Good day, and welcome to today's Second Quarter Financial Year 2024 Cardinal Health Earnings Conference Call. This meeting is being recorded. At this time, I'd like to hand the call over to Matt Sims, Vice President of Investor Relations. Please go ahead, sir.

Welcome to this morning’s Cardinal Health second quarter fiscal ‘24 earnings conference call and thank you for joining us. With me today are Cardinal Health CEO Jason Hollar; and our CFO Aaron Alt. You can find this morning’s press release and investor presentation on the Investor Relations section of our website at ir.cardinalhealth.com. Before I turn the call over to Jason since we will be making forward-looking statements today. Let me remind you that 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 our SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties. Please note that during our discussion today, the comments will be on a non-GAAP basis, and once they are specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release. For the Q&A portion of today’s call, we kindly ask that you limit questions to one for participants, so that we can try and give everyone an opportunity. With that, I will now turn the call over to Jason.

Good morning, everyone. In the last few weeks, we've made several notable announcements regarding our company's continued progress, including yesterday's news on our agreement to acquire specialty networks, which will further our specialty growth strategy and create value for specialty providers, manufacturers, and patients in exciting new ways. And as we highlighted at a recent industry conference, we're continuing to take actions to become a simplified and more focused company with further progress achieved on our ongoing business and portfolio review and our updated enterprise operating and segment reporting structure, which will be reflected in our financial reporting beginning next quarter. We plan to go further into our recent updates with you today, but first, let me begin with a few brief comments on our results. In Q2, we delivered strong profit growth in both segments, demonstrating continued operating momentum and execution against our strategic priorities. Pharma again delivered strong performance. Overall, the business is performing consistent with our expectations, and we're pleased to reiterate our outlook for 7% to 9% segment profit growth in fiscal ‘24. We've seen ongoing stability in macro trends, including in our generic program, and continued broad-based strength in overall pharmaceutical demand. Our specialty distribution business also continued to see strong demand, including with COVID-19 vaccines in the first part of the quarter. Turning to medical, Q2 segment profit was consistent with Q1, despite the non-recurring adjustments in the second quarter, which we've reflected in our updated fiscal ‘24 outlook for the former medical segment. We're encouraged by the underlying improvements in operating performance, reflecting further progress with our medical improvement plan efforts, focused on our global medical products and distribution business. Notably, we saw a change in trend in revenue growth for the medical segment in the second quarter. Along with continued growth from at-Home Solutions, we're seeing the effects of our five-point plan to grow Cardinal Health brand volumes yield positive results. And as we continue to optimize not only the performance of our businesses, but also the financial strength of the broader enterprise, we're generating robust cashflow and seeing meaningful benefits below the operating line. As a result of our first-half performance and increased confidence as we look ahead, we're pleased to raise our fiscal ‘24 EPS guidance and our outlook for adjusted free cashflow. Of course, our customers remain at the center of everything we do, and our team continues to prioritize core operational execution to best serve them and their patients with essential products and services as we drive our company forward. Now let me turn it over to Aaron to review our results and updated guidance in more detail.

Thanks, Jason, and good morning. Before we begin let me remind you that our Q2 segment commentary will be according to our former segment structure pharma and medical. Let's start with total company results for the second quarter. Q2 delivered another strong quarter across the enterprise with EPS of $1.82, growth of 38%, which included operating earnings growth of 20%. We also delivered strong cash flow and ended the quarter with $4.6 billion of cash, even following incremental share repurchase activity in the quarter. As seen on slide four, total company revenue increased 12% to $57.4 billion, reflecting growth in both the pharma and medical segments. We drove operating leverage for the enterprise despite incremental investments in the business and higher costs to support sales growth. Gross margin increased 11% to $1.8 billion, driven by both segments, and consolidated SG&A increased 8% to $1.3 billion. With the strong profit growth in both segments, we deliver operating earnings of $562 million, 20% higher than a year ago. Moving below the line, interest and other decreased by $26 million to $8 million in income due to increased interest income on cash and equivalents from higher cash balances and higher rates. As we've noted, our debt is largely fixed rate, resulting in a net benefit from rising interest rates in the near-term. Additionally Q2 interest and other benefited from nearly $10 million in income from the quarterly revaluation of our company's deferred compensation plan investments, which as a reminder has a matching offset above the line. Our second quarter effective tax rate of 21.3% was 1.7 percentage points lower than a year ago and better than we anticipated due to positive discrete items in the period. Q2 average diluted shares outstanding were $246 million, 6% lower than a year ago due to share…

