Accendra Health, Inc. (ACH) Q4 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Owens & Minor's Fourth Quarter And Full-Year 2018 Financial Results Conference Call. My name is Amanda, 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. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the presentation over to your host for today's call, Ms. Trudi Allcott. Please proceed Ms. Allcott.

Thank you, operator. Good morning, everyone and welcome to the Owens & Minor fourth quarter and full-year 2018 earnings call. I'm Trudi Allcott, and on behalf of the team, I'd like to read the Safe Harbor statement before we begin. Our comments today will be focused on financial results for the fourth quarter and full-year of 2018, 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 the most comparable GAAP financial measures are 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 Bob Sledd, our Chairman, and Interim President and CEO, who will provide an overview of the business and an update on the progress we're making on our strategic plan; and Robert Snead, EVP and Chief Financial Officer, who will provide details on the fourth quarter and full-year results and more insight into our business performance. Now, I'd like to turn the call over to Bob Sledd, who will start things off this morning. Bob?

Thanks, Trudi, and good morning. Thanks for joining our call today. As we look forward, I’m very optimistic about Owens & Minor's future. Yes, we’ve challenges in our distribution business which we will discuss, but outside of distribution, our company is growing and experiencing positive trends. And we’ve many exciting opportunities as we move forward. There's a lot to discuss this morning. We will cover the 2018 results, but I want to clearly address the challenges and the opportunities that we see ahead for Owens & Minor. Then, Robert Snead, who I’m pleased has been named our CFO, will discuss our financial results. First, as I'm sure you saw in our press release we're excited that we have announced the appointment of new CEO for Owens & Minor. I’m pleased to report that Ed Pesicka, who is a long-tenured executive at Thermo Fisher Scientific, will join us on March 4 as our new President and CEO. He will also join the Board of Directors. Ed is a seasoned senior executive with 25 years of experience. He has a deep understanding of distribution, manufacturing and service within healthcare and related industries. Ed has a great reputation for being a team leader and for providing exceptional customer service. He also has an outstanding track record of driving positive operational and financial results. With a solid reputation and excellent still set, we think he is a great fit for Owens & Minor and we look forward to him leading our team. Looking in the rearview mirror, 2018 was a year of change and challenge for Owens & Minor, but I feel good about the path for once. In fact, excluding the exit cost for our former CEO, we achieve our expectations for the fourth quarter. We do experience a perfect storm last year with service issues in our core distribution network. Some challenges were self-inflicted, but others were beyond our control. These challenges included supply disruptions caused by mergers and acquisitions of manufacturers and a spate of natural disasters. We're still overcoming customer service challenges resulting from the rapid consolidation of our customer service functions in a client engagement center. Finally, we’ve been facing a tight labor market and high turnover in some facilities. We are addressing these challenges with a great sense of urgency as we work back towards providing the outstanding distribution service that Owens & Minor's always been known for. Our service challenges have cost us some customers. However, we're working hard to continue winning new customers and retain existing ones. Our goal is to have our service issues behind us by midyear. At the same time, we are focusing on selling more proprietary and preferred vendor products to our extensive customer base. We believe this is a significant opportunity with the addition of Halyard products we have an exceptional portfolio of products to offer our customers in addition to our MediChoice and Medical Action products. I’m confident that we have the right tools, the right team and the right strategy to realize a bright future. But what we can't do is compromise our future with short-term thinking. As a result, we're investing in our business in 2019 to ensure a strong 2020 and beyond. These investments are aimed at supporting our people and technology for distribution and our provider solutions business, which includes our Fusion5 venture. Robert will provide additional details on Fusion5 in his remarks. Our 2019 goals include stabilizing our distribution operations, paying down debt and making investments for our future. We’ve provided you with guidance for 2019, and we have clear priorities that will provide a path for strong future. We will continue to focus on providing outstanding customer service, which will enable us to retain existing customers while winning new customers. We are not a products company that offers distribution. Our goal in distribution is to provide the service and support our provider customers need to succeed and do it better than anyone else. We will work to offset the margin pressure on [technical difficulty] telling more of our own brand products in our preferred vendor brands and we will implement more of our unique provider solutions. We're extremely pleased with Halyard. It has an excellent well-established product portfolio with an outstanding highly motivated team. I’m pleased that the Halyard team has been so well integrated into our organization. We will complete the integration of Halyard, exit the TSAs and realize the planned strategies. Our Byram Healthcare team is performing well. Last year, Byram has produced positive organic revenue growth and gained a significant new IDN customer. This customer represents a great opportunity for growth and we see many more opportunities with our large IDN customer base. Finally, we will grow our solutions business, including Byram, manufacturer solutions and our solutions such as Fusion5 and QSight. We believe all of this is achievable. We’ve a leadership team that is fully aligned on strategic operational and financial priorities with a heightened sense of urgency. We've a good mix of new and seasoned leaders and with the addition of our new CEO, who has a proven track record of success, I believe we have a great team in place, ready to meet the challenges ahead. We are aggressively moving forward, correcting what needs to be fixed and putting the business in the best position for long-term profitable growth. Now I will call on Robert for a discussion of our results.

