Hillenbrand Inc (HI) 2012 Q2 法說會逐字稿

Good morning, everyone, and welcome to Hillenbrand's earnings call for the second fiscal quarter of 2012. A replay of the call will be available until Midnight Eastern Time, Tuesday, May 22, 2012, by dialing 1-855-859-2056 toll-free in the United States and Canada, or 1-404-537-3406 internationally, and using the conference ID number 43746905. This webcast will be archived on the Company's website at www.Hillenbrand.com through May 8, 2013. If you ask a question today, it will be included in any future use of this recording. Also note that any recording, transcript, or other transmission of the text or audio is not permitted without Hillenbrand's written consent.

At this time, it is my pleasure to turn the conference over to Chris Gordon, Director of Investor Relations. Mr. Gordon, please go ahead.

Thank you, Ally, and good morning. Welcome to our earnings call for the second quarter of 2012, which ended March 31. With me on today's call are Hillenbrand President and CEO Ken Camp, and Chief Financial Officer Cindy Lucchese.

During the course of today's conference call, and the question-and-answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor Provisions of the securities laws regarding future events or the financial performance of the Company. We caution you that these statements are only our view of the future, and that actual results may differ materially. We also alert you to the risks described in the documents we file with the Securities and Exchange Commission, such as our annual and quarterly reports on form 10-K and 10-Q. We do not undertake any obligations to update or correct any forward-looking statements.

Now, let me provide some information regarding our call. We've scheduled one hour, and we'll start with prepared remarks from Ken and Cindy that should last approximately 20 minutes. Ken will start with an overview of the business for the past quarter; Cindy will follow with financial results, and Ken will wrap up the prepared portion of the call with some closing comments. After that, we will move directly to Q&A, when we will be joined by Batesville President Kim Dennis, and Process Equipment Group President Joe Raver. If you have follow-up questions after the call has ended, please feel free to call me at 812-931-5001, or e-mail me at Chris.Gordon@Hillenbrand.com.

Now, it is my pleasure to turn the call over to Ken Camp, Hillenbrand's President and CEO. Ken?

Thanks, Chris. Good morning, everyone, and thank you for joining us today. After the market closed yesterday, we released our earnings and filed the 10-Q, and both documents are available on our website at this time. As you saw, we achieved double-digit revenue growth, with gross margins just over 40%, and were able to meet the street's expectations for the quarter with adjusted earnings per share of $0.50. Once again, our quarterly results were strengthened significantly as a result of our acquisition strategy to diversify our holdings into various growth industries. Throughout our operating company acquisitions in 2010 and 2011, the Process Equipment Group has continued to exceed our expectations, and has grown to represent 37% of our total enterprise revenue, and just over one-third of our total EBITDA. Diversification has also expanded our geographic reach with about 17% of our revenue now coming from outside the United States.

We've grown revenue at a compound annual rate of 44% in the Process Equipment Group since our first acquisition in 2010, and we've achieved annual double-digit organic growth in the acquired businesses. Additionally, they have been attractively accretive, with these businesses adding $0.14 to our earnings in the second quarter. Based on the success of this growth strategy, we grew consolidated revenue 13% to $260 million, and generated $60 million in cash flow in the most recent quarter, all this despite the volume challenges in the Batesville business that we will discuss shortly. As you can see, we are getting consistently positive results from the continued execution of our established diversification strategy.

It has been our practice to provide a brief overview of the performance of our business platforms, and as usual, I will begin with comments regarding the Process Equipment Group, which continues, as I have said, to perform at exceptional levels. This Group generated $96 million in revenue in Q2, which is 66% more than last year. While a significant amount of this increase came from the addition of Rotex, the Process Equipment Group achieved organic growth of 18% across the board.

In addition, the Process Equipment Group's consolidated order backlog grew 6% sequentially to $137 million. This backlog currently represents approximately one-third of the platform's annual revenue. As we said before, one of the core elements of Hillenbrand's growth-through-acquisition strategy is to acquire successful companies with great brands that can benefit from our capabilities in lean business, strategy management, and intentional talent development.

