麥卡遜 (MCK) 2003 Q2 法說會逐字稿

Ladies and gentlemen, welcome to PSS World Medical second quarter conference call.

During the presentation, all participants will be in a Listen-only mode. Afterwards we will conduct a question-and-answer session. As a reminder, this conference is being recorded Thursday, October 30th, 2003.

I would now like to turn the conference over to Robert Weiner, Vice President of Investor Relations, PSS World Medical.. Please go ahead, sir.

Good morning, this is Robert Weiner. I want to thank you all for joining us today for our fiscal 2004 second quarter conference call. We issued our press release yesterday evening. If anyone did not receive a copy of that release and would like a copy, please call our investor relations line at our main number, 094-332-30000, and we'll get a copy out to you.

Today our speakers on the call are David Smith, President and CEO and David Bronson, Executive Vice President and CFO. In addition to our speakers, myself, Kevin English, Vice President, Finance and David Klarner, Vice President, Treasury are with us today an we're all available for questions.

Before we begin with formal remarks I'll read the forward looking statement. All statements in this conference call that are not historical facts including but not limited to anticipated rates and revenue, growth goals for gross and operating margins and expectations for growth and earnings per share are all statements made with regards to our goals and objectives and statements regarding the company's current business strategy, the company's projected sources and uses of cash, the company's plans for future development and operations and other factors that we described from time to time in our filings with the SEC are all based on our current expectations.

We alert our listeners to read and understand the forward looking statement disclosure in our SEC filings. These statements are forward looking in nature and involve a number of risks and uncertainties, our actual results may differ materially.

Many of these factors are outside of the control of the company, and the company wishes to caution listeners on this call not to place undue reliance on any such 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 forward-looking statements. We'll now move to our formal remarks, which will be followed by question-and-answer session as prompted by the operator.

I'm please to turn the call over to our president and CEO, David Smith.

Good morning, everybody. And thank you for joining us. On our last conference call, we rates race car metaphorically, was ready for a spin around the track. Well, it ran pretty good for its first lap. Some of you may be surprised by the growth and others realize it's no accident. I can tell you, inside the organization, no one is surprised. They know we spent two long pain-staking years rebuilding this company.

We started on our customer, focused on current and future needs and then worked backwards on people, products programs, services infrastructure, systems, leadership, training development and compensation. We developed a strategic plan with decision logic balancing customer satisfaction with long-term shareholder growth, measured, of course, by redesigned metrics, financial reporting and controls.

This was done because we realized from the very beginning that this was an endurance race. We took our time building this car, because we plan on racing it successfully and profitably for the foreseeable future. And I can tell you, there is plenty of gas in the tank, a lot of track, and everyone here is very hungry for a win. We're raising our guidance for fiscal '04 to [90% to 110%] growth in gap earnings, over 19 cents reported last year. We recognize our momentum and have confidence in our plans and ability to execute.

I also caution, do not get ahead of us. We're building a track record of consistency and dependability. We have 12 consecutive quarters of doing what we say and that is very important to us, and more important than chasing others expectations.

Switching gears to the business, the Elder Care Business may not receive the accolades by comparison to the Physician business, but they had a great quarter with many moving parts. We lost the IHS business as they exit bankruptcy and completed the Highpoint accession at great addition to the Texas and Oklahoma markets both of which are basically a wash.

It took the sales force and management out of the field for two consecutive weeks to introduce our new equipment strategy and training. Had a change in leadership, and still had revenue growth 3 times the market. We have a good plan. And even better leadership with Kevin, Gary, George, Billy, Ray, Eric, Bob and the zone (ph) operations. I'm very proud of their success and execution.

This year in the Elder Care Business, our goals included big contributions from regional accounts and housekeeping. They had their biggest answers programs success this quarter. Regional business grew 30% and housekeeping was up 48%. Our nation and regional customers can't tell me enough about the job our teams are doing with Gary, Bill, Ray, Charlie and the gang.

Our team is the best in the industry.

We will evaluate our internal candidates and several very strong external candidates for the vacant president position. We will pick the right person for our customers and team who can continue the programs and take this division to the next level of performance. We expect to do that before the end of the year. That is, the calendar year.

