Cardinal Health, Inc. (CAH) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Cardinal Health, Inc. Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to your host for today, Ms. Sally Curley, Senior Vice President of Investor Relations. Ma'am, you may begin.

Thank you, Ben. And welcome to Cardinal Health's Third Quarter Fiscal 2012 Conference Call today. We will be making forward-looking statements. The matters addressed in the statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to the SEC filings and the forward-looking statements slide at the beginning of the presentation found on the Investor page of our website for a description of risks and uncertainties. In addition, we will reference non-GAAP financial measures. The information about these measures is included at the end of the slides. I'd also like to remind you of a few upcoming investment conferences and events, in which we will be webcasting; notably: The 2012 Deutsche Bank 37th Annual Healthcare Conference on May 7 in Boston; the Bank of America Merrill Lynch 2012 Healthcare Conference on May 15 in Las Vegas; the Goldman Sachs 33rd Annual Global Healthcare Conference on June 5 in Rancho Palos Verdes, California; and the William Blair 32nd Annual Growth Stock Conference on June 14 in Chicago. The details of these events are -- or will be posted on the IR section of our website at cardinalhealth.com, so please make sure to visit the site often for updated information. We look forward to seeing you at the upcoming events. Now I'd like to turn the call over to George Barrett. George?

Thanks, Sally. Good morning, everyone, and thanks for joining us on our third quarter call today. I'm pleased to report another solid quarter, and we have now completed 9 months of excellent overall growth and progress in our areas of strategic focus in FY 2012. Revenue for the third quarter was $26.9 billion, up 3% from the prior year. Non-GAAP operating earnings increased by 6% to $524 million. Our non-GAAP EPS grew 16% to $0.94 from last year's $0.81. Our Pharmaceutical segment delivered 9% profit growth and a revenue gain of 3%. The Medical segment achieved top line growth of 8%, reinforcing our improved positioning in the market, but as we had expected, the segment recorded a year-over-year profit decline of 17%, primarily due to residual commodity cost pressures. The team had shown great focus, offsetting much of its headwind with solid performance in the underlying business. I'd like to walk you through the performance highlights of these segments. First, Pharmaceutical. Revenue increases came from multiple classes of trade. This growth outpaced the market in virtually every channel. Our focus on creating value for the specific needs of each customer in this dynamic environment remains a top priority. Our customer base remains strong, and the mix continues to evolve along our strategic pathway. Our non-bulk sales were up 7.6% versus prior year. Profit was fueled by the continued strength of our generic activities and solid performance with our branded partners, whose needs continue to evolve in changing markets. Our strong generic results reflect the continued focus in this important industry driver and the impact of new and recently launched products, a number of which launched in the prior quarter. I want to take a few moments to comment on our nuclear activities, as this part of the industry has been…

Thanks, George. Good morning, everyone. In my remarks today, I'll explain our financial trends and drivers in the third quarter, then I'll touch briefly on our outlook for the remainder of fiscal 2012. Let's start with Slide 4. During the quarter, we grew our non-GAAP EPS by 16% to $0.94 per share, driven by 3% revenue and 6% non-GAAP operating earnings growth. There's low favorability in our non-GAAP effective tax rate. Interest and other expense came in $3 million favorable to last year, driven by changes in the value of our deferred compensation plan. Our non-GAAP tax rate for the quarter was 35.6%, lower than prior year and our second quarter of this year. This quarter's rate was favorably impacted by the mix of foreign and domestic earnings and net favorable discrete items of approximately $3 million. This $3 million includes 2 sizable and largely offsetting discrete items that I wanted to highlight. First, approximately $45 million relate to the final settlement of certain open audit years, which favorably affected the rate. Second, we had a $44 million negative impact triggered by settlement discussions for other open-audit periods and the resulting measurement of unrecognized tax benefits. As a reminder, last year's Q3 rate was abnormally high, driven primarily by changes in Puerto Rican tax law. Our share count in Q3 was about 349 million diluted average shares outstanding versus 353 million in the prior year's quarter. I would like to point out that our fiscal '12 share count guidance is now approximately 350 million shares. Favorability in our share count versus last year continued to be driven by the $300 million of share buybacks we completed in Q1. As a reminder, we still have $450 million of share repurchase remaining under our board authorization. Let me pause here to reiterate…

[Operator Instructions] And our first question today comes from the line of Ricky Goldwasser from Morgan Stanley.