Thanks, Aaron. Now for some additional perspective on our strategic priorities beginning with priority number one and building upon the growth of pharma and specialty solutions, our largest and most significant business. Though this segment structure has slightly changed, our focus on executing in the core remains. We're building upon our strong foundation, while investing to accelerate growth in specialty both downstream and upstream. We believe that this new segment structure further enables those efforts by enhancing management focus, leveraging the connectivity between pharmaceutical distribution and specialty, and positioning the business for long-term growth and investment. More on that front shortly. A key component of our strong core foundation is our generics program anchored by Red Oak, which continues to do an excellent job fulfilling its dual mandate, managing both cost and supply. Red Oak leverages proprietary analytical tools and their deep industry expertise to help maximize service delivery for customers. We're continuing to invest in our business to provide customer-focused solutions and evolve our commercial engagement strategies to prioritize addressing the complex challenges our customers face every day. For example, at Investor Day, we highlighted our first-to-market clinically integrated supply chain, the Cardinal Health InteLogix platform. This innovative solution leverages artificial intelligence and machine learning through the Palantir Foundry platform to help providers reduce costs, optimize drug inventories, and generate actionable insights to simplify and streamline medication supply. We've continued to develop our offerings, such as the contract optimizer tool, which drives savings and value through contract compliance, cost controls, and product alternatives like brand generics, blood plasma, and more. Key health system customers are already benefiting from these capabilities, and we see opportunities for further future expansion. Shifting to specialty, where we have also been investing to expand our offering into complementary areas. The acquisition of specialty networks…

Thank you very much, sir. [Operator Instructions] Our first question is coming from Stephanie Davis, calling from Barclays. Please go ahead.

Hey, guys. Thank you for taking my question and congrats on the continued progress. Jason you already shared a lot of color around the acquisition, but I was hoping you could dig in just a little bit further on specialty networks' mix and capabilities, just given the higher margin nature of both GPO and analytics solutions? And then just following up, given the pipeline that you mentioned, I was hoping you could share some thoughts on hurdle rates for future deals as that becomes a bigger part of the story? Thank you.

Okay, great. Thanks. Good morning, Stephanie. Yes, we're really excited about specialty networks. And as I -- I love how you asked the question, Stephanie, because there's a lot that goes into this business, and we love all of it, whether it's the GPO or the analytics and technology behind it. Specifically, PPS analytics is something we thought was really special, not just in terms of how this team has created this capability for their original primary business of urology, but then how they've expanded it into other therapeutic areas, and we felt we could learn from that further and use that technology across potentially other therapeutic areas beyond the three that they're in today. So that was really exciting to us and certainly a key part of the value. So we definitely attributed good value to that technology and where we believe that can go. And not only that good for our business, but importantly we see that technology is really solving a lot of customer both provider and manufacturer challenges and ultimately giving a much better solutions to the end-patient. So it's a win-win across the industry and one that plugs in nicely to our strategy and to be throughout the specialty space. So we feel great about that and I certainly don't want to miss that we are also through this transaction acquiring a fantastic leadership team that will plug in very nicely to our own existing team. And so it's a culture that I think will work very well together. We've had a fantastic, very quick process. We've known specialty networks for quite a while, but from the point that we started talking about a possible tie up, we went from the beginning to the end of course doing a deep and thorough diligence, but nonetheless knowing the business well, so that we could quickly understand the value for us. As it relates to your second question on hurdle rates, I'm not sure exactly which part of the business you're referring to. But generally speaking, I think no matter what part of our business we're talking about it's a competitive, it's stable type of environment and so I'm not normally going to go deeper into that anyways, but generally you know speaking we're not really calling out anything from the overall market perspective today regardless of what our business we're talking about utilization continues to be quite good and predictable so we're in a nice environment for ongoing growth both organically, as well as enable to look optimistically at transactions like this.

Probably worth noting that it is a profitable business today and as Jason highlighted we do intend to invest in the business early on to expand the scope of what they are doing across not only their own initiatives, but our initiatives within specialty as well.

Thank you, sir. Ladies and gentlemen our next question is going to be coming from Lisa Gill calling from JP Morgan. Please go ahead.

