麥卡遜 (MCK) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the PSS WorldMedical second quarter earnings conference call. During the presentation, all participants in a listen-only mode. Afterwards, we will conduct the question and answer session. At this time, if you have a question, please press the one, followed by the four on your telephone. As a reminder this conference is being recorded Wednesday October 31 -- Thursday, October 31, 200. I would like to turn the conference over to Mr. Robert Weiner, Vice President of Investor Relations.

Good morning. Thank you for joining us on the call today for our fiscal 2003 second quarter conference call. Today making remarks on the call are David Smith our President and CEO, and David Bronson our Senior Vice President and CFO. In addition, we are joined on the call with Kevin English, VP of Finance, David Connor VP of Treasury and myself, who are available for questions at the end of our remarks. Before David Smith begins his formal remarks, let me read the forward-looking statement.

All statements are not historical facts included not but not limited to growth and revenue, gross and operating margin and earnings, statements made with regards to our goals, statements regarding the company's current business strategy, the companies projected sources and uses of cash, the company's plan for future development and operations, changes in regulations affecting the company's business, such as the Medicare cliffs, the receipt of normal approval and third party consents in connection with the sale of the imaging business and other factors that we describe from time to time in the company's reports filed with the SEC are all based on current expectations.

These statements are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Many of the factors are outside of the control of the company. The company wishes to caution our listeners of this call not to place undue reliance on any such forward forward-looking statements which statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and as such, speak only as of the date made. The company also wishes to caution our listeners that it undertakes no duty or is under no obligation to update or revise any of these forward-looking statements. We will move to our formal remarks. They will be followed by a question and answer period and with that I'm pleased to turn it over to our CEO, David Smith.

Good morning, everybody. As you have read in our last two press releases this has been a very busy quarter. This quarter and these events represent a very significant inflection point in this company's history. As these events come to completion, we will emerge as a very focused alternate site business. Returning to our roots of intense competition, in customers and product categories. Producing some of the best customer solutions and superior business growth in our industry. Of course, I'm referring to our Monday press release in our decision to enter into an agreement and sell our imaging business. We announced on Monday we entered into an agreement to sell our imaging business to Platinum Equity for the assumption of approximately $71 million of liabilities and 41 million of cash. We expect to net about 87 million of cash over the next 24 to 30 months from this transaction.

For the lost two years, we have answered questions regarding the strategic fit and future turn around performance of DI. Our response has been very clear. Our initial objective was to strengthen management, reset the strategic direction and basically fix this business. We also stated that we would evaluate our progress on our strategic plan in the expected returns to you, our shareholders, in these first two quarters of this year. While we have not only done all we have told you, we have also determined we need to maximize immediately our cash return on the DI business and focus intensely on our physician and long-term care business.

However, we would not be in a position to accomplish or make these decisions without the strong performance and accomplishments of Joe Pepper. Joe and his management team have not only stabilized this business, and reset the strategic direction, but they have smartly improved the balance sheet and removed 18 million of working capital and generated 16 million of cash flow for us as shareholders over the last 12 months. But to take DI to the next level of performance, our evaluation and our belief is that a private company setting would be the best environment. Where quarterly progress and necessary business model changes are not as important compared to strategic progress and direction. The Platinum Equity group we believe will be an excellent home for our 1600 employees of DI. The strategic fit with platinum's other pending transaction with Philips ACP should provide long-term stability and opportunity for this business and our employees.

We will provide transition services for the next one to 12 months depending on department, paid for by platinum with the only objective to deliver zero customer interruptions. We believe we have served or customers' vendors with the highest level of satisfaction for the last two years, and we want nothing to interrupt that track record.

