Bio Rad Laboratories Inc (BIO.B) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2010 Bio-Rad Laboratories, Inc. earnings conference call. My name is Brian, and I will be your operator for today. At this time all lines are muted and in a listen-only mode, and we will be facilitating a Q&A session after the end of today's remarks. Instructions on how to ask a question will be provided at that time. (Operator Instructions) Now I'd like to turn the call over to your host for today's meeting, Mr. Ron Hutton, Treasurer. Please proceed, Mr. Hutton.

Thank you.

Before we begin the call, I would like to caution everyone that we will be making forward-looking statements about management's goals, plans, and expectations. Because our actual results may differ materially from these plans and expectations, I encourage you to review our filings with the SEC, where we discuss in detail the risk factors in our business. The Company does not intend to update any forward-looking statements made during the call today.

With that, I'd like to turn the call over to Christine Tsingos, Vice President and Chief Financial Officer.

Thanks, Ron. Good afternoon, everyone, and thank you for joining us. Today we will review the fourth quarter and full-year financial results for 2010, as well as provide some insight into our thinking for 2011.

Let's start with a review of the quarterly results. We are very pleased to report that net sales for the fourth quarter of fiscal 2010 were a record $533.7 million, an increase of 7.8% versus a year ago period sales of $495.1 million. On a currency neutral basis, quarterly sales grew 10%. This increase includes sales of $15.3 million from our Biotest product line. On a currency neutral organic basis, sales for the quarter increased 6.7%. This year-over-year growth was fueled by continued progress and record sales for both our Clinical Diagnostics and Life Science segments, with specific strength in our Real-Time PCR and Precast Gel product lines, quality control, and blood typing products.

The consolidated gross margin for the quarter was significantly better than expected at 56.2% versus last year's gross margin of 54.2%, and is primarily the reflection of a continued favorable product mix toward higher margin consumables and instruments. During the quarter, we reported approximately $5 million in cost of goods sold for the amortization and purchase accounting expense related to our DiaMed and Biotest acquisitions.

SG&A expense for the fourth quarter was $176.7 million or 33.1% of sales, compared to $163.9 million last year, which was also 33.1% of sales. The increase in SG&A spend versus the third quarter reflects selling expense associated with the record sales level, as well as expenses typically associated with year-end. Amortization of intangibles related to our acquisitions recorded in SG&A in the fourth quarter was approximately $2.8 million.

Research and development expense in Q4 was 8.5% of sales or $45.3 million. The increase in spending, both sequentially and year-over-year, is reflective of our focus on the development of new instruments for diabetes and blood virus testing, as well as several new endeavors in the tool space.

Interest and other for the quarter was a net expense of approximately $20.6 million, compared to $14.2 million last year. This higher amount versus last year is primarily due to the successful debt refinancing completed in December and the subsequent retirement of our 2014 bonds, which resulted in a one-time expense of $5 million for the call premium and the expensing of the unamortized debt issuance cost. In January of this year, we retired our 2013 bond, which we expect will include a one-time cost of $4 million to be reflected in the first quarter of 2011. On a longer term basis, this debt refinancing will reduce our annual interest expense by approximately $8 million.

The effective tax rate used in the fourth quarter is somewhat meaningless, as we recorded a tax benefit of $10.7 million, primarily related to a one-time repatriation of foreign earnings, as well as the extension of the federal research and development tax credit. Excluding these benefits, our effective tax rate was still somewhat lower than expected at 25%. Going forward, we estimate the effective tax rate to be in the 27% to 29% range.

Reported net income for the fourth quarter was $67.9 million or $2.41 per share on a fully diluted basis, compared to $37.9 million last year or $1.35 per share. We are estimating that, excluding the unique tax-related impact of the repatriation of foreign earnings and the reinstatement of the federal R&D tax credit, diluted earnings per share would have been $1.52.

