Bausch Health Companies Inc.
Q2 2013 Earnings Call Transcript

Published: 7 Aug 2013

[Operator:]

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Valeant Pharmaceuticals Second Quarter 2013 Earnings Call. [Operator Instructions] Thank you. Laurie Little, you may begin your conference.

[Laurie Little:]

Thanks, Matthew. Good morning, everyone, and welcome to Valeant's Second Quarter 2013 Financial Results Conference Call. Presenting on the call today are J. Michael Pearson, Chairman and Chief Executive Officer; and Howard Schiller, Chief Financial Officer. In addition to a live webcast, a copy of today's slide presentation could be found on our website under the Investor Relations section. Certain statements in this presentation may constitute forward-looking statements. Please see Slide 1 for important information regarding these forward-looking statements and associated risks and uncertainties. Readers are cautioned not to place undue reliance on any of these forward-looking statements. The company undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect the actual outcome. In addition, this presentation contains non-GAAP financial measures. For more information about non-GAAP financial measures, please refer to Slide #1. Non-GAAP reconciliations can be found in the press release issued earlier today and posted on our website. And with that, I will turn the call over to Mike Pearson.

[J. Michael Pearson:]

Thank you, Laurie. Good morning, everyone, and thank you for joining us. As you have read in our press release, we followed up our strong performance in the first quarter with another quarter of outstanding operating results. On today's call, I will review our second quarter results and performance and provide an update on Valeant's business. I will then turn the call over to Howard to provide an update on the Bausch + Lomb transaction, which closed Monday, and discuss the business going forward. After our remarks, Howard and I will be available for Q&A. This morning, we reported Valeant's second quarter results for 2013, which were driven by strong organic growth and solid results across all of our operating units. Total revenue for the quarter was $1.1 billion as compared to $775 million in the second quarter of 2012, which excludes the one-time milestone payment of $45 million we received from GSK for the U.S. launch of Potiga in the second quarter last year. Product sales for the second quarter of 2013 were $1.06 billion as compared to $743 million in the same period in the prior year, an increase of 43%. Our second quarter cash EPS was $1.34 per share or an increase of 54% over 2012. Our cash EPS would have been $1.36 except for $0.01 for the pre-closing financing cost of Bausch + Lomb and a $0.01 negative impact for foreign exchange. Adjusted cash flow from operations was $423 million for the quarter or an increase of 61% over the prior year. We would also like to mention that our net income to adjusted cash flow from operations conversion ratio was greater than 1%, which has been our objective as we've talked about previously. Organic growth continued to be strong for the company, even with the negative impact from the introduction of a generic competitor for the Zovirax Ointment. With this impact, our U.S. promoted business declined 5% on a same-store sales basis. But excluding the Zovirax Ointment and Cream, the rest of the promoted portfolio increased 7% on a same-store sales basis. We are not adjusting for any other generic products. As we expected, our neuro and other business returned to positive growth and increased 2% on a same-store sales basis, now that the impact of generic Cardizem CD and generic Ultram XR are largely behind us. Despite the continued headwind of generic [indiscernible] and a couple of other small products in Canada, our Canadian/Australian operations grew 4% on a same-store sales basis. Our Emerging Market segment delivered a total organic growth rate of 14% in the quarter, continuing the exceptionally strong progress seen in 2012. I will touch on the key growth drivers on the next slide. There are several key drivers that are fueling our growth this year. For example, U.S. promoted products overall grew 7% on a same-store sales basis as OraPharma, our oral health or dental business, continued its stellar performance and once again delivered double-digit growth as it has each quarter since our acquisition. CeraVe also continued its positive track record and grew over 50% as compared to the previous year. I am pleased to report that our aesthetics franchise has its best quarter since Medicis launched its aesthetic products. In particular, Dysport had its best quarter ever and gained significant market share against BOTOX and ZMM. We expect that progress to continue as we roll out our new MMVP 2 [ph] loyalty program to physicians. Our Emerging Market segment showed tremendous growth this quarter, which was driven by growth by several key markets. In Poland, we continue to grow faster than the market, which is growing 6% year-to-date according to IMS Health, while our operations are growing 11% and nearly double the market. In Russia, we increased organically 16% year-to-date, continuing to outperform the local market, which is growing at approximately 10%. Specifically, major products has delivered double-digit growth the past 6 quarters since we announced the acquisition. Our operations in Southeast Asia, South Africa continued their track record of quarterly double-digit growth. And our operations in Latin America have showed strength across the board, particularly our Probiotica business in Brazil, which has increased over 60% year-to-date. In addition, Mexico remains on track and has delivered 8% organic growth year-to-date versus the market growth rate of 3%. We had another active business development quarter. And clearly, the highlight of the quarter was the acquisition of Bausch + Lomb, which closed on August 5. In addition, we significantly strengthened our aesthetic product offering with the acquisition of Obagi, a leader in the physician-dispensed skincare market. The co-marketing agreement with Mentor, which gives us access to the leading breast implants in the U.S., and the acquisition of Ideal Implant, a novel saline breast implant. We expect to gain FDA approval for the Ideal Implant in 2014. We also continue to strengthen our business in Russia with the acquisition of certain products from CROMA for the local market, and Ekomir, a leading Russian OTC business. Finally, we gained entry into Vietnam, one of the fastest-growing emerging markets, with the acquisition of the majority share of Euvipharm. We plan to use of the Euvipharm platform to introduce other products into Vietnam. We continue to see interesting opportunities around the world and we would expect to be active with tuck-in acquisitions over the rest of the year. As most of you are aware, once a year, Valeant overviews the performance of past acquisitions with our Board of Directors and our investors, reviewing key metrics to evaluate the success of our transactions. On the next 2 slides, we have analyzed all acquisitions that were over $75 million in purchase price and completed since 2008. As you can see, each of our acquisitions is performing extremely well as compared to the revenue forecasted in the original deal model with the exception of Afexa. Fortunately, Afexa and in particular, COLD-FX has rebounded dramatically in 2013. And from a cash flow standpoint, Afexa is now on track as compared to our deal model. I would also like to note the strong performance of Biovail, Sanitas, PharmaSwiss and iNova, which are among the largest transactions over the last 5 years. In aggregate, our acquisitions have grown organically at 12% compound annual growth rate. Turning to Slide 8. Cash flows are clearly the most fundamental driver of a successful acquisition and the best measure of a deal's success. We are very pleased to note that all the acquisitions made since 2008 are either on track or well ahead of the deal model from a cash generation standpoint. In the aggregate, we are substantially ahead of the forecasted cash flows we modeled at the time of acquisition. We believe we are one of only a very few companies that has established such a track record based on both exceeding synergies but more important, overachieving on expected growth. Despite our reputation for not investing in R&D at the same levels of our competitors, we believe we have a very exciting late-stage pipeline coming to the market over the next couple of years. Given some new news across a number of products, I would like to provide an update on this call. First, an update on efinaconazole or Jublia. As you know, we received a complete response letter in May. And I want to reiterate that there were no safety or efficacy concerns from the FDA regarding this compound. In July, Howard and I joined our team in Washington to meet with the FDA to discuss their concerns centered specifically on our container closure system. This week, we hope to reach a final agreement with FDA on a plan for addressing all of the same issues. And we expect to receive approval in the second or third quarter of 2014. On Acanya, 2 pieces of good news. We have been able to extend the patent life for Acanya previously set to expire in 2015 up to 2029. This was a more specific formulation patent, which was granted. In addition, we have recently received Phase III results for a new formulation of Acanya, which demonstrate both improved efficacy and improved tolerability. We expect to file this new product with the FDA by the end of the year. Luliconazole or Luzu has been filed and has a PDUFA date of December 11, 2013. We have engaged in positive discussions with the FDA and hope to publish Phase III data later this year. BV METROGEL, which we entered into a licensing agreement with Actavis earlier this year, now has a PDUFA date of May 24, 2014. Our dermatology R&D group is also working on several line extensions for CeraVe. And we would expect the CeraVe family of products to surpass $100 million in sales by next year. We have successfully launched CeraVe in Canada and plan to launch in Mexico, Brazil and Australia later this year. Finally, we have a robust pipeline of branded generics and OTC products across our emerging markets, which we expect to launch the remainder of this year and next. To wrap up our discussion of the quarter, we have provided this chart, so you can track and compare our recent quarterly performance. I will not go over each line item, but note that our margins continue to be within expectations with gross margins of 77%, SG&A ratio of 22% and operating margins of 52%. There are 2 areas on our P&L that I did want to provide some overview. First, we recognized a noncash unrealized foreign exchange loss of $8.3 million on an intercompany loan this quarter that we excluded from our cash EPS calculation as we agreed to do at our last investor meeting. This related to the structure used by the iNova acquisition. Second, in the spring of 2012, the board addressed historical issues related to RSUs that have been previously issued to directors but would not be deliverable until after the director has left the board. Not wanting to encourage directors to leave in order to realize compensation, the board approved an acceleration of certain RSUs, which the company settled a portion of these awards in cash. And the resulting net economic impact was the same as the share repurchased by the company. This resulted in a one-time charge of $15 million in compensation expense. With this, I would like to turn the call over to Howard.

