Cardinal Health (CAH) George S. Barrett on Q3 2016 Results - Earnings Call Transcript

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Cardinal Health, Inc. (NYSE:CAH)

Q3 2016 Earnings Call

April 28, 2016 8:30 am ET

Executives

Sally J. Curley - Senior Vice President-Investor Relations

George S. Barrett - Chairman & Chief Executive Officer

Michael C. Kaufmann - Chief Financial Officer

Analysts

Robert Patrick Jones - Goldman Sachs & Co.

George R. Hill - Deutsche Bank Securities, Inc.

Elizabeth Anderson - Evercore Group LLC

Ricky Goldwasser - Morgan Stanley & Co. LLC

Eric Percher - Barclays Capital, Inc.

Lisa Christine Gill - JPMorgan Securities LLC

Dave Francis - RBC Capital Markets LLC

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Greg Bolan - Avondale Partners LLC

David M. Larsen - Leerink Partners LLC

John C. Kreger - William Blair & Co. LLC

Charles Rhyee - Cowen & Co. LLC

Operator

Good day and welcome to the Cardinal Health Third Quarter Fiscal Year 2016 Earnings Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Sally Curley. Please go ahead.

Sally J. Curley - Senior Vice President-Investor Relations

Thank you, Alisha. And welcome to the Cardinal Health Third Quarter Fiscal 2016 Earnings Call today. Today we will be making forward-looking statements. The matters addressed in the statements are subject risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to the SEC filings and the forward-looking statements slide at the beginning of the presentation found on the Investor page of our website for a description of risks and uncertainties.

In addition, we will reference non-GAAP financial measures. Information about these measures and reconciliations to GAAP are included at the end of the slides. In terms of upcoming events, we will be webcasting our presentation at the William Blair 36th Annual Growth Stock Conference on June 15 at 8:00 AM Central, in Chicago. Today's press release and details for any webcasted events are or will be posted on the IR section of our website, at cardinalhealth.com, so please make sure to visit the site often for updated information. We hope to see many of you at an upcoming event.

Now I'd like to turn the call over to our Chairman and CEO, George Barrett. George?

George S. Barrett - Chairman & Chief Executive Officer

Thanks, Sally. Good morning, everyone, and thanks to all of you for joining our third quarter call. We had a very strong and balanced third quarter. So let me get right to the numbers.

First, revenue for the period was up 21% versus the prior year, to $31 billion. Second, we reported an increase of 20% versus the prior year in non-GAAP operating earnings of $788 million. And, third, we delivered an increase of 20% versus the prior year of non-GAAP diluted earnings per share of $1.43. And as we move into our fiscal 2016 fourth quarter, we are narrowing our guidance range to $5.17 to $5.27. The mid-point of this range would imply a growth rate of 12% for Q4 and a growth rate of 19% for the full year.

I'll turn the call over to Mike, who will go into the financials in a moment, but let me first provide you with more context on our business lines. Both our Pharmaceutical and Medical segments had a strong third quarter, reporting double-digit revenue and profit growth versus the prior year. Starting with the results from our Pharmaceutical segment. First, revenue for the Pharmaceutical segment increased 22% to $27.5 billion and segment profit increased 16% to $660 million. Overall, we saw solid performance across the segment, with significant contributions from Pharmaceutical distribution and specialty.

Second, our Pharmaceutical Distribution business performed extremely well in the period. We continue to quickly respond to our customers' needs and strengthen our relationship through our value-added service offerings and, as a result, have out-paced the market in all classes of trade. Our team has moved decisively with the integration of Harvard Drug and we are on track to deliver our financial targets for this transaction.

As you know, generic pharmaceuticals play an important role in our pharmaceutical offering and will continue to play an important role in the overall healthcare system. I'd like to take a few moments to share my thoughts on the environment around generics in the U.S. With demographics driving demand and breakthrough science opening the door to new treatments and, in some cases, cures for our most dangerous, costly and complex diseases, generic drugs are a key component to our system's ability to contain costs through competition and provide the needed headspace to help fund pharmaceutical innovation. We do see some dynamics in the current generics environment which I'd like to highlight and which have some financial implications for the near term.

First, demand is up. We all know the pressure that aging Baby Boomers are putting on the healthcare system, and that pressure will continue to drive volume and growth for years to come. Second, the cycle of patent expirations is never a straight line. It has peaks and valleys with launch and lifecycle of in-market (4:10) brand drugs.

Right now we are in a period of relatively fewer generic launches. This has been true in recent quarters and we would expect this pattern to continue into our FY 2017, with the value from new launches being down from FY 2016. As you know, this can change based on patent cases and we will provide you with more clarity around our launch expectations for next year when we finish our FY 2016 and guide for FY 2017.

Third, the flow of new ANDA approvals coming out of the FDA has significantly increased. The average number of yearly ANDA approvals in the period between 2012 and 2015 was 155 per year. The number of ANDAs approved just in the six-month period between November of 2015 and March of 2016 was 279. The FDA is clearly working through its backlog. Combining this with the heightened election cycle discourse around the cost and value of pharmaceuticals, we might expect that across the portfolio in the aggregate we would see a relatively flat to slightly down generic manufacturer inflation rate in the near future.

Finally, this has been a year in which strategic moves among numerous players in the retail and non-retail sectors has shifted many long-standing generic affiliations. This has naturally caused some competitive realignment, which we would expect to settle out as the coming months unfold. Given all of these factors, we anticipate that the contribution from generics would be more muted in the near term. That is a challenge, but we are well-positioned, well-prepared and we'll be working closely with our customers and drawing on the capabilities of our sourcing through Red Oak.

Turning to our Specialty Solutions group. We continue our track record of delivering very strong double-digit growth. We serve and support our provider customers across a broad range of therapeutic areas and we're expanding our services to support biopharmaceutical companies. This positioning is extremely important as the flow of new innovative pharmaceuticals emerges from BioPharma pipelines.

Finally, on the Pharmaceutical segment, we are beginning to see an uptick in product volumes in our Nuclear business. We are delivering and driving efficiencies in the nuclear diagnostic space and, at the same time, are looking forward to participating in the manufacture and distribution of new therapeutic radiobiopharmaceuticals. Overall, a very solid quarter for the Pharmaceutical segment.

