麥卡遜 (MCK) 2016 Q2 法說會逐字稿

Good day and welcome to the McKesson Corporation quarterly earnings call.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Miss Erin Lampert, Senior Vice President, Investor Relations. Please go ahead

Thank you, Audra. Good morning and welcome to the McKesson FY16 second-quarter earnings call. I'm joined today by John Hammergren, McKesson's Chairman and CEO, and James Beer, McKesson's Executive Vice President and Chief Financial Officer.

John will first provide a business update and will then introduce James, who will review the financial results for the quarter. After James' comments, we will open the call for your questions. We plan to end the call promptly after one hour at 9:30 AM Eastern time.

Before we begin, I will remind listeners that during the course of this call, we will make forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of McKesson.

In addition to the Company's periodic, current, and annual reports, filed with the Securities and Exchange Commission, please refer to the text of our press release for a discussion of the risks associated with such forward-looking statements. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures in which we exclude from our GAAP financial results, the amortization of acquisition-related intangible assets, acquisition expenses and related adjustments and LIFO-related adjustments.

We also refer to certain non-GAAP measures calculated on a constant currency basis. We believe these non-GAAP measures will provide useful information for investors. Please refer to our press release announcing our second-quarter FY16 results available on our website for a reconciliation of non-GAAP performance measures to the GAAP financial results.

Additional information on constant currency effects is available in our SEC reports. Thanks and here's John Hammergren.

Thanks, Erin, and thanks everyone for joining us on our call. Before I recap our quarter, I want to take a few moments to discuss the issue that must be on everyone's minds: the announcement of Walgreens' acquisition of Rite Aid. We have a very strong relationship with Rite Aid. For many years, we provided distribution services for their brand pharmaceutical volume.

When we expanded the relationship last year, Rite Aid was attracted to closer ties with McKesson because of our generic purchasing scale and our sourcing expertise, our leading industry distribution capabilities including our ability to provide better levels of service to Rite Aid stores, and a significant working capital and cash flow benefits available through this closer relationship.

Since that time, McKesson has added significant additional scale to our generics program. Customers want a deeper relationship with McKesson, not only because of the competitiveness of our offering but also because we've built a broad array of customer-centric programs that deliver real value well beyond core distribution.

In addition to our relationship with Rite Aid, we've also had a strong business relationship with the management team at Walgreens-Boots alliance. We have great respect for what they have accomplished. There's no doubt our industry is going through a period of dynamic change. I've been CEO of this Company for 15 years and in healthcare my entire career.

I seen this industry goes through transformative change in a number of occasions. I believe one of the fundamental strengths of McKesson has been our ability to constantly adapt and lead during times of change by staying focused on our customers and our true core values.

McKesson leaders are the best in the business and we demonstrated our ability to innovate and to drive consistent and steady growth over many, many years. And I believe we remain exceptionally well-positioned across all of our businesses as we look to the future.

Now turning to our financial results. For the second quarter, we achieved total Company Revenues of $48.8 billion, up 14% and adjusted earnings per diluted share of $3.31, up $0.21, both on a constant currency basis. In a moment, I'll provide highlights of what was another solid quarter of operating performance across our businesses, but before I do, I will mention a few items that are important to understand with respect to our second-quarter results.

During the second quarter, we completed the sale of the Zee Medical, a business that was within our medical -- McKesson Medical-Surgical business and recorded a gain of $0.14 per diluted share. Then we recorded a $25 million favorable tax item in the second quarter as a result of a recent US Tax Court ruling. This drove a benefit of approximately $0.11 per diluted share in the quarter.

Excluding these two items, our second-quarter results were better than our expectations, primarily driven by the timing of brand price inflation which occurred earlier in the year than we had anticipated as well as the favorable timing in our Technology Solutions segment. Overall, I'm pleased with the performance of our business in the second quarter.

Coming back to the broader industry environment. Pharmaceutical pricing trends have become the frequent subject of news headlines as we get deeper into this presidential election cycle. The observation I would make is that this pharmaceutical pricing discussions tend to ebb and flow over time.

However, what remains clear is that pharmaceuticals are still the most effective and affordable way to treat patients. And innovation in drug development and the trend toward higher levels of generic penetration continue to deliver real value and cost savings to the healthcare industry.

The desire to tie payments to value and expand medication adherence in a world of fee for value is tremendous. And the issues of quality, access and cost remain at the center of improving healthcare delivery. And McKesson is a extremely well-positioned to help our customers not only compete but thrive as they look to the future.

Turning now to our business results for the quarter. Distribution Solutions revenues were $48 billion, up 14%, and adjusted operating profit was $1.1 billion, up 11%, both on a constant currency basis. Our North America Pharmaceutical Distribution and Service businesses which include US Pharmaceutical, McKesson Specialty Health, and McKesson Canada, all turned in impressive results with the combined revenue growth of 17% in constant currency.

Revenue in our US Pharmaceutical business as ahead of our expectations in the second quarter, driven by continued strong growth, primarily from our largest customers. And the timing of certain brand price increases which occurred earlier in the fiscal year than we had previously anticipated.

During the second quarter, we were excited to announce our expanded relationship with Albertson's. As you know we signed a new five-year agreement that includes the sourcing and distribution of both brand and generic pharmaceuticals to Albertson's network of nearly 1,700 pharmacies in the US.

I'm also pleased to report that we signed an agreement with CVS Health to retain Omnicare's long-term care and specialty distribution business. We are proud of the exceptional value and service we provide to both CVS Health and Omnicare and the great relationship we have enjoyed with both companies over many, many years. We are privileged to continue to serve them going forward.

And I would note that Health Mart is now more than 4,200 member strong, an increase of over 300 stores in the first six months of this fiscal year. This is a tremendous result. And I'm confident in the strength and scale of our value proposition for our customers and our manufacturing partners. And I believe that we remain extremely well-positioned.

Turning now to McKesson Specialty Health. We continue to deliver excellent revenue growth in our specialty business driven by the strong performance across our community oncology business, the strength in our multi-specialty categories, and the strength of our US Oncology network practices.

In the second quarter, we saw the first biosimilar launch in the US, a biosimilar for Neupogen. We anticipate an increase in a number of biosimilar launches in the years to come. And we are confident that we will -- we are very well-positioned given our multi-channel presence, particularly our strength in the community of clinic setting, and our comprehensive service offering to be a partner of choice for our customers and manufacturers.

