Bausch Health Companies Inc (BHC) 2013 Q2 法說會逐字稿

Good morning. My name is Matthew and I'll be your conference operator today. At this time I'd like to welcome everyone to the Valeant Pharmaceuticals second quarter 2013 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. Laurie Little, you may begin your conference.

Thanks, Matthew. Good morning, everyone and welcome to Valeant's second quarter 2013 financial results conference call. Presenting on the call today are J. Michael Pearson, Chairman and Chief Executive Officer, and Howard Schiller, Chief Financial Officer. In addition to a live webcast, a copy of today's slide presentation can be found on our website under the Investor Relations Section.

Certain statements in this presentation may constitute forward-looking statements. Please see Slide 1 for important information regarding these forward-looking statements and associated risks and uncertainties. Readers are cautioned not to place undue reliance on any of these forward-looking statements. The Company undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect actual outcomes.

In addition, this presentation contains non-GAAP financial measures. For more information about non-GAAP financial measures please refer to Slide number 1. Non-GAAP reconciliations can be found in the press release issued earlier today and posted on our website.

And with that, I will turn the call over to Mike Pearson.

Thank you, Laurie. Good morning, everyone and thank you for joining us. As you've read in our press release, we followed up our strong performance in the first quarter with another quarter of outstanding operating results. On today's call I will review our second quarter results and performance and provide an update on Valeant's business. I will then turn the call over to Howard to provide an update on the Bausch & Lomb transaction which closed Monday and discuss the business going forward. After our remarks, Howard and I will be available for Q&A.

This morning we reported Valeant's second quarter results for 2013 which were driven by strong organic growth and solid results across all of our operating units. Total revenue for the quarter was $1.1 billion as compared to $775 million in the second quarter of 2012, which excludes the one-time milestone payment of $45 million we received from GSK for the US launch of Potiga in the second quarter last year. Product sales for the second quarter of 2013 we were $1.06 billion, as compared to $743 million in the same period in the prior year, an increase of 43%. Our second quarter cash EPS was $1.34 per share or an increase of 54% over 2012. Our cash EPS would have been $1.36 except for $0.01 for the pre-closing financing cost of Bausch & Lomb and a $0.01 negative impact for foreign exchange. Adjusted cash flow from operations was $423 million for the quarter or an increase of 61% over the prior year. We would also like to mention that our net income to adjusted cash flow from operations conversion ratio was greater than 1%, which has been our objective as we've talked about previously.

Organic growth continued to be strong for the Company. Even with the negative impact from the introduction of a generic competitor for Zovirax Ointment. With this impact, our US promoted business declined 5% on a same-store sales basis but excluding this Zovirax Ointment and cream, the rest of the promoted portfolio increased 7% on a same-store sales basis. We are not adjusting for any other generic products. As we expected, our neuro and other business returned to positive growth and increased 2% on a same-store sales basis now that the impact of generic Cardizem CD and generic Ultram XR are largely behind us. Despite the continued headwind of generic Cesamet and a couple of other small products in Canada, our Canadian-Australian operations grew 4% on a same-store sales basis. Our emerging market segment delivered a total organic growth rate of 14% in the quarter, continuing the exceptionally strong progress since seen in 2012. I will touch on the key growth drivers on the next slide.

There are several key drivers that are fueling our growth this year. For example, US promoted products overall grew 7% on a same-store sales basis as OraPharma, our oral health or dental business, continued its stellar performance and once again delivered double-digit growth as it has each quarter since our acquisition. CeraVe also continued its positive track record and grew over 50% as compared to the previous year. I am pleased to report that our aesthetics franchise had its best quarter since Medicis launched its aesthetics products. In particular, Dysport had its best quarter ever and gained significant market share against Botox and Zeman. We expect our progress to continue as we roll out our new MBP 2 program, loyalty program, to physicians.

Our emerging market segment showed tremendous growth this quarter which was driven by growth by several key markets. In Poland we continued to grow faster than the market, which is growing 6% year-to-date according to IMS Health while our operations have grown 11%, nearly double the market. In Russia we increased organically 16% year to date, continuing to outperform the local market which is growing at approximately 10%. Specifically, Natur Produkt's has delivered double-digit growth the past six quarters since we announced the acquisition. Our operations in Southeast Asia, South Africa continued their track record of quarterly double-digit growth and our operations in Latin America showed strength across the board, particularly our Probiotica business in Brazil which has increased over 60% year to date. In addition, Mexico remains on track and has delivered 8% organic growth year-to-date versus the market growth rate of 3%.

We had another active business development quarter. And clearly the highlight of the quarter was the acquisition of Bausch & Lomb which closed on August 5. In addition, we significantly strengthened our aesthetic product offering with the acquisition of Obagi, a leader in the physician dispensed skin care market. The co-marketing agreement with Mentor which gives us access to the leading breast implants in the US, and the acquisition of Ideal Implants, a novel saline breast implant. We expect to gain FDA approval for the Ideal Implants in 2014.

We also continue to strengthen our business in Russia with the acquisition of certain products from Croma for the local market and Ekomir, a leading Russian OTC business. Finally, we gained entry into Vietnam, one of the fastest growing emerging markets, with the acquisition of the majority share of Euvipharm. We plan to use the Euvipharm platform to introduce other products into Vietnam. We continue to see interesting opportunities around the world and we would expect to be active with tuck-in acquisitions over the rest of the year.

As most of you are aware, once a year Valeant overviews the performance of past acquisitions with our Board of Directors and our investors, reviewing key metrics to evaluate the success of our transactions. On the next two slides we have analyzed all acquisitions that were over $75 million in purchase price and completed since 2008. As you can see, each of our acquisitions is performing extremely well as compared to the revenue forecasted in the original deal model with the exception of Afexa. Fortunately, Afexa and in particular Cold-FX has rebounded dramatically in 2013 and from a cash flow standpoint, Afexa is now on track as compared to our deal model. I would also like to note the strong performance of Biovail, Sanitas, PharmaSwiss and iNova, which are among the largest transactions over the last five years. In aggregate, our acquisitions have grown organically at 12% compound annual growth rate.

Turning to Slide 8, cash flows are clearly the most fundamental driver of a successful acquisition and the best measure of a deal's success. We're very pleased to note that all the acquisitions made since 2008 are either on track or well ahead of the deal model from a cash generation standpoint. In the aggregate, we are substantially ahead of the forecast of cash flows we modeled at the time of acquisition. We believe we are one of only a very few companies that has established such a track record based on both exceeding synergies but more important, over achieving unexpected growth.