Since I frequently get asked how lean business turns into better financial results, I will give you a recent example. It typically takes a company about a year to understand the building blocks of lean, and to begin to apply these new skills effectively. The employees at Rotex are making excellent progress in understanding lean, and since the acquisition last August, the Rotex team has leveraged their lean business skills to increase throughput on key equipment by as much as 50%. In six months, they've eliminated some production bottlenecks, achieved significant annualized savings, freed up 1,800 square feet of shop-floor space that can be used for further growth, and reduced working capital by more than $300,000. These gains are the beginning of preparing Rotex to produce more with less waste and without adding brick and mortar. Simply put, our first six months with Rotex has exceeded our expectations in many ways. Their revenue has been strong, and their bookings have continued to increase.

K-Tron also continues to perform well despite the uncertain economic conditions in Europe, and to a lesser extent, China. As they have implemented their initiative to increase growth by providing system solutions to a broader range of customers, they've seen their sales revenue increase. However, in providing these systems, which sometimes involve equipment purchased from third-party manufactures, the margin percentage decreases slightly. However, most important, margin dollars continue to increase.

The Size Reduction Group's leadership team has developed and is currently implementing their transformation plan to consolidate manufacturing operations into a single organization managing our three well-known brands -- Pennsylvania Crusher, Gundlach, and Jeffrey Rader. This plan includes production realignment, relocation of some engineering resources, sales and administrative personnel, and the closure of the South Carolina manufacturing plant. Combining these operations with their growing lean skills will enable the Size Reduction Group to be more efficient, and support their growth goals, also with less brick-and-mortar facilities.

While the Process Equipment Group's strong performance has been a big plus, the funeral products industry has encountered severe headwinds in the last two quarters. As you could see from our release last night, the most significant driver affecting Batesville's 5% drop in revenue for the quarter was a 6% decline in the North American burial market. As many of you have already heard from the Center for Disease Control, and from the other public companies in the death-care industry, the US and Canada did not experience any material levels of influenza and pneumonia this year, and this was a contributing factor in total death levels being lower than at anytime since 1982.

Although everyone has been trying to understand the origins of this decline in deaths, no one is able to say why the number has gone down so dramatically. I will tell you that we study these statistics on a regular basis, and history suggests the industry should expect to see total deaths return closer to the norm as the year progresses. However, given the variance we've seen this year, we're hesitant to make a prediction on what is essentially an unknown element. We also estimate that cremations have increased by about 160 basis points, which is flat relative to Q1. This is also somewhat higher than the long-term trend of 120 basis points that we have observed in past years, but a lower rate than we experienced in 2009 and 2010 during the most significant parts of the economic downturn.

Obviously, the burial market and the cremation rate are outside of our control, so we focus on those things where we can have a positive effect. We are constantly evaluating our performance, right-sizing the Organization at all levels to respond appropriately to the changing customer demands in the markets, whether up or down. We continue to take decisive actions to ensure our long-term market position, and to manage costs, while at the same time maintaining our superior customer service and quality. This ensures that Batesville is making our caskets that our customers require in the most efficient manner, and continuing to differentiate Batesville, and help them maintain their important and long-standing relationships with funeral directors.

Now, I'll turn the call over to our CFO, Cindy Lucchese. Cindy?

Thank you, Ken. Given the volume challenges Batesville faced during the quarter, we are pleased with our results. As Ken said earlier, we achieved double-digit revenue growth, had healthy 40% gross margins, and met our expectations at the bottom line, earning $0.44 per share, or $0.50 per share on an adjusted basis.