In our Canadian business, we had another quarter of solid revenue growth, driven by great performance in our core distribution business and the expansion of our independent pharmacy banner business along with outstanding growth in our Canadian specialty business compared to the prior year.

Turning now to our results in International Pharmaceutical Distribution and Services. Revenues for the second quarter were $5.9 billion, up 2% year over year in constant currency. And Celesio's operating performance was slightly ahead of our expectations for the first half of FY16. We are excited about the acquisition of pharmacy operations of Sainsbury's, which will add 281 pharmacies to our leading pharmacy brand in the United Kingdom.

We also announced the acquisition of the pharmaceutical distribution business of the United Drug Group, which provides us a strong platform for growth in the Irish market. These acquisitions complement the excellent position of Celesio businesses in the European market and further enhance McKesson's and Celesio's global value proposition to our customers and manufacturing partners.

We remain encouraged by the steady improvement we are seeing in the operating results of Celesio as we continue to make important investments in modernizing the IT infrastructure of the business which will provide a foundation for further operating improvements going forward. And finally, our Medical-Surgical business performed well in the quarter, with revenue of $1.6 billion, an increase of 3% over the prior year.

I am really pleased with the growth we are driving across Medical-Surgical with a special focus on our primary care business which includes physician offices, clinics, surgery centers and health systems. And although primary care wasn't as anticipated the most complex part of the integration work, we've made tremendous progress with the PSS integration through the retention of our world-class sales force, the alignment of our technology, and the optimization of our distribution network, all without missing a beat in serving our customers.

We also have done a terrific job of creating value with our McKesson brand products. I spent a fair amount of time speaking about global sourcing as it relates to our pharmaceutical business but it's also important to highlight the global sourcing strength of McKesson in our Medical-Surgical business where we built exceptional expertise and capabilities over the last decade. It's clear to me that we are emerging from the effort of the PSS integration not only as a more scale business but also as a partner that can deliver best-in-class customer service and selection in this industry.

In summary, I'm pleased with the performance of our Distribution Solutions segment in the second quarter. We now expect Distribution Solutions revenue growth in the mid-single digits compared to the prior year, which includes the expiration of our contract with Optum at the start of the third quarter.

And we now expect that the full-year adjusted operating margin in Distribution Solutions will be up low double digits compared to the prior year, reflecting the gain on a sale of Zee Medical and the expiration of the Optum contract. This is partially offset by generic pharmaceutical pricing trends that we expect will remain weak in the second half of our fiscal year and similar to the level we experienced in our second quarter.

Turning now to Technology Solutions. Revenues were down 6% for the second quarter to $721 million, driven primarily by the sale of our Nurse Triage business in the first quarter and an anticipated revenue decline in our Hospital Software business. Adjusted operating margin in the second quarter was approximately 22%, which was driven by strong performance in our Payer Solutions and Relay Conductivity business and favorable timing in our Medical Imaging business. We expect to achieve a full-year adjusted operating margin for the segment at the upper end of the high teens, which includes the gain we recorded in the first quarter from the sale of our Nurse Triage business.

Now to wrap up my comments, McKesson's fiscal second-quarter results represent solid execution across both segments. We are updating our full-year guidance and now expect adjusted earnings per diluted share of $12.50 to $13 for FY16, an increase of $0.14 compared to the guidance we provided in July.

Our full-year guidance includes the positive impact of three items: a net gain of $0.11 for the full year and the sale of Zee Medical, a revised full-year tax rate of 31% compared to our previous assumption of 31.5%, primarily driven by the favorable discrete item recognized in the second quarter, and the full-year impact of a $500 million share repurchase completed late in the second quarter.

Now these positive items are partially offset by the expiration of our contract with Optum at the start of the third quarter, our view of the generic pharmaceutical pricing trends will remain weak in the second half of the fiscal year but at similar levels to what we experienced in our second quarter. And as you know, our prior guidance did not contemplate a change to our sourcing or distribution agreement with Omnicare.

We are very pleased that we have since reached an agreement to retain the distribution portion of that relationship with Omnicare and CVS Health and are updating our guidance to reflect this revised agreement. For the second quarter we generated cash flow from operations at $1.3 billion and our expectations to deliver cash flow from operations of approximately $3 billion for FY16 remains unchanged from our original guidance.

The Board of Directors approved a new share repurchase authorization of $2 billion and we are extremely well-positioned to continue to execute our portfolio approach to capital deployment and deliver value for our shareholders from a mix of internal capital investments, acquisitions, share repurchases and dividends. With that, I'll turn the call over to James and we'll return to address your questions when he finishes. James?

Thank you, John. Good morning, everyone. We are pleased with our second quarter results and our performance in the first half of FY16. As John discussed earlier, we are raising our previous outlook for FY16 and now expect adjusted earnings per diluted share of $12.50 to $13.

This revised outlook is driven by the following five items. First, a pre-tax gain of $51 million, or $0.14 per diluted share from the sale of the Zee Medical business, which is reflected in both our GAAP and adjusted earnings for the second quarter.

The benefit to our full-year adjusted earnings from this divestiture is $0.11, which is net of the $0.03 in the adjusted operating profit that we no longer expect to earn from the Zee business during FY16. Second, a discrete tax benefit of approximately $25 million related to a US Tax Court ruling during the second quarter, which allowed us to revisit a previous tax filing position.

Third, the reduction in our expected weighted average shares outstanding for FY16 from repurchasing $500 million in common stock late in the second quarter. Our updated diluted weighted average shares outstanding assumption for the fiscal year is now $234 million.

Fourth, our view that generic pharmaceutical pricing trends will remain weak in the second half of the fiscal year but at a similar level to what we experienced in the second quarter. And fifth, the impact of certain customer contracting decisions since our previous earnings call in late July, including the expiration of our contract with Optum and our new relationship with CVS Omnicare.

Before reviewing our second-quarter results, I would like to highlight an update to the schedule accompanying our earnings press release. We have expanded the Schedule 3 to include supplemental constant currency information to outline both the dollar and percentage impact of currency movements on our reported results.

This supplemental information provides a framework to assess how our business performs excluding the impact of foreign currency rate fluctuations. I hope you will find this to be a valuable addition to our ongoing disclosures given the now global nature of our business.