Despite our reputation for not investing in R&D at the same levels of our competitors, we believe we have a very exciting late stage pipeline coming to the market over the next couple of years. Given some new news across a number of products, I would like to provide an update on this call. First, Efinaconazole, or Jublia. As you know, we received a complete response letter in May and I want to reiterate that there were no safety or efficacy concerns from the FDA regarding this compound. In July, Howard and I joined our team in Washington to meet with the FDA to discuss their concerns centered specifically on our container closure system. This week we hope to reach a final agreement with the FDA on a plan for addressing all outstanding issues and we expect to receive approval in the second or third quarter of 2014.

On Acanya, two pieces of good news. We have been able to extend patent life for Acanya previously set to expire in 2015 out to 2029. This was a more specific formulation patent which was granted. In addition, we have recently received Phase III results for a new formulation of Acanya which demonstrates both improved efficacy and improved tolerability. We expect to file this new product with the FDA by the end of the year.

Luliconazole, or [Luzo], has been filed and has the PDUFA date of December 11, 2013. We have engaged in positive discussions with the FDA and hope to publish Phase III data later this year. BP Metrogel, which we entered into a licensing agreement with Actavis earlier this year, now has a PDUFA date of May 24, 2014. Our dermatology R&D group is also working on several long extensions for CeraVe and we would expect the CeraVe family of products to surpass $100 million in sales by next year. We have successfully launched CeraVe in Canada and plan to launch it in Mexico, Brazil and Australia later this year. Finally, we have a robust pipeline of branded generic and OTC products across our emerging markets which we expect to launch the remainder of this year and next.

To wrap up our discussion of the quarter, we have provided this chart so you can track and compare our recent quarterly performance. I will not go over each line item but note that our margins continue to be within expectations with gross margins at 77%, SG&A ratio at 22% and operating margins at 52%. There are two areas on our P&L that I did want to provide some overview. First, we recognized a non-cash unrealized foreign exchange loss of $8.3 million on an inter company loan this quarter that we excluded from our cash EPS calculation, as we agreed to do at our last investor meeting. This related to the structure used by the iNova acquisition.

Second, in the spring of 2012, the board addressed historical issues related to RSUs that have been previously issued to directors but would not be deliverable until after the directors left the board. Not wanting to encourage directors to leave in order to realize compensation, the board approved an acceleration of certain RSUs, which the Company settled a portion of these awards in cash and the resulting net economic impact was the same as a share repurchase by the Company. This resulted in a one-time charge of $15 million in compensation expense.

With this, I would like to turn the call over to Howard.

Thank you, Mike.

Now turning to our acquisition of Bausch & Lomb, it has been a very busy time since we announced the deal back in May. During this time we have learned more about the business and the people who have made it successful. I'm pleased enough that Bausch & Lomb has a very similar culture to Valeant which will be an important factor as the two companies come together. B&L's performance space is much like Valeant's, and they are team oriented with a strong willingness to wear multiple hats and accept change. We are very excited that so many of the Bausch & Lomb senior management will be joining Valeant and I look forward to working with all of them. Yesterday Mike and I met with Fred Hassan and we're pleased that he will be joining our board and actively advising us on the integration and ongoing operations of B&L.

Our belief in the strategic rationale for the acquisition has only been reinforced through this process as well. Eye health is an attractive specialty, both in the US and globally. This acquisition expands our reach not only in existing markets but now opens up new opportunities in territories such as China, Turkey and the Middle East. And the fact that Western Europe and Japan are largely OTC contact lens and lens solution businesses and are profitable and growing make our entry into those markets very attractive.

Finally, we've also been able to refine and sharpen our deal old model and feel very confident that we can significantly exceed our $800 million synergy target. In addition, recently launched products such as Lotemax Gel, Prolensa, the new IOLs and the Biotrue daily contact lens have provided us with revenue upside, and we expect several of the pipeline products to provide us with new revenue opportunities in the future as we do not build pipeline revenues into any deal model. Furthermore, B&L was recently able to extend a patent for Besivance from 2021 to 2031 which we've not included in our deal model.

As recently stated in the memo, to both Bausch & Lomb and Valeant employees, we have already identified synergies in excess of $800 million. We will be reducing our combined headcount between 10% to 15%, which is a lower percentage than in other recent large pharma mergers. We will achieve these synergies with no impact on the North American fuel forces and less than 5% of the total synergies will be coming from the sales forces globally. We expect to achieve at least $500 million of run rate synergies by the end of 2013 with the remainder to be achieved in 2014. Finally, we expect the cost to achieve these synergies will be significantly less than one-time full synergy target. As always, we will update you on our progress.

The next slide gives you the percentage of our $800 million plus synergy target by business or function. As you can see, the bulk of the savings are coming from cutting G&A expenses, combining the three B&L business units into one eye health business unit and eliminating the B&L regional infrastructure and merging the businesses into our decentralized structure, reducing marketing spend and rationalizing spend on R&D projects. We continue to be extremely confident in our ability to significantly exceed our $800 million target and we will update you on our progress.

With the addition of B&L, we are extremely excited about the business mix and the opportunities it provides for both organic and inorganic growth. Now that Bausch & Lomb is closed, the US represents about 50% of our sales with two leading specialty platforms, dermatology and aesthetics, and eye health. We also have a very strong and growing emerging markets position which represents about 25% of revenue. We have entered Western Europe and Japan with OTC contact lens and lens solution businesses. As I mentioned earlier, they are largely cash pay, profitable and growing. By type of business, branded Rx is still our largest category but devices, which includes contact lenses, the B&L surgical business and aesthetics, is now 20% of our business. We are also diversified from a product perspective with no one product representing more than 3% of total sales. The percentage of revenue from our top 10 products is around 21% and around 31% of revenues derived from the top 20 products. This analysis demonstrates our diversification and is a unique position within our industry. Also given the pressures from governments around the world, we like the fact that 75% of our sales are either cash pay or private insurance.

In addition to the benefits of diversification, we have a very small percentage of our sales exposed to patent loss. As you can see on this chart, no more than 3% of revenue is at risk for generic competition in any one year and in the case of etabonate lotemax suspension, new products have already been launched to sustain these franchises. We would expect to be able to implement lifecycle management programs to extend the lives of other franchises as well. As you are aware, focusing on small durable products has and continues to be a big part of our strategy.

