Accendra Health, Inc. (ACH) Q1 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Owens & Minor First Quarter 2016 Financial Results Conference Call. My name is Candace and I will be your operator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference call. As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Miss Trudi Allcott. Please go ahead. Truitt Allcott - Director-Investor & Media Relations: Thank you, operator. Good morning, everyone, and welcome to the Owens & Minor First Quarter 2016 Earnings Call. I'm Trudi Allcott, and on behalf of the team, I'd like to read a Safe Harbor statement before we begin. Our comments today will be focused on financial results for the first quarter 2016 which are included in our press release. In our discussion today, we will reference certain non-GAAP financial measures. Information about these measures and reconciliations to GAAP financial measures included in our press release and in the supplemental information posted on our website. In the course of our discussion today we may make forward-looking statements. These statements are subject to risk and uncertainty that could cause actual results to differ materially from those projected. Please see our press release and our SEC filings for a full discussion of these risk factors. Participating on our call this morning are Cody Phipps, our President and CEO; Randy Meier, EVP and Chief Financial Officer and President of International; and Nick Pace, our General Counsel. Now I'd like to turn the call over to Cody Phipps who will start things off this morning. Cody? Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you, Trudi, and good morning, everyone. Thank you for joining us on the call today. This morning I will provide a progress report on our transformation initiatives, as well as an update on the business. Then Randy will provide more detail on first quarter results and the performance of our three business segments. But first let me address the loss of a significant customer. As we recently announced, we were disappointed to learn that a major domestic customer has decided not to renew its contract with us. We have served them for approximately 15 years, so this was difficult news for everyone on our team. However, our task now is to focus on the future and position our company for sustained profitable growth. We believe that our ability to reduce complexity and eliminate waste in the healthcare system is resonating with our customers. As evidence, let's turn to the first quarter results. We were pleased with consolidated revenue growth of 2.7% and strong adjusted EPS of $0.50. As you saw in our press release we have moved to a three-segment reporting structure: Domestic, International and Clinical and Procedural Solutions. We believe that this new reporting structure reflects how we are managing our business and allows us to enhance our execution focus. For the quarter we reported solid performance across all three segments. As for our transformation agenda, we continued making solid progress on the four key elements of our agenda. Let me expand on this. We continue to build and align the senior leadership team with the addition of Rony Kordahi, our new EVP of North American Operations. Rony comes to us from United Technologies and he brings more than 25 years of operations leadership experience to the table. A talented leader, Rony is already contributing his considerable energy and innovation to our efforts. Rony will lead our initiatives to drive continuous operations improvement. We're also bringing on an experienced executive to lead the Global CPS segment. We should be in a position to announce this new leader very soon. With the second initiative of our transformation agenda, strengthening our Domestic Services business, we made solid progress both on the commercial and operational fronts which contributed to positive first quarter results. On the operations front we launched a regional realignment plan during the quarter that will streamline operations in the field. We also concluded the voluntary employee separation program and targeted staff reductions which will streamline our cost structure and enable us to bring new talent on board. Our strategic supply management initiative is also underway and our indirect sourcing efforts led to cost reductions during the quarter. With every step we take we are simplifying the organization, improving our cost structure and achieving continuous operations improvement. On the commercial front, while the loss of our large customer has likely captured your attention, I am pleased to report that we have just renewed agreements with several large provider customers. We are also making progress with manufacturers by offering them value-added services that improve their ability to connect their products to the point of care. Our message of attacking complexity for both providers and manufacturers is resonating. As for the third element of our transformation agenda, enhancing the execution of our current growth strategies, I was pleased to see that the International and CPS business segments made steady progress against their goals. Our European team continues to control costs and develop their pipeline of new business, and during the quarter we signed a significant new CPS contract, reflecting the value of our offering, which is quickly becoming one of our signature services for reducing complexity. As you will hear from Randy, we continue to see opportunity for growth in both of these business segments. The final element in our transformation agenda is focused on developing future strategies for long-term success. During the quarter, we launched the strategic planning initiative that will continue throughout the year. Our leadership team is energized and excited about driving our future strategy for sustained profitable growth. In summary, we are pleased with our first quarter results and the execution toward our goals. We made meaningful progress