During the second quarter, and in the first half of FY16, our reported adjusted earnings per diluted share included currency headwinds of approximately $0.03 and $0.08, respectively, year over year. Therefore, during my prepared remarks, I will reference both the reported and constant currency figures which are provided in Schedule 3.

Now let's move to our results for the second quarter. My remarks today will focus on our second-quarter adjusted EPS from continuing operations of $3.31, which excludes three items: amortization of acquisition-related intangibles, acquisition expenses and related adjustments, and LIFO-related adjustments.

Turning now to our consolidated results which can be found on Schedule 2 and 3. Consolidated revenues increased 10% for the quarter to $48.8 billion. Revenues were negatively impacted by $1.4 billion as a result of foreign currency rate movements. On a constant currency basis, revenues were $50.2 billion, an increase of 14% led by strong growth in our Distribution Solutions segment.

Adjusted gross profit for the quarter decreased by 1% to $2.9 billion. On a constant currency basis, adjusted gross profit increased 4%, driven by the performance of Distribution Solutions. Total adjusted operating expenses of $1.8 billion were down 7% for the quarter on a reported basis, and down 1% on a constant currency basis.

Excluding the gain on the sale of the Zee Medical which was recorded in the Distribution Solutions operating expense line, total Company operating expenses were up 1% on a constant currency basis. Adjusted other income was $17 million for the quarter. Interest expense of $91 million decreased 4% on reported basis and 2% in constant currency.

Now moving to taxes. During the second quarter, the previously discussed discrete tax benefit of $25 million drove a reduction in our adjusted tax rate to 29.1%. For the full year, we now expect our adjusted tax rate to be approximately 31%. As a reminder, our full-year adjusted tax rate reflects our expected mix of domestic and foreign income and anticipated discrete tax items.

Adjusted income for the quarter was $776 million, with our adjusted earnings per diluted share at $3.31, up 19% on reported basis and up 20% in constant currency. As I mentioned earlier, the year-over-year currency headwind to Q2 adjusted earnings equated to approximately $0.03 per share. Wrapping up our consolidated results, diluted weighted average shares were flat year over year at $235 million.

As mentioned earlier, in the second quarter, we executed a share repurchase of common stock totaling $500 million, which exhausted the previously granted Board authorization. As a result, we now expect our weighted average diluted shares outstanding will be $234 million for the fiscal year.

And our Board has recently approved a new share repurchase authorization of $2 billion. While we continue to plan for and repay significant debt maturities in FY16, our recently announced acquisitions, increased dividend, executed share repurchase, and new share repurchase authorizations are consistent with our portfolio approach to capital deployment which we have implemented several years.

Now let's turn to the segment results which can be found on Schedule 3A and 3B. Distribution Solutions segment revenues of $48 billion were up 11% on reported basis. Revenues were negatively impacted by $1.4 billion as a result of foreign currency rate movements. Constant currency revenues were $49.4 billion for the second quarter, reflecting growth of 14%.

North America Pharmaceutical Distribution and Services revenues were $40.6 billion in the second quarter, up 16% on reported basis and 17% on a constant currency basis, primarily reflecting market growth in our US Pharmaceutical, US Specialty, and Canadian businesses.

Demand, primarily from our largest customers which includes a growing mix of specialty pharmaceuticals, drove strong revenue growth but also a corresponding impact on our margin profile during the quarter. In addition, this quarter's revenue also benefited from the timing of certain branded drug price increases, which came earlier in the fiscal year than we had originally anticipated.

For the full year, we continue to expect North America Pharmaceutical Distribution and Services revenues to increase by a low double-digit percentage. However, it is important to note, that this revenue forecast now includes expiration of our contract with Optum at the start of our third fiscal quarter. International Pharmaceutical Distribution and Services revenues were $5.9 billion for the second quarter.

International revenues were impacted by approximately $1 billion in unfavorable currency rate movements, primarily attributable to a weaker Euro relative to the US dollar when compared to the prior year. Adjusting for this currency impact, revenues were approximately $6.8 billion in the second quarter, up 2% on a constant currency basis, primarily driven by market growth.

Medical-Surgical revenues were up 3% for the quarter, primarily driven by market growth offset by the sale of Zee Medical. For the full year, we now expect that Medical-Surgical revenues to increase by a low to mid-single digit percentage versus the prior year as a result of the sale of the Zee Medical business.

Distribution Solutions adjusted gross profit of $2.6 billion decreased 1% on reported basis and increased 4% on a constant currency basis to $2.7 billion. Adjusted gross profit was impacted by growth and demand from our largest customers and weaker generic pricing trends compared to the prior year, offset by the timing benefit of certain brand price increases.

Adjusted operating expense for the segment decreased 8% for the quarter on reported basis. On a constant currency basis, segment operating expense decreased 1% year over year. Excluding the gain on the sale of the Zee Medical, adjusted operating expenses increased 3% on a constant currency basis for the quarter.

Segment adjusted operating profit of $1.1 billion increased 8% on a reported basis and 11% on a constant currency basis. The segment adjusted operating margin rate for the quarter was 239 basis points, a decline of 5 basis points year over year. On a constant currency basis, the segment margin declined 7 basis points.

Excluding the gain on the sale of Zee Medical, the segment adjusted operating margin decreased 17 basis points on a constant currency basis versus the prior year. The decline in year-over-year segment adjusted operating margin was driven by our business mix and weaker-than-expected generic pricing trends relative to the prior year, offset by the favorable timing of certain branded drug price increases.

As a reminder, for the full year, our expectations for branded drug price inflation remain unchanged, although we do expect some variability in the impact of branded pharmaceutical prices from quarter to quarter. Based on the net gain on the sale of Zee Medical, and the expiration of the Optum contract at the start of the third quarter, offset by our business mix and weaker pricing trends on generic pharmaceuticals, we now expect the Distribution Solutions segment adjusted operating margin to expand by low double-digit basis points versus the prior year.

Turning now to Technology Solutions. Revenues were down 6% for the quarter to $721 million. This decline was primarily driven by the sale of our Nurse Triage business in the first quarter and anticipated revenue softness of the Horizon Clinical Software Platform, partially offset by growth in our other technology business.

During the quarter, adjusted operating expenses in the segment decreased 7% on a reported basis and 6% on a constant currency basis, driven by our ongoing expense management efforts. Second-quarter adjusted operating profit for the segment increased 13% to $157 million, and the adjusted operating margin rate was approximately 22%, representing an increase of 373 basis points versus the prior year.