Thanks very much for taking my question and good morning. Just really wanted to ask two things, Jason. One, on the strategic side as we think about your core medical business. One, do you still feel a commitment to that business going forward? And then secondly, as we think about the shift and the new reporting structure, it does look like you're taking down the margin on the core business. Is there something that's either changing in the timeline of the turnaround? Is there something else that's shifting competitively or incremental cost? If you could just help us to understand that? Thanks so much.

Sure, Lisa. Very clear here. No, there's no change in our commitment to this business. It has been there from the very beginning and continues to be. As I highlighted from the first moment when we talked about medical in the context of the business portfolio review, our number one priority has always been and continues to be turning the business around. Everything that we are working on has been in service of, first of all, the five-point plan to drive Cardinal Health plan volumes to mitigate inflation and drive additional value through simplification and cost reductions. That message and the progress we made is entirely consistent with that. The core operational performance of the business is exactly how we've laid it out. So the only update that we've had today were in recognition of some of those non-recurring items, but the plan and the fiscal year ‘26 aggregate targets that we're going after are absolutely unchanged to this resegmentation. We did have to bucket the medical improvement plan into the various buckets, because we did have the growth businesses that were a component of that. But that was just moving the pieces. The pieces are absolutely unchanged and the overall aggregate profitability in that long-term plan is absolutely unchanged and our commitment is absolutely unchanged to this business. And I'm really excited about the progress that the team is making in service of all those goals.

Next question, please.

Thank you very much sir. And our next question will be coming from Elizabeth Anderson calling from Evercore ISI. Please go ahead, your line is open.

Hi, guys, thanks so much for the question. I have two sort of maybe more financial questions going forward. Can you talk us sort of the interest expense. Obviously they had a pretty big step down. Just wanted to understand that in terms of that and your sort of ongoing thoughts on the capital structure? And can you also talk about the free cash flow improvement, that was nice to see that step up in the quarter as well in terms of the guidance?

We're happy to offer some perspective. We're quite pleased with the below the line results of course you know for the quarter. I'm going to start with the fact that as we announced we ended the quarter with $4.6 billion of cash on hand and of course that's driven by the strong cash generation, which was the end part of your question. If you think back to our investor day we had highlighted that further optimization of our cash flow position was something we were focused on doing and the team has delivered against those efforts internally and generated strong cash flow in the first-half for the business thus the balance. Of course the knock-on consequence of that is when we have more cash on hand particularly in the higher interest rate environment, which we've been operating, we'll get a higher return, right? And we have indeed benefited from greater rate of return on the larger cash balances that we've had in place. It's also the case that there is some geography within our statement, because deferred comp was a positive for us below the line. That's an offsetting negative above the line in the quarter as well. And so, it's really the aggregation of those three things, of those several things which led to the results for the quarter. Now you asked about the financing as well. And I should be clear on a couple of things just as we think about our models going forward. We do have maturities coming in June and November. We’re assessing when our opportunities are there, nothing to announce today in that respect that we will address that, you know, at some point as we carry forward. And there is also the case that our cash balances fluctuate seasonally in the back half as well and so we wouldn’t expect the high balance to remain where it is just given the seasonal demand on the business.

Next question, please.

Yes, sir. Our next question is coming from Mr. Eric Percher of Nephron Research. Please go ahead.

Thank you. On the medical side, it’s hard to see through the one-time items. I want to ask what you can give us on the nature of those one-time items? What the trajectory looked like excluding one-timers in the quarter? And any views on the exit trajectory for the year and kind of going from $140 million first-half to $240 million second-half how you're pacing relative to that?

Thank you. We were really encouraged by the underlying performance in Q2 of the medical business. And just to restate the results, the Q2 results were consistent with the expectations we communicated several weeks ago at the JPMorgan Conference and generally consistent with Q1, despite some of those adjustments that we took in the quarter. I want to emphasize that as you move away from the adjustments that we took, the underlying elements of the Medical Improvement Plan, they are on track, right? You heard some of my preferred remarks relative to our progress against the mitigation of inflation and how our cost structure is building. The benefits of each actions we've taken will benefit our cost structure in the back half of the year. You heard us announce that we had revenue growth for the first time in two years in the quarter as well, and we were pleased with the Cardinal Health brand growth that comes with that. And the team continues to execute against the simplification initiatives that have been a core part of the medical improvement plan all along. So let me go back to where I started, which is we were quite pleased with the operational performance in the quarter. I also want to point out that from a guidance perspective, while we updated the guidance for the year to reflect the relative impact of the non-recurring adjustments, that was the sum change of the guidance, to reflect that which is behind us, not that which is ahead. And if you think through how we have guided medical for the year all along, there's always been a very back half focused trajectory for our guidance for the year and that remains unchanged along with how pleased we are with the core operational performance.