on our transformation agenda, adding new talent and executing on key initiatives, and finally, our focus on attacking complexity in the large health systems is resonating and our value proposition for both providers and manufacturers is gaining momentum. Delivering against our 2016 goals remains our highest priority. Thank you, and now Randy will provide a review of our financial results as well as an update on our CPS and International operations. Randy? Richard A. Meier - Chief Financial Officer & Executive Vice President: Thank you, Cody, and good morning, everyone. As Cody said, we have made good progress this year in implementing our key initiatives of our transformation agenda. With the help of our leadership and teams across the enterprise, we continued to make meaningful steps to position the company for sustained profitable growth. I'll start this morning with an update on our consolidated results for the first quarter of 2016, and then give some insight into each of the three segments. Please keep in mind that the adjustments made in our reported results are outlined in our press release. For the first quarter, we are pleased that we achieved adjusted EPS of $0.50. Our results demonstrate that our teams are performing across the board and that our transformation agenda is helping to position the company for the future. Consolidated revenues for the first quarter increased 2.7% to $2.46 billion compared to last year's first quarter. The improvement in the revenues resulted from strong Domestic segment performance as well as one extra selling day compared to last year. On a same-day basis, revenues improved 1.1%. Adjusted consolidated operating earnings improved $4.6 million to $55.5 million, representing solid performance across our segments. Our adjusted tax rate for the quarter was 35.8% compared to 38.8% for the same period last year, as income continues to improve in our lower tax jurisdictions. Consolidated asset management metrics included DSO of 21.8 days versus 21 days last year. Consolidated inventory turns were 9.3 compared to 9.4 in 2015. Operating cash flow for the quarter was nearly $45 million compared to $169 million last year. As you may recall, much of last year's performance was related to working capital timing differences. The $45 million represents a more normalized cash flow result. Turning to the bottom line, for the quarter, adjusted net income was $31.3 million, or $0.50 per diluted share, an increase of $0.06, or 14%, over last year. The increase was driven by improved operating performance in each of the company's segments. Beginning this quarter, we have introduced a three-segment reporting structure, reflecting how we are managing the business: the Domestic segment, consisting of the company's U.S. distribution, logistics and value-added services; the International segment, consisting of the company's European distribution, logistics and value-added services; and the Clinical and Procedural Solutions, or CPS segment, which consists of our product-related solutions, including surgical and procedural kitting, as well as sourcing. Our prior year results have been recast on this basis. In looking at the segments, Domestic segment revenues for the quarter increased 3.2% to $2.32 billion. Revenue growth came primarily from our large healthcare provider customers, as well as from one additional selling day in the quarter. First quarter Domestic operating earnings were $41.7 million, improved $3.6 million over last year. The improvement resulted primarily from revenue growth, manufacturer product price changes, and expense control. Turning to the International segment, quarterly International segment revenues decreased $12 million to $83.6 million. Excluding the previously discussed exit of a U.K. customer last year and the negative impact of foreign currency, revenues declined $4.3 million for the quarter. Due to improved performance in the U.K. and profitable results across the network, the International segment had positive operating earnings of $1.1 million. That's an increase of $1.5 million over the prior-year quarter. The team in Europe has made progress in stabilizing the business, and are now focused on developing the pipeline, on-boarding new customers, expanding the platform capabilities and controlling costs. As for the CPS segment, revenues in the first quarter were $141 million. Increased sales of custom procedure trays and tighter alignment with our domestic and international sales efforts led to the $11.7 million improvement in revenues. Operating earnings for CPS were $13.3 million, a slight improvement over the year before. In reflecting on the quarter, we have retained a significant amount of business, and secured new business across all three segments. Our teams, Domestic, International, and CPS, are actively developing new avenues for growth, and we have made good progress across all the transformational agenda initiatives. All of this culminated in a strong result in the quarter and positioned us to meet our expectations for the year. And finally, let's address the impact of the previously announced customer exit. At present, we estimate the direct impact on an annualized basis to be in the range of $0.20 to $0.25 per share. This estimate does not include opportunities we are pursuing for new and incremental business to offset this loss; however, given the scale and complexity of this relationship, we believe we'll be managing this customer relationship through much of 2016. Therefore, we continue to believe the majority of this impact will occur in 2017. At this point, based on the solid performance in the first quarter, our confidence in contributions from the transformation agenda, and our track record in managing changes in our customer base, we remain comfortable on our financial outlook for 2016 of adjusted earnings per share in the range of $2.00 to $2.05. Thank you, and with that, we will turn it over to the operator for questions.