We remember what it's like to operate a growth company. We remember what it's like to be intensely competitive and focused on winning. We've always provided the best customer satisfaction and service along with growth and profitability when we're in that growth mode. Well, I can tell you we're back. And we're excited to be back. Our physician and long-term care business provide with us fantastic platforms to grow and expand profitability. We plan on staying within the nine dots though of those markets, but expand product offerings, customer reach, sales forces even while possibly doing acquisitions that are appropriate to leverage our infrastructure and to grow profitability. At the same time, staying true to our new operational professionalism and discipline to increase services while decreasing costs of operations by executing flawlessly our strategic plan.

Now, to the quarter. Some of you would question whether or not PSS grew enough at 4.5% or made enough at 3.1%. Well, I can tell you I'm extremely proud of the physician division's ability to deliver results while disrupting 65% of our locations to date as we rebuild and restructure our distribution system. We are significantly improving our services and efficiency as we build new distribution networks with completely new systems and a bright new future. And as you know, other companies have tried this and failed. We have successfully completed this program in our long-term care business in our physician business is doing a superb job of restructuring, growing, and improving customer satisfaction and efficiency very fast.

Lifting the lid on some of these physician revenues, you'll find good things. We grew our consumables business 8% in the quarter. Our private label business 16% on an annualized run rate of 66 million. And our pharma business grew 9%. Our [Advent] business though, due to the FDA problems declined 15%. We have recently signed an exclusive agreement with Beckman Coulter to sell their chemistry analyzer as well as some other new vendors and products which we rolled out at our national sales meeting, which we expect to begin to turn the tide in the [Advent] revenue decline. Overall, we are very confident that the physician business will return to high single, or low double digit growth as we gain momentum from these offensive strategies and leverage our restructuring program to produce improved operating margins in the balance of '03 and significantly in fiscal '04.

Our long-term care business has fantastic momentum. It has steam rolled into the second quarter with 9.4% growth. Which is more than double the market growth rate. All I can say is wow. You have to be impressed with these guys in their commitment and performance. They also achieved these results in a period of management transition. Their operations have been rebuilt and rationalized, plus they have great offensive programs in place.

Tony Oglesby has only been in place for six weeks, but because he has been a part of the division's restructuring and development of our offensive strategies and programs, he has hit the ground running. The answers program delivered 80 new customers in the quarter alone, over 50% of the orders are coming in over the internet and we have recently roll out new systems this last quarter to make it even easier for independent regional customers to order from us. They also renewed, and very important, 17 year relationship with Beverly Enterprises for another three years reflecting Gulf South's ability to continue to innovate in a very complicated marketplace, and to improve customer satisfaction while reducing costs to business for both us, our customers and our vender in the supply channel.

Long-term care cliffs went into effect on October 1st, just a few comments on that. They represent about 25 per day decrease in reimbursement for our customers. There is very strong support by majority leader Daschle, speaker Hastert and the House's and Ways and Means Chair Johnson to resolve this issue in the lame duck session. Actually, last time there was relief it came during the lame duck session of December of 2000. In the meantime, we're monitoring and re-evaluating all of our credit policies and individual customer terms even though they're already the tightest in the industry. We expect our customers will run down some of their inventories, as long as they can during this cliff resolution period.

Okay. Before I turn it over to David Bronson our CFO, I want to say this. I believe we have a new company today. I believe our DI employees have a great new home. Our new company after two years of very hard work has extremely good financial strength and flexibility. We're focused on intense competition and growth, which is our roots, with new products, services and more salespeople. We have a balance of operational professionalism that we've never had, and a focus on reducing costs and improving efficiency for ourselves and our customers. We've got a great new management team, a great strategic plan to drive long-term value for our employees who are also our shareholders and you. I like what I see, we're back, and we're excited to be back.

And with that, I'll turn it over to David Bronson, our CFO.

Thanks, Dave. Good morning, everyone. Thanks for dialing in. As Dave said, there's been a lot going on at PSS World Medical this quarter, even with some pretty big distractions, our people have stayed pretty focused and have delivered another good quarter. We remain on track to complete both our consolidation programs this fiscal year, in the physician business and to hit our financial objectives. Many of you were on the Monday evening call after we announced our decision to sell the diagnostics imaging business. I'll apologize that some of what I say this morning will be repetitive to that.

