Owens & Minor Inc (OMI) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Owens & Minor fourth-quarter and year-end 2013 financial results conference call. (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, Chairman and CEO. Please proceed, sir.

Thank you, Ashley, and good morning everyone and welcome to the Owens & Minor's fourth-quarter and year-end 2013 conference call. This morning we will review our results and take your questions but first let me introduce to you who is with me today, Jim Bierman, our President and Chief Operating Officer; Randy Meier, our Chief Financial Officer; and Grace den Hartog, our General Counsel.

Before we begin I would like to turn it over to Trudi Allcott from our Investor Relations team and Trudi will read the Safe Harbor statement. Trudi?

Thank you, Craig. Our comments today will be focused on financial results for the fourth-quarter and full-year 2013 which are included in our press release. In our discussion today we will reference certain non-GAAP financial measures. Information about these measures and reconciliations to GAAP financial measures are included in our press release and in the fourth-quarter and full-year supplemental slide presentation, both of which are posted on our website.

Our call today will also be archived on the website. In the course of our discussion today, we may make forward-looking statements. These statements are subject to risk and uncertainty that could cause actual results to differ materially from those projected. Please see our press release and our SEC filings for a full discussion of these risk factors.

Finally, during the first quarter, we plan to participate in the Leerink Swann, Citi and Barclays healthcare conferences so we look forward to seeing you on the road. Thank you. Craig?

Thank you, Trudi. I'm going to turn it over to Jim for an operational overview and then Jim will hand it over to Randy for his review of our financial results.

Thank you, Craig, and good morning, everyone. Before Randy reviews our financial results, I would like to highlight a number of operational achievements from 2013 paying particular attention to those that help our investors better understand the investments we are making today that will enhance our value proposition to both our manufacturer and provider customers well into the future.

Let's spend a minute looking at some of the accomplishments that we had over the last 12 months or so and some of the things we are going to do in 2014. As we said at our December investor meeting that as we reflected on the marketplace it became pretty clear we needed to change our sales and service model to meet the needs of a larger more sophisticated provider customer and so a little over 18 months ago, we came to our salesforce and we revamped our approach to serving our customers and those changes were met with great receptivity within both our salesforce and our customers.

As I have said before, I couldn't be prouder of the sales teammates that we have at Owens & Minor. These teammates demonstrate day in and day out to our provider customers our intrinsic value, the trust, the integrity, the long-standing relationships that we have with literally thousands of hospitals in the United States. They are one of our greatest assets and they were eager and accepting of the changes that we have made.

The results that we have seen this year and anticipate for next year are directly related to the success of our sales teammates.

As a validation of our efforts, we are pleased that in 2013 as we completed the GPO contract renewal cycle, the process culminated with the signing of a very large for-profit healthcare system. Obtaining this account was a testament to the effort and skills of our sales team. We are targeting this customer to begin transitioning its business to us late in the second quarter and into the third quarter of 2014.

As is the case with on boarding larger, more complex customers, we will be incurring transition related costs in advance of the revenues associated with this book of business. As you think about 2014, it is important to note that at our December investor day event our financial guidance range contemplated the impact of this potential customer.

Also in looking at the market landscape, we said to ourselves if hospital systems are going to span from one end of the country to the other then conformity of processes becomes more and more important. We have always been dedicated to high-quality high service but over time some of our distribution centers may have performed activities differently than did others. We needed more conformity if we are going to serve hospital system that spans significantly different geographic areas.

That caused us to look at our infrastructure, our operations and at ways we can achieve greater cost efficiency and economies of scale as well as ensure uniformity of service.

Finally, with the success of the changes that were made to the provider sales and service operation, it only made sense that we look at adopting a similar model with our manufacturer customers and this came at a point in time when the manufacturing community is beginning to change the nature and type of discussions that we are having with them. The discussions are being elevated into the C suites of these companies and the discussions are far more strategic than they had been in past years when one could characterize them as being far more transactional and far more tactical.

So as we think about our vision and the progress within this last year I would call out three areas of focus. First, the network continues to evolve. In this last year we stood up a large regional distribution center in the Chicago area. This was precipitated with the signing of a large regional IDN system in the Chicago area that needed a broad spectrum of capabilities both technology and logistics capabilities that we view as being leading-edge. So we designed and operationalized the facility. It enabled us to consolidate three smaller sub optimized facilities into this larger facility to serve a large regional customer base.