Turning to our Medical segment. Our Medical segment put up some strong numbers in the period. We continued to deliver the tools, services and technologies that thousands of care providers depend on every day. As a result, third quarter revenue was up 13% versus the prior year, to $3.1 billion and segment profit increased 26% to $128 million. As a reminder, this quarter included the negative impact of the Cordis-related fair value step-up, which Mike will cover.

Our year-over-year growth for the quarter was not only a result of strategic acquisitions, which did contribute nicely, but also the result of some very positive contribution from existing lines of business which continue to get stronger. We continue to see growth in the number of accounts we serve and in the range of product lines they purchase from us.

In the period, we saw growth in Cardinal Health consumables, services to hospitals and health systems, surgical kits, lab products and Cardinal Health at Home. Don and his team are driving strong performance and we're very excited to see this kind of growth. And importantly, our strategic positioning in the market has been thoughtfully crafted and is being effectively executed.

For example, we have identified the activities and process of discharge into the post-acute arena as an important area of dysfunction in the overall healthcare system. We have taken some important steps, including the acquisitions of naviHealth and Curaspan, which strengthen our ability to play an important role in helping our customers navigate this critical stage. These capabilities are particularly relevant as we see the emergence of more value-based payment models.

Finally on Medical, the integration of Cordis remains on track. Under the leadership of Cordis President, David Wilson, we have trained and merged our Cordis and AccessClosure U.S. commercial teams, we have finalized our worldwide leadership teams, appointing a new President in Japan and a new Operations Leader to our Cordis headquarters in Zug, Switzerland. We are bringing the best of Cordis and Cardinal Health together. And care providers, patients and investors will see real benefits.

We do have some important work in front of us, though. Of course, we want to make sure that what we call that the Day 2 (8:52) countries are closed and integrated. We've seen some encouraging growth in the EU and would like to see a similar pattern in our Asian markets. And we think there's significant opportunity to expand the Cordis product portfolio.

Let me close with an important point. At a time when powerful forces are reshaping the healthcare landscape, Cardinal Health is not just prepared to respond, but poised to lead. We've worked hard to create a balanced portfolio of products and services that deliver real solutions that address our customers' most pressing challenges. We deliver value across the lines of traditional customer groupings and markets and from a fully integrated Cardinal Health portfolio.

And with that, I'll turn the call over to Mike.

Michael C. Kaufmann - Chief Financial Officer

Thanks, George. And thanks to everyone joining us on the call today. In my comments, I'll first provide some context around our third quarter performance, then I'll give some additional color on our expectations for the remainder of the fiscal year. You can refer to the slide presentation posted on our website as a guide to this discussion.

Starting with consolidated company results, third quarter non-GAAP diluted earnings per share were $1.43, a 20% growth versus the prior year. This was due to solid performance in both the Pharmaceutical and Medical segments, which I'll discuss in detail later. Total company revenues grew 21% versus the prior year to $30.7 billion. Non-GAAP gross margin dollars grew 17%.

Consolidated company SG&A increased by 14% versus the prior year, almost entirely due to acquisitions. Our core SG&A continues to be an area of focus with a disciplined approach to ensure that we maintain a lean, efficient organization. Resulting non-GAAP operating earnings in the quarter were $788 million, an increase of 20% versus the prior year.

Moving below the operating line, net interest and other expense was $44 million. Again, this quarter, the increase versus the prior year is due to the interest expense related to long-term debt issued in June of 2015 to fund the acquisitions of Cordis and The Harvard Drug Group. The non-GAAP effective tax rate was 36.6%, flat to the rate in the prior-year quarter.

Diluted weighted average shares outstanding were 331 million, 3 million shares lower than the third quarter in the prior year. During the quarter, we repurchased $300 million worth of shares and, as of the end of the quarter, had slightly under $400 million remaining on our board-authorized share repurchase program.

Cash flow from operations was nearly $920 million. And at the end of the third quarter, we had $2.6 billion of cash on the balance sheet. Our strong cash flow is the result of our robust earnings growth as well as our efficient management of working capital by our teams. As always, we remain committed to a balanced approach to capital deployment.

Moving on to segment performance. Let's start with the Pharmaceutical segment. Revenues grew 22% to $27.5 billion due to continued growth from new and existing customers as well as the contributions from the recent acquisitions of Harvard Drug and Metro Medical. Segment profit was $660 million, an increase of 16% versus the prior year.

There were two primary drivers of our profit growth in the quarter. The first is the acquisitions of Harvard Drug and Metro Medical, which are integrating well and meeting our financial targets. The second is the continued growth in Pharmaceutical distribution of new and existing customers, which includes our generics program. Also, while not the primary drivers in the quarter, both Specialty and Nuclear were contributors, with Specialty continuing its double-digit growth and is on track to deliver at least $8 billion in revenue for fiscal 2016.

Pharma segment profit margin rate for the quarter was down 11 basis points versus the prior year. This is a mix dynamic due to the new relationship with a large mail order customer which began in our second quarter. As a reminder, while the new contract has a dilutive effect to margin rates, it is positive from an earnings and capital standpoint.

In our Medical segment, we saw the same sort of uplift across the breadth of our businesses. Revenues grew 13% to $3.1 billion, driven by contribution from acquisitions net of divestitures as well as growth from all of our existing businesses. Medical segment profit grew 26% to $128 million. This was driven by the net contributions from acquisitions as well as Cardinal Health brand products. As you may recall, this quarter, like Q2, includes the Cordis inventory fair value step-up, which was $21 million in each quarter.

Let me give you a little more color on Cordis. First, the onboarding of Cordis continues to progress well. We have filled the key roles with excellent talent and are focused on execution. As I mentioned last quarter, the expected favorability of the lower inventory step-up was a wash with the foreign exchange impact that was greater than we had originally modeled. As we work through the transaction, there are a few mechanics, such as the timing of exiting our transition service agreements with J&J, the closing of Day 2 (15:06) countries and the ramping up and down of certain expenses that could result in variability between quarters.

As you can imagine, all of these moving parts can lead to Cordis results that may not be linear for a few more quarters. Specifically, some of these cause margin rates to be somewhat elevated in the third quarter versus how they may look over the next few quarters. If anything significant occurs, we will let you know. But, again, overall Cordis is performing well.

Organic growth of our Cardinal Health brand products was the primary driver of a 42 basis points increase in the Q3 Medical segment profit rates to just over 4%. Our Cardinal Health brand product portfolio includes private-label consumables and physician preference items. These lines of business are important value drivers for our customers and are key to margin expansion.

