Cardinal Health, Inc. Presents at Goldman Sachs 34th Annual Global Healthcare Conference, Jun-11-2013 08:40 AM

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 |  About: Cardinal Health Inc. (CAH)
by: SA Transcripts

Cardinal Health Inc. (NYSE:CAH)

June 11, 2013 11:40 am ET

Executives

Jeffrey W. Henderson - Chief Financial Officer

Analysts

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Everyone to the Cardinal Health session. I'm Bob Jones, I cover the Healthcare Supply Chain and Technology sector here at the Goldman Sachs. Before we get started, we are required to make certain disclosures in public appearance about Goldman Sachs' relationship with companies that we discuss. The disclosures relate to investment banking relationships compensation received or 1% or more ownership. I'm prepared to read these disclosures for any issue now or at the end of this presentation if anyone would like me to. However, these disclosures are available in our most recent reports available to you as clients on our firm portal.

So with that, I'd like to welcome Jeff Henderson, Cardinal's CFO. Also, main responsibility's for running the subsidiary in China. Jeff's been with Cardinal since 2005. So long track record, lots of experience that he brings to the stage here today. The format, as you're aware, is interactive as we can make it. So to the extent that you have questions, please feel free to raise your hand and we'll be sure to get you a microphone.

Question-and-Answer Session

Robert P. Jones - Goldman Sachs Group Inc., Research Division

But Jeff, with that I thought we would just jump right in. I think, the big topic on everyone's mind today is the shape of Cardinal coming out of this repricing cycle, if you will, that we just went through with some of the really large public retailers deciding either to stay with Cardinal or go away from Cardinal. I was wondering, if maybe, just from a high level, it will be worthwhile for you to start off with just some observations as you sit here today given some of the major moves that have happened on the client-side over the last 12 to 18 months.

Jeffrey W. Henderson

Sure. Good morning, everyone, and thanks, Bob. Yes, it's been an interesting time the last year or so. There was a lot of noise about our contract renewals, to say the least, in part because we've had 2 very large renewals, our CVS and Walgreens contract coming up at about the same time. And I would say, with the exceptions of the Walgreens renewal, things pretty much preceded as we would normally expect doing a big contract renewal. The Walgreens contract was an exception, there was a lot of noise in the market around that, there were rumors that Walgreens was looking to go direct. Ultimately, they didn't, which I think is a strong validation of the distributor model in the U.S. And as I think everyone knows at this point, they chose to go a different strategic direction with ABC. And quite frankly, that's not something that we could have participated in given our other customer relationships. Obviously, losing a large customer is not something anyone hopes for. But if we could have continued a normal commercial relationship with Walgreens, we would have been happy to do so. Ultimately, they made their decision, we made ours. And as we stand here today, I actually feel very good about where we're positioned. We did renew the CVS contract, our relationship with CVS is strong, very strong and I look forward to continuing that going forward. So yes, there was a lot of noise about it. In the midst of all that, we also announced our AssuraMed acquisition, which I think is going to be very, very important to the future of Cardinal Health, it really continues us on our path of diversifying our customer base and expanding our margins, which is something we've been targeting for 3 to 4 years now. So all in all, I feel pretty good about where we sit.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

I think one of the big topics that came out of the 10-year agreement with AmeriSource and Walgreens and Alliance Boots is this idea of forming a global purchasing platform, this joint venture that the 3 companies will participate in at different levels. Can you maybe just share your experience with -- first of all, what you think this means to the marketplace, having a single large entity, the largest entity purchasing generics in some combined fashion. And then maybe, what Cardinal's experiences have been, if any, in the past, around trying to pursue these types of ventures?

Jeffrey W. Henderson

Sure. So it's probably not my place to comment on the specific arrangement that they formed other than to say, it's not entirely clear how it will work across the globe, it's a relatively complex arrangement and ultimately, how they derive value from that remains to be seen. As I look at it from our perspective, we are one of the largest purchasers of generics in the U.S. The fact that we lost Walgreens really doesn't impact that because the vast majority of the generics that we're delivering to Walgreens stores are actually purchased under their contracts, not ours. So, really, the loss of that business doesn't have any material impact on our U.S. purchasing scale, which is really what's important to us. So ultimately, the U.S. market is the most important generics market in the world being a buyer of scale is very important given the fact that we can shift share for the generic manufacturers. But I would put our abilities in generics purchasing up against just about anyone's at this point. And I have no reservations about our ability to continue to buy at the world-class pricing levels going forward.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

I guess one of the questions that came out of this as well, I know it seems like there's a lot that's going to play out before we can truly assess what this means to the marketplace, this joint venture. But what would you have to see in the marketplace to motivate you as an organization, to react to this large purchasing group? What types of specific things did you have to see transpire?

