美源伯根 (ABC) 2010 Q1 法說會逐字稿

Welcome and thank you for standing by.

At this time all participants are in a listen-only mode.

(Operator instructions).

Today's call is being recorded if you have any objections you may disconnect at this time.

I would now like to turn the meeting over to Mr.

Mike Kilpatric.

Sir, you may begin.

Good morning, everybody, and welcome to AmerisourceBergen's conference call covering fiscal 2010 first quarter.

I'm Mike Kilpatric, VP of Corporate and Investor Relations and joining me today our David Yost, AmeriSourceBergen President and Chief Executive Officer and Mike DiCandilo, Executive Vice President and Chief Financial Officer.

During the conference call today we will maker some forward-looking statements about our business prospects and financial expectations.

We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations.

For discussion of some of the key risk factors, we refer you to our SEC filings including our 10-K report for fiscal 2010 -- 9.

Also AmerisourceBergen assumes no obligation to update the matters discussed in this conference call and this call cannot be taped without the express permission of the Company.

As always those connected by telephone will have an opportunity to ask questions after our opening comments.

And here is Dave Yost, AmeriSourceBergen President and CEO to begin our remarks.

Good morning and thank you for joining us.

As you probable know from our press release this morning AmeriSourceBergen delivered extremely strong first quarter to our fiscal year that began October 1, 2009.

We are off to a strong start and as a result have increased our revenue and margin assumptions and EPS guidance for fiscal 2010.

This quarterly performance follows our strong September quarter, which completed a strong fiscal '09 where we grew our GAAP EPS at 17%.

There is a lot to like about this first quarter where we hit historic records in many key metrics.

Mike will drill down on the details, but here are the highlights.

Revenues were a record $19.3 billion, up a robust 11.5% over last year, crossing the $19 billion threshold for the first time.

Gross profit margins expanded 15%, reflecting our strong generic programs, and specialty positioning.

Again this quarter, our dollars of operating expense were closely controlled, hitting an historic low as a percent of revenues.

Operating margin continued to expand as it has in each of the last four years, this quarter by a whopping 22 basis points.

We continued to do a great job controlling our receivables and inventory.

Diluted earnings per share were $0.52 on a GAAP basis, up a robust 44% over last year, and that's on top of a December EPS that was up 12% last year.

Lots to like about this quarter.

The highlights of the quarter reflect a theme of consistency that continues to be characteristic of AmerisourceBergen and demonstrates the strength of our proprofit drivers, Generics, and Specialty Pharmaceuticals.

Before I address some of the Company specifics, a few words on the industry.

First, Health Care Reform.

Health Care Reform is obviously a moving target after the election in Massachusetts, and the outcome will probably not be known for sometime.

The key take away though is that our industry and the role that ABC plays in it is strong with or without Health Care Reform.

If Health Care Reform results in more pharmaceuticals being dispensed that is good for the industry and ABC.

But I would note that without Health Care Reform we posted very solid results this quarter, and over the last eight years delivered 16% compounded EPS growth.

Second, on the topic of pharmaceutical industry revenue growth.

IMS forecasts of 3 to 5% for calendar 2010 seemed to be in the right ZIP code for us.

Part of our strong revenue this quarter reflects increasing industry momentum.

Third, the manufacture pricing environment.

With only three weeks of the calendar logged to date, it is a little early to forecast a trend.

January manufacturer price increases have been about what we expected, and as noted previously, we expect brand name manufacture price increases to be down from the 8 to 9% range we experienced the last two years.

Fee per service, of course, mitigates the price impact, and as noted previously, we started on fee per service with Pfizer January 1.

Fourth, the competitive pricing environment within our industry.

I would continue to describe the environment as competitive but stable, with few billion dollars pieces of business in play in the next 12 months or so, and few billion dollars pieces of business changes wholesalers historically.

Now a closer look at ABC.

Our robust 11.5% revenue increased over $19 billion reflected the strength of the overall market, new business, particularly in the drug company, and strong performance in almost every market segment.