[Howard Bradley Schiller:]

Thank you, Mike. Now turning to our acquisition of Bausch + Lomb. It's been a very busy time since we announced the deal back in May. During this time, we have learned more about the business and the people who've made it successful. I am pleased to note that Bausch + Lomb has very similar culture to Valeant, which will be an important factor as 2 companies come together. B+L is performance-based, much like Valeant, and they're team-oriented with a strong willingness to wear multiple hats and accept change. We are very excited that so many of the Bausch + Lomb senior management will be joining Valeant. And I look forward to working with all of them. Yesterday, Mike and I met with Fred Hassan, and we are pleased that he will be joining our board and actively advising us on the integration and ongoing operations of B+L. Our belief in the strategic rationale for the acquisition has only been reinforced through this process as well. Eye health is an attractive specialty both in the U.S. and globally. This acquisition expands our reach, not only in existing markets but now opens up new opportunities in territories, such as China, Turkey and the Middle East. And the fact that Western Europe and Japan are largely OTC contact lens and lens solution businesses and are profitable and growing, make our entry into those markets very attractive. Finally, we've also been able to refine and sharpen our deal model and feel very confident that we can significantly exceed our $800 million synergy target. In addition, recently launched products, such as Lotemax Gel, Prolensa, the new IOLs and the Biotrue daily contact lens, have provided us with revenue upside. And we expect several of the pipeline products to provide us with new revenue opportunities in the future as we do not build pipeline revenues into any deal model. Furthermore, B+L was recently able to extend a patent for Besivance from 2021 to 2031, which was not included in our deal model. As recently stated in the memo to both Bausch + Lomb and Valeant employees, we have already identified synergies in excess of $800 million. We will be reducing our combined headcount between 10% to 15%, which is a lower percentage than in other recent large pharma mergers. We will achieve these synergies with no impact in the North American field forces and less than 5% of the total synergies will be coming from sales forces globally. We expect to achieve at least $500 million in run rate synergies by the end of 2013 with the remainder to be achieved in 2014. Finally, we expect the cost to achieve these synergies will be significantly less than 1x full synergy target. And as always, we will update you on our progress. The next slide gives you the percentage of our $800 million-plus synergy target by business or function. As you can see, the bulk of the savings are coming from cutting G&A expenses, combining the 3 B+L business units into 1 eye health business unit and eliminating the B+L regional infrastructure and merging the businesses into our decentralized structure, reducing marketing spend and rationalizing spend on R&D projects. We continue to be extremely confident in our ability to significantly exceed our $800 million target. And we will update you on our progress. With the addition of B+L, we are extremely excited about the business mix and the opportunities it provides for both organic and inorganic growth. Now that Bausch + Lomb is closed, the U.S. represents about 50% of our sales with 2 leading specialty platforms

[Operator:]

[Operator Instructions] Your first question comes from the line of Marc Goodman with UBS.

[Marc Goodman:]

First thing is in the past, you've talked about the accretion from Bausch + Lomb of 40%. As we think about -- actually, I was just curious. Given the change in interest rates and given the fact that you've got your equity deal done now and everything, can you talk about how you think about the accretion? Second thing is on Bausch, that was a pretty good detail of where the costs are going to come from. I was just curious. What's the extra cost-cutting that you found relative to your expectations? I heard a lot of comments about extra revenues that you found. I was curious. Where's the extra cost-cutting to get to the higher numbers quicker that you found? And then third, if you could just talk about Latin America specifically a little more. This has been an area that other companies have talked about as an area of weakness relative to expectations, and yet you continue to do really well there. So I was curious. How do you continue to do well? Just what's happening there and how to think about the growth there and how sustainable it is.

