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Express Scripts, Inc. (NASDAQ:ESRX)

Q2 2009 Earnings Call

July 30, 2009 10:00 am ET

Executives

David Myers – Vice President of Investor Relations

Jeffrey L. Hall – Executive Vice President & Chief Financial Officer, Finance

George Paz – Chairman & Chief Executive Officer

Analysts

Charles Boorady – Citi

Thomas Gallucci – Lazard Capital

John Kreger – William Blair

Robert Willoughby – Banc of America/Merrill Lynch

Ross Muken – Deutsche Bank

Randall Stanicky – Goldman Sachs

Lawrence Marsh – Barclays Capital

Operator

Ladies and gentlemen thank you for standing by. And welcome to the Express Scripts second quarter 2009 earnings call. At this time all lines are in a listen-only mode. Later, there will be an opportunity for questions and instructions will be given at that time. (Operator Instructions). And as a reminder this conference is being recorded. I'll now turn the conference over to David Myers, Vice President of Investor Relations. Please go ahead, sir.

David Myers

Thank you and good morning everyone. Thank you for joining us on our call today. With me are George Paz, our CEO and Jeff hall, our CFO. Before we begin I need to read the following statement.

Statements or comments made on this conference call may be forward-looking statements and may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risk and uncertainties.

The company's actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors, which were disclosed in detail in our filings with the SEC. In addition, a reconciliation of EBITDA to net income can be found in our earnings release, which is posted on our website.

At this point, I'll turn the call over to Jeff, who will discuss our financial results.

Jeffrey L. Hall

Thank you, David. As you saw from our press release last night, we had another solid quarter. We once again exceeded expectations and raised guidance for the reminders of the year. In addition to the strong performance in June, we raised $4.1 billion of pre-acquisition financing for the NextRx acquisition. We decided to complete this financing before the close of the transaction in order to take advantage of improving debt market and to remove any financing or market risks. The pricing in terms of this financing were better than our expectations and will improve the accretion of the acquisition going forward.

Our stronger outlook is complicated by the cost of this pre-acquisition financing and by non-recurring charges related to the transaction. To improve the clarity of our results, we’ve added some additional disclosures to our press release. Given our strong performance and improved outlook, we have decided to accelerate several discretionary investments in our core business that we believe will increase growth, improve efficiency, and significantly enhance both our client's tools and member's experience and thus drive increased profitability in 2010 and beyond.

Before I discuss our revised outlook, I would like to take you through some of the highlights of the quarter. Gross profit percentage was 10.8% up 100 basis points sequentially and up 170 basis points over the prior year. Total adjusted claims and mail claims were both up sequentially and adjusted for the termination of low margin clients both measures would have been up approximately 2% versus 2008.

SG&A excluding non-recurring items increased sequentially as a result of higher management incentive compensation in line with our pay for performance model. As well as the investments we are making for future growth. Despite this increase in SG&A, adjusted EBITDA per script reached a record $3.20, up 20% from prior year. Excluding non-recurring items, mainly pertaining to NextRx, we reported adjusted EPS of $0.88, which included $0.05 per share in dilutions for pre-acquisition financing. Just to be clear if we had not issued the shares and bonds to pre-fund our acquisition, EPS would have been $0.05 better or $0.93. Our cash flow remains strong and year-to-date cash flow from operations was $518 million.

Moving on to our updated outlook for 2009. Last quarter, we increased our 2009 EPS guidance to a range of $3.67 to $3.77. You will recall we said this range does not include any cost, benefit or financing related to the NextRx transaction, it was for our base business only. As a result of strong underlying fundamentals, we are increasing 2009 guidance for our base business by an additional $0.05 to a new range of $3.72 to $3.82. The midpoint of this range now reflects growth of 22% over prior year.

Table four in our press release provides a lot of details of our improved guidance, but let me walk you through the highlights. We had several new client wins that started July 1, and as a result we now believe that our total claims for the year will be slightly better than our original guidance of down 2% to 3%. We also expect strong margin growth to continue although as I said earlier, we expect to reinvest some of this improvement in growth initiatives, and as a result SG&A is now expected to be up 6% to 8% over the prior year.

