Owens & Minor Inc (OMI) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for holding and welcome to the Owens & Minor third quarter 2003 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct question and answer session, and at that time if you have a question, please press "star" followed by "one" from your touchtone phone to press your line into queue into your name is announced. As a reminder, this conference is being recorded for replay, today, Thursday, October 16, 2003. I would like to turn the conference over to Gilmer Minor, Chairman and CEO of Owens & Minor. Thank you for using our conferencing services, sir.

Good morning, America. We are very pleased to have you with us today. Thanks for joining us as we talk about our third quarter and year to date results for 2003. On the call today, Craig Smith, President, COO, Jeff Kaczka, SVP and CFO, Dick Bozard, VP and Treasurer, Olwen Cape, VP and Controller, General Counsel, Grace den Hartog, and Trudy Alcott our Communications Manager, who will now read a brief safe harbor statement. Trudy.

Thank you, Gilmer. Except reading historical information Mr. Gilmer discussed today may constitute forward-looking statements that have risks and uncertainties. That could cause actual results to differ materially from those projected.

These include the success of strategic initiatives, intense competitive pressures within the industry, and a lot to major customers. Sales include change in customer order patterns, pricing pressure, change in government funding, hospitals and other healthcare providers, and other factors discussed in reports filed by the company with the SEC.

The company is in no obligation to update the information contained in this release. And a reminder, you can find the audio of this conference call on our corporate Web site for the next three weeks. Thank you. Gilmer.

Thank you, Trudy. Jeff, and then Craig will have brief remarks, and then we'll take your questions and very much look forward to them. And at this point, I'm going to turn it over to Jeff. Take it away, Jeff.

Thank you. Good morning, everyone. Let's get right for the numbers. We're pleased to report another strong performance in sales this quarter. Sales were up 7% at $1.06 billion that puts year-to-date sales at $3.14 billion, also up 7%.

The sales team has done a nice job growing sales by penetrating existing account, as well as winning a number of new accounts. Net income was $12.8 million, up 19.5% from last year and diluted earnings per share were 34 cents, up 17% over last year's third quarter.

A couple of things to keep in mind when looking at earnings. Last year's number included a charge of $3 million for cancellation fee on a main frame computer services contract, and this year's third quarter number reflects (inaudible) healthcare costs that were $1.2 million above our expectations.

These healthcare expenses were significantly higher than the company's historical experience. Year-to-date, EPS was strong at $1.06 per share, up 19% compared to last year and net income was $39.3 million, up 19%. We are pleased with year-to-date numbers, particularly in light of the fact that we've been making investments in our strategic initiatives.

Now turning to other results: Operating earnings for the quarter were 2.3% of sales consistent with last year, and year-to-date operating earnings were 2.4% of sales also the same as the prior year.

Our gross margin for the third quarter was 10.5%, compared with 10.6% on the prior year while year-to-date gross margin held steady at 10.6%. In Healthcare mark, we are seeing some competitive pressures that we're doing a lot to offset this and Craig will fill you in on shortly.

SG&A for the quarter was 7.8% of net sales, compared to 7.9% in the prior year. Among the factors affecting the SG&A comparison were the unusual third quarter increase in healthcare costs, the impact of the 2002 cancellation fee, which I mentioned earlier, and increased spending in our new initiatives. Productivity gains in our operation for the most part offset these investments. Year-to-date, SG&A was 7.8%, consistent with last year.

Active management continued to be a great story for us, with inventory turns at 9.7, and DSL improving even further to a very strong 27.5 days. Consequently, operating cash flow for the quarter was $13 million, bringing our year-to-date operating cash flow to $128 million. We're also pleased to report that our TCON redemption was successfully completed during the quarter with 99.97% converting to equity.

Turning to the outlook for the rest of the year, we are maintaining our total year guidance for sales growth in the 5 to 7% range. In light of our results of the first nine months of the year and our expectations for the fourth quarter, we are setting our full year EPS guidance at $1.40. That's the low end of our previously announced range.

This guidance reflects our estimate of increased healthcare costs in this third quarter and fourth quarter as well as increasing investments in our strategic initiative. When the planning process right now for next year and we will provide guidance at a later date, possibly as early as our investor day in November.

So in summary, strong sales growth of 7%, continued strong asset management, including DSO of 27.5 days, year to date cash flow of $128 million, the balance sheet is very strong due to our recent TCON redemption. We're making effective investment in our new initiative and we set our EPS guidance at 140 per share. Thank you, and I'll turn it over two Craig.