[J. Michael Pearson:]

Okay. Marc, why don't we have Howard talk about the accretion, and I'll talk about the additional cost opportunities in Latin America?

[Howard Bradley Schiller:]

Sure. Marc, as you recall when we announced the B+L deal, when we talked about the 40% accretion, it was -- we talked about how the deal closed on January 1, 2013, and how we've gotten all the synergies. That's what the accretion would be. As you mentioned, the interest rates we ended up paying were slightly higher than what we anticipated. We also issued a few more shares than we had thought, which would impact that a bit. Now with that being said, we also would expect the synergies to exceed our initial target. I think we feel very good about the progress we're making. And that analysis we did based on 2013 based on the new synergies is still roughly whole. But obviously, when we come out with our 2014 guidance, we'll see it be a much bigger impact of the synergy capture because we'll both, of course, capture much higher percentage of the synergies in 2014 than we will in 2013. But in 2013, the guidance represents the beginning of that capture. But again 2014, we'll see a much bigger impact from the synergies.

[J. Michael Pearson:]

Yes, Marc. In terms of where we're finding some additional cost opportunities. And as you know, it's a pretty detailed exercise going sort of by region, by function, going through all the details. I think we've found quite a bit in purchasing, probably more in purchasing than we expected to find when you compare rates that both companies are paying for things, like car rentals and IMS data and bottles and things like that, that we think we can get some non-personnel savings there, quite a bit higher than what we had thought. I think the area of the G&A, it was actually a pretty expensive, heavy model that they had in terms of both the 3 divisions, the surgical, the contact lens and the pharma, and then the regional structures. So there's actually more G&A savings than we had expected to find. And we've also been able to leverage a lot of the commercial support functions that we had in our company with ones that they had. So for example, we'll now have a commercial support organization that will cover both the dermatology group, as well as the eye health group, which has led to more savings than we expected. But it's no one thing. And as we continue to look, the teams are doing a great job. They keep coming up with ideas and we continue to find incremental savings. And we're already well north of the $800 million. In terms of Latin America, our businesses -- I can't speak to issues other companies are having. But the market has slowed a little bit, both Brazil and Mexico. Brazil was growing at 15% plus, and it's down to probably about 10% or maybe even high single-digits in terms of the market. And Mexico was growing sort of high single-digits last year. It's down to probably about 3% this year. But we continue to outperform the markets. I think it speaks maybe to the types of products we have. The products we have tend to be, as you know, branded generics and the lower-cost products. We don't have -- and I think the biggest issues in Latin America are the end-of-patent life products. The line of products are coming off-patent, which obviously has the same dynamic as you see in the United States. And probably the other thing is we manage very carefully how much product we have in the distribution channels. And anything over 90 days, we basically write off. So we have very limited products compared to, I think, most companies in terms of -- in the channel. And we manage that very, very carefully. And we've seen that's been helpful also in Europe, for example, where we have many, many companies that have more than 6 months, almost up to 1 year of products in the channel, and we try to keep it around 2 months.

[Operator:]

Your next question comes from the line of Lennox Gibbs with TD Securities.

[Lennox Gibbs:]

A couple of questions. First off, on the decision to move Medicis to New Jersey. I think your original position was that Medicis would have remained in Scottsdale. Can you step us through the change in the thought process around the Medicis operation?

[J. Michael Pearson:]

Yes. I think there were 2 things that drove the decision. One was the acquisition of B+L, where we had -- again I was just speaking to the commercial infrastructure. You need to support pharmaceutical business as a device business. So this business, things like regulatory support, supply chain support, the commercial operations in terms of providing samples out to the field, processing expense accounts, all those types of things. Before we had B+L, dermatology was really our largest business in the United States and most of that was out there. But with B+L, they had the same structure basically in New Jersey, where that was the home of their pharmaceutical business. So it didn't make sense to have 2 structures performing the same function. So we had to make a choice. We also have -- as seen over the 6 months or so that we've owned Medicis, the ability to attract and retain and recruit people in Arizona with pharmaceutical experience is quite limited. And therefore, it becomes quite expensive. So when people left, we were paying a premium to have to attract talent. So New Jersey seemed to be the much more natural place to have this commercial infrastructure for the long term. And so again, that has led to more synergies and, quite frankly, probably a higher-performing group since it's a little bit larger and more professional.

[Lennox Gibbs:]

Okay, good. And then secondly with respect to your recent comments around the aspiration to become one of the world's largest health care companies. It seems that you might need to adopt more of a mainstream strategy, maybe larger therapeutic categories in order to achieve that objective. Maybe you can tell me if that's a fair assessment. But if it is, what are some of the new segments that you foresee targeting in order to drive that kind of expansion?

[J. Michael Pearson:]

Yes. Lennox, I don't -- actually, I think we would plan to have our same model. We think we can be successful by not doing what large pharma companies are doing. And that's been our strategy, that will continue to be our strategy. And so we're not looking to get into the traditional -- we're not going to go -- therapeutic areas are largely driven by R&D in terms of why people organize that way. I mean, we don't plan to spend -- increase our R&D spend with the percent of sales to what other companies are doing. And we'll continue to focus on both specialty segments and attractive geographic markets. So I think our strategy will remain the same. And we did put a big aspiration out there. But that's our approach, it's motivational to our people. And it's a plan we hope to achieve.

[Lennox Gibbs:]

But what additional specialty categories do you think might be attractive in order to get to that objective?

[J. Michael Pearson:]

I don't think we want to discuss specifics on the call. But I think it will be similar from a characteristic standpoint to what Howard was outlining earlier when he talked about Bausch + Lomb, which is sort of cash pay, smaller products, durable products. I think that we like the device area as well. So we would continue to grow that area. But in terms of specific categories, I don’t think we want to go into them on this call.

[Operator:]

Your next question comes from the line of Chris Schott with JPMorgan.

[Christopher T. Schott:]

A couple of questions. First, you talked a bit about it in the presentation. But can you elaborate a little bit more on the Western European operations for Bausch? This is an area where you historically don't have exposure. Bausch, obviously, a very different business, more cash pay, et cetera. But just interested in your views on that part of the franchise. The second question on the initial call on Bausch, I think you highlighted a 5% growth rate for the ophthalmology market on a global basis. I guess, do you see the assets you're acquiring here as having growth that's in line with that target, above or below that target? Just trying to get a sense of how you're viewing the opportunities over the next few years. And then the final question I had is I just was wondering, as we think about the cost structure here, do you see anything unique about Bausch's cost structure that's allowing for this high synergy level? Or should we think about this type of cost reduction as something that could be applied to, I guess, other more traditionally run global pharma businesses over time?