Now, let me take you through the details. Total second-quarter revenue grew 13%. The key driver of these strong growth numbers was the Process Equipment Group, which delivered a 66% increase in revenue. Now, an important metric we track is organic growth, which we define as the year-over-year comparison of revenue on a constant-currency basis with all of our acquired companies included in the base year. We believe this is important because it shows comparable performance, not only for the core Process Equipment Group, but also the year-over-year growth in newly-acquired Rotex. As Ken mentioned earlier, the organic growth for the Process Equipment Group was an attractive 18%. And Process Equipment Group revenue is fast approaching the $100 million per-quarter mark, with $96 million recorded this quarter.

In addition, for the eighth quarter in a row, and in fact, ever since we purchased K-Tron, the Process Equipment Group's backlog grew, reaching a total of $137 million at the end of the second quarter. As you may recall, future revenue associated with the Process Equipment Group is strongly influenced by order backlog. On a quarter-by-quarter basis, we expect to see some volatility in this number, particularly when we ship very large orders. However, we are more than pleased to see the continued strong growth in our order backlog.

As we've discussed in many of our past calls, the Process Equipment Group can experience lumpiness from quarter to quarter when sizable jobs are completed and shipped. Like most years, we have a few unusually large orders that will impact our revenue in Q4. Given our visibility into backlog, we expect Process Equipment Group revenue in the third quarter to be in line with the second quarter, and the fourth quarter to be their largest revenue quarter this fiscal year.

Batesville's revenue was $164 million, or 5% lower than the prior year, driven by a 6% decline in North American burial. The sharp drop in the North American burial market was driven by a 3% year-over-year decline in North American deaths during the first half of this year. Our gross profit margin for the second quarter was 40.2%. On an adjusted basis, our gross profit margin was 41%, or 330 basis points lower than the prior year.

Now, as a reminder, the items we adjust for include restructuring charges at both of our business platforms. I would like to provide a few details on these restructurings before I turn to the other drivers of our quarterly gross margin. At Batesville, we continuously size our Operation to respond to changing market conditions and customer preferences. We consolidated our first and second shifts at one of our plants in the second quarter to better size capacity to current demand. At the Process Equipment Group, we realigned the Organization, and consolidated certain manufacturing facilities. This resulted in the closure of one manufacturing plant that will allow us to more efficiently meet customer needs while continuing to provide the same high-quality products and services.

These restructurings underscore our relentless focus on improving operations through lean, whether we are experiencing strong growth, as in the case of the Process Equipment Group, or lower volume, as we are currently experiencing with Batesville. Lean business is ingrained in the Hillenbrand culture, and we will continue these efforts to preserve the strong bottom-line results that we demand, and our shareholders have come to expect.

Let me provide a few additional details on our gross margin statistics for each of the operating companies. On an adjusted basis, Batesville's gross profit margin was 39.1%, a 460-basis point decline from the prior year. While increased commodity prices of about $2 million impacted margins, the big driver was the lower volume.

The Process Equipment Group's adjusted gross margin was 44.3%, versus 46% last year. A variety of factors influence their margin, including the timing and size of orders, the mix of products and services sold, and market factors that impact pricing. We expect it to fluctuate, sometimes as much as 200 to 300 basis points between quarters, however, the adjusted gross profit margin should fall within a normal, historical range on an annual basis. The adjusted gross profit margin for fiscal-year 2011 was about 44%, and we expect 2012 to be in this range or slightly below.

For the quarter, operating expense as a percent of sales was 23.3%, a 20-basis point improvement over the prior year. While on an adjusted basis, the ratio improved by 90 basis points. We saw improvement across the board at both of our business platforms and at Corporate as well. Note that we made certain changes for employee benefits this year that reduced operating expenses by about $2 million that won't recur in future years.

Now, the 90-basis point, year-over-year improvement includes the ongoing amortization expense from the intangible assets that were established as a result of the Rotex acquisition. They amount to about $1 million of incremental expense for the quarter. Given that this non-cash expense is in the current-year results only, if you were to make this comparison on an apple-to-apple basis, the year-over-year improvement would be 120 basis points. This is evidence our lean strategy is paying dividends in the form of reduced operating expenses.

