Owens & Minor Inc (OMI) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Owens & Minor's fourth quarter and year-end 2007 conference call. My name is Lisa, and I will be your coordinator for today. At this time all participants are in a listen-only mode. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Craig Smith, President and Chief Executive Officer of Owens & Minor. Please proceed, sir.

Good morning, everyone. Welcome to the Owens & Minor fourth quarter 2007 conference call. We'll review our results and take your questions in a moment. First let me introduce my colleagues on the call today, Jim Bierman, our Chief Financial Officer; Charlie Colpo, our Senior Vice President of Operations; Dick Bozard, Vice President and Treasurer; and Grace Den Hartog, our Senior Vice President and General Counsel. Now before we begin, Trudi Allcott, our Director of Investor and Media Relations, will read a Safe Harbor Statement. Trudi?

Thank you have, Craig. Our comments today will be focused on the Company's results for the 2007 fourth quarter and year to date. These results are included in our press release. The press release as well as a few supporting slides can be found on our website under the investor relations section.

In the course of our call today we may make forward-looking statements. These statements are subject to risks and uncertainty that could cause actual results to differ materially from those projected. Please see our press release and our SEC filing for a full discussion of these risk factors. And finally, this conference call will be available on our website for the next three weeks. Thank you. Craig?

Thank you, Trudi. Let me call on Jim to brief us on financial results. Jim?

Thank you, Craig, and good morning, everyone. We are pleased with the progress we made in the fourth quarter as we continue our efforts to position the Company to achieve profitable, sustainable growth. I will begin my remarks with an overview of the fourth quarter results. Fourth quarter 2007 revenues were $62 million greater than revenues reported in third quarter 2007. In the fourth quarter, we began realizing the financial impact of the significant new business wins, net of losses, which occurred in the second half of 2007. While we clearly anticipated these additional revenues in providing our 2008 guidance, we did not anticipate the increase occurring at the pace that it did in the fourth quarter. Fourth quarter 2007gross margin was $6.9 million greater than the gross margin in the third quarter 2007, and better than we had expected. As a percent of revenues, gross margin improved two basis points from 10.57% as of the third quarter, to 10.59% as of the fourth quarter, 2007. Gross margin dollars improved as a result of the combined effect of the increase in revenues and an increase in volume purchase allowances. Seasonal fluctuations in volume purchase incentives are not unusual, as suppliers typically measure growth and quality financial measure programs at the calendar year end.

Fourth quarter 2007 SG&A expense increased $6.3 million from third quarter 2007 and was generally in line with the levels we anticipated for the quarter. As a percent of revenues, the fourth quarter SG&A expense increased 8 basis points from the third quarter to 7.87%. As we discussed in greater detail during our investor day presentation, a portion of the increase in dollars is due to the variable costs related to our increase in revenues. Increases due to distribution center relocation expenses, and additions to bad-debt expense explain the remainder of the variance when compared to third quarter 2007. First quarter 2008 SG&A expenses are targeted to slightly increase in dollars when compared to fourth quarter 2007, due to seasonality. For example, the first quarter will contain payroll-related tax and unemployment insurance costs, which take effect at the beginning of the calendar year, as well as expenses related to teammate incentive and equity compensation awards.

Fourth quarter 2007 operating earnings were $40.8 million, compared to $40.9 million in the third quarter. Interest expense, a component of net income, but not operating earnings, decreased $1.6 million in the fourth quarter 2007, when compared to third quarter as a result of the reduction in the average principal debt out standing during the period. Net income for the quarter was $22.5 million, compared to $21.2 million in the third quarter 2007. For the fourth quarter, diluted earnings per share were $0.55, improved sequentially from $0.52 for the third quarter. Operating cash flow was a positive $17.8 million for the quarter; however, debt increased $52.7 million as payments were made to vendors and suppliers. When compared to third quarter 2007, receivables decreased $46.4 million and inventory remained essentially I will unchanged as of December 31st, 2007.

Now let me turn to a brief overview of the year. When comparing 2007 to 2006, you must keep in mind that 2007 reflects the full-year impact of the McKesson transaction that was completed effective September 30th, 2006, and our new contracts with our GPO partners, Novation and Broadlane.

2007 revenues were $1.27 billion greater than revenues reported in 2006. McKesson related revenues were approximately $1 billion in 2007, and $282 million in 2006. Organic growth was driven by our success in attracting several large hospital accounts. Craig will comment later on the market and the evolving value proposition for our services.