Let's start in having said that. First we began with this quarter release to classify the imaging business as discontinued operations for our financial reporting, and we announced that we have entered into a definitive agreement to sell it to Platinum Equity in a capital stock transaction worth approximately $115 million. Our financial statements as reported for the second quarter, therefore, are presented for our continuing operations including our physician and long-term care businesses. All of our future financial reporting will also be presented on this basis, and prior periods have been adjusted for comparability. In conjunction with the actions we reported a primarily non-cash charge of $55 million due to a loss on disposal of discontinued operations. The transactions is going to generate significant tax benefits of approximately $40 million, which we anticipate will be utilized to offset taxable income for the next 2 1/2 years. This benefit will show up on the balance sheet as a deferred tax asset in a non-current asset section. We'll continue to record a charge for taxes in our income statement at our effective tax rate. The benefit will be realized as a reduction of cash tax payments during those years.

Overall, consolidated second quarter revenues grew by 6.3% over the comparative quarter in the prior year. Adjusted EBITDA grew by 24.5% and EPS before charges increased by 40% meeting our expectations in each of the areas. As Dave said, solid results for a quarter where there was a distraction of a large transaction.

Dave spoke quite a bit about the dynamics driving the performance of our physician long-term care businesses during the quarter. I'd like to add that in the physician business, we're now starting to see the cost savings as a result of our rationalization and supply chain programs with the initial savings coming from distribution center labor costs, and inbound freight on purchased products which are both about 20 basis points below prior years in percent of sales. Still pretty early for us to quantify the total potential savings from both programs, but year to date we're seeing cost to serve in the physician business down 50 basis points compared to the first half last year. As most of you remember, we experienced this same trend and same dynamic when we rationalized our long-term care business, where we saw the cost to serve decline and the operating income increase sequentially as we rationalized and rebuilt the distribution model in that business.

Let me point out a few things on a cash flow statement for the second quarter. First, we used $19.7 million of cash to purchase $19 million of face value of our senior subordinated notes which became callable in early October, which reduced our balance of senior notes outstanding to 106 million at the end of the quarter. We did that in a private transaction in September. Second, we used $9.5 million of cash to repurchase a little over 1.3 million shares of our common stock at an average price of -- a little over $7 during the quarter. Which brought our total outstanding common shares to just under 70 million at the end of the quarter.

I want to note that neither of these transactions had a measurable impact on the EPS calculation for the quarter. They both took place late in the period.

The last cash flow item I wanted to point out is related to the acquisition of advantage medical in our long-term care business. As you remember, we purchased Advantage for $4.5 million in cash during the quarter, the acquisition has already been integrated into our existing Gulf South infrastructure primarily in Mississippi and small part in Texas. This has been a very successful acquisition for us, and as we said, we're going to be open to pursuing more opportunities like advantage in the long-term care marketplace.

I'll wrap up this part -- or my part of this call with a short discussion about our capital structure initiatives. Again, I apologize if some of you heard this Monday night. We're launching an accounts receivable securitization based financing package which we believe will lower our cost of borrowing by up to 500 basis points. Excluding DI, we have approximately $150 million of unencumbered, very high-quality receivables on our books which we can take advantage of in this initiative which we expect to close by the end of third quarter. We're also working with our commercial banks to establish a new credit line of 50 to $75 million to replace our current unused line of 150 million. Taken together with the expected proceeds of $45 million from the sale of DI. These actions will give us a substantially strengthened balance sheet, and financial flexibility to take advantage of a broad range of opportunities to accelerate the growth in our two core businesses that Dave was talking about.

Thanks, everyone, for joining us today and we'll turn it now back on the operator to open up the line for questions. Operator?