The drug company had double-digit increases in independent and hospitals, reflecting new business that we began to anniversary in March.

The Specialty Group now at a run rate over $16 billion annually with a little more than half of the revenue coming from oncology, have particularly strong revenues in ASD, our vaccine nephrology of blood plasma distributor, and ICS, our third-party logistic provider.

Our packaging group bounced back a with double-digit revenue increase.

We had the strongest generic quarter in our history with a handful of noteworthy product introductions, reflecting the strength and diversity of our customer mix, where nearly all of our customers look to us for their generic product.

Our strong position in the oncology market benefited this quarter from the August launch of the oxaliplatin the generic version of alkylation.

Our generic revenue increase was more than double our total revenue increase.

Our strong gross profit performance this quarter was due in part to our generic programs.

We continued to increase our generic penetration with existing customers, and during the quarter, launched the program specifically tailored to the needs of alternate site customers.

In hospitals, our generic initiative that melts our proprietary [progen] offering with specific requirements of a large GPO launched in August and is proving very successful.

It is important to note that even without generic launches, our EPS growth would have increased in the 20% ZIP code.

The important take away here is that we have a strong sustainable business model without generic introductions.

As demonstrated this quarter, our performance can become truly outstanding when significant generic launches are added.

Our strong revenues continue to reflect our broad service offering in each of our segments.

We have spoken previously at our broad offering at Specialty Group that is orders of magnitude ahead of any offering in the market.

Last, for example, our patient reimbursement counseling business has some 1300 associates, and had a very strong quarter.

Oncologist, as another example looked to us for far more than product, and our oncology revenues continued to be strong because of the value-added service we provide oncologist in addition to our standing execution of basic pick, pack and ship.

Our Good Neighborhood pharmacy franchise like program for independent and regional chain retailers now numbers over 3700 stores.

We have over 5,000 stores participating in GNP provider network, providing access to third-party payors.

Helping hospitals improve their operation and to save money is standard operating procedure at ABC.

The message here is that programs and services are an important driver of the success in the distribution business, and along with generics had a positive impact on our gross margin this quarter.

Again, this quarter, the associated of ABC did an extraordinary job of controlling expenses.

Of our 22 basis point improvement in operating margin, 12 of those basis points came from driver our total expenses down to 156 basis points, a record low, and those total expenses include all of our corporate expenses.

This only happens when cost control is part of the culture of a company, as it is at ABC.

While it is true that we continue to benefit from the very efficient distribution centers we constructed after the merger, the true secret sauce of expense control is the dedication, discipline, and very positive attitude of our associates who work hard every day, knowing that people's health, and sometimes lives, depend upon what they do.

Our expense control is particularly noteworthy, because due to our generic penetration the number of pharmaceutical invoice lines we ship are increasing faster than our revenues.

Or said another way, due to our increased penetration, we have to ship more bottles of pills to get the same revenue.

We delivered this strong expense control as we continue significant expenditures on business transformation, our new S&P-based ERP system.

Our BT program is on schedule and on budget and will position us extremely well to meet the future needs of our customers.

We are currently in test on several elements of BT, and expect to begin implementing back office functions at BT later this fiscal year.

Along with controlling expenses, we continued to do an outstanding job controlling our inventory and receivables, driving down our DSO this quarter by one day to 17 days, in spite of a challenging financial environment particularly for smaller businesses.

Our receivables' performance is a key indicator that we are delivering value to our customers.

Given our strong balance sheet, let me reiterate our position on acquisitions.

All though none are contemplated in our guidance, we are receptive to acquisitions, and have spent over $1 billion in the last eight years on acquisitions.

An acquisition in our basic business of pharmaceutical distribution or related businesses like Bellco would have appeal to us, and we look to stay within our area of core competency.

We are in an excellent position for acquisitions both financially and organizationally.

The future for FY '10 and beyond is very bright for ABC.