The NextRx integration work is going well and we now expect to close in the fourth quarter. It is imperative that the migration of members and the interface of systems platform be absolutely flawless. So we're taking the time pre-close to make this happen. Since we have not announced the closing date, we have excluded all the NextRx results from our guidance. Once the transaction closes excluding the amortization, we expect it to be slightly accretive for the sub-period from the date of closing through the end of the year. Said another way, we expect the upside from NextRx post close results to slightly outweigh the associated cost of financing for that sub period.

We estimate for 2009 that financing costs for the transaction will total $0.41 per share. We understand that many of you would prefer a guidance range that include NextRx post close results. However, since we don't have an exact closing date, we have not included any benefit for NextRx post-closing results in our guidance. Our forecast assumes the core business will produce a range of $3.72 to $3.82 per share. If you deduct the $0.41 of transaction financing costs, exclude one-time items and exclude any NextRx results post-closing, our guidance would be $3.31 to $3.41. Once we are ready to announce the firm closing date, we will update you on our forecast for NextRx results post-close.

In conclusion, we had another strong operating quarter. We completed a better than expected financing of our NextRx acquisition. We accelerated our investments in growth and the pre-integration of NextRx is going well and we're on track to close in the fourth quarter. And with that I will turn it over to George.

George Paz

Thank you, Jeff and good morning everyone. Our strong quarter and increased outlook for the future is a testament to our business model of alignment. And as a result is generating significant value for our clients and their members. These are exciting times at Express Scripts. We're preparing for the November implementation of the TPharm contract with the Department of Defense, which includes additional services such as claims adjudication and specialty pharmacy management.

We're working hand in glove with WellPoint in order to integrate systems and are making progress towards a fourth quarter close of the NextRx transaction. And our stronger than expected earnings and improved outlook for the future has enabled us to make investments in our core business. This will allow us to sustain our strong growth into the future.

Once again our retention numbers are very strong. We have lost only two of our top 100 accounts both due to acquisitions. And while we're just midway through the selling season, we have already won a 132 new accounts including five signature wins. We define a signature win as an account with over 1 million claims. Let me underscore one important observation at this point in the selling season. The PBM value proposition starts with world-class clinical capabilities that offer savings to plan sponsors, and improves healthcare outcome. In a sense these are the table sticks for us and our primary competitors.

At Express Scripts, we have proven over the years that if patients participate in our numerous clinical offerings, plan sponsors, and patients alike will realize significant savings and optimal healthcare outcomes. With that being said one significant obstacle remains and that is engaging patients to participate in these clinical protocols, this is where our behavior centric approach, consumerology is making a difference. We now have indisputable evidence that an advance understanding of consumer behavior and decision-making lends to greater participation. And by deploying the key foundational principles of behavioral economics, we can demonstrate higher levels of patient participation, which leads to lower costs and better healthcare outcomes.

Many of our wins can be directly attributed to the power of consumerology and its role as an enabler for our strong clinical offerings. This is all very exciting and now with our alliance with WellPoint, we're eager to work with them to leverage our behavior centric approach across the broader the medical benefit. Regarding WellPoint, we have made considerable progress this quarter towards closing the NextRx transaction. As we move to close this transaction, our confidence continues to grow that we will create opportunities for accelerated growth for both organizations.

Ultimately, our alliance with WellPoint will allow our company to change the way healthcare is delivered. As the nation focus on healthcare reform, this collaboration between Express Scripts and WellPoint represents a shared commitment to achieving optimal health outcomes while driving out wasteful spending. While it's difficult to predict the final construct of healthcare reform, we continue to believe that any reform provides opportunity for us to demonstrate our evidence based value proposition. With increased investments in technology, clinical programs, and services, we will continue to bring innovative solutions to the marketplace. We are committed to leveraging the right strategic opportunities and also tackle the nation's greatest challenges as they relate to accessible and affordable healthcare.

At this point I would like to open it up to questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question come from Charles Boorady with Citi. Go ahead please

Charles Boorady – Citi

Thank you. Good morning. My first question just relates to the transaction and how customers are receiving news of that transaction, specifically are you finding it harder to convince new customers to sign on for next year in light of the major new win?

