沃博聯公司 (WBA) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2007 OptionCare, Inc.

earnings conference call.

My name is Carol and I will be your coordinator for today.

At this time, all participants are in listen-only mode.

We will conduct a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr.

Raj Rai, President and Chief Executive Officer.

Please proceed, sir.

Good morning, everyone, and thank you for joining our first-quarter conference call.

Also joining me on the call are Paul Mastrapa, our Chief Financial Officer, and Joe Bonaccorsi, our General Counsel.

By now, you should have received a copy of the press release issued by the Company this morning.

If you have not received it, please call (inaudible) at 847-229-7731 and she will promptly fax you a copy.

Please be advised, in keeping with the SEC Reg FD guidelines, that this call may also be accessed by webcast through OptionCare's Website at www.optioncare.com.

Any remarks that Option Care may make about future expectations, plans and prospects for OptionCare, including, but not limited, to 2007 guidance, constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements.

Such forward-looking statements involve risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf.

These risks and uncertainties and other important factors are discussed in OptionCare's filings with the SBC, including its annual report on Form 10-K for the year ended December 31, 2006 and this morning's press release.

OptionCare anticipates that subsequent events and developments may cause its estimates to change or it may elect to update these forward-looking statements at some point in the future.

OptionCare specifically disclaims any obligations to do so.

I will now discuss key highlights for the quarter and Paul will discuss our results in detail later in the call.

I'm pleased to announce our first-quarter results.

For the first quarter of 2007, we reported a record $213 million in revenue, an increase of 37% from the first quarter of 2006.

Sequentially, we grew over 10% from the fourth quarter of 2006.

The growth came from all aspects of our pharmacy services, most notably from the full-quarter impact of the Blue Cross/Blue Shield of Michigan contract, which is on track to hit $80 million or better, as projected, for 2007; a strong Synagis seasonal performance; and finally double-digit growth rates from chronic infusible therapies, such as IVIG and hemophilia.

The growth was a direct outcome of our strategic focus on the investment in specialty and certain chronic infusible therapies, as I had outlined in our last conference call.

In addition, such investments will help in partially offsetting the loss of revenue during the off-season -- Synagis in the second and the third quarter.

We remain excited about the growth prospects of our business.

We have a number of RFPs in-house for specialty distribution pharmacy contracts with health plans.

Additionally, we are in discussions with a number of manufacturers for biotech drugs and service agreements that may be launched through a limited distribution network.

Such opportunities position us as a formidable competitor in a highly competitive specialty pharmacy industry dominated by large PBMs and gives us an entre to cross-sell our Home Infusion business.

On the acquisition front, we are actively reviewing a number of targets.

Such targets consist of a healthy mix of (inaudible) franchises, independents and hospital-based pharmacies.

We plan to close on a transaction by the end of this month.

In addition, I am pleased to announce that we have received approvals for two new joint ventures with two large hospital systems that would help us an expanding our presence in two new desirable markets.

These opportunities have a long selling cycle, but form an excellent strategy to enter the new market.

In addition to revenue growth, we have launched initiatives to control our costs by lowering our pharmaceutical costs, distribution expenditures, as well as administrative costs, particularly from cash management and clerical functions.

I'm pleased to report that all such initiatives contributed to the success of our first-quarter results.

We are continuing to look for avenues to improve our processes and production (technical difficulty) measures.

We remain excited about the growth prospects of the business.

We are off to a good start in 2007, and would like to reaffirm our guidance for the year.

I will now turn the call over to Paul for (technical difficulty).

Paul?

Thanks, Raj, and good morning.

We are pleased with our record revenue for the first quarter of $213 million, a 37% increase from the $155 million reported in the first quarter of 2006.

This growth continues to be driven by our strong organic growth, incremental sales resulting from our acquisition activities, the successful launch of the Blue Cross/Blue Shield of Michigan contract, and strong Synagis growth.