The Physician business had a great quarter. We're only one quarter post rollout and lunch launch of our strategic initiatives, land, air and sea and only 1.5 quarters of our systems and rationalization program. Gary, Brad, Eric, Eddie, Scott, Bob and the regional execs are proving to be a dynamic combination of talent and determination. Pharmaceutical growth was 50% with flu and over 30% without, and is just getting started. We're just hitting the ground with our program most of our flu actually hits next quarter.

Disposable sales fueled by Advantage Club growth of 18% is gaining momentum, and is probably the best indication of our future. Equipment growth was across a broad spectrum of products. The Abbot (inaudible) hematology and (inaudible) units were the all-stars. GEMR Biosite and chemistry are being teed up for upcoming quarters.

David Bronson will talk about margins. I just want to say Brad and his operating team are on track and doing a great job for efficiency and cost reductions to produce the returns on the investment in our systems and infrastructure.

On a consolidated basis, as we look forward to the remainder of fiscal '04, we expect same day sales to continue to accelerate. In Q3, we had 2 less selling days than last year and 4 less than Q2. Our margins will be solid and we expect to meet or beat all of our original gallons goals except cash flow as a result of accelerated growth and program investments. Again, we're raising guidance to [90% to 100%] growth, but I caution, don't get ahead of us.

As for our environment, the tea leaves for our companies prospects for reimbursement, new products and competitive landscape are very positive. We expect the Elder Care Business to benefit from the $11 billion of new and state tort reform. We expect Physician business to benefit from new programs for the foreseeable future. Competitively, we feel positive about the current landscape and its future.

Thank you. I'll turn it over to David Bronson, our EVP and CFO.

Thanks, Dave. Good morning, everyone. We appreciate your participation this morning on our call. This morning I'm going to cover three topics. Operating margin expansion, cash flows, and our receivables reserve posture for the Elder Care Business. As always, we'll be available after our prepared comments for any questions you may have on other topics.

In the second quarter, we grew consolidated revenues by almost 20% over Q2 of last year. On a per billing day basis, the growth was 12.8%, with the Physician business growing 14.9% per billing day and the Elder Care business growing by 8.9% per billing day. We highlighted those growth over prior year numbers in our press release, but what's equally exciting to me is that we grew revenues almost 9% sequentially over our first quarter, again, on a per billing day basis.

That kind of revenue growth leveraged over our rebuilt distribution platform is helping to drive some nice operating margin expansion. Operating margins were 5.4% in the Physician Business, 4.2% in the Elder Care Business, and 4% for the total company. Recall that our guidance for full year fiscal '04 was [3.1%.]

Now, it seems like we're getting there a bit faster than expected but it's important to remember that the four extra billing days this quarter had some impact on that, some of our fixed costs gets leveraged when we have extra billing days. Our guidance has been that half of the operating margin improvement this year, and in our 3-year business plan will come from leveraging revenue growth over our infrastructure. I think this quarter's results have to demonstrate and prove that concept.

The other half, though, will come from real cost savings being generated in our branch operations and across our shared service platform. The way we measured field operational improvements is to track our costs to deliver as a percent of net sales. Both businesses delivered meaningful decreases in cost to deliver this quarter. Warehouse lane labor, transportation and other variable costs are improving as we standardize and adopt best practice of or 50-some locations and we're still early in the process. For example, there are over 30 specific cost-saving opportunities being pursued by our materials management department alone, that are projected to save $6 million to $8 million dollars over the next 18 months. That's one department in our shared service function.

Let me talk a little bit about operating cash flows. To support the revenue growth that we saw this quarter, we invested about $32 million in receivables and inventory. Now, normally a lot of that would have been offset with an increase in payables, but that didn't happen this quarter for a couple of reasons.

First, the timing of our quarter cutoff on October 3rd, which was done to facilitate our fiscal inventory process resulted in significant disbursements of cash in the first 3 days that would normally be on the balance sheet at the end of a quarter.

Second, we made a financial and a business decision because of our lower costs of borrowing this year to increase the amount of cash discounts we take on inventory purchases. This decreased our quarter end payables by about $4 million, but increased our cash discounts earned by about $800,000 over prior year.