Thank you, Jeff and good morning everyone. We are pleased to have a chance to review our third quarter results with you this morning. The execution in our core business was solid and sales growth was steady.

With three quarters behind us, we are seeing progress in our new initiatives, which we watched a year ago in November. These programs will enable Owens & Minor to better serve our customers, capture a larger share of the healthcare dollar, and ultimately will help us improve our operating earning.

Turning to our strategic initiatives: Our new OMSolutions liter, Mark Van Sumeren is now on board and is rapidly building his team. A year ago we watched OMSolutions with only 80 teammates, today more than 165 members of the team serve customers across the nations.

These OM solution teammates include sales, logistics and on-site personnel who are already making our consulting and out sourcing project a success. Our OMSolutions group has also just launched a new effort aimed at the clinical areas of the hospital. This new clinical management consulting team is led by D. Donna Chely (ph), who is a recognized leader in healthcare.

She has staffed her team with experienced nurse consultants, who will work to address the clinical needs of our hospital customers and compliment our total OMSolutions offering. During the quarter, OMSolutions signed four new engagements, including surgical services consulting engagement, two out sourcing agreements, and a materials management-consulting project for a hospital.

Most of these new OMSolutions customers were in fact already core business customers, who saw that Owens & Minor could fill a need beyond traditional distribution.

Our third party logistics team is building it's infrastructure, while it meets with customers to develop a sales pipeline. This group is working on an in-bound transportation solution for providers and is building service capabilities to assist customers to receive and warehouse direct manufacturers more efficiently.

We saw sales improve in a very competitive environment. Most of this growth came from penetration of our existing customer relationships. We did also see evidence of our initiatives that are working hand in hand to help the core business. In fact, our OM Solutions customers are already contributing to our core business sales growth. We remain focussed on productivity company wide.

We saw improvement in sales for full-time employee. Lines per warehouse labor hours, and sales per square foot without adding additional head count in the core business. We continue to focus on operational head (inaudible) and our teammates in the field have done a great job in meeting our expectation.

Although we were pleased with our sales and productivity over the quarter, we became aware of a number of abnormal numbers of high dollar healthcare claims late in the quarter. At Owens & Minor we believe that healthcare coverage is a very important benefit for our teammates and we work hard to control these costs.

I would like to make a comment on our operating environment. We expect continued pressure on gross margin, but we are working daily to ensure that we are always focussed on margins to a specific program such as PANDAC, Cost Track and new initiatives with OM Solutions.

Although our medi (inaudible) sales growth has slowed somewhat due to a delayed product launch this year, we believe that product label has strong potential to provide savings to our customers and enhance our margins.

During the quarter, we were once again named number 1 in the information week 500, that is the second time in three years that we have topped this prestigious list of technology innovators and the fourth year in a row that we have led all healthcare and medical companies.

I would like to congratulate our IT team and Pro-systems partner for making this recognition possible. We are proud of this distinction and the fact that we are able to use our technology to help our customers to improve their supply chain and gain critical information to manage their businesses. Now, at the end of the day, awards are nice, but customer satisfaction is what drives Owens & Minor.

A year ago when we launched our new initiatives, we said we would make the necessary investments; ensure they had a strong foundation for growth. Now that we are in the second half of the year, the rate of investment is growing.

With our leadership team in place, OMSolutions is expanding quickly and its customer base is growing. Our core business team is working daily to grow sales, improve productivity, and profitability. With these initiatives, we know that we are investing wisely in our future in Owens Minor.

Let's take a quick look at our scorecard. Our Owens solution team added formal accounts in the third quarter for a total of 22 outsourcing accounts and we currently have 32 consulting engagements and four clinical inventory management programs. We also have 22 wisdom two accounts, with several new customers in the pipeline, and our first generation of wisdom has 170 healthcare systems on board.

Finally, I must say a word of thanks to our teammates who work hard every day to make a difference at Owens & Minor. The company's success is a direct result of the dedication and commitment of our teammates. Thank you and we'd be glad to take your questions.

Thank you, Craig. We are having an excellent year. We started last November with a plan to build the future, and as we've said in the past, any company distribution needs to reinvent itself every three to five years.

We are doing that and it's working. We're right on schedule with where we want to be, results are showing up and they're very positive and we feel great about where we are. So thank you Craig, and thank you Jeff for your remarks. Let's get to the questions. Look forward to them.