2007-gross margin dollars were $118 million greater than 2006, but as a percentage of revenues, the rate decreased from 10.78% in 2006, to 10.51% in 2007. The increase in gross margin dollars is directly related to the increase in revenues. The decrease in gross margin as a percentage of revenues is due to two factors--first, margin was negatively affected by the new GPO contracts, and second; at transition, the McKesson margin was lower than Owens & Minor's. We saw this begin to improve over the course of the year as pricing files were raised to our standards. 2007 SG&A expenses were $73 million greater than in 2006, but as a percentage of revenues, the rate improved 51 basis points in 2007 to 8.02%. The transition payments to McKesson included in SG&A expense were $6.7 million 2007, and $19.3 million in 2006. 2007 operating earnings and net income were greater than in 2006 by $40 million and $24 million respectively. Several factors affected the comparisons to 2006 earnings. Net interest expense increased to $9.7 million due in large part to the Company financing the McKesson transaction with short-term debt. 2006 net income reflects a pre-tax loss on bond refinancing of $11.4 million, and finally, our income tax rate for 2006 was 37.6%, compared to 39.5% for 2007. Consequently, year to date, diluted earnings per share were $1.79 compared to $1.20 last year, an increase of 49%.

Before we move on, I would like to comment on our direct to consumer business. Our direct to consumer business reported revenues of $106 million for 2007, compared to revenues of $92.5 million for 2006, a 14.5% increase. EBITDA, a non-GAAP measure for 2007, was $12.5 million, or 11.8% of revenues, compared to $600,000 for the prior year. Operating earnings for 2007 were a positive $1.5 million, compared to a loss of $9.6 million for 2006. It was year of challenge for our DTC business, and our teammates were successful in their efforts to stabilize operations.

Now turning to asset liability management, as of December 31st, 2007, receivable DSOs were 26.3 days,a four-day improvement when compared to the fourth quarter last year. Inventory management was also improved for the quarter. Inventory turns were 10.6 in the fourth quarter, comparing favorably to 9.2 turns for the fourth quarter last year. Improving inventory management has been a focus for us all year, and our teams really did a great job.

Cash provided by operations was $220 million for 2007, compared to a use of cash of $74 million in 2006. During 2007, the Company used $30 million for capital expenditures, $28 million for dividend payments, and repaid $153 million of the debt outstanding on our revolving credit facility.

Now turning to our guidance for 2008, as Craig said in our press release, we believe we will achieve 2008 revenue growth in the 5% to 7% range, outpacing industry growth rates, and we are targeting 2008 earnings per share in a range of $2.20 per share to $2.30 per share, representing a 23% to 28% increase for the year. Other assumptions built in to our guidance for 2008, which we discussed at our investor day are outlined in our press release and in the presentation posted on our website.

Now I will turn it over to Craig for his remarks.

Thank you, Jim.

Before I add my comments to Jim's, I would like to recognize the passing of a member of the Owens & Minor family, and those of you who have followed us for a while will remember this gentlemen. Philip Minor, the uncle of our Chairman, Gil Minor recently passed away. He began his Owens & Minor career like many of us in the stock room, and ultimately served as acting Chairman for a decade. Now Philip was very instrumental in the growth of our Company. And I echo what Gil has said about his uncle, he personified everything that is good about Owens & Minor, and we will greatly miss him as the Company moves forward.

Now turning to the subject at hand. Since Jim has given you a good look at the quarter and the progress we made in 2007, I would like to give you a view from about 10,000 feet. In 2007, we had strong revenue growth and 9.5% of that was organic growth.

We reported operating cash flow of $220 million, and we reduced long-term debt by approximately $150 million, and we continued to bring on new accounts that are larger and more complex. During the fourth quarter, we did exactly what we said we would do. We completed the accelerated moves and consolidation of facilities. We finished bringing on new customers signed in the second half of 2006, and we continued making necessary changes to our cost structure.

Since late last year, I have been on the road, meeting with several customers, and what I hear from them, validates our strategy in the marketplace. We continue to win customers with our value-analysis-approach, offering them strategies and techniques to produce supply chain savings. For example, we are working with customers to create distribution solutions, such as storeroom and warehouse layouts. We are also working with them to build benchmarks and metrics to help them achieve savings and efficiency improvements, and we are providing better transparency in to the supply chain for customers and suppliers alike. For example, one of the customers that I met with early in January actually told me they were able to reduce their supply chain cost by approximately $12 million annually.