With return on committed capital improving for to 40.7% in the Physician Business, 27.1% in the Elder Care business, and 25% overall for the company, we feel good about those decisions. Although our receivables and inventory turns are as good or better than they've ever been, the fact that we're growing faster as a company and will continue to do so will result in about $10 million higher working capital than we originally projected for the end of our fiscal year, lowering our guidance for operating cash flow by about that amount.

Let me turn to the Elder Care reimbursement and receivable reserves. The much welcome changed in reimbursement began to go into effect at the beginning of this month. As we've talked to clients, suppliers and other industry insiders, this is going to clearly improve the financial outlook of most or all of our customers, but this early in the process, we've not seen the material change yet in our aging or returns.

At the beginning of this year, we said we would be doubling our provision this year for bad debt, and as you can see in our cash flow statement, we continued with this philosophy for Q2. Just to be real clear on this, our improved profitability of this quarter, included neither a lowering of the provision or bad debt, nor a reduction of our reserve balances. Our expectations is that as an additional reimbursement filters down through the pairs of our customers, we will be able to reevaluate our reserve position and quarterly provision. We think that'll start to happen in this, the third quarter. Now, because this represents a change in accounting estimate, we want to make sure that we're on solid footing when we make that adjustment.

I'll turn it back to Dave Smith for closing comments before we open the call to your question. But just in closing, let me just say that we're very pleased with our progress and performance. I'm proud of everyone in our organization for our efforts in making it happen.

Before we get -- let's take questions and then we'll close it up. So it's open for questions.

(Operator’s instructions) Our first question comes from the line of Eric Goldwell, Robert Baird & Company. Please proceed with your question.

Thank you very much. Can you hear me?

Yes.

Good morning. I'm hoping that you can, David, reiterate your guidance for cash flow and capex for the year. I'm not sure I got that.

Well, capex, I think we haven't changed our guidance. It will still be, I think $12 million to [$15] million. We're on track there through two quarters. For cash flow, what I said was that our working capital is going to be about $10 million higher than we originally projected, and that's going to result in about the same amount less in terms our guidance. Originally we had guidance. $30 million to 35 million of cash flow.

$20 million to 25 million would be area a more realistic number now?

Yeah.

Thanks. In Elder Care, I know (inaudible) were announced late in the quarter, but can you give us a sense of how much High Point and the new Graham Field exclusive relationship contributed to the top line in the September quarter?

Well, you know, High Point is about an $18 million business, so that's about a million and a half a month. We got that at the tail end of that quarter, but they did have a very strong September. So, it was probably closer to $2 million for them.

For Graham Field and the equipment launch right now, we're just training our people. We took them out of the field. So I would say that grant field took away sales, because we took our people out of the field for half group for one week and then another half of the group for the following week. And we won't really launch the offensive programs until probably next quarter in and the following quarter, I'm sorry, until the January and April quarter. At the beginning of those, because our people are just getting to know the product. We're just getting the product in our warehouses. We had about 15 containers come over from overseas. We're filling up the warehouse, making sure all of the SKUs are there.

Because the number one issue in this product is the product is going to home care providers and nursing homes, and those people, when they order it, they need it. And we have to make sure that our supply chain dynamics are close to perfect, 98%, 99% percent fill-rate level before we turn on the spigot and sell the product.

So I don't expect -- there was no contribution this quarter and there will be a slow roll next quarter and then we'll launch the offensive programs after our people are comfortable and we're comfortable, hopefully.

That was a long answer, but I want to make sure you understood why that didn't have an impact yet.

That's more impressive given the strength of the quarter. I might have more later. I'll finish now with one question with the pharmaceuticals within your Physician Business.

Can you give us a sense on what you're seeing on flu vaccine and how much upside you might be looking at next quarter or in the current quarter and also just some general commentary on how the sales forces adopting the new RX Extreme selling program and feedback from your customer base?

You know, Eric, this is really a no-brainer for us, why we didn't do it in previous years, I can only tell you it's a great opportunity today. Our salespeople are getting very comfortable quickly with the program. I talked to a couple of sales guys a couple of weeks ago and they just now started selling pharmaceuticals this last week.