We raised a total of $9.6 billion to finance the B&L transaction and retain some dry powder for tuck-in acquisitions. In June, we raised $2.3 billion in equity or added 27 million shares. Going forward, our diluted share count will be approximately 340 million shares. In addition, we raised over $7 billion of debt and our total interest expense will now be approximately $245 million per quarter. We continue to have an objective to have our debt to adjusted EBITDA ratio below four times and expect to get there in the second half of 2014.

Before we get to our updated guidance for 2013, I want to remind everyone of our May guidance and our year-to-date performance. In May we guided to $5.55 to $5.85 cash EPS for 2013. Year to date we have delivered $2.64 cash EPS which would imply, based on our May guidance, a $2.91 to $3.21 cash EPS for the second half of the year. With the B&L transaction now closed, we're updating our financial guidance for 2013, along with a quarterly breakdown for the second half of 2013 to provide greater clarity. Including this quarterly guidance is not a practice we can we plan to continue but with the integration of B&L we felt this was appropriate at this time.

We now expect cash EPS in the range of $6 to $6.20 for 2013. This guidance includes a negative $0.11 per share for the pre-closing cost of the B&L acquisition financing, that's both the interest expense and the impact of the additional shares pre-closing. Of this $0.11, $0.01 was recognized in Q2 and $0.10 will negatively impact our results in Q3. In addition, FX movements, which cost us $0.01 in the second quarter, will cost us an additional $0.05 per share in the second half of 2013. As you can see, we expect $1.33 to $1.43 cash EPS in Q3 and $2.03 to $2.13 cash EPS in Q4. We estimate the combined organization will deliver revenues between $5.8 billion and $6.2 billion in 2013. We also plan to update guidance on adjusted cash flow from operations at the appropriate time but we also expect them to continue to be quite strong.

In closing, we're very proud of our quarterly results and our year-to-date performance. We're very excited about our future and believe that with a continued focus on durable assets and growing markets, we are laying a solid foundation to continue our performance into the future.

With that, we'll now open up the call for questions.

(Operator Instructions)

Marc Goodman, UBS.

First thing is, in the past you've talked about the accretion from Bausch & Lomb of 40%. As we think about next year, I was just curious, given the change in interest rates and given the fact that you've got your equity deal done now and everything, can you talk about how to think about the accretion?

Second thing is, on Bausch, that was a pretty good detail of where the costs are going to come from. I was curious, what's the extra cost cutting that you've found relative to your expectations? I heard a lot of comments about extra revenues that you found. I was curious, where's the extra cost cutting to get to the higher numbers quicker that you found?

And third, if you could just talk about Latin America specifically a little more, this has been an area that other companies have talked about as an area of weakness relative to expectations, and yet you continue to do really well there. So I was curious, how do you continue to do well? What's happening there? And how to think about the growth there, and how sustainable it is? Thanks.

Thanks, Marc. Why don't we have Howard talk about the accretion, and I'll talk about the additional cost opportunities in Latin America.

Sure. Marc, as you recall, when we announced the B&L deal and we talked about the 40% accretion, it was -- we talked about -- had the deal closed on January 1, 2013, and had we gotten all the synergies, that's what the accretion would be. As you mentioned, the interest rates we ended up paying were slightly higher than what we anticipated. We also issued a few more shares than we had thought, which would impact that a bit.

Now, with that being said, we also would expect the synergies to exceed our initial target. I think we feel very good about the progress we're making, and that analysis we did based on a 2013, based on the new synergies, still roughly holds. But obviously when we come out with our 2014 guidance, we'll see a much bigger impact of the synergy capture because we'll, of course, capture much higher percentage of the synergies in 2014 then we will in 2013. In 2013, the guidance represents the beginning of that capture, but again, 2014, we'll see a much bigger impact from the synergies.

Marc, in terms of where we're finding some additional cost opportunities, and as you know, it's a pretty detailed exercise going by region, by function, going through all the details. I think we've found quite a bit in purchasing -- probably more in purchasing than we expected to find when you compare rates that both companies are paying for things like car rentals and IMS data, and bottles and things like that, that we think we can get some non-personnel savings there. Quite a bit higher than we had thought.

I think the area of G&A -- it was actually a pretty expensive heavy model that they had in terms of the three divisions -- the surgical, the contact lens and the pharma. And then the regional structures. So there's actually more G&A savings than we had expected to find.

And we've also been able to leverage a lot of the commercial support functions that we had in our Company with ones that they had. So, for example, we'll now have a commercial support organization that will cover both the dermatology group, as well as the eye health group, which has led to more savings than we expected. But it's no one thing. And as we continue to look, the teams are doing a great job, they keep coming up with ideas, and we continue to find incremental savings, and we're already well north of the $800 million.

In terms of Latin America, our businesses -- I can't speak to issues other companies are having, but the markets have slowed a little bit, both Brazil and Mexico. Brazil was growing at 15%-plus, and it's down to probably about 10%, or maybe even high-single digits in terms of the market. And Mexico was growing high-single digits last year. It's down to probably about 3% this year. But we've continued to outperform the markets.

I think it speaks maybe to the types of products we have. The products we have tend to be, as you know, branded generics, and they are lower cost products. We don't have -- I think the biggest issues in Latin America are the end-of-patent-life products, the line of products are coming off patent, which obviously has the same dynamic as you see in the United States.

Probably the other thing is we've managed very carefully how much product we have in the distribution channels. Anything over 90 days we basically write-off, so we have very limited products compared to most companies in terms of -- in the channel. And we manage that very, very carefully. We've seen that's been helpful also in Europe, for example, where we have many, many companies have more than six months, almost up to a year of products in the channel, and we try to keep it around two months.

Lennox Gibbs, TD Securities.

Couple of questions. First off, on the decision to move Medicis to New Jersey. I think your original position was that Medicis would have remained in Scottsdale. Can you step us through the change in the thought process around the Medicis operation?

I think there were two things that drove the decision. One was the acquisition of B&L, where we had -- again, I was just speaking to the commercial infrastructure. You need to support a pharmaceutical business and a device business. This is things like regulatory support, supply chain support, the commercial operations in terms of providing samples out to the field, processing expense accounts, all those types of things. Before we had B&L, dermatology was really our large business in the United States, and most of that was out there. But with B&L, they had the same structure basically in New Jersey where that was the home of their pharmaceutical business. So it didn't make sense to have two structures performing the same function, so we had to make a choice.