If anyone has a question, press "star, one". The first question is from Lisa Gill with J.P. Morgan Chase. You have the floor ma'am.

Good morning.

Good morning, Lisa.

Good morning, Lisa

Jeff, I was wondering if you could just comment. You said you would give 2,004 guidance at a later date perhaps in your investor day. As I recall last year, your investor day, you did give initial 2004 guidance of 4 to 7% on the revenue line and EPS goes 15 to 20%. Are you saying now that you anticipate that guidance will change in some way?

Lisa, No, we're not. We're not indicating anything in regard to that previously announced guidance. But, on an annual basis, we, of course, go through the planning process. We like what we've seen thus far in terms of our accomplishments this year in regards to the strategy.

Traditionally, we've provided guidance at the end of -- when we released the final year's results. We'd like to potentially accelerate that to the investor day because we think it will be useful for our investors, but we're not indicating any change in that regard.

OK, great. And secondly, Craig, you talked about the continued pressure on the gross margin. Just wondering if price inflation, I think you noted in your press release price inflation was not what you expected in the quarter. Is that part of the driver? And then secondly are you seeing any changes in the competitive landscape that's driving this decline in gross margin?

Actually, I've been talking about this over the last three quarters, as you know, our healthcare providers are under the gun and have been for several quarters, and of course what we do is we try to work on margin every day. Our whole company is focused on that.

And the program such as PANDAK and focussed on OMSolutions, all of those are really built towards margin enhancement for us. But the healthcare providers looking for help. They're looking for savings, and through our programs and with the margin management and us working on our SG&A, we feel overall that we're doing very well on operating margin.

So, there is some pressure we're going to see, we expect to see some pressure going-forward, and really what our healthcare providers are looking for is solutions and they're really working on process improvement.

Lisa, Gilmer here. Let me just comment on the inflation, because in our sector which is very different from the former sector, it comes in very less than 1% inflation makes our sales growth even more impressive, I believe, and we're not dissatisfied with the less than 1%. We think that's really very good for the industry, but it just emphasizes how well we're doing with penetrating our accounts and increasing our top line.

And then Gilmer, just could you comment on have you had any inroads with the HCA relationship? I know you talked about a little bit about that last quarter.

Well, that's in progress, Lisa. They've extended some of the commitment time till the first of November. We will make an appropriate announcement very soon thereafter. Our relationship with HCA and HPG, which is the purchasing group that their involved with, is very positive and we feel very confident that we'll do OK --

Great.

--as suppose much as we say about it right now.

Thank you for your comment.

Thank you, Lisa.

Larry Marsh with Lehman Brothers has a question. You have the floor, sir.

Gilmer, Good morning. Good morning everyone else. Jeff or Craig, could you elaborate the $1.2 million of the incremental healthcare costs that you defined as about 2 cents a share and your implying that you are going to see a similar amount in the fourth quarter, is that right, and could we see that continuation into 2004, and how do you come to the determination that that's abnormally high?

Larry, let me answer that. Actually, we believe that we will see less in the fourth quarter, but there will be some trail over into the fourth quarter from these claims in the third quarter.

Historically, we call it abnormal because we've been tracking this for the last five or six years and this was a very abnormal quarter for us based on historical data. So we don't believe that this level of expense is a long-term trend, but these some spill over into the fourth quarter.

And then maybe just elaborate on the wording in the release. You talk about estimates being at the low end of 140 to 145, based on these additional healthcare costs as well as planned expense in building the new strategic initiatives. Does that imply that you're beefing up your expense more than you thought? Because if that was planned, we would assume it would have already been your guidance.

As we've said all year long, we would invest and obviously the investment started ramping up with Mark coming on board in the third quarter and the fourth quarter. What we're really trying to do, Larry, is in the whole book of business, as you look at distribution, you try to manage the sales, the SG&A, and the margin.

So, we're working on the operating margin. So, you know, we are looking at the healthcare benefit costs, hitting that to some degree, and probably a little bit of the Medi Choice sales on this planned rollout that we had for the third and fourth quarter that's really going to be late, November 30th, which was a pretty big product launch for us. But if you look overall, the SG&A is down, we're managing that very well and we're really working on the operating margin overall.

OK and just one final elaboration then why is there a delay in the rollout of the Medi choice product line, and coming into this year sending your sales managers on revenue goals and gross margin goals or just revenue goals?