George Paz

Couple of points I'll make there. First of all, I think the added scale size and opportunities that this transaction brings to us is something that most every business understands and I think they, we've not heard any negative comment from, we haven't heard any negative comments from any one regarding this opportunity. When you talk about integration, implementations, I really do believe that is Express Scripts' strength. We've been at this, since really about 1998, when we bought ValueRx, we've improving and refining the way we integrate platforms and customers and make sure that we get the best of both entities and make that our final offering. In addition to that, we've spent millions of dollars and numerous resources in improving the implementation process. Back in the early days of PBMs in the late 90’s, throughout the 90s and the early 2000 timeframe, one of the biggest impediment to getting a new client was what they perceived to be the risk of change. One of the things we took on at Express Scripts was to take that risk out of the equation and make sure that implementations were run smooth and just focus on the member through that process. I think that's paid huge dividends for us and we've got an incredible track record of bringing up new clients, large clients, and sustaining both higher levels of service, but also improved performance. So, we really haven't heard any negatives in the marketplace regarding our acquisition.

Charles Boorady – Citi

And final question just on health reform, do you have a outlook for how by generic or by a similar legislation specifically will play out?

George Paz

There is an awful lot of money being spent on that issue. We are spending a tremendous amount of time on this item we have a staff of individuals in Washington D.C. that are really trying to get out in front of Congress and talk to them about the value that will be derived through a biosimilar bill, our Chief Medical Officer, Dr. Miller spends a considerable amount of time talking specifically with the staffers and the key legislators as this unfolds. It's hard to say. There is an awful lot of money at stake an awful lot of healthcare opportunities at stake. And some of those are contrary to each other. So I do believe that we’ll give it our best shot, I think the real determination obviously is going to happen when it gets into committee. The White House is supporting, the administration is supporting a shorter period, obviously we are supporting that, biopharma is supporting a longer period and ever greening. So we will definitely keep you posted on this and we will do our best to get an outcome that's right for America at large

Charles Boorady – Citi

Thanks.

Operator

Thank you. We will go next to Tom Gallucci with Lazard Capital.

Thomas Gallucci – Lazard Capital

Thank you. Good morning. Sorry if I missed it, but did you talk about what exactly is stronger in your base business that really drove the guidance increase?

George Paz

There is a couple of things and Jeff feel free to chime in here, but one is we did have a significant new clients at 7/1. So, that's influencing the guidance increases, when you look backwards, we talked about this in the last couple of calls, the economy have weakened, many of our clients were really coming to the table looking for savings opportunities in order to preserve the overall prescription drug benefit and meet the demands of the marketplace, it's not only generics and as you know, the first half of this year had a very low generic patent expirations. So, but when you look at the – at the year, we saw tremendous opportunities in utilization formularies to drive to lower cost brands and to better channels. And using things like step therapy, prior authorizations and other clinical programs, we've been able to improve adherence where it's important and drive to better-cost outcomes in the base business. I think the focus of employers in trying to save money in our model of alignment, which will only save money increase value for our shareholders, is proving its value in the marketplace today.

Thomas Gallucci – Lazard Capital

May be as a follow-up to that answer, can you talk about your Select Home Delivery program and sort of the progress that you're seeing there and what you're thinking about over the next year or two that can do?

George Paz

That's been a great win for us, obviously you get better results with mandatory mail. The problem with mandatory mail, as you know is that its mandatory and you've taken the choice away from the member. With Select Home Delivery, the member they can opt out. All they have to do is if they decide they want to that retail is right for them they can go online or they can call our call center and opt out of the program. The reality is as many of you know, is that getting started the mail is the most difficult thing, its hard to get going, its not hard, but its more confusing than just taking a prescription into a retail drug store. So, the whole idea of Select Home Delivery is to provide the tools and the opportunity for them to get converted and get the benefits out of the mail at their wish. And we've seen incredible pickup both in clients, utilizing the program as well as the results. We usually see within the first quarter about a three-fold increase in the mail penetration rate of course that's depended upon where the client's penetration rate was when it started. We've seen significant pickup that's resulted in big savings for the client as well for the members and obviously better shareholder value for us. One thing I will also say is that we had a lot of clients implement the program on 7/1. The way the program works is that we've started sending out letters in June. And then over the ensuing next two months, when you get a script fill their retail and you haven't done anything to convert, then we get notifications, e-mails, text messaging, letters, calls, whatever the clients preferred preference of notification is with their members. To notify that patient that there is an opportunity for us to convert on. So we will really see the bigger mail pickup in the second half of the year or most notably in the fourth quarter after we get through this conversion period. So, that's also weighing in on our guidance.