Other income and expense was about $6 million unfavorable to the prior year. Now, $3 million of that variance is due to the full collection of the Forethought Note in April 2011, and the other $3 million is due to investment gains that occurred in 2011 compared to relatively little investment activity this quarter.

Our effective tax rate this quarter was 32.7%, compared to 34.7% last year. The improvement in our effective tax rate is due primarily to a larger percentage of income coming from foreign sources and lower-rate jurisdictions. We expect our ongoing effective tax rate this year to be in the 33% to 34% range on an adjusted basis.

Now, as we like to say here at Hillenbrand -- cash is king -- and our results in this area again were positive, as we continue to deliver strong operating cash flow quarter after quarter. Operating cash flow increased 30% to $33 million. Net income decreased 17% over the prior year to $27 million, with EPS down 17% to $0.44.

On an adjusted basis, net income declined by 9% to $31 million, and EPS is down 7% to $0.50, as the strong growth from the Process Equipment Group was more than offset by lower Batesville volumes, and reduced interest income from the Forethought Note and limited partnership investment. Adjusted EBITDA was $58 million, a 3% decrease compared to the prior year. Note that earnings from the Forethought Note are not included in EBITDA.

In turning to guidance, we are lowering our EPS guidance to $1.70 to $1.78. On an adjusted basis, our full-year EPS guidance is $1.68 to $1.76. Full-year revenue is now expected to increase between 13% and 15% on a constant-currency basis over 2011. This represents a shift towards the lower end of our original revenue guidance, and is directly related to the sharp decline in deaths during the first half of the fiscal year, offset in part by stronger than anticipated growth in our Process Equipment Group.

Now, I will turn the call back to Ken for his concluding remarks. Ken?

Thanks, Cindy. Obviously, the rather sudden decline in deaths hit the funeral products industry, and quite naturally, Batesville, very hard. Despite this unusual effect, Batesville management has been responding to market opportunities and retaining their market position, and the Process Equipment Group is providing offsetting growth, earnings, and cash.

Those of you who know us recognize that Hillenbrand is a thoughtful, prudent company with a long-term view of the future. We are committed to the proven acquisition strategy that is serving us well, and we are constantly exploring three levels of acquisitions. The first is tuck-in or adjacent acquisitions that support the growth strategies of one or more of our operating companies, most likely those in the Process Equipment Group. These relatively small acquisitions would allow us to increase our ability to offer system solutions, support geographic expansion, or add value to a product line or process.

The second level would be to add an operating company to the Process Equipment Group, as we did with Rotex. And the third type of acquisition we continually evaluate is to add a company that represents a third business platform. Please do not assume that mentioning this implies a signal that a platform acquisition is imminent, or that it isn't. It is simply being transparent about all the elements that could be part of our acquisition strategy.

Our criteria for acquisitions have not changed. We want to continue to build Hillenbrand as a global diversified industrial company with an emphasis on diversification to balance risk and growth. It's also critical that an acquisition candidate be culturally compatible, successful in its industry, poised for growth, and able to leverage our core competencies in strategy, lean business, and talent development to accelerate their results.

We've stated before -- the goal is that our strategy will result in revenue growth and profitability. As always, our focus will continue to be on strong cash generation that strengthens our balance sheet, enables us to execute our strategy, and allows us to pay an attractive dividend. We're committed to being careful stewards of the Company, and providing meaningful value to our shareholders.

Now, for our question-and-answer session, we'll be joined by Joe Raver and Kim Dennis, the Presidents of the Process Equipment Group and Batesville. We are ready to take your questions. Ally, would you open the lines, please?

(Operator Instructions) Our first question comes from Daniel Moore of CJS Securities. Please go ahead.

Good morning.

Good morning, Dan.

What range of year over year revenue growth rates at Batesville is embedded in your -- for the second half of the year embedded in your updated guidance?

Cindy?