Thank you. Ladies and gentlemen, if you would like to like to register a question, please press the one followed by the four on your telephone you will hear a prompt to acknowledge your request. If your question has been answered and would like the withdraw your registration, please press one followed by the three. If you're using a speakerphone, please lift the hand set before entering your request. If you have a question, please press one followed by the four at this time. Larry Marsh with Lehman Brothers, please go ahead.

Thank you very much. I got a lot of details on your sale the other night, so I won't belabor that and say really good progress. But just two things I wanted to address and you may have elaborated a little bit on it, but I didn't hear it too well. First, just the sequential decline in the margin of the physician business. Are you saying that, you know, there's a lot going on? You obviously have a lot of capacity that you're -- I guess changing. So some of that sequential decline is a function of those changes and just temporary? And then along with that, specific reasons for the 15% reduction in EBITDA. I know they have been struggling with FDA issues for the last couple years. So is there anything specifically that caused the [EBITDA] numbers to be down so much in the quarter?

The physician business has been going through a lot of changes, as I said. 65% of the distribution centers have now been affected by our restructuring and rationalization program.

Right.

I believe that they've had tremendous success with the program. There's been a lot of activity, a lot of costs associated with it. A lot of disruptions. But everything I see tells me that it's going very well. Our people have been through a lot. But they feel very confident and very good about the end result. The branches that we're seeing come out of the process are starting to climb to the top of our metrics for operational efficiency. So we're starting to see the end result starting now with one or two branches that are coming near the end of the cycle. So everything is telling me that it's on the same track it was at long-term care business.

And related to Abbott, you know, their IMX continues to have difficulty with products being pulled on and off the shelf. [Glycated] Hemoglobin was one of the latest ones and that impacted the revenues on the IMX products significantly. So those guys continue to struggle a little bit. We have reset our margins with them. As we grow the business or as we sell new products with them, we'll make better margins. But in reality, I now at this point in time after this many years have to look to expanding our product portfolio rather than trying to wait for the Abbott product to turn.

And we're getting very aggressive. We have just signed an exclusive agreement with Beckman to sell their chemistry. We laid out five or six other new products that we'll be tracking here in the quarter and talking to people about. So I expect these other products to erase the decline of Abbott, and begin to drive, you know, growth. As we grew consumables 8%, we should be at total growth and 8% right now, but the Abbott is pushing us down.

So you were an -- you would anticipate Beckman coming on to get the entire division so to that sort of high-single digit number here in the next six months or nine months or a year or how would you qualify that?

Yes. Not just Beckman, but there are five or six other products we have rolled in. We some in our pipeline, that are more to come. To give you an exact date, I would like to see in the next six to nine months a recovery of a normalized growth rate in that business.

Great. Second question, I know in the last couple of calls you have given just a broad comment about guidance, you know, revenues, margins, GAAP earnings, growth. I know now with the discontinued op the revenue number is changing, but are you going to be coming back to give guidance or are you implicitly, you know, suggesting the same sort of, you know, kind of GAAP earnings number that you had in the past or how would you, you know, describe that?

Yeah. Hey, and I'm going to give you that answer in a second, but one thing I forgot, also on the physician business, we just came off of one hell of a national sales meeting where our people really get the message of what we're going to accomplish in next year. And I believe that momentum will start showing up also in the next couple of quarters with the new products.

But back to your question. Yeah, my expectation is I committed to 50% growth in GAAP earnings this year, and I, you know, I'm not backpedaling that's our expectation to drive. So we expect that the physician and long-term care division to perform at the, you know, the growth rates that we laid out, and net total we expect to be at a 50% GAAP improvement in earnings.

So, you know, it's hard for me to know when the transaction closes. It can close in 30 days, it can close in 120 days. So it's hard for me to be able to articulate numbers other than the overall numbers that we have given. 50% GAAP in the revenues in each of the divisions in gross and each of the divisions. In our financing, you know, does that happen in December, does it happen in January?