Yeah, if I could just add, you know, when you think about that first-half, second-half things and why we still anticipate the same step up in the second-half versus the first-half. There's a couple of key points. First of all, inflation mitigation, this is one where it's a significant part of that combined with Cardinal Health brand volume growth, which I'll get to in a moment. But on the inflation mitigation, there's of course two elements. There's the cost side, and then there's a price side. In both cases we have very good line of sight. On the cost side as we've talked really for quite a while now it's been the international freight and that while we have a little bit of noise with the Red Sea it is largely as anticipated so and that cost is already on our balance sheet and is rolling through as expected, especially given our volumes have been as expected. So, we have a very high line of sight and confidence the cost is going to continue to step down in the second-half of the year. And then on the pricing side, as we talked before, there's always the contract roll-through that we then update the pricing on. We do have a little bit more at the beginning of the calendar year of some of the price adjustments. So January being behind us, we have a really good line of sight to the pricing side as well. So there's some time now for the next couple of quarters needed to get that to roll through our income statement. But the actions now are largely behind us as it relates to inflation mitigation. We've always had confidence we would get to this stage, but we're now at this stage and have even more confidence actually seeing it start to come through in the second-half of the year. Now the other component is the Cardinal Health brand volume. You know, part of that's going to be market-driven, and the market volume, that utilization continues to be quite good. And what was exciting about the second quarter is seeing that further inflection and actually participating in that market growth really for the first time at the extent that what the market is growing. So that gives us much greater confidence that we'll continue to see that growth and that stuff as we get over the course of the year. But there's some variables like the market itself that will always be an impact here, good or bad, that will continue to monitor and track. So that those are the key points that I get us from the first-half to the second-half.

Eric, it's probably worth offering one additional point of perspective. We're not reporting on the new segment structure this structure that will follow on Q3, but we can offer the observation that the GMPD core part of the medical business has operated at near breakeven levels in the first-half of fiscal ‘24. And I offer you that in contrast with where they were from a fiscal ‘23 perspective and where we're going from an overall guidance perspective, we view that as a key sign of positive progress.

Thank you very much, gentlemen. [Indiscernible]. Our next question is going to be coming from Erin Wright of Morgan Stanley. Please go ahead.

Great, thanks. On the drug pricing front, you do continue to mention generics as a key driver. Are you still seeing that using deflationary dynamics that others have noted too? And how material is that for you and also how sustainable is it you know what are some of the key drivers that you're looking at there? And how are you thinking about that for the balance of the year, as well as we think about the quarterly cadence here for that that U.S. pharma or for the pharma segment particularly with the COVID dynamics too? Thanks.

Appreciate the question. I think as we called out in commenting on the strong quarter that our pharma business had was that the continued consistent market dynamics within the generic space matched with volume, strong volume was a reason for -- one of the reasons for success in the business. We often talk about the two sides of the equation being in balance and indeed that's what we continue to see within our generic business and that is indeed a core component of our guidance for the pharma as we carry forward. One last reminder, I do want to remind that last quarter we actually took our pharma guidance up from a profit perspective to 7% to 9%. Thank you.

Thank you, sir. We'll now move to Allen Lutz calling from Bank of America. Please go ahead.

Good morning and thanks for taking the question. Can you talk about growth of SG&A in the quarter? You flagged incremental investments in the business and higher selling costs. Can you unpack exactly what those expenses are? And then how should we think about SG&A growth for the remainder of the year? Thanks.

Happy to offer some perspective. We were pleased in the quarter to actually achieve operating leverage with gross profit growing faster than SG&A. SG&A did grow, of course volume also grew, and so the primary component of our increase in cost was tied to the variable cost of serving higher volumes. It is also the case though that as Jason has highlighted in his strategic remarks, we are investing against our business and some of the SG&A growth was purposeful relative to the investments we're making in places like the Navista and other elements of our growth plans. But I will end with the fact that we are very focused on SG&A as a whole and the team continues to look for further opportunities as we have in prior years to optimize our cost structure.

Thank you very much sir. We'll now move to Kevin Caliendo of UBS. Please go ahead.