Thomas Gallucci – Lazard Capital

Do you know how many of the new to 132 clients have signed up for that Select Home Delivery? Thanks.

George Paz

I don't know that number off the top of my head, but we will get that for you. It's been a huge seller though for us. So, we've had quite a few pick it up, I don't have that number for the new clients, many of those clients by the way the 132 are 1/1 starts. So, we won't get the benefit from, the Select Home Delivery for that until next year.

Operator

Is that all Mr. Gallucci.

Thomas Gallucci – Lazard Capital

Thank you.

Operator

Okay. Thank you. Then we will go to John Kreger with William Blair.

John Kreger – William Blair

Hi. Thanks very much. George or Jeff could you give us an update on your plans for the WellPoint integration specifically, what's your timing to do the systems integration? And if you can add any more clarity on the drivers and timing of the incremental EBITDA that you expect?

George Paz

I'll take the first part and Jeff can take the second part of that. Unlike most acquisitions, as you know, when you buy any asset, you typically want that asset in your possession as soon as possible because you want to control the impact of how that asset is going to perform. Stated differently you got to make sure service levels stay intact and, the numbers are being or the assets being treated appropriately. And so the selling party in most typical transactions, quite frankly losses interest in that asset because it's not going to be theirs going forward. And that's why people rush to close. It's extremely important to get that asset in your possession, one’s possession in order to manage it and maintain it. This is far different than that. This is both an alliance and an acquisition. And unlike most deals where we have to bring up a deal, and then try to convert the numbers and then try to seek out the economics of the deal over the first year to two years, here we want to make sure because WellPoint has a very strong vested interest in making sure that the service level stay intact and the asset performs. So although the seller, they meet with us on a daily basis. We have teams working together to get the right service levels for their members, once the acquisition closes. So, both teams are heavily engaged in this and there isn't a rush to closure. There is a 10-year alliance that begins on 1/1. And so our best approach to this is not to just artificially take over the business and not have the right tools and approach. So, what we're doing is we're being very diligent about this and very methodical and making sure that the gateways to success are all proven, open and ready for business. And that's exactly what we're doing here. So there is a few key things that have to occur in order for those members to be able to get the economic benefits as well as the service benefits and that's what we're working on. To-date we have not put out a date for closing and we'll have to just keep you posted on that because we haven't reached an agreement when that will occur at this point.

Jeffrey L. Hall

On the second part, as we look at the synergy and how we look at the model coming into our business, our position there hasn't really changed. We said that, really the benefits are going to come really in two phases. A lot of the supply chain benefits come very early post-closing and the rest of the benefits come as we get their members implemented on our platform. And our best estimate in this case is that the 12 to 18 month process, although as George was saying and I was referring to in my prepared remarks, our interaction with WellPoint is going very well at the moment. We're excited about the people we're interacting with there. We're all absolutely focused on the flawless implementation and a great working relationship going on. So, as we're able to get more integration done early, we can be towards the close to shorter end to that 12 to 18 months, but we're not really ready to update any guidance at this point once we get past-closing, we can give you a better feel for how we see it.

John Kreger – William Blair

Okay. Great thanks. Second question unrelated I think we've all assumed over the last couple of years that a rising generic fill rate has been a big driver of the improvements that you've delivered in EBITDA per claim. So I thought it was interesting this quarter, you delivered another great improvement in EBITDA per claim, but the generic penetration rate really didn't kick up that much. Is that incorrect? Can you just comment a little bit more on the driver this quarter?