Our teammates are working together in the field to provide the basic services our customers require. But also, to bring in the more sophisticated services. We know what they want and need, including information management, clinical supply chain management, third-party logistics, and even cross-docking solutions. As a team we are very focused on the year ahead and the opportunities to sell this comprehensive, coordinated offering. As a result, we are signing customer to more complex supply chain solutions agreements. These hospital customers see us as an integrated partner, rather than as a vendor. And as we move forward, we will continue to invest in our Company, and in the infrastructure and systems that will enable us to offer integrated solutions to our customers. This year, for example, we anticipate ongoing investment in our previously launched mainframe migration. We have a project to upgrade our warehouse management systems as well as improvements to certain back-office functions, which will support us as we pursue our long-term strategic goal of maintaining operational excellence.

With every decision we make, we aim to do what is right for our customers, to provide value with every service, and to improve what we do every year. Every day, with our teammates we strive to provide a workplace that supports them as they serve customers and encourages them to cross-train and develop their skills. I will clearly say our teammates went way above and beyond their normal duties in that year that was complex and challenging for the Company. On behalf of myself and the management team, I want to convey my gratitude and pride for their efforts in what I believe was a very good year for the Company. Long term we are focusing on achieving consistent progress and our financial results, growing our Company and expanding our reach in the growing health care market.

Thank you and we would be happy to take your questions. (OPERATOR INSTRUCTIONS) Our first question comes from Joel Ray, from Davenport. please proceed.

Good morning, and congratulations on a very good quarter.

Thank you, Joel. Good morning.

Was wondering, Jim, if you could elaborate a little bit on the balance sheet; specifically, I note that your interest expense came down on a net basis in the quarter, yet our debt was up roughly $45 million, $50 million in the quarter.

I'm sure this is timing of when, you know, moneys were borrowed, debt was paid down, et cetera, and I was hoping you might be able to elaborate a little bit on that, and give us some of your thoughts about sustainability of the current levels. Yes. We were extremely pleased and to be candid, a little surprised that we were as successful as we were in our asset liability management for the quarter, and you are absolutely right, during the course of the quarter, our average debt outstanding was less than, certainly, the third quarter, in what we anticipated consequently. The interest expense was less. If you look at the actual balance sheet accounts impacted by this, or what caused a bit of the phenomenon at the end of the quarter of increasing the debt, it was the timing of payables that we had. And you see a significant reduction in the accounts payable accrued expenses that exists over the period. So, at year end, we had borrowed as I said in my remarks, just over -- about $50 million additional debt. As we go in to the first quarter, we're feeling good about the cash flow opportunities that exist for the Company, but I would point out that that some of the levels we achieved in the fourth quarter, both in inventory turn and day sales outstanding, were near record lows for the Company, and we would expect there to be some move towards normalized results as we move forward to the first half of next year.

Okay. So the point is, we probably shouldn't be looking for these types of lower net interest expense to be sustained? You know, quite this sharply? Of course, you will be generating some strong cash flow during the overall year, so one of your uses will be to potentially de-lever the balance sheet as well as look at acquisitions.

Exactly. So as we move forward during the course of the year, and with the excess cash we anticipate generating, we would anticipate to de-lever the short-term debt that we have. Again, as it make sense relative to other capital expenditures or merger and acquisition opportunities.

Very good. Thanks very much for your time. And congratulations again on a very good quarter and year.

Thank you, Joel.

Our next question comes from Eric Coldwell from Robert W. Baird. Please proceed.

Thanks, good job. Following on Joel's question can you give us a sense of how the debt is allocated currently, what portion is fixed versus floating, and the average effective interest rate?

I may have to call upon my good friend Dick Bozard for the average effective interest rate --

I figured we would be able to pull Dick in to the conversation.

Well done, Eric. Well done. But fundamentally, of the notes payable half are fixed and half are floating. Is that not the case, Dick?

That's right. So we have $100 million that is floating currently.

Yes.

And when you look at our credit agreement, the charge is based on some of the ratios that we hit, and when you look at our effective rate today, we're paying, probably around 5.5 to 6, is probably what we'll see in the first quarter.

Okay. Great. Thanks, Dick. Second question is on the acute versus direct to consumer business, based on the detail provided on the call, it looks like acute did a little bit better,hospital distribution did a little better, direct to consumer maybe a little bit below my model. If I did the math right it looks like 4Q. DTC sales were down about 11% sales year-over-year, and EBIT was down about a loss of $1 million. Is that right. Did I do the math right?