Jeffrey W. Henderson

I'm not sure we're looking to react to anything. I think we will continue to look at ways that we can continue to add the most value to our customers and ensure that we are getting our fair share of profitability going forward. We think, given our current structure, we very much have the ability to do that and compete effectively right now. But we're continually assessing our competitiveness and our ability to buy at scale at a competitive fashion. And if there are future partnerships or arrangements that might make sense to help enhance that ability, we won't shy away from looking at them, but we're not looking to do anything immediately.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

There is some concern that this arrangement could upset some of the retail independent base that currently are customers of AmeriSource. Do you see any opportunity in the marketplace for there to be some share shifts as a result of this new arrangement?

Jeffrey W. Henderson

Our job is to take advantage of any disruptions in the market. And to the extent this does cause any consternation, on behalf of retail independent customers or any other customers in the market, our job is to take advantage of that. And clearly, our sales and marketing folks will be looking for opportunities to take share like they always are. And if this provides an added opportunity and incentive to do that, we'll clearly take advantage of it, and in certain cases, we already have. So, again, its part of our job to make sure whenever there's uncertainty or disruption in the market that we try to position ourselves to be the beneficiaries of that. And in this case, we'll definitely make sure that happens.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Do you ever think about the loss of Walgreens? And obviously, going back a little bit further with the Express-Medco merger and that contract going away from Cardinal as well. Quite a bit of volume coming out of the company. I was wondering if you could maybe just talk a little bit about the potential impact to the P&L of having that much less volume flowing through the Cardinal system? And then on the flip side, maybe, a little bit about the working capital that, that actually frees up and gives you a little bit more flexibility?

Jeffrey W. Henderson

Yes. Ultimately, our business is not about the revenue per se. Revenue can be very misleading in a business. And in fact, some of the things that are best for gross profit dollars, are dilutive to revenue and generic pharmaceuticals are a classic example. They sell at a fraction of the branded price when a branded product goes generic, yet we generally make a lot more money distributing generics, particularly in the early launch period compared to a brand. So when we look at our business, we're most focused on gross profit dollars. And when we do our internal ratios, look at expenses, et cetera, it's generally done as a percent of GP, again because that's probably a better proxy for revenue for us than the revenue line itself. But to answer your question about the impact, the loss of Express Scripts, a lot of revenue but it was a very, very low margin bulk account. And from a year-on-year basis, has relatively minimal impact on our earnings trajectory. In the case of Walgreens, we roughly tried to size that for the street when we talked about the loss, I probably won't go into any more details here. Obviously, the revenue impact is probably disproportionate to the earnings impact. But earnings impact is not insignificant as you look at going into FY '14 versus '13. Now, fortunately, one of the offsets to that is the fact that it does free up a fair amount of capital. We did size the sort of up -- incremental operating cash flow next year at over $500 million as a result of the Walgreens unwind and that's with the net of 3 factors. Its the positive impact of the net working capital but no longer has to be invested, partially offset by the loss of after-tax earnings and a onetime LIFO cash tax impact that we'll realize next year as a lot of that branded volume goes away. But even net of those 2 negatives, it does free up a lot of capital and gives us some flexibility to reinvest or return that capital next year.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

One of the things that you did recently, invest on, you mentioned, your prepared remarks was AssuraMed and its clearly a space, the home health care space that Cardinal seems very excited about, I was wondering if maybe you could just talk about the thought process behind that acquisition and then maybe, some of the opportunities you see by now having a broader footprint within that channel?