Thank you, Bob, and good morning, everyone. Today I will provide an update on our fourth quarter and full-year results, discuss recent changes to our capital allocation strategy, provide color on the amendment to our credit agreement and then discuss our outlook for 2019. But before I begin, I'd also like to take the opportunity to welcome Ed Pesicka to Owens & Minor. I look forward to partnering with Ed, and I’m excited about the focus and experience he brings to the organization, as we move forward with the execution of our strategy. And Bob, on behalf of the management team, I would like to thank you for your enthusiastic support of our company as interim CEO. You’ve made quite a positive impact in a short period and this experience will serve you well as you continue forward as our Chairman. Now for the results. For the fourth quarter, consolidated revenues were $2.5 billion, an increase of 6.4% compared to prior year. Consistent with the last quarter, revenue growth was driven primarily by Halyard contributions of $196 million. For the full-year, consolidated revenues were $9.8 billion, an increase of 5.6% compared to prior year. For the fourth quarter, we recorded a non-cash goodwill impairment charge of $274 million or $4.08 per share. For the full-year, we incurred non-cash impairment charges of goodwill and other intangibles of $440 million or $6.81 per share. The GAAP net loss for the fourth quarter was $262 million or $4.37 per share. For the full-year, it was $437 million or $7.28 per share. Both the quarterly and annual results include the impairment charges mentioned previously. Adjusted net income for the fourth quarter was $5.3 million or $0.09 per share and for the full-year adjusted net income was $70.4 million or $1.15 per share. It is worth noting that our annual results included severance related expenses of $7.3 million or $0.12 per share. The fourth quarter included $4.8 million or $0.08 per share of this amount, which was not anticipated in the guidance we provided during the third quarter earnings call. Excluding just the fourth quarter severance, our full-year adjusted net income per share was $1.23 within the range we provided. Now let's turn to our segment performance for 2018. The Global Solutions segment revenues were $9.2 billion for the year, essentially unchanged compared to the prior year. Results were positively affected by Byram revenue growth of $340 million growth in manufacturer solutions and favorable effects. These were offset by revenue decreases in our distribution business. Operating income was a $104 million compared to $141 million last year. As we have pointed to previously, the decline resulted from a number of factors including increased warehouse and delivery expenses, continued margin pressure, lower revenues, increased expenses to develop new customer solutions and the previously mentioned severance related costs. The increases in operational expenses were a significant driver of our decline in performance and also had a negative impact on customer retention and revenues. The positive here is that these issues are being addressed and can be fixed. And as Bob mentioned, we're hyper-focused on this. While we still have more work to do in 2019 and it will take some time for this to show in our financials, we are making progress and we feel encouraged about where we stand and where we are headed. Turning to the Global Products segment. For the year, revenues were $1.1 billion compared to $504 million in the prior year. Revenues included Halyard contributions of $664 million. Operating income for the year was $75.7 million, an increase of $37.2 million, primarily from Halyard. Turning to the balance sheet, cash flow and capital deployment. Consolidated long-term debt was $1.65 billion at December 31 and operating cash flow was $116 million for the full-year. Deleveraging is our top priority for capital deployment. In-line with that, the Board has reduced our first quarter dividend to a quarter of a cent per share since the closing of the Halyard S&IP acquisition, we have repaid approximately $50 million in debt. We recently amended our credit agreement to provide us with greater flexibility over the next few years. The amended agreement revises the financial covenants over the life of the agreement and among other things, changes our interest rate spread and amortization of term loans to be more reflective of our credit profile since the Halyard acquisition. Finally, let me spend some time discussing our outlook for 2019. Please note that a summary of our 2019 guidance is posted on our website in the Investor Relations section. These