George, if we look ahead for fiscal year '13, can you provide us any guidance for fiscal year '13 on generics? And what's your expectation for total revenue growth for the year?

At this point, we're not prepared to guide. We're still looking through our planning process. I can give you some color on what we see on generics going forward, and hopefully that will be of some help. I'll start with this. We expect our generic business to grow. I would probably say that the number and value of generic launches in our fiscal '13 is probably lower than in our fiscal '12. And as Jeff mentioned, some of the products that launched, let's say in the last 4 to 5 months, will lose their exclusivity. So we expect to see some deflation on those products, but it's sort of an extraordinary time in the industry. We're probably looking at the potential of total system-wide generic penetration exceeding 80% sometime next year, which is really a sort of mind-boggling number. And so this will help fuel, and the work that we're doing in our generic program, in general, we think will help fuel continued growth. But that's probably the general color I could give you at this stage.

Ricky, I think there might have been a second question there about revenue growth for next year, which I assume was overall growth. Then again, we're still going through our planning process, so I don't want to be too specific here. I think we all recognize that FY '13 is going to be an interesting year with respect to revenue just due to the sheer volume of large branded products that have and will come off patent in this fiscal year. The obvious is that could very well result in flat to negative revenue growth in Pharma and the overall company next year. Although, as you know, that can actually be good for our gross margin. So that's our early thinking, but there's still a lot things to play out over the next couple of months.

Okay. So from our regard, we should think about like flattish to negative revenue growth but continued margin expansion as generic compliance increases. Is that fair?

Yes. Again, I don't want to get too specific on margin, but I would say, if you look at the impact of the products going off patent, there's 2 impacts. Just looking at those in isolation, they will tend to dampen the revenue, and I think an assumption of flattish to slightly down is probably reasonable. And they generally will be positive to our gross margin rate, so...

Our next question comes from the line of Tom Gallucci from Lazard Capital Markets.

There's, obviously, been a lot of talk in the marketplace around customers and turnover and renewals and potential customers that are coming up for renewal. And so I was wondering if you can make any comments on maybe your top 5 or so customers and their status? And how you're sort of thinking about renewals or contracts over the next year or so?

Yes, it's George. I'll start with this one. Again, we are generally -- provide somewhat limited information on specific customers, but some of this, I think, is fairly available out there in the public domain so I can comment on a few of the contract renewals and just general timing. So couple of things to say. We have renewed a couple that you may know with Kmart and Kroger, have now been renewed in terms of long-term contracts that extend beyond FY '15. That's always helpful to us in terms of long-term stability, and we'll continue to work closely with these customers. I think you all know from other calls that the status of the Express Scripts contract is extended, that current agreement, until the end of September, and are in the process of responding to an RFP, which is there to include the entire Express plus Medco business. There's not much we can say, honestly, about that in terms of the outcome other than to say we've been a very solid and I think outstanding supplier to Express Scripts, and we look forward to continuing that relationship. Both CVS and Walgreens contract run through this summer of 2013, so still over a year away. Not much to say about that other than those are 2 very important customers and outstanding relationships. And one which we've been getting some questions about and questions we probably should comment on, which is that we did pick up Safeway, we've been asked this and I thought we should confirm that, for a multi-year agreement. So we really are excited about this. We view this not just not just as a new customer but as a terrific partnership going forward. So that will probably give you some color on the contracts that we would typically make some comment on.

Okay. That's helpful. Just 2 quick follow-ups. Do you have any idea about timing on when you might hear on the Express situation? And since you did confirm Safeway, is there any color you can provide as to maybe the dynamics around that contract change?