Of particular note, this offering is resonating with our customers. In the quarter, Cardinal Health brand products growth was in the low-double digits within our strategic accounts. Additionally, the value of the breadth of our offering is also gaining traction, as our strategic accounts once again grew well above the market this quarter.

Before I move to our outlook for the rest of the fiscal year, let me touch briefly on China, which reports in both segments. In spite of well documented macroeconomic conditions, our businesses in China continue to perform well, with strong double-digit top and bottom-line growth for the quarter.

Turning to slide number six, you'll see our consolidated GAAP and non-GAAP reconciliation for the quarter. The $0.26 variance to non-GAAP diluted EPS results was primarily driven by amortization and other acquisition-related cost.

Now I'll update you on our thoughts for the remainder of fiscal 2016. Based on our current assumptions, we've tightened our non-GAAP diluted EPS to a range of $5.17 to $5.27 or growth of 18% to 20% versus the prior year. This range implies fourth quarter guidance of $1.07 to $1.17 non-GAAP earnings per share, a 12% growth at the midpoint.

Looking sequentially to Q4, four things essentially explain the variance from Q3. First, we typically see higher brand inflation activity in the third quarter which comes down in the fourth quarter. We expect this fiscal year will be consistent with this historical trend. Second, as a result of the acquisition of Safeway by Albertsons, we stopped servicing them as of April 1 which has an impact on our fourth quarter comparison. The final two are a higher tax rate and a handful of smaller corporate items.

For our full-year fiscal year guidance, recall that in the prior quarter I mentioned that foreign exchange and a generic pricing environment could impact us in reaching the very high end of our prior range. Neither turned in our favor. Foreign exchange hasn't moved much from our prior expectations. And as for generic drug pricing, we expect the environment to be similar to what we experienced towards the end of Q3, which was slightly deflationary.

Moving on to slide nine of the presentation, I'll walk through the updated corporate assumptions that reflect what we expect as we close out fiscal 2016. First, we expect our non-GAAP effective tax rate to be in the range of 35.5% to 36.5%. Next, we expect diluted weighted average shares outstanding to be between 330 million and 331 million shares. In addition, we've lowered our expected range for net interest and other expense to $185 million to $200 million. Also, we expect that our full-year CapEx spend will be in the range of $450 million to $480 million. And finally, our updated assumption on acquisition-related intangible amortization will be about $348 million or $0.68 per share.

Now I want to take the opportunity to share a few preliminary thoughts on what we believe will be some of the key drivers in FY 2017. We still have work to do on sizing each of these. So my thoughts will be more qualitative than quantitative. Starting with the Medical segment, we expect strong growth to be led by our Cardinal Health brand products, which will include Cordis. As a reminder, FY 2017 will not have the negative impact from the inventory step-up. Also, we expect growth in our post-acute initiatives, which includes our Cardinal Health at Home business. As in past years, we would still expect repricing our national brand to be a headwind.

Moving to the Pharma segment. As we mentioned, the Safeway contract has expired and will be a factor until we anniversary it in the Q3 of next year. Under our generics program, we expect continued strong performance from Red Oak. As it relates to new item launches, due to the timing of our fiscal year and the shifting of a few product launches, we expect the contribution in FY 2017 to be less than FY 2016. Also, we are currently expecting generic inflation to be less in FY 2017.

As I mentioned in our Q4 FY 2015 call, we initiated a multi-year program to refresh our information systems in our Pharmaceutical segment. This investment is being made to support our significant customer growth and acquisitions. Per our plans, FY 2017 expenses related to this program will be more than what we incur in FY 2016. We have outstanding talent and metrics in place to ensure success.

Lastly, we expect to continue with our current momentum in the Specialty business. As we complete our budgeting process this summer, we will finalize our FY 2017 outlook and will provide additional clarity on our Q4 fiscal 2016 call in August. Let me close by expressing my appreciation to our people who delivered a record quarter in Q3, who continue to do things necessary to position us on the right side of healthcare trends and who I know will work tirelessly and with discipline to achieve our goals and, of course, serve our customers and their patients.

Operator, let's go to the questions.

Question-and-Answer Session

Operator

Thank you. We've got Robert Jones or Bob Jones from Goldman Sachs.

Robert Patrick Jones - Goldman Sachs & Co.

Hi, guys. Thanks for the questions. George and Mike, I appreciate all the details you guys shared around generics and then some of the changes from 3Q to 4Q, but I guess I'm still trying to parse out what was incremental relative to what you had line-of-sight into previously.

If I just look at the implied 4Q guidance you guys highlighted, having a hard time based off the trends in both segments seeing how growth will slow as much as you're implying. So I guess really just if you could go back to some of the buckets you highlighted, what moved against you from where you were thinking about the year previously to how you're thinking about the fourth quarter now?

Michael C. Kaufmann - Chief Financial Officer

Yeah, thanks for the questions, Bob. I appreciate it. I guess I'll just go back a little bit to emphasize what I talked about and see if that's helpful. So I'm not sure things changed a lot in the sense if you think about what typically often happens between Q3 and Q4 as it relates to the branded inflation piece. That is what we're seeing sequentially. Both in Pharma and in Med, we see a stronger Q3 from price increase activity on branded products. So we're planning to see that again in our Q4. So that's number one.

Second of all, the Safeway contract expired and we quit servicing the business on April 1. So we have a full quarter of the impact of Safeway. Those are the two biggest drivers sequentially from Q3 to Q4. And then we are expecting a higher tax rate in Q4, which will have impact sequentially on it and then also there's just some corporate items, several smaller corporate items, that we expect to happen in our fourth quarter and so that maybe helps a little bit for a chunk of it.

And then the other piece, if you think back to our last quarter, what we were trying to help everybody understand is to get to that top end of our range, we really needed to see FX rebound and generic inflation change, and neither one did. We didn't see really much change at all in FX and so we're not seeing any pick-up from that in the fourth quarter. And in generic inflation, in the fourth quarter we're expecting it to be more like what we saw in the last part of Q3, which, as you know as we mentioned before, was declining in the back part of Q3.

Robert Patrick Jones - Goldman Sachs & Co.

So just to be clear then, Mike, the generic pricing didn't change from what you had thought, it just didn't come back in your favor. Is that a fair characterization?