Our Life Science Group reported record performance, with sales for the fourth quarter of $192.9 million, a growth of 1% versus last year, which was also a very strong quarter for the Group. On a currency neutral basis, sales increased 2.2% for the quarter. These quarterly results reflect strong sales of Real-Time PCR products, as well as our newly introduced Precast Gel products.

On a geographic basis, sales in Asia-Pacific and Latin America were especially robust. Gross margins in Life Science remained strong in the fourth quarter, despite the increase in instrument sales. The better than expected gross margin is a reflection of the lower manufacturing costs related to our new line of PCR instruments and thermal cyclers. In addition, improved SG&A margins helped segment profit for the fourth quarter to reach more than $20 million, a record for our Life Science Group.

Our Clinical Diagnostic Group recorded sales for the quarter of $336.5 million, compared to $300.5 million last year, an increase of 12% on a reported basis and nearly 15% currency neutral. As I mentioned earlier, sales of Biotest products during the quarter were $15.3 million. On a currency neutral organic basis, year-over-year Diagnostic sales grew an impressive 9.3%. These sales were led by continued strong performance in the blood virus, quality controls, and blood typing product lines. During the quarter, we placed 13 new BioPlex 2200 systems in the US and Europe, which bodes well for continued revenue growth in 2011. Reported fourth quarter segment profit for Diagnostics was $36.7 million, an increase of 37% when compared to last year.

Looking at the full-year results, we are pleased to report annual revenues of $1.927 billion an increase of 8% on a reported basis. As you will recall, the first half of 2010 was marked by a currency tailwind, while during the second half of the year we experienced a currency headwind. These trends, in effect, neutralized the full-year currency impact, resulting in currency neutral sales growth for 2010 of 8.1%. Excluding the $56 million of acquired Biotest sales, currency neutral organic growth for 2010 was 4.8%, essentially in line with the 5% growth goal we guided to at the beginning of the year.

Even in light of a tough industry environment in the US and Europe, and a continued decline in our BFE business, our Life Science Group posted good annual sales of $648.1 million, an increase of 2.6% versus 2009. The higher sales were primarily fueled by growth in our core market of electrophoresis and gene expression, as well as good growth in the emerging markets in Asia-Pacific region. During the year, we introduced several new products, including our new line of Precast Gels and the Gel Doc EZ Imager, which provide researchers with faster protein separation and visualization. The new TC10 Automated Cell Counter and Real-Time PCR instruments introduced in 2010 also performed well. This momentum, combined with a strong lineup of new products, bodes well for growth in 2011.

For the year, Clinical Diagnostic sales were $1.265 billion, an annual growth of 11% on a reported basis and 6.3% on a currency neutral organic basis. This growth was fueled by strong performance in blood typing, quality control, and sales of BioPlex 2200 assays. On a geographical view, all of our primary regions grew double digits, with the exception of Europe, which remains somewhat sluggish. Also in 2010, we launched a number of new Diagnostic products, including two new panels for the BioPlex. During the year, we placed a total of 37 BioPlex 2200s around the world, bringing the installed base to 171 units.

Our immunohematology division also performed well in 2010, with operating margins higher than the Company average, despite an operating loss associated with the Biotest business and significant purchasing accounting expenses. We hope to continue expanding our Biotest opportunity in 2011 and turn the corner on operating contributions by the end of 2012.

Total Company gross margins for the full year were ahead of our original guidance at 56.6%, compared to 56% in 2009, and despite a sizable negative impact related to the Biotest business and purchase accounting. Excluding the Biotest impact, our consolidated gross margins for the year exceeded 57%, a record for the Company. This improvement is the result of a product mix shifted more toward higher-margin consumables, as well as lower cost and improved manufacturing efficiencies. Total amortization of intangibles in purchase accounting recorded in cost of goods sold in 2010 was $21.2 million, which includes $8.3 million of inventory step-up, as required under purchase accounting.

Research and development expense in 2010 was in line with expectations at $172.3 million, or 8.9% of sales. During the year, we launched more than 175 new products worldwide and have several more in the pipeline to help keep our return on R&D investment strong. Thus we continue to expect R&D to be in the 9% to 10% of sales range for 2011.