As we think about 2014, we have opportunities of a similar nature with the re-signing of some very large customers in other locales throughout the United States. We strongly believe that our distribution network is an important element of our differentiated offering in the marketplace. Our competitors tend to establish their distribution centers in centralized locations or in specific cities related to the manufacturing plant of a specific customer.

Our network is aligned with the major populations in the United States and correspondingly with the hospitals and providers throughout the United States. We have a network that serves more than 1300 manufacturers and that distributes in excess of 200,000 SKUs directly to the nation's healthcare providers. In all with our network today, we are positioned to serve about 90% of the hospitals in the United States.

Secondly, in 2013, we continued to invest in technology completing the second year of a three-year program that we previously shared with you. And so far we are on schedule, on budget and the results are certainly encouraging. And a simple way of thinking about the investment in technology, think in terms of having a single platform that can serve both manufacturers and providers.

Finally, we continue to expand our capability in the marketplace. Our OM Solutions Consulting Group has historically been a fee for service model of generating consulting fees. Our capabilities are significant and those capabilities can help our provider and our manufacturer customers achieve cost reduction efficiencies in their supply chain. We are revamping that offering in the marketplace into what we are calling centers for excellence and with the centers for excellence we will take these capabilities and these very talented individuals and focus them on helping our customers achieve the very challenging cost reduction targets they are facing.

As we move into 2014, we are excited about our positioning in the marketplace as the healthcare logistics experts, providing value to our provider and manufacturer customers. Thank you.

With that I will ask Randy to share with us his financial review. Randy?

Thank you, Jim. Good morning, everyone. As Jim said, we made progress in a number of areas in 2013 and I would like to highlight the financial accomplishments as we discuss our financial results today. As you think about 2013, please keep in mind that we acquired Movianto late in the third quarter of 2012 resulting in only four months of Movianto contributions for 2012's financial results.

First, let's turn to our revenues. Fourth-quarter consolidated revenues improved 1.1% to $2.32 billion when compared to last year. The quarterly improvement was driven by a second consecutive quarter of modest growth in our domestic segment. Consolidated revenue gains were also bolstered by 8.6% growth in our international segment as Movianto contributed quarterly revenues of $105 million.

Now some of you that might know us better may have expected a larger revenue contribution from Movianto so let me explain. After completing a thorough review of our business agreements in the international segment, the Company has determined that certain Movianto customer revenues would be more appropriately reflected as fee-for-service arrangements than buy-sell revenues. This change had minimal impact to our consolidated revenues reported for 2012 and 2013 and no impact on gross margin, operating earning and net income dollars. The adjustments represented about $30 million to $35 million in revenue per quarter or approximately $130 million annually.

For the full year, consolidated revenues increased 2.3% to $9.07 billion. The international segment fueled this year-over-year growth contributing $384 million in annual revenues. Offsetting this increase was a $43.5 million decline in domestic segment revenues for the year.

Domestic revenue results were affected by continuing trends we have cited for some time including lower rates of healthcare utilization and reduced government spending. For the year, we also saw the impact of the rationalization of some less profitable provider and manufacturer customers. Despite these market challenges, domestic segment experienced a return to growth in the second half of 2013.

As for operating earnings, consolidated results for the fourth quarter improved 13% to $50.9 million versus fourth quarter last year. Adjusted quarterly operating earnings excluding acquisition related and exit and realignment costs of $7 million were $58 million or 2.5% of revenues. We are pleased to note that this is the fourth consecutive quarter of improvement in adjusted operating earnings.

For the year, adjusted operating earnings excluding $12.4 million in acquisition related and exit and realignment charges were $211 million or 2.32% of revenues, an improvement of approximately $4 million compared to the year before. The exit and realignment charges in the fourth quarter were somewhat higher than we recently discussed. I would note that we were able to take advantage of market conditions and customer flexibility to accelerate certain planned changes in our domestic network.

The increase in 2013's operating earnings came from a combination of steady improvement in the international segment along with improved gross margins in the domestic segment. During the second half of 2013, the international segment also benefited from a certain amount of seasonally stronger customer activity.

Among the other factors that contributed to the improved operating earnings were supplier price changes in the first half of the year and the California municipal sales tax settlement. These gains were somewhat offset by increases in spending to support strategic initiatives and increases in other administrative areas such as healthcare and workers compensation.

Quarterly domestic operating earnings improved $5 million to nearly $57 million. The quarterly improvement was derived from the success of our strategic initiatives such as growth in our fee for service business, success in our gross margin enhancement program, and improvements in our operational excellence performance system. Also compared to the prior year we reduced expenses by approximately $2 million related to California specific legal costs and certain comp and benefits expenses.