Thank you. And our first question comes from Lisa Gill of JPMorgan. Your line is now open.

Thanks very much, and good morning. I just wanted to follow up on the customer loss for a minute. The party that won it had specifically talked about services, technology, improvement in efficiencies as well as complexities of navigating the relationship, not only in the hospital but post-acute, et cetera. Can you maybe just talk about, Cody, what you're seeing out in the marketplace right now as far as the renewals go? So is this a theme, or was this more specific to this one customer that they were looking for something specific and moved to a different party? Just trying to understand that, the competitive marketplace right now. Paul Cody Phipps - President, Chief Executive Officer & Director: Yeah. Yeah. Thanks, Lisa. First let me comment on this – on the customer loss, and then I'll get to your specific question. First, obviously, we were disappointed in this decision. This was a 15-year relationship with a major customer, and their RFP process spanned a pretty long time, probably 12 months to 18 months. At the same time, we had a lot of change going on with me coming on to the business and building a new team. So it was a long process. Quite frankly, I'm not sure we got to put our best foot forward in this process, but we respect their decision and we're going to move on. Let me address your specific question. I think – our value proposition is focused on attacking the enormous complexity in the healthcare value system through our services, through technology and through the processes that we bring to bear. So we believe in that pitch. We see it resonating with our customers and we actually renewed new contracts and won new business with that value proposition. So I think, to answer your question specifically, we think this is more of a one-customer issue and we think we're well-positioned to attack the same complexity that was talked about.

And then when you talk about the renewals this year, is there anything different as we think about those renewals? And how do you think about pricing right now in the marketplace? Is it more competitive than what you've seen historically, or would you characterize it as similar to what we've seen in the past? Paul Cody Phipps - President, Chief Executive Officer & Director: Well in – let me put it in perspective first. Most of our customer contracts are three-year to five-year contracts, so at any point in time we have 20% to 30% of our contracts up for renewal. So there's nothing new about that. And I would say we don't see anything abnormal. The healthcare environment remains a competitive environment. It's – especially for large customers, everybody wants to go after large customers. So it's kind of business as usual, but it's a competitive environment.

Okay. Great. I appreciate the comments. Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you.

Thank you. And our next question comes from Robert Jones of Goldman Sachs. Your line is now open. Nathan Rich - Goldman Sachs & Co.: Hi. This is Nathan Rich in for Bob this morning. Just wanted to ask one follow-up off on the customer loss. Just curious to know if this has any impact on any of your existing GPO relationships? I'm not sure if any of those contracts have either volume or service levels that are embedded in them that this would impact? Richard A. Meier - Chief Financial Officer & Executive Vice President: Nathan, hi. This is Randy. We don't believe this is going to have any direct impact on any of our GPOs. Most of those volume-related issues are customer-specific in terms of how they get their pricing and the various discounts. As I'm sure many of you know, we've got our own GPO renewal cycle potentially kicking off towards the end of this year. Certainly with net assets being acquired, that may be postponed depending on where Vizient ends up and how they want to look at their aggregated relationship. So we're pretty comfortable that this isn't going to impact our relationships with the GPOs going forward. Nathan Rich - Goldman Sachs & Co.: Okay. Great. And then if I could turn to the new segment detail that you'll be giving us going forward, on the new CPS segment would you be able to give us a sense of how we should think about the growth rate and margin profile for that segment given we have the limited history that you shared with us today? Richard A. Meier - Chief Financial Officer & Executive Vice President: Sure. I think one of the reasons that we moved to the more segment orientation is what we characterized in our prepared remarks, is this is how we're operating our business going forward. Certainly at Investor Day when we characterized our initiatives, we talked about the Domestic business and the initiatives there and we looked at sort of the International segment and the CPS segment as opportunities to grow the business. We don't provide detail on terms (17:56) at a gross-margin level, but certainly from an operating-margin level we would expect that business to be a contributor to our growth. Obviously when we acquired these assets it was a higher-margin business and certainly accretive to our overall platform. And as we showed in this quarter the growth of the CPS business year-over-year and putting this business together with sort of Medical Action Arc Royal and our sourcing business, we think this is an opportunity to contribute to improving profitability and contributing to growth over the next couple of years. Nathan Rich - Goldman Sachs & Co.: Great. Thanks for the questions. Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you.