We also have seen, over the six months or so that we've owned Medicis, that the ability to attract and retain and recruit people in Arizona with pharmaceutical experience is quite limited and, therefore, it becomes quite expensive. So when people left, we were paying a premium to have to attract talent. So New Jersey seemed to be the much more natural place to have this commercial infrastructure for the long term. And so, again, that has led to more synergies and, quite frankly, probably a higher-performing group, since it's a little bit larger and more professional.

Okay. Good.

And then secondly with respect to your recent comments around your aspiration to become one of the world's largest healthcare companies, seems like you might need to adopt more of a mainstream strategy, maybe larger therapeutic categories in order to achieve that objective. Maybe you can tell me if that's a fair assessment. But if it is, what are some of the new segments that you foresee targeting in order to drive that kind of expansion?

I don't -- I think we would plan to have our same model. We think we can be successful by not doing what large pharma companies are doing, and that's been our strategy, that will continue to be our strategy. And so we're not looking to get into the traditional -- we're not going to go -- therapeutic areas are largely driven by R&D in terms of why people organize that way, and we don't plan to spend -- increase our R&D spend as a percent of sales to what other companies are doing. And we'll continue to focus on both specialty segments and attractive geographic markets.

So, I think our strategy will remain the same. And we did put a big aspiration out there, but that's our approach. It's motivational to our people, and certainly something that we hope to achieve.

But what additional specialty categories do you think might be attractive in order to get to that objective?

I don't think we want to discuss specifics on the call. But I think they will be similar from a characteristic standpoint to what Howard was outlining earlier when he talked about Bausch & Lomb, which is cash pay, smaller products, durable products. I think we like the device area as well. So we would continue to grow that area. But in terms of specific categories, I don't think we want to go into them on this call.

Okay. Thank you very much.

Chris Schott, JPMorgan.

Congrats on getting the deal closed here so quickly. A couple questions. First, you talked a bit about it in the presentation, but can you elaborate a little bit more on the Western European operations for Bausch, the scenario you historically have done of exposure? Bausch obviously a very different business, more cash pay, et cetera, but just interested in your views on that part of the franchise.

The second question -- on the initial call on Bausch, I think you highlighted the 5% growth rate for the ophthalmology market on a global basis. Do you see the assets you're acquiring here as having growth that's in line with that target, above or below that target? Just trying to get a sense of how you're viewing the opportunities over the next few years.

And then the final question I had is -- as we think about the cost structure here, do you see anything unique about Bausch's cost structure that's allowing for this high of synergy level? Or should we think about this type of cost reduction as something that could be applied to other more traditionally run global pharma businesses over time? Thanks very much.

Okay. I'll start with the last question about the Bausch cost structure. As Mike mentioned earlier, the way we approach this is very much bottoms up. And every company is structured a little bit differently, even though on paper it may appear that they're similar. And in this case, Bausch prepared to be a public company, and so there were obviously at the G&A functions, there was quite a bit of overlap. Also, as you know, we just run a leaner G&A cost structure than other companies.

In addition, they had the global business units, which we don't run. We run decentralized, so we were able to eliminate the global business units. They also had some regional infrastructure that we've talked about. And we tend to run, consistent with our model, very lean or no regional infrastructure. The infrastructure is in the countries where the operations are.

And then again, on areas like R&D, we are able to rationalize R&D spend on projects consistent with our model of not taking big bets on risky early-stage projects. So I think -- I don't think it's necessarily something that's unique to Bausch. I think it's consistent with our approach in other deals, and every company we look at is going to provide different opportunities, some more, some less, but our approach to it is very consistently bottoms up, consistent with our core operating principles.

Western Europe? So Western Europe is an area that we early on made a decision to get out of. And I think that proved to be a good decision. We were not looking to get back into Western Europe per se because the markets over there continue to be difficult. But as Howard mentioned, the Bausch & Lomb business is very different. There's really very little pharmaceutical business in Western Europe. It tends to be an OTC business, a contact lens business, and an IOL business. So pharma is a very, very small percentage. And I think they were probably [thoughtful] when they designed their business over there because it's prescription pharmaceuticals that are reimbursed from the government that are creating all the problems in Europe.

Now, the overall economy and GDP growth does have an impact on growth. So I think what we would expect is that our business there -- what we'll do is continue -- it will probably grow at a lower rate than the average growth rate, but we are heartened by the fact that it is growing. That's probably -- the growth rate in Europe's probably going to be between low-single digits going forward, but the nice thing is it's very cash positive. And I think the margins we will be able to achieve there are quite high. So I think we're going to view Western Europe more like we view neuro and other, which is a good steady business. It will be low growth that will generate an awful lot of cash that we can then reinvest that cash in higher-growth areas. But it has been a good business for Bausch & Lomb, and we'll expect it to continue to be for us. But you're probably not going to see a lot of acquisitions, a lot of investment in that part of the world from us.

In terms of the 5% growth rate, we would expect to at least achieve a 5% growth rate, Bausch & Lomb. We would obviously hope to beat that. So I think we hope to beat it just through our strong sales and marketing infrastructure, and many of the markets were highly complementary. There's many markets that we were much stronger than they were in and vice versa. So, for example, in Latin America we have a much stronger presence than they do, so I think we can probably do a better job in Latin America just given our distribution. Similarly up in places like Canada and Southeast Asia we're probably stronger; they're stronger in northern Asia. We're a lot stronger in central and Eastern Europe. So I think our infrastructure will help us grow quicker.

Also they have a very -- as Howard just mentioned, they have a lot of new product launches; they have an interesting pipeline that we're hopeful on. And so I think our expectation is to grow more high-single digits overall in terms of the Bausch & Lomb business.

Great. Thanks very much.

Doug Miehm, RBC.

First question just has to do with the marketing spend, or what you say on the slide at around 18%, which would roughly be, depending on what you ultimately get to, $150 million to $200 million in savings there. So my question is -- since you're really not cutting back on front-facing individuals, are we going to see a significant decrease in marketing spend? And what is going to be the impact of that over the mid to long term in terms of B&L growth? That is the first question.

Second question, when we did see that letter, one of the things we noted is that the head of sales for each of the divisions at B&L, if that's still open? Maybe you could comment on the type of people you're looking for there, and why you didn't keep the people that were there.

And then finally, maybe for Howard -- you say that you're going to do greater than $1.75 billion in adjusted cash flows. But why are you not able to give us some better guidance with respect to that number yet? And I'll leave it there. Thanks.