[Howard Bradley Schiller:]

Okay. I'll start with the last question about the Bausch cost structure. As Mike mentioned earlier that when we approach this, this is very much bottoms-up. And every company is structured a little bit differently. On paper, they may appear that they're similar. And in this case, Bausch had prepared to be a public company, and so then obviously on the G&A functions, there was quite a bit of overlap. Also as you know, we just run a leaner G&A cost structure than other companies. In addition, they have the global business units, which we don't run. We run decentralized, so we're able to eliminate the global business units. They also had some regional infrastructure that we've talked about. And we tend to run, consistent with our model, very lean or no regional infrastructure and the infrastructure is in the countries, where the operations are. And then again on areas like R&D, we're able to rationalize R&D spend on projects, consistent with our model of not taking big bets on risky early-stage projects. So I think it's -- I don't think it's necessarily something that's unique to Bausch. I think it's consistent with our approach in other deals. And every company we look at is going to provide different opportunities, some more, some less. But our approach to it is very consistently bottoms-up, consistent with our core operating principles.

[J. Michael Pearson:]

Yes, Western Europe. So Western Europe is an area that we, early on, made a decision to get out of. And I think that proved to be a good decision. We were not looking to get back into Western Europe per se because the markets over there continue to be difficult. But as Howard mentioned, the Bausch + Lomb business is very different. It's not -- there's really very little pharmaceutical business in Western Europe. It tends to be an OTC business, a contact lens business and an eye health business. So pharma is a very, very small percentage. And I think they were probably thoughtful when they designed their business over there because it's prescription pharmaceuticals that are reimbursed from the government that are creating all of the problems in Europe. Now the overall economy and GDP growth does have an impact on growth. So I think what we would expect is that our business there, what we'll do is continue -- it will probably grow at a lower rate than the average growth rate. But we're heartened by the fact that it is growing. That's probably -- the growth rate in Europe is probably going to be between low single-digits going forward. But the nice thing is it's very cash-positive. And I think the margins we'll be able to achieve there are quite high. So I think we're going to view Western Europe more like we view neuro and other, which is a good, steady business. It will be low growth and will generate an awful lot of cash that we can then reinvest that cash in higher-growth areas. But it has been a good business for Bausch + Lomb, will start to continue to be for us. But you're probably not going to see a lot of acquisitions, a lot of investment in that part of the world from us. In terms of the 5% growth rate, we would expect to at least achieve a 5% growth rate at Bausch + Lomb. We would obviously hope to beat that. So I think we hope to beat it just through our strong sales and marketing infrastructure. In many of the markets, we're highly complementary. There's many markets that we were much stronger than they were in and vice versa. So for example, in Latin America, we have a much stronger presence than they do. So I think we can probably do a better job in Latin America, just given our distribution. Similarly, up in places like Canada and Southeast Asia, we're probably stronger. They're stronger Northern Asia. We're a lot stronger in Central and Eastern Europe. So I think our infrastructure will help us grow quicker. And also they have a very -- as Howard mentioned, they have a lot of new product launches. They have an interesting pipeline that we're hopeful on. And so I think our expectation is to grow more mid- to high single-digits overall in terms of the Bausch + Lomb business.

[Operator:]

Your next question comes from the line of Doug Miehm with RBC.

[Douglas Miehm:]

First question just has to do with the marketing spend or what you say on the slide at around 18%, which would roughly be, depending on what you ultimately get to, $150 million to $200 million in savings there. So I guess, my question is since you're really not coming back on front-facing individuals, are we going to see a significant decrease in marketing spend? And what will be the impact of that over the mid- to long-term in terms of B+L growth? It's the first question. Second question, when we did see that letter, one of the things we noted is that the head of sales for each of the divisions at B+L, is that still open? Maybe you could comment on the type of people you're looking for there and why you didn't keep the people that were there. Then finally, maybe for Howard, just -- you say that you're going to do greater than $1.75 billion in adjusted cash flows. But why are you not able to give us some better guidance with respect to that number yet? And I'll leave it there.

[J. Michael Pearson:]

Sure. So let me start. Marketing spend, our strategy from the very beginning is a little bit different than other pharmaceutical companies in terms of how much -- we have some basic beliefs that are, I think, a little bit different. And the area of marketing spend is one of them. I think we consistently said that we really do believe that in the specialty areas, the relationships between the sales representatives and the doctors are critical. And that's really, really what drives that relationship. And the opportunity to educate a physician on our products and differentiate our products and get that message out is a critical driver behind organic growth. And we think that's becoming more and more of the case because of the increasingly tough and appropriate regulations around what you can actually say about a product, which is basically you could talk about what's on the label. You can't talk about other things. You can talk about specifically what's on the label. So we think that a lot of the historic spend that has been traditional in big pharma in terms of marketing is not a good return on investment. And it's always been our belief. And that's one of the reasons we've been able to attain a lower SG&A spend level than any other company in the industry. And it's just a different belief that we have than other companies. I think hopefully we're beginning to establish a track record of 6-plus years now of achieving strong organic growth by taking this approach. So yes, we will be cutting back on the marketing spend of a lot of our prescription products, in areas like IOLs. IOLs, it's hugely relationship-driven, just like aesthetics is hugely relationship-driven. So Doug, I think you're right that we will spend less than a big pharma would spend on marketing. It's just a belief we have. And we'll apply that same belief to Bausch + Lomb. And quite frankly, the senior leaders that are staying actually have reinforced that, that's the right tradeoff. And we're talking to Dan Wechsler, I think he's a big believer in this.

[Howard Bradley Schiller:]

[indiscernible] Doug, the 18% isn't just from reduced marketing expense. A big chunk of that is from getting the synergies from creating the shared commercial operations in the U.S. that Mike referenced before, also eliminating a lot of the overhead from -- elimination of the global business units. So there clearly is a reduction of marketing spend, but that 18% isn't just a reduction of marketing spend. And then on the operating cash flow, we closed the deal on Monday. The key is we need to really understand their working capital movements on a monthly basis. We understand it on an annual basis from our diligence. And we just wanted to own it a couple of days before we came out. And that's really -- I mean, our expectation is that the operating cash flows will continue to be strong. But just before we come out with a number, we wanted to just to better understand the working capital movements on a more granular daily basis.

