Executives
David Smith - Chairman and CEO
David Bronson - Executive Vice President and CFO
Robert Weiner - Vice President , Investor Relations
Analysts
Lisa Gill - JP Morgan
John Kreger - William Blair & Company
Larry Marsh - Lehman Brothers
Eric Coldwell - Robert W. Baird
PSS World Medical Inc. (PSSI) Q1 2008 Earnings Call May 8, 2008 8:30 AM ET
Operator
Ladies and gentleman, thank you for standing by and welcome to the PSS World Medical fiscal year end 2008 conference call. (Operators Instructions) I would now like to turn the conference over to Robert Weiner, Vice President , Investor Relations; please go ahead sir.
Robert Weiner
Thank you Jennifer. Good morning everybody and thank you very much for joining our call today for the fiscal year 2008. I know it’s a busy earning season, lots of people all over the place, so we’ll try to be mindful of that. Today on the call our speakers our David Smith, Chairman and CEO; David Bronson, Executive Vice President and CFO.
We issued two press releases last evening for fiscal year 2008 and our EPS goal for fiscal years 2009 through 2011. If anybody needs a copy of these please call us here at Cooperate Headquarters 904-332-3000 to request a copy and we’ll get one out to you. Our releases and the financial work book for fiscal year 2008 are available on our website at www.pssworldmedical.com. The financial work book as many of you know contains GAAP and non-GAAP financial measures that will provide a lot greater detail into each of our business.
I will now look at the forward looking statements. During this call we may make a number of forward-looking statements regarding revenue, gross margin, operating expenses, operating margins, earnings per share and others matters that are not historical facts. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from what is expressed or forecasted. For a list and description of certain of these risks and uncertainties we refer you to the forward-looking statement disclosures in today’s press release and to the other information provided on our most resent form 10K and other SEC filings, copies of which are available from the SEC or the Investor Relations section of our website or from our office here in Investor Relations.
The Company wishes to caution its listeners on this call and its replay not to place undo reliance in any such forward-looking statements. These statements are made pursuant to the Private Security Litigation Reform Act of 1995 and as such speak only as of the date made. The company also wishes to caution our listeners that we undertake no duty or is under no obligations to update of revise any forward-looking statements.
Let me remind you we reference certain non-GAAP financial measures in an effort to provide additional information to Investors. All non-GAAP measures have been reconciled to the related GAAP measures in accordance with SEC rules. You’ll find reconciliation charts at the end of our financial work book and in our Form 8K submitted to the SEC.
As David Smith mentioned in the press release, we will hold our Annual Investor Day in Boston on May 22 on Thursday. Please call the company should you need additional information about this meeting. For our call today we will follow our formal remarks by Q-and-A session sponsored by the operator. We will limit the call to no more than one hour duration as we spoke about the heavy earning season. I am now pleased to turn over the call to David Smith, our Chairman of the Board and Chief Executive Officer.
David Smith
Good morning everybody. Thank you for joining us.
This is our fiscal year 2008 year-end conference call. In addition to announcing our year-end results, we disclosed our next three years strategic plan goals in a subsequent press release last night. Our Investor Day, as Rob said is May 22 in Boston and can be seen on our website.
We announced these three year goals ahead of the meeting to fill the artificial vacuum of silence between today’s call and May 22. The new 19% growth goals are good. However, the quality of our strategies, the investment tactics and combined with the 19% growth goal and Q-and-A with management, we will be better. So plan on joining us in Boston on May 22.
Today’s call is about fiscal 2008 results and the completion of our 2006 to 2008 three-year strategic plan. Even with the stock pullback along with the market, our shareholders have gained 34.8% compared to the NASDAQ composite gain of 13.9% during this planned period.
We believe the bedrock foundation of that shareholder gain is the execution by our people of our strategic plan. They have successfully grown revenues over two times that of competitors utilizing innovative and unique customer solutions, new products and programs and they have embraced change with enthusiasm and competency.