Larry, we really don't comment on how we in-sent our salespeople, but obviously as we always talk margin is very important in the company.

So clearly, you know, our objective is to focus on PANDAK, Medi Choice, all of the programs that really margin enhancement. So our sales force are trained on that, they're given objectives and they move forward. The issue that we had was a supplier issue, and then it's a supply issue.

We were able to get a partial rollout of that, but because of supply and some other things that we had to get squared away with the supplier, we got a late launch, which for me was a disappointment, because we had seen some really strong success with Medi Choice. I'm still very committed to it. The company is committed to it, and we think it's a great product line for our customers.

So where is that going to be rolled out on?

November 30th.

And you thought it would be?

Early in the third quarter.

So a couple months away?

About three, three months, three and a half months away.

And then just I can't let the opportunity pass. Gilmer, any predictions on gain side (ph)?

I have to be careful. We have many teammates in New England Larry, but my heart is with (inaudible) and it always has been, and I'm very proud of that, and it's been a great series .

Thank you.

Thanks.

Chris McFadden with Goldman Sachs & Company has a question. Go ahead, sir. You have the floor.

Good morning, Chris.

Hello, Chris.

Cindy?

Yes. Mr. McFadden, your line is open.

Hello. Gilmer, can you hear me, OK.

Yes, fine.

I will start over again. Good morning everyone. This is modern telecommunication stuff.

We lost you.

Where you go?

But I'm found. Hello, a couple of questions if I might. Firstly, we've seen a lot of discussion this week in the hospital market dealing with the question of bad debt. It's not a new issue, but it certainly reminds us there is a growing concern about the lack of insurance and bad debt exposure on the part of some of your customers.

Can you talk about to an extent may be backing up on the cash flow trends that are reflected and I'm interested may be experienced and just is it getting tougher on the collection side.

Second thing, understanding the healthcare costs, and Craig you referenced that your tracking the issues closely, talk about how you're thinking about '04 from a corporate management team. Are you thinking about making adjustments to your program, to your offering, to your employees to help manage these costs, maybe give us some insight there.

And finally, I'm wondering just given how localized the issue was in Virginia, was there any effect measurably in the hurricane for the quarter. I know there were some outages, I am sure you had some incremental service costs, I was wondering to any extent that played a role in the results of the quarter. Thanks.

I'll answer the first part of that question. Chris, what we do in the area of receivables is there are really too main cases. One is the asset management card. That's how fast we turn it, and then the second is the risk management aspect.

On the risk management aspect, we have some very extensive modeling that we go through, and we try and -- in that modeling, we come up with probabilities of sale going forward. So we do try and take all of the things that are happening such as the bad debt levels at the hospitals into consideration, and historically we have been pretty good at identifying those prior to their being a problem.

Once we identify that there's a high probability of failure, we meet with the management of the hospital, we know that they need a continued flow of goods, and we have to protect our shareholders. So together we typically work out the plans so that we do achieve both of those objectives. It may be in the form of a deposit or an irrevocable letter of credit and it's supplied by the customer, favorable and some minor.

And we've done that going back to our charter in 1989, when they filed bankruptcy. So we're proactive on it. We do employ for catastrophic events, where we can get it credit insurance. Not foolproof, but these are some of the steps that we go through.

And Dick, have you made any recent adjustments that you can talk about or have your observations relative to customer climate changed at all in the last couple quarters?

Chris, I think one example is health serve, which is very much in the news, and we're very proactive with them. We are their primary vendor, and Dick and his team took that issue as it was unfolding and dealt with it in a proactive basis to protect ourselves.

As Dick said, to protect the flow of goods to our customers, and to protect our manufacturing partners, who ship through us and those that are shipping direct who wanted to ship through us after this credit problem as far as what I have said. And you know, we have worked at a business like arrangements with them, which is working and is monitored and everybody is signed off on it. And it's a good relationship.

So I mean, it's -- you know, we are very proactive, as Dick said. We have a good early warning system, but also we are vulnerable, like anybody in healthcare, to things that we can't control, but overall, we do a wonderful job of anticipating and dealing with issues (inaudible). It's a good - credit management around here is not a bad terminology. We don't look at credit or debt of our customers as being an onerous subject. We are very proactive in dealing with it.

Thanks for the detail, Gilmer.