SG&A expense as a percent of sales was 33% for the year, a slight improvement when compared to 2009. And also reflects a lower growth rate in absolute SG&A spending than the growth rate of sales. The combination of improved growth in operating margin helped to generate operating profit growth in 2010 of more than 20%. It's important to note that included in SG&A expense is $10.7 million of acquisition-related amortization.

Net income for the full year was $185.5 million, versus last year's net income of $144.6 million, an increase of 28%. This year-over-year improvement is primarily the result of improved gross in operating margins, lower minority interest, and the unusually low tax rate. The effective tax rate for the full year, 2010, was 15%.

For 2010, Bio-Rad's balance sheet remains strong. As of December 31, total cash and short-term investments were $1.025 billion, compared to $745 million at the end of last year. Keep in mind that subsequent to the year end, we retired our $225 million subordinated debt issue, and the balance sheet for the first quarter of 2011 will reflect this decrease in cash and debt.

Net cash generated from operations during the fourth quarter was $100.4 million and $226 million for the full year. As we talked about at the beginning of the year, the extraordinary cash flow during 2009 was likely not sustainable due to several factors, including our planned investments in infrastructure, the integration of Biotest operations in the US and Europe, and information technology. Despite this lower cash flow result, EBITDA grew to record levels for 2010, finishing the year in excess of $390 million.

Net capital expenditures were $31.5 million for the quarter and $87.3 million for the full year, which is substantially in line with the $80 million to $90 million range we estimated at the beginning of 2010. The increase in fourth quarter is primarily related to our investment in ERP, e-commerce, and facilities. Looking to 2011, we estimate that CapEx spending will be in the $100 million to $110 million range, primarily reflecting our increased investment in a new global ERP system. And finally, depreciation and amortization for the quarter was $28.9 million and $108.9 million for the full year.

We are pleased with our performance for 2010. That is, achieving 5% top line growth despite economic challenges in many parts of the world and growing our operating profit by nearly 23%. Looking to 2011, we are estimating currency neutral organic revenue growth to again be in the 5% range. This growth rate reflects our expectation for Life Science sales growth to increase as a result of several new products planned for 2011, while Diagnostic sales growth will likely reflect industry trends in the mid single-digits. Our goal for full year gross margins is to remain in the 56% to 56.5% range, as we continue to absorb the lower than average margin posted by our Biotest operation.

During 2011, we are planning to significantly ramp-up our ERP project, with a focus on building the internal team and beginning the global design. We estimate that we will incur up to $15 million of expense this year related to the project, which is in addition to the planned CapEx spending of about $20 million. With this additional expense in mind, we believe it will be difficult to maintain the full-year consolidated operating margin at the 2010 level. Thus we are estimating full-year operating margins to be in the 13% to13.5% range. And finally, as I mentioned earlier, we anticipate research and development expense to be between and 9% and 10% of sales and the effective tax rate to be in the 27% to 29% range.

And now I will turn the call over to Norman for a few comments.

Okay. Thanks, Christine.

I really don't have too much to add to Christine's remarks. I would say again that our results are pleasing, especially given the global economic picture. The kind of the balance, I think, of the higher growth in Asia-Pacific and other emerging markets more than offset the slowness in the US and Europe that Christine alluded to.

I guess I would re-emphasize again that we would expect this trend to continue into 2011. Focus, certainly that we've had for the last several years, is on operating margins. It does appear we're making good progress on this front. While in -- while we are increasing our investment rate in 2011, our continued goal is to make the mid-teens a sustainable operating margin level for us.

Going forward, certainly we see a number of opportunities, not only to continue to improve margins, but for continued sales growth. The Asian markets, the emerging economies seem poised for continued expansion. In addition, we've got a good pipeline of products, new products that are -- we're exploring new technologies, market areas, all of that should continue to support continued progress as a Company as we go forward.

So with that, we'll be happy to take your questions.