So I just need a few months to go by here for us to have better visibility on these big ticket inflection point issues that are going on here at the organization and the corporation to give any different guidance than we have given. But our objective is 50% GAAP and to drive these two businesses long-term and physician as we have given you -- estimates and expectations of growth.

Very good. Thanks.

Our next question comes from the line of Howard Cabbott from UBS Warburg. Please go ahead.

Good morning. Two quick questions. One on the physician business. If I look, I don't think in the past I have seen a line item or pharmaceutical growth and just curious if Dave, you could touch on you mentioned four or five other initiatives that would be driving sales sequentially higher. Any pharmaceutical distribution in that first question, and then the second question, in the long-term care business, that small acquisition just -- did you acquire the working capital and everything with that or was it just an asset purchase?

Handle that one and I'll do --

This is David. On the advantage, you probably noticed in our working capital that -- in our cash flow statement that our working capital did go up a little bit in the quarter and most that is due to Advantage where we took the receivables and the inventory. But, again if you look at our turns, turns were pretty consistent with prior quarter.

As far as far pharma, Howard, you're right. We haven't been focused on pharma in the past. That's a new focus for us to drive revenues in the physician business. We have already got it up to 9%. Our goal is to get it in double digits easy, and we're going get very aggressive bringing in products. We'll get aggressive trying to buy, you know, bulk products as well as new pharmaceutical products to push through our system. We've got all the relationships with the customers. We're bringing on new sales reps. All those things are starting to drive product -- or drive revenue in addition to adding new products like Beckman and some of the other products we're adding. So, it's not just one area, but I can tell you that pharma is going to be focus of the company to drive. And, you know, I would not be adverse to looking at a small pharma distribution business that we could leverage our network with. Because I believe the proper distribution is a little different than our current network, but I think we can accomplish it either way. So we're going to evaluate simultaneously parallel looking at a small pharma distributor distribution business that we can learn from as well as continue to push a lot of product through our current distribution channel. Does that answer your question, Howard?

Yeah, it does. Probably a small contributor right now, I'm assuming it's like the limacaine/novocaine type of stuff, but could you break out in the physician business, sort of out consumables, private label and equipment?

Well, we broke out under the [success] rates. I don't flow if we're giving out the dollar amounts. Did we do that on the web?

No.

We don't. We haven't yet. I guess we have to evaluate whether we want to start having that tracked by everybody.

Thank you very much.

We'll get back to you on that Howard.

All right.

Our next question comes from Chris McFadden with Goldman Sachs.

Good morning. A couple of questions if I might. First, could you comment on the Beverly contract? You talk about $165 million multiyear agreement. How does that compare to the current run rate of your Beverly relationship? Secondly, Dave, you have talked about just the question on the timing of the DI acquisition, the 8 K last night suggested very few contingencies related to the close. What are the variables in your mind in terms of what's going to drive the closing date there, just so with we can understand? Thanks.

I'll let David answer the DI and then I'll come back to Beverly, Chris.

Okay. Although there's not any -- a lot of contingencies, Chris, it's still a fairly complicated deal. As Dave said, we have to do this without disrupting the customer and so we've got to spin up, you know, transition services for the buyer and understand what they can do on day one and what we're going to need to do and for how long, who's going to do that, you know the integration of systems. So it's really -- it's more a concession around making sure that the transition is smooth as opposed to, you know, clearing a lot of contingencies or approvals because those are done. For the most part. So it's more about an orderly transition.

I understand. Thanks.