On a constant currency basis, adjusted operating profit increased 9%, representing an adjusted operating margin increase of 281 basis points versus the prior year. This increase was driven by strong performance in our Payer Solutions and Relay Connectivity businesses, along with the benefit of favorable timing in our Medical Imaging business. For the full year, we expect the adjusted operating margin for the segment to be at the upper end of the high teens, which includes the gain we recorded in the first quarter from the sale of our Nurse Triage business.

Moving now to the balance sheet and working capital metrics. As you've heard me discuss before, each of our working capital metrics can be significantly impacted by timing, including which day of the week marks the close of a given quarter.

For receivables, our days of sales outstanding were flat at 26 days. Our days of sales in inventories increased by one day to 31 days. Our day of sales in payables increased by five days to 53 days. We generated $1.3 billion in cash flow from operations for the quarter.

And for the full year, we continue to expect our cash flow from operations to be approximately $3 billion. We ended the quarter with a cash balance of $5.4 billion, with $2.2 billion held offshore. Internal capital spending was $274 million for the quarter, and we repurchased approximately 2.5 million shares, totaling $500 million, while repaying approximately $500 million in long-term debt.

Now I'll turn to our adjusted EPS outlook for the year. As I mentioned earlier, we are raising our FY16 guidance for adjusted earnings per diluted share from our previous range of $12.36 to $12.86 to a new range of $12.50 to $13, an increase of $0.14.

As John mentioned in his remarks, our full-year guidance includes the positive impact of three items: a net gain of $0.11 for the full year on the sale of our Zee Medical business; a revised full-year tax rate of 31% compared to our previous assumption of 31.5%, primarily driven by the favorable discrete item recognized in the second quarter; and the full-year impact of a $500 million share repurchase completed late in the second quarter.

These positive items are partially offset by the expiration of our contract with Optum at the start of the third quarter. Our view that generic pharmaceutical pricing trends will remain weak in the second half of the fiscal year but at a similar level to what we experienced in the second quarter.

And as John just mentioned, a prior guidance did not contemplate the change to our sourcing or distribution agreement with Omnicare. We are very pleased that we have since reached an agreement to retain the distribution portion of that relationship with CVS Omnicare, and our updated guidance reflects our revised agreement.

Our outlook assumes a full-year average exchange rate of $1.10 per Euro which is unchanged from our prior guidance. In addition, we now expect $1.25 per share in amortization of acquisition-related intangible assets and $0.33 of acquisition expenses and related adjustments. We also expect between $0.89 and $0.99 per share in LIFO-related adjustments. In summary, McKesson delivered solid financial results during the first half of FY16 and we are confident in our outlook for the fiscal year.

Thank you and with that, I will turn the call over to the operator for your questions. In the interest of time, I ask that you limit yourself to just one question and a brief follow-up to allow for others an opportunity to participate. Audra?

Thank you.

(Operator Instructions)

Lisa Gill, JPMorgan.

Thank you, John, for all the detail. I was wondering maybe if we could just start with Europe and Celesio. The last two acquisitions you've made have been in Europe. Can you maybe just give us an update on how you view the European market? What are some of the opportunities? How has it played out over the last 1 1/2 years versus your expectations when you bought Celesio?

Well, thanks, Lisa, for the question. Clearly, we went in to Europe with our eyes wide open on two fundamental things. One was that Celesio wasn't operating at the level we thought it could and should and certainly under McKesson's ownership. And second was that the European market does have some risk related to the demand profile as well as the regulations and reimbursement structures that exist there.

Having said all of that, and knowing what we've -- knowing where we are headed, we're really pleased with the quality of the results thus far. We believe there's significant opportunities for us to grow both organically in that business by penetrating the areas of the market that have yet to be touched by wholesale distribution and certainly not touched by us, like specialty or oncology or hospital distribution.

And clearly, we think there's a great opportunity for us to deploy capital effectively, efficiently, and appropriately in Europe to help build our value proposition in that market. And also, as you know, we brought with us a very large retail footprint in which grows through the acquisition of Sainsbury's and is growing also just organically in Europe as we complete our banner rollouts with our European pharmacy network, et cetera.

So all said, I think we feel like we're in really good shape. We have a couple more years of building out our technology capabilities there. We're in the midst of installing SAP and we have some other work to do, but we do believe that we'll get in a business position to not only invest in it the way we have started to but also to get organic growth.

John, does the Company have a goal for how much of operating profit or revenue of the Company will come from outside of North America? Say, over the next several years, and I know I'm not allowed three questions but I just need a clarification on the comments say out of Celesio that you cleared the transfer agreement. Does that mean you're delisting the stock? And then I will stop there.

Certainly, on the first part of that question, Lisa, we do have an expectation to grow in all of our businesses and to grow at rates that are at or above market levels, particularly in markets where we are underpenetrated and there is significant opportunity for us, and that would be the case in Europe. We think there's significant growth prospects for us in most of the markets in which we compete.

And as I mentioned, I think this idea of continuing to bring a banner Health Mart-like approach to Europe has been successful and is continuing to show great promise. So you'll see us roll out more Lloyd's or Lloyd's-like pharmacies throughout Europe. Jeff -- or James, perhaps you can talk a little bit about the --

In terms of the Celesio stock, when we gained operating control of Celesio, Celesio was trading on five German exchanges. We have since then delisted from three of the five, and on the remaining two, we are still a part of the regulated unofficial market. Those markets are Munich and Dusseldorf. I can't comment on any future plans around delisting. There are a variety of German legal requirements for us to adhere to, but that's an update on our progress.

Great. Thank you very much.

Steven Valiquette, UBS Financial.

John and James, congrats on the results. I guess, John, in your prepared comments, you reinforced the notion that there's a lot of change going on in the US pharmaceutical supply channel marketplace. I guess in light of that, do you think we've reached an era now in the US where large drug distributors could potentially own and operate fairly large retail drug chains in the US, similar to what McKesson and others are already doing in Europe? Is this something that you think you could consider now just given all the US alliances that have already been formed?

Well, thank you, Steven, for the question. And obviously, in Europe, the construct of the industry is a little bit different in several of the markets where the wholesalers and retailers are part of the same organization. And in most of those cases, it's the same for all of the industry participants that they are both in the retail business as well as in the wholesaling business. We've looked at that phenomenon for a long time in Europe and wondered if it made sense in a US context.