Sure. Let me start. Marketing spend -- our strategy from the very beginning has been a little bit different than other pharmaceutical companies in terms of how much -- it's some basic beliefs that are I think a little bit different. And the area of marketing spend is one of them. I think we've consistently said that we really do believe that in specialty areas, the relationships between the sales representatives and the doctors are critical. And that's really, really what drives that relationship and the opportunity to educate a physician on our products. And differentiate our products, and get the message out, is the critical driver behind organic growth.

We think that's becoming more and more the case because of the increasing tough and appropriate regulations around what you can actually say about a product, which is basically -- you can talk about what's on the label. You can't talk about other things. You can talk about specifically what's on the label.

So we think that a lot of the historic spend that has been traditional in big pharma in terms of marketing is not designed for good return on investment. And it's always been our belief, and that's one of the reasons we've been able to attain a lower SG&A spend level than any other company in the industry. And it's just a different belief that we have than other companies. I think hopefully we're beginning to establish a track record of six-plus years now of achieving strong organic growth by taking this approach.

So, yes, we will be cutting back on the marketing spend of a lot of prescription products in areas like IOLs. IOLs is hugely relationship driven, just like aesthetics, it's hugely relationship driven. So, Doug, I think you're right that we will spend less than big pharma would spend on marketing. It's just a belief we have, and we will apply that same belief to Bausch & Lomb and, quite frankly, the senior leaders that are staying actually have reinforced that that's the right trade-off. And talking to Dan Wechsler, I think he is a big believer in this.

I should also add, Doug, the 18% isn't just from reduced marketing spend. A big chunk of that is from getting the synergies from creating the shared commercial operations in the US that Mike referenced before; also eliminating a lot of the overhead from elimination of the global business unit. So there clearly is a reduction in marketing spend, but that 18% isn't just reduction of marketing spend.

Okay. Great.

And then on the operating cash flow, we closed the deal on Monday. The key is we need to really understand their working capital movements on a monthly basis. We understand it on an annual basis from our diligence, and we just wanted to own it a couple of days before we came out, and that's really -- our expectation is that the operating cash flows will continue to be strong. But just before we come out with a number, we wanted just to better understand the working capital movements on a more granular daily basis.

Okay, perfect, and then --

On the people and the boxes that were blank], we're in discussions with people, Doug, and some of those spots have been filled and will be filled, and a lot of them will be filled by Bausch & Lomb people. It was just a point in time that we were communicating to the employees. So you shouldn't read anything into that, quite frankly.

Okay. Great. Thanks very much.

Annabel Samimy, Stifel.

I wanted to drill down a little bit more into the growth prospects now with Bausch & Lomb, and how you alluded to a number of pipeline assets that hasn't been included in any of your projections, so can you give a little bit more detail on those, and how you might offset some share loss that you've had in the lenses? Is it all about the silicon gel, or are there more products there that we should be thinking about?

The other thing I wanted to talk about was -- obviously, Bausch & Lomb is [a different market for you], and that's an area that you in the past said that you weren't going to venture in just because it's so competitive. Is this now a new entry into China, and what are you going to do in terms of bringing the rest of your business over there? Are you using it as a platform now, and should we expect more growth from there given the size of the market? Thanks.

Thanks for the question. In terms of the pipeline, I think that, again, when we do a deal, we do not ascribe value to pipeline products because that's just in our methodology because, unless something approved, it's not approved. But that does not mean we don't believe in those products. In fact, we are clearly excited about some of the Bausch & Lomb products that are hoping to come to the market.

I think you talked about contact lens. They have two products that will be critical. The contact lens business is a business that Bausch & Lomb invented decades ago. But their global shares has dropped dramatically. It's now -- they have about 8% market share in terms of contact lenses. And it's a four-player market, as you know. So they have not launched a new lens in a decade.

So they just came out with a Biotrue Daily, and they will be coming out with a Biotrue Monthly. The Biotrue Daily sales -- it's a pretty new product, but they are ahead of forecast, and so we're excited about that. But the true important product for the lens business is the [Zeus] product, which is a new material, which is hopefully going to be launched next year. So we have re-fenced all of the people involved in Zeus, and all the spending involved in Zeus, and we're not touching it, because that is the future of contact lenses for Bausch & Lomb. So we really hope that it's successful. All the early indicators are that it will be successful. It's in the FDA now for approval, so that could really make a difference for the contact lens business.

Similar, they have a number of IOLs that they're launching, one they just came out with and one later this year. So there are some exciting products, and a number of pharma products, so there's some very exciting products in the pipeline that are late stage. We shared in the presentation our late stage pipeline, which we think is quite exciting. We think theirs is quite exciting as well, and if the majority of them work, it's going to lead to some real positive growth.

China, we've always said that we did not want to get into China. We always like the market, but we never had a way -- we weren't going to get in and lose money, which is what many, many companies do for many, many years. Bausch has been in China for a long time. It's over a $200-million business. It's growing nicely. It's making money, and it's almost all cash pay. It's mostly contact lenses and solutions, and OTC products, and some are like brands like Renu, which are global brands. Some our local brands. So it's a very nice little business.

I don't know yet to what degree we can use that to leverage our products. We are heading over to China in September. We will spend a week over there. And really get to understand their business in more detail. And so we're hopeful that it could provide an opportunity, but we're going to be careful and (inaudible).

On the products for Bausch & Lomb, you said they have a pipeline, you have a pipeline [in durum]. Should we expect R&D to become a slightly bigger percentage given that these two businesses do require some level of R&D to potentially continue to grow?

Again, we will spend what's appropriate. We don't like target 2% or 3% or 4% of spend for R&D. It's not what you spend, it's what you produce. And it's industry conventions that say -- well, if you're spending 12% on R&D, then you have a much more brighter future than if you are spending 4% on R&D. And I dispute that. I think it's how you spend the money and what you spend it on that is -- so we're not focused on the number -- the percentage number.

What we're focused on is -- what are the right products that we think have very high probabilities of success that will really drive business. So is it going to change? It might change a bit, but not dramatically is my bet, but we don't really think about it as a percentage of sales.

[time].

Tim Chiang, CRT Capital.

I have a couple. Mike, could you comment on -- how big is the sales force size now that you've closed the Bausch & Lomb deal? I'm a little surprised that you didn't make as much cutting on the sales force, and I wanted to get your thoughts on, further out, do you think you will make additional sales force cuts next year? Or do you think the sales force actually might have to grow?