Synagis sales totaled $40 million, or 18.9% of total revenues, for the first quarter, as compared to $27 million, or 17.5%, for the prior-year period.

Net income increased 41% for the first quarter to $6.7 million, or $0.19 per diluted share, compared to $4.8 million, or $0.14 per diluted share, for the first quarter of 2006.

The Board of Directors declared a dividend of $0.02 per share for the first quarter of 2007; the dividend is payable on June 4th of '07 to stockholders of record as of May 21st.

As discussed during our fourth-quarter conference call, beginning with this first quarter of 2007, the Company has separated reporting of Specialty Pharmacy Services' revenue into Specialty Infusion and Specialty Distribution Pharmacy Services, due to the variable growth rates and margin profile of these services.

Our Specialty Infusion Pharmacy Services include the local distribution and administration of high-cost specialty pharmaceuticals, typically infused, treating a wide range of chronic health conditions.

Our Specialty Distribution Pharmacy Services include the national distribution through our high-volume mail-order pharmacies of specialty pharmaceuticals typically injected, treating a wide range of chronic health conditions.

Our reported revenue for Home Infusion and Related Healthcare Services will remain consistent with prior periods.

Overall revenues increased 13% for Home Infusion, 56% for Specialty Infusion, and 49% for Specialty Distribution Pharmacy Services.

Same-store growth was a robust 34%, driven by the organic growth of our Specialty Distribution Pharmacy Services as a result of the Blue Cross Blue Shield of Michigan contract launched in the fourth quarter of last year.

Specialty Infusion Pharmacy Services' growth also accelerated during the first quarter up to 21% organically, driven by a wide range of therapies in our portfolio.

And Home organic growth remained steady at 8%.

Overall gross profit for the first quarter declined to 23.3%, as compared to 26.3% for the prior-year quarter, due to the shift in mix towards our Specialty Pharmacy Services, which increased to 68.9% of revenues, as compared to 61.8% for the prior-year period.

Within our service lines, Home Infusion gross profit was 44% as compared to 44.7% for the prior-year first quarter, but remained consistent with our expectations and the previous quarter ended December 31 of '06.

Specialty Infusion gross profit remained steady at 18.1% for the first quarter.

Specialty Distribution Pharmacy Services' gross profit declined to 6.8% for this first quarter as compared to 8.2% for the prior-year period, primarily due to the incremental revenues at a lower margin related to the Blue Cross Blue Shield of Michigan contract.

SG&A declined to 15.2% of revenue as compared to 18.3% in the prior-year quarter as a result of the shift in mix towards high-volume Specialty Distribution Pharmacy Services and improved operating efficiencies across all our service lines.

Our balance sheet remains very strong.

I was pleased with our operating cash flow for the quarter of $6 million, in light of the $19 million increase in revenues from the fourth quarter.

We invested $3.2 million in capital equipment and $2.3 million in acquisition-related earnout obligations during the first quarter.

For the remainder of 2007, I expect remaining earnout obligations of approximately $35 million, of which (technical difficulty) million is included as a deferred purchase price liability on our balance sheet as of the end of the first quarter.

We ended the quarter with $17 million of cash and short-term investments.

Finally, days sales outstanding for the first quarter was 55 days, a decline of 1 day as compared to the end of 2006.

As we move into the second quarter, we expect overall revenues to decline as the Synagis season comes to an end, consistent with prior years.

However, as Synagis has become a larger percentage of our revenues, we do expect a reduction of profitability for the second quarter related to lower Synagis revenues, which will be partially offset by the seasonal acceleration of Home Infusion services during Q2.

For the year, we reaffirm our expectations for revenues of $785 million to $815 million and diluted earnings per share of $0.73 to $0.78.

Now I will ask the operator to open the call to questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS) David MacDonald with SunTrust.

Good morning, guys.

A couple of questions.