While we don't expect to deliver 44% EPS growth every quarter, we're obviously off to a very good start.

Though it is early in our fiscal year, we have increased our revenue and operating margin assumptions, and EPS guidance to reflect our performance and our optimism.

I am as excited as I have ever been about our industry, and AB's prospects been that industry.

Here is Mike for added color.

Thanks, Dave, and welcome to all who have joined us this morning.

We truly had a phenomenal quarter, and we even exceeded the revised guidance we gave in December at our investor day.

We had a double-digit revenue increase, 22 basis point operating margin expansion, solid expense control, and working capital discipline all of which combined to provide greater than 40% EPS growth against the prior-year quarter that grew earnings in the double-digits.

Our performance was certainly driven by our positioning in the right parts of the market, Generics and Specialty, and we benefited from recent product introductions in those areas.

I will detail the benefit we received this quarter from recent Generic launches, and it was significant, and we'll talk about the benefit anticipated from expected new launches over the remainder of fiscal 2010 in my financial review.

I will also detail our updated guidance for fiscal 2010.

Now let's start with a look at the income statement.

Our top-line growth was an outstanding 11.5%, driven by revenue growth of just under 13% in the drug company, and 8% in Specialty, 7% of the drug company's growth and 6% of our overall growth came from our new customers that were added last year, primarily in March and April, and will start to anniversary at the end of our second fiscal quarter.

The remainder of the drug company growth was driven by overall market growth and the above market growth of a few of our largest customers.

The Specialty Group grew a robust 7.7% driven by distribution growth primarily ASD our nephrology, blood plasma and flu vaccine distributor and ICS our third -party logistics company.

As I mentioned previously, we will start to on anniversary the 2009 new business in the drug company in March of 2010, and our revenue growth will slow accordingly, and should be in line with market growth of 3 to 5% in the second half of our fiscal year, However, with our great performance in the December quarter we are comfortable with raising our consolidated revenue growth of assumption of between 7 and 8% for the fiscal year.

Our gross profit in the December quarter grew even faster than our top line increasing 15% by far the highest quarterly gross profit growth rate in our recent history.

On a percentage basis our gross margin expanded by 8 basis points in the quarter.

Approximately 2/3 of our quarterly gross profit increase was driven by the impact of recent generic launches including a full-quarter benefit from the August 2009 at-risk launch of oxaliplatin which primarily aided the Specialty Group and a number of scheduled launches which benefited the drug company.

This level of benefit to gross profit in the quarter was unusual and far exceeded the typical aggregate benefit we received from generic launches, which generally doesn't exceed more than a couple of pennies in any one quarter.

Looking forward, we expect a reduced but still substantial positive impact from generic launches in our second fiscal quarter, but we would expect the second half of our fiscal year to return to historic norms.

Assisted by these new launches, generic growth in the quarter was well over 20%, and helped to offset the margin impact from the growth of some of our largest customers who enjoy our best pricing.

We had a LIFO charge in the quarter of $7.8 million, compared to $5 million in the prior-year quarter.

Now moving to operating expenses, we enjoyed significant operating leverage once again, as we handled the incremental volume with only modest expense increases.

Operating expenses increased 3% in the quarter, well below the 11.5% revenue increase with the majority of the expense increase relating to incentive compensation and health benefits.

Operating expense margins in the December quarter declined by an impressive 12 basis points compared to last year.

We continued to expect we will have operating leverage going forward with operating expenses increasing in the range of 1 to 3% for the full year, well below our top line growth rate.

As a result of the significant gross profit increase, in combination with the modest expense growth, operating income increased by over 30% in the quarter, and operating margin increased by a significant 22 basis points.

Without the continuing exceptional benefit from new generic launches that we experienced this quarter, operating margin expansion will moderate throughout there the rest of the year.

However, factoring in our stellar first quarter performance, we are comfortable raising our full-year operating margin expansion assumption to the low to mid-single-digit basis point range.