Yes, I will start out there, Dan. Basically, what we did is, we were down 7% revenue year-to-date this year, and that's on that 3% decline in deaths. So as we tried to put the guidance together, we certainly don't anticipate that death will necessarily stay down at 3% for the rest of the year, but at the same time, we don't expect a big blip upward. So I'd say we looked at it and felt like there'd be a small improvement through the rest of year.

And then following up on that, the spread between the 3% decline in deaths and the 7% decline in revenue, a lot of that was, as you described in Q1, when there was a bit of a revenue pull forward from the prior quarter. Would you expect that spread to narrow as we go through the back half of the year?

Yes. And in Q1, I think we were down 8% or 9%, and the market was down roughly 5% or 6%, and then that's the burial market. Then when you look in Q2, we were down 5%; the market was down roughly 6%. So we see exactly what you are describing there.

Dan, this is Ken. Additionally, we maintain pretty good statistical analysis, looking backwards, and how many people are going to die is the ultimate unknowable item. So we do our best. I hesitate to make this comparison, almost like the people that try to forecast long-term weather trends, usually with good success, but sometimes it goes awry. And so we are doing our best to just do some statistical analysis, which we've completed, and looking to the past for some indications of how the future might unfold. It is not a guarantee, and that is why we are being prudent with our guidance, but when we look back to the couple of times something like this has happened, the balance of the year does not completely recover but it does -- operates in a much more narrow band.

And without beating a dead horse, it would be fair to say if death, mortality rates did normalized back to flattish, that we would have the opportunity to be closer to your original guidance range?

No. Actually, we wouldn't, Dan, and I'll tell you why. Half the year is already gone, so that part is in the bag. But certainly, if it started to get flat, that would help a little bit, but it's not huge.

Okay. And then let me shift gears and jump back in queue. Obviously, continued strong performance in Process Equipment with backlog up 6% sequentially again. Can you give us a little sense, break that out between either the backlog between Rotex and K-Tron? Or just a little more color on how each of those businesses and the outlooks are performing?

Dan, this is Joe Raver. Each of the businesses is performing quite well when you look at bookings and year over year backlog. So I think Rotex is having a very strong year. We are very pleased with everything associated with Rotex thus far. But the other businesses besides Reduction Group and K-Tron also have good booking years going and solid backlogs heading into the second half of the year. So we've really seen solid bookings and backlogs across each of those business units.

So, no. If you are looking at 6%, it wouldn't be a material difference between the two?

No, no.

All right. I'll jump back in queue. Thank you.

Thanks, Dan.

Our next question comes from Clint Fendley of Davenport. Please go ahead.

Thank you. Good morning, guys.

Good morning, Clint.

Good morning.

When I look at your guidance, I am assuming that most of the weakness here is on the Batesville side, it implies operating margins in the second half that would be significantly lower than we've seen from Batesville. And I'm just wondering if there's anything else that's happening here, if we're to think that total deaths should return to norm as the year progresses going forward?

Yes, Clint. Hi, it's Cindy. Couple of comments there. Probably, the first thing to think about the guidance as we did mention, or as you think about Batesville, basically, they've been in around 39% gross margin this year, and given the volume that we've talked about is in our forecast for the rest of the year, is just not possible to get back up to what we've normally been that, those 40% to 42% kinds of gross margins. So I think it's fair say that it will take us a little bit more time to address that, and I'm sure Kim can probably add to that.

Great. Clint, it's Kim. So, some of the things -- obviously, when these kind of trends hit the industry so quickly and for this type of duration, it takes a little bit of time for everybody to jump in and make the appropriate adjustments. This is a pretty high fixed cost business, so some of the actions that we've taken thus far this year to shift consolidation, a number of changes that we make out in our distribution system to make sure we are right sized for the appropriate capacity, and continued changes in our commodities and our sourcing and all of the things that we naturally do to control our costs. Obviously, those things are ongoing activities and things that we will be doing to drive the margins back up, and if we do get a little bit of lift, hopefully, from that death market coming up, that will work to our benefit. But obviously, as we have done our analysis and then the outlook, we haven't anticipated that to be a significant swing. The other thing that affects us in this type of industry, when you've got this much over capacity, is that there is obviously going to be some discounting in the marketplace. When the flu season does not arrive and everyone is sitting there with large inventory, there's a lot of discounting activity that happens across the board as some try to monetize their investment and their inventories. And so, so, we've done what we needed to do to maintain our market position, as do our competitors, and we will continue to keep our activities going, the most important of which is making sure we're matching our resources with what the demand in the marketplace is.