I don't know. We've owned this business for two days. And what we want to make sure is -- what we can say is Bausch & Lomb is performing well this year, and we do believe in sales force. I can point to Medicis where there were some reductions in Medicis because we had overlapping sales force. Again, we didn't have overlapping sales forces except for a few countries like Poland in ophthalmology. And since we bought Medicis, actually we started to hire more sales reps in the aesthetics group. The business is really performing well in aesthetics, and we're in the process of expanding that deal force.

But that's based on the opportunity and the results. And I think the same will hold true for Bausch & Lomb. If the results are good, and quite frankly, if some of these products get approved, then we'll probably need more sales reps because -- now if the pipeline doesn't come through and the products -- the growth isn't there, then -- so we don't have a preconceived notion I guess is the best answer. I think our hope is that new products get approved, and that the business does well and we need to expand the sales force. That would be the most desired outcome.

Okay. And then just a couple follow-up questions for Howard. Howard, where do you see the gross margins for the second half of the year with Bausch & Lomb settling out at? Do you have a range that you could provide?

Well, their margins net-net are a little bit lower than what we've been operating at, so just the weighted average, you'd expect them to come down a bit.

Somewhere maybe in the low-70%s? Is that reasonable?

It would be somewhere -- I don't have the precise number. We have looked at that. It will be somewhere in the low-70%s.

Yes. And I noticed the tax rate was around 2.8% adjusted. Is that a good number going forward, would you say?

That is in our guidance, is around 4% for the year. As we said before, the B&L transaction is a stock deal would move that up a bit, but 4% is probably a good number for the rest of the year.

Okay. Great. Thanks a lot.

Alex Arfaei, BMO.

Congrats on closing the deal in a timely manner. Mike, at this stage after the Bausch deal, could you talk about your preference for merger of equals as opposed to the smaller tuck-in acquisitions you mentioned earlier? And following up on the earlier question on Latin America, this quarter Pfizer also talked about a slowdown in Russia, as well as cost containment measures in Poland. You're obviously growing well in those markets. Are you seeing increased headwinds that could slow you down later on, or is it basically a similar situation as to what you were talking about in Latin America? Thank you.

First question, I think we are interested in both, small tuck-ins -- that's just part of how we do business, and we ran through some of the small tuck-ins we did this quarter. We would expect to keep doing the tuck-in acquisitions. Those are usually highly -- they're often actually credit accretive, and cash pay backs on many of those are measured in just well less than five years, so those are sort of bread-and-butter for us. Merger of equal, again, lots of conversations. It's going to take the right situation, and it can't be predicted. It takes two sides to reach agreement, but we continue to have discussions.

In terms of Poland and Russia, I think the Russian market has slowed down a little bit. It was like 15% growth. IMS was at 15% last year. I think it's slowing down to 8% to 10% this year. We're growing more like 15%.

I think part of it is we have almost no government reimbursement in Russia. It's largely an OTC business for us, and I think as we continue to gain scale -- and we were over there about a month ago, and we have well over 500 reps, and we'll probably be hiring more reps. Bausch & Lomb actually used -- didn't have their own reps, they used third-party reps. So we'll probably bring that business in house, and they have a lot of OTC business over there like Renu, stuff like that.

So I actually think our growth will continue to be quite strong. Everything we're seeing out of that market, and we were just on a call yesterday doing -- we were doing our weekly -- how are sales going? And Russia continues to be a great market for us.

Poland -- there is pressure in Poland. Last year, the market shrunk 3%. We were one of only two companies to grow, and we grew faster than anyone in Poland. And I think we continue to -- we have a great team in Poland. We just have a wonderful sales and marketing team, we have a great presence, and obviously the overall market growth rate will have some impact on us, but we have confidence we'll continue to overachieve in Poland. It's a really -- it's a great team with a great track record, and I think -- I would expect for the foreseeable future to continue to perform very, very well in Poland.

There's an overall theme, though. We have a very different business in emerging markets than others. Our brand, generic and OTC strategy is our products that are affordable. But people have confidence that they work, and it's a growing part of the market. We are less susceptible to a lot of the pressures, and certainly the patent risk that a lot of the branded products are under.

Thank you.

David Amsellem, Piper Jaffray.

Just a couple of product-specific questions. Just first on Solodyn, what's your level of confidence that you can return that to a meaningful growth, or should we be thinking of that asset as something where you probably wind down promotion on as we get closer to generic entrance in 2018 and 2019?

Second question is just on the Obagi assets, what's your view on your ability to drive more US growth out of Nu-derm and maybe talk about your plans for those assets outside the US? And then lastly, maybe if you could provide some specifics on efinaconazole, and what additional work you need to do to address the FDA issues that were outlined in the CRL? Thanks.

Sure. Solodyn is an important product for us, and we will continue to promote Solodyn. It's promotionally sensitive. It's stabilized to this point. It's a lot of money for us. It's one of our largest, if not our largest -- [probably our largest] product, so we're not going to be backing off on Solodyn, and in fact, the recent trends are positive.

So in terms of Obagi, actually that so far is short, it's early days, they had a terrific quarter in the US. So we're very optimistic on Obagi. We have just added them to our MVP program, which gives doctors discounts if they use a lot of range of our products. And that was actually one of their big concerns, one of the reasons they were up for sale is they were concerned that as sort of a single product or class of product company, that they would be at a disadvantage to companies like Allergan. So I think that that MVP program -- so the business is doing extremely well in the United States.

In terms of ex-US, what we're doing is we're putting in a (inaudible) decentralized model. So Obagi basically just exported, they sold to distributors. So now we will be launching our own Obagi in Canada, we will be launching Obagi in Vietnam, we'll be launching Obagi in all these other markets through our own -- which will both help us immediately because we don't have to pay the 50% discount to these distributors, but then we'll have our own people selling these products. So Obagi is sort of that -- with Bausch & Lomb, people focus on Bausch & Lomb, and actually but Obagi we feel very good about that.

In terms of efinaconazole, it's really stability data is the issue. We fixed the CMC issues, so there is agreements on that we now control the process, so the only issue is how much stability data do we need on our batches? And that's the only issue. So that's why we're saying it's a matter of when, and not if, this gets approved. It's quite clear in talking to the FDA that once we reach final agreement, and our team is down there this weekend -- once we agree on the stability data, the amount of time that that will get approved. So we're quite confident on efinaconazole.

Thank you.

David Risinger, Morgan Stanley.

It's Chris Caponetti for Dave. Congratulations again on the close of the Bausch transaction. I have just two questions, please. First, what kind of tuck-in transactions are you considering, specifically will Valeant continue to look at sub-$500 million deals even though you're now a much larger company? And second, how is management and the Board contemplating any potential changes to financial disclosure post deal close? Thank you.