Michael C. Kaufmann - Chief Financial Officer

Yeah. I would say it didn't change from the second half of Q3, but what we're expecting is the whole Q4 to be more like the end of Q3. So, yeah, I wouldn't say it really changed from what we were trying to help you through, to get to that top end of the range, we needed it to be go back the other way. But it did change from Q2. And then, as I said, we're expecting it to be more similar to the second half of Q3 than it was for the whole Q3.

Operator

We'll go next to George Hill of Deutsche Bank.

George R. Hill - Deutsche Bank Securities, Inc.

Hey. Good morning, Mike and George. And thanks for taking the questions.

George S. Barrett - Chairman & Chief Executive Officer

Morning.

George R. Hill - Deutsche Bank Securities, Inc.

I guess, George, could you provide a little more color on this industry realignment that you mentioned? I don't know if you can get any more granular on what you're seeing and the impact it's having on the business.

And then as it relates to the changes in generic drug price inflation versus deflation, as we look into 2017, is the expectation that inflation will be less than it was in 2016, or are we back to a more normalized modestly deflationary environment?

George S. Barrett - Chairman & Chief Executive Officer

Yeah, George, good morning. Let me start with the second part in a sense, because as I described in the call, there are really sort of a number of factors at work here, including the launch cycle, the rate of approvals, which creates more products in the system, reimbursement dynamics which our customers feel. So this is all part of the dynamic that affect the overall pricing environment. So that's what I was trying to capture, which is that this is really not a single factor, but we're seeing a number of factors that actually come together.

As it relates to realignment, I was really referring to some of the big moves that have occurred over the course of the year. You have CVS buying Target and Omnicare, you've got the move with Albertsons and Safeway, you've got Walgreens and Rite Aid. And so I think those kinds of big moves have a tendency to create a little bit of short-term disturbance and then they just settle out. And I just wanted to highlight that.

But I think what we're describing here is more, again, as Mike said, it is quite different than it was at the early part of the year, of our fiscal 2016. And that's what we're describing. So what we've tried to do with you, George, is to always be transparent about the environment that we're seeing. And this is as clear as we can be about the way we see the environment today.

George R. Hill - Deutsche Bank Securities, Inc.

Okay.

Sally J. Curley - Senior Vice President-Investor Relations

And to answer your question, George, about 2017. Mike, do you want to...

Michael C. Kaufmann - Chief Financial Officer

Yes. On 2017, George, we are expecting generic inflation to be less in 2017 versus 2016. But, again, it's early and that can change. There's so many factors, as you know, George. I think described several of those that can impact it, but we're looking at it more as what we're seeing in the second part of Q3 and what we're assuming for Q4. If that stays consistent, we would expect 2017 to have less generic inflation than FY 2016.

George R. Hill - Deutsche Bank Securities, Inc.

Okay. And then, Mike, maybe just a real quick follow-up. Can you give us any sense for what OP margins in the core drug business were like in the quarter ex-Optum, ex the acquisitions? And I'm trying to get sense, would we have seen the changes in the deflationary environment in the quarter ex the bigger moving pieces? And the margin deterioration rate that we're seeing in Q4, is that how we should be thinking about the business in what I'll call the near to medium-term?

Michael C. Kaufmann - Chief Financial Officer

Gosh, a lot of moving parts on that. I can tell you again, the biggest driver is really the mix dynamic with the addition of the large customer. You also have to remember in Q3, it's our biggest branded inflation quarter, so that obviously has some impact on the quarter. And then you have the acquisitions rolling in and synergies. There's just so many moving parts, it would be hard for me to break those apart, but I think hopefully that's at least enough color to give you a little bit of help.

Operator

We'll go to our next question from Ross Muken of Evercore ISI.

Elizabeth Anderson - Evercore Group LLC

Hi. It's Elizabeth Anderson in for Ross this morning. I have a question in terms of – you obviously had some pretty impressive cash flow generation in the quarter. Have you guys changed any of your thoughts regarding capital allocation and, as a follow-up, how you're seeing valuations in the market generally?

Michael C. Kaufmann - Chief Financial Officer

Yeah, I can take it and George can add a little, too. Right now, there would be no change in our capital deployment policy. We're still going to be focused on investing in the business, first, through our capital expenditures and then we're going to stay focused on our differentiated dividend.

And as we've said before, we're going to continue to balance between M&A and stock buybacks. We did do some stock buyback this quarter. As I mentioned, we did $300 million worth of it in this quarter. So we do look at that all the time to see what's the right use our cash and we will continue to do that going forward.

As far as the environment from M&A, I can see George wants to make a couple comments.

George S. Barrett - Chairman & Chief Executive Officer

Just generally, I think our team did a really good job of managing working capital. And so we're very conscious of – certainly we don't want it to sit still. If we're accumulating cash we will be very, very smart and balanced I think about how we deploy that.

As it relates to valuations out there, the primary driver for us, as you know, when we look at anything related to an acquisition is the strategic fit and how relevant that is to the changes in front of us in healthcare and whether Cardinal can be an advantaged owner of any given asset. And so we think a lot about those execution things.

Obviously, valuation when it's coming back to a better place, certainly makes those transactions can make them more attractive. But at the driver is always going to be that strategy piece and how we, as Cardinal, can create value from it.

Elizabeth Anderson - Evercore Group LLC

That makes a lot of sense. And then just as a follow-up, I was just wondering in terms of you mentioned that obviously Red Oak was a contributor in the quarter. Have you seen any change in outlook in terms of how it's been helping you guys or any change in the way you're working with that structure?

George S. Barrett - Chairman & Chief Executive Officer

No, I was just at the board meeting in the last week and continue to be incredibly excited about the talent at Red Oak. It's just a fantastic team. Our relationship with CVS continues to be both strategic and positive to work together on opportunities with Red Oak, not only today but going forward.

Clearly, we'll be lapping some of the initial opportunities that we saw in Red Oak. When you go from nothing to starting up and executing as quickly as we did, we had some large incremental upticks over the first couple of quarters. And that would be coming down a little bit. But as far as it continuing to be a benefit for us, we continue to see Red Oak to be a positive driver for us going forward in the future and we continue to be excited about it.

Michael C. Kaufmann - Chief Financial Officer

I'd just add we continue to talk to a lot of our manufacturer partners and I think they really appreciate the simplicity of the way that we created that model and they know what to expect and how to work with us. And so the team there and Mike and the board at Red Oak have done a great job.

Elizabeth Anderson - Evercore Group LLC

Perfect. Thank you so much.