Raj, first on the new business opportunities, I was wondering if you can give any more detail there, and also any more potential detail on the two new joint ventures, in terms of when those would be expected to come on, what markets they are in or is it a little too early to get into detail there?

And then I had a couple of follow-ups.

On the Managed Care front, specifically on the Specialty Pharmacy contracts, we have a number of RFPs that they are working on.

And as I alluded last conference, that we are seeing momentum of some of the health plans, some Blue Cross plans, that are going through a process of evaluating their specialty pharmacy expenditure.

And we had some visibility back then and we got the [therapies] late in the first quarter.

And I think some of them will come to decision-making, hopefully, by the end of second quarter, end of third quarter.

And, Raj --

(multiple speakers) that is all I can tell you without naming the names of --

And are those typically 1-1-08 start dates?

That is correct.

Okay.

And then just on the joint ventures, Raj?

The joint ventures, these are -- I can tell you that these are brand new markets for us and these are large health systems.

The expectation -- some of these things will [be] pretty slow.

I mean, these are probably a year in making from a decision-making standpoint.

I expect probably end of third or fourth quarter events.

Okay.

So those would again be something that would hit the P&L more in 2008.

That is correct.

Okay.

And then just a couple of questions on infusion.

As some of your new product managers gain some traction and some of those marketing programs ramp up, would you guys expect maybe a little bit of a bump in the Home Infusion margins on a go-forward basis?

And also, any detail you could give us on potential conversations with Michigan to expand the relationship into infusion.

David, this is Paul.

I would say that from a margin profile, I wouldn't expect to see a margin variance from the Home -- from the acceleration of our Home Infusion business.

I think it would really be organic growth.

That being said, however, we are very focused on looking at our portfolio of products.

And as we scale, continue to drive down our cost of goods through drug contracting with various and particularly generic manufacturers.

On the strategic relationships with our infusion business, that's a really key priority for us, in particular with Michigan, as we discussed on the last call.

We really see our positioning as a really strong alternative, as a specialty distribution provider, really to cross-sell that infusion business to really position us at the top of what is now viewed as more of an ancillary service.

And there is a significant amount of value that we can provide to these health plans, and we are actively in those discussions.

Paul, are they still using north of 20 providers on the Home Infusion side in Michigan?

That is correct.

That is correct.

Okay, and then last question.

Paul, more of a housekeeping question.

What line item, just for modeling purposes, are you guys pushing the Synagis revenues through -- Specialty Distribution or Specialty Infusion Pharmacy?

The majority of our Synagis revenues are actually distributed through our Local Pharmacies.

And even though it is injected product, often we do send out a nurse to administer the injections to these babies' homes or administer in one of our treatment centers.

But we have revenues in both of our Specialty Infusion as well as Specialty Distribution.

Okay.

Thanks, guys.

Nice quarter.

John Ransom with Raymond James & Associates.

I guess this one is for Paul.

Sequentially on your balance sheet, you had about a $30 million increase in goodwill and a $30 million increase for the earnout, which you've touched on briefly.

Could you give us some more color on that, please?

Sure.

We did a handful of transactions the last two years, of which some of those had a one-year earnout potential, and a handful had two years.

Based on what we are currently seeing in terms of the performance of those acquisitions, which has been very positive, we have a short-term obligation of approximately $30 million for a couple of [trans].

And in terms of what is remaining out there with our agreements, I would expect no more than an incremental $5 million on top of that.

Was this $30 million -- I'm just never seen that kind of jump before.

Was this unexpected?

It was much larger than we expected, I think.

This is a large transaction that we completed --

Which transaction was this?

Was it mostly one or which one was it?

Well, there's two transactions, but we did a large transaction in New York that has performed extremely well.

We are very pleased with how it has done.

So, if you factor in the earnout payment plus your initial consideration, what kind of range of EBITDA are we talking about in terms of purchase multiples?

It will be in the six to seven times range.

Is that what you initially contemplated?