For the year, domestic segment operating earnings were $212 million or 2.44% of segment revenue. Successes with the implementation of strategic initiatives, benefits from the settlement with the state of California and benefits from supplier price changes early in the year also helped us achieve a positive result for the year.

As for the international segment, quarterly operating earnings were a positive $1.4 million. I'm pleased to point out that this represents a $6.2 million improvement from the fourth quarter a year ago. For the year, international segment operating losses narrowed by $4 million over the course of the year to $1.4 million. The year-over-year improvement resulted from increased utilization of network capacity, continued growth and diminishing reliance throughout the year on the former parent for transitional services.

We also saw seasonally stronger customer activity in the fourth quarter of 2013. In taking a deeper dive into operating earnings, we see that consolidated gross margins were $291 million for the fourth quarter or 12.56% of net revenues. That represents a 76 basis point increase over the same period last year. For the year-to-date, consolidated gross margins increased 188 points to $1.12 billion or 12.31% of net revenues.

On a quarterly and annual basis, the improvement in consolidated gross margin resulted from the combination of both the international and domestic segments. For the quarter and the year approximately two-thirds of the international segment revenues work fee for service revenues reflecting the previously discussed adjustment to Movianto revenues. At the same time, domestic segment gross margins benefited from the growth of our strategic initiatives including the fee for service business.

As for operating expenses, consolidated quarterly SG&A expenses increased 36 basis points to $222 million and were 9.58% of revenues. For the year-to-date period, SG&A expenses increased 182 basis points to $864 million compared to last year. The increases in both periods were primarily related to Movianto which we did not have for a full-year last year. However, domestic segment SG&A for the year reflected the impact of increased spending to support our strategic initiatives and higher costs for healthcare, workers compensation and other administrative expenses.

Depreciation and amortization increased less than $1 million for the quarter but was $11 million higher for the full-year period. The comparative increase is primarily attributable to the addition of the international segment. Interest expense for the quarter and year to date was $3.3 million and $13.1 million respectively.

Our tax rate decreased to 40.1% for the full year compared to 40.6% a year ago. The decrease in the rate resulted from the conclusions of the IRS tax audits for 2009 and 2010 and certain state tax audits as well as the absence of nondeductible acquisition-related costs incurred in last year's fourth quarter.

Operating cash flow for the year was $141 million compared to $219 million last year. Changes in operating assets and liabilities which included an increase in days sales outstanding of 1.3 days primarily accounted for the decrease. On a consolidated basis, asset management metrics were fairly stable throughout the year including inventory turns of 10.4 times and DSOs of 22.1 days.

Turning to the bottom line, fourth-quarter adjusted net income was $33 million or $0.52 per diluted share compared to $0.41 for the prior period. For the full year, adjusted net income was $119.7 million or $1.90 per diluted share compared to $1.85 in the prior year. Included in these results for 2013 are the international segment operating losses of approximately $1.4 million or $0.03 per diluted share for the year.

Turning to our financial guidance for 2014, at this point in the year I would simply reiterate what we said in our December investor day. For 2014, the Company is targeting revenue growth of up to 2% and adjusted net income per diluted share of $1.95 to $2.05 for the year which excluded exit and realignment and transaction-related costs.

Thank you and with that I would like to turn the call back over to Craig.

Thank you, Jim and Randy. I am going to make a few comments before we turn to your questions. I think it is fair to say that we were able to accomplish most of the operational and financial goals we established for the year.

Now when I think about last year, I believe there are certain milestones that highlight our ability to move Owens & Minor forward. Our international segment, Movianto, began to improve once we put our new leadership team in place. The team achieved two consecutive profitable quarters in the second half of 2013 and improved operating earnings over the course of the year. For the year, we also reached our targeted revenue growth range on a consolidated basis thanks to the hard work of our sales teams in the US and Europe and our domestic teams achieved positive revenue growth in the last two quarters of the year.

Consolidated gross margins reflect the positive impact of Movianto and our fee for service business. During the quarter, we completed the last of the GPO contract renewals and with this 18 month process in our rearview mirror, we can concentrate once again on building our relationships with the individual provider customers.

Finally, we continued our long-standing tradition of rewarding our shareholders with a total distribution of nearly $80 million in dividends and share repurchases in 2013.