[J. Michael Pearson:]

We're talking [ph] to people in the boxes. And frankly, we're in discussions with people, Doug. And some of those boxes have been filled and will be filled. And a lot of them will be filled by Bausch + Lomb people. It was just a point in time that we were communicating to the employees. And so you shouldn't read anything into that quite frankly.

[Operator:]

Your next question comes from the line of Annabel Samimy with Stifel.

[Annabel Samimy:]

I want to drill down a little bit more into the growth prospects now with Bausch + Lomb in house. You alluded to a number of pipeline assets that hasn't been included in any of your projections. So can you give a little bit more detail on those and how you might offset some share loss that you've had in the lenses? Is it all about the silicone gel? Or are there more products there that we should be thinking about? And the other thing I want to talk about was China, obviously Bausch + Lomb introducing that market to you. And that's an area that, in the past, said that you weren't going to venture in because it's so competitive. Is this a new entry into China. And now what are you going to do, some sort of bringing in the rest of your business over there or using it as a platform now? And should we expect more growth in there, given the size of the market?

[J. Michael Pearson:]

In terms of the pipeline, I think that again we don't -- when we do a deal, we do not know ascribe value to pipeline products because that's just our methodology because unless something is approved, it's not approved. But that does not mean we don't believe in those products. And in fact, we're quite excited about some of the Bausch + Lomb products that I hope to come to the market. I think we talked about contact lens, they have 2 products that will be critical. The contact lens businesses is a business that Bausch + Lomb invented decades ago. But their global share has dropped dramatically. It's now -- they have about 8% market share in terms of contact lenses. It's a 4-player market as you know. So they have not launched a new lens in a decade. So they just came out with the Biotrue daily, which I know -- they're going out with a Biotrue monthly. The Biotrue daily sales, the -- it's a pretty, new product, but they're ahead of forecast. And so we're excited about that. But the true important product for the lens business is the Zeus [ph] product, which is a new material, which is hopefully going to be launched next year. So we have ring-fenced all the people involved in Zeus [ph] and all the spending involved in Zeus [ph]. And we're not touching it because that is the future of contact lenses for Bausch + Lomb. So we really hope that it is successful. All the early indicators are that it will be successful. It's in the FDA now for approval. So that could really make a difference for the contact lens business. So they have a number of IOLs that they're launching, one they just came out and one later this year. So there are some exciting products and a number of pharma products. There's some very exciting products in the pipeline that are late-stage. We shared in the presentation our late-stage pipeline, which we think is very exciting. We think there's very exciting as well. And if the majority of them work, it's going to lead to some real, real positive growth. China, we've always said that we did not want to get into China. We always like the market, but we never had a way -- we weren't going to get in and lose money, which is what many, many companies do for many, many years. Bausch has been in China for a long time. They have over $200 million business. It's growing nicely. It's making money. And it's almost all cash pay. It's mostly contact lenses and solutions and OTC products. And some of that -- some are like brands like renu, which are global brands, and some are local brands. So it's a very nice, little business. I don't know yet whether to what degree we can use that to leverage our products. We're not -- we're heading over to China in September. We'll spend a week over there and really get to understand their business in more detail. And so we're hopeful that it could provide an opportunity. But we're going to be careful and [indiscernible] actual business is [indiscernible].

[Annabel Samimy:]

On the products for Bausch + Lomb, they have a pipeline, you have a pipeline. Should we expect R&D to become a slightly bigger percentage, given that these 2 businesses do require some level of R&D to essentially to continue to grow?

[J. Michael Pearson:]

Yes. Again we'll spend what's appropriate. We don't like target 2% or 3% or 4% of spend for R&D. Because it's not what you spend, it's what you produce. And I think it's industry convention to say, well, if you're spending 12% on R&D, then you have a much more brighter future than if you're spending 4% on R&D. And I dispute that. I think it's how you spend the money and what you spend it on. So we're not focused on the number, the percentage number. What we're focused on is whether the right products that we think have very high probabilities of success that will really drive business. So if we're going to change, it might change a bit but not dramatically is my bet. But that's -- we don't really think about it as a percentage of sales.

[Operator:]

Your next question comes from the line of Tim Chiang with CRT Capital.

[Timothy Chiang:]

I have a couple. Mike, could you comment on how big is the sales force size now that you've closed the Bausch + Lomb deal? I'm a little surprised that you didn't make as much cutting on the sales force. And I sort of want to get your thoughts on further out how -- do you think you'll make additional sales force cuts next year? Or do you think the sales force actually might have to grow?

[J. Michael Pearson:]

I don't know. We owned this business for 2 days. And what we wanted to make sure is -- what we can say is Bausch + Lomb is performing well this year and we do believe in sales force. I can point to Medicis, where there were some reductions in Medicis because we had overlapping sales forces. Again we didn't have overlapping sales forces, except for a few countries, like Poland in ophthalmology. And since we bought Medicis, actually we started to hire more sales reps in the aesthetics group. The business is really performing well in aesthetics, and we're in the process of expanding that sales force. But that's based on the opportunity and the results. And I think the same will hold true for Bausch + Lomb is that if the results are good and quite frankly some of these products get approved, then we'll probably need more sales reps. Because now if the pipeline doesn't come through and the products are -- and the growth isn't there, then we'll -- so it will be -- so we don't have a preconceived notion, I guess, is the best answer. I think our hope is that the new products get approved and that the business does well and we need to expand sales force. That would be the most desired outcome.

[Timothy Chiang:]

Okay. And then just a couple of follow-up question for Howard. Howard, where do you see the gross margins for the second half of the year with Bausch + Lomb settling out at? I mean, do you have a range that you could provide?

[Howard Bradley Schiller:]

Well, their margins, net-net, are a little bit lower than what we've been operating at. So just the weighted averaged, you'd expect them to come down a bit.

[Timothy Chiang:]

More maybe in the low 70s. Is that reasonable?

[Howard Bradley Schiller:]

It'd be somewhere -- I don't have the precise number. We have looked at that. And it will be somewhere in the low 70s.

[Timothy Chiang:]

Yes. And I noticed that the tax rate was around 2.8% adjusted. Is that a good number going forward, would you say?

[Howard Bradley Schiller:]

That in our guidance is around 4% for the year. As we said before, the B+L transaction, because it's a stock deal, would move that up a bit. But 4% is probably a good number for the rest of the year.

[Operator:]

Your next question comes from the line of Alex Arfaei with BMO.