George S. Barrett - Chairman & Chief Executive Officer

Welcome.

Sally J. Curley - Senior Vice President-Investor Relations

Operator?

Operator

We'll go next to Ricky Goldwasser of Morgan Stanley.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Yeah, hi. Good morning. I have a couple of questions here. The first one, George, if we step back, right, and we think about the generic pipelines, the generic inflation environment and the industry dynamics, how should we think about the long-term growth for the distribution segment in a normalized environment? So beyond fiscal year 2017 in the nuance of contract gains and losses, but just when we think about the core industry drivers.

George S. Barrett - Chairman & Chief Executive Officer

So, good morning, Ricky. At this point, obviously we're not going to be guiding long-term forecast for our business unit. But let me just give some color to the Pharmaceutical Distribution business. We are incredibly well positioned. I'm not sure that I've ever felt that we're better positioned, certainly through my tenure here, in terms of the way that we're creating value for customers, the strength of those relationships, the opportunities in front of us to continue to use the value creation that has occurred through I think the strength and capability of Red Oak on generics. Demographics are certainly a positive for us. So I think our long-term view is quite positive.

We are going always have these dips related to activities in the market or pricing dynamics or launches. But fundamentally, I think this business is really robust, we're extremely well-positioned and we feel very optimistic over the long-term of about its growth prospects. And I think you've seen over this last couple of years that our positioning has improved quite substantially.

Ricky Goldwasser - Morgan Stanley & Co. LLC

Okay. And then, obviously, we heard that you won the Kaiser contract on the Med Device segment. So congrats on that. Can you maybe share with us what you think differentiated your offering versus the incumbent, what's included in that contract, if any of the new businesses that you've acquired are in it? And also, there's still a decision pending on the drug purchasing contract. How do you think about this opportunity? And are there any read-throughs between the two, or are these completely separate decisions?

George S. Barrett - Chairman & Chief Executive Officer

Right. Thanks for the question, Ricky. Yeah, look, we did confirm that we were awarded the Med-Surg supply for Kaiser. We do expect that probably to transition over the coming quarters. I do think it was really about the broad capabilities of Cardinal to create value in a market going through a change.

I think, again, it's not fair for me to speak for Kaiser, but I think the general dialogue was really about the future, about the evolution of their business, how they're going to have to serve a customer base that continues to be treated in different care settings and our ability to take care of that as well as the services and technologies that we may be able to bring to them that improve efficiencies in their operations.

So I think increasingly that discussion is occurring with our largest customers. They understand that complexity is increasing and that those partners that can help them navigate that are probably more attractive as they go forward. And I think that was a differentiator for us. Again, being careful not to speak for them.

There are other lines of business, obviously, that we serve to the market and Kaiser is looking at those. I could not comment on the status of any of those. It's not appropriate. I will say that we're well positioned with Kaiser or anyone else on other lines of business, whether or not that's a surgical kitting or service to the home or pharmaceutical distribution. So as I said earlier, I think I really like our positioning, but I don't think I can comment specifically on Kaiser and those lines of business and how that's going to unfold.

Operator

We'll go next to Bob Willoughby of Credit Suisse.

Unknown Speaker

Penny Willoughby (37:05) in for Bob. It doesn't look like Cordis has any impact on your working capital balances. Should we be expecting any shifts in future quarters, for better or worse?

George S. Barrett - Chairman & Chief Executive Officer

So I think that is Bob's daughter, Penny (37:19). It is Bring Your Child to Work Day. We have hundreds of kids buzzing around the halls here. So good morning.

Michael C. Kaufmann - Chief Financial Officer

Yeah.

George S. Barrett - Chairman & Chief Executive Officer

Mike, do you want to take this?

Michael C. Kaufmann - Chief Financial Officer

Yeah, absolutely. I'm sure that Bob has a smile on his face like we do here when we walk in in the morning being able to do that. Penny (37:36), I would say that right now I don't that the Cordis acquisition will have a huge capital change in either our capital deployment policy or in our cash flows or anything going forward.

I still feel really good that with all the other moving pieces we have in our businesses, we're always focused on managing our capital as tightly as possible, making the right investments at the right time, whether it be with our supplier partners, our customers or in M&A or stock repo. So I don't think it's going to have any material change going forward.

Unknown Speaker

Thank you.

Sally J. Curley - Senior Vice President-Investor Relations

Thank you, Penny (38:12), for the questions.

Michael C. Kaufmann - Chief Financial Officer

Thank you for the questions.

Operator

We'll go next to Eric Percher of Barclays.

Eric Percher - Barclays Capital, Inc.

Thank you. I'm still trying to wrap my head around sequential trend. And if I understand you right, it sounds like on the Pharmaceutical side, you're seeing normal seasonality and then Safeway, so it sounds like we could use Q4 as a proxy moving forward. So I ask that first.

And then the second half would be in Medical at the segment level, obviously a very strong quarter. You won't have the $21 million headwind next quarter. But you mentioned that there's going to be some timing issues over the next couple of quarters. So I guess, first, can I confirm that around the Pharma side and then your thoughts on Medical?

Michael C. Kaufmann - Chief Financial Officer

Yeah, so from Pharma, yeah, the first two big items I talked about were more majority Pharma. But, again, part of the branded inflation, when I talked about part of that also in Medical. Medical also sees a slightly better Q3 than Q4 from a price increase activity. But clearly you're absolutely right, the largest piece of that branded inflation component happens in Pharma Distribution. And sequentially Q4 is always a much smaller quarter than Q3. And then the Safeway piece is the other piece. So, yes, on Pharma, that would be it.

As far as Medical goes, yeah, that's what I was trying to get a little color. As we're bringing on Cordis, again, some of the things I mentioned. And we've got several different types of transition service agreements that we have in place with J&J, each with different timing of when we roll off of those and how we can work through those. We have different Day 2 (40:00) countries coming in on different timing and then we have certain expenses where we're ramping up on new head count and then also getting after the synergies and taking expenses out in other areas.

So all of those things create some variability between quarters. And so, again, those Cordis results may not quite be as linear as you would expect them to be for a few more quarters until things normalize for us.

Eric Percher - Barclays Capital, Inc.

Are there dollars flowing out today for the transition services that will dissipate and then at the same time you may have higher upfront costs to stand up, the same (40:32)?