In other business, I am pleased to report that our Board has approved the first quarter dividend in the amount of $0.25 per share. This will be the 85th consecutive year that we have rewarded our shareholders with a dividend. The Board also approved a share repurchase program of $100 million over three years. As in the past, this repurchase program will be used to offset shares used for equity compensation.

Creating long-term value for our shareholders is an important part of our mission, our vision and our values. I said back at the end of this last year and reflected over the last four years which have been very, very busy for the Company and as I look back over the last four years, I reflected that we have invested over $330 million in growth investments including the acquisition of Movianto. These investments have been focused on the expanding our footprint in healthcare and building infrastructure to support an evolving customer base.

We have distributed approximately $260 million to shareholders. We further developed our healthcare logistics business as we saw growing demand from manufacturers for logistics services and we established a sourcing arm in Asia which is supporting our three-pronged strategy, sourcing strategy, growing our private label working with branded manufacturers and working with diversity suppliers and we acquired a leading European healthcare logistics business.

These achievements over the last four years have put us in a much stronger position today to embrace our opportunities in healthcare tomorrow.

In closing, I want to thank our leadership team and our teammates across the globe and I would be remiss to say as we all know this has been a very daunting and challenging winter especially for those of us who have trucks delivering to hospitals all over the United States, and I can say that from the East Coast to the West Coast our teammates have been challenged to make those deliveries and to my knowledge we have not missed a delivery through all of this winter. And so my hats are off to the 5000 plus teammates in the Company who work hard every day to make sure that our providers and our patients get the supplies that they need.

At this point, I will turn it over to Ashley for any questions that you might have.

(Operator Instructions). Glen Santangelo, Credit Suisse.

Thanks and good morning. Craig, just wanted to comment on some of the comments made around revenue growth. I think at analyst day you kind of laid out that revenue growth goal of up to 2% and in this call you sort of highlighted that you have a new customer when coming on roughly in the middle of the year which was contemplated in that guidance. And so you have given the reasons for the relatively slower growth being in the utilization rates and the reduction in government spending. Could you maybe elaborate a little bit on how much the reduced government spending may be a drag on your growth rate and if we back out that new customer win, are we assuming basically organic revenue growth is flat to maybe even slightly down a little bit?

Glen, this is Jim Bierman. Let me try tackling parts of that and if you need further clarification, please ask. I think as I hearken back to the December investor day, our outlook for 2014 was in large part predicated on our 2013 experiences. So if you look at the major drivers for revenue that would include utilization, could include some price inflation and as we thought about 2014, we used as a basis the 2013 experience.

As we sit here today and as we reaffirm our guidance for 2014 that we had put forth originally, our outlook as it relates to those drivers really hasn't changed at all. We didn't see any trends in the fourth quarter of 2013 that would cause us to have a different outlook for 2014.

As it relates to the exciting new customer that we are bringing on, we had set a goal for ourselves going into 2014 to begin to again take market share and this was an opportunity that our sales teammates pursued diligently and we were fortunate enough to be awarded the contract.

So in our thinking back in December, we had contemplated that we would win some new business. I would say that this falls within that and probably enhances to a degree our confidence in the topline number that we put forth at investor day.

Okay, Jim, maybe if I could just ask one sort of follow-up question on the margins. The gross margins came in a little bit better than what we had expected and if you go back again to the guidance you provided in December, you are clearly well above that range and I think maybe a piece of that might have been the reclassification of the Movianto revenues. But it certainly seems like you are getting some benefit from your domestic fee for service business. And so I am kind of curious given the experiences in what you have seen the past couple of months, I mean, should we think about this as a new sort of elevated run rate on gross margin or is there something that would pull the gross margins back down throughout the year back into that range that you provided in December?

It is a great question, Glen, and I'm going to ask Randy to address sort of the trending aspect of it. But let me comment qualitatively at least as to the domestic trends.

There has always been some degree of range of fluctuations within a quarter as it relates to some of the margin, has to do in part to the timing of some of the fee for service business and various other things that occur. We work every day at trying to improve our gross margin so the focus is there, the emphasis is there and the to-ing and fro-ing that may occur within a given quarter I think is within a reasonable range. But let me ask Randy to address the broader guidance question.

Sure. Thanks, Jim. I think you hit two points very solidly. One was the reclass that had an impact in terms of the overall calculation of gross margin. But the other one was some of our fees for service business. As you recall in the third quarter, gross margins weren't quite as robust as they were in the first two quarters of the year and that really related to a little bit of timing issues around some of our consulting income.

That bounced back in the fourth quarter and we saw the benefit of that which you are seeing materialize in the quarterly increase in our overall gross margin. I think as Jim talked about, we do have some timing issues on some of the fee for service that does have an impact there.