We have successfully created three relatively new businesses with $230 million of select brand sales, $280 million of pharmaceutical sales and $150 million of homecare sales. Along the way, we dealt with revenue growth adversity. We made the decisions to exit $200 million of full vaccine business and chain smith until conditions improve for us and our customer.
We have driven innovation with products and services and systems, bringing real value to our customers. Examples include REPARA, our room care product; Smartscan, our customer automation tool, our new Athena heath relationship, our unique Insignia and Tiger Medical QC and sourcing relationships, and dozens of customer focused distribution services.
Overall, our revenue growth was strategic. But it also is what we call smart growth. We were able to leverage our infrastructure systems, core competencies, and people’s bandwidth and new processes for record operating profit, cash flows and return on committed capital performance.
Over the three-plan-year period, our operating margin expanded 230 basis points. The consolidated return on committed capital hit in Q4 of 35.7% and 20% for fiscal 2008.
During the three year plan, profit growth success overcame various types of adversity, from hurricanes and gas price increases plus the $200 million of annual revenue we smartly exited. We actually missed our three year operating margin goal as a result of costs incurred to comply with the new pedigree laws.
Most important to all the success and adversity, we stayed true to our principles and focus. Our execution culture and customer-centered business are both healthier than they have ever been before. Today, I can tell you we are focused on our people, innovation and service for our customer, smart and profitable growth with ethical behavior and balanced decision making and of course, execution, execution, execution.
Before I turn the call over to David Bronson, let me comment on 2009 through 2011 three year plan. We did pre-announce the goals to remove the artificial silence between today and May 22 our investor day. Our three year plan just handed or produced a 13% compounded growth; our goals for the next three year plan period produced a 19% growth. On May 22, we will discuss the strategies, significant investments, tactics and metrics that formed the foundation of the plan; as well as assumptions concerning our industry, reimbursement, the economy and competitors that influenced our strategy, everything from our recent trip to Asia to meet with the vendors, to current economic and customer trends.
The new plan is similar to the old; the continuation in progression of business themes, similar risk profile, but it also includes new products, programs, initiatives and some significant investments, but it’s also still more about execution than -- it’s aggressive and adaptive to the needs and trends of our ever changing environment and customer and we are looking forward to joining you on May 22.
David Bronson
Thanks Dave and good morning everyone. I am going to start with a quick review of our financial results for the just completed quarter, our fourth quarter for fiscal 2008. Then I will talk a little about full year results and some balance sheet and cash flow metrics for the Company. Consolidated revenue growth in the quarter was 11.4%. Of the $51 million of revenue growth of the prior year about $4.5 million was from an acquisition in the physician business completed last spring.
Revenues in the physician business grew 13.6% in the quarter and Elder Care sales grew 6.2%. Growth in revenues was across the board in all strategic categories with Select, our private label brand growing 22% in the physician business and 23% in Elder Care. Equipment revenues for the physician business grew by over 8% and sales of the pharmaceutical product grew by 17.5%. For Elder Care we saw an acceleration of growth in home health agencies to 11% over prior year.
Operating earnings grew by almost 21% in Q4, operating income as a percent of sales was 8.4% for the physician business, 5.2% for Elder Care and 5.9% for the Company overall, a 40 basis point improvement from Q4 of last year. We monetized the portion of our investment in Athena health during the quarter which generated a pre-tax gain of about $4.6 million. That gain shows up on the other income line of our P&L and added about $0.04 a share to our quarter which we reported last night at $0.31 per diluted share.
You may have noticed that our effective tax rate for the quarter was higher than usual. Our quarterly tax rate as we have noted in the past is subject to some degree, to volatility in the stock markets such as we saw this past quarter and is related to deferred compensation retirement plans whose underlying assets are mark-to-market. When the market goes down sharply our deductible G&A expense is lower and the lower deduction increases our tax rate. The offset happens in periods when the market turns up sharply. A full year tax rate of 39.3% is closer to our normalized rate we usually expect going forward.