Jeffrey W. Henderson

Yes. Now, I'm incredibly excited about that acquisition. In fact, I think a couple of years from now, I'll look back it was one of the most important acquisitions that Cardinal has ever made. As we analyze that, and we spent a lot of time analyzing it, it's a very attractive, high growing market, probably one of the fastest-growing channels in health care for the next 5 to 10 years. It was a distribution business at its core so its close to home and we do particularly well with acquisitions that start with the supply chain and then build out from there. Culturally, very familiar to us, the headquarters of AssuraMed was just 2 hours north outside of Cleveland. Its a market we got to understand very well. It's a very fragmented market, which is good, both from a customer base, as well as the from a competition standpoint, which means there'll be plenty of opportunity in the future to consolidate and roll up and those sorts of situations, market leaders like AssuraMed is really can do very, very well. And we also saw an opportunity to generate some significant synergies. Starting with the cost side, including putting some of AssuraMed's products on our sourcing contracts, pushing our private label products through the channel and selling this as an additional service to many of our customers. For example, our retail independent pharmacy customers are looking for new services they can provide to their patients. And if you think about -- I'll just use as an example, when a diabetic comes into a retail independent pharmacy, I mean, they know exactly who they are, right? Because they're picking up their insulin every month or every 3 months. And as we all know, diabetics have needs for many, many other medical supplies whether it be wound treatment or diabetes strips, et cetera. It's very difficult now for many of those retail independent pharmacies to meet those needs of the patients because they can't carry all those SKUs, the limited space they have and they don't have home delivery capabilities or warehouse to carry those SKUs in many cases. We actually have an opportunity to sell this service to these retail independent pharmacies and fulfill the needs of their patients on their behalf. So it really is a significant value-added service that we can provide the retail independent customers, both existing and new. And then we can both share in the profitability from that. So it's off to a great start. We've owned it now, I guess, about 12 weeks. I would say so far, synergy captures ahead of schedule and all of the opportunities that we saw in the future for this platform are probably more real and exciting now than they were then. And we're going to continue to explore what products and services that ultimately we can add to this channel in the future. So it's going to be a lot of fun.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

And just to be clear, I mean, obviously, it seems there's a lot of opportunities that could come out of this acquisition of having a deeper footprint in the home care space. Specifically as it relates to the $50 million by fiscal '16, I believe, is what you have outlined, what's in that synergy number relative to selling more to the retail pharmacy, maybe having more of the connection from the hospital, as the patient moves from the hospital to the home. What specifically is actually in the synergy numbers that you have laid out?

Jeffrey W. Henderson

Yes. So probably in order of capture. The most immediate synergies actually are some of the operational synergies that arose from the acquisition that AssuraMed did of a company called Invacare Supply Group, just prior to our acquisition. It was sort of, our peer in the home health distribution space and a lot of those synergies are the sort of the classic distribution synergies, closing certain warehouses and combining sourcing contracts. Those are well underway and those are the most immediate. The second tranche in terms of chronological order of delivery are probably some of the sourcing benefits. Taking the AssuraMed products that are going through their channel, combining them with our sourcing efforts and there's this huge product overlap between the 2, many of the products that go to the home also go to physicians' offices and go to long-term care facilities and go to hospitals. So there is a big opportunity to combine volumes and that processes happen again as we speak and we'll begin to see those benefits heading into next year. And I'd say, the third area are some of the revenue synergies that I alluded to related to selling to retail independent pharmacies. And we're gearing up to go out to our customers. And in fact, we have our very large retail business conference coming up in the summer, beginning of August where we will sort of launch this service to our thousands of customers who will show up for that conference. And just to give you an idea of that customer base, we currently serve about 7,800 retail independent customers in the U.S. and I would view all of those as potential candidates for this service. So that's sort of the -- in terms of the synergy capture of the order that we're looking at. Some of the -- well, the one you alluded to in terms of selling the service to hospitals or using our hospital customer base to get referrals or to offer an integrated package to hospitals, they really weren't captured in the original business model. We knew they are real but it was difficult to quantify it. But that doesn't mean that we're not going after it. We already had some hospitals come to us and say, "We've been looking for someone, a reputable company, that we can refer our patients to when they're being discharged." And given our huge hospital relationships, its sort of a natural combination there that, again, we'll make sure our hospital sales force is poised to take advantage of.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Actually, we got a question in the front here. Mic is on its way down.

Unknown Attendee

Yes, Jeff, just wondering your AssuraMed deal. Obviously, that was paid with a lot of debt. What is your timeline in terms of paying down that debt to get it more into the ratio that you guys like in terms of your debt to earnings numbers?