So it hasn't been fully adopted even by the whole sales force yet, and we were able to grow 50% total and 30% without -- 30-plus% without [flu]. From an adoption standpoint, I expect over the next 6 to 9 months for the whole sales force to adopt and start driving the program.

As far as customer, the customer is getting the product from a male order company or a telephone or fax machine, and it's not being serviced face-to-face. It's not being delivered by a driver. They are having to use UPS. It's just a hassle compared to the no-hassle service that we provide that to customer. For our existing customer base, it's a no-brainer for them to switch the business to us, if the pricing is competitive, and we're very competitive on pricing.

So I expect this not to be a challenge at the customer level, more of just getting our people acclimated and getting them rolling with the product. As far as flu, we really didn't book very much flu..

It was incremental a couple million dollars in the quarter. It wasn't a major impact. Next quarter, though, all of our flu hits and I don't know if we're going to disclose it, but it's fairly sizable. I think we'll probably triple our business from last year with flu. So I'm expecting a decent flu quarter. That'll help because we've got 4 less big days in this quarter and 2 less than the previous year. So it'll be a nice offset. Does that answer your question?

Yes, it does. Thanks again.

Our next question comes from the line of Mike Rossler, CJS Securities. Please proceed with your question.

Good morning. Steve, could you just talk about what the share buyback was in the quarter and how the lower expectations on operating cash flow may impact the share repurchase program?

We didn't attack the share program just because of how much we knew we were investing in all of the inventory. And we had a pretty good sense that our revenue growth was going to be pretty strong.

When you grow revenues at 20% in a distribution, you're going to chew cash. So we did back off from any desire to be able to purchase shares. We got in a blackout window pretty quickly, and I would like to see us recover our cash flow in these next two quarters or next quarter before we start acquiring shares, but I would like to finish the share repurchase program.

And I would just say that our DSOs are down. Our inventory turns are up, so the quality of our balance sheet is better, but clearly we did burn cash as we grew the Physician Business 20%,--$27 million alone in just receivables.

And you've been pretty public in saying you're not going to risk your balance sheet in terms of the -- can you talk about the specific things that your customers are seeing that might enable you to be a little bit less conservative in terms reserves for that?

The chain customers that I've talked to and I've talked to probably 40% of the total volume, 50% of the total volume of chain business in the marketplace.

They see anywhere from 6% to 8% revenue and bottom line pickup from the reimbursement changes. That's a lot of money. So, there is going to be a significantly healthier customer out there than there is today. So as we do credit checks, we're going to go through our normal processes, we won't change any process from our current processes.

As we go through those, for new customers, they are going to show up better than they did previously. So we'll extend a broader array of terms or we'll extend terms period to customers that may be six months ago we wouldn't have extended to.

The other thing is it probably changes the expectation for experience on bad debt. And it probably changes that analysis so that the balance sheet reserve itself is probably -- will be overstated if there is a big change in creditworthiness in the market. And then third, on a day-to-day basis, our bad debt expense is built on that same analysis. So if there really, truly is a change, and based on our conversations with customers, there appears to be a change coming, then who we allow to do business with us will be broadened because of their healthier status.

The reserves we have on our books won't be as necessary if there is an actual analytical change, and third, the amount of money we book on a monthly basis would have to change also. So it's across-the-board revenues, balance sheet and income statement.

We have been very conservative, but as you know, this market was not one that you take a risk in because of the reimbursement and bankruptcy picture.

Okay. And final question, could you just update us on the status of the issue with Putnam?

Yeah, there is really, Michael, not really significant news to report on that. We continue with the process of arbitration. We have selected -- we have agreed on an arbitrator that will handle the case. I expect that it will begin to take its course with presentations and briefs presented by both sides.

We continue to feel that we Have limited exposure in this, and that our case is strong and the relationship with platinum for all intents and purposes from an operational day to day standpoint is over. We're done providing the transition services. They are on their own now. And I just think that this will run its course and we expect that we will prevail.

Great, thanks, guys.

Our next question comes from the line of Larry Marsh at Lehman Brothers. Please proceed with your question.