That is correct.

Okay.

My second question is was -- I mean, obviously the Blue Cross contract inflated your revenues and deflated your gross margin.

Was it accretive, dilutive or neutral in the quarter?

It was accretive.

And was it ahead of your expectations or was it in line with your expectations?

Absolutely in line with our expectations.

Okay.

And then lastly, you touched on acquisitions.

Could you just update us on your [franchisee] opportunity, how many you have bought over the past two years and how many are in the pipeline, and what the remaining opportunity there is?

John, in the past few years we've bought over 10 franchise locations, and those are significant franchisees in terms of size.

And there are probably about a handful left now.

And we should be -- we are in active discussions with all those franchises that we want to acquire.

I would think by early next year we would finish buying some of those locations.

Raj, what kind of revenues does that represent potentially?

Combined?

Yes.

Combined, could be in the range of $30 million to $40 million.

30 to 40 million.

Okay.

When you get that done, does this substantially -- I'm know in the past you've had some noncompete issues with your franchisees.

Does this substantially take care of that problem?

Well, when you say [noncompete], if you have a franchise agreement in a given market, obviously we can't compete with the franchise during the term of the franchise agreement.

Right.

And once you buy the business, then that mitigates the issue.

Right.

Does that answer your question --?

I mean, that gives you -- is that something we need to think about -- you'll have more flexibility vis-a-vis noncompete?

That's true; it does, because the we can expand the services (technical difficulty) and the timeframe that we want to do things.

John, many of our franchises, too, are in very secondary and tertiary markets as well.

Right.

Okay, thank you.

Arthur Henderson with Jefferies & Company.

Raj, good morning.

You mentioned that you had an acquisition that you were probably going to announce by the end of the month, did I hear that correctly?

That is correct.

Is that a franchise location?

Yes.

Okay, it is a franchise.

And where is most of your acquisition effort focused these days?

Is it more on Home Infusion or Specialty Pharmacy?

Predominantly Home Infusion.

More Infusion, okay.

When we make an acquisition, Art, it typically is of a local pharmacy.

And however what we pick up is primarily Home Infusion revenues, but we also end up picking up what we are now categorizing as Specialty Infusion, depending on the size of the business and their exposure there.

Or they are pushed into more of these specialty products; it could be anywhere from -- I usually say up to 25% of revenues are more Specialty Infusion.

But again, it depends on the business.

We've done some that have a fairly large mix of Specialty Infusion and some that are primarily just our traditional Home Infusion.

Okay, thanks for the color on that.

And then one other question.

What sort of therapies are you guys looking at now that you may not be in as much as you'd like in terms of the Specialty Infusion side or the Specialty Pharmacy side?

Could you repeat that question, Arthur?

Well, I was just curious if there are any therapies, any drug products that you are interested in moving into in a bigger way that maybe you are not in as much right now.

Is there anything that is emerging that is really attractive to you?

Not really.

Our key focus has been (technical difficulty) -- and as I've mentioned before, from therapies like hemophilia, more chronically infusible therapies that require a higher level of patient interaction via using use of a nurse and more clinical compliance at a local level.

Those fit pretty well with our model.

So those are the kind of therapies that we are -- I would say more infusible therapies that are used to treat chronically ill patients.

Are there any drugs coming out of the FDA pipeline anytime soon that would fit in that category that you like?

There are a few drugs that are going to be IV-administered, and they are working in the areas of oncology or cancer, that would be of great interest.

All right.

Thanks, Raj.

Brooks O'Neil, Dougherty & Company.

Good morning, gentlemen.

This is Deepak Chaulagai calling in for Brooks O'Neil.

I have a couple of questions here.

Can you provide some color on why the Home Infusion revenue decreased from fourth quarter of '06?

Sure.

We do some seasonality in our Home Infusion business, where it typically is softer in the first and third quarters, and we see the organic growth really happen in the second quarter and then in particular in the fourth quarter, with targeted marketing initiatives around really home-for-the-holidays kinds of programs.