Michael C. Kaufmann - Chief Financial Officer

Yes, I think that's a really good way to look at it because we're incurring costs to stand those up, then they transition out. And then net-net, we expect all of that to be a positive force. As we mentioned, in FY 2018, as we exit FY 2018, we expect to be at $100 million of synergies on Cordis. So we're still expecting that as we exit FY 2018.

But there'll be a lot of noise as we're standing up, at the same time we're still on and then we roll-off those transition services agreements into what we think are going to be better cost situations for us. But, again, I think it's really important to know that the underlying Cordis business is doing really well, done an excellent job of staffing up, both from management and the sales teams.

Operator

We'll go next to Lisa Gill of JPMorgan.

Lisa Christine Gill - JPMorgan Securities LLC

Thanks very much. So, Mike, when you talked about 2017, and I know that, at this point, it's qualitative. But you are highlighting Medical versus drug. And if you look at the results in this quarter, and I know the previous question asked about next quarter and how do we think about it going forward, but can we talk about some of the underlying drivers in more specifics to this quarter and how to think about them going forward?

And my first question would be around private label, the Cardinal products. Can you give us any indication as to what percentage of the sales that was? Does your new contract, for example, include private label for companies like Kaiser? And how do we think about the growth component of that as we start to think about 2017 and beyond?

Michael C. Kaufmann - Chief Financial Officer

Yeah, I can't specifically get into what the product mix will be with Kaiser. But as you can imagine, with any customer we have, we're constantly looking to be able to shift them to our products, both to save them money and improve our margins and work together positively. So that's the goal with every single customer we have.

As far as some of the other private label products and the percentage, I will tell you that it is going up significantly. But we plan to give a more detailed update at our Dublin Day in June, when Don is going to spend some time walking through how all of those mechanics are working and how things are going. But suffice it to say we're seeing some nice improvement, both as a percentage of revenue as well as a percentage of margins on our products. So that's a real positive.

George S. Barrett - Chairman & Chief Executive Officer

Yeah, let me add to that, Lisa, just to give some color. In the last two years, we've probably added 2,000 SKUs to that line. So this has been a very focused effort to expand that line, which we think really creates value for our customers and for us.

Lisa Christine Gill - JPMorgan Securities LLC

And, George, I think historically at your last Analyst Day, you talked about a goal of 5.75% as a margin for the Medical segment. Do you feel that you can get there with the assets that you have today and private label? Or do you think you need to make incremental acquisitions to add to the offering to ultimately get to that goal?

George S. Barrett - Chairman & Chief Executive Officer

Go ahead, Mike.

Michael C. Kaufmann - Chief Financial Officer

Yeah, I don't think anything has changed from the last meeting that when we talked about this before, again, it's an aspiration, which means it's something that is not simple, it's not a lay-up to get to.

But when we really take a look at what we have on tap, both internally with our organic growth with Cordis, with our growth in our distribution services business, with our new post-acute business acquisitions, At Home growing faster than we expected, et cetera, we expect to see very good performance against that goal organically. But we also have said we would expect to get there we would need to do some more M&A.

Sally J. Curley - Senior Vice President-Investor Relations

Operator?

Operator

We'll go next to Dave Francis of RBC Capital Markets.

Dave Francis - RBC Capital Markets LLC

Hey. Good morning. Again, a couple of different items that you've already covered, but quickly on the generic pricing front. George and Mike, are you guys in a position, given your look at the broad portfolio of products, to see on the uptick of ANDA approvals at FDA, if there is a targeting effort going on by FDA to look at some of the lower competition, higher-priced pockets of the market to potentially create additional competition and, therefore, lower pricing in the market? Or is this something that you guys just don't have a good window into right now trying to figure out directionally where the market's going?

George S. Barrett - Chairman & Chief Executive Officer

Yeah, Dave, that's a great question. I wish I knew the answer to it. I'll give you some historical perspective, but I cannot tell you about the inner workings and how they're seeing this. Historically, the FDA has been very conscious of getting first drug to market and always took priority to make sure that they could do that to encourage competition. Whether or not they're targeting specific drugs is really hard to say. I don't think we would have line of sight on that.

You know that they've expressed publicly and to Congress that they're really working hard to dig out of the backlog. What is probably worth also nothing is the inflow into to them continues to be very high, but the outflow has increased but the incoming number of applications continues to be really robust. But I don't think we have enough line of sight or insights into their thinking to know that they're targeting particular drugs.

Dave Francis - RBC Capital Markets LLC

Okay. That's helpful. A quick follow-up, shifting back to the Kaiser win. As you look more broadly at the marketplace, you've seen other leading health systems out there identifying the physician preference item issue from a cost perspective. Where would you say the market is relative to recognizing some of the overall trends that you guys are trying to get after relative to the changing reimbursement environment and how that might play out for you over the intermediate to long-term? Thanks.

George S. Barrett - Chairman & Chief Executive Officer

That is essentially part of the work we do in our segmentation. There are certainly systems who are very much on top of some these trends and pushing very hard to improve efficiency through standardization. And there are others that are just at a different stage. So it really varies across the country and across the systems.

And I would also say, different programs have different sales cycles. So for example, on the consumables side, you're probably going to have a faster sales cycle than you will, for example than on the physician preference side and where you want it, it requires a little bit more buy-in in the system. So I think you'd have to look at those a little bit differently from the commodity-type consumables to products that are more used in the traditional physician preference area. So, again, it varies a little bit by product type and it certainly varies a lot by system.

Overall directionally, as we've seen more bundled payment models, more payment for performance, shifting financing models I would say this trend is well understood and most institutions are trying to push in that direction. That's probably good news for us.

Sally J. Curley - Senior Vice President-Investor Relations

Operator?

Operator

We'll go next to Garen Sarafian of Citi.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Good morning, George and Mike. So I just wanted to go back to your generics commentary. So for a bit of clarification, but more a clarification at this point. You mentioned flat to slightly deflationary environment. But previously you've stated you're protected to the down side. So you'd be protected to the extent it becomes deflationary, is that the right way to think about it?

And maybe related to the generics again. If there's any way you could help us think through qualitatively the size of the generic contribution step-down in fiscal 2017 in either moderating inflation or in new introductions, that would be helpful.

Michael C. Kaufmann - Chief Financial Officer

Yeah, let me take a couple of comments and if I miss something, please feel free in the follow-up. But I think first of all, yes, when it comes to inventory, we are price protected on inventory. And so I don't have any concerns that as we see deflation on any generic inventory or any item that we have any generic inventory risk. So let's just take that one off the table first. That one's not a concern.