(Operator Instructions) And your first question comes from the line of Larry Solow from [CGS] Securities. Please proceed.

Hi, thanks. Good afternoon. Very nice quarter. Congratulations.

Thanks.

Christine, anything unusual in the quarter in terms of sales? You had very nice acceleration quarter-over-quarter. It sounded like last quarter you were a little bit more -- I think you lowered growth expectations a little bit and lowered the big numbers so maybe it's not on an absolute basis, it sounded bigger than it really was. But anything you could cite that the new products maybe have a greater contribution or growing contribution, or any one-timers in there?

Well, I think it was just continuation of some good business that we've seen, and especially in the Life Science side. So maybe I'll have Brad talk a little bit about the strength of Q4 on the Life Science side.

Yes, we -- this is Brad. We had some well-timed new products specifically targeted for Asia-Pacific in the gel documentation area. We do particularly well in that area, and we geared a new product specifically for a strong fourth quarter. And everything worked out well, actually, and we got the product out. We got it shipped, and we got it placed so that we could invoice it. So that really helped us have a strong quarter against a really tough comparable.

Okay. In terms of Biotest, I guess it sounds like the expected to break even on an operating profit basis by the end of '12. I imagine on a cash basis, if you take out the amortization, it's profitable already or close to it, right?

No, it's not profitable yet.

And remember, we talked about this when we made the acquisition, that some of this is just related to top-line scale, with a certain amount of fixed cost in running an FDA-regulated manufacturing operation. And I think top-line growth will go a long way to bringing Biotest to profitability.

But there are also other efficiencies that we plan to build in to the business. And frankly, invest in the business as well.

Right. Okay.

And the inventory step-up, wouldn't that -- most of that been front-loaded already so you shouldn't have as much of that going forward? Or none of it?

No, you're absolutely right. There was several million dollars of inventory step-up that was part of the cost of goods and contributed to the results in 2010, and that does go away in 2011. However, most of that will be offset by increased investment in R&D as we look to expand that product line and increase investment in selling, as we build our presence in the US.

Right. And just remind me, your non-compete agreement with your other technology, with Ortho -- that expires in '11, this year or next year?

Yes, 2011.

Okay. So you can actually enter in '12 than, I guess, where you have the final.

By agreement, technically you could be right, but as a practical matter we need to go through the building of the business and the FDA process.

Okay.

I don't know, John, if you would like to add anything.

No, I think you've got it -- got it right, Christine.

All right. Okay.

And then I guess -- I know it's always hard to predict, but it looks like, at least based on the Euro and what not, where we are today would actually may be even a modest tailwind for you guys on a full-year average year-over-year, is that right?

It could be. So when we do currency neutral -- we talk about 5% growth currency neutral, if I were to instead look at it closer to today's rates, it's probably a little higher than 5% growth. But again, who knows, headwinds, tailwinds, so we try to stick to looking at our business on a currency neutral basis.

Got you.

And then just in terms of the acquisition environment, and I know I guess you've retired some debt, but you still have a lot of -- obviously a lot of fire power in your balance sheet, so it's probably a wise move if there is nothing imminent. Anything out there, multiples coming in at all? I don't know if Beckman Coulter or proposed acquisition of Beckman Coulter at a relatively low historic multiple is indicative of what is going on in the industry, or if you can add any color to that?

You know, it's really hard to say. The transactions seemed to be few and far between. It's not clear there's a trend one way or another.

Okay. And you guys anything --

We've seen some expensive ones, and we have seen some that seem more reasonably priced.

And the debt reduction, was that more opportunistic than anything else?

No, so don't misunderstand. We did the refinancing at the beginning of December, $425 million.

Right, okay, so you just basically swapped two pieces of it. I got you.

Exactly. And one of the bonds had a 30-day call period, which technically doesn't get taken out then until January, which is the first quarter.

Okay. Got you. And that will save -- those combined two will save you $8 million annually?

Correct.

Got you. Okay. Great. Thanks.