During the quarter we repurchased 2.9 million shares in open market transaction for about $50 million. Operating cash flow for the quarter was $24 million and very good results in accounts receivable management with both businesses improving both in terms of DSO’s outstanding and also in the ageing statistics and we also saw this quarter some improvement in our inventory returns.
Now, for the full year; reported revenue growth for fiscal ’08 for the Company was 6.6% and as Dave mentioned and as most of you are aware which has not participated in the full vaccine market this past year. Revenue growth for this year excluding last year’s flu vaccine sales $49 million would have been 9.6%. On that same basis, the physician business grew by 11% in fiscal ’08; Elder care grew by 6.4%. Both these results significantly over achieved our goal of growing at least twice as fast as the market and reflect the success of our innovative sales and marketing programs, the rapid growth of our Select product lines, the quality and focus of our sales force and the breadth of our product and service offerings.
We had double digit growth in operating income in each business in fiscal year ’08. The physician business did however fuel the effects of increased pedigree costs as a drag on operating income growth this year.
The Elder care business grew their operating income over 16% for the year and achieved an operating margin of 4.6% up 40 basis points for the year. The physician business generated 11% growth in operating income for the year, again impacted by incremental operating costs as we complied with the pedigree and regulations here in Florida.
We continue to gain operating income leverage from our model even though some of costs this year had somewhat matched the improvements. Even so we generated incremental operating margin of 9% on new revenues and 10% in the fourth quarter as some of our pedigree related costs began to diminish and just to provide some color, excluding the pedigree related costs of $6.3 million incurred this year, our operating margin dropped through or new revenues would have been about 14% on the $114 million of growth in revenues.
Cash flow from operations was $69.8 million for the year, ahead of our goal of $63 million to $67 million and as Dave said, consolidated return on committed capital for the company was 28.1% for the year and 35.7% in the fourth quarter. Both of these are new highs for us and reflect very good progress toward our long-term goals.
We returned over $112 million to shareholders during the year, repurchasing 6.4 million of our common shares with an average price, $17.68.
I hope you will make plans to join us in Boston two weeks from today for our Investor Day where we will share the details behind the three-year earnings goals we communicated yesterday.
Now I will turn the time back over to Rob for questions.
Robert Weiner
Operator, if you could begin the queue, we will start taking questions now.
Question-and-Answer Session
Operator
(Operator Instructions) Thank you and the first question comes from the line of Lisa Gill with JP Morgan. Please proceed with your question.
Lisa Gill - JP Morgan
I was just wondering if you could just talk a little bit about -- you made a comment I think in your press release around fuel costs, can you talk about how much you are passing through to your customers and if there were any other drivers in SG&A this quarter besides fuel costs that didn’t meet your expectations and then secondly, when you look at the plan which you laid out for the next three years, can you just maybe talk about the different drivers -- I know that you said in the last three years, the growth was 13%, now you are anticipating 19%. Is there any big acquisitions in there and if there is not acquisitions, what are some of the drivers to continue to grow your operating earnings?
David Smith
I will take the fuel cost one. Our fuel cost in Q4 increased maybe a couple of hundred thousand dollars and we were able to pretty much offset that with either surcharges or increased efficiencies of our fleet and both of those continued to contribute to help us manage those costs. We do expect -- fuel costs have gone up very sharply more recently so we are doing the best we can to manage those costs with moving to a more efficiently better route planning, schedule delivery so that customers -- there is a number of triggers that we continue to work with our customers to manage those costs, but that was the effect in the quarter.
Lisa Gill - JP Morgan
But and -- isn’t that part of what you are talking about for 2009, but that will impact 2009 versus 2010, 2011 from a guidance perspective.
David Smith
So, Lisa it’s a great question and I can’t wait to explain it to you on May 22. I will tell you that…
Lisa Gill - JP Morgan
I will be there on May 22, David.