No. For the first 2 parts of the question. I don't think I can provide specifics on when we'll hear regarding the RFP on Express Scripts. I suppose it is possible that we could here by the time we speak with you again for our year-end numbers, but no certainty at this point. The second part -- I'm sorry -- on Safeway. Yes, there's not much color I can provide for you here. Obviously, each agreement that we have with our partners is, obviously, quite proprietary. And as I've said earlier, they're quite specific and distinct. I can say that it's a broad-based agreement, and it covers branded lines and generic lines, and we're excited to be with them.

[Operator Instructions] Our next question is from the line of Jim Elliott from Robert Baird. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Just a quick housekeeping question here. Can we get the profitability split between bulk and direct store delivery?

Sure. This is Jeff. The bulk rate for Q3 was 59 basis points, and the non-bulk rate was 2.64%. Let's put that in a little bit of context. As we said before, we don't think looking at these particular margins on a quarterly basis necessarily tells the complete or accurate story. So we think the most appropriate comparison is over multiple quarters, like kind of smoothes up quarterly blips, et cetera, that often occur. So in that vein, let me give you the year-to-date figures. Year-to-date bulk margins are 40 basis points, and non-bulk are 2.52%. And for comparison to last year, last year's rates in that same period were 35 basis points and 2.40%, respectively.

Our next question comes from the line of Larry Marsh from Barclays.

I guess, I'd like to maybe get you to frame kind of where you sit on MBT. Obviously, as you said George, your go live process is in motion. You spent some incremental funds this quarter, which ended up with a result that's a little better than I was thinking for this quarter. But as you think about this full year and next year, how should we frame the overall cost associated investment with MBT versus benefit this year, next year? And then sort of how do we think about it as a go-forward basis? And then as we sort of think about next year, is there -- with the, I guess, medical device tax to go into effect next year, how do we think about impact in our models?

Why don't I let Jeff touch base on this.

So I'm kind of chuckling a little bit, as I get the MBT question, because I'm recalling John Ransom's accusation of me giving an essay question, an essay answer to a math question last time, so let me try to be a little bit more math-y with my response this time, John, if you're out there. So and I will, now that we've completed the go live, I do want to provide a few more details regarding -- with the expense impact and future benefits. So first of all, let me talk about fiscal '12. For the full year, we'll incur about $32 million of expense related to both project implementation expense and depreciation. And it's about equally divided between the 2. On the benefit side in FY '12, as we said before, there are very few benefits realized this year. We're really focused right now on cleaning up any remaining problems and ensuring customer satisfaction, and that will continue to be our focus for the next couple of months. Now beginning in fiscal 2013, and I'll start on the expense side here, we have a full year depreciation which kicks in, and that's worth about $34 million next year. Because MBT was really replacing systems that are quite old, there isn't much in the way of elimination of depreciation expense for the systems being replaced. And then there'll also be a relatively modest amount of ongoing annual costs to sustain the system and do enhancements. Now on the benefit side, we do expect the income statement benefits to begin in 2015 and ramp up over time. Bottom line, though, we expect the financial benefits resulting from MBT next year to exceed the ongoing annual expense in the system. So in summary, the project will be net accretive for fiscal…

Right. Just a quick follow-up then on that point. I mean, to the extent that tax, it raises price to your customers so, I guess, you're suggesting you don't anticipate any ability to offset that with raising price to your customers. And then, maybe just a follow-up on Medical with Don coming on board. George, you may have covered this, but when do you hope to have him in a position to kind of comment on his initial views and perspectives of where he wants to take the business here, once he's on board fully?