And your next question comes from the line of Richard Glass of Lockwell Investments. Please proceed.

Hey, guys. Great quarter.

Thanks, Rich.

A quick question I have is, can you tell us anything that you're doing to prepare -- whether it's the Biotest or DiaMed products -- to compete more directly with, say, Immucor in the United States, which is in the next nine, 12 months as I understand, I guess?

Yes. This is John Goetz.

The strategy over the course of the next, let's say nine to 18 months, is definitely a Biotest approach. As Christine mentioned, we're investing in that product line and intend to continue to expand our manual reagents line in the US. And we're also looking at our platform opportunity there.

Okay.

Is there incremental dollars that will be going into that, or is that just out of the normal sort of SG&A budget?

Well, normal SG&A budget, we basically trained our entire sales force. They're out there making customer calls on almost every visit and getting some very good results. The interest is very good.

And I think it's reflected, Rich, in our guidance for this year in terms of this continued investment in Biotest.

Great.

My last question, then, is where are we on the IT revamp or however you want to reset, however you want to put that?

On the ERP?

ERP, IT. Yes.

So we are launching, more significantly this year, the entire project. We've selected our preferred technology. We are in the process of selecting our preferred integration partner.

In the meantime our focus is on building the internal team, so that we have our best people on the project who represent all of our key process areas and our businesses around the world, with the focus of building a very good single global design that we can then implement in a single instance worldwide in the out-years. So this year will be spent on building the team, bringing on board a systems integration partner, and beginning that global design process.

Okay. Great. Thanks a lot, guys. Good luck.

Thank you.

Your next question comes from the line of Dan Leonard of Leerink Swann. Please proceed.

Thank you. A question, I think, for Brad.

How will the qPCR patent expirations impact your business in 2011, if at all?

Not at all in 2011.

Starting in -- towards the end of 2012, those patents begin to roll off and will substantially reduce our royalty. And we've done a lot over the last several years to improve our designs and our efficiency in manufacturing, and we'll appreciate the lower royalty burden.

Okay.

And is there anything, either for John or maybe Norman, you guys can disclose on your plans for entering the molecular diagnostics market in 2011?

Well, I mean, we have, we've -- certainly we've introduced a platform and first panel, STD panel to that market. So obviously it's still early days, but we're certainly getting started with that.

Okay.

And was mad cow a drag on your business at all in 2010?

This is Brad.

Yes, we still have a drag on that business. Obviously, mathematically it's far less, and within that business segment, we actually have a very strong growing food diagnostic business, but more directed on rapid food diagnostics even than qPCR.

Okay. And then my final question.

Since your stock has been hovering above 100 for a while now, would you consider doing a stock split, or is the level of the stock price not a consideration for that decision?

You know, this comes up from time to time. It's probably something we should continue to think about.

Okay. Thank you.

(Operator Instructions) Your next question comes from the line of Jon Wood of Jefferies. Please proceed.

Hey, everybody.

Hey, John.

Hey, so Christine, on the ERP expense, you said $15 million. Does that all go in SG&A?

For the most part, yes.

Okay, so that's about 75 basis points, if I'm right on the calculation. And your margin was about 14.5 for '10.

So my question is, what's the incremental erosion you expect in 2011? So if I take -- call it 125 basis points, 75 of that is ERP, is R&D go up, or is there more SG&A-related investments that are kind of over and above what you normally do?

So, a couple of things. First of all, remember that in 2010, we had about a 50 basis point pick-up because of successfully settling some outstanding legal and intellectual properties disputes. Do you remember that?

It was about $5.5 million. That was about 50 basis points, if you will, to the operating margin. So that's part of what would not repeat in 2011.

In addition to the ERP, we are making several investments internally, both in terms of geographic region, specifically in Asia-Pacific, to continue to build our presence, our sales presence in some of those emerging high-growth areas, as well as investments in R&D we talked a little bit about on the Biotest side. And again, it's a currency neutral estimate and not wanting to predict where foreign exchange rates are.

Got it.

