discover quality remote jobs, allowing them to work right from home. As part of our Google news initiative, we kicked off the local experiments project, working with local publishers to uncover new approaches to their business models and operations, so they can continue bringing great local content to the readers. AI is now spurring a new era of computing, which is more predictive and more assistive. We are committed to doing deep research and working to advance the space in a responsible way. AI is deeply embedded in our products, from Search to Photos to Google Home, and we are also expanding others’ ability to build on our advancements. Next, our video platform, YouTube. YouTube’s top priority is responsibility. As one example, earlier this year, YouTube announced changes that reduce recommendations of content that comes close to violating our guidelines or that misinforms in harmful ways. There are a lot more improvements, which we will be rolling out in the next few weeks and our work is ongoing. We have also expanded the content offering, availability, and the functionality on some of our newer YouTube experiences. YouTube TV is now available nationwide with many new networks and channels added in Q1. YouTube Music and YouTube Premium are now available in 43 countries up from five markets at the start of 2018. In mid-March, we launched YouTube Music in India, one of YouTube’s fastest growing markets. Since launch, the YouTube Music app has been downloaded more than 15 million times in the country. YouTube’s ad business, for both brand and direct response campaigns, continues to grow and support our creators. In Q1, we again saw how YouTube is the go-to destination for watching Super Bowl ads before, during and after the big game. This year, viewership of Super Bowl ads on YouTube during the game grew by nearly 60%. More broadly, across our Ads business, our advertising product team led by Prabhakar continues to build new products for marketers, with more than 100 enhancements introduced every quarter. We do rigorous testing on each of these improvements to ensure that we are creating the best experience for users and advertisers. Our focus has always been on investing for the long-term rather than managing for results quarter-to-quarter. I feel really positive about the opportunities ahead and the innovations that we are bringing to marketers, many of which are powered by machine learning. Philip and our business teams have done a great job helping advertisers take full advantage of these new capabilities. Next, I will give an update on our hardware and Cloud efforts. First, hardware, I am very proud that in only a few short years, we have built a strong foundation in hardware. For example, demand for our Google Home family of products remains strong, especially the Home Mini and Home Hub. The breadth and depth of our product lines across Pixel, Nest, and Home is amazing and you will see us continue to develop this incredible lineup. Not only are features like Night Sight in Pixel winning industry awards, but Net Promoter Scores tell us that many people who use our hardware products truly love them, which is particularly important as we move into this new era of computing. We are still early in our hardware journey and when I look ahead at the portfolio that we have created across Pixel, Home, and Nest, I feel really good about the range of products that we have. And finally, our growing Cloud business. Thomas has really hit the ground running. Just a few weeks ago, I was on stage with him at our Cloud Next event, where we hosted a sold-out crowd of more than 30,000 attendees. As I said at Next, moving to the Cloud should be simple and seamless. I was excited to announce Anthos, which gives customers a very elegant solution to both hybrid cloud and multi-cloud in a single technology stack. The early feedback from analysts, customers, and partners has been really great. We are also committed to becoming the most customer-centric Cloud provider for enterprise customers and making it easier for companies to do business with us. Today, nine of the world’s ten largest media companies, seven of the ten largest retailers, and more than half of the ten largest companies in manufacturing, financial services, communications, and software use Google Cloud.

Thank you, Sundar. And we will now take your questions.

Thanks for taking the question. I wanted to understand a little bit about what you are calling out in Q4 and how that might have manifested itself in Q1 on the product side of the equation, so we could better understand how much of it was isolated to Q1 or it might be a headwind as we move through the year? And as you look at the individual performance of the ad divisions in sites, desktop, mobile search, YouTube, it seems like you were still calling out strength in mobile search in YouTube. So could it be desktop search where we actually saw some weakness in the quarter? Thanks so much for any granularity and color on that.

Sure. Thanks Eric. So I will try to step back and start at the highest level. Obviously, on a reported GAAP basis revenue growth in Q1 reflects the FX headwind that we talked about in contrast to the tailwind last year and as you know well, we don’t report sites revenues on a fixed FX basis, but the delta between fixed and floating growth rates at the Alphabet level is a good proxy for the effect on sites revenue. Beyond that, I tried to draw that the year-on-year growth rate in part reflects our strong 2018. And then more to your question as we indicated last quarter, the other item is the timing of product changes in Ads can impact year-on-year growth rates and we make changes with the focus on the best interest of users and advertisers over the long term. We do not manage by quarter, so we are introducing enhancements only after product testing, and that was sort of the overarching color that I was trying to give you. And in terms of desktop it was a modest contributor to revenue growth. It does remain an important form factor for certain more complex tasks such as planning vacations or assessing insurance options. And as we have talked about in prior calls, we continue to see the ongoing importance of desktop for many users and many tasks, notwithstanding the growing utility of mobile. So I led with the items that are really driving the growth, but that was a bit more color on desktop for you.