Below operating income, net interest expense of $17 million increased by 22% over the prior year, reflecting the impact of our $400 million bond issuance in November, net of the related revolver paydown, as well as lower rates earned on our invested cash balances.

As a result of the bond offering, and continued low market interest rates to be earned on invested cash, net interest expense for the year should be approximately $20 million higher than last year's net interest.

Our effective tax rate in the quarter was 38.2%, slightly less than our anticipated effective rate for the year of 38.4, and less than the 38.6% rate in last year's December quarter.

Our record quarterly diluted EPS of $0.52 per share grew by 44% compared to last year, the EPS increase exceeded our 35% growth in income from continuing operations, due to a 6% reduction in average outstanding shares compared to last year as a result of our continuing share repurchase program.

Now let's turn to our cash flow and balance sheet.

We used $42 million of cash in operations in the quarter, much less than the $304 million we used in the prior-year quarter.

We had our normal seasonal increase in inventory as we added between 2 and 3 days of inventory at the end of the calendar year, reflecting our need to keep high service levels for our customers, despite a number of supplier holiday week closings.

On average our 26 days of inventory on hand during the quarter, was consistent with last year's average days on hand.

Our DSO for the quarter was very impressive once again at 17 days, down a day from a year ago, reflecting improvements in both drug and specialty.

This improvement continues to reflect the quality of our service and customer base as well as the diligence of our associates.

DPOs in the quarter were consistent with the prior year.

Capital expenditures were heavily weighted towards our ERP-enabled business transformation effort, and at $43 million dollars were similar to last year.

We purchased a $145 million of our common stock during the quarter and our ahead of the pace needed to hit our full-year $350 million share repurchase assumption.

As we have consistently said, our first goal for cash deployment is to grow our business through acquisitions or internal investment and to the extent we have additional funds subject to market conditions as always we would return those funds to share holders.

We have now returned over $4 billion to share holders through repurchases through August 2004.

During the quarter we also improved our already strong balance sheet by taking advantage of improving market conditions to issue $400 million of tenure bonds at an effective rate of less than 5%.

With the proceeds we have repaid over $200 million of revolver borrowings and while having a negative interest spread impact in 2010 we have improved our financial position by extending debt maturities, increasing liquidity and locking in very attractive long-term rates.

Our gross debt to total debt in capital ratio at the end of December was 33% very much in line with our long-term goal of the range of 30 to 35%.

Now turning to our guidance for fiscal 2010.

As a result of the first quarter exceeding our revised expectations, we have increased our annual diluted EPS guidance from the higher end of a range of $1.82 to $1.92 to a new range of $1.89 to $1.98.

This reflects an increase to our revenue growth assumption as I mentioned earlier to a range of 7 to 8% an increase to operating margin expansion assumption to a range of low to mid-single-digit basis point expansion and no changes to our free cash flow range of 500 to 575 million or $350 million share repurchase assumptions.

In addition, as I noted at investor day in December, the fourth quarter of fiscal 2010 has the toughest comparison to the prior year due to the benefit we received from generic launches, and the LIFO credit we experienced in the fourth quarter last year.

So, again, a fantastic quarter by any measure, reflecting our positioning in the right areas of the market generics and specialty, the quality of our customers and our associates, and our continued focus on operational excellence, and working capital discipline.

Now here is Mike Kilpatric for Q&A.

Thank you, Mike.

We will now open the call to questions, I would ask you to limit your self so people have th opportunity to ask questions and Barbara you may go ahead.

And thank you.

We will now begin the question-and-answer session.

(Operator instructions).

It will be one moment, please, for the first question.

And our first question comes from Larry Marsh with Barclays Capital.

Thanks, and good morning, everyone.

Well, Dave, I tell you this quarter is going to be one of the ages.

This is a great start for the year.

Congratulations.

Thank you very much.

My question is this, as we sort of reflect on the factors driving results, can you elaborate a little bit on some of the things that help you with the margin contribution from oxaliplatin around placing and timing that perhaps were upsides versus what I would have thought.