I can tell you that we continue to believe that our customers appreciate the fact that we bring to them a focus on their success and that focus is not hampered by our own interest in the business similar to theirs or competing with them. And so I think that there's still, at least at McKesson, a focus on not competing with our customers in these segments and helping them be more successful each and every day.

Okay. Okay, now can I sneak in just a quick one on the Omnicare? Just for the generic, I'm guessing, so the sourcing will probably go through Red Oak but are you saying that you'll still do just the physical distribution of the generics for Omnicare? Or does -- or is your distribution retention just on the brands? I just want to clarify that piece. Thanks.

You might recall that we -- when we started the relationship with Omnicare many years ago, they relied on us for their brand distribution and purchased their generics directly themselves and put it into their own warehousing infrastructure. With our more recent agreement that was -- that we worked through with them, we took on the rest of that responsibility which I think was extremely beneficial to Omnicare.

The new structure of the ongoing relationship with CVS will take us back in the direction where our original agreement was with Omnicare, principally focused on the brand side. And now having said that, almost with all of our customers, there is some generic business that we do principally when there's a shortfall from a centralized warehouse approach or a direct approach. But we'll go back to more of our old relationship and we're really pleased to be able to do that and to continue to service these Omnicare sites.

Okay, got it. Thanks.

Ricky Goldwasser, Morgan Stanley.

Congratulations for the Omnicare contract. So two questions here. The first of all, is there an impact of any of the deals? You're going back to like the old Omnicare generics. Some uncertainty around other deals. Does losing generic business from these assets that now have been acquired has any impact on your generic purchasing power, as it relates for the rest of your business?

Thanks, Ricky, for the question. Clearly, we have had a long run of building significant scale and generic sourcing. And what's interesting about the model that we have built is our customers are choosing to rely on our ability to continue to grow scale and to negotiate favorable agreements and then use us and our assets and our service delivery model to fulfill their needs.

We continue to grow our presence quite significantly from a sourcing perspective. You heard me mention a little bit about it when I talked about our continued growth in Health Mart and our new arrangement with Albertsons. And we have over 20,000 pharmacies now that are principally buying all of their generics from McKesson. So that bulk of business is quite significant and quite attractive to get access to our channel by the generic manufacturers.

So what one could argue whether we're number one, number two, number three at any one point in time in any specific market in terms of our generic sourcing, but I believe we have significant scale and are retaining and growing that scale in a way that will be attractive and will bring manufacturers to us in a positive collaborative way where we can get real value for our customers and for the manufacturers.

And the follow-up is around the brand side. In the prepared remarks, obviously, you talked about the fact that your assumptions regarding branded inflation are unchanged. There is some uncertainty in the marketplace around kind of branded inflation, especially given the election debate that's shaping out. How should we think about McKesson's exposure to branded inflation overall and especially when we think about the March quarter being usually a quarter with more inflation than the rest of the year.

Well, in our prepared comments, we talked about the fact that we believe the first half of the year was slightly stronger from a generic -- or a branded inflation perspective. But for the full year, we expected it to be in line with our expectations. And that is still our point of view.

Now clearly, there is more media attention and there is more discussion about price inflation in the market, but I happen to believe that the manufacturers that we work with at least will largely contain or retain their current strategy. And there may be some outliers that begin to change their perspective slightly, but overall, I think we expect the trends to continue.

Okay. Thank you.

Robert Jones, Goldman Sachs.

John, I actually just wanted to go back to the comments around Europe and Celesio, specifically. I know in the prepared remarks, you said Celesio's been exceeding your operational expectations. But I'm curious if you can give us an update on the synergy progression there, maybe relative to some of the targets you guys had shared previously? And I guess specifically, just how the generic purchasing benefits are going and if they're flowing through the combined entity today?

I think we made very good progress. As you know, we established our global sourcing and procurement operations in London, and we have suggested to you in the past that the synergies of $275 million to $325 million would be more first-half loaded over a four-year period, and so we are in that cycle now. And I think we've been making very good progress and are on track to accomplish our objectives.

And once again, I think the manufacturing community has responded favorably to our global footprint and believe being a strong partner with McKesson will help them grow their business. And that's really the value proposition that we're putting forth in our delivering is that it's a win-win for people that are working closely with us in this collaborative way.

So we're making good progress and the comments I made earlier about Celesio was more on an operating perspective. We're beginning to stabilize the operations of the business, put the systems in place and the culture in place, along with building on a great management team that is already present.

In fact, I was recently both in Italy and in the UK meeting with the management teams there, and there are some exciting things going on. And I think the team is really energized about the opportunity of being part of McKesson in the first instance, but also the fact that investment is flowing, both in terms of internal investment in warehouses and strategy and in IT systems and infrastructure, but also in terms of bringing acquisitions to the table that make sense to grow our business and to grow our platform.

So I think the perspective is quite positive. Now having said all of that, it's a while before this thing is going to grow the way you know we can grow it; it just takes us some time to put the foundation in place.

I appreciate all that. I guess just one more specific one, James, if I go back to the changing guidance. If I maybe exclude the Zee Medical and tax benefit, trying to just get my head around the $0.11 reductions. It looks like buybacks added maybe around $0.10. Could you maybe just walk through the other moving pieces, specifically around the contract decisions you mentioned, and then the change in generic inflation assumptions?

We laid out a little bit during the prepared remarks, and we have the Zee gain for $0.11. The updates to our full-year tax drives around $0.06. The share repurchase, the $500 million activity that we went into in Q2, drives around $0.09, so when you offset that against the loss of the Optum contract.

And we've also talked about the fact that our guide now for the full year includes the new relationship with CVS Omnicare and our expectations to generic price increases. That really fills out the various drivers.

I'm sorry. Just a clarification then. So did the generic assumption change and that's part of the change in guidance?

Well, what's important to remember is when we were last talking to you, and talking about the guide, we did not have any change for the back half of the year to how we had been thinking about generic pricing right at the start of the year. So what we're doing now is updating the back half of the year from a generic pricing perspective, and we're saying that you would see a similar level of weakness there in line to what we saw in Q2.

Okay, that's really helpful. Thank you.

Bob Willoughby, Bank of America.

Just a quick one. You had mentioned in an earlier call that some of the assets in Brazil for Celesio were for sale, is there an update on that?