George Paz

I would be happy to John. You're right. I mean the thing about generics it's so easy to understand, right. You're moving people from a $150, $130 prescription to a $40 prescription savings to everybody is significant. But there is a lot more to it than just that. There is the if you're moving people from very expensive high cost branded products into second tier cheaper as efficacious products that also have rebates attached to them. And so when its not just about, I mean we talk a lot about generics on our calls, but the reality is again because that's so easy to, that was easy just to understand and to put forth, but the reality is it's all about clinical outcomes, it's all about compliance. It's making sure that we constantly focus on our diabetics or asthmatics or people with heart conditions, and make sure they stay adherent to their drugs, make sure the right clinical protocols are in fact being, implemented. And making sure that people that have, multiple morbidities are actually being, the medications are right, the dosings are right. And that all leads to greater healthcare outcomes, which is obviously what we stand for, but that also leads to greater shareholder value. And it was and you're exactly right, John. This was not a great generic quarter because there wasn't a lot of patent expirations, but the fact that we can continue to focus on channel and drug mix and clinical outcomes, ultimately adds significant shareholder value for us and our clients.

John Kreger – William Blair

Great. Thanks very much.

Operator

Thank you. And next we have Robert Willoughby with Banc of America.

Robert Willoughby – Banc of America/Merrill Lynch

Thanks, George or Jeff. Actually, for the hearing-impaired, did you say that the expected WellPoint contribution, whenever that deal does close is enough to offset that financing dilution, was that your opening comment?

George Paz

Yes, there is…

Robert Willoughby – Banc of America/Merrill Lynch

Okay.

George Paz

Let me be clear that it would offset the financing for the period, if it closes two months, it will offset two months of financing. If it closes for one month, it will offset one month of financing.

Robert Willoughby – Banc of America/Merrill Lynch

Okay. Okay. I got you. And secondarily in the Q, there was a reference to WellPoint having more than 265 million claims. I know you guys are paid on some base claims number that does come through. Is that base claims number 265 or is it perhaps a lower number and, from the WellPoint results is it apparent to you that the claims number is trending higher than that 265 number?

George Paz

265 is the only number we've given to-date, that's the number the NextRx transactions were, it was the trailing number. We haven't given any guidance on what the forward looks like now and in fact it’s probably not our position to give that guidance you would probably have to ask WellPoint how their current business is doing.

Robert Willoughby – Banc of America/Merrill Lynch

Am I incorrect though that your Q said more than 265?

George Paz

It’s the same thing we've been saying.

Robert Willoughby – Banc of America/Merrill Lynch

Okay.

George Paz

Round number.

Robert Willoughby – Banc of America/Merrill Lynch

Okay. That’s great. Thank you.

George Paz

Thank you, Robert.

Operator

Thank you. And next we have Ross Muken with Deutsche Bank.

Ross Muken – Deutsche Bank

Good morning. On the new business front, obviously you've done pretty well on the core business. Can you talk a bit about how sort of the consumerology offering is sort of resonating with the client base and it seems like you've accelerated some discretionary products, in the quarter and for the rest of the year. I would assume that's sort of some of the key focus. What do you think, kind of the opportunity is there going forward and what are some of these new programs that you’re looking to offer to the clients base?

George Paz

We've got a staff of doctors and pharmacists, nurses that constantly look at what's happening in the marketplace and where the inefficiencies exist. And the idea is to design clinical programs that try to take out that inefficiency and at the same time improve overall healthcare outcomes. So, that's where we invest in, that's where we spend our time. What consumerology does quite frankly is, I truly believe that all of us have a very strong passion and focus on clinical programs. The difference is how do you get the maximum value out of it? In the earlier caller, I think John asked the question about generic fill rates, and again, what consumerology does is not just focus on those generics, but focus on the clinical programs that are, that help drive overall healthcare outcomes. So, what resonates with clients is you got to first show them your clinical abilities and show that we are, in fact, best-in-class and taking care of their high cost members as well as all their members. And then what we do is then we show our approach to how we get them engaged. And the evidence that we have that show higher levels of engagement, improve healthcare outcomes by driving down wasteful spending and improving again adherence and the key elements of the prescription drug regimen. So, that's our approach and it's resonating extremely well in the marketplace.