[Alex Arfaei:]

Mike, at this stage after the Bausch deal, could you talk about your preference for merger of equals as opposed to the smaller tuck-in acquisitions you mentioned earlier? And following up on the earlier question on Latin America, this quarter, Pfizer also talked about a slowdown in Russia, as well as cost-containment measures in Poland. You're obviously growing well in those markets. Are you seeing increased headwinds that could slow you down later on? Or is it basically a similar situation as to what you were talking about in Latin America?

[J. Michael Pearson:]

So first question, I think we're interested in both. Small tuck-ins, that's just part of how we do business. And we ran through some of the small tuck-ins we did it this quarter, we would expect to keep doing the tuck-in acquisitions because those are usually highly, highly -- they're often actually credit-accretive and cash paybacks. And many of those are measured in just a lot less than 5 years. So those are sort of bread-and-butter for us. A merger of equal, again lots of conversations. It's going to take the right situation. It can't be predicted. It takes 2 sides to reach agreement. But we continue to have discussions. In terms of Poland and Russia, I think the Russian market has slowed down a little bit. I think it was like 15% growth. IMS said 15% last year. I think it's going down to 10%, 8% to 10% this year. We're growing more like 15%. I think part of it is, we have almost no government reimbursement in Russia. It's largely an OTC business for us. And I think as we continue to gain scale -- and when we were over there about a month ago, and we have well over 500 reps and we'll probably be hiring more reps. Bausch + Lomb actually used -- didn't have their own reps. They used third-party reps. So we'll probably bring that business in-house. And they have a lot of OTC business over there, like renu and stuff like that. So I actually -- I think our growth will continue to be quite strong. Everything we're seeing out of that market -- and we were just on a call yesterday doing our -- we were doing our weekly -- how our sales are doing, and Russia continues to be the great market for us. Poland, there is pressure in Poland. Last year, the market shrunk 3%. We were 1 of only 2 companies to grow. And we grew faster than anyone in Poland. And I think we continue to -- we have a great team in Poland. We just have a wonderful sales and marketing team. We have a great presence. And obviously, the overall market growth rate will have some impact on us. But we have confidence that we'll continue to overachieve in Poland. It's a really -- it's a great team with a great track record. And I think we expect for the foreseeable future to continue to perform very, very well in Poland.

[Howard Bradley Schiller:]

There's an overall theme though. We have a very different business in emerging markets than others. Our branded generic and OTC strategy. These are products that are affordable. But people have confidence that they work. And that's a growing part of the market. And we're less susceptible to a lot of the pressures and certainly the patent risk that a lot of the branded products are under.

[Operator:]

Your next question comes from the line of David Amsellem with Piper Jaffray.

[David Amsellem:]

Just a couple of product-specific questions. Just first on Solodyn, what's your level of confidence that you can return that to a meaningful growth? Or should we be thinking of that asset as something where you'd probably wind down promotion on as we get closer to generic entrants in 2018 and 2019? Second question is just on the Obagi assets. What's your view on your ability to drive more U.S. growth out of new derm? And so maybe talk about your plans for those assets outside the U.S. And then lastly, maybe if you could provide some specifics on efinaconazole and what additional work you need to do to address the FDA issues that were outlined in the CRL?

[J. Michael Pearson:]

Now Solodyn has been an important product for us. And we will continue to promote Solodyn. It's promotionally sensitive, stabilized at this point and [indiscernible] a lot of money for us. And it's one of our largest, if not probably our largest product. And so we're not going to be backing off on Solodyn. And in fact, the recent trends are positives. So in terms of Obagi, actually so far it's short, it's early days. They had a terrific quarter in the U.S. So we're very optimistic on Obagi. We have just added them to our MVP Program, which gives doctors discounts if they use a broader range of our products. And that was actually one of their big concerns, one of the reasons they were up for sale. They were concerned that sort of a single product or class of product company that they would be at a disadvantage to companies like Allergan. And so I think that MVP Program -- so the business is doing extremely well in the United States. In terms of x U.S., what we're doing is we're putting it into our decentralized model. So Obagi basically is exported, they're sold to distributors. So now we'll be launching our own Obagi in Canada. We'll be launching Obagi in Vietnam. We'll be launching Obagi in all these other markets, which will both help us immediately because we don't have to pay the 50% discount to the distributors, but then we'll have our own people selling these products. So Obagi sort of got -- with Bausch + Lomb, people sort of focused on Bausch + Lomb. But Obagi, we feel very good about it. In terms of efinaconazole, it's really stability data is the issue. We fixed the CMC issues, so there's agreement that we now control the process. So the only issue is how much stability data do we need on our batches? And that's the only issue. So that's what we're saying, it's a matter of when and not if this gets approved. It's quite clear in talking to the FDA that once we reach final agreement and our team is down there this weekend, once we agree on the stability data, the amount of time that, that will be approved. So we're quite confident on efinaconazole.

[Operator:]

Your next question comes from the line of David Risinger with Morgan Stanley.

[Christopher Caponetti:]

It's Chris Caponetti for Dave. I have just 2 questions, please. First, what kind of tuck-in transactions are you considering? Specifically, will Valeant continue to look at sub $500 million deals even though you're now a much larger company? And second, how is management and the board contemplating any potential changes to financial disclosure post deal close?

[J. Michael Pearson:]

Why don't you take this, Howard?

[Howard Bradley Schiller:]

Sure. We've not set out ever, since I've been here, and said we'll do deals or we won't do deals of this size. I think we're driven totally by value creation opportunity. I think what I found in my tenure here is that as we've grown and we've attracted better talent around the world, our ability to have a more leverage business develop model, i.e. the local management team truly finding interesting business opportunities, has really multiplied. And so these smaller deals, as Mike said, they are -- afford us very high IRRs and often times are also credit-accretive right away. And they add a lot of value. And if we can string a whole bunch of small deals together, they can add up pretty quickly. So if there's opportunities out there, I'm hoping that our management teams around the world will find those opportunities and we'll take advantage of them. And in terms of our financial disclosures. We've had some discussion around that. I think right now, our intent is to keep the same segments. And right now, we're talking about what kind of disclosure we'll give it in terms of organic growth. And we haven't made a final decision on that. But you'll hear from us as soon as we have.

[Operator:]

Your next question comes from the line of David Krempa with Morningstar.

[David Krempa:]

Two quick ones. First, can you give us an update on the manufacturing efficiency program, where you stand with all your plant consolidation? And then secondly, can you talk about your strategy with implants? I think the MVP Program lasts 5 years, but you talked about Ideal Implant potentially launching something in the next year or 2. So how would that work out?