materials include important modeling and other assumptions supporting our outlook for 2019, and I encourage you to review these materials in conjunction with my remarks. For 2019, we anticipate adjusted net income per share in the range of $0.60 to $0.75. Now let me add some additional color to provide better insight into our expectations for 2019. First, included in our interest expense outlook for the year is the step up and interest rates I mentioned associated with our recent credit agreement amendment. This represents about $0.12 per share of headwind compared to 2018. From a consolidated top line perspective, we expect 2019 revenues to be relatively flat compared to 2018. This implies that overall growth in our business is being offset by declines in our distribution revenues and our distribution operational issues in 2018 cost us some business, which will have more of an impact in 2019, giving the timing of customer exit. However, we expect to see partially offsetting benefits from operational improvements and we expect our revenue pipeline to improve through the year, which we believe will serve us well in 2020 and beyond. This combined with our improved value proposition, which includes our proprietary products and our new and renewed solutions will be key drivers of our distribution revenue success going forward. Our 2019 guidance includes the anticipated impact of our investment in new solutions that we noted back in the second quarter of 2018. There is one investment in particular, that I would like to highlight, a new business called Fusion5. I realize that many of you may be unfamiliar with Fusion5, so let me touch on that for a moment and we will devote more time to this in the future. This is a new majority-owned venture, which we began in earnest in 2018 and is off to encouraging start. Fusion5 was created to help healthcare providers succeed in the shift from fee-for-service to value-based care. This is the C-suite priority for many of our customers. The management team running Fusion5 has extensive experience in this area with a history of success at prior companies. During 2018, Fusion5 was actively engaged in gaining customers to help these providers succeed under BPCI Advanced. This program is the bundled payments for care improvement advanced initiative, which is run by the centers for Medicare and Medicaid services. By the start of the program, Fusion5 had signed a large portfolio of customers, including physician groups, IDNs and individual practitioners and is quickly becoming a market leader in the space. Fusion5 also has a number of tie-in points with our broader company, which we will discuss in due course as the business develops. As it relates to 2019, we expect to see positive contributions from Fusion5 in the fourth quarter and we will continue to incur start up costs until then. Before I close my remarks, I’d like to spend a few minutes discussing the anticipated cadence of our 2019 quarterly earnings. As many of you know, we don't provide quarterly guidance. However, for 2019, due to the newness of our acquisitions and several other compounding factors, we foresee a quarterly pattern that's worth calling out. First, we are negatively impacted early in the year from the annual renewal of healthcare plan deductibles, particularly in the first quarter. Second, we're positively impacted late in the year with the onset of the flu season. Third, Fusion5 is an exciting opportunity for us. But as I mentioned, we expect continued investment through the year moving towards having a positive impact in the fourth quarter. Finally, we're onboarding customers and our manufacturer and provider solutions businesses and the contribution is expected to accelerate in the second half of the year. As a result, we believe that our adjusted earnings per share for the first quarter of 2019 will be very minimal, but we expect improvement over the course of the year with the bulk of the earnings occurring in the second half. In closing, I’m encouraged when I look across our portfolio. We achieved positive top line momentum in 2018 for most business lines, including manufacturer solutions, both in the U.S and Europe and have an attractive pipeline of opportunities for our Provider Solutions business. This is all in addition to the overall good performance to date of both Byram and Halyard and the new potential Fusion5. Finally, I would like to reiterate that we're excited to have Ed joining the team. And we look forward to his leadership as we move forward with our strategy. Thanks and with that, I'll turn the call back over to the operator to begin the Q&A session. Operator?