First, let me -- just a quick comment on the question with the hypothesis you gave Jeff in terms of our ability to mitigate the tax. But first of all, as you probably know, there's also still considerable discussion around medical device tax. And I won't go into a long treatise as to whether our products of the nature that we sell, that are competitive should be taxed at all. And there's still some action around this. As it relates to our ability to mitigate, I don't think we should preclude any option for us. Jeff is trying to give you the gross impact. And obviously, it will be for Don and team to think about what strategies we can deploy to make sure that, that is fairly -- that we have to experience that it's fairly distributed across those in the channel. And I think that's one of the things to consider. Don is on board. He is up to speed and as we expect will not be shy about giving you his perspective on where we are. Obviously, Jeff is getting into the business now and Don is on board working closely with Mike. And so I'm hoping that probably by the time we get a chance to talk with you all in August, he's probably going to feel a lot more comfortable with life with Cardinal Health and with the business, will have gone through our planning process, that will actually be up and extremely a fast learning experience there, in terms of the nature of Cardinal Health and what we're doing. So that's it.

Our next question comes from the line of David Larsen from Leerink Swann.

In terms of the DEA situation, I mean, several years ago, there was some impact on your sales. And I think what I'm hearing is, there's really -- there really have -- sales have been going very well, and there has not been any negative impact due to the current situation. Is that correct?

I would just say that at this point, our customers have been tremendously supportive. And we've, I think, put in a very effective contingency plan, and we're doing everything to make sure that customers are served. So that's what I will say.

Okay, great. And there's a Defense department contractor, I think that should be ramping up in May for the Medical segment. Is that still on track for the May start?

Yes, it is. That process is still expected to continue this month. As a reminder, we initially had expected that to start transitioning in February. But at the request of the DoD due to systems implementation they were making, it got deferred to May. So it will be a gradual ramp up as we bring on the various elements of that. But the timing you described is still accurate from the beginning of that ramp up.

Our next question comes from the line of Lisa Gill from JPMorgan. Lisa C. Gill - JP Morgan Chase & Co, Research Division: George, I was wondering if you could maybe just give us some comments around pricing that you're seeing on the generic side? I think Watson last week on their conference call or earlier this week noted that they would expect roughly 4 to 6 generic manufacturers for Lipitor post-180 days of exclusivity, but were expecting price to drop pretty substantially. What do you see? And what are your thoughts on -- as we have the outlook for generics over the next several months, will some of these bigger drugs lose their exclusivity period?

Right. Good question. It is -- it's hard, obviously, to know exactly what it's going to look like at the expiration of that exclusivity. But I think we probably have the same perspective in terms of the number of players that we're seeing on that particular drug. So here's what I'd say, in terms of the overall environment, you almost have to have to look at this in 3 buckets. You have the products that are sitting in exclusive periods, that will sort of go through the binary change when competition ensues. And then you have this enormous basket of thousands of products. And then you have some individual products that essentially suggest inflows. And I would say, in general, in that middle bucket, we're not seeing any particularly noteworthy change in the pricing environment. It looks quite as it did last -- last quarter. Obviously, we will see some of these big products that go from being alone, or alone with generics, to 4 or 5, 6 players. And I think once you get into that range, then it will be reasonable to assume some fairly significant deflation. Lisa C. Gill - JP Morgan Chase & Co, Research Division: Okay. And just as my follow-up, I just wanted to clarify that I heard a couple of things correctly. On the nuclear, did you talk about an $11 million write-off in the quarter around nuclear? And then secondly, on DEA, did you say that, that cost roughly $4 million in the quarter? So if we think about the next quarter, shall we anticipate that there'll be another roughly $4 million cost associated with DEA?

Yes. First of all on the nuclear issue, yes, you did hear correctly. That was an $11 million inventory write-off. As you may recall from last quarter's call, Lisa, I sort of foreshadowed that, that was a possibility. As we are taking actions to mitigate some of the demand softness that we've been experiencing, a result of one of those initiatives was to write-off some of some inventory that we had, and that was exactly that. So I think I had sized it as $0.02 or $0.03, so when I talked about it last quarter, ended up being $0.02 of the $11 million that I described. And Lisa, regarding the DoD cuts, they were slightly over $4 million this quarter. I'm not going to try to forecast exactly what they may be next quarter, other than to say that I think any reasonable range of possibilities is reflected in our guidance.

Yes. I probably would answer that, just recognize we're sort of in the middle of some -- it's been a relatively tense legal period so some of that, of course, is associated with just the work around the legal, operational numbers are smaller.