David Smith
Lisa I will tell you that acquisitions are historically never in our numbers which was the first part you asked and it’s impossible to really predict those, so we really don’t put them in and I wouldn’t expect that we ever would, so no to that first part and I would just say come on May 22; can’t wait to explain how we are going to hit 19%.
Lisa Gill - JP Morgan
Great, well I absolutely will be there on the 22nd, I look forward to seeing you but let me just ask one other question then; when you look at your private label Select product with the weakening dollar are you seeing any impact around your purchasing ability on that?
David Smith
Another great question, I can’t wait to show you our strategy for that on May 22 and I would just tell you that, yes the dollar has declined as the currency. Yes, costs are rising all over the world and fortunately we got a lot of volume going up that helps us with negotiations. We also have some really good partners that help us with detailed evaluations of the factory costs themselves that bring a lot of value and I can’t wait to explain all that to you on May 22.
Operator
Thank you and the next question comes from the line John Kreger with William Blair. Please proceed with your question.
John Kreger - William Blair & Company
Hi, thanks. Given your responses to Lisa you may not want to answer this, but if you look at your three plan David it does have a similar volatility, a variability from one year to the next across the three years; other than the selling day difference anything else that you can comment on now that might be driving that.
David Smith
Well you know there is -- again May 22 will be a great conversation. It also, John you probably would answer this the same way; there is a lot of uncertainty in the world we are in today and we probably are looking at all those things as factors that influence our strategies and our assumptions, so not too many people know what’s going to happen this next year. If they do they have got a crystal ball and they make a lot of money. So we have to look at the world around us, we have to look at the economy, we have to look at health care in general and make some assumptions and I think we have done that effectively and I’d really like to walk that through with you on the 22nd.
John Kreger - William Blair & Company
Okay great thanks what is you sales force telling you about how the economy is impacting their customers?
David Smith
That’s a very good question. Everybody is costs are up; everything from coffee to the employees that work at everyone of our customer accounts and even everyone of our employees here facing higher food cost, higher living cost, and people are having to make trade-offs, people are having to make decisions and one of the greatest times to have a solution based sales force is when you have a access in the market where people are looking for answers, people are looking for ways to save money. It’s great to have your own brand that is a high quality product that you can help them reduce cost at the patient level, it’s a great time to have systems that really drive efficiency for both inside the distribution model and the customer and it’s really a great time to have unique product offerings that can help generate revenues or improve patient care at the same time to offset some of these costs. So I would say that not one customer is not dealing with the same things. Everyone one of our employees and everyone -- your people that you work with are dealing with which is rising food cost, rising energy cost, rising housing cost, etc.
John Kreger - William Blair & Company
Great, thanks and one last question, I noticed your -- it looks like your corporate expenses were a bit higher in the quarter than normal, anything in particular driving that?
David Bronson
The gain that we recorded on the sale of securities coming as it did at the end of our three-year plan, did have an impact on compensation expense for the quarter because it’s a three year plan, we had to true up the compensation all in the quarter. So that caused it to be a little bit higher.
Operator
Thank you and the next question comes from the line of Larry Marsh with Lehman Brothers. Please proceed with your questions.
Larry Marsh - Lehman Brothers
Good morning Dave and David, just a couple of quick questions to you. First, Mr. Bronson thank you for all the details of the distributions that clearly -- and I guess you are seeing over selling these this year versus last 64 is that right?
David Bronson
That’s correct.
Larry Marsh - Lehman Brothers
Okay. So your pharmaceutical sales were up a little bit stronger than I would have thought, but just to summarize, what was it specifically that drove that up increasing internal growth; this particular quarter, was anything of note that you would say was particularly worth calling out for March?