So it's consistent with the overall trend that we see within our infusion business.

Thanks, that is very helpful.

Any information you could provide on any new specialty drug in the pipeline and any preferred manufacturer relationships?

We are in discussions with a number of manufacturer's reps; that is part of our strategic objective.

And I can't give you the exact drugs or manufacturers that we are in conversations with.

But we've got a handful right now that we expect to get hopefully by the middle of this year.

By the middle of this year.

Okay, that is great.

So the BC/BS Michigan implementation going well?

Yes, it has.

Subsequent to that, I'm looking here, and obviously somebody else mentioned to that it was impactful on the revenue side.

However, the gross margin on the Specialty Distribution side slipped down to 6.8% from 8.2%.

Do you see that impact going forward or what would be your outlook as far as gross margin on the Specialty Distribution side going forward?

As I highlighted during our fourth quarter call, as I talked about our expectations for 2007, I guided to a gross margin within our Specialty Distribution line of around 6%.

It is in line with our expectations.

That's great.

Also, the industry, if you look at big [DVMs] like a Medco, they are in close proximity -- they are much bigger in size and scale than us, but their margins are -- our margins are pretty close to what their margins are.

Great.

Any interest in competitive acquisition at this time?

Competitive acquisition?

Yes.

The Medicare program where you provide drugs directly.

Are you talking about the Gap program?

Yes.

We were not part of the Gap program; there is only one company that is providing that right now.

Okay.

And there is no discussion to participate in that in the near --?

Not at the moment, no.

Okay.

And one last question.

So obviously, your balance sheet looks pretty good.

So you think you have enough capital to execute business and acquisition of your franchises or any other acquisition at this time?

Yes, we have a very good internal cash flow, and we project the cash flow to increase in the second quarter, especially coming off from the Synagis season.

So, we have, obviously, the position -- our cash position will help us to do these acquisitions on our own at this point.

Thanks, guys.

Great quarter.

Ricky Goldwasser with UBS.

Good morning.

I have some follow-up questions.

First of all, you mentioned before the $30 million earnout, I think you had about a little bit less than $20 million in cash on the balance sheet.

And as far as I remember, the revolver is about $40 million.

With the potential additional acquisition in the pipeline, are you factoring in the guidance, in your own projections, additional debt and higher then interest expense?

Ricky, in terms of our guidance, we didn't assume any acquisitions; we did assume estimates for earnout obligations and the resulting cash balances to that.

I'd say looking at where we are today, as Raj mentioned a moment ago, we are sitting at just under $20 million of cash.

We are moving into really the strong cash flow part of our year, as the Synagis season comes off and really a lot of AR comes off the balance sheet and turns into cash.

So I wouldn't -- without any acquisitions, I don't see us being in a borrowing position.

Okay.

And as far as -- really onto Synagis, what do you expect the Synagis impact is going to be on margin in the second quarter?

And, you know, CVS/Caremark talked a little bit about Synagis today on their conference call.

Are you seeing any changes in the marketplace with them being back in the network, either in terms of customers' behavior or pricing?

In terms of margin, as I mentioned earlier, the majority of our Synagis revenues do fall into our Specialty Infusion revenue line.

So that is where you will see it on a sequential basis, you'll see a significant drop in net revenue line.

I've guided to the year for margin within that revenue line of 19% to 20%.

But the seasonality in the first quarter is what brings that margin down, due to the lower margins associated with Synagis.

So you'll see those margins pick up in the second and third quarter, and then come back down as the Synagis season ramps again in the fourth quarter.

Again, depends on mix also, within those productlines, but that is generally in terms of what my expectations are.

In terms of the markets, Raj --

Ricky, it is our intent and its MedImmune's intent to work on a new agreement for the next season.

So we are in discussions with them at this moment.