So for John Goetz, I understand your comments on Biotest, but it looks like your group just had a very significant growth rate this quarter off the toughest comp of last year. What was the biggest surprise for you in the fourth quarter, and is or is it not really a one-time event?

Yes, thanks, Jon.

Well, there were a couple of things that contributed pretty heavily to that great quarter we had. One is the success that we're having in our blood typing products outside of the US. We've had some very good luck winning business with an instrument that we've introduced which we call the IH 1000. We garnered some nice contracts, not only in Europe, but also in Asia.

The other side of that is that we had a -- just a record shipment of diabetes instrumentation into the Asian market. I think we shipped something over 500 units of our system called the D-10 into that market, beginning in end of November, first part of December. So those two things contributed real heavily to that.

Okay, great.

And then Christine, on cash flow, I know you had that reset, if you would, from the very elevated level in 2009. Is it reasonable to expect the operating cash flow to kind of track net income growth at this point, or are there more working capital effects we have to understand for '11?

I think in general that's reasonable. But remember, we are ramping up CapEx this year.

Right. Just the operating -- on the operating cash flow, is this a -- kind of a correct level or a base level for the working capital, is basically the question?

Yes, I would think so, for the most part. I mean, we'll continue to keep an eye on inventory levels. We'll continue to keep an eye on collections around the world and what may be going on in different geographies and economic situations. But I can't imagine that it goes down from here.

Got it.

And then the CapEx on ERP, is that a multi-year phenomenon? You called it out as $20 million. Is that a one-time deal, or do you capitalize for multiple years?

There will be multiple years. And I would imagine that this year, 2011 and '12, will be fairly significant and grow in terms of the capital expenses, because we will take the time to do the design, and then we'll begin the implementation and roll it out around the world.

Okay.

And then on the P&L, is that the same phenomenon applies on that $15 million? Just talk about how -- you know, how that step functions in the out-years?

So I think that -- it's hard to predict exactly, but if it's $15 million this year, it might be a little higher next year, because you'll have a full-year impact of people on the project. Having said that, as we come off the design phase and are more into the implementation phase, then maybe fewer resources. So I think $15 million to $20 million a year for the next two to three years is probably not unreasonable.

Okay, great. All right, thanks a lot.

And your next question comes from the line of Jeff Matthews of Ram Partners. Please proceed.

Hello.

Hi, Jeff.

How are you?

I'm well.

First, Norm mentioned emerging markets offsetting slower Europe, and I think he also said slower US. And I'm wondering what you're seeing in the established US and European markets, particularly in light of government -- and I'm thinking the UK, but it may be elsewhere -- clamping down on healthcare spending? What are you seeing?

Well, just in general, it -- I guess my view is that the US markets went through this a little heavier in a year or so ago and are starting to -- I think there's starting to be more life in the US markets. I think the -- Europe is still struggling and will struggle throughout 2011.

Why?

Well, just the general pressure on all of these social costs. And it seems to have affected us more on the Life Science side than on the Diagnostic side. So it seems to be more about kind of cutting research spending than controlling healthcare costs or cutting. At least in our part of healthcare.

Interesting. Okay.

And then I'm adding up all of the costs on this ERP, and it looks like I could get to maybe $100 million over the life of it?

Yes. Maybe even more.

Was that a question?

Or did we give you the answer?

$100 million to $150 million, Jeff. I know it's an enormous amount of money, but it seems in line with what we've experienced other people spending. We've talked to a lot of companies.

Part of the readiness phase that we're in now will be to much more specifically identify not just the cost of the project, but the benefit to the Company. Having said that, $100 million to $150 million is our best estimate now.

Did you faint?

Hello?

It seems that Mr. Matthews has since disconnected from the call. I apologize. I'm not sure if that was the response you were looking for. (Operator Instructions) And it looks like you have a follow-up question from Larry Solow of CJS Securities. Please proceed.

I'll ask a follow-up so you don't end on that strange note. Is this the 100 to 150 a rough estimate, maybe sort of like 100 capitalized and 50 operating, somewhere in that ballpark?