Thank you. And your next question comes from Sean Dodge of Jefferies. Your line is now open.

Hi. Good morning. Thanks. So maybe staying on CPS for just a moment, on that revenue stream is there much seasonality to it? And, I would imagine it tends to be pretty highly recurring revenue? Richard A. Meier - Chief Financial Officer & Executive Vice President: Hi, Sean. This is Randy again. I wouldn't characterize the nature of the CPS business and our kitting, whether it's over in Europe or here in the United States, is really seasonal. I think it's very contract oriented. The contracts are similar to our distribution contracts. They usually run anywhere from two years to five years, so I think it is fairly consistent. The aspect of what we do in Europe and some of the business that we do on a fee-for-service basis directly for the manufacturer may be a little bit more seasonal than what we characterize as our provider-based business. But I think there's a certain amount of stability to the revenue streams moving forward here. On the portion of the business that's related to sourcing, the sourcing aspect may be slightly seasonal in terms of managing because we source not only for the CPS business, but we're sourcing for our private label business as well, and potentially some third-party customers, so there may be a little bit of seasonality based on our – the product or the end market sales related to that. But overall, I think you'll see this being a fairly consistent business throughout the year.

Okay. And then, Randy, you mentioned the growth rates and the margin profiles of that business being pretty attractive. How should we think about the runway left here in terms of either client adoption or maybe for those that have already adopted, like a penetration rate? How should we think about the amount of opportunity left in the CPS, maybe addressable market? Paul Cody Phipps - President, Chief Executive Officer & Director: One of the things I'd say, Sean, is we're excited about this business because it's directly linked to our overall value proposition of reducing complexity. So one of the things we're excited about is bundling the CPS capabilities with other services we offer for large IDNs to attack complexity. And in some ways, we think we're uniquely positioned to help bundle across manufacturer products and to address points of complexity in the hospital. So we're – we haven't broken out a specific penetration rate or growth rate yet, but we anticipate this will be a contributor to growth, and it'll be accretive to our margins.

All right. Then last one for me, the Domestic operating earnings improved year-over-year. You mentioned manufacturer price increases, or changes being a contributor here again. After the last couple of calls, I'd gotten a sense that those weren't going to be all that much of a factor going forward. Has your outlook for 2016, or even maybe longer-term for manufacturer price increases, changed at all? Paul Cody Phipps - President, Chief Executive Officer & Director: Yeah, Sean. That's a great question. I appreciate it, because it gives us an opportunity to give again a little bit of clarity around it. The first quarter historically is when we typically experience manufacturer price increases, and the performance and the contribution in this area this year was, again, slightly ahead of what we experienced last year. But in the time I've been here, this has been sort of in a reasonable range and it's typically a first quarter event. What we were alluding to last year is, there was a number of events where people had out-of-cycle price increases, and we experienced, almost on a quarterly basis, some benefit from manufacturer price increases. We don't see that as being as robust this year, and again, I think this – the first quarter is what I would characterize as a fairly normal event, slightly ahead of last year. It's the remaining of – remainder of the year, and the results we had last year, that we were trying to provide some clarity around, that that was probably not sustainable.