Jeffrey W. Henderson

Yes. Well, we're actually pretty comfortable with the leverage level that we're left with as a result of the transaction. We have $300 million of debt coming due this June, which actually relates to a bond issuance from sometime ago. We're actually paid on that $300 million. Beyond that, no specific plans to reduce our leverage level. Again, I think it's a fairly comfortable level for us right now. So I don't view that as being a significant use of capital for the coming years.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

How fragmented is the home health care space today?

Jeffrey W. Henderson

For me -- you're talking about from a competitive standpoint?

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Yes.

Jeffrey W. Henderson

As we define the market, I mean, there's various ways to define the home health care market and whether you include services or larger capital equipment like beds, et cetera. The market as we define it, which is the subset of that, is about $16 billion currently and growing at somewhere between 7% to 8% a year. The AssuraMed, at the time we bought, it was about a $1 billion company and the market leader. So it gives you an idea, the market leader's got about 7% share and beyond that, it's very fragmented. There are literally thousands of players out there that share the other 93% of the market. A lot of regional, smaller players spread throughout the country. And if history is any indication of what happens in at least health care distribution markets, which are the ones I'm familiar with, over time, those markets consolidated, right? And the larger players are able to take advantage of scale and pay your contracts and referral sources to really begin to consolidate the market. So I would expect that to occur here as well.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

One of the things you helped size, first, Walgreens was kind of what the fiscal '14 would look like. And most recently, you said, you thought that we could be towards the upper end of that $3.42 to $3.50 range, I was just wondering if maybe you could talk a little bit about the pushes and pulls around that range? And then just for clarity, if you could remind us, if not specifically, kind of conceptually, what's factored in as far as buyback into that number?

Jeffrey W. Henderson

A good question. So since we're being webcast today, I'll actually be a little bit more specific about that. So during our Q3 call, what we said that we were targeting -- we're very early in our planning process at that point but we said we are targeting in FY '14, EPS range towards the upper end of the $3.42 to $3.50 range that we have provided immediately after the Walgreens' nonrenewal was announced. We are largely through our planning process at this point and although we'll give a lot more specifics during our Q4 call in August, I can't reaffirm that we're comfortable targeting the upper end of that $3.42 to $3.50 range. Now for context, as you compare that to our FY '13, which will end in June, the latest guidance that we gave for FY '13 was of the $3.67 to $3.81. That included though $0.18 of a onetime tax benefit that we've realized in Q3 of this year. So if you back that out, the sort of comparable number for FY '13 is $3.49 to $3.53. So again FY '13 of $3.49 to $3.53 versus a target range of the upper end of the $3.42 to $3.50. Cut through all those numbers and that shows that we're targeting a flattish EPS number at FY '14 versus FY '13, which given the fact that we lost one of our largest customers, I'm actually quite proud of it. I think it shows the strength and the breadth of our portfolio that we can withstand, a relatively significant shot like that and still deliver a flattish or at least target to deliver flattish earnings growth. So the puts and takes in that number going into next year, obviously, Walgreens is a significant headwind. From a tailwind perspective, I do expect that our overall generics portfolio will continue to grow in size and profitability despite the fact that the contribution from new generic launches next year might be less than this year. I expect our specialty business will continue to grow in revenue and profits. I expect our China business to continue the trajectory it's been on and grow heading into next year. On the medical side of things, I expect very strong performance from our medical segment next year, which is a combination of the contribution from the AssuraMed platform, as well as continued growth in our private label portfolio. Other headwinds, commodity prices, which primarily affect our med-surg segment are expected to be a slight headwind as we look forward right now but we're probably talking 10-ish million nothing huge in the scheme of things. But our nuclear business, potentially a headwind but we're still waiting to see how that market shapes up. From a capital standpoint, I'll reaffirm what I said previously that implicit in that guidance for next year is the assumption that we'll buy back at least 250 million of shares.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

So kind of a typical buyback year.

Jeffrey W. Henderson

Yes.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Okay. One of your large competitors on their forward years guidance kind of surprised folks on the upside with revenues, specifically as it related to branded drug spend. Can you maybe just weigh in on what the phenomenon is there? And is that something that you're anticipating as well for Cardinal in your fiscal '14?