Well, you're right. We did mention that and the business has been, I think working with potential buyers to portray the high-quality assets that we have there. And I think we're still in a process with several interested parties so I'm hopeful that we'll get that concluded within this fiscal year, if not, in the third quarter. So we're making progress and we'll keep you updated as that goes, but yes, that is exactly what we said and we plan to continue with that plan.

But is there any way to size that, John? Is it bigger than a bread box; is there a gain or a loss associated with it? Do you expect to associate with it?

Well, all I'd say is remember that this is part of our discontinued operations now. So it wouldn't impact -- the end result won't impact our adjusted EPS.

And I would say that it's on the small side as bread boxes go. I wouldn't fret about it too much.

Okay. Perfect. Thank you.

Garen Sarafian, Citi Research.

First, on Omnicare. I appreciate the further clarification you made earlier in the Q&A, but I'm curious around the dynamics leading to this result. I would have thought that from a client perspective, all else equal, they would want to keep both sides of the distribution with a single vendor. And from the distributor side, I thought that branded alone was fairly standardized low-margin offering and pretty much a commodity. So I'm just wondering if there's anything unique that you were able to provide or any other unique dynamic that you can offer to help think through this?

Well, it's difficult for me to make blanket statements about what every customer chooses to do. I would say that our current relationship with CVS on the retail side of their business is principally the distribution of branded pharmaceuticals. And their strategy around generics is actually to ship those products directly from their own CVS warehouses and not to order them through distribution.

So albeit, I can't speak necessarily to what they ultimately would do with all of the Omnicare business, but it's -- usually the decision that large customers make is either to put all the generics and all the brand into the single wholesale that they've selected to partner with, at least for that store or that business line. Or, to bifurcate the two of them and purchase the generics on a direct basis, put them into their warehouse, manage their own logistics, and ship them to the stores.

You might recall when we had the discussion related to Rite Aid last year when they made a decision to get out of the generic business. What they were doing was not moving Rite Aid's generic volume from another wholesaler to McKesson. They were actually moving their generic volume out of their own infrastructure and into McKesson's infrastructure.

So I would say that my belief is that CVS is still a self-warehousing customer on generics, and I would imagine that at least there's a strong possibility that what they will do is move the Omnicare model back to us, the model that's frequently used within the rest of CVS. So I don't believe there will be two distributors of Omnicare. I think there will be a McKesson relationship on brand and perhaps some generic fill-in, and the rest of it will come out of CVS on a centralized coordinated basis like they do for the rest of their operations.

Got it. Okay, that's helpful. And then just moving to tax solutions. Your margins were clearly strong leading to the -- moving to the high end of guidance, but in the prepared remarks, out of those three reasons behind the strength, two of the three were arguably sustainable. So could you just elaborate on how you're thinking about the margin profile of this segment moving forward? I'm just trying to get an idea of why this wouldn't continue its trajectory, at least on the margin front.

Well, what we have said in the prepared remarks is that we would expect the full-year guide for Technology Solutions, the operating margin to be at the upper end of the high-teens. So recall that when we gave you original guidance at the start of the fiscal year, we were expecting to be around the low end of the high-teens. Now, the primary delta there is the care management gain that we recorded in the first quarter.

Now, peeling back from that, you'll be continuing to be pleased with the growth we're seeing in our payer provider businesses, in the relay connectivity business. But of course, the growth there is having to be offset by our decision to exit the Horizon Hospital Software business, so that will have an impact on Technology Solutions.

(Multiple speakers), but obviously, the reinforcements you're seeing, we're pleased with the margin at that trajectory of that business and we're pleased with the progress we've made in taking as much costs out as we can as we take that Horizon business down over the next couple of years.

Eric Coldwell, Baird.

John, I think I generally agree with your views on branded inflation and clearly branded inflation is not as important as it was more than a decade ago under the old industry structure. But I would love it if you could give us a little more detail on the current state of contracts, maybe the percent of sales that are not under fee-for-service relationships? And then, under fee-for-service, suspending disbelief, if branded price inflation did pare back, what would happen with the model? How would you adjust? What kind of impact might we see? And I will leave it at that. Thanks so much.

Thanks for the question. Clearly, as you mentioned, if you go back in history, there have been lots of different models that McKesson has used to create relationships with manufacturers that are beneficial to them and beneficial to ourselves and certainly onward to our customers.

And over time, we have had created relationships with the manufacturers that have been less dependent on price inflation, providing more visibility to the manufacturers on our supply chain and working in partnership with them to give them the data and the things that they might find useful to them in their own production activities and their go-to-market strategies. And in return, they've gone and paid us for that work in these fee-for-service or distribution relationships contracts that they've signed.

That has frankly taken some of the top off the opportunity on price inflation and taken some of the bottom off on price-inflation risk. So the band of performance is probably certainly a little more forecastable. And we've also talked in the past that roughly 80% plus or minus of our business are in structured arrangements that our fee-for-service type of dialogue are certainly more constructed and documented than the rest of the balance. So that also has helped reduce some of the volatility you might find in this particular lever of profitability inside of our P&L.

With the -- you talk about the 80%, and that is, I think, a pretty consistent message. Is the 20% -- is a certain percentage of that your specialty business, or are you talking core traditional branded retail when you give the 80% figure?

It's really sort of across the board. And I think another response I could give to you and your associates when you think about inflation risk for McKesson, there are lots of levers we use in our business to drive our performance. And when we try to give you these high-level themes, it's because they are important themes and we talk about them at the annual guidance point. We give you our assumptions because they are drivers of our value.

But clearly, as you go through the year, there are a lot of things that aren't quite as you would expect at the beginning of the year, and if they're part of these larger forces, we'll update you as the year goes on. And James spent some time talking about generic inflation and its relative position against our expectations when we started the year.

But there are also lots of other drivers in our business that are going both positive and negative throughout the year. And I can assure you that the Company remains extremely focused on driving our performance, as we have over the last 15 years, and we use these other vehicles to offset risks that might be apparent to us in our business as those risks materialize. So do we have risk on inflation? Clearly we talked about generics today and we talked about our views of branded inflation.

But it's also our responsibility to not only tell you about these things, but manage these risks on a proactive basis and to be assertive and on top of it. And if there were some fundamental C-change in our industry related to our views of where these metrics might go over time, then we would begin to reformat our relationship with our customers and our supplier partners. And we'd find ways to continue to grow our business, and so I think that, that level of confidence is what you should be getting from us today.