Yeah. Thanks. Sorry about that. So two questions, just following up on Eric’s on the revenue growth. Ruth can you just give us a little bit more detail on the paid click growth, the decel that we saw at 39% from the 50%s and 60%s last year? That’s just a comp issue or something more specific? And then just on the spending side, I want to understand a little more just how you are thinking about spending relative to three months ago. I know you talked about both CapEx moderating and also headcount moderating three months ago. Just curious at least that headcount is still in that camp figure thinking just given that it seems like there’s a pretty big ramp expected under the new Cloud CEO? Thanks.

Okay. So, starting with clicks and CPCs. As we have discussed on prior calls, the biggest driver affecting those CPCs and click trends is YouTube engagement ads with YouTube Clicks representing the vast majority of total clicks. And so while YouTube Clicks continue to grow at a substantial pace in the first quarter, the rate of YouTube Click growth decelerated versus what was a strong Q1 last year, reflecting changes that we made in early 2018, which we believe are overall additive to the user and advertiser experience. And then in terms of your two spending the investment questions, in terms of headcount, first, we do continue to expect the growth rate to moderate slightly in 2019 from the year-on-year growth in 2018. And as I indicated in opening comments, we are continuing to invest in technical talent for priority areas like cloud, search, and machine learning. And so cloud has been and continues to be the primary area of headcount growth and as Thomas indicated as well, I think Sundar did as well. In terms of CapEx just to fill up the last part I think of your question. Relative to my comments last quarter, we expect the full year 2019 growth rates for CapEx to moderate quite significantly versus the year-on-year growth in 2018, there’s no change in our expectation for the year on that point either. The first quarter last year obviously included a sizable real estate acquisition in New York. But, overall, we continue to invest meaningfully in our technical infrastructure given our outlook for compute requirements to support long-term growth. Technical infrastructure is the biggest driver of CapEx growth, but we do also continue to invest in office facilities. In fact, as we announced in the first quarter, we expect CapEx of over $13 billion in 2019 just in the U.S. in data center construction and offices, with major expansions in 14 states. And more generally, while we are investing aggressively to support our outlook for compute requirements, we are also very focused on improving efficiency with our technical infrastructure and you can see that through our innovations and things like custom server hardware and TPUs, which can be more cost-effective especially for machine learning workloads.

Thank you. Sundar, I have a question about Cloud. You are obviously discussing it more frequently. When do you expect to share revenue figures or growth rates similar to those of your competitors? Additionally, what are the biggest competitive advantages of GCP? Also, what changes has Thomas implemented for 2019? What significant changes is he focusing on that differ from previous strategies? Thank you.

Thanks, Heather. Good question. Overall, I would say, I think you saw the momentum coming out of Next. And I would say, at a high level, the key differentiators which we are focused on and which we hear from customers to the five key things are security and reliability, being really open about hybrid multi-cloud, customers don’t want to be locked into any one Cloud provider. We want to be a platform for open source and so we are really working well there in enabling options. AI and ML as a capability. And finally, as customers think about digital transformations we bring all of Google’s advances to bear to help them through the journey. I think I would say, Thomas is really building upon a strong foundation, but we are really accelerating and scaling up go-to-market both internally and through our channel partners has been a huge focus. I am incredibly excited that we just announced a couple of weeks ago that Rob Enslin has joined us to head go-to-market and just along with Thomas, both of them bring close to three decades of serving enterprise customers, and so that reflects the commitment we have. I think we are building a strong business across all our verticals, and we are definitely seeing strong momentum, and look forward to being able to share more at the appropriate time.

Thank you for taking my question. I have two, one for Ruth, one for Sundar. We noticed that larger than expected slowdown in the properties TAC in the quarter that includes cost of mobile search, while the other cost of revenues which includes YouTube content cost seem to maintain an expected growth rate despite what you said about more moderate turns in hardware. So just wondering if that’s a wise way to infer anything about the relative performance of mobile search revenue versus YouTube from those cost lines in the quarter? And then on Waymo, maybe for Sundar, we are hearing more and more about collaborations between ride-sharing networks and AV providers, so the idea of mixed fleets or part human part AV as a means of potential deployment of AV technology. So can you just comment if that mixed fleet approach would be something that you think Waymo would consider versus its own full ride service network? Thank you.