We've not sat down and -- ever since I've been here and said -- we'll do deals or we won't do deals of this size or that deal. I think we're driven totally by value creation opportunity. I think what I've found in my tenure here is that as we've grown and we've attracted better talent around the world, our ability to have a more leveraged business development model, ie, the local management team really finding interesting business opportunities has really multiplied.

And so these smaller deals, as Mike said, they are -- afford us very high IRRs and often times, are also credit accretive right away. And they add a lot of value. If we can string a whole bunch of them -- a bunch of small deals together, they can add up pretty quickly. So there's opportunities out there. I'm hoping that our management teams around the world will find those opportunities and will take advantage of them.

In terms of our financial disclosures, we've had some discussion around that. Right now our intent is to keep the same segments. And right now we're talking about -- what kind of disclosure [we'll look] at in terms of organic growth. And we haven't made a final decision on that, but you'll hear from us as soon as we have.

Great. Thanks very much.

David Krempa, Morningstar.

Two quick ones. First, can give us an update on the manufacturing efficiency program -- where you stand with all your plant consolidation? And then secondly, can you talk about your strategy with implants? I think the MVP program lasts five years, but you talked about Ideal Implants potentially launching something in the next year or two. So how would that work out? Thanks.

Sure. Our manufacturing efficiency program -- we'll probably have to step back and do another one given all the clients that Bausch & Lomb has, but it's probably good timing because we were more or less facing the end of ours. By the end of this year we will be down to one plant in Brazil. I think this quarter, I think we plan to exit the bunker facility in Sao Paulo. We already got out of the old Valeant facility, so will be in the one plant in Brazil, and the margins have improved in Brazil. That's been one of the drivers of our improved COGS.

By the end of the year we'll have shut down -- we have two clients in Montreal, and we'll have shut down that plant. We still have a plant in Europe that we're trying to sell. It's in Lithuania. So, if you know of any buyers for that, you can let us know. The Lithuanian plant we would like to try to get rid of, but we're largely out of it in terms of manufacturing, but it's a very nice plant. And we've shut down our Australia plant.

So we're largely done in terms of the Valeant manufacturing rationalization, but I think we picked up 16 plants with Bausch & Lomb, so obviously none of that is included in the synergies. But clearly there's going to be some real opportunities for rationalization with the new Bausch & Lomb plant, so my guess is we'll start off a new program, but give us a quarter to get our arms around it, and then we can talk more about it.

The implants? So we like the implant area, it is a great area. They're an important product, obviously, for a plastic surgeon, and plastic surgeons are an important part of our aesthetics business, so we have this five-year program with J&J which I think is terrific. And precisely what we'd do, I don't know. But it's certainly an area of interest for us.

Okay. Thanks.

David Steinberg, Deutsche Bank.

Most of my questions were answered, but just two quick product questions. Mike, early on, I think you indicated that your aesthetics business was very strong, and that you actually, the Dysport actually took some market share, and I was just curious the reasons why. Is this just based on your renewed customer focus and all the conferences management has attended or anything else? And then secondly, just following up on David's question on efinaconazole, does this new timeline assume once you file a six-month review cycle at FDA? Thanks.

So in terms of Dysport, I would like to hope that all the dinners that Howard and I went to had some impact, but I'm not sure they did. Hopefully they didn't have a negative impact. We were just in Atlanta two weeks ago, so we're still doing those. I think what we've done is a great credit to the team. We've developed a new set of incentive programs which I think -- as you know, with sales force, a lot of it is all based on how you pay people. And I think that's helped.

The second is this MVP program, which Allergan had this bundling program, which Medicis didn't have any, and now we have a bundling program that's actually broader than theirs. With the introduction of the Mentor products, coupled with Obagi, there's a real incentive for doctors to use our products as well. And quite frankly, I think doctors do not want a dominant competitor in any space. Doctors are smart. They like two or three strong competitors.

And Dysport's a really good product. Dysport, from an efficacy and onset of action, as well as duration of products, is very good. So it was a high priority for us, so we are cautiously optimistic we're going to be able to continue to build share with Dysport. And it's a real focus.

In terms of efinaconazole, in terms of the 6- to 12-month review, that's exactly the issue. And that's why the timing is -- that's why we gave the range in timing. So that's what we're still working out with them.

Okay. Thanks.

Graham Tanaka, Tanaka Capital Management.

So you indicated when you get through with a program, the gross margins will be lower. I'm just wondering, as we emerge from the synergy gaining tunnel, it goes through the tunnel, on the other side what would some of the other income statement metrics look like, say, cost of goods sold -- you said the cost of goods sold, but the SG&A and then the operating margin, once you get the synergies, say, in two or three years?

Firstly, the gross margins aren't lower post the potential for rationalization that Mike referred to. That wasn't included in any of the synergies. It's simply because their margins on their products today are lower than ours. The contact lens -- the solutions in the pharma products are quite high gross margins. The contact lenses and specifically the equipment for the IOLs were much lower margins, and when you look at the weighted average of the B&L portfolio, that's what's going to bring down our gross margins. As Mike referenced, given the number of plants they have, and they have plans themselves to rationalize over time, which we'll now adopt, and I'm sure modify some, but that's the opportunity over time.

I think otherwise, in terms of our SG&A as a percentage of sales, I don't see any reason why that would go up. In fact, you can see a little bit of economies of scale given that we're a much larger company and because of the synergies. So there could be some opportunity there.

Great. And in terms of free cash flow generation, again, once you're through the synergy period, what is the B&L free cash flow? What are the metrics going to be relative to the non-B&L entity?

I'm not sure I understand the question.

I'm just -- wanted an indication of whether Bausch & Lomb is going to be generating more free cash flow than the non-B&L assets?

No. No, because we are much bigger. The combined entity pro forma will be north of $4 billion EBITDA in total. And so we're a much bigger company. So this year I think on a standalone basis they thought that they were going to do around $700 million of EBITDA, and we're obviously much, much higher than that.

I'm sorry. I should have said as a percent of revenue. I'm just wanting how much extra free cash flow is generated by those assets than the pre-B&L assets.

Well, we would expect -- our margins right now are 52%, as Mike pointed out on the chart. And they should be at least that high as we move forward.

Thank you.

Greg Fraser, Bank of America.