Thank you. [Operator Instructions] Your first question comes from the line of Kevin Caliendo of UBS. Your line is open.

Hey, guys. This is Brett Gasaway on for Kevin Caliendo. I appreciate all the color you’ve provided. Could you just go through some of your thinking around if you’re doing any asset sales or potential securitizations going forward that’s similar in size to $100 million allocation in your credit agreement? Thanks guys.

Sure. So I will start with the second part first. As you obviously noted, we do have the ability under our amended credit agreement to deal up to a $150 million of an asset securitization that’s something that by design we wanted to keep available to us as we move forward so that’s something that we are -- have available, but remains to be seen when and whether or not we do that, I would say that that the impact of that is not -- it's not included in our guidance, but it's something that we're evaluating. On the second part or the first part of your question related to asset sales, we look at our portfolio regularly in terms of the value of it, how does it fit in with our broader strategy and how the business is performing and what we think we can do with it and so we take a very disciplined approach to that. And if at some point, something made sense, I’m sure we'd -- we will take action. Brett, this is Bob. Thanks for your question. Right now our goal is to make all of these successful and I think we’re making progress in all those -- with all of our different pieces of our business. So we don't see any imminent sale of any piece of our business.

Thank you. Our next question is from the line of Robert Johns with Goldman Sachs. Your line is open.

Great. Thanks for taking my question. This is Jack Rogoff on for Bob. So it looks like gross margin guidance for 2019 comes in around 100 basis points higher than the 4Q results. Can you walk through some of the moving pieces that drive to that expansion?

Sure. There's a couple of components in there. When you think about our business, pretty much every business line outside of our distribution business is accretive to gross margin. So when you think about the full-year results and the shift in our business mix over time, the full-year benefit of the Halyard as well as growth in our solutions business, which is very accretive to our gross margin, that's all been contemplated in the outlook that we’ve for the year.

Got it. Thanks.

Thanks, Jack.

Thank you. The next question is from the line of Erin Wright of Credit Suisse. Your line is open.

Great. Thanks. Can you speak to some of the recent performance at the Halyard business, and can you give us an update on commodity pricing pressure and what sort of visibility you have on that? Thanks.

Sure. This is Robert. We’ve been very pleased with how the Halyard business has performed both as we mentioned in the third quarter call and that trend continued in the fourth quarter performance as well. If we think about it relative to our original expectations, both top line and bottom line of the business has come in, if not exceeded our expectations controlling for the commodity headwind that we were talking about last year. So we’re quite pleased with that business and we’re looking, as Bob mentioned, to grow it and to do more with it as we move forward as it relates specifically to the commodity situation as we have included in our outlook for 2019, if you think about sort of average rates for 2019 versus average commodity rates for 2018, there is not a lot of year-over-year difference between the average -- between the two, there are certainly differences between some of the components, polypropylene for instance versus nitro. But if you take it all in some total, it is not a big difference. There's definitely some timing differences and when you think about it on a quarter-over-quarter basis, we're going to see some differences. But when you look at it in total, that’s what sort of baked into the outlook that we have that we shared with you.

Okay, got it. And then how should we be thinking about the quarterly progression with some of the incremental investments in IT systems, customer solutions, Fusion5. As we think about this from a modeling perspective, I guess, could you give us a little bit of help on sort of the quarterly progression? Thanks.