I wouldn't expect a dramatically different number than what we experienced in Q4 -- in Q3, at this point. Lisa C. Gill - JP Morgan Chase & Co, Research Division: So, George, I mean, would I characterize this correctly in the fact that you kept both of these costs that will be more onetime in your numbers that the margins in the quarter were actually probably slightly better than what you would've anticipated? I mean, I know you knew about nuclear, but core business is even slightly better than what you printed today? Is that the right way to think about it?

There's always a unique event in every quarter, right? But yes, the $11 million was reflected in the Pharma segment. You could argue, absent that, margins would've been better. And the roughly $1.4 million of DEA cost was also reflected in the Pharma segment. Now whether that's onetime or not, I guess, we'll see as we go forward, depending on the ultimate resolution of that. So yes, there were a couple of somewhat unique items, and they ended up here in the Pharma segment.

Our next question comes from the line of Robert Jones from Goldman Sachs.

Actually, just had a big picture question on the Medical side. Outside of the expected commodity headwind, that business continues to perform well. Your largest competitor in the acute care space has been talking about a shifting in leverage towards the customer, particularly as these larger IDNs get larger. I was hoping maybe you could just weigh in on what you're seeing from that customer base? And has there been any notable pressure as a result of the consolidation that has been going on at your customer base?

Well, I would start with certainly confirming that -- the notion that there has been consolidation among the customer base. There's no question that we're seeing hospitals either under a lot of pressure and anticipating significant pressure going forward. And they're finding and looking for ways to create value. That can create some present pressure for sure. It also for us creates an opportunity to be able to deliver a message around how to create value for them. Price is one element in the way you create value. We have a broad portfolio of products and services that we can bring to bear to the market, particularly a highly integrated IDN. And so our message to them is really about our ability to create value for you in an environment that is -- has quite a number of pressures. So we'd never dispute that there is pressure that comes from large customers, but I would also say that in some ways, this enables us to articulate our value proposition about how we can create value for them.

That's helpful. And, I guess, just my follow-up, moving over to P4, which, I guess, I should refer to it as Specialty Solutions now. Outside of the write-down of the earnout liability, which sounds like it was largely linked to just one loss. I was wondering, George, maybe, if you could just take a step back and maybe just share your experiences in specialty today maybe versus what you thought originally, and maybe just talk to some of the challenges that exist in that business, relative to maybe where you guys were when you first entered with P4.

Sure. It's a good question, probably deserves a larger answer than we'll put in, in this call. But let me give you a quick overview. The answer is we felt strongly that our moving into specialty strategically has been important to us. We recognize the med acquisition that we are buying a business that essentially had 3 -- sort of 3 legs to the stool, basically, 3 components to the strategy. One which is it's a business activity that provide tools to oncologists and other specialty practices, that has now expanded. A second part of the stool, that was really supporting the payer community with products and services. And the third which is the area in which we had this loss of business, was really in what I'd call marketing services about Pharma. We've typically seen, we are really pleased with the progress in our tools to support the provider community. And those tools include a much more robust position in -- in the distributional specialty, and you can see that scenario will impact [indiscernible]. And we also -- if you remember, it was an area that was off to a pretty slow start, so really pleased to see that momentum. I think our work with the payer community particularly around [indiscernible] is actually very interesting and I think was quite innovative in that area. And always in the biopharmaceutical services, it's not a large customer base. So in this case where we lost some business from one customer, we can actually feel it, because it's the chunk of the high margin business. So that's sort of how I describe where we are. I'm really pleased at the evolution of the team. We've got some just terrific talent in that group. I think the kinds of innovative approaches that we're taking to the market recognizing that this is a world undergoing a lot of changes is pretty exciting to us. So it's just been a little bit of a mixed bag. And I hope we've been pretty transparent about which parts have been going well, which parts have been more challenging and the progress. But I'm really looking forward to the future with that business.

Our next question comes from the line of John Kreger from William Blair. John Kreger - William Blair & Company L.L.C., Research Division: Just a quick follow-up to Bob's question on Specialty. George, would you be willing, given the puts and takes, just to size that business, if we think about '13 and beyond?