Thank you. This is Greg Fraser for Gregg Gilbert. In terms of life cycles for the key B&L brands, your limited patent risk slide you have Bromday in the 2013 bucket, Lotemax mentioned in 2014, et cetera. So just to confirm, is it the base case that those products face generic competition in the years shown, and is there the potential for upside based on lifecycle management programs?

Well, on Bromday, they've already launched Prolensa earlier this year, which is a replacement. And the hope is that -- the expectation is, and early read is that Prolensa has been very well received, and that's going to sustain that franchise. As I mentioned before, the Lotemax Suspension -- they've already introduced a Lotemax gel, which is a -- you don't -- instead of having to shake the drops, that's in a gel formulation, which you don't have to shake it and there is patents around that, and the Lotemax gel's already been launched and has also been very well received.

Are you anticipating that Bromday generics are approved after exclusivity runs out in October?

Yes. Yes. We assume -- that's what the chart is trying to depict is, that's when each of those products we expect generic competition. Now, that chart will continue to change over time, like Acanya, last time you saw that chart, Acanya was on 2015, now Acanya is way out because we're able to extend the patent. And we had a lifecycle management program for Acanya because we knew it was coming out in 2015, similar to what -- so what we're doing, what we're trying to do -- our strategy is nothing earth shattering. For each of our products that are coming off patent, we are working on lifecycle management products that we can introduce before the patents expire, and we can move -- and hopefully, there's some improvement to it like (inaudible) where the gel is better than the suspension in terms of Lotemax, and that will be our strategy.

Now, will we every time be able to come up with a new formulation that's better? Probably not. But if we do it the majority of the time, that's how we plan -- that's why we really like dermatology. It's why we really like ophthalmology because these tend to be topical products that, through better formulations, you can generate -- with basically the same active ingredients extend patent lives. And it's really key to our strategy. And I think the power of the slide that Howard showed is that if we can keep our patent expiry below 3% every year, on an ongoing basis, I think that will have us uniquely positioned in the pharmaceutical industry.

Got it. That's helpful. Thank you. And just a follow-up on Dysport, how much did share grow in the quarter, and where does share stand now, and what are the sources that you use to estimate share?

As you know, estimating share in aesthetics is very difficult because there's no IMS and there are [market] things. What we can look at is how much Dysport did we sell in -- how many vials were used by doctors? And the increase quarter one to quarter two was almost double. So obviously we sold -- we know the market didn't double in the second quarter, so we feel very good about saying that we increased our share.

Okay. And then, with your new revenue mix and larger size, what do you think is a reasonable organic revenue growth target going forward?

We appreciate the question, but we're not going to answer it.

I'll add a different one then, for Howard. A quick one -- how should we think about CapEx for the new Company over the next few years? Thank you.

For us, nothing is going to change. In the near term, the B&L -- until we get our arms around the B&L plants and what changes, if any, we're going to make to that system, I think it's pretty much status quo.

Based on last year.

A little over [$110 million]. I think it was [$110 million].

[$110 million] last year so --

[Dars] has been [$50 million] to [$60 million].

Okay. Thank you.

The only exception to that is the buildout of Zeus. (multiple speakers) It's actually approved, and you build it and you add lines. So you don't have to add it all ahead of demand. As the product is more successful, you're going to add additional lines, but that will also be offset the fact they've been building some Biotrue lines and other projects that will have ended by that time.

Andrew Finkelstein, Susquehanna.

A couple things, if you could address. First of all, as you've gotten a little bit more time to look at the Bausch business, and how you're going to integrate it, thoughts on what the tax rate may be, at least directionally compared to your own? And then, as you think about future deals, if you could comment at all on financing scenarios you can consider depending on how the markets shake out? And then, finally, something that you highlighted in your memo recently, but ensuring the importance of compliance across a larger organization, especially in the emerging markets? Thanks.

Well, in terms of the tax rate, I mentioned earlier on call that it will be -- for this year, it will be around 4%. We're finalizing our models for next year and beyond. But it will be, for the combined company, in that range, plus or minus 1% or 2%. So it's a little higher than what we're currently at, but still quite attractive.

In terms of future financing, firstly, as I mentioned, our objective is to get our leverage ratio below 4 times, so we're not anticipating any near-term new financings. But when we do a financing, we take a look at the market at the time, and make a judgment about longer-term fixed rate and shorter-term floating rate financings. Obviously, if there was a merger of equal transaction, it would be an exchange of shares, which would have a completely -- completely change the complexion of the balance sheet. But it will be a judgment made just like on the financing for B&L, we shortened the duration a little bit because of the movements in the market, it was an opportunity for us to manage our overall interest expense, and we thought that was prudent. So we still had long enough duration, but we put more in floating rate, and we're able to save quite a bit of money.

In terms of compliance, compliance is obviously very, very important for us. And has to be for every pharmaceutical company. And actually I was -- I just got the employee survey that we send out every year. And we have a huge response rate, well over 50%, and even higher in the emerging markets. When people come back and they rate our Company on our most positive attributes and our most negative attributes, and at the very top of the list of the positive is ethical. So our employees really do appreciate it. That's our most important thing that -- that comes before everything.

In terms of -- we've already reviewed some of the new markets that we're in. We've spent a lot of time talking about China, both within management, but also we had a long audit risk committee meeting about how do we make sure that as we now are in China that we have the right systems in place? The head of China, [Tom Atfield], he was here for a week, we spent time with him. He's a really good guy who understands compliance.

I mentioned earlier in the call that Howard and I are heading over to China. What I didn't mention is actually our audit and risk committee is also heading over to China in early September. We plan to have -- it's actually a meeting just about compliance in Asia. Our head of compliance will be there. And I think it speaks to how we have all of the formal programs I think most pharmaceutical companies do -- the trainings, et cetera.

I think what's a little different is we travel a lot. We spend a lot of time in these markets. And I think having senior management show up in the markets, ask the questions, show a real high level -- real interest in compliance, we always have a discussion on compliance. If there's any issues that come in, we're on the phone with the leaders in the market. So this is a sign that we -- so people know. People understand this is very, very, very important. And it's critical.

So I think the key will be -- continue to do what everyone else does, but really to spend time, have senior management spend time with the different markets in the different regions, making it very clear how important this is, how any violations will not be tolerated. And I think that's something actually our decentralized model helps us with, and in the way we run our Business makes us a little bit different.

Okay. Well, that's the last question, right? Thank you, everyone, for all your questions. And we'll look forward to talking to you next quarter.

This concludes today's conference call. You may now disconnect.