Before Robert get into that, Erin, let me take a second to talk a little bit more about Halyard as a follow-up to your original question is that -- so, look, first, we are distributor who is selling more products, more of our proprietary brands and more of our preferred vendor brands. At this point of time, when you do your modeling, one of the things that I think you need to understand is that we've had the issues with our service. We are really focused on that. We are making great progress, but we still have ways to go. That being said, we are starting just now to get to implement our product strategy and work with our customers to get our products into our distributors. Historically, we really haven't had a vehicle to do that. Halyard provides us with that vehicle. They are really now just starting to get with our sales folks in just -- in the recent couple of months and start developing with our customers -- in coordination with our customers a strategy to get more products. And so, as it relates to Halyard, we are really just going to be implementing that strategy over the course of 2019. We think it will be building momentum. We are confident that it will -- again, we’ve never had a sales force, we’ve never been on the GPO contracts. We’ve never really had the ability to expand our proprietary brands. So now with Halyard we have that and we do think that that’s going to be a gradual build, but we think it will gain momentum over the course of 2019, more into the second half of the year as we implement that strategy. So with that, I will turn it over to Robert to talk about the rest of your question.

Well, I think, Bob, that’s a good add to what I shared in my prepared remarks and is yet another factor impacting the quarterly sequence. When we put the guidance out and looked at our forecast and saw the profile for the year, we needed to help guide you guys to manage expectations of how our results will pan out throughout the year. And I cited four reasons in my prepared remarks, and Bob just gave a you a fifth. But we have more seasonality than we've ever had in the business before. Our legacy businesses always had seasonality in it with the first quarter being the weakest and the fourth quarter being the strongest. But when we layer on Byram for instance, most healthcare plans reset on a calendar year basis, and so the fourth quarter of Byram is definitely their weakest quarter and the fourth quarter for the same reasons as folks in the year and have reached their deductibles are looking to make purchases and so forth, and so you see a strong fourth quarter. And that’s a phenomenon just really throughout healthcare, but particularly with that business. The other piece is the flu season. That impacts our business in Europe, where we're heavy pharma focused and we were involved with the flu vaccines and other products of that nature that affects the Halyard business from infection prevention perspective related to the flu facemask gloves etcetera. So that’s a new factor that’s creating more seasonality than we’ve had in the past. And then the last piece you touched on was the investments. Fusion5 is going to drag on our results in the first part of the year, but as we mentioned, we expect it to be contributing towards the fourth quarter of the year. And then just a general profile of winning business and the revenue synergies that Bob just mentioned for Halyard, also have a -- kind of a ramping profile for the year. So for all of those factors, we thought it was important to share the information we get regarding the quarterly progression.

That’s very helpful. Thank you.

Thank you, Erin.

Thank you. Our next question is from the line of David Larsen of SVB Leerink. Your line is open.

Hi. This is Jonathan on for Dave. I’m hoping you can provide some more specifics on what exactly you’re trying to do to adjust employee turnover and tight labor markets you’re facing?

Sure. I will start with that and Bob can add in. We've done a number of things and one of the things that Bob talked about before is we did make some cuts in our business in the field that probably works against us, quite frankly. As it related to managing that turnover, we've made investments back in the business in 2018, which is already having a positive benefit. Some of that comes from HR and how we're doing our recruiting process and filling positions more quickly. And it has to do with better training that we're putting in place to reduce reliance on temporary help and over time and it's investing in our people to keep them in the buildings and we’ve even addressed incentives and wages in various areas. I would say that this is not an issue that is in every location, every area. It is really in certain pockets and parts of the country. And so we've deployed a SWAT team type approach to go and get after those situations and bring them under control. And as we progress through the fourth quarter, we've seen improvements in a lot of the metrics that we monitor on that front and are focused on moving the ball even further in 2019.