David Smith
Hi, Larry. I think the biggest win in the physician business was our diagnostic line, our lab diagnostics and our rapid diagnostic products. We had a couple of things. It was 27%, I think. It was a big number. 27.1% is what I’m seeing in my head. Really it was a couple of factors; one, we came out with some new products that we are pretty excited, some of our owned Select diagnostics. At the same time, unfortunately for the US, there was a pretty tough flu season because the vaccine really didn’t match up well with the flu. I know -- I was the person that got a flu shot but that’s it and it was a pretty bad bug and I definitely went to the doctor and tried to find out what was wrong with me. I was 25.1 -- my partner, Ms. Bronson was ready, I hate that. So you had a combination of our fiscal year end, all of our kind of promotions and everything come into a head, you had a pretty high flu season and you had some new products come out for us in the diagnostics lines. Our equipment also was decent; probably the biggest gain we had for the year, and things like lasers and ultrasound were really moving well in the quarter and then Select grew really well and yes Pharma grew very well. So I can’t really -- I would have to pick out lab diagnostics and lapro diagnostics to say that that was the biggest gainer.
Larry Marsh - Lehman Brothers
Yeah, it was a particular manufacturer that helped that…
David Smith
Yeah.
Larry Marsh - Lehman Brothers
Are we going to hear about this aswell on May 22.
David Smith
No, no. Farmingdale and Imerdus were the two winners. Probably, I don’t know who got the most. Imerdus may have done better than Farmingdale. I have those numbers particularly in my head but they both did pretty well.
Larry Marsh - Lehman Brothers
Okay and should we think of that as more of just a end of your promotion or is that new product innovation that could continue to help you this year.
David Smith
The part that was related to the flue was definitely, transpatory, it’s seasonal. The part that had to do with us rolling out new products, I think you are going to continue to see ourselves and Imbernus be aggressive there and we are having discussions with Clydale, I don’t know what’s going to happen with them as far as participating in our programs, but they had a very good year with us, they had a very good quarter.
Larry Marsh - Lehman Brothers
Alright okay. The nip or so from Pedigree, mostly Pedigree this year which was.
David Smith
$5.2 million
Larry Marsh - Lehman Brothers
Yeah, so I know one of the things that -- I know you went through struggles with this, you’ll think about this next year as what do you with that because I probably see that recurring and I think specifically some of the programs you are investing in for fiscal ’09, but obviously that’s a big call out because it was -- the initial pressure would be a very easy comparison in the first quarter; are you going to explain all that on this 22nd or is there something coming out in terms how you are think about it that we should -- must be aware of.
David Smith
Actually that’s a really good question. There’s 20 states that have put it in or are putting it in, but I will tell you that even in Florida we are going to have costs. We are still transitioning out of Columbia into Orlando and will lead for the next couple of months product and so we had a transitory costs just from getting in compliance with the Florida law for Q1 and -- but I will tell you we have Pedigree cost going forward and I will tell you we have got some pretty nice investments for growth, that’s how we are going to get the 19% growth as we are going to invest in our business. So, it’s a combination of -- that doesn’t all go away and we are making other investments that yes we will get to on the 22, but your assumption on Pedigree that it just kind of disappears is I think rosier than I would like it to be from the stand point of reality, there is a lot of things. Fortunately California is delayed by a year or two there. Their launch because RFID wasn’t ready but they are other states that are moving forward and there’s legislation that is coming out right now, the federal level that should clarify a lot of it by the states, but you still probably have a year or two of transition between now or none, so we are going to have some costs that is associated with Pedigree going forward.
Larry Marsh - Lehman Brothers
So its sounds like you are assuming some additional costs this year.
David Smith
Yes, I don’t think it can go all the way. I think we are going to announce them going forward.
Larry Marsh - Lehman Brothers
I see and so just to clarify then I know you are encouraged by some notion in Florida about how the ABC interpreted as a law is being a little egregious. Are you saying that maybe not as much progress there as you thought in the legislature?
David Smith
No. I think we got a bill in the Florida. It looks very promising, very good that will clear up some of the unknowns and interpretation issues and I think will help everybody really get a sound footing. So, no I think that’s going to happen, I just think that even if that was perfect, I still am transitioning business from Columbia to Orlando and then we are still going to have an extra couple of bodies in Orlando. So even if it was perfect, the legislation in the past, here the next month or so, you would still have some transitory costs there even for Florida.