Would you expect that the discounting would probably lessen as the volumes hopefully return in the second half?

Traditionally, that is exactly what you see.

Okay. And do we have the breakout here, Cindy, on the revenue impact from volume and mix shift?

Yes, I've got that, Glen. So volume is by far and away the biggest driver. It is about $9 million, and then there's a small rate in mix impact, call it $0.5 million, and a little negative from FX, so by far and away, it's volume.

Okay. Okay. And last question here, but I wonder just the expected timing on your new revolving credit facility, and if we should expect that the interest rate there will probably approximate where we're at currently?

Yes. Our credit facility expires in March of 2013, so we are in the window here where we are less than a year. We are clearly looking at that very closely. We've already started to work with our banks and put together a strategy around renewing that, so you should see something about that clearly before next March, but sometime between now, probably, and the end of the year. We enjoy an incredibly attractive rate, as I think you are all aware. We pay about 70 basis points right now on that credit facility, so when we do renew it, we will probably go up somewhere in the 100, call it little bit more than that, basis-point range.

Okay. And I am sorry, last question. But how should we think about modeling for the tax rate for the remainder of the year? Obviously, a bit lower than what we were expecting in the quarter. Should we expect it to stay in that 32% to 33% range?

I think that would be reasonable. If you look at our long-term range, you kind of thought of that at being in the 33% to 34%, and we've had some positive impacts this year from some deferral reversals. So taken outside that big -- cash that we brought back and the tax impact of that, just looking at an adjusted rate, I think that would be a reasonable one to use, Clint.

Okay, thank you.

You're welcome.

Our next question comes from Steve O'Neil of Hilliard Lyons. Please go ahead.

Good morning.

Good morning, Steve.

Just wanted to get the straight. You had an $8.7 million decline in the Batesville revenue. You said $9 million was from volume, a minus $0.5 million from mix, and then a minus from exchange?

No.

Or was that mix positive?

Right. The mix was positive, so $9 million volume, a little bit tick up of rate in mix, we'll call that $0.5 million, and then a negative $200,000 FX. So you are better just viewing it as $9 million volume, and that will get you there.

Okay. And then you said backlog was $137 million for the Process Equipment Group. Can you give us an idea what it was maybe at the end of the first quarter or a year ago?

Sure. So the first quarter of one year ago, and remember, at first quarter a year ago, we did not own Rotex.

Oh, okay.

So the first quarter a year ago, it was $68 million.

And at the end of the first quarter, then?

That was Q1 a year ago. Oh, did you want Q1 of this year, of 2012?

Yes, just to compare.

Oh, sure, yes.

I realize it's going to be a lumpy figure.

Got it. It's $129 million.

Oh, okay. And then, I didn't write quickly enough. What was the -- did you give a cremation rate for the quarter and the previous quarter? Or were you just talking about basis points?

Yes, we said about -- it's Kim. We said about 160 basis points this quarter is what we have seen.

In growth.

Of growth, right, year over year.

Okay, great. That's all I had, thank you.

(Operator Instructions) Our next question comes from Jamie Clement of Sidoti. Please go ahead.

Good morning.

Good morning, Jamie.

Joe, maybe you are the person to ask the question, to. I am not sure. But the relative health of the coal market and of coal companies in general, is that an important quarter-to-quarter driver of K-Tron sales? It was always -- it's always been used as an example of some of the things that K-Tron does, but is that important, or is it not particularly important on a short-term basis?