Let me answer the other two pieces. First of all, the hurricane, although we suffered a lot of damage in Virginia, the expense was minimal. We had actually six operating units on alert.

We did lose power in one of our operating units, but we do have mobile generators always ready to go, and we were able to get power back up and running very quickly. So overall, you know, thank God for the company and our division and the hospitals we serve expense was minimal and damage was minimal.

On healthcare costs, we really used industry data to really plan our expenses each year, and of course we monitor claims on a regular basis, and really like most companies, you know, we always are exploring a variety of ways to control our healthcare costs and always trying to look at alternative ways of providing coverage. So that's something that we look at on a quarterly basis.

Again, the historical trends have been pretty consistent over the last four or five years, and so we're always looking at our benefits package. We try to be competitive. We've got some big companies here in town and other places where our operating units are of course, a benefit to medical coverages, you know, key component to teammate retention.

Thanks for the detail on that.

Thanks, Chris.

Terry Powers with Robert Baird has a question. Go ahead, sir, you have the floor.

Good morning. I had a question related to sales guidance. You're maintaining your full year guidance of 5 to 7 years per cent, 7 percent for the year. If you look at the fourth quarter, this adjustment is the low end, you come in at 0%. Is that an accurate interpretation and is that something that you're trying to signal by not updating your revenue guidance?

Good question. Please note that we had a very strong fourth quarter last year in sale and in comparison will be good for us, but probably not as the same level that we're experiencing right now, but well within the guidance that we have still ever seen. So we are taking into effect when we give the guidance the fourth quarter compasses

Thank you and I also had a question about a gross margin in the fourth quarter. For the past five years or so you guys have posted higher gross margin in bonds in that quarter versus June and September, and we're wondering if there's a seasonal team that we're continue to model there or anything else that would be superseded by one of the changing Industry dynamics that you're talking about, increased competition.

Well, I think over the last two or three years, if you look at the trends in the fourth quarter, that it has gone down historically year over year. Traditionally in our business in the past there were opportunities for buy Inns in the fourth quarter or even some potential inventory pickup just from physical inventories, and as you've looked, if you look historically for the last three years, that has become less and less.

One, because the buying are less traditionally in our business, and secondly because we have a much higher accuracy on our inventory. We run about a 98% inventory accuracy. So we really have kind of blended that out over the last three or four years, so that of the gross margin over all annually is pretty well blended out to a consistent blend in the quarter to quarter.

OK, thank you. And I just one more question. Can you give us an update on the percent of revenue on cost track and are you still to 32-33% and are you going to stop taking what once your 70% goal.

I'm still sticking to my 50% goal, because that's my boss' goal, but it's also the right thing to do in our industry and really where our industry is headed. We are at 32%. We do see growth in our cost track accounts year over year.

We just had all of our managers, we had 150 managers from the company in our annual leadership meeting at the end of the year, and my closing speech was all around CostTrack and how we're going to move that forward. But what we really see is a trend in a move in larger healthcare systems to move off the cost plus environment, which is the traditional way that we mark up in our business, to activity based costing.

So I think you're going to see an up tick and a trend in these larger systems starting to move as they work on process costs, because again I will say on a $50 million account, if you reduce the price 1%, it's minimal the savings that they get. And these systems are looking for five and ten and $15 million reduction, and you cannot get that unless you work on process and improvement in your supply chain.

So that's still my goal. That's still the company's goal, and that's still our management team's goal. Terry Powers: OK, thank you very much.

Excuse me, Glen Santangelo with Salomon Smith Barney has a question, you have the floor sir.

Thanks, Craig I have just a one quick question. I'm sort of curious about some of these strategic initiatives you are talking about. You gave us some decent numbers on OMSolutions and the Wisdom2 account, can you give us a sense for how many of those accounts might be with new customers that you're not currently serving in a distribution capacity, and I'm trying to get a sense for, you know, how much some of these new initiatives are going to lead to new distribution customers.

Well, Glen, we never really break out individual numbers on the sales peak. I would say to date,. the competitive accounts that we have is a smaller number than accounts that we currently have today, and again, I have been extremely pleased with the leads that our core business is giving to our OMSolutions people.

So what we are seeing is in the engagements where we have OM Solutions, we are seeing increased sales penetration because we're getting up into the operating room and the cap lab and other areas where we've always been, but we probably haven't got the penetration that we would have liked to have gotten. So overall, I think you'll see us go after more competitive accounts next year.