Okay. Thanks very much.

George Hill, Deutsche Bank.

John, I appreciate all the comments with you around the Rite Aid announcement, I guess, but you seem a little bit -- the Company seems a little bit snake bit by industry M&A lately. I guess, either John or James, can you guys kind of quantify the risk around the Rite Aid relationship? And John, I would ask, as you think about industry consolidation strategically, do you feel like the Company needs to be more aggressive than it has been historically, and does it change the risk profile at all for how you think about acquisitions?

Thanks for the question. Clearly, we've had a long-standing relationship with Rite Aid and we will do everything we can to help them in this transition. And we have a great deal of respect for Mr. Pessina and his team at Walgreens and the kind of value they've delivered over a long time. And we've been working with Walgreens for 20 years, and I know Stefano for over 18 years, having traveled back and forth to Europe before he got to the scale that they are today.

So these working relationships usually help us as we work through transitions in our industry. And we're really proud of the fact that our long-standing relationship with CVS, both on the mail side, as well as the store side, at least came into play when we had the dialogue regarding Omnicare. So are we sometimes on the wrong end of these transactions? Absolutely.

But as to the second part of your question, it doesn't mean we're going to deploy capital in a reckless way. We've got a long track record of building value through a portfolio approach and we'll continue to do that. We're not oblivious to the risk that exists as our market consolidates both on the supplier and customer side. Clearly, sometimes, we're with the consolidators and sometimes we're not. And when we're not, we have to find a way to either create a relationship or build on an existing relationship or find another avenue to grow our business, which is our ultimate objective.

And we have chosen, thus far, and we believe this is the right path, to not compete with our customers. So I don't think we'll begin acquiring providers in an effort to offset the risk and provider consolidation in our book of business to deal with it. What we will continue to do is focus on the value that we can deliver for our partners.

And as that value-creation opportunity expands, then hopefully even through acquisitions, people will find that McKesson is the partner of choice and they'll build their relationship with us as opposed to discontinuing it. But you can tell also from our guidance that sometimes when these relationships change; the change, it has a negative effect on our margin structure, and that's really what we're reflecting when we talked about some of the puts and takes in the quarter.

I would just add, an example, a very recent example of where we're building with the consolidator is Albertsons-Safeway. So it's a mix, and natural ebb and flow of the business cycle.

And I guess maybe then just the quick follow-up would be, does industry consolidation, maybe from an M&A perspective, think about how far just from the core that you look? And I guess how, when I think about McKesson's expertises, it's in procurement; it's in supply chain; it's in logistics; it's in distribution. Do you start to look into tangential spaces in healthcare, or are there other like customer groups that you don't serve now where McKesson's expertise can be leveraged that you see opportunities? Thank you.

Thanks for the question. I mean, clearly, our job is to find ways to grow our business and to do it intelligently and to do it in a risk-bounded way and to deploy capital intelligently. So I think our number-one priority is to deploy capital in places where we have a base and an expertise and where it's not a completely new leg of the stool, but it's something that's added into what we're currently doing.

So I think we evaluate everything, and clearly every healthcare, or almost healthcare distribution opportunity that comes on the market comes through McKesson, and many of them we pass on because it's not straight up our alley or we believe that the price is too high. But I think otherwise, we're going to stay pretty focused.

And I would just add in terms of the breadth of our businesses, whether it's Canada, in Europe, Specialty, Medical-Surgical, Technology Solutions, there are a variety of businesses that we have where there will be opportunities that are down the middle of the fairway.

Exactly. I've just been told there are a few more questions pending, so we're going to run this call just a little bit later for those of you that have time to do that. So we'll go on to the next question.

Charles Rhyee, Cowen.

John, James -- John, I think in your remarks you talked about biosimilars with Neupogen being the first launch. Just curious what you've seen in terms of the uptake in that product and how that might be kind of shaping your views on biosimilars in the future?

Thank you for the question. Clearly, biosimilars are going to be an important aspect of our business portfolio going forward. And we will continue to I think see benefit of these biosimilar launches over the coming years. As to the specific launch that we've recently seen, it, frankly, has not gotten a ton of traction yet, at least not in our business, and it's behaving much more like a branded product than it is a typical quick to substitute generic.

At some point, these biosimilars probably will be more substitutable because their clinical effectiveness and efficacy will have been proven in some fashion, and that's where we'll have more opportunities to make faster transfers of the product. And we think we're very well-positioned, particularly when the product are right down the alley of community oncology and we can use our US oncology network to help validate the efficacy of the product and then move market share very quickly. Either keep the market share with the originator or move it to the biosimilar to the extent that they're replaceable. So we will look for opportunities going forward.

If I could just follow up there though, right now, then would you say the margin profile also looks more like a brand than a generic? And then in terms of substitutability though, it doesn't -- it seems like in the biosimilar pathway that it doesn't have the same type of A-B substitutability that traditional generics do. Do you think that regulations have to change to allow that for distributors to really kind of benefit from that ability to move share? Thanks.

Well, it is behaving more like a brand and even the -- not only in terms of the way it's being taken to the market and its pricing structure, but also the way that the physicians are viewing it. I think they want to have a discussion about the product itself as opposed to accepting an automatic substitution by a pharmacy or by a wholesaler.

I do believe, though, over time that substitutability question will become less and less a question, and to the extent that we can help people create evidence that supports the A-B interchangeability or therapeutic substitution, then we certainly will pursue that. In the meantime, though, we look at it as a long-term priority and I wouldn't consider any of the up-and-coming pending things in the next six months to a year as being blockbuster big successes for us, at least right out of the gate.

Great. Thank you.

Eric Percher, Barclays.

Thank you. I'd like to go back to one of your earlier comments, John, on consistency -- and this may be a question more for James, but I look at the balance sheet and think this is a large lever for you to be able to drive consistency as we look out to the forward years. Particularly today, you mentioned $5.4 billion of cash and $1.7 billion of CFO to come, we saw the revolver put in place. As we look over the balance of the year, I know there was some debt maturity. We've got the international acquisitions, but it feels like there will still be a pretty substantial capability. So could you walk us through what will be due and maybe what was behind the revolver, and where you sit as you look at the remainder of the year?

Well, we're certainly pleased with the financial flexibility that we have. And I'll start off just by really reminding you of the portfolio approach that we have to capital allocation, and within that portfolio, internal capital expenditures and M&A are the first and second priorities. So I certainly want to be clear about that.