Okay.

And you think for next season the network could be narrowed again?

I haven't heard anything in that respect.

But I know for sure that we have solidified our position as a big Synagis provider for MedImmune.

And we will hopefully continue that relationship in the future.

Ricky, MedImmune went through, really, I would say, standardizing its distribution agreement across of all the different market participants last year.

And really we've done very well in growing that productline, which they recognize.

We are now the largest providers for MedImmune for this product.

We provide somewhat of an innovative approach to delivering the product in that a lot of our care is hands-on.

And that has led to a really good relationship with MedImmune, that we have no reason to think wouldn't continue on a long-term basis.

Okay.

And as far as the new segment information, when are you intending on filing an 8-K with the data for '06 showing the new segments?

We will be actually updating each quarter with our filing of the Q, Ricky.

It's not a segment; we're really just breaking out another service line.

Okay.

And then just finally, I'm not sure if you touched upon it, but what is the organic growth, excluding the Blue Cross Blue Shield contract?

Actually, we were close to 15% organically within our Specialty Distribution line.

We did have a significant amount of above [Blue Cross] revenue historically that are now part of the contract.

So if you strip out all of the -related revenues, we had very healthy organic growth within our distribution segment.

Okay.

Thank you.

Melissa Mullikin with Piper Jaffray.

Good morning.

Can you Tell us how much Blue Cross Blue Shield Michigan contributed to revenues in Q1?

It was about 10%.

So about 10% of total revenues?

Total revenues.

10%.

It looks to me that revenue was, obviously, very robust in the first quarter.

And to keep within your guided range of up to $815 million, we have to see for the balance of the year a deceleration in the year-over-year growth rate each quarter.

Is that the right way to look at this, or is there opportunity to exceed the high end of your revenue guidance?

I think you've got to look at Synagis in particular; you know we had $40 million of Synagis in the first quarter.

So I think that is one of the -- in terms of the seasonality of that product, you really have to model the business without Synagis and then layer on the expectations on Synagis.

Year-over-year we have expected Synagis -- we have guided to about a 15% to 20% growth from the $62 million of sales that we had in 2006.

So as of right now, as I have reaffirmed the guidance, we are very comfortable with our stated range of $785 million to $815 million.

Okay, so Synagis was $40 million in this quarter and it was $25 million in Q4.

So, given the timing of the flu season and given the timing of weather through Q4 and Q1, some of that Q4 Synagis revenue was pushed into Q1, and so it was a little bit higher than you would have expected?

No.

the way the season ramps, the season starts in October -- actually late October; for the most part now, we see most of our dispensing start in November.

Then the season ends fairly quickly in April.

So if you look at our historical -- we actually break down and disclose our quarterly Synagis revenues in our Ks and Qs -- you can see that the largest revenue totals will be in the first quarter because you've got your three full months of dispensing.

In the second quarter, we tend to see about -- roughly about a quarter of our first-quarter sales remain in the second quarter, as the season tails off.

Next to nothing in the third quarter.

And then starts ramping up again come November.

So you have a couple of months in the fourth quarter of the next season.

Okay, so you don't think Q1 was unnaturally affected by seasonality or anything?

That would have been what you would have expected in Q1?

It was affected by the expected seasonality of Synagis.

So the ramp from Q4 to Q1, from $25 million to $40 million, would have been expected?

That is right.

Okay.

If you look back historically at our previous Q4 to Q1s, you'll see similar trends.

Got you.

Okay.

Thanks, guys.

(OPERATOR INSTRUCTIONS) Constantine Davides with [SFG].

Thanks.

Raj or Paul, just a follow-up on today's question on the Managed Care opportunities.

Are we looking at exclusive relationships along the lines of the Michigan contract, or would this be something similar to Excellus?

It could be -- Constantine, it could be a combination of exclusive and/or semi-exclusive agreements.