Got it. Understood. Thanks again. Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you.

Thank you. And our next question comes from Dave Francis of RBC Capital Markets. Your line is now open.

Hi, Cody and Randy, thanks for the questions. A couple quickies. First, back to the client loss, and not to beat a dead horse, but wanted to kind of understand a little bit more the dynamic around the decision process there and, to the extent that you got feedback from that customer, can you share with us kind of what it was that drove their decision process toward a competitor of yours? And does that point you in the direction of something that is missing from an operational or service perspective that you guys need to address relative to the broader market? Paul Cody Phipps - President, Chief Executive Officer & Director: Yeah, Dave. Again, I want to be careful not to try to speak for the customer here. We're in the process of – and we're still getting feedback from them. But overall, again, we feel that our value proposition's very strong. We got very good feedback from them. I think the one area that we'd say our competitors have something that we don't is in the non-acute space. That's a known gap, and we're working hard to address that. So if there was one factor that I would say was a gap, it would be that. And we're working hard to address that. And again, we had a 15-year relationship with this customer, and so it was a long, lengthy process. So I'll leave it at that. I don't want to speak for them, and we're still in the process of getting that feedback. But specifically the one area, post-acute, is a known gap for us and we're working to address it.

Okay. And I guess as a quick follow-up, as you look at the financial impact on the bottom line relative to what you guys have communicated previously relative to the revenue impact, it seems to be a disproportionate impact flowing through the income statement. Is there – I guess, how are you addressing the revenue decrement from an internal expense perspective and managing better to the bottom line on that? Thanks. Richard A. Meier - Chief Financial Officer & Executive Vice President: Yeah, Dave. I think, whenever you lose a large customer, you sort of have to sit back and look at how it impacts the network and your sort of fixed cost overhead, and I think what we wanted to impart on our investors was, on an annualized basis, when you just separate the revenue and gross margin from the business, there's some variable costs that we know we can take out pretty directly, and sort of what is the net result that we're really going to have to address? And that's really what the $0.20 to $0.25 represents, if you just pulled that out of the business. I think what we've tried to communicate is, with the transformational agenda and the performance in the first quarter, we are well on our way to improving the overall productivity of the company. I think we demonstrated our ability to manage and transition large customers with what we did last year in the fourth quarter, and outperforming our fourth quarter expectations is evidence that we can manage these types of transitions fairly aggressively in a fairly short amount of time. But again, we wanted to give folks the deep impact and some of the headwinds that we would have that – and we're going to have to address going forward. We feel pretty confident. And, we've got the whole organization mobilized to address the mitigation actions that we're going to take, and we'll keep you updated over the course for the next couple of quarters of how we're doing that. We're still looking at the timing of the transitions and again, as we indicated, most of this impact will probably fall in 2017. But I'm sure we're going to be preparing for this transition in 2016, and we'll probably have some costs associated with that. But again, right now I thought it, our team felt strongly that it was most important to give you what the sort of – some compartmentalized numbers when you just look at taking out the revenue and the contribution margin and what's left. So the $0.20 to $0.25 is that, and again, that's more again – we feel most of that will fall in 2017 but we feel pretty confident that through the activities that we've done and demonstrated the capability around, plus the activity with coming up – Cody coming on board, about significantly improving productivity, that we'll be able to manage through this. I would like to take this – your question and sort of give you a little bit more color on some forward statement that we've provided. At Investor Day we talked about 10% – 8% to 10% earnings per share growth, and having that come into play in 2017 and beyond. And while this may be a bit of a headwind associated with that, we are still deeply committed to driving sustained earnings per share growth and getting to that 8% to 10% growth over the course of the next couple of years. So I think we'll continue to be very well-positioned to manage this transition, as Cody indicated. We're disappointed in the loss in any long-term relationship that we've had, but I think over the 134 years we've demonstrated that we can manage through these things and come out stronger and really be positioned to continue to attract and build new business, and probably the most disappointing aspect is we had a really solid first quarter, we retained a tremendous amount of new business. We grew our CPS business and International, and while this is a bit of a headwind we are operating on all cylinders going ahead.