Looking ahead I think we are comfortable with the guidance that we gave but given that we did reclass approximately $130 million of revenue from sort of gross to net, that will probably have a result of maybe about a 5 to 10 basis point increase in sort of gross margins as I look out to the guidance that we gave for modeling purposes.

So I think there will be a little benefit going forward but the themes that we have going forward are very consistent so I wouldn't expect any other impact or benefit going into 2014.

Okay. Thanks very much.

Eric Coldwell, Robert W. Baird.

Thank you. Good morning. I have several questions related to the large client win. First off, how do you see that account evolving over time? Typically these large health systems -- well I think all of them have a substantial number of alternate sites. I am curious whether you are going to be working with them across their physician networks or their other care settings and how that is going to ramp over time?

Second of all, what was their strategy prior to shifting to Owens & Minor or announcing their plans to shift to Owens & Minor?

Third, talk to us about the cash flow implications because typically this would involve a lot of inventory build so I'm curious what your thoughts are for the year on that. Then if you could give us any additional color on the investments in the first half of the year and how we should be thinking about the phasing of results through 2014? Thanks so much.

Great questions, Eric. I probably won't do all of them justice. If I miss one, let me know and we can come back around. I think you hit upon several things that are important and let me amplify for the audience. That would be there is an investment with a customer of this magnitude in two different ways. One is an investment in the resources that will serve this customer in multiple, multiple distribution centers throughout the United States. And we are making sure that we have adequate staffing and teammates in place to do that. So we do carry an additional amount of costs leading up to this business actually converting to us.

Secondly, there is a ramp up in inventory as you alluded to and I don't have the number impact at my fingertips but we do see and expect an increase in inventory so the transition can be absolutely seamless and we can make deliveries with the expected level of service.

As to the strategies that the customer may have employed before or after, it would be presumptuous for me to speak on their behalf. I think clearly by virtue of the outcome that we were able to demonstrate the immediate needs that they felt they had but that we were also able to demonstrate that of the path that we are going strategically was definitely consistent with their thinking of their needs out into the future.

Then your final point if I have them all, is we would expect that we would be serving multiple external sites, alternative sites besides just their main facility.

Robert Willoughby, Bank of America Merrill Lynch.

Good morning. This is Elizabeth in for Bob Willoughby today. You referenced new market opportunities in your press release last night. Any insight into what those are?

Sure, I think as we looked out over the course of 2014, I think just looking at the expansion as both Craig and Jim alluded to in terms of our domestic business and certainly in reflecting on our international business, the incremental growth that we are going to be experiencing in Europe so again I don't think it is going to be outside of the normal course of business. I think we were just reiterating the fact that we have with the new positioning of our business strategically, a lot of opportunities to continue to expand our manufacturing services and continuing to expand our international platform.

Okay, great. Thanks. Accounts payable days were trending up nicely in the quarter. Do you have a target for that metric, how high can you get there?

You know, I think it was more of just a timing issue at year end. We have had as typical at year end, we saw some inventory go up as well as -- and correspondingly, we would see payables go up as well. I don't think this is outside of our normal course of business. So I don't expect it to go up any more than we have seen right now from a payables perspective.

Okay, great. Thank you very much.

Lisa Gill, JPMorgan

This is actually Gavin Weiss in for Lisa. So we have heard from other companies particularly medical device companies in the channel that volumes were particularly strong in the fourth quarter as procedures may have been pulled forward. I think Jim, you noted in response to Glen's question that you hadn't seen any changes in trends. So I just wanted to clarify you don't think that there was any pull forward into the fourth quarter from -- ahead of ACA implementation?

Yes, Gavin, great question. I think our experience in the fourth quarter is very similar to those that of particularly our major manufacturer partners that have already reported in the marketplace. My comment had everything to do with -- and I think those results were consistent with our expectations as we had met with you all at our investor day in December.

So within that level of consistency, that is how we look at 2014. On a seasonally adjusted basis, yes, I believe the fourth quarter was a touch more than other quarters throughout the year but didn't indicate anything that was sustainable into 2014 as we think about 2014.

Okay, thank you. Just in terms of the fee for service revenues, I'm trying to get a better understanding of that. In terms of driving gross margin, was it just a larger portion of revenues from fee for service or was it improvement in pricing on those arrangements? I think Randy had mentioned that it was some timing issues in terms of recognizing that revenue. So can you just maybe give me some more clarity there?