And as we sort of the about that channel in the next year or two, how much visibility do you have and how launches may take place, if it's a potential introduction of [taxitier] and [gymczar], later in calendar '11, sort of relative to what you saw in oxaliplatin.

In terms of visibility, I mean you called out the two key ones,[taxitier] which just got a six-month extension, so we're looking for that latter part of -- latter part of this year, [gymczar] as well.

So I think they are going to continue to come down the pike there, and I think provide good upside for us.

I'm not sure they will be as successful as oxaliplatin.

One is generics, and the other is specialty pharmaceuticals, and in this case you had them both hitting in the same place, so it was very, very strong.

Certainly, Larry, we benefited primarily because of the large footprint we had there the specialty market.

We were over 50% of the oncology market, which put us in a great position, and then the launch itself, which -- as a reminder was at risk, had all of the characteristics we like.

It was a high-priced prod with only a couple of manufacturers involved, and with our market share the price stayed up a little bit higher, I think, than people probably expected during the quarter.

Now, of course, as we go on further in the year, we would expect that to drop, and the benefit, as I said, I think will still be fairly substantial in the second quarter, not as big as 1Q and will continue to go down, I think as we get to the third and fourth quarter.

And, again, keep in mind, it is an at-risk product, and that can change at anytime.

Very good, thanks.

Thank you.

Next question, Barbara?

Next is Randall Stanicky with Goldman Sachs.

Great.

Thanks for the question.

Just to follow up, can you talk about how (inaudible) the generic would run through our P&L, and to the extent you can clarify whether you factored anything in, and whether you have any views on how many competitors that could come to market?

I have got to tell you, we want to be a little careful about talking about specific products, and we maybe violated that a little bit talking about oxaliplatin and alkylation but we don't have that built in to our guidance, of new business or is it --

Yes, Randall, again, it's not in our guidance.

I think the most we could say about that product is just remember it is beyond just the retail market.

There is a good part of that that is going to hit the institutional market outside of retail where our penetration in progenerics is somewhat less than it is in the retail space, but, again, in our assumption the rest of the year, a normal quarter has got a couple of pennies, and each quarter from generic launches, and that's where we expect to be in Q3 and 4, with 2 a little bit stronger again because of the continued oxaliplatin performance, and certainly if -- (inaudible) comes out it would be additive to that.

Okay.

Great.

Thanks, guys.

Next question, please.

And next is Tom Gallucci with Lazard Capital.

Good morning, thanks.

Maybe slipping away from the generics a bit.

You also had much stronger revenue growth and raised that for the year, can you talk about some of the drivers that you are seeing there.

New business or some of the existing customers.

(inaudible).

If I could just follow up too on your comments about being receptive to acquisitions, obviously nothing in the guidance.

That you, but if we're sitting here 6 to 12 months from now, would you have expect to have done a deal?

Tom, we don't expect to do a deal at this point.

We're receptive to do one, and could move pretty fast.

We hope some opportunities come down the road, there are clearly -- regional wholesalers have great appeal to us, and the specialty business would be very attractive us to, but at this point we really don't have our eye on anything specific.

But we have the cash to go after it as soon as it pops up.

Thank you.

Next question.

Next is Robert Willoughby with Banc of America.

Here is a tough one for you, Mike.

Do you have the outstandings balance sheet share base as of the December 31?

As of the end of the quarter is 283.8 million, Robert.

He just has that memorized, Robert.

This man is just a wealth of information.

Do you know what it would be for next quarter.

That's great thank you very much.

Great quarter.

Next question, please?

Next is Glenn Santangelo with Credit Suisse.

(Inaudible) If there were no generics contribution in the quarter.

I said that we would -- without the extraordinary, generic introductions we would have been in the 20% ZIP code.

So that would imply the generics added close to $0.10 in the quarter, these generic introductions; is that fair?

Yes.

And then (inaudible)

We said it would normally be a couple $0.03 something like that.