So in terms of the sites TAC rate, a couple of things, we have discussed this previously on calls. We have expected the year-on-year growth in the TAC rate would begin to slow, starting in the second quarter last year and you saw that through the balance of 2018. And this quarter, the constant TAC rate versus last year reflects ongoing growth in mobile, but it also benefited from growth in YouTube, where the associated content and cost are included in other cost of sales, and so that’s the most important thing to point to. The other is we have previously discussed is, TAC as a percentage of revenues is also affected by a number of other factors, such as changes in product mix, device mix, partner mix, et cetera. So I’d really point you to the first point there. And then as it relates to Waymo, I guess, a couple of things. We continue to be most focused on the ride-sharing business here. We are pleased with the expansion and the number of Waymo riders that we have added since the last quarter. But as we have talked about on prior calls, we do continue to pursue a number of other opportunities, such as long-haul trucking we have talked about, logistics, deliveries, personal use vehicles, last mile solutions for cities, and then probably more to your question, licensing our technology. In other words in, for warehouse use or for farming and our view was that, that can provide further operating leverage to our business. So we are actually looking at a number of different ways, but their primary focus continues to be on developing the ride-hailing business.

Okay. Thanks. So, Sundar, I wanted to follow up on your Stadia commentary. How are your conversations with some of the larger PC and console publishers going right now? You obviously offered them an additional distribution outlet with billions of users, which is something that they probably didn’t have before. But what is the pushback that you might be getting from publishers, if any? Thanks.

I mean, I think we see genuine excitement because I think they see the opportunity for a shift, a point of inflection, but they realize the technical challenge of pulling something like this off. And so, but once they get their hands on with the technology and see the experience, I think that completely wins people over. And so we are having conversations across the board and I think people are definitely engaging in a very committed way and they are investing in it. So it’s a big joint effort and it’s working well.

Thank you for answering my questions. I have two. First, regarding the product changes, Ruth, could you provide more details on which products or regions are most affected by these changes? Additionally, can you clarify the key user experience you aim to enhance and the message for advertisers who may be increasing their spending right now and why this will benefit them in the long run? Sundar, I’d like to follow up on your comment about YouTube. You mentioned that there will be more potential changes coming with the next few updates. Could you elaborate on that? Thank you.

Yeah. Maybe I will start with the YouTube comments. I talked about in the area of content responsibility. We are definitely focused on making sure we are constantly improving how we are handling both in terms of reducing the content that shouldn’t be there on the platform, and then more importantly, making sure when we recommend content that we are recommending high-quality content as well as reducing harmful content or low-quality content being recommended. I think we had a set of launches which we have rolled out, but I think there are more launches coming which will constantly improve what you will see in YouTube and continues to be the most important area of focus for them. Regarding your first question about product changes, I assume you are referring to the advertising experience. The key point I want to emphasize is that we approach our goals with a long-term perspective and a disciplined framework for evolving our products. While we have seen consistent performance, we don't evaluate our progress on a quarter-to-quarter basis. There will be variations over time, but we remain confident in the opportunities ahead and are focused on that future.

Good afternoon, everyone. Sundar, he had reminded us how April and May are pretty big months for the company with a series of your large annual events, and of course, each of those businesses have their own goals and targets. But we also continue to hear more about your teams working together, for example, a large cloud engagement leading to higher ad spending from an enterprise. Can you talk to us just a little bit about how you balance having your leaders grow their own businesses with also incentivizing them to work together?

And in terms of how we work together, first of all, as a company, I think we take our process extraordinarily seriously in a very committed way. And we do right across the company it really reinforces ways by which different groups can work together, and we measure them and hold people accountable to that. That’s an important part of how we get at businesses both while they are focus on their product areas our business need to work together. Second as a leadership attribute, it’s something that’s really important to me and so it’s something that the leaders across the table share that goal, and I think it’s largely cultural as well, vis-à-vis privacy and it’s actually one of our most important areas. As a company, we have always tried to stay a step ahead. User expectations around privacy are constantly evolving and we stretch ourselves to meet them, and as part of that through this year, we are continuing to do a lot of work just with the overall goal of making sure privacy works for everyone. It’s actually simple to use.

Great. Thank you, Sundar.

Great. Thank you. I have a couple, first one follow-up on the revenue growth dynamics, specifically the sequential growth trend. I wonder, if we should just assume now that there’s greater seasonality in core search just given the increasing mix of shopping and product ad formats. And Sundar, question in AI machine learning, since clearly this remains an area of significant strength for the company. I am wondering, what’s the stage of development you would characterize these tools at being today and whether we should expect the overall pace of advancement from AI to accelerate in terms of products and services?