Yes, I think you are pretty close. I think just to give some color it to, as we have done in each of the quarters -- the last three quarters, at the very least, we continue to look at the accounting policies, the methodology and estimates that we use at that business, and fine tune them as we get more historical perspective. There were some adjustments to the bad debt reserve within lines with what we would anticipate for the year, but there were some adjustments that were reflected in the fourth quarter. In addition, we look to the amortization of the capitalized advertising asset, and made some adjustments there in speeding up some of the amortization. So the end result was that -- in the range that you were speaking of.

Okay. And so when we look at directionally in 2008, you know, I realize this is a fairly small and relatively immaterial segment to the total mix, but what is the direction in '08? Are you looking for revenue growth in '08? Is it more of a focus on getting the operating margin up for the full year? And could you add any color on either trends in either gross margin or SG&A expense? Again normalizing for the fine tuning on the accounting adjustments.

Why don't you take any of accounting fine tuning, and then I'll talk more directional on where we're going.

Yes. I think we are pleased with where we are coming at the end of this year, in terms of the positioning of the Company. You know, SG&A expenses were up a bit in the fourth quarter, in part due to the beginning of putting together some direct sales force that's Craig's going to come on to in a minute. So SG&A was a bit higher without the corresponding revenues. Quite candidly over the course of the year, the emphasis has been on getting the business right. And, we're pleased that if you look at the DTC customers that we have at the end of the year, it's about 187,000. It's about the same as what existed in the third quarter, and we are up year-over-year. But we did not buy any companies in this space during the course of the year, nor did we buy any patient lists or anything. I think we'll feeling good that things have stabilized and we're ready to move forward in this next year.

Eric, I would just say we did bring on a new sales leader late last year, who has a lot of experience in this space, and what I would call the sales model is changing for us in that specific market. We had a little more clean-up, really, to do in the fourth quarter in terms of directionally how we were going to move forward from a sales standpoint, but I'm feeling comfortable with this new sales leader and the reports that I'm getting on the changes she's making down there, and the direction she's taking.

And also we're about ready to wrap up and finalize our five-year plan, so it's how direct to consumer fits in our five-year strategy, and we haven't completely finished that yet, but obviously the non-acute care market is a market that's growing. Hospitals are looking to move in to that market, and so what I would say is directionally, the Company is looking at non-acute care services and -- but, I think more importantly, the sales model has changed down there, and I feel very comfortable with the sales later down there.

Great. And final question, and I'll let others jump in. At the investor day in December, there was some talk about OMI really focusing on more on balance growth margin expansion opportunities, and really enhancing your current book of business as opposed to aggressively going after share in 2008. Part of that conversation, related to how you look at pricing and supplier mix, et cetera.

Right.

I'm curious what update can you give us on pricing? Have you been able to affect any price increases in your portfolio? And if so, what kind of responses are you seeing from suppliers and customers?

Well, we were a really actually doing that . I think what I talked about at investor day was product category management. So really what we're doing is looking at particular product categories that the company is involved with, to decide whether those particular product categories are profitable or not profitable. And I can tell your right off the top of my head, specifically, we did take price in three areas, and I think we were fairly successful overall in taking the price up, and I think that gets back to the 5% to 7%. You hit that right on the head, is we're really looking at the whole supply chain. We're not just looking at the customer base margin. We're also looking at the profitability of some of these lines that we have carried. So to your point, you know, we are looking at profitability -- we're always looking at profitability; but, you know, we have had really phenomenal sales growth for the last five years. 5% to 7% is really above what we consider to be the industry average. We do a lot of validation on the numbers on that. But, to your point, we are actually looking at suppliers, and the customer base, and there has been some loss of sales, but I think overall, from a profitability standpoint, warehouse space, shipping, we look at all of that before we take a price increase, and the business we have lost, I would say, was business that overall will make us more

Good. Thanks, guys.

Our next question come Glen Santangelo from Credit Suisse. Please proceed.

Yes, Craig, I just wanted to talk to you about sort of your progress on a couple of different fronts. In the last 18 months you obviously renegotiated some big GPO contracts in Novation and Broadlane, and we talked in the fall about selling some value-added services through to those customers, and improving the margin, and continuing to improve your private label business. Can you just give us an update, you know, on both of those fronts, so that will help us think about how the margins may progress in 2008.