Larry Marsh - Lehman Brothers
Okay and finally in your Elder care segment -- you moved your market segment with that, have you seen any change in behavior around the customer’s ability to pay on a timely fashion and are you anticipating any change?
David Smith
Larry, we are very tough on receivables and we will not sacrifice the bell for cheaper and you know how many times I have said that. In our receivable, when you look at the workbook, you are going to see our receivable days are the lowest ever been in the history of the business for the long term care business. So we probably are sacrificing some growth. We could probably grow the top line faster if we weren’t as conservative on the balance sheet side. So I'm not sure that I'm seeing it but you may be seeing us be a little bit more conservative because we are worried about it. You are maybe seeing us asking questions about what are people’s bank line situations, what are peoples’ credit availability, what are their expansion plans. More so, how quickly do they pay and do they pay exactly on time. So you may have just -- the industry may not transition but I think we did. I think we became more introspective about the risk out there and more conservative in our approach and so we may have walked away from some revenues, we may have collected more of our receivables than anybody up in the industry just because I’m kind of worried about it and I think that we have done the right thing. I think that you will see this grow steady but you will not see us take risk on the balance sheet to grow that revenue. The root of the question you are asking me is the one I'm asking myself and have been for the last five months which is “are things going to change with their ability to pay?” and fortunately, I'm hearing a lot of different things for reimbursement. I'm hearing anywhere from a cut to a gain. I'm hearing anywhere from $700 million to $400 million cut to gain in the long-term care. So I think we have to wait and see which is -- some of the conservatism going forward, I think you have to be careful not to do anything wrong in a changing market and at the same are going to grow 19%. So I think we have got a good balance here. Sorry for the long answer but you were asking a pretty insightful type of question.
Operator
(Operator Instructions) And the final question we have comes from the line of Eric Coldwell with Robert W. Baird. Please proceed with your question.
Eric Coldwell - Robert W. Baird
Thanks very much. First, a question for Mr. Smith. On the call you said that there is a lot of uncertainty in the world we live in today and nobody really knows what’s going to happen over the next 12 months, but at the same time we are projecting accelerated growth two and three years out versus over the next 12 months. So I guess on trade from what gives you more confident in projecting years two and three versus projecting year one. If you could just give any color on that, it will be useful.
David Smith
Well, I think we did in the press release was extra days in the second year. So part of that is the days, part of that is our knowledge of our investments, part of it is just the progression of our programs from today to them, so just like we did -- if you can look at our numbers we put out three years ago there were some chunks in there that weren’t exactly smooth that people complained about back then, so this is a very good plan, very confident because probably you have never seen a healthier organization from a strategy stand point connection with compensation, metrics, investments in the right strategic areas rather than in the wrong ones. Just see a really solid business today, yet we live in a pretty uncertain world, so part of it is the day’s in that second year that jumps up the growth rather than some greater vision of two years from now then today and part of it is how our return on investments are paying out. Something’s in the second year, something’s in the third year, something’s in the fourth year in that second year and so just is a more attractive business. All that being said, all of our competitions tied to that plan so it’s not like we just came up with it that we will make it look good on the out years; we have to actually hit that to hit our compensation, so there is a lot of accountability here, there is a lot of symmetry between investments, compensation, metrics and performance and so I don’t know David, would you answered it any different?
David Bronson
No, I think that’s a great answer.
Eric Coldwell - Robert W. Baird
Okay, so yeah that’s pretty fair. I guess in the same things you talk about little more cautious about what accounts you are going to take on sacrificing some growth for a balance sheet and cash flow stability an improvement which I apply, I think that’s a good thing, at the same time your doubtful accounts provision if I am reading it right came down year-over-year -- was virtually diminimous in the March quarter. So, is it that you walked away from the risk of your accounts and therefore you are taking a less of a provision or did something else unique happen on that?