No. I'm sorry, John, at this point we've got to keep this in a perspective of the segment and is reported as part of the Pharmaceutical segment. As I said, I mean, the overall mix is still a relatively small business. John Kreger - William Blair & Company L.L.C., Research Division: Got it. And a similar question, it sounds like the top line growth from Specialty improved sequentially. How about the profit growth in the business? How's that doing?

Well, I think, again, the profit growth in this particular case was hampered significantly by the loss of the time margin, sort of consulting marketing services part of the business. John Kreger - William Blair & Company L.L.C., Research Division: If you think about '13, should we -- can we assume that profit growth and revenue growth in Specialty should be pretty comparable?

Yes. As we continue to ramp -- this is Jeff, by the way, John, thanks for the question. As we continue to ramp up our distribution business, I think we feel very good about the revenue outlook for specialty. However, I think, due to the loss of this unique customer, probably the margin dollars will be somewhat challenged in the next 12 months or so, as we work to replace that business and as the other parts of the business continue to grow.

Our next question comes from the line of Steven Valiquette from UBS.

But just in relation to the DEA, I'm assuming there are some additional operational costs you're incurring to use that backup facility in Mississippi. So I'm wondering, is that material and quantifiable, or is that just really so tiny that doesn't matter? Just trying to get a little more color on that.

That -- the incremental operational cost was included in the $4 million of incremental cost that I described earlier. And that $4 million is composed of legal fees, other outside consulting fees, additional compliance costs and incremental transportation costs. So it's a portion of that $4 million.

Our next question is from the line of Glen Santangelo from Crédit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: I just wanted to ask about the 4Q -- the implied 4Q guidance. If you're kind of telling us that you swallowed an incremental $0.03 this quarter in DEA and in the nuclear business, it kind of makes results, obviously, look that much better than if you look at the sequential decline in earnings power you're now expecting 4Q, it just kind of doesn't make sense. And so I'm kind of curious, outside of the obvious, some of the key generics losing their exclusivities, is there anything in particular that you want to call out for 4Q that'll be a headwind that maybe we're not thinking about?

First of all, and to put things in perspective based on the range of guidance that we've given for the year, that implies the EPS growth rate for Q4, somewhere between low to mid teens to low 20, which I would still describe as a pretty robust rate of growth. And I'll also say that traditionally, Q3 -- in terms of sequential dollars, Q3 has always been our strongest quarter traditionally, and that remains the case. So one would naturally expect Q4 to be sequentially lower. And on the one-timers you described, I would agree that nuclear was somewhat unique to Q3, but I wouldn't describe the DEA issue necessarily being unique to Q3. Most of those costs are continuing this quarter up until today, and absence some sort of resolution will continue. Just stepping back and sort of talking about what are some of the major drivers of what would drive a sequential decline in dollars in Q3 to Q4. And again, some of this is quite typical, for example, by margin decline, and I would describe that as sort of our typical seasonal pattern that we see most years.

I also expect the tax rate to return to a more normalized level in Q4, the Q3 rate was somewhat low for the reasons I described. Third issue is the one you referenced. With LIPITOR and ZYPREXA coming off exclusivity, we do expect those to start deflating, and that should have an impact on some of our generic dollars. And then the final issue, we've talked about, is the impact of the special loss of business with one customer. That happened during Q3, so we'll feel the full impact of that in Q4. So those are the things I would point to, but again, I would come back to the point that our guidance implies teens to low 20s growth in EPS. Glen J. Santangelo - Crédit Suisse AG, Research Division: Okay. And Jeff, maybe if I could just ask one follow-up then. Obviously, you reported a couple of quarters in a row here, decent upside, but yet the quarters didn't have any share repurchasing at the past 2 quarters. So what's your thought there given the remaining $450 million on the authorization? I mean, when do you expect to start to get active on that front again?