Sure. Thank you, Glen. I think we made good progress in 2007, and if you remember, we had stated that we really had three challenges, which was bringing on the McKesson business at a margin, we thought was higher than what it came in at, and I'm pleased to say we do have the margins almost to the percent or -- or the 100th percent, exactly to where we felt that business was going to be. It took us somewhere roughly four to six months to get that back up. The other challenge was Broadlane, which is a sole source agreement, which I'm pleased to say they have worked very closely with us to get our margins back to where they need to be. We have actually had some -- to your other point, we have actually introduced MediChoice at Broadlane and we are going to focus on that. So they have worked very closely with us to get that margin back to where it should be. I would stay Novation is still a bit of an uphill battle.

The MediChoice as grown very nicely in 2007, and we see it growing here at the end of January. As I said 18 months ago, as I say today, obviously for distributor, margin is very important to us, and again, back to the other question, we're also working on supplier profitability. So we're attacking this from several different angles. The challenge is, is that margin does not come back as quickly as say reduction in SG&A. So I'm pleased with the progress. I would like to see us doing better than where we are. It is still a very high focus, especially when you have 5% to 7% sales growth, the area we are working on this year is margin and SG&A reduction. So we are making nice progress. We're not where we need to be on the Novation accounts yet, but that's a very high focus for the Company.

And Craig, as you think about 2008, kind of the low end of your guidance, versus the high end of your guidance, is kind of, gross margin going to be that swing factor that puts you at one end or the other?

Well, I think, Glen, really, probably SG&A will the opportunity for us in how we execute with a slower sales growth, we should be able to actually impact our SG&A. That was really -- if you look at 2007 with eight physical moves, the 600 people we had to bring on at one point, and we're working on that down. I think, really, the opportunity continues to be SG&A. I think, margin -- we're going to continue work on that. We're going to continue to hold as best as possibly we can. But as I said last year, and as I will say again this year, although our costs are becoming more fixed, I still think that that's our opportunity. Now, I know Jim had made some comments about first quarter with incentives and benefits, but clearly, SG&A is very high on the radar screen for us.

Maybe I could just follow up with Jim and just maybe get a little bit more detailed thoughts on what he is talking about for Q1. Could you give us a rough sense of the magnitude of the uptick we should see in how big are the benefits?

Yes, I'm not sure we are comfortable going much further than what we have said, Glen. I guess -- let me see if I can try to make it a little clearer. I think the fourth quarter had some discrete items associated with it, such as the distribution center relocation expenses that we foreshadowed in the third quarter conference call. I think our thinking behind our comments for the first quarter were relative to the fact there is some seasonality in SG&A, and we wanted to illustrate the fact that the first quarter does get hit with a couple of items that are somewhat unique to the first quarter.

So to put it another way you are just sort of suggesting first quarter we should see a little bit of a tick up, and then we should see progress from there?

That's exactly what we are anticipating. We we remain comfortable with the guidance we had given, that over the course of the year SG&A as a percentage of revenue should continue to improve, mid-single-digit basis point improvement compared to the first half of 2007.

That's perfect. Thank you so much for the comments.

Thank you, Glen.

Our next question comes from Steven Postal from Lehman Brothers. Please proceed.

Thanks a lot, and good morning.

Good morning.

Craig, I think at the investor day you all were talking about two GPO relationships that were also going to renew this year. Can you update us on that?

Yes, actually we would see probably those being finalized sometime late in 2008. I think we did name both of those groups at investor day which is HPG and Premier. You know, we're moving along normal course of business. I think ordinarily, we don't signal to the market, but we thought from a due diligence standpoint, we should let people know that both of those up for bid. I think we feel fairly comfortable about both. Again, it gets down to profitability and price, and what we're comfortable in those negotiations to do. But those are still on track to be finalized probably sometime late in 2008.

Okay. So from a financial pact, those renewals, it sounds to me, you wouldn't expect that to impact '08 financials?

Well, I think at this point there's no change in their status that would impact the change in our thinking towards 2008 that we talked about.

Okay. And then typically you all have a use of cash because of seasonal inventory build. You didn't have that this quarter, and last quarter you indicated that you continued to expect that. I was just wondering in the context of how we should think about operating cash flow in the first half of the year, in Q1, and inventory how should we think about that? And I know, Jim, you have said that inventory turns hit a peak in Q4. Should we expect that that could reverse in Q1?

I think what we'll see -- I -- you know, we made surprising accomplishments in the fourth quarter. I think in the ebb and flow of the balance sheet management, it would not be surprising to see inventory turns not as successful -- in the first quarter, not as successful as in the fourth quarter, and potential days sales outstanding a little less than what was in the fourth quarter. I mean, those were pretty amazing results, and so I think those numbers should -- could and may change a bit in the first quarter. Doesn't mean that we're not focused on that, and aren't looking for every opportunity to continue to improve the cash flow from operations. But I think it is the reality that makes a couple steps forward, you take a little half step back, you make a couple steps forward.