Thank you. Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you, Dave.

Thank you. And our next question comes from Eric Coldwell of Baird. Your line is now open. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): Okay. Thanks, guys. First off, I just want to thank you for being so transparent with the events such as Kaiser. It's somewhat unusual, frankly, among my coverage list, and I really respect it. So thanks for the transparency. Paul Cody Phipps - President, Chief Executive Officer & Director: Thanks, Eric. Appreciate that. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): My first question is on price increases. In the drug industry, we've seen more out-of-cycle price increases over time. It's actually becoming the norm every month, and then especially in the summer. So when you say that 2015 manufacturer price increases aren't expected to repeat, is that because you know of very specific, unusual circumstances? Or is it because you're just not accustomed to it, so the assumption is, is that you go back to more of a historical pattern? Paul Cody Phipps - President, Chief Executive Officer & Director: Yeah, Eric. I think it's more the latter, and having come out of that industry, I think what we're trying to do is just say, look, these are not something you can forecast with any great regularity. I think the device and medical technology industry is sort of taking cues from the pharma business, and on a product or product category, considering out-of-cycle price increases with much more regularity. But as you know, simply just taking price increases doesn't automatically give us the benefit of a price increase. It's a little more complicated for us, and it depends on where our inventory levels are and a variety of other things. So I think out of caution, what we're telling people is, look. This is probably changing in the industry, but we had a fairly significant amount of this in 2015 and we don't think that amount will repeat itself in 2016, but we have told people that we think this is a trend that is more likely to continue. The amount of benefit we receive is just something that we can't predict. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): Okay. That's very fair. At the end of the day, operating profit is most important, but gross margin is obviously a big piece of that, and gross margin this quarter does appear to be one of the lowest levels in the last three years. And that comes in a period where you did get some price inflation, you did have the other large account that was supposedly low-margin coming out, so from a mix basis I would've expected that to be a gross margin driver. Can you talk a little bit about what happened with the gross margin and why we're back to levels we really haven't seen since 2013? Paul Cody Phipps - President, Chief Executive Officer & Director: Sure. I think there's a couple of very specific reasons for that, I think, and it's really, I think, going to help as you begin to see the segment reporting. But International revenue was down. That has a direct impact of – to gross profit, given that's more of a fee-for-service business, and the CPS business was down, and we've had a slight degradation, and as everybody knows provider margins continue to be under some marginal pressure. So those are the two or three things that are going to continue to impact us. But the most – the biggest year-over-year impact was just the decline in the International business and our CPS business. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): And I guess my last one is just a follow-up on that. Is – should – given the delta between what you reported in gross margin and what the Street was looking for, should the assumption here be that that trend continues through the year but you continue to make up the delta with SG&A, which you did this quarter? Is it kind of just a mix between gross margin and SG&A, where perhaps Street models are a little high in one area and perhaps a little low in the other? Is that a fair assessment? Paul Cody Phipps - President, Chief Executive Officer & Director: Well what I'd characterize is – at Investor Day we gave guidance to 12% to 12.5%, and we're still pretty comfortable with that range. And that implied that we had a lot of good cost management as well this year. So I think while we're slightly on the lower end of our range, we're still comfortably in that range for the full year. So I don't think this is that outside of what we were expecting. Eric W. Coldwell - Robert W. Baird & Co., Inc. (Broker): Okay. That's great. Thanks again. Appreciate the comments. Paul Cody Phipps - President, Chief Executive Officer & Director: Thanks, Eric.

Thank you. And our next question comes from David Larsen of Leerink Partners. Your line is now open.

Hi. Just, like, one more question on the Kaiser account. Was pharmaceutical distribution included in that bid? Paul Cody Phipps - President, Chief Executive Officer & Director: It was not, but obviously, that's going to be something that I'm sure was in consideration for the future. Our understanding is that that's a future event, but it was not part of this bid.

Okay. And then, Cody, with regards to the long-term strategic objectives of Owens & Minor... Paul Cody Phipps - President, Chief Executive Officer & Director: Yes.