[J. Michael Pearson:]

Sure. Our manufacturing efficiency program, we'll probably have to step back and do another one, given all the clients that Bausch + Lomb has. But it's probably good timing because we're [indiscernible] to the end of ours. By the end of this year, we'll be down to one plant in Brazil. I think this quarter I think we plan to exit the Bunker facility in São Paulo. We already -- we've got out of the old Valeant facility, so we'll be in one plant in Brazil. And the margins have improved in Brazil. That's been one of the drivers of our improved COGS. By the end of the year, we'll have shut down our -- we have 2 plants in Montréal, and we'll shut down that plant. We still have a plant in Europe that we're trying to sell. It's in Lithuania. So if you know of any buyers for that, you could let us know. So we have a Lithuanian plant we'd like to probably get rid of. But we're largely out of it in terms of manufacturing. But it's a very nice plant. And so -- and we've shut down our Australian plant. So we're largely done in terms of the Valeant sort of manufacturing rationalization. I think the pick up 16 plants with Bausch + Lomb. So obviously, none of that is included in the synergies. But clearly, there's going to be some real opportunities for rationalization with the new Bausch + Lomb plants. So my guess is we'll start up a new program. Give us a quarter to get our arms around it, then we'll talk more about it. So the implants. So we like -- the implant area is a great area. They're an important product obviously for the plastic surgeons. And the plastic surgeons are an important part of our aesthetics business. But we have this 5-year program with J&J, which I think is terrific. And so precisely what we do, I don't know. But it's certainly an area of interest for us.

[Operator:]

Your next question comes from the line of David Steinberg with Deutsche Bank.

[David M. Steinberg:]

Most of my questions are answered, but just 2 quick product questions. Mike, earlier on, I think you indicated that your aesthetic business is very strong and that you actually -- the Dysport actually took some market share. And I'm just curious, the reasons why. Is this just based on your renewed customer focus and all the conferences management's attended or anything else? And then secondly, just following up on David's question on efinaconazole, does this new timeline assume once you file a 6-month review cycle at FDA?

[J. Michael Pearson:]

So in terms of Dysport, I would like to hope that all the dinners that Howard and I went to had some impact. But I'm not sure they did. Hopefully, they didn't have a negative impact. We were just in Atlanta 2 weeks ago, so we're still doing those. No, I think what we've done is a great credit to the team. We developed the new set of incentive programs, which I think -- which as you know, with a sales force, a lot of it is all based on how you pay people. And I think that's helped. The second is this MVP Program, which Allergan had this bundling program, which Medicis didn't have any. And now we have a bundling program that's actually broader than theirs. With the introduction of the Mentor products coupled with Obagi, there's a real incentive for doctors to use our products as well. And quite frankly, I think doctors want -- doctors do not want a dominant competitor in any space. Doctors are smart. They like 2 or 3 strong competitors. And Dysport is a really good product. Dysport, from an efficacy and onset of action, as well as duration of product, is very good. And so it's a high priority for us. So we are cautiously optimistic we're going to be able to continue to build share at Dysport. And it's a real focus. In terms of efinaconazole, in terms of 6- to 12-month review, that's exactly the issue. And then that's why the timing is -- that's why we gave the range in timing. So that's what we're still working out with them.

[Operator:]

Your next question comes from the line of Graham Tanaka with Tanaka Capital Management.

[Graham Yoshio Tanaka:]

So you indicated when you get through with the program, the gross margins will be lower. I'm just wondering as we emerge on the synergy gaining tunnel and go through the tunnel on the other side what would some of the other income statement metrics look like, say, cost of goods sold -- you said the cost of goods sold, but the SG&A, then the operating margin once you get the synergies, say, in 2 or 3 years?

[Howard Bradley Schiller:]

Well, yes, I think, firstly, the gross margins aren't lower post the potential for rationalization that Mike referred to, that wasn't included in any of the synergies. It's simply because their margins on their products today are lower than ours. The contact lens -- the solutions in the pharma products are quite high gross margins. The contact lenses and specifically the equipment for the IOLs were much lower margins. And when you look at the weighted average of the B+L portfolio, that's what's going to bring down our gross margins. As Mike referenced, given the number of plants they have -- and they have plans themselves to rationalize over time, which we'll now adopt and, I'm sure, modify some. But that's the opportunity over time. I think otherwise in terms of our SG&A as a percentage of sales, I don't see any reason why that would go up. And in fact, you could see a little bit of economies of scale, given that we're a much larger company, and because of the synergies. So there could be some opportunity there.

[Graham Yoshio Tanaka:]

Great. And in terms of free cash flow generation. Again once you're through the synergy period, what is the B+L free cash flow? What are the metrics going to be relative to the non-B+L entity?

[J. Michael Pearson:]

I'm not sure I understand the question.

[Graham Yoshio Tanaka:]

Well, I'm just trying -- I just want to sort of an indication whether Bausch + Lomb is going to be generating more free cash flow than the non-B+L assets.

[J. Michael Pearson:]

No. Because...

[Howard Bradley Schiller:]

We're bigger. Yes. We're much bigger. The combined entity, the pro forma, will be north of $4 billion EBITDA in total. And we're a much bigger company. So they have -- this year, I think on a standalone basis, they thought they were going to do around $700 million of EBITDA. And we're obviously much more higher than that.

[Graham Yoshio Tanaka:]

I'm sorry, I should have said as a percent of revenue. I'm just wondering how much sort of extra free cash flow is generated by those assets than the pre-B+L assets?

[Howard Bradley Schiller:]

Well, we would expect -- our margins right now are up 52%, as Mike pointed out on the chart, and they should be at least that high as we move forward.

[Operator:]

Your next question will come from the line of Greg Fraser with Bank of America.

[Gregory D. Fraser:]

This is Greg Fraser for Greg Gilbert. In terms of life cycles for the key B+L brands, limited patent risk by Bromday in the 2013 bucket. Lotemax is mentioned 2014, et cetera. So just to confirm, is it the base case that those products face generic competition in the years shown? And is there the potential for upside based on life cycle management programs?

[J. Michael Pearson:]

Well, Bromday, they've already have launched Prolensa earlier this year, which is a replacement. And the hope is that -- the expectation is and early read is that Prolensa has been very well received. And that's going to sustain that franchise. As I mentioned before, the Lotemax suspension is already -- we've already introduced the Lotemax Gel, which is a -- you don't -- instead of having to shake the drops, it's in a gel formulation, which you don't have to shake it and there's patents around that. And the Lotemax Gel has already been launched, and has also been very well received.