Yes, it could be a little more operating, because certainly the cost of the software and the cost of the integration partner is a capitalizable expense. But our own folks that we put on the team, the training, the investment that we may need to make and change management and things like that will be more direct expense. So it could be -- it could be closer to 50/50, but until we have greater details, it's hard to --

Got it. That's fair enough.

And then, is it your goal at least sort of have it implemented -- will you do it in steps, or will it be sort of a three-year process, and then the whole thing gets turned on? I imagine if it's phases done by -- I don't know how you're going to do it. By region, or how is that going to work?

So right now our thinking is that we will not do a big bang approach.

Right.

We will spend a lot of time to have a single global design. But once we have that, we will in stages hook up different parts of the business or different parts of the world, depending on which make the most sense in a specific order.

Right.

And as such, it will probably be four or five years before we have the entire world on a single instance.

Right, but you should maybe start getting some benefits step-up -- on a step-up basis, maybe not in the first couple of years but maybe in year three, or in a perfect world at least.

I would hope so.

All right. Okay.

And is there any way you guys can quantify the shipment of diabetes instruments? Is that something that will continue to reoccur? Or is it something that will probably -- it's probably a lumpy type thing, and could you quantify what that was in sales -- in dollars?

No, not really. But unfortunately, diabetes continues to grow, and the need to test and the sophistication of the test and the testing regimes continues to grow. So I think it will just -- diabetes is going to continue to be a strong area.

Right. Understood. Okay.

And then any impact on your cost of goods, because obviously raw material prices are going through the roof, and I imagine some of that must impact you guys. Does that move the needle at all?

Raw material price, we haven't seen that yet. But not too much. But it's something we're watching very closely. Obviously, with all of this goings on in some of the oil-producing countries, it's something we're keeping our eye on, because that's the natural outcome of that.

You do use some plastics or resin?

And of course all of the transportation --

Right, the freight and what not. Of course.

Okay. Great. Thanks a lot.

And you do have a follow-up question from the line of Mr. Jeff Matthews of Ram Partners.

Yes, I did faint. I'm sorry. A new phone, and I didn't realize I can't hold it next to my shoulder.

So the question I was -- I think you were getting to the answer, or the guy who followed up on it, but where does the return come from on that investment? Is it inventory? Do you save massive amounts on inventory around the world? Do you get a step-up in your gross margin or operating margin? Is there a massive cost of cutting G&A? Even my dog was upset.

You know, it's not -- obviously inventory is one of the big things you look at. The idea is if you can get better information around the world and better plan, you can better control your inventories, you can have better customer service, you can operate more efficiently, just because of the nature of the system and how you use it. Remember that we've grown up in a very decentralized environment where we're doing the same thing ten different ways. And kind of consolidating that, kind of using best practices, all of these things, they're all kind of little pieces that all add up. But it is interesting, when you go through and talk to some of the people about what it would mean for them, they can clearly see benefit.

Sure.

So, again, I think as Christine says, we are in the process of quantifying that a little better. Obviously, as part of this planning process to understand kind of where we're going and what we want to get at, what we should focus on, that will be a priority for us.

Okay.

And then finally, I just wondered on hiring. What was your organic growth, if any, in new hires in 2010? And do you have any plans to step that up in 2011?

We were very parsimonious about adding people in 2010. Were very, very careful about that. We did add -- some came through the acquisition of Biotest, and then we had some others we added in targeted areas, especially in like the Asia-Pacific markets that are growing. And we're going to do pretty much the same through 2011.

Except for the ERP people.

Except for the ERP people, which will, of course, add to the base.

Right. Okay. Thanks very much.

Okay. Brian, are there any more questions on the line?

There are currently no more questions in queue at this time.

Okay, great. Thank you, everyone, for taking the time to join us today to hear about our results and our outlook for 2011. We look forward to speaking with you again soon. Bye-bye.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect your lines, and have a nice day.