Yes, and we've done the analysis of our competitiveness in the marketplace to make sure that we're offering competitive wages. Another thing is, look, as we talk to other distributors, turnover is just -- it just happens and its understandable. But it has gotten better. Number one, we are filling the positions more quickly. And if there is turnover, we are doing a much better job of training now, getting people up to speed and we have the tools that we hadn't had before, such as voice pick, so that they can be trained and effective very quickly. So with voice pick, it tells them where to go to pick a product in different languages and it really deals with the SWAT [ph], the amount. And so it -- I think we’re doing a much better job there. Our productivity has improved. It's not where it has been historically. So we have opportunities there and we think actually that we can improve it quite a bit over the course of 2019. But that's a good question, because it is critically important to us having effective operations.

Okay, great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Evan Stover of Robert W. Baird. Your line is open.

Hi. Thank you for taking my question. Bob, back in January and then today talked about some of the challenging service levels and the client engagement center integration that didn't go quite as well, driving some customer losses in the second half of 2018. My question is in your guidance for 2019, are we -- are you assuming that the net losses essentially end and we just have to annualize that out of the model in 1Q '19? Are we taking a little bit more of a conservative approach and assuming some continued net customer losses as we move throughout the year? So anything you can do the flesh out why the net customer losses have been bad, and then maybe why -- what gives you confidence that the trend is going to change? That would be helpful. Thank you.

Sure, Evan. It's Robert. I will start and then Bob can add in on the -- our customer engagement center part. We do have built into the outlook that you have both customer losses that will -- that have occurred in '18 that was -- have an impact on '19. And we also have as we typically in any year we have a provision for customer losses that we don't know about that may occur, and so that's just part of how you forecast the business. We also have customer wins, that are known, that are coming in and we have some unknown wins that we put in. So we have kind of typical approach to have the businesses forecast. One thing I would point out on that is, in 2018 we had a good number of wins, quite frankly a higher number of wins than we’ve had in recent history. And so that’s an encouraging sign about our value prop and where the company is going and an encouraging sign as we move into 2019. So we factored in the headwinds that occurred from '18 into '19. And the passport on that as we look throughout '19 and into 2020 is the stabilization of the operations getting as Bob said, back to the Owens & Minor standard on all fronts is going to -- we think make a huge difference in that equation going forward. So that's why we’re -- that is a top priority for us and while we’re focused on it. And we see that as being something that we take off the table as we move more into 2020 and beyond. So maybe Bob can comment on the CDC side of it.

Yes, we -- so we are making really good progress, but we still have ways to go. I mean, we are investing in some software, which we think will give the customer much better experience that’s going to be rolled out over the course of the first half of the year. We think, it would be completed by the middle of the year. We are -- we still -- we made too deep a cut. I think, I’ve told you we are going to stepped on it, but we made too deep a cut in the operations, we made too deep a cuts with certain people that had relationships with our customers. And so, we're still getting it back together. We're still -- I think, we've made a lot of progress. We’ve got -- getting a lot better feedback from customers than we were just -- even a couple of months ago. But I wouldn't say all of our customers are 100% happy with us. I would say, a majority of them are, but some of them still think we got ways to go to -- to get to where we need to be and get a reputation back. So it's still a work in progress for that reason. I think we took a fairly conservative approach for 2019 and projected more losses than gains. I would -- so as we work up our numbers, we think that’s -- that was just the right thing to do. So we get our service back and we get our reputation all the way back with our customers. So that's where we are. We are optimistic. We'll get there, but we have taken a somewhat conservative approach to our 2019 expectations.

Thank you for those responses.

You bet.

Thank you. [Operator Instructions] Our next question is from the line of Anne Samuel of JPMorgan. Your line is open.

Hi. Could you speak to the Scripps partnership that you announced in January. What’s the -- kind of overall opportunity? And then what you’re expecting for contribution in 2019? Thanks.

So we don’t call out specific contribution on individual customers. This was interesting win for us and one that I think both us and the customer thought made sense to make public. And so, it is a good strong win for us. It's the customer that values our company for what we're known for and what we do best as a distributor and we have a good opportunity with them to not just do the base distribution part of the business, but to deploy other programs and services, and so we’re excited about the opportunity.