We're still really ramping up the sales force and the nurses. Those are going to really be the people through OM Solutions that are going to get us the competitive engagement. So I would say overall most of those leads have come directly from our core businesses and their relationships with the CFOs and COOs and CEOs that they have in their hospitals.

Thank you very much.

Thank you, Glen.

Robert Willoughby with Banc of America Securities has a question. You have the floor, sir.

Thank you. Craig, can you flesh out your benefits management efforts comments a bit more? Has anything specifically changed -- that would limit your exposure to the rising healthcare costs going forward?

Well, again, Robert, we have had historical trends for four to five years that we have budgeted for. We follow healthcare costs. We have budgeted appropriately with the exception of these abnormal claims for that the rise in healthcare costs. So this really was an August/September rate of claims that was unusually abnormal.

So ordinarily we do adjust industrywide in terms of percentage growth from year over year with rising healthcare costs across the industry, and we use, you know outside insurance folks to help us budget for that.

So again, with respect in trying to respect the privacy of our teammates and their families, you know, this was unfortunate that we had this abnormal number of claims in August and September.

Do you have a sense to what your - the healthcare cost trend is rising, what maybe it's rising on an unmanaged basis and what you've been able to do to bring it down? Is that data that you would have?

I don't think, Robert, that we're of course, out of line with what's going on around the whole country I think every corporation and every individual in America is faced with this, and as Craig said, I mean, we are self-insured, so we sit down every year and we anticipate and forecast and plan for the expenses to be what we think they are, and they've gone up.

And this anomaly that took place we feel like it's an anomaly, is tragic, because we have a number of people all of a sudden whose families, as individuals are impacted by a crisis in their lives.

So this is very painful to us, as it is going on all across America and so we are dealing with is. We have proactive programs internally to help with our wellness efforts, and we're going to do better at that, because all of us need to do better. So I mean, this is a very painful thing, but we don't believe that this kind of experience will continue based on everything we know.

OK, thank you.

Thank you.

David Bofay with Paradigm Capital Management has a question. You have the floor, sir.

My question was answered. Thanks.

Michael Hughes with Delaware Investments has a question. You have the floor sir.

Yes, wanted to follow-up on the last question for some of your comments. I think you said that your healthcare cost trends have been in line with the industry. I think if you listen to most of the publicly traded HMOs, they indicate that healthcare costs have increased, I don't know, 12 to 15% this year. Would you say that your numbers are in line with those trends?

Yes, the answer is yes. For three or four or five years in leading up to last year and this year, our costs were lower than the average, and so we feel like we've done a pretty good job of managing healthcare costs, anticipating healthcare costs. But we are in line now, unfortunately, I would look at it as being unfortunate compared with the past in with that rising trend. Jeff?

For the most part, we've been in line with that trend. We have layered into our expectations, but this particular quarter they were abnormally high.

OK, and most of the managed care companies have reported decelerating medical cost trends this year, and I think the reason is because of higher co pays, but in your case it doesn't sound like even if you had higher co pays or different benefits designed in place, it wouldn't have mattered because it doesn't sound like you can divulge information for obvious reasons, but it's very specific to some employees that there were catastrophic events and I can almost look at it is one time in nature, hopefully.

That's --.

Well put.

And then if I may just ask one other question on the strategic investments. I was under the impression that you were investing throughout the year, and I think you said earlier on the call that the investments accelerated in the third quarter. Could you just speak to that, Jeff, then how should the strategic investments that you plan to make next year compare to this year? Will they be higher or lower?

Michael, of course, we have planned for the strategic investments and we're very happy with what we've seen thus far. Clearly, we have been ramping those costs up throughout the year and in the third quarter in particular we hired a leader of OM Solutions, Mark van then Sumeren, and he's taken that to a new level. So certainly the run rate in terms of those expenditures has picked up in the latter part of the year.

Again, we're very excited by those investments, and certainly that should represent an increased run rate going into the following year. Of course, we plan on having benefits associated with that, and we will be able to articulate that when we give the guidance for next year.

OK, great, thanks a lot.

If anyone has a question, please press "star, one" at this time on your touchtone phone. Apparently, there's no more questions, sir.

OK, well, thanks for all of you there are still on, time to get going for the day. We feel very strong about where we are, we're positive in where we're going. And thanks for your support, and we look forward to any follow-up questions at any time. Thanks a lot. Bye-bye.

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