That's a great question, Jamie. The Size Reduction Group is involved both in coal mining and coal power. And so we don't see big fluctuations on a quarter-to quarter-basis, but the longer-term trend in the United States related to coal, particularly coal power, which of course drives demand for coal mining, is with the legislative and regulatory environment today. There has been a shift away from coal power in United States. So in the United States, we are very focused on our ware parts business, and that's a pretty steady business and does not move a lot from quarter to quarter. Now, the other element is coal in the rest of the world is different than coal in the United States, and so we have seen growth in some emerging economies, and we've been very focused on our capital equipment on the coal side, and for example on in Russia, in China, and some other emerging economies. And then, let me just weigh in one other piece on that, which is our businesses are somewhat related in a sense that as coal has declined in the United States as a source of power generation, hydraulic fracturing for natural gas has increased, and natural gas has been replacing coal. Our Rotex business is involved in the proppant market, primarily fracked sand, and so they make screening equipment and separators that get the exact, right, optimal size sand for hydraulic fracking. And so the shift from coal to natural gas is a negative in one part of our business. It's not a big mover short term, though. It's a longer-term trend, and it's a positive on the other part of our business, on the natural gas side. So that is kind of a long answer to your --.

No, it was very helpful. It was very helpful, thank you.

But generally, we don't see big shifts because of coal usage on a quarter-by-quarter basis, because there is a big ware part piece of this business for us.

Got you. And Ken, if I could, some others in your industry have brought up weather, the warm weather, as being a possible reason for the decline in the death rate. You all have been hesitant to do so. Do you -- is that something you think about, or because it is out of your, control it's not something that really, particularly concerned or interests you one way or the other?

It is our belief that the factors that relate to the essentially nonexistent flu seasons, the biggest factor there is that the CDC in the last couple of years has really nailed the vaccines. More people are becoming vaccinated now on a regular basis for flu. In fact, if you've been near this little town that we live in, you can actually just drive through the firehouse and get your vaccination. It's very easy; more people do it. I think we think that's a much bigger factor than warm weather.

Okay.

Although, quite frankly, we look to weather trends as ways of trying to understand large natural phenomena like death rates, and I'm not sure that we do understand it, but one thing you take away from it is, you can't spend a whole lot of time thinking what God is going to do on such a big and most monumental thing. You got to concentrate on what you can do. That's where we try to put our attention.

Okay. Well, and just following up, and I'm just curious how you all think about this. It's just -- if you look just purely at the CDC data through the first 17 months -- excuse me, 17 weeks of the calendar year, you're talking about a 9,000 event drop in mortality, and obviously, there are flaws in the data, and we get that, but only 2,000 of that is really coming out of the pneumonia/influenza category. So I just -- that's another 7,000 or 8,000 that's coming from something else, so I was just -- that's why was asking the question.

Yes, I understand. Remember, while we don't disclose these algorithms, and we have a very high regard for the CDC, their primary interest is not trying to calculate for us how many people actually die. Their job is saving lives and matching vaccines and so on. So this reporting that they do has some geographic areas that are notoriously unreliable and so --

Okay.

Sometimes major cities don't send in anything. So we've developed algorithms we think that short-term are a bit more accurate than anything else that's been going on, and that's something we've used for probably 20 years and continue to refine that. So we frankly don't pay too much attention to the short-term things that they have. And nor does CDC. I will probably get a call from someone, but their job is presenting -- preventing disease and preventing death.

Right.

This is merely an adjunct for them.

Okay, fair enough. Thank you all, as always, for your time. Thank you.

Thanks, Jamie.

We have no more questions, so now I would like to turn the call back over to Chris Gordon for final comments.

Thanks, Ali. Once again, thank you, everyone, for joining us today, and we look forward to speaking with you again in August for next quarter's call. Have a great week.

That concludes today's conference. Thank you for your participation. You may now disconnect from the call.