Mr. Smith, way to go, nice results. Let me -- couple things that I'd like to touch on. Equipment sales in your Physician Business, can you talk about any acceleration in the CELL-DYN (ph) product from Abbott? And whether you view that to be still accelerating in the next couple of quarters or have we already started to see that pretty clearly in your equipment sales growth?

Good morning, Larry. You know, we've been doing business with Abbott since 1995 or '96? ’95.

We hit a record this quarter in CELL-DYN sales because of the 1800. So, it definitely shot out of the gate because we haven't had -- I want to be careful here -- as competitive of a product as we would like to have had historically in this category from Abbott. 24S this is clearly a competitive product.

So we did run a blitz in this quarter, but I expect this product to accelerate from a year over year comparison on every quarter.

And I'll let you know if we break this record again here in the next couple of quarters. But we are probably going to focus on maintaining the momentum from that blitz in this next quarter, but start focusing on some of the other equipment lines that we have that we can also hit records with. And I kind of mentioned some of those, the GEMER, chemistry, Biosite, some of those other products that we want to run metrics from the EKG products, et cetera.

We will definitely continue the momentum with hematology, but clearly we have a lot of other options to be able to run promotion was.

Right. Did you suggest what kind of sales growth you saw in equipment here this quarter year over year?

On the can do equipment, we had [26.?%] and a total category, we had -- or is that total?

That is total.

So that is the total number.

Okay. That's a good thing.

Yeah.

Follow-up from the question on the vaccines. The overall pharmacy category, can you elaborate on what kind of traction you are getting there?

And remind me again how you're getting the sales force to think about that, given that's a lower gross margin but obviously additional dollars and we see that through blended into a little slower growth gross margin in your Physician Business?

Larry, the sales force has been wanting to sell this product for a long time. Remember, we just never let them do it.

One of the ways we didn't let them do it is we punish them at the compensation level for taking the orders, because we punish them any time they took a low margin product. And so it was the combination. We changed our infrastructure so that we could do it efficiently, we changed our compensation model so that they would be encouraged and get a normal check for selling the product, and then third, we filled the warehouse full of products so that they knew we would service it.

So we invested cash on the front end to prove to them that the product was there, all they had to do was sell it, and then we threw at them four or five different campaigns all at once in June.

Some of them ran with the equipment stuff. Some of them ran with the Advantage Club stuff. Some of them ran with pharmaceuticals. And now the guys that ran with the other programs are probably looking at pharmaceuticals because of the success the other third of the sales force had with that program, and we'll get a lot more traction with Pharma here in the next few quarters. Does that answer it?

Yeah.

We have our national meeting coming up next month, and we'll probably get a tremendous amount of visibility and traction from that meeting, as we always do.

Yeah.

And pharmaceuticals is a big part of that.

Okay. David Bronson-- You mentioned -- you ran through the structure of increasing your cash discounts but chewing into your payables a bit in the quarter. Again, could you go through that quickly again?

Good morning, part of it was just timing. We, you your, we extended the quarter past the end of the month. So things like the first of the month payroll checks, the vendors that get paid at the first of the month, all of those checks went out. Normally they would have been on the balance sheet. That was probably about $2 million or $3 million of payables.

Then in addition, we made conscious decision to go to discount terms on several large vendors in the quarter, and that -- we did the analysis -- and that looks like about $4 million of less payables at the end of the quarter than we would have had, but it increased our cash discounts earned in the quarter by $800,000 over prior year and $250,000 over Q1. So that was a conscious business decision based on our cost to capital, and it is the right economic division, but it did lower our payables.

Okay. I have a question, Dave. You said hey, don't get ahead of us, but obviously, this was a healthy upside. If we just keep the earnings number sequentially in line or maybe take at some point a bit, we're still -- we're already above your guidance. So, are you suggesting that because of fewer selling days in Q3, we shouldn't expect to see sequential evenness or up earnings? Is that what you're saying?

We actually have 6 less selling days this next quarter than we had this quarter. So, even though our same-day sales will go up, total revenues won't be able to keep pace with total revenues, which affects the leverage, which affects margins, which affects overall EPS.