Jeffrey W. Henderson

Yes, well, obviously, our revenue numbers are going to be skewed by the fact that we lost Walgreens and still have 3 months of the impact of the Express Scripts loss. And those disproportionately impact branded revenues. But sort of cutting through that and looking at the underlying market, first of all, script growth in the last 6 months has been relatively robust particularly when you compare it to the med-surg side of things where utilization, particularly procedures, have been relatively flattish or even negative. Script growth has been strong and could be lots of reasons for that. But we believe that this reflects the system's collective view of pharmaceuticals that they are one of the most efficient forms of health care delivery in this country, particularly now that 79%, 80% of the scripts that are written are generics. There is a fairly strong case to be made both clinically and economically for the continuing growth of our pharmaceuticals. So yes, so script growth, we can continue to expect to see relatively strong. And then from a branded inflation perspective, we've seen a strong brand inflation now for quite a few years on the high single-digit, even low double-digit. And really have no reason to believe that trend will change heading into next year. So you combine those together, and you strip out the fact that we had some large customer losses and I think reasonable brand growth is probably done on a reasonable expectation.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

With the time we have left, I want to touch on a few other businesses, specialty is obviously considered a growth area within the supply chain. Cardinal made a big bet on the payer side back in 2010, I was wondering if maybe you could give us a progress report on how this move is going relative to your expectations? And then as you sit here today, how is Cardinal positioned to this channel as it grows in the years to come?

Jeffrey W. Henderson

Yes. We knew entering the market in the summer of 2010, I guess it was now, that we were late to the game. It was a strategic miss in our part. We needed to get a much more significant presence in the specialty given the pipeline of pharmaceuticals coming down the road for the next 10 or 15 years and the potential for biosimilars in the U.S. But better late than never. So we did make an investment. And we knew coming in late -- that as of sort of the prospect of being #3 in the market that we need to have a more innovative approach. So we bet on a company that provided services to manufacturers, providers and perhaps most uniquely to payers through their clinical pathways programs that really bring that payers together with their providers and began to change the model for how scripts are written and the docs are reimbursed in the country. And we're very proud of the progress that we have made in that regard and if you look at it, the market has sort of moved towards that. The previous model sort of a buy-and-bill ASP plus 6 has definitely changed. And I think most people expected it would change. So some of the models that we have brought to the market actually helped that transition in a somewhat seamless way. So, yes, we've made good progress. Our specialty business continues to grow, grew 60% last quarter. That all said, I wish we are bigger at this point. We probably haven't grown as quickly as I would have liked. We probably underestimated the time it would take to start from a relatively small position. I do think we have critical mass at this point. I do think we've been in the right places. And we've also seen an interesting phenomenon where the community oncology space that appears to be shrinking somewhat and a lot of that, a lot of those services that were previously performed in the community oncology space seemed to be moving back to the hospital, which is a traditional area of strength for us. So the market does appear to be moving towards us somewhat. That all said, we need to continue to get stronger from a capability standpoint in the specialty area. We will continue to invest both organically. And if the opportunities arise inorganically to build those capabilities. Because if no doubt, if you want to be a pharmaceutical health services company in the next 10 years, you can be a player in specialty and we will be.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Oh, sorry, in the back.

Unknown Attendee

Jeff, just a question in terms of the right margin in the distribution business, the pharmaceutical distribution. Are you assuming that the margin, because of your comment on generics, does that go up next year as you look in fiscal '14 excluding any mix effort from Walgreens?

Jeffrey W. Henderson

Yes. I'm not going to get too specific, I'll save some of my specific guidance comments for our August call. But virtually, everything that's happening, not only in our pharmaceutical business but in our entire business, is sort of geared towards increasing margins, whether it be the focus on generics and retail independence, the growth of China, the growth of our private label portfolio, the med-surg, AssuraMed are some of the things that we don't necessarily control like the continued move towards generics in the environment and the loss of Walgreens, I mean, all those things point towards margin expansion. So again, without being to specific, we're definitely in all of our efforts targeting that.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Another question. Upfront here.

Unknown Attendee

Jeff, your comments on whole of market were pretty positive. I was just wondering if you have any views more broadly on assisted living or long-term care? And then secondly, you've done a pretty good job in private label in the medical side. Is there any desire to maybe expand private label on the drug side?