I think it's a great question. But as you know, we would never tell exactly if and when we're going to be repurchasing shares. I will say it's always an option, right? We do have that $450 million less -- left, I'm sorry, we do intend to be opportunistic about it. And depending on market conditions and us having an available window to purchase, et cetera, I think it's an option at any point. Glen J. Santangelo - Crédit Suisse AG, Research Division: Okay. So there's no debt maturities, or there's no reason you're taking your leverage down or anything along those lines? You're just kind of waiting to be opportunistic?

Correct. We have no intention of changing our debt level at this point, or reducing our debt level at this point, let me put it that way. So no, it's really just a matter of being opportunistic and flexible.

Our next question comes from the line of Charles Rhyee from Cowen & Company.

Most of my questions have been answered. But maybe a couple of clarifications. Jeff, you kind of said on the Medical, when we think about the expenses versus benefits. You said that fiscal '13, we're going to have a full depreciation then plus the ongoing annual cost that you said the benefit should exceed the annual cost. But is that to say that it doesn't exceed both that and the depreciation?

No. When I was referring to annual cost, I was including depreciation in that.

Okay. So still our net benefit in '13 is positive?

Correct.

Okay. And then in terms of the commodity headwind, you said $5 million to $15 million, right?

Yes, that's correct.

Okay. As we think about the distribution, though, through the year, is it fair to think that we are looking at sort of a net benefit in the first half of '13, but then maybe it turns a little more headwind in the back half of '13? [indiscernible]

I don't want to get too specific at this point until we work through our final budget. And quite honestly, it's really only the first 3 months or so that we have really good visibility, so we're basing the rest of year off of forward range, et cetera right now. So I wouldn't like to be too specific about the seasonal pattern at this point. I think I'll just leave it at the overall impact of $5 million to $15 million. And probably as we get to August, we'll give a little bit more detail in terms of quarterly impact in that regard.

Okay. And then maybe the last question, just going back to P4 here. So this contract that you guys lost, can you talk about what occurred that made the contract move here or that the people lost it? And does the market gain, sort of this consulting side of the business, remain important to the specialty strategy?

Again, I'm not going to be able to share. We didn't actually lose -- we lost business with a customer, so we didn't lose a customer. We lost business with the customer. It just happened to be high-margin business. And as I said, it's sort of -- we're at that stage where we can feel this kind of bump. I would say right now that even the marketing services, they're still part of the strategy, I think Meg and team have continued to -- will look at the areas of greatest potential for us. We are -- in some ways, we have a disadvantage in being a little bit of a smaller business, and we have the advantage of being a smaller business, which is that we can do a lot of course correction and forward-looking thinking about how to evolve this business. So just remember that we've actually picked up a fair amount of new business in Specialty. But the margin impact of a loss of this part of this customer's business is meaningful.

Our next question comes from the line of John Ransom from Raymond James. John W. Ransom - Raymond James & Associates, Inc., Research Division: My other question is if we step back and look at the business, and I'm talking about the distribution business, say the intermediate term. Let's say we're in a world where maybe 5% of the drugs have gone generic and that caliber slows down and we're in a deflation cycle. What was the -- in your mind, George, what does the profit picture look like for the business intermediate term? Are we just kind of stuck in a profit deflation cycle, and you've got to be clever with using capital and continuing to diversify around other businesses?

Yes, John. I wouldn't say we're stuck in a profit deflation cycle. We will see cyclical pricing on generics, which certainly affect the business. But by and large, our generic business through the cycle is growing, and the profit that comes from that business is meaningful, continues to be meaningful. And so much of that has to do with the way we run the program, that has to do with our ability to penetrate accounts, our sourcing models, our ability to use scale. And so, yes, I wouldn't translate the -- necessarily, the deflation of the product, they come out of exclusivity to a long-term sense of stagnation, that's not the way I see it.

And with no further questions in queue, I'd like to turn the conference back over to George Barrett for any closing remarks.

So again, thank you, all, for joining us this morning. We're excited to report another solid quarter. And we look forward to talking with you again in the coming weeks. And surely we'll see you over the coming meetings that Sally referenced. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.