So, no, I wouldn't expect Q3 to be at the EPS level that Q2 was because there is 6 less billing daze, but I do expect revenue on a same-day basis to accelerate. I do expect the balance sheet to be solid or improve, and I do expect margins to be more efficient but maybe not be as well leveraged because of the revenues. Does that make sense?

Yes. So it's really a bit of timing between Q2 and Q3 on selling dates. So we shouldn't go too crazy on the 11 cent base in the quarter?

Right. I'm -- this is what we're committing to do. We're committing our goals are 90%-110% over 19. So if somebody starts going over [40,] they are over our range. And that just, you know, it's not what I'm going to be -- I'm not going be looking at that number, anything above 110%. I'm just not going to pay attention to it.

I see. Okay, good. Thanks, Dave.

Our next question comes from the line of Robert Willoughby, Bank of America. Please proceed with your question.

Thank you. Just one question. On the Pharma side, you mentioned the flu vaccines are selling. What is driving that kind of growth? Can you give us any color in terms of therapeutic categories? What's working for you, what may not be working?

Bob, that's a good question. I'll be honest with you, it's absolutely across-the-board. Every product we sell -- actually, Kevin English who runs our purchasing organization is sitting in here, VP. Finance also, Kevin, any color?

There is 250 items, Bob, that are really the bulk of those pharmaceutical sales, but we do have roughly 4,000 items that are categorized as pharmaceuticals, but the bulk of those sales are across the board on the 250 top moving items.

Now, I will say that our biggest mover this quarter in Q3 is going to be flu. We will triple our quadruple what we did last year, just because we bought it. If we would have bought more, we would have sold more last year, but this is what we committed to buy and we've sold all of it, and it'll show up in Q3.

And next year we're probably going to be buying double or triple what we bought this year.

So with flu, you've got to buy it in advance and go out and sell it, and we are selling today what we bought last year, which was triple or quadruple what we bought the year before, and we're going to buy double or triple next year. So that gives you an idea of what we expect from that product.

Would you choose to jump start the business through an acquisition or are you just very happy with the growth rates, there is nothing to complain about there, but do acquisitions add anything to your distribution effort on the specialty side?

I think I'd have to find right one, Bob, that culturally would be a good fit with the feet on street organization, and would be the right operational fit that could improve our service to the customer. So it just -- it needs to be the right one, but I definitely would not be adverse at looking.

Thank you.

Our next question comes from the line of Christopher McFadden at Goldman Sachs. Please proceed with your question.

Thank you, good morning, earn. Couple of questions, if I might. First, on the provisioning for bad debt, in the quarter, you know, we had an uptick from $1.3 million in the first quarter to $2 “point something” million in the second quarter. What's the second half outlook? Should that number continue to ramp from here? Can you help us think through that particular line item?

The reason for the jump in the second quarter was higher sales, and we also, you know, saw a slight increase in our amounts over 90 and 180 days. So we've kept the same methodology for calculating the provision that we've had historically, and we just ran it through the same calculation, and came up with that number.

Now, going forward, I think that as Dave said, the health of our customers will improve. We will be taking a look at that calculation, and adjusting some of the assumptions that are built into that calculation for how much of each bucket of aging we feel is necessary to be provided for.

And we've got to do that in lock step with our awed auditors. Because its an accounting change, it has to be well documented and substantiated. So, this is the quarter that will start to look at that.

So our expectation is that this change in reimbursement is going to allow us to -- as Dave said, sell to more customers, reevaluate the reserves that we currently have established and lower our provision on an ongoing basis. It's going be third quarter that we see that change.

And Chris, I would just also add to David's comment from a color standpoint. You know, I would expect that that's probably 50 to 100 basis points change in that division, because that's what we changed that division when we doubled -- started doubling – in our reserves for what we considered to be an environment that was still sliding downhill.

So now that that is environment is completely changed, I would expect that there's probably 50 or 100 basis point change coming, but it has to be because the industry is more healthy and that reimbursement has changed the analysis of the expectation of bad debt from our customers.

So we just need to go through a thorough vetting pro sis and David and his team and the auditors are already pounding the, you know, the pavement trying to figure that out.

Should I infer that we would probably see a full-year number, something less than $8 million then?

6 months? Yes, way less. Way less.