So we don't know where those plans are heading, but there is good opportunity there for us to get into their distribution network, either with a semi-inclusive or an exclusive.

Okay, okay.

And then a lot of headlines around the anemia class.

Can you maybe just comment on that and give us an idea of what your exposure is there?

We do provide the anemia drugs, specifically in the physician offices, as a drug replacement.

If you are alluding to Amgen --

Are you talking about specifically the dialysis-related issues?

The Amgen issue.

I don't really see it as -- keep in mind it runs through our Specialty Distribution business.

So any changes there may not have a significant impact to our business in terms of margins and profitability.

What percent of revenues do you think that is?

No, I don't have that number with me.

We could follow up with you with that.

But I don't exactly what number is for the Aranesp or the Epogen.

Okay.

I will take it off-line.

Thanks.

Geraldine (inaudible) of LaSalle Bank.

Good morning, Paul.

This is Gerry.

I have a quick question for you.

You touched on that you're looking for additional operating efficiencies across all of your service lines.

Can you add a little more color as to where you are targeting some of these efficiencies to come from?

Hi, Gerry.

We continue to really focus on, first, our procurement cost of drugs.

That is our largest single expenditure, and as we continue to scale the business within all of our product lines.

To the extent we are able to negotiate directly with a manufacturer on a generic, for example, we continue to work those agreements very hard, as well as with our wholesaler.

With more single-source branded drugs, which are difficult to get pricing discounts on, we are actually trying to work more innovative ways of providing value-added services to drive incremental value with the increased exposure we have on many of these products -- for example, Enbrel.

So from a cost -- from a purchasing standpoint of drugs, it is a big priority for us as well.

We also have been focused on standardizing our business practices on areas that we can more directly control -- standardizing medical supplies; asset management, which we launched last year, to continue to drive really the blocking and tackling at the direct level of what impacts us from a cost standpoint.

So those are the prime areas.

But we really we try -- we have a team that is focusing on looking at every line item.

In terms of rent, we have auditing that is being done of all of our leased facilities.

We have aggressively launched telecom auditing services, and we are seeing some savings there.

We have to save money every day to continue to increase our competitive position.

Great.

Thank you very much.

Mitra Ramgopal with Sidoti & Company.

Good morning, guys.

Just a couple of questions.

The SG&A really declined almost 300 basis points, and I think you attributed that to the mix shift and just improved efficiencies.

I don't know if you could give us a little more color as to how much of it was really due to the Specialty Distribution Pharmacy versus the efficiencies.

As with the seasonality of (inaudible) Synagis and also the launch of the Blue Cross business, which really doesn't increase our SG&A substantially, we are going to see leverage there, as I have guided to.

In fact, I have guided to total operating expenses for 2007 of between 18% and 19%.

If you look at our trend from the fourth quarter, you do see it pick up, and that is related to some of the investments -- roughly about $1 million -- or the (inaudible) at roughly about $700,000, which relates to the investments we talked about last year that we have been making around our sales, and Raj talked around our sales initiatives.

So we will see that as a percentage of revenue.

Again, as revenue comes down and Synagis comes off, you will see that pick up.

But we expect to be in line with our expectations for total operating expenses of around 18% to 19%.

Okay.

And I noticed the tax rate picked up a little this quarter.

Is that a rate we should use going forward?

Yes, you know, I have guided to around 39%; I think we are actually going to be at the upper end of 39%.

I think we're at 39.9% for the first quarter.

Again, some of that is we are seeing some profitability in some higher-tax states; that is impacting our tax provision.

But I would keep it steady at about 39.9.

Okay, thanks.

Sure.

(OPERATOR INSTRUCTIONS) There are no additional questions at this time.

I would now like to turn the call back over to management for closing remarks.

Thank you.

I would like to thank you for joining our call, and we look forward in speaking to you pretty soon on our next conference call.

Thank you again.

Thank you for joining in today's conference.

You may now disconnect.

Good day.