Ross Muken – Deutsche Bank

And Jeff maybe just to sort of clarify on the guidance and just in general, sort of what you're seeing, as the sort of strategic planning teams have come together, pre-close here, and you've done additional diligence and work, I mean is there any sort of change to the belief in terms of some of the synergy capture early on versus later in the process or any of the moving parts that comprise where the earlier guidance changed and just, I'm just trying to get a sense of sort of how best to think about what you've learned in this time since the original announcement versus today. In terms of what you’re willing to share?

Jeffrey L. Hall

Yeah. I'm not willing to share very much at this point is the short answer. The longer answer is as I said earlier is the great group of people we've been interacting with. We feel like the, we're building good relationships there. We think it's going to be a great relationship. We like the program. We're positive on all fronts. We think there are lots of good things, but we are just not ready to update guidance at this point. There's not really any point. Once we get the deal closed and have final integration plans, we'll give you an update with a lot more detail.

Ross Muken – Deutsche Bank

Okay.

George Paz

I would just like to add on to that, Jeff, the guidance we've given doesn't include anything for any of the guidance. So, this is just pure base business.

Ross Muken – Deutsche Bank

Yeah. No I was just curious if there was anything relative to the, there's anything you've learned new relative to that asset versus sort of what we had originally, but it seems like we'll get an update in Q3?

George Paz

We obviously we've learned a lot, but we are not in a position to share that yet.

Ross Muken – Deutsche Bank

All right. Thank you, George.

George Paz

Thank you.

Operator

Thank you. We have a question from Randall Stanicky with Goldman Sachs.

Randall Stanicky – Goldman Sachs

Great, Thanks. Hey, George, just to follow-up on your comments on the selling season for next year, you talked about signature contracts. Can you talk about what you're seeing on that front ahead, and then as a follow-up, I know you have a lighter renewal outlook or burden for next year, but maybe just give us an update on that front as well?

George Paz

The big accounts, those, what we call the signature accounts, a million claims or more, that part of the selling season is starting to end now. There is a lot that has to be done when you sell large account with open enrollment and preparation for the New Year, the process of large companies getting their arms around what those costs mean. And what savings they might be able to achieve. There is a pretty big focus for companies, probably through the end of July and slightly towards August. And then that's pretty much done. So that part of the businesses will be pretty much over the next several weeks. The small employer group, which has historically been one of our bellwethers, is still very much in play and actually it's accelerating at this point. So, over the third quarter even in the early fourth quarter, many decisions on that front were being made and positioning us. So, the sales year looks very strong. We have basically with the majority of our clients that are up for renewal on 1/1 have all been recontracted there is a few out there, but we feel pretty confident that we're on track to exceed last year's very strong retention results. So, this is a good year for us.

Randall Stanicky – Goldman Sachs

Okay. That’s helpful. And let me just follow-up one with Jeff and Jeff I know we've touched on this I don't know to the extent that you can give us more color at this point, but with better visibility around the closing timeframe for NextRx. Can you give us some thoughts on cap structure and then obviously uses of cash going forward and comfort levels around leverage?

Jeffrey L. Hall

Yeah. Overall guidance there hasn't changed around capital structure. We still think one to two times in solid investment grade is the right place for us to be and we are doing everything to stay in that range. We expect that we're going to be inside that range pretty quickly after closing. Not really a lot to add after that.

Randall Stanicky – Goldman Sachs

And not to put the cart ahead of the horse but obviously, there is a couple of other opportunities that are being discussed. I mean do you guys put yourself back potentially in the game as we think both next year and sort of beyond?

Jeffrey L. Hall

Yeah. I think we're not going to comment about potential opportunities at this point.

Randall Stanicky – Goldman Sachs

Okay.

Jeffrey L. Hall

We certainly feel like we have what we need to grow the business and if opportunity presents themselves, we will go after them as they make sense for us.

Randall Stanicky – Goldman Sachs

Okay. Great. Thanks very much guys.

George Paz

How about one more question?

Operator

Thank you. That will come from Larry Marsh with Barclays Capital.

Lawrence Marsh – Barclays Capital

Thanks and good morning. George, just you've always been an advocate of the benefits of moving to a single adjudication platform and I know you're communicating doing that into your anchor system with NextRx over the next 12 to 18 months, but can you remind us, what some of the economic benefits are to you and should we be thinking of this as a stair step migration or like a big switch over?