David Smith
We have made steady progress on our receivable balances both from an aging stand point as well as the quality of those receivable. We made a significant effort during the past year to collect and reserve all the balances. All of that drives that provision; that provision is a calculation that’s based on both the amount of receivables and how old they are and our judgment of the quality of those receivables account-by-account. So our methodology hasn’t changed, the quality of our receivables has changed and it has gotten better and that’s what driven our bad debt provision; having said that it’s increasingly just fit for our customers right now to get creditor to refinance, so we are very watchful and very cautious about extending new credit to customers unless we really have a good solid understanding of their underlying financial situation.
Eric Coldwell - Robert W. Baird
I understand, that’s great. Sorry if I missed but did we get an update on the number of Athena leads in the marketplace and what number of physicians have been converted -- that PSS introduced to Athena?
David Smith
I really want to talk about Athena which is more of a May 22 conversation. I just tell you that we make the same progress in Q4 as we made in Q3 and I would say we are positive in making the same progress in Q1 we made in Q4 and we have had a very good meeting with Athena. We have got some very good programs and investments together that I think will pay nicely in the middle to end of next year and so kind of -- I'm not paying attention to anything we are doing right now because we have got all the problems figured out now. It’s do we make the right investments together to really take advantage of what I see as an opportunity in the market and I think that’s what we are going to do and I would like to walk that through with you rather then than today. I will really do it on May 22.
Eric Coldwell - Robert W. Baird
Okay and on the same vein of questioning on Smartscan, can we get updates on the number of installations --?
David Smith
Actually we had a pretty decent kind of combination of Smartscan and MyPSS. We are up to 29,000 total e-commerce users. We were at a little over 7,100 Smartscans because we were doing the investment in the new Smartscan right now. We focused more of our effort on MyPSS users which has got the 28,600 and we are going to have a goal specifically for e-commerce for next year built into our plan and our metrics. We hit 27% for the year and we are going to have a healthy goal for that for next year and so we backed off a little of a Smartscan users while we were retooling -- not retooling it but we needed to add things like -- I told you last call, online statement and invoicing, cataloging, product file improvement and superseding improvement, reporting improvement to it because we had customers demanding it. So we have moved the new customers to MyPSS rather than put them on the Smartscan until we get that finished and we have got some things just finished last month, we got some things that are coming online in the next 30 to 60 days to finish the Smartscan upgrade.
Eric Coldwell - Robert W. Baird
Got you and the final question is on global sourcing. I am hoping we can get some color on how the rise in commodity cost, wage inflation, and sourcing markets and fuel and transportation costs, how is that impacting the contribution margin on your global sourcing business or how are you offsetting those pressures assuming that you are?
David Smith
Okay, just one part. There’s Kevin Lingus if you need any follow-up. It’s either very miniscule. I was all one product that we had an impact in Q4 which is -- we have the same product showing up whether it’s a good economy or bad economy which is like tests and has a lot of variability in it but there are costs associated with bringing the product over the pond, there are costs with deflation of the dollar, there are costs with raw material and labor, and what I would tell you is we are constantly looking at new areas of the world to invest in. I was just in a lot of new areas of the world last month and what I would say is we have got a pretty good plan in place to mitigate costs or platform costs or to drive better manufacturing relationships with intelligent partners. So I am really looking forward to you hearing a presentation on May 22 on how are going to mitigate that and how we are gong to take advantage of may be others in the market that can’t mitigate that, but I will tell you in Q4 it was all one product specifically and not much else, like it’s been for the last three years.
Operator
Thank you and we have no further questions.
David Smith
Okay thank you all very much. It was a great year and I’m looking forward to May 22. It will be fun, so come and join us. Thank you.
Operator
Ladies and gentleman that does conclude the conference call for today and we thank you very much for you participation and we ask that you please disconnect your line.
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