As far as we what think the rate of deflation will be, obviously, that's a tough one. But there is a lot of market commentary out there around it. And from what we're hearing if you listen to some of the various manufacturers and the discussions, what we're assuming is probably similar to what they're seeing is that we think that our expectations for next year are probably going to be very similar to what those are that you're hearing from the manufacturing partners.

George S. Barrett - Chairman & Chief Executive Officer

I would just add that, again, as Mike said, you're talking a little about the purchasing and the inventory. But there's also the market side, which is reimbursement pressures. And we have to live in that environment and so we're very sensitive to that. And that's a part of the dynamic as well.

Michael C. Kaufmann - Chief Financial Officer

Yeah, and also when we're in a net deflation environment, that doesn't mean there's no inflation. That just means that the net deflating items will be more than the net inflating items and that's how you get to a net deflationary. So don't interpret our comments to say we expect no generic inflation over the next year. I always believe there's going to be some. It's just going to be net down.

Garen Sarafian - Citigroup Global Markets, Inc. (Broker)

Okay. That's helpful. And then maybe touching on Red Oak. It's clear you've been very pleased with the results of your JV so far. But what's the bar you're trying to set in upcoming quarters and years to the extent you can share? So maybe taking a step back, now that you've established your joint venture as a successful purchasing entity in the past two years or so, what will Red Oak need to do in two years, three years from now in addition to what they're doing now for you to consider them to be a success?

George S. Barrett - Chairman & Chief Executive Officer

That's a great question. I think some of the basic things you would have to do at any business. You've got to be able to add and develop talent and make sure that it's sustainable. And that's something that I have no concerns that we won't be able to do, but that is something that any business has got to do.

I think you've got to continue to increase your data and analytics capabilities so you can understand and be more proactive on various opportunities to either lower cost or find new folks in the system that can help you get after increasing competition where you may need it on certain items, understanding what's going on in the API environment and working backwards.

I think those are always important. Understanding really well what's going on with the various legal cases, all those types of things are really important as you work forward. And then obviously scale is important, too. And I believe that's another great piece about Red Oak is when you look at both Cardinal's success recently and over its history as well as CVS' progress, then you're going to see scale continuing to increase, which I think will always be beneficial to Red Oak.

Operator

We'll go next to Greg Bolan of Avondale Partners.

Greg Bolan - Avondale Partners LLC

Hey, great. Thanks for taking the question. So just from a capital deployment standpoint, I know you guys obviously used $300 million of the $700 million this quarter. Just thinking about and in a sense going back to Bob's question earlier, moving from 2Q to 3Q obviously, a few levers were pulled, buyback being one of them. I guess as we think about moving into the fourth quarter, is there an opportunity to become more aggressive with the buyback authorization, or at this point feel pretty good with that $400 million, that should last at least through to the end of this year and obviously re-address what's authorized as you think about fiscal 2017?

Michael C. Kaufmann - Chief Financial Officer

Yeah, thanks for the question, Greg. As you can imagine, with a company with our scale and breadth, there's a lot of things going on from an M&A standpoint that we're constantly looking at as well as looking at whether stock repurchases is the right opportunity. So as far as the numbers go, you're right, we do have just a little less than $400 million left on our stock repurchase program.

So if we do see some opportunity in the fourth quarter, if we do believe that is the right place to put capital, we do have some ability to do that without any further board authorization. But to be able to say whether we'll do that or whether we'll do an M&A, it's really hard for me to do at this time and something that I can just tell you we constantly evaluate where's the best place to deploy our cash.

Greg Bolan - Avondale Partners LLC

That's great. And then just one quick question going back to an earlier question on Medical segment operating profit. Organically it absolutely you can see that the incremental profit margin is accelerating in that business. Clearly that seems to be, George, going back your comments around the large number of SKUs that have been introduced on the branded side. I guess if you think about the mix in Medical segment revenues and profit, is it safe to say that the operating profit contribution from the branded products is around double that of the contribution to revenues?

George S. Barrett - Chairman & Chief Executive Officer

Greg, let me try that. I don't think we can break that out for you. I'll probably answer more generally and I hope the color will be useful. We always see, and I mentioned this on prior calls, that on the branded side of Med Surg distribution, those have over a long period of time have been declining.

What has been happening, and this is sort of what we've been describing to you guys, is that the range of services that we provide that are high value, the number of products that we're providing in our private label, the mix of our business, the work that Don and his team have done, is beginning to bear fruit. And so what we're seeing is what I would describe is our organic – what you'd call organic, it's so hard for me to actually parse that out these days, but some of our historical lines are doing very well. They're competing well in the market. We're expanding the products and services. And I think that's beginning to bear fruit. So I can't break out the components for you or predict it, but what I can say is that directionally is a very positive thing.

Michael C. Kaufmann - Chief Financial Officer

Yeah, the old numbers, just so you remember, was that our Cardinal Health preferred products and consumable products in total as a percentage of Med segment profit, as revenue it would be in the low-20s of Med revenues and in the higher-30s for Med segment gross margins.

And that is something that we plan to update ay our June Dublin Day when Don gets into a little more detail about the Med segment and as he gets a chance to evaluate what's going on with the Cordis acquisition. But it's safe to say it will be much higher when you see it.

Operator

We'll go to our next question from David Larsen of Leerink Partners.

David M. Larsen - Leerink Partners LLC

Hi. George, you mentioned in your prepared comments something about reimbursement rates to your customers. Can you expand on that a little bit more and maybe touch on hospitals, docs, retailers and how you see reimbursement rates trending for that group?

And what do you think of this Part B rule that was proposed? What impact could that have on your business? Thanks.

George S. Barrett - Chairman & Chief Executive Officer

So, Dave, let me start with my comments were primarily addressing the retail side, but I'll be happy to weigh in on the others. So, yes, I think the dynamic obviously, all the payers, whether it's the government or private payers, are working very hard to contain cost, reimbursement is one of the tools that they have. And so as they press those customers, we have to be there to support our customers and make sure that they're able to compete and run their businesses. So it's just a dynamic in the market that we have to live with and we're very sensitive to. I think our customers trust that we understand this dynamic.