I just wanted to ask one last question on oxaliplatin, There was a Court case back in September ruled against the generic manufactures did that stop them from shipping?

Is there still plenty of available generic oxy la playton on the market now?

As Mike mentioned that was an at-risk launch, and the legal -- the legal issues could reoccur any time.

So, we're -- I mean, literally we could pick up, the paper or the mail and have that challenged in court and stopped.

Okay.

So as of right now, it's an at-risk launch, there's product out there, and you are just waiting to see how long it goes.

Absolutely.

Thank you.

Next question.

Next is Helene Wolk with Sanford Berstein.

Hi, good morning.

I just wanted to ask a question about the ESAs, and any expectation you have built into guidance?

The protein stimulating agents continue to be somewhat question mark going forward.

Rough justice.

They were strong in the nephrology business up in double-digits, a little bit of headwind continuing on the oncology business but when the smoke clears total ESAs were up in the single digits.

Any comments around flu?

Flu is not a really big deal for us.

I think we have said historically rough justice the total flu season is in the $100 million ZIP code, so not a huge issue for us, and nothing unusual to report.

Thank you.

Next question, please?

And next is Lisa Gill with JPMorgan.

Thanks very much and good morning.

Dave in your prepared comments you said that things are fairly rational and the drug distribution rate business right now, and that there's not any large contracts up.

Did you mean just in your own book?

Because my understanding is that one of your competitors does have some business up for renewal in the next 12 months.

What I hope I said was not a lot in the total industry, Lisa.

There are a couple that are up for review.

We don't have any.

Some of our competitors do.

But the point I wanted to make was with the very large ones, the relatively large ones Point two, they tend to be pretty sticky.

(inaudible - technical difficulty).

Generally our very large customers are a lot of unique services that you provide, you get closely integrated business -- you pick up the newspaper tomorrow morning, and we'll all get surprised.

(Inaudible - technical difficulty).

I'm really not to opine on whether 10, 11, will be unusual or not.

Yes, from a generic growth rate.

We said -- I said we were well over 20.

Dave said we were more than double.

About 5 to 6% or so of that is coming from the specialty side, with the drug company growth contributing over 20%, still even without that growth.

And a good part of that was the new business that we added over the last year, and if you -- you carved out that new business, we would probably be in the -- somewhere in the low to mid-teens range, which is still above the base revenue growth rate, showing that we continue to have good compliance, and good penetration.

Key issue here, I think is that we have said all along that we have 2 Profit Drives at AmerisourceBergen.

One is generics, and it's a function of our customer mix with almost all of our customers looking to us for their generic needs and the other one is specialty which is a very -- this year you had both of those.

So I would say this was a great quarter to really demonstrate the power of the profit drives when they line up.

So -- so just to follow-up on that, specialty grew 7.7%, but I'm sure the top line growth was somewhat offset by -- because of the price decline, the 20% price decline.

So what would specialty grow at if you exclude , and does that mean in the second half of your fiscal year you're going to see accelerated growth in the specialty bucket once we anniversary

We -- Ricky, but oncology had a couple of -- it had a couple of headwinds, as we mentioned earlier, they had a little headwind on the ESAs, as well as the , so they -- in the low single-digits is

Yes, our guidance, Ricky, for the year revenue growth and specialty hasn't changed on the 5 to 7% and as we said it is about a 2% drag expected from generics, and I don't think we have changed there.

So once we anniversary should it pick up a little bit?

I think the answer is yes.

Okay.

Thank you.

You bet.

Next question?

Next is Steven Valiquette with UBS.

Hi, thanks.

I know you guys don't want to talk super in-depth on individual generic drugs, but we did have the relaunch of the 1 billion plus generic [pulmacort] [pews] in mid-December, and I guess I'm curious did that contribute meaningful to the December quarter, or maybe just the general question is, when you have a big generic launch with two weeks to go in the quarter, generally speaking would that be a big earnings driver in that same quarter?

Just to get a sense for that one, they kind of come right around the end of the quarter.