George Paz

Yeah, good question Larry. It's first of all, we're big believers having, our first acquisition was ValueRx. I think there was nine unconsolidated entities running on a 11 different platforms, when we bought that. And quite honestly it’s unruly we spend a lot of time rolling out upper class clinical programs and services. Well think about what happens behind the scenes when you've got all those systems. Who gets it first, which clients they're all on different platforms. Then you had to pick and choose as you roll it out. The maintenance costs of that is not insignificant, but I think it's also the approach. For our call center associates, for our mail order individuals, for our employees, our account managers that may be dealing with several different accounts, there's no, all the tools are the same. The approach is absolutely homogenous across the entire book of business. And it allows us, when we come up with a new program that's exciting, similar to Select Home Delivery, it doesn't matter which client. Any client can choose it. Any client can be up sold to it. And we don’t have to bring it out in stages. So I think it’s incredibly important for long-term, consistent services to have a single platform the way we'll do this, on the close and a lot of the work that's being done today is to get ready for that, is to bring over the clients in waves. We don't just throw a switch. There isn't awful lot to this. There is just lot of history, there's a lot of reporting requirements. And so, what we'll do is a lot of testing, we'll set the new clients up on our systems, run a bunch of data through them, compare the output from our systems back to the historical adjudication that occurred, investigate any differences and go through that process until it is a 100% clean and then we're ready to implement the first clients. That's why it takes 12 to 18 months to fully get through, but I think we're very good at this. We have an outstanding track record and we’re excited about the opportunity to bring everybody to one platform and give best in class service.

Lawrence Marsh – Barclays Capital

Great. Just a clarification you the $23 million of incremental SG&A, you called out in the quarter on technological infrastructure, is that should we think of that is more customer facing software that can be used, marketing to clients or is this internal infrastructure that's going to help you with things like integrating the platform?

George Paz

Well, some of it has nothing to do with the WellPoint because that’s, well, I'd say that tongue in cheek. What we constantly do in our IT shop is look at our architecture and our footprint. And so, to the extent that it makes sense to consolidate midrange boxes or to increase, change our approach to get better service levels and better performance and we do that, that's a smaller piece of the whole puzzle. What we've seen is with consumerology is with respect to messaging and our approach to the members, that's where a lot of the investment is associated. So, it's developing the new clinical programs then approving the approaches to roll those out. We have a constant focus on what we call zero defects as we move towards Six Sigma quality in our pharmacies; the next option is to have zero defects quite honestly. So, we do a lot of improvement in the way we process the claims and handle it. And as you know, those are, our results are much stronger than retail and we're fixated on maintaining out those levels of achievement. So, there is – these are a lot of the client facing and client resulting or patient experience resulting investments that we’re making to make us stronger in the future.

Lawrence Marsh – Barclays Capital

Okay. And then just for Jeff, I just need one more chance to get you to say no comment on guidance, but I know when you first announced it, you were saying moderately accretive in '10 I think today you're saying your financing costs were lower than you had budgeted, if I heard you correctly. So, I know you're not going to ballpark that specifically, but in my own mind, that's about $0.10 a share of benefit because I don't know what your original assumptions are is that the right ballpark or stay tuned?

Jeffrey L. Hall

I’m not going to let you down. I am going to say no comment. But yeah, I think your, I'm not commenting on your range, but your thesis is correct. When you said moderately accretive, the financing did come in better than we expected. So now you could assume better than moderately, but since we haven't given you the details, it's not really that meaningful. You're going to unfortunately have to wait until we give you the detailed guidance and when we do that, we'll break it out for you and explain it to you.

Lawrence Marsh – Barclays Capital

Very good, okay. Thank you.

George Paz

Thank you very much, Larry. And I appreciate everyone's participation on our call today. We're excited about what's happening in our space. Our ability to help drive down costs and improve healthcare outcomes remains a focus of both the management team as well as all of the employees at Express Scripts and I think you see that focus coming to our results and we will maintain that focus and continue to drive strong results for our shareholders, our clients, and our members. So, thank you again for your participation. And we'll talk with you soon.

Operator

Thank you. Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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Source: Express Scripts, Inc. Q2 2009 Earnings Call Transcript
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