That’s very helpful. Thanks.

And obviously it was a competitive win.

Right, okay. And then, I guess, just as we think about going back to the proprietary products as a growth and margin driver. How should we think about what you are targeting as -- mix as a percentage of revenue, and how quickly you can ramp to that target?

So we haven't put a specific number out there. What I'd say is we size that opportunity back when we were looking at the deal, the Halyard acquisition and what we thought we could do and we had a sort of a thesis on what that look like. And during the fourth quarter, we were able to pull together a lot more granular data on really sizing up with that opportunity as and what I would say is that the opportunity is north of and higher than what we originally thought of at the time of the transaction. So we're -- we were quite encouraged by that outcome and I think we're excited about the size of the opportunity and the timeframe for which that provides earnings fuel for the company. And so, we perceive just existing SKUs within existing counts as being sizable, and that's the thing we got to go after right away. But we also have an opportunity to take existing products in the channels that they aren't currently in today. So that’s our MediChoice product historically, it was only sold into the acute channel in the U.S. There's an opportunity to take that into the non-acute channel. And then there's an opportunity to take that globally into all the other marketplaces where halyard has a presence and sell their products. So we're excited about the revenue synergy opportunities that business presents. And as I said, the near-term focus is just existing products, existing channels and then from there we'll build forward.

Yes, so maybe to add a little bit to that, just to refresh everybody's memory. So what we're -- our competition and our industry are product companies that have gotten into distribution. We're a distribution company that has never really gotten into products. So what happens with a number of our customers is they read the contracts as they want a margin improvement, what the product companies will do, we will say, yes, we will give you margin improvement. Carry our products and we will make our money on our products rather than substantial money on distribution. So there's -- has been margin compression in the industry, and so now we’ve got a tool being our own extensive product and as well as our preferred vendors that we can work with those customers [indiscernible] and provide them our products which we can make more money on it, at the same time save them money with our own brands. So it's a win-win for us and the customer. And so that that will be more of what is involved in the contract rebids with a number of customers as we move forward. So to say how quickly that ramp up, we kind of depends on what the customers are looking for in the rebids themselves.

Great. Thanks very much.

Thank you.

Thank you. And there's no further questions at this time. I’d like to turn the call back over to Mr. Sledd for his closing remarks.

Okay. Thanks for joining the call today and for your really good questions. I'm really pleased that Ed Pesicka joining us. He is actually with us today and I'm going to ask him to say a couple of words, but some of the things I’m really excited about with Ed is that he is a really good people person, he is really good with building teams and he actually has faced the situation very similar to what we're going through where he had a company almost the size of -- in distribution and are healthcare related with his proven experience that it had declining margins and earnings for a number of years. Ed came in and within a very short period of time did a great job of getting that company focused, getting great customer service back, and improving the earnings in a very dramatic way. So, yes, I think Ed has all the tools to really drive this company forward to engage the team, and to pay attention to the details. This is a penny business by the way and really get us back on track. So I think we had progress, but I think Ed's the guy who can get us back to where we need to be long-term. So I’m really excited about Ed being on the team, and in fact he has been in the room with us today. And I just like to introduce him to you guys and maybe let him say a couple of words. Ed?

Sure. Thanks, Bob. Actually I’m extremely excited to be part of Owens & Minor, a company with 137 years of rich history and I believe opportunity for a long bright future. I’m really looking forward to March 4 arriving, so I can officially start. So that way I can spent significant time with our customers, our suppliers, get to really know all the teammates here as well as get an expanded knowledge and get to know our shareholders and obviously many of the analysts on the call. So looking forward to March 4 getting here and looking forward to get going.

All right. And in the meantime, he is already digging in. So we are happy he is here. So we hope to see you on the road this year at various investor events. Thanks and have a great day.

Thank you for your participation in today’s conference. This concludes the call. You may now disconnect. Good day.