[Gregory D. Fraser:]

Are you anticipating that Bromday generics are approved after exclusivity runs out in October?

[J. Michael Pearson:]

Yes. So we assume the patents -- that's what the chart is trying to depict is that's when each of those products we expect generic competition. Now that chart will continue to change over time, like Acanya last time, you saw that chart, Acanya was on in 2015. Now Acanya is way out because we were able to extend the patent. And we had a life cycle management program for Acanya because we knew it was coming out in 2015, similar to what -- so what we're doing, what we're trying to do with our strategy is nothing earth-shattering. For each of our products that are coming off patent, we're working on life cycle management products that we can introduce before the patent expire. And we can move -- and hopefully, there is some improvement to it like Howard was talking about why the gel is better than the suspension in terms of Lotemax. And that will be our strategy. Now will we, every time, be able to come up with the new formulation is better? Probably not. But if we go the majority of the time, that's how we plan to -- and that's why we really like dermatology. It's like why we really like ophthalmology because these tend to be topical products that through better formulations, you can generate without -- with basically the same active ingredient, extend patent lives. And it's really key to our strategy because I think the power of the slide that Howard showed is that if we can sort of keep our patent expiry below 3% every year on an ongoing basis, I think that, that will have us uniquely positioned in the pharmaceutical industry.

[Gregory D. Fraser:]

Got it. That's helpful. And just a follow-up on Dysport, how much did share grow in the quarter? And where does share stand now? And what are the sources that you use to estimate share?

[J. Michael Pearson:]

As you know, estimating share in aesthetics is very difficult because there's no IMS and there are market pains. What we can look at is how much Dysport did we sell in the second -- how many vials were used by doctors. And the increase quarter 1 to quarter 2 was -- it was almost double. So obviously, we sold -- we know the market had doubled in the second quarter, so we feel very good about saying that we increased our share.

[Gregory D. Fraser:]

Okay. Then just with your new revenue mix and larger size, what do you think is a reasonable organic revenue growth target going forward?

[J. Michael Pearson:]

We appreciate the question, but we're not going to answer it.

[Gregory D. Fraser:]

And I'll have a different one then for Howard, a quick one. How should we think about CapEx for the new company over the next few years?

[Howard Bradley Schiller:]

Well, for us, nothing is going to change in the near term and in the B+L until we get our arms around the B+L plants and what changes it, then we're going to make that system. I think it's pretty much status quo.

[J. Michael Pearson:]

A little bit done last year.

[Howard Bradley Schiller:]

There's $100 million, a little over $100 million. I think it was $110 million.

[J. Michael Pearson:]

Yes. $110 million last year.

[Howard Bradley Schiller:]

And ours is being $50 million to $60 million. And the only exception to that, the build-out of Zeus [ph]. If that gets approved, then you build it and you add lines, so you don't have to add it all ahead of demand. As the product is more successful, you're going to add additional lines. But that will also be offset [indiscernible] and building some Biotrue line and some other things, some other projects that will have ended by that time.

[Operator:]

And your last question comes from the line of Andrew Finkelstein with Susquehanna.

[Andrew Finkelstein:]

A couple of things, if you could address. First of all, as you've gotten a little bit more time to look at the Bausch business and how you're going to integrate it, thoughts on what the tax rate may be, at least directionally compared to your own. And then as you think about future deals, if you can comment at all on financing scenarios. You can consider depending on how the markets shake out. And then finally, something that you highlighted in your memo recently, but ensuring the importance of compliance across a larger organization, especially in the emerging markets.

[Howard Bradley Schiller:]

Well, in terms of the tax rate, I mentioned earlier on the call that it will be -- I'm pretty sure, it will be around 4%. We're finalizing our models for next year and beyond. But it will be for the combined company in that range, plus or minus 1% or 2%. So it's a little higher than what we're currently at but still quite attractive. In terms of future financing, firstly, as I mentioned, our objective is to get our leverage ratio below 4x. So we're not anticipating any near-term new financings. But when we do a financing, we take a look at the market at that time and make a judgment about longer-term fixed rate and shorter-term floating rate financings. Obviously, if there is a merger of equal transaction, it'd be an exchange of shares, which would have a completely change the complexion of the balance sheet. But it will be a judgment made. Just like on the financing for B+L, we shortened the duration a little bit because of the movements in the market. It was an opportunity for us to manage our overall interest expense. And we thought that, that was prudent. So we still have long enough duration, but we've put more on floating rate and we're able to save quite a bit of money.

[J. Michael Pearson:]

In terms of compliance, compliance is obviously very, very important for us and have to be for every pharmaceutical company. And actually, I was heartened, I just got the employee survey that we send out every year. And we have a huge response rate, well over 50% and even higher on emerging markets. And when people come back and they rate our company on our most positive attributes and our most negative attributes. And at the very top of the list of the positive is ethical. So our employees really do appreciate that, that's our most important thing that we're -- that comes before everything. In terms of -- we've already reviewed some of the new markets that we're in. We've spent a lot of time talking about China, both with a management, but also we had a long audit and risk committee meeting about how do we make sure that as we now are in China, that we have the right systems in place. The Head of China, Tom Appio, spent -- he was here for a week. We spent time with him. He's a really good guy, who understands compliance. I mentioned earlier in the call that Howard and I are heading over to China. What I didn't mention was that actually our audit and risk committee is also heading over to China in early September. We plan to have -- and this is actually a meeting just about compliance in Asia. And our head of compliance will be there. And I think it speaks to how -- we have all the formal programs, I think, most pharmaceuticals companies do, the trainings, et cetera. I think what's a little different is we spend -- we travel a lot, we spend a lot of time in these markets. And I think having senior management show up in the markets, ask the questions, show real high-level -- real interest in compliance -- we always have a discussion on compliance. If there's any issues that come in, we'll be on the phone with the leaders in the market. So people know, people understand this is very, very, very important and it's critical. So I think the key will be continue to do what everyone does but really just spend time, have senior management spend time with the different markets in the different regions, making it very clear how important this is, how any violations will not be tolerated. And I think that something that our decentralized model helps us with and the way we run our business makes us, I think, a little bit different. Okay. That's the last question, right, Laurie? All right. Well, thank you, everyone, for all your questions. And we'll look forward to talking to you next quarter.

[Operator:]

This concludes today's conference call. You may now disconnect.