Chris, on Beverly, it's little higher run rate than we're at currently, because we're adding products like housekeeping and things like that to the portfolio. And we're figuring out ways to reduce a lot of costs, both on the product side and the distribution side, between us and Beverly. You know what? It had nothing to really to do with the contract. We have been doing that everyday with each other for the last few years, trying to figure out how we can take cost out of product, how we can take cost out of how we do business with each other. It just happened to fall on a new contract date that the attention was drawn to all the things that we're doing. So we have been taking cost out of that model for the last few years, and we significantly took some cost out in this process between the two of us, because it focused us on some new ways that we could take cost out. So, you know, we're more efficient, they're more efficient. We're going to be adding more products through the pipeline and it's just a good relationship that we've had there for many, many years, and we want to help them be successful. They want to help us be successful, and I'm excited about the relationship we have there.

Great. Then a follow-up, if I might. You talked about the Beckman relationship. You know, it seemed at the national sales meeting that Abbott was putting a lot of incentive in front of the reps to continue to have some loyalty to what Abbott products are available out there. Can you talk about, you know, kind of the message you sent to the sales force trying to balance these two product lines where there could be some overlap and I guess how are you seeing if that's any early indication of kind of the sales force reaction to both the products and the incentives that were offered in Chicago? Thanks.

Well, Chris the way we've structured initially the relationships is there is no conflict on products. We're not selling for Beckman the products that Abbott has. So we've only picked the products where there's no overlap. So that there's not any early, you know, fistfights here. So we're just selling the chemistry analyzers. We're just selling the products that we don't have overlap on. Yes, Beckman has other products but we're not allowing our people to sell those. So from that standpoint, it's pretty smooth. We've got two great -- you know, two great companies that manufacture good products and we have selected different products and different portfolio categories to sell. As far as the sales force, you know, the sales force is pretty fired up. They have a new product to sell. They have a new company that's supporting them. Their old company that's had some FDA problems, where we have done a tremendous job of holding on to revenues compared to other markets that they serve and other places where they distribute product. They're fired up about having an opportunity to make more money to help pay for some of the pain they have received by losing some revenues.

So in general, I would say people are pretty excited, pretty fired up, but as far as Abbott goes, they'd like to see the pain stop. I mean, I'm not going to tell you the sales force isn't tired of what's going on there, because they are. But hopefully, Abbott is able to solve their problems and if not we at least make more money as we go through this process with them.

Great, thanks.

Our next question comes from the line of Robert Willoughby with C.S. First Boston.

Shawn Harrington in actually for Rob Willoughby. A quick question on the answers program. The number of new sign-ups on the quarter was pretty large. Is that a successful quarter or just a run rate or momentum you see going forward?

It's kind of the run rate right now. You know what it is? It's like anything else. You have a certain, you know, gear up phase. You have a certain time period where people are getting comfortable with something. And that sales force now is almost doing one a day. So the answers program is starting to hit stride. We figured out which customers it works best for, and we're starting to penetrate our competitive customer base with that program. So I see good revenue growth coming from that program. I see continued momentum in that program. And the other thing that drives is the venders get more excited. The vendors see the compliance that they're getting with the products. They see the momentum in the program, and they begin to offer more exciting, you know, portfolio or proposals in that program. So it just gets stronger as that momentum builds. Both for the sales force capability and with the vendor support. So, yeah, it's got momentum. I don't see that declining. I see it maintaining or picking up. Because our sales force has got it and our vendors get it.

Is that driving a material portion of the profitability improvements, or are you still really benefiting from the successful rationalization program?

Yeah, we're not done with the rationalization side yet.

Southeast he's talking about.

Yeah. That's what I'm talking about. We're getting some leverage from the work we did a couple of years ago and I expect us to get leverage there in 18 to 24 months. The program does incite the customer to have larger order, more efficient orders which dovetails into the new restructured distribution network. So it's just -- it's in parallel in alignment, but I still see more leverage coming from the restructuring efforts that we completed a year to two years ago. But, yes there is coming from answers, but the majority of it is coming from the work a couple of years ago.

Thanks a lot.

If there are any additional question, please press the one, followed by the four at this time. Chris McFadden, please go ahead.