As it relates to the Med B proposal, as you know, this got a lot of attention and got a lot of pushback. Let me start by saying it doesn't really have much impact on us very specifically, so that's important to note upfront. I think this is, again, an attempt – we'll see CMS trying to continue to do things to contain cost, to push us towards a more value-based system. Directionally, we understand that that's just very, very hard to do and they've got to be careful as they do that not to hurt providers who really are working hard to deliver care every day. And I think what they bumped into here was some very strong pushback in the provider world.

So I do think we'll see an active CMS. We expect that. I think they will make proposals regularly. Some of those will come through and stick and I think some with the system will say those are tough for us to adopt and they have adverse consequences. And this is probably one those ones where the market pushed back and particularly the physicians saying this was particularly painful for them. But this is part of the dynamic that we live with I think today.

David M. Larsen - Leerink Partners LLC

Okay. Couldn't the biosimilar component of the Part B rule be a benefit to your model?

George S. Barrett - Chairman & Chief Executive Officer

That's an interesting question. I'll probably be a little careful in answering because it's so early. The biosimilars, Dave, are still emerging. As you know, because you don't have this driver of the AB rating, it doesn't get the kind of instant uptick that you see with the launch of a traditional generic drug. And so I guess hypothetically the answer is yes, but we have to just recognize we're in very early days on the biosimilar side and I think a lot to play out still.

Operator

We'll go next to John Kreger of William Blair.

John C. Kreger - William Blair & Co. LLC

Hi. Thanks very much. George, earlier in the call you talk about a fair amount of customer consolidation within the Pharma Distribution business. Can you just remind us how you think that ripples through with pricing trends as some of those relationships come up for renewal for you?

George S. Barrett - Chairman & Chief Executive Officer

We have seen a fair amount of consolidation, certainly among the biggest players, biggest purchasers. I think, first of all, this is sort of unraveling – not unraveling, probably unwinding. Some of these are still in regulatory approval.

I think in general consolidation is a phenomenon that we've experienced over a lot of years. We're used to it. I think the question that we think about when we look at those consolidated customers is not just are they bigger, but so they have new kinds of needs, to stick needs where we have tools that can support them.

So I think the key for us as we think about these is not just whether or not we can be efficient in order to be price competitive, but as those combinations occur, do we have unique sets of skills that allow us to create value for those merged or different kinds of entities? I think increasingly we do.

So I think it's clear that we have scale and that we can be price competitive. But I think it's also other things that we want to be able to bring to any player, whether or not that's on the institutional side in hospital and health systems, or whether it's on the retail side.

John C. Kreger - William Blair & Co. LLC

Great. Thanks. And a quick follow-up on the Medical side. Where are you seeing the best traction with your private label and branded products? If you could characterize that, I'm curious if it's the big IDNs, if it's smaller, are you seeing any patterns emerge as you get more scale in that business?

George S. Barrett - Chairman & Chief Executive Officer

It's a great question. I wish I could discern – we're very good at analytics. It would be very hard to discern a pattern. We do a lot of work to segment our customers. It really varies. It's very specific to the account, the nature of their buying organizations, how active the CFO in the C-suite is in the activities deeper in the organization. So it really varies a lot and it would be extremely hard to discern a very clear pattern.

John C. Kreger - William Blair & Co. LLC

Interesting. Okay. Thank you.

George S. Barrett - Chairman & Chief Executive Officer

You're welcome.

Operator

We'll take our last question from Charles Rhyee of Cowen & Company.

Charles Rhyee - Cowen & Co. LLC

Yeah, thanks for squeezing me in here, guys. Just one question. George, you alluded to beforehand with naviHealth, just curious how you're looking some of the programs that are going on in that area, so like the Bundled Payments for Care Improvement Initiative, also I think the more recently the Joint Replacement one. And can you talk about how naviHealth is helping you position there, particularly in BPCI? My understanding is that program is not really open, it's still sort of pilot. So where are we in terms of process and when do you think that's going to be broadly opened up for hospitals again?

George S. Barrett - Chairman & Chief Executive Officer

Right. So let's start with the basics. I think some of these programs we just have to remember are in their early phases. But there is, Charles, I think no question that there's a push both from the public through Medicare/Medicaid and through private payers to try to encourage payment models that are not fee-for-service so that are some kind of value-based program.

The tools that we have in naviHealth are really interesting. And, again, remember that these have been primarily directed through the naviHealth history at helping hospitals direct care post-acute. But I think that that skill set of being able to look at how to identify different ways of creating payment models, how do you help the hospitals that are going to have to live in that world, how do you help them navigate this. I think what we have in naviHealth is enormously valuable.

And I think actually for a relatively small business, it's generated a lot of discussion between us and our customers. But, again, BPCI is early. CMMI, looking at that program, early days in all of these but the direction I think is unambiguous. I think there's more push to move away to the extent possible from the fee-for-service. And I think tools of naviHealth and the work that we do in Curaspan, which touches 600 hospitals in their customer base and 8,000 post-acute providers, those kinds of tools I think are going to be increasingly valuable to us.

Charles Rhyee - Cowen & Co. LLC

With naviHealth, have you seen that already with the hospitals they serve and as you're looking to help direct the appropriate discharge location and that's how you can save money for the system? Is that advantaging on your AssuraMed side on the home distribution business yet?

George S. Barrett - Chairman & Chief Executive Officer

Yeah, I don't want to get ahead of us here, again. Remember, it's early. But I think it's safe to say that the discussions that we're having with large institutions around naviHealth help us as Cardinal Health position ourselves in the big sense as understanding the challenges and the forces in the market and having sets of solutions and tools that we can bring to bear. So I think as an asset in the Cardinal Health portfolio, it is creating some unique conversations. And, again, I don't want to get ahead of us. It's early, but we're quite encouraged.

Charles Rhyee - Cowen & Co. LLC

Great. Thanks a lot, guys.

George S. Barrett - Chairman & Chief Executive Officer

You're welcome

Michael C. Kaufmann - Chief Financial Officer

Thanks, guys.

Operator

At this time, I would like to turn the call back over to George Barrett for any additional or closing comments.

George S. Barrett - Chairman & Chief Executive Officer

Well, thank you all for joining us. It's been a long call. I appreciate you taking the time. We look forward to seeing many of you in the coming weeks. I'll just finish by saying we're excited about the performance of the quarter, looking forward to times with you in June and those of you who'll be able to join us for Dublin Day. And I hope you have a good day. Thanks, all.

Operator

Thank you. That does conclude our conference for today. We thank you for your participation.

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