Jeffrey W. Henderson

Yes. 2 great questions, so thank you. So first of all, I believe all the incentives going forward, including the Affordable Care Act continues to rollout, we'll be very much geared towards moving care towards the most efficient setting. And the most efficient settings for a lot of conditions are clearly outside of the hospital. And we've seen a huge move towards the minute clinics of the world, for example, a very efficient way of delivering basic services, the home, perhaps, the most efficient place of delivering care, particularly as technology continues to improve, we'll benefit from that. I also think long-term care facilities and skilled nursing facilities will benefit. And -- but like everything, we need to make sure that the incentives are right, right? That we are truly creating incentives where the appropriate care is delivered in the most cost-effective setting. And that doesn't necessarily always been the case. But we need to get that right because I think that's going to be one of the most important factors, and I'm talking about as a society right now to making sure that health care costs don't spiral out of control. The other question was about private label on the med-surg side. It's absolutely critical party for us. Our new leader in the med-surg segment, I shouldn't say new anymore, he has been there for a year, but Don Casey, is very focused on that strategic initiative. We will expand very significantly, the product categories that we private label. Currently, private label makes up about 23% of our revenue in the mid-30s in terms of gross margin within the micro segment. I honestly believed that we're just scratching the surface in terms of the potential there though. There are very -- there are a significant number of product categories that are very right for privately labeling. Great example of this, we run a pilot program about 9 months ago in the orthopedic trauma space and these are the screws and plates that go into legs when you fracture it and have it repaired in the emergency room or any arthropods operating room. 3 years ago, it would've been very difficult to sell this product line up to the hospitals. 9 months ago, we launched it and went to our hospital customers and the demand was outstanding. It provides a very, very significant cost savings for the hospital and a very significant margin opportunity for us. And really it proved to us that we think we've reached the tipping point in terms of our customer's receptivity to a much broader range of private label products. So yes, we will go after areas like ortho and some other higher tech areas that previously haven't been touched. And quite frankly, if we don't do it, someone is going to do it. And I don't think there's anyone better positioned than we are given our hospital presence, given our size and scale, given our access to data, we can and will take advantage of this. It will be a big driver for the med-surg segment for a long period of time.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Another question here.

Unknown Attendee

Jeff, you talked about some of the headwinds you're going to be facing this coming year. Is the U.S. medical device tax one of those? Or if not, is there any kind of impact that you guys see from that this year?

Jeffrey W. Henderson

Yes. It is a headwind. As you know, I didn't mention it because it is not a huge headwind. We will -- this fiscal year, we've had -- we'll have 6 months of the medical device tax. We'll end up paying about $8 million, I think is the current estimate. So next year, we'll be about double that, maybe an incremental $9 million -- $8 million to $9 million over this year. At one point, we have feared that it would be a much higher number because there was a lack of clarity regarding exactly how the law are written into IRS rigs. Now that we've had a chance to see the rigs and consult with Washington, the amount, which we thought would be closer to $40 million a year at one point, looks like based on our current volumes, will be closer to $16 million. So yes, a headwind but not nearly as big as we feared at one point and obviously, a lot less than many other companies.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Just, Jeff, in the last minute that we have, just wanted to touch on capital deployment, your dividends now approaching 2% relative to companies you compete with most directly, that certainly stands out. Can you maybe just talk little bit about striking a balance between dividends and buybacks? And are there certain levels or valuations that you consider when making those types of decisions?

Jeffrey W. Henderson

Yes. Maybe we -- so first of all, we wanted to know if [indiscernible] company, that was very intentional big decision 4 years ago after doing a lot of analysis with investors and then sort of looking at how we position ourselves in the market and so being a strong dividend paying company, conjunction with being a good growth company, we think it's pretty unique in health care and even in health care services. We want to maintain that. But beyond that, we do generate significant additional capital. We'll always look at repo. But we don't necessarily want to have a fixed amount this year. We want the flexibility to buy back when it makes sense for us, when we have excess cash or when we think the valuation is right in the market. And we did consider that, right? Yes, we don't have a fixed amount. So we'll look at our cash balance, we'll look at any M&A opportunities. To the extent that they don't make sense or aren't there, then buying back shares is always sort of the default option. Assuming I think the price is right and we do internal analysis all the time to determine whether we think we are appropriately valued or not. And we like to think we take advantage of that from time to time.

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Sure. That's all the time we have. Thanks, Jeff, for being here today.

Jeffrey W. Henderson

Thanks, everyone.

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