Sure, Gavin. It was really just more of a timing issue. If you look back at the third-quarter we were a little bit lighter in terms of our gross profit margin. We saw about a $2 million increase sequentially in terms of our fee for service business domestically and I think that contributed in large part to sort of the seasonality so to speak in the fee for service business. So we don't expect -- there has been no dramatic changes in the market, it was really just more of a timing issue.

Okay. That is helpful. Thank you very much.

Robert Jones, Goldman Sachs.

Thanks for the questions. It is actually Stefan calling in for Bob. I just wanted to touch on the international business, 8% apples-to-apples growth this quarter, encouraging, and yield still at a pretty positive tune around backlog going into 2014. Can you maybe give some more color on this backlog and growth expectations for the year and then maybe where capacity is in that business?

Sure. As we outlined at investor day, we were very pleased with where the international business ended up the year with two successive quarters of profitability and continuing to see improvement in our capacity utilization. We really didn't give any specific guidance to what growth was through our international segment although we felt comfortable with where we ended up the year in the year-over-year growth.

We seem to have a pretty good backlog going into the year and by that some customers that we would expect to be taking occupancy over the course of the first half of the year which gives us confidence in continued improvement in the overall segment. And as we talked about a lot in the last couple of quarters, we have built up our overall sales backlog and the customers that we are talking to so again, I think we are very comfortable looking out over 2014 in terms of continuing to see pretty reasonable growth.

We haven't given an update in terms of utilization. I think as we have alluded to, we continue to see sequential improvement in that so they were sort of low to mid 60s as we finished up the year and we continue to see gradual improvement over the course of 2014.

Thanks. I guess one more on the capital allocation front. The buyback obviously doubling the previous program you guys had. But taking a look at the dividend growth, it sort of decelerated for the past two years now in the single-digit range. Is this just a representation of the growth outlook and the environment? Or am I reading too much into this, is this more of a signal that maybe the mix shift towards buybacks could be increasing over time?

This is Craig. Let me maybe just take a step back. We have accelerated dividends for 85 years. I was very pleased that the Board approved a dividend again for the quarter. We probably have the highest yield of all of our healthcare peers at this point which we feel is still very positive where we are in terms of return to shareholders and I think we are going to continue to take a look at all of our opportunities in terms of giving back to shareholders. But I think we are also at a point where we think the yield is pretty significant. I think that is very positive and I think the Board and I are still very positive about returning dividends to our shareholders.

We will look at ways of cash again. We went from $50 million to $100 million on the repurchase. That again is to make sure that the equity stock that is issued that we are able to maintain that and I think overall I am very pleased with where we are on the dividend and the return that we have given back to the shareholders not only really over the last two years. So I think you've got to look at the whole what we have given back which is about $260 million over the last four years and dividends is a very significant part of that.

Makes sense. Thanks a lot for the questions.

(Operator Instructions). David Larsen, Leerink Partners.

Thanks and good morning. This is Chris Abbott in for Dave. As we think about the excess capacity with Movianto, how should we think about the growth coming from sort of existing supplier relationships versus what is expected to be driven from new customers? Is it more sort of expanding those existing relationships or is it really finding net new footprints?

With regard to our international segment, I think it is going to be a combination of some degree all of the above. We have very nice relationships locally, over in Europe that we look to expand on behalf of our customers and certainly the whole strategy around the acquisition was to begin to leverage our manufacturing relationships on a global basis. So I would expect to see the growth to come from both existing and new relationships, by new I mean relationships that we have over here in the United States.

Then have you disclosed what percent of the domestic segment is fee for service business?

No, we haven't.

Is that something that you would be starting to provide at any point going forward? I know you have said two-thirds of Movianto is fee for service and I guess as you sort of target that growth domestically, should we expect that to be a material contributor within the domestic segment or is it really more sort of a smaller piece?

On a going forward basis, we are probably going to continue with the sort of the metrics that we have out there but right now our domestic business is predominantly a buy-sell arrangement and the fee for service is a fairly small aspect although it is continuing to grow and contributes nicely. But for the next period of time and throughout 2014 I think the metrics that we have provide good color in terms of how we are generating both gross margin and profitability.

Okay. Thanks for the questions.

Thank you. I'm not showing any further questions in the queue. I would like to turn the call back over to management for any further remarks.

Thank you, Ashley, and I want to thank our management team. I thought we had a very good quarter and I thought we had finished the year very nicely and we look forward to meeting you over the next several months. Thank you and we will see you soon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.