Thanks. Quick follow-up. Could you just give us a sense of what would have been the operating contribution from DI in the quarter? Exclusive of any special items that would have been incorporated in the number. I see the footnote disclosure and the tax adjustment and I was trying to also exclude from that any special items. Thanks.

Chris, I think on an ongoing basis, trying to back out all of the one-time things associated with the transaction, it was probably about a million and half to 2 million of operating loss which would have been pretty close to plan within shouting distance of plan, I think. But it's a little bit hard to tell, because we knew this was coming. You know, we started to discontinue ops accounting, actually that's how we did the close, so we don't really have a non-disposal kind of P&L for them anymore. Does that help?

That does. Thanks, Dave.

Larry Morris, please go ahead with your follow-up.

Let's see. Just a couple -- just a couple of other things. You said that 87 million net proceeds from the sale of DI just help me understand where you're getting that. And then the cash flow from ops in the quarter, I know you had a lot of things going on. Looks like it was about break even in the quarter. Have you talked about a specific goal? I think you did mention something about a goal for a cash flow this year. Just any comments on that with everything else going on?

As far as -- let me take the last one first. Cash flow, on year to date basis about 20 million. Remember that we had given guidance of 25 to 30 million for the year. Also, remember that at the end of last -- at the end of the first quarter, we kind of -- we had a big cash flow number and we told everyone that part of that $6 or $7 million was kind of a timing of check runs for payables and not to count on that. So I think with the addition of the advantage working capital and sort of the normalization of that timing difference, we're still on track for the year, and you almost kind of have to average the first two quarters, I think, is the best way to look at that.

So we expect to beat it.

We expect to beat it, yeah.

Okay.

As far as the $7 million, it was a combination of the purchase price proceeds which obviously happen at the close, as well as the realization of that tax benefit over the next couple of years. And sort of a present value valuation of that that gets you to the $87 million.

Okay. And just the -- the advantage I think, the question before, what did it contribute in the quarter? If anything it closed towards the very end of the quarter, is that right, and it will be adding $11 to $12 million in revenues to Gulf South, is that correct?

That's correct.

Okay. And it did close toward the end of the quarter, so you didn't see any impact on top line from advantage in the September quarter, is that right?

That's right. But I'll also reiterate, very successful integration kept all the salespeople have closed their facility. So that thing is already going to contribute now going forward.

Okay.

...doing anything in September.

Great.

Our next question comes from the line of Lisa Gill with J.P. Morgan. Please go ahead.

Hi. Just two questions. I know you commented on the Mega cliff, but what are you seeing in the current quarter giving the pending provided [give back bill]? And the second question is can you comment on EBITDA transfer for both the businesses, given the restructuring going on right now?

Okay. Well, we really didn't comment on any trends in the current quarter. We are commenting on the September quarter, and, you know I believe that in this lame duck session, there's going to be pretty good momentum to deal with the cliff issue. But in any case, we're being very careful. We'll never ever sacrifice our balance sheet for growth. So we'll just be very, you know, careful through this process. And our expectation is to watch it carefully. You know, my comments were that I expected our customers to run their inventories down during this period, but really no comment on what's going on in this quarter. I've got enough to report here for -- to last right now. And then, you know, our EBITDA goals and EBIT goals that we laid out for this year for the total corporation and for the long-term care and physician divisions are constant. We don't expect to change any of those goals and we expect to, you know, deliver on what we gave the street to begin the year with.

Okay. That's great. Thanks.

At this time, I'm showing no further questions and I'll turn the conference back over to you for closing comments.

Yeah. Just thank you very much. We're very excited to be back. We're very excited to have a good home for our DI employees, and we remembered how to run a growth company, and this is pretty exciting field to this place for us right now and we're ready to get very intensely competitive in the marketplace. Thank you very much.

Ladies and gentlemen that does conclude the conference for today. Again, we thank you for your participation and ask that you please disconnect your line at this time. --- 0