Yes, the timing is important, and typically we would have something launched in mid-December would have a reduced impact in the quarter of launch, and would have the full impact in the next quarter.

The other thing -- the only thing I would add is we want to be careful about talking about any individual product, because we had a half dozen or so generic launches this quarter.

The vast majority, a number of them in the drug department.

So it was a good quarter all the way around for generic launches.

Thank you.

Next question, Barbara.

Next is Charles Ray with Oppenheimer.

Yes, thanks for taking the question.

Maybe speaking more broadly about generics, another comment you had made, Dave was the increase in the penetration and the climb base is also a driver.

Can you talk about what that penetration is?

At least maybe in broad terms, and sort of -- how much room is there for that to continue to increase, and how should we think about that over the next several years?

Thanks.

It's clearly an increasing target, Charles because as the number of generics come out, we have got to continue to raise the bar.

We literally track it customer by customer to look at it.

We incentivize our customers and our salesperson to get added penetration, we -- as we mentioned in my prepared comments, we came out with a new program recently for the alternate site.

We have got one a program with one of the large hospital groups to capture additional generics.

So we're continuing to track and we're continuing to raise the bar.

Yes, I think in broad terms, Charles, just to add to that, I think penetration on the retail side we think is in excess of 80% or so, and I think on the odd sites side is where -- as Dave mentioned we have got a lot of potential, and we're launching new programs.

Currently we think we're getting about 50% of the potential on that side, and as you know we have even made an entree somewhat in to the hospital department with our agreement with novation that we signed last year to handle oral solids on our progenerics program.

Okay.

Great.

So if I could just follow up, a couple of years ago we talked about improving the compliance rate.

Is it fair to think that improving that compliance rate is the main reason we're receiving retail 80%?

Yes, no, it's a good contributor, and like Dave said, we keep raising the bar, so every time we renew a new contract, I think we focus on making sure the bar is raised, and that any of the exceptions are reduced, and we get the compliance that we expect -- at the time we signed the contract.

Yes, you just take this quarter and -- there are half a dozen or so new introductions -- just because the new products are available.

So we have constantly got to raise the bar, and I think we're doing a -- we continue to do a better job at it.

Great.

Thanks a lot, guys.

In view of all of the company's reporting today.

We'll take one more question, Barbara.

And our next question comes from AJ Rice with Soleil Securities.

Maybe two quick things.

Hello, everybody.

The cash flow guidance, you had a strong guidance coming in to the year, but you upped the income level, but you didn't update the cash flow guidance.

Any comments about where you were in the first quarter in terms of the cash flow relative to your expectations.

And then second, you mentioned a couple of time, the alternate site initiatives.

Can you expand on what you are doing there?

Yes.

This is Mike, I'll answer the first question, and let Dave answer the second, but certainly, I think your cash flow guidance at the range it is, at 500 to 575 is a pretty broad guidance, and factors in the increase in the earnings guidance, certainly we were happy with our performance in the first quarter and we feel very much on track to hit that guidance for the year.

Well I want to be a little careful on getting too strategic on how we're picking off some of our alternate sights.

Formulary is unique.

We think the demands in the alternate sights are unique.

Their generic offering and their product as well.

They have got some pretty unique needs in terms of service.

They -- they also -- very, very sensitive to third-party access programs and the like, so we have worked pretty hard to have a customized program and getting some good traction there which is really paying off for us.

Thanks a lot.

You bet, I think -- with that we will cut it off.

We are sensitive to everybody's time, and we realize there is a lot of activity, going on out there the market.

As I would just conclude by, again, thanking you for joining us.

We have had a very, very strong first quarter.

Obviously, off to a very strong start for the year.

We think our two profit drivers, which are generics and specialty pharmaceuticals were very much in evidence.

We have raised our EPS guidance going forward, very excited about how we started.

So with that we thank you, and we look forward to sharing our second quarter results with you in April.

Thank you.

And that concludes our call today.

Please disconnect your lines at this time.