In response to the first question about seasonality, we encounter various events throughout the year without a consistent pattern. While there are some patterns that repeat every year, we also face unexpected events, which leads to inherent variations that we manage each quarter. There is definitely seasonality in businesses like hardware, and commercial behavior also has seasonal patterns. However, we frequently encounter one-off events, and we always manage to navigate through them. Regarding machine learning, I believe we are in the early stages. I'm excited that over the past three years, by adopting an AI-first approach, we have successfully integrated machine learning in a fundamental way across our products to benefit our users, which also applies to advertising.

Thank you. I have a couple of questions, one for Ruth and another for Sundar. Ruth, regarding mobile search, could you share how its performance matched your expectations? I understand there's a lot of influence from YouTube in that area, but how is mobile search performing now and what are its key drivers? Is it related to queries, higher click-through rates, ad format changes, or something else as you look ahead to the next few years? Sundar, regarding the hardware business, there seem to be concerns about its trajectory, with some comparisons being made to Microsoft from a decade ago. Can you help us understand the significance of the hardware business to Google and your long-term vision for it?

In terms of the Mobile Search and the Site’s revenue more broadly, I think, the main point, as we have both tried to indicate in opening comments is, we view the advertising opportunity as significant, given, in particular, the opportunity with machine learning, both for users and advertisers, as well as our commitments to product innovation and being the backdrop of an environment, which nearly half of the budgets in the U.S. are still spent offline and about 90% of commerce in the U.S. is still offline and we are focused on digital playing a bigger role in that and tapping into other marketing budgets by offering an attractive ROI. And then, apart from people spending more time on digital content, to your question, we know the better measurement, better ad delivery, better user experience, all help grow the pie for everyone in the ecosystem. And then more broadly, within YouTube, as we talked about last quarter, we do continue to see significant growth in direct response and we remain excited about the upside potential there.

So I do think, we are still in our early days. But our commitment is very strong. We really see this as incredibly important to drive the future of computing forward and to make sure our services are presented to users in the way that we intended them to be, and so overall, we view it as a hugely important opportunity. When we look at the business, especially since we are newer to it, we are already performing very well with products like Google Home and Assistant. We see strong momentum and believe we are market leaders in this category on a global scale. Computing will continue to evolve beyond phones, and we want to ensure our commitment to this for the long term.

Thank you.

Hey, everyone. I want to revisit the deceleration comment, but from a different angle. Ruth, can you explain why the growth rates in Europe and the U.S., excluding foreign exchange, dropped significantly more than in Asia? Are there insights on why this slowdown was more notable in Western markets? Looking at the big picture, we see solid growth in the digital advertising sector overall in the first quarter, which you had indicated back in February. This isn't unexpected for you. How much of the slowdown, excluding foreign exchange, was due to issues with advertiser demand in these regions, and how much was influenced by proactive changes you may have implemented on your side regarding the product?

In terms of the regions, the year-on-year growth rates align with the product comments I mentioned regarding the first quarter. The U.S. and Europe experienced similar year-on-year changes, while the growth in Other Americas was more pronounced, primarily due to hardware impacts. In APAC, which may address some of your questions, we continue to see strong performance, delivering growth of over 30%, specifically 31% on a fixed FX basis. We are well-prepared for growth across all regions. Sundar highlighted several initiatives we are pursuing, particularly focusing on reaching the next billion users, and we are enthusiastic about the prospects there.

And I don’t think there are any demand issues to the last part of your question, and as we said earlier, we work through a set of product development pipeline in a very disciplined way focused on user experience and that makes it’s way too and that’s how we approach it.

Thanks. Just a follow-up on the last question on EMEA and U.S. Was there any go-to-market changes in terms of the sales force or how you said quarter anything that may have been effectively a Q1 seasonality issue that may see some snapback in Q2?

The opening comments I said that one of the points is that we had a strong year last year and we are looking at performance in line with that. I would say more broadly overall in terms of go-to-market, our long-term investment thesis remains unchanged. We are excited about the opportunities ahead. We do continue to invest to ensure we remain well-positioned for the long term. That applies across the businesses and so that there wasn’t a change that anything other than the comments that I had made. I think if I could just maybe expand on the investing pace, as we are looking at the pace of investing and supporting growth around the globe, what we are really looking at is what’s needed to support long-term revenue and earnings growth, the operating margin did benefit, and as I noted in my opening comments that, from the fact that Q1 marketing expense, growth moderated, but that was the timing issue. We do expect to pick up the marketing expense in the second quarter and other than that really nothing to comment on.

Thanks everyone for joining us today. We look forward to speaking with you again on our second quarter call. Thank you and have a good afternoon.