Way less, all right. Second question, just picking up on the other question on the transition services agreement, you had in the quarter a cash flow adjustment for that. I just -- just to be clear, are there any outstanding receivables to that organization or are you guys -- is that from my financial and cash flow perspective now a completely cleaned up relationship?

They have paid those services promptly all along, and so there is no there is no balance between the company's material at this point.

Great, thank you. Could you give us a physician's sales count at the end of the quarter?

You mean salespeople?

Yeah.

I don't have that on the top of my head, Chris, but we can get it for you.

Next question, thank you for providing the same-day sales targets for the two divisions.

Could I get you to give us a sense for the physician, if we Xed out RX Extreme and for the Elder Business if we Xed out the acquisition, what the sales numbers in the quarter would look like?

I don't have them. We can circle back on that, Chris.

Okay, thank you. Could you give just a little bit of color around the tax reversal in the quarter, the $1.3 million? You provide a footnote N which I appreciated, but just a little more color around the timing of the reversal in this period?

Yeah, these are reserves that were provided several years ago when we acquired the Go-south business. They were reserves for, you know, operation sales and use tax kinds of liabilities that we had or that we, wanted to provide for. Either through running out of statute of limitations or just the passage of time, you know, new facts, all of that analysis, you know, led to reversing those this quarter.

And it was kind of a scheduled thing. It wasn't something that we just, you know, came up with in the close process. We knew it was coming, and it just required that passage of time to get us to the point where we could -- where we felt like those were no longer necessary.

And one other thing, Chris, last quarter, we had a million dollar charged cost and we didn't exclude that from our GAAP numbers. This quarter we had $1 million dollar income in the same category, and we didn't exclude that from our GAAP numbers. So they both -- within the two quarters offset each other.

Agreed 100%. Thank you. On the flu business, specifically on flu, as you kind of come into the big seasonal quarter on flu. Could you give us a little bit of sense on how supply is over all season to season? That's always a topical issue.

And do you have any estimate even back of the envelope of how much of your kind of committed in inventory that you've gone out and purchased is presold or sort of precommitted in the marketplace?

Well, we had 100% of our -- we were over subscribed on our purchase. We had more demand and more potential for sale than we had purchased.

But this year, it looks like the matchup of supply and demand is very, very, very close, not this discrepancy that you saw last year, where they started dropping price because there was an oversupply versus the demand. So it's pretty tight this year. Now, you never know what's going be next year. There is no way to predict it, but this year it's pretty tight.

I understand. So would you expect that you guys, is it in your business plan to sort of participate in the spot market if that market materializes this year?

The way that spot market normally materializes is if, you know, there is a greater supply than demand in the pricing really starts to drop.

However, we are out buying some product right now in that market as we find the transactions agreeable to our selling terms.

Great. And then just one final question, I appreciate the time. Any update in the past we've talked in the -- we have talked about some of the ERP rollouts that you've had ongoing.

Two questions, kind of where is that process from an operational perspective totally implemented? And I guess any anecdotal examples of how, Dave, you and your team are using that data to help throughout the business? Thanks.

The ERP rollout is going essentially on schedule for go south for the Elder Care Business. We've rolled it out to the accounts receivable process, and that went very smoothly. That happened during this past quarter.

I think the first branch to go live is probably within the next two or three months, and so, all of those preparations are taking place. I think we were confident that this will roll out smoothly. That confidence is driven by the level of participation of the team as well as just the history and the experience that we gained when we did it with the Physician Business.

As far as the reporting -- I think I've probably shared with some of you some of the reports that we have from our operational standpoint. We have branch metrics for every one of our branches. We have what we call red light/green light reports that correlate with their business plans to show in each branch and in each sales region who is on track with each of the programs and who is not. And we use those very efficiently, I think, as a management team.

And all of that is made possible by being on kind of the same platform in the same systems, but it really is, you know, more of a process and a philosophy-driven thing than a systems-service thing.

Thank you very much for the detail.

If that concludes our call, thank you very much for everybody participation, congratulations to our team, and for any of you in New York, we'll be there on the 19th at the NYSSA conference.

So we look forward to seeing everybody there and thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.