It sounds like post-acute is an area you'll focus on. How about pharma? Paul Cody Phipps - President, Chief Executive Officer & Director: We've got a strategy process underway right now, and I'm not ruling out anything, but I would say pharma would be a bit of a stretch for us right now, in the traditional sense. What I do see, though, is, as we think about how we attack complexity in large systems, there are very innovative services and solutions that we can provide in and around pharma, some of which are in place today, and I'm excited about them. But in the traditional sense of pharma, probably a long putt in our strategy.

Okay. And then, I see that D&A is not included on the P&L this quarter. Was any of that D&A re-classed into cost of goods, which put pressure on gross margin this quarter relative to previous quarters? Richard A. Meier - Chief Financial Officer & Executive Vice President: Yeah, Dave. I'll handle that. As part of the recasting of our segments, when we acquired our more manufacturing-oriented resources, in terms of Medical Action and Arc Royal, depreciation and amortization becomes part of cost of goods sold. So, as we move forward, it was certainly in those numbers in the right place last year, but with the segment changes, you're probably getting a little bit more visibility into that. But that did not have an impact on gross profit margin. It was appropriately categorized and classified in our income statement last year. But that sort of, we've recast the numbers a little bit, just to give people some greater visibility. So when you look at D&A, you have to not just look at what's in the income statement and the consolidated numbers, you've got to go to the cash flow statement to see the entire aggregated depreciation and amortization.

Okay. Great. And then, on the International side, the operating income looked actually very good to me, despite the decline in revenue. Can you maybe talk a bit about what drove that operating income expansion? And ,is this a pretty good run rate through the rest of 2016? Or could there even be some incremental improvements there? Paul Cody Phipps - President, Chief Executive Officer & Director: Well you know, we've been working on improving performance over in our International segment for a number of years. And I think it's the culmination of a lot of great work with the team over in Europe, and what they've done. As many of you know, we talked a lot last year about the transition of a number of customers, and particularly one large customer in the U.K. that was leaving, transition of a customer from a buy-sell to a more fee-for-service. And as we put in price increases last year, really getting much more to a market-oriented pricing, some customers exiting as well – to really position the business to return to growth and – as we look forward. So year-over-year, I think the revenue is down at the $4.3 million or so when you look at sort of an apples-to-apples basis. It's probably a reasonable place. But we would expect that business to start growing as we move forward. And in terms of the operating income, you know the European business is probably a little bit more seasonal, because of the nature of the vaccine business that we participate in, in a number of countries over there, so where we get sort of a third quarter and fourth quarter strength. Typically our weakest quarter is the first quarter. So you will see sort of an improvement throughout the years as we move forward. So the direct answer is, I wouldn't look at the first quarter as a run rate, because there's just a lot of things going on over there.

Okay. And then just one more, with that U.K. customer, when did that start to roll off? Is 1Q 2016 the first quarter's impact? And was it about $4 million in revenue in the quarter? Paul Cody Phipps - President, Chief Executive Officer & Director: It wasn't that large, but it was a fairly significant customer. They exited in July of last year.

Got you... Paul Cody Phipps - President, Chief Executive Officer & Director: So we've got one more quarter of having us to say the exit of the U.K. customer.

That's right. And then just one last one. For GPO renewals, I think that those will start in late 2016 again. Or are you largely through those? Paul Cody Phipps - President, Chief Executive Officer & Director: We have – the first one is scheduled to do that. Although with MedAssets and Novation getting together there is some discussion about whether or not they'll go just on the Novation schedule, which is later. But we're still anticipating that the MedAssets side will start this year. But there is a possibility that'll be delayed and just combined with the Novation and just do it as a Vizient contract.

Okay. Thanks very much. Appreciate it. Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Phipps for closing remarks. Paul Cody Phipps - President, Chief Executive Officer & Director: Thank you, Candace. Thank you for participating in today's call. We're pleased with our results in the first quarter with solid revenue growth and adjusted earnings of $0.50 per share. Thank you again for joining us today. And we look forward to seeing you at our upcoming investor event.