But given the degree of flexibility that we have, obviously, we're also going to look regularly at what we think is a real stake M&A pipeline in the short-medium term, contrast that against our cash balance and our coming projected free cash flow, and make an assessment as to whether there's excess cash available for share repurchases.

And you've seen us take that action in terms of buybacks now, both in this last Q2 and in the fourth quarter of the last fiscal year. So we're pleased that the Board authorized the $2 billion authorization for share repurchases. So it feels as though we have the liquidity and the right portfolio approach, the right flexibility to continue to deploy capital effectively on your behalf.

And the change in -- or the element that has impacted guidance was the $500 million being done earlier in the year. There's no change, the $2 billion issued is not implied to be used in your current guidance? And I guess it also begs the question, when you look to Europe, are there $10 billion deals, or are most of these $2 billion, $3 billion or much smaller?

Well, in terms of the weighted average shares outstanding, the full-year number that I mentioned was 234 million, and embedded within that is the $500 million buyback. There is nothing assumed about progress against the new $2 billion authorization. In terms of the transaction sizes available to us, I wouldn't want to really comment on anything specific to M&A. You've seen the recent yield sizes with UDG and Sainsbury's, but there's a wide range of opportunities across the very broad set of businesses that we operate.

Thank you.

Dave Francis, RBC Capital Markets.

Congratulations on a solid quarter. Just a real quick one, John, bigger picture. I appreciate the commentary on what you're seeing from pricing trend perspective across both the brand and generic baskets. Can you talk a little bit about what you're seeing volume-wise in terms of any meaningful change in the marketplace, up or down domestically? Is there anything going on in the broad economy that's impacting volume trends as you're seeing them in the US business? Thanks.

Thanks for the question, Dave. I think we see things pretty much in line with what we had expected for the year on a volume basis, and clearly, you can see that the numbers that are being posted by the various sources as to prescription volumes. I think we don't see any major changes.

There are perhaps some changes that you might see in a physician office perspective, but I would say the biggest change or trend that we continue to see is that some of our larger customers are growing more rapidly than the rest. And in particular, our largest mail customer has had pretty nice growth, and so that puts a little pressure on our margin structure, particularly on the specialty products that go through that particular customer. But otherwise, it's pretty much in line with what we had anticipated.

Very good. Thank you.

David Larsen, Leerink.

Can you talk about the generic inflation comp, like when you expect that to start to ease? So inflation rates were obviously very high in calendar 2014. They've pulled in over the past couple of quarters. So next year, and just any general thoughts, would you expect the comp for generic inflation to ease a bit?

Well, generic inflation, it's not forecastable. And we certainly don't have any insight from what the manufacturers are planning to do in their businesses. We've updated our assumption for the back half of this fiscal year.

And of course, I really want to take a step back and emphasize how generic price inflation is just one of a number of variables that drive, again, this broad set of businesses. So I would urge not to have an over focus, if you will. It's an important issue, as John was mentioning earlier. We include it in our initial annual guide and we update you as the year goes along. But I really think we want to keep this in perspective in terms of the broad number of drivers of our businesses.

Okay, great. And then just any quick thoughts on Target? Have you had any discussions with CVS around Target and that account?

Unless you've heard something different. We've not heard of the Target transaction closing, and I would imagine our conversations with CVS would be more worthwhile post that process than today. So I'm not really prepared to comment or speculate on it, other than to say we're continuing to service the Target business with all of our focus, and we want to make sure that those stores are in great shape through the transition with the CVS ownership.

All right. Thanks a lot.

Ross Muken, Evercore ISI.

Maybe just not to beat the horse on Rite Aid, but just going back, one of the big questions we've gotten from a lot of investors is just understanding how change of control provisions work on these contracts. Obviously, you've dealt with quite a few of them recently.

And I guess, secondarily, understanding that the pushes and pulls long term of being a key provider to a large retail chain. Obviously, you still have a relationship with CVS and we'll have to see what that happens with Rite Aid, but that's on the mail side. How do you think about that? Does it help you at all with the independents? I'm just trying to understand the long-term implications of that as well.

Just to make sure that I'm clear that our CVS relationship is with both the mail as well as many of their retail stores and now our continued relationship on Omnicare. As to Walgreens, and Rite Aid, we've had a long-term relationship with Walgreens. It just hasn't happened to have had distribution as a key component of it, for perhaps a couple of decades.

We -- like anything else, we're going to work hard to make sure those Rite Aid stores are serviced and continue to focus on making our customer successful there and we'll see where things head over time. But remember, this -- customers come and go in people's business, and we're -- albeit we've had a bad run here with two or three M&A transactions that were, quote-unquote, not our fault related to losing customers, but you also should expect that we'll continue to work hard to grow our business.

And I've talked before about the fact that we have a very large base of people who are dependent on us from a generic perspective, and albeit that base continues to grow, we think no matter what happens from a customer perspective, it's going to -- we'll still be one of the largest suppliers of generics in the world and a very valuable partner to the manufacturers.

Great. Thanks, John. Sorry for the poorly worded question.

No, that's okay. I just said I want to make sure everybody else listening was clear on it, Ross. I think we have time for one more question.

John Ransom, Raymond James.

Sorry. Trying to multi-task here and doing it very poorly. I'm sorry if this has been asked, but the Rite Aid contract expires in 2019, is there a change of control out on the other side or do you expect that to remain in place through 2019?

Well, we don't talk specifically about the terms of our agreements other than what we say at the beginning of them, and I think the comment I made in answer to the question earlier is we plan to continue to serve their business with all of our effort and make sure that they are very successful as they continue through this transaction process.

Okay. That's all I had. Thank you.

You're welcome. Well, I want to thank you, Audra. Thanks also for all of you on the call for your time today. Our industry experiences periods of dynamic change and this is certainly one of them, and I'm confident that we will continue to participate in that change in an extremely positive way. And we remain extremely well-positioned to deliver the best service and value in the industry on behalf of our customers. And with that, I'll now turn back over to Erin for her review of upcoming events for the financial community. Erin?

Thank you, John. On November 10, we will present at the Credit Suisse Health Conference in Scottsdale, Arizona. And on January 12, we will present at the JPMorgan Healthcare Conference in San Francisco. We'll release our third-quarter earnings results in late January. Thank you and goodbye.

And that does conclude today's conference. Again, thank you for your participation.