Okay. And then just a final question. Looks like bad debt expense increased significantly sequentially. Was that in the DTC business? Or was something else going thereon?

Yes. I think sequentially bad debt expense increases just over $8 million. I would point out that if you look at bad debt on a year to year basis, it was about $23 million last year, and about the same this year, $22.6 this year. But specifically, as it relates to the $8 million in the fourth quarter, a portion of it, certainly had to do with some -- the cleanup that I mentioned earlier on the DTC business, and there was also adjustments made at the distribution business also. You know, I think we're definitely in tune with the issues associated with the economy and exposures that exist, and I think as is normal and customarily, and very prudent we evaluated exposures and made the corresponding adjustments to our reserves as we moved in to the end of the year. So we're comfortable with where we're positioned, and we think the decisions were prudent.

Are you suggesting that with some of the changes in the macro environment that there's been a change at your customers from a credit perspective?

Well, I think you always have -- our customers aren't totally insulated from the realities of the economy, and we have a national dispersion of customers, and there are geographic areas of the country where public and private hospitals are facing more challenges than others, and I think we're being prudent, we'll being careful, as we evaluate some of those exposures.

Okay. Thanks a lot.

Our next question comes from Lisa Gill, from J.P. Morgan. Please proceed.

Hi. It's [Arthur Froheman] for Lisa. Most of the financial questions have been answered, but a couple of housekeeping questions. I don't know if you disclosed the number of DTC lives that you have right now. And also how MediChoice is trending in terms of number of new SKUs that you have introduced lately, and revenue, if possible.

I'll take the DTC, and if you would -- Charlie is going to talk about the other question. I think I mentioned earlier that we had about 187,000 patients or customers at the DTC business at the end of the fourth quarter, which is totally in line with the amount that existed at the end of the third quarter.

Charlie? And from MediChoice we are seeing some strong growth. We saw some strong growth in 2007, and that's continuing the first month of 2008. We are up to about a 1500 stock-keeping units today.

Okay. That's great. Thank you.

Thank you.

Our next question comes from Robert Willoughby from Banc of America Securities. Please proceed.

Good morning. I'm not sure where the consensus for the fourth quarter is actually going to fall out. I guess there is a broad range throughout currently that your guidance does allow. I know you mentioned the higher SG&A, from the fourth quarter, but are there other factors that would cause the near term numbers to be materially lower than the fourth quarter? Or it is just the SG&A line to pay attention to?

I did mention that there tends to be -- and this is of a longer horizon than just this next quarter -- but there does tend to be some seasonality in the supplier volume purchase incentives that exist. And that's because many of them are predicated off of calendar year basis, and whether or not you achieve that performance becomes clearer as you get to the end of the year, or the last two quarters. So I think there's an element of seasonality in that particular number. Otherwise, I'm not really aware of any that I can think of.

Well, I guess there was kind of a dime rate split between the low end and the high end, of a consensus range, which seems a bit extreme for your business, which generally has good visibility. Is there not an effort to reign in that range a little bit or --

You have me a bit of disadvantage. The best I can do is share,where we stand in our look, and then hopefully the message clear to the analysts that follow us. Craig?

I think, actually, Robert, we have been fairly consistent the last two or three years to widen the range, primarily around adding the direct to consumer business, the OM solutions component. Years ago we had what would be considered a very tight range, but over the last two or three years we basically have wide ended that range, and I think it's fairly consistent with where we have been over the last -- at least since 2005 with the bringing on the axis business.

Okay. That makes sense. I also don't know if I heard you actually provide cash flow guidance for the year. Were the working capital benefits in '07 from the McKesson deal such that cash flow might be -- even on higher EPS might be down year-over-year, or it is still realistic that should be up.

Yes. We haven't given that guidance at this point, and I think it right now we're probably not comfortable doing that. Let us consider that, and look to our 10-K filing to address liquidity and working capital needs going forward.

Okay. That's it for me. Thank you.

Thank you.

Operator, we have time for one more question. We may have lost the operator. Operator? Oh, there we go.

(OPERATOR INSTRUCTIONS) Thank you. At this time, there are no further questions. I would now like to turn the call over to Mr. Smith for closing remarks. Please proceed.

Thank you very much for joining us today, and we look forward to a very strong 2008. Thank you.

Thank you for participating in today's conference. This concludes the presentation. You may now now disconnect. Have a great day. Thank you.