Thanks. Thanks for taking my question. I have two. Can you give us an update on the progress of the United contracts renewal timing, any updates you have there? And just to follow-up on that SG&A question, were there purposeful investments made when you saw sort of upside from interest in other things in SG&A in the quarter? I'm just trying to quantify how much was in the original plan versus maybe how much was incremental given some of the upside that you saw below the line?

Yes, sure. I'll touch on both points here. There's no updates with the Optum contracted those through this fiscal year. And as I highlighted before, they are a great customer of ours, long-standing customer, one that brings a lot of innovation to healthcare, and one that we've worked very hard over the years to attempt to exceed their expectations, and we think we're doing a great job of that, and we'd love to keep working with them, of course. Now, I do get a lot of questions around the order of magnitude of this, and I'm not going to go into details, but just a couple of points, you know, given the number of questions I've received, is we have disclosed in the past, and I think it comes through in every K, just the order of magnitude, so last year they were over $30 billion customer of ours, and I see a lot of people attempting to try to model out impacts and things of that nature. And there's a couple things that I'm not sure is real clear about the scope of business we have with them today. It is a prime, the majority of the revenue we have with them is through our base PD business and a lot of that is mail order volume. So what you have here are the typical markers of a large customer, PD majority and mail order. So those are all, you know, markers of lower than average margin type of business and so we do have other business with them of course too. They are very large and have a lot of breadth into various parts of the industry, but for us those tend to be a little bit of the overweight of how we support them. As it relates…

For those working on their models, it's probably worth pointing out that with respect to the Q2 profitability in the business, it was the case that last year we called out unusual strength in the overall farm of demand, particularly from large customers, as well as a very strong cough, cold and flu season, so as you're looking at your comparisons keep that in mind.

Thank you very much sir. [Operator Instructions] We'll now move to Mr. George Hill of Deutsche Bank. Please go ahead.

Yes. Good morning, Jason and Aaron. And forgive me if I kind of missed this or if you guys talked through this already, but as it relates to the planned restatement of the other segment, it looks like the growth in the near-term is coming in, but termed kind of the long-term targets. I just kind of wonder if you could address kind of or disagree in which sub-segments you're seeing the softness relative to the long-term expectations for the balance of the year or this year versus what you think kind of accelerates coming out and kind of closes the gap in the longer-term guidance?

The businesses that report through other for us going forward will be our at-Home business, our Nuclear Precision Health Business, and our OptiFreight business. Those are what we have traditionally called our growth businesses as part of other segments. And indeed over the long-term we expect them, the CAGR on their collective growth to be 8% to 10 percent. The disconnect you're referencing which is the 6% to 8% in fiscal ‘24 is only driven by the impact of the non-recurring adjustments from Q2 on the at-Home business that we referenced a couple of weeks ago as we talked about our expectations for Q2. Each of the businesses contribute to the revenue and profit growth for other. For instance, we carry forward in our earlier disclosures, I think you can get pretty close we disclosed the revenue of the individual pieces. And indeed, we've talked about nuclear, doubling its profit off of its fiscal ‘21 baseline by fiscal ‘26 as well. I believe and so you're able to get to that component of other through that.

Thanks.

Next question, please.

Yes, sir. We'll now take a Stephen Baxter of Wells Fargo. Please go ahead sir.

Yes hi, good morning. Thanks for the questions, a couple of quick ones. On COVID vaccines and commercial channel, I think last quarter you kind of indicated or implied that the contribution was around $25 million. I was hoping you could update it on what the performance was this quarter and whether you factor anything into the balance of the year. And, and then just to try one more time on the non-recurring medical adjustment. Can you just tell us on the $20 million, if what does that actually represent in terms of the underlying accounting or business activity? Thank you.

Yes. So for the vaccine, we just kind of walk through the last couple of quarters and I'll give you a flavor of the benefits and the trends and such. So as we talked last quarter, we've highlighted in Q1 with the FDA approval at the beginning of September we were staged to hit the ground running and we had fairly significant volume in that first quarter, but as anticipated we indicated that point that we would expect it to peak within Q2 and so we expected higher volume, higher contribution in Q2 versus Q1 and that was because we saw October as the largest month within that season. And then as expected, we saw that wind down over the course of November and December, still seeing some level of volume in Q3, but I would expect it to be quite insignificant, compared to what we saw in Q1 and then Q2. Overall, I think the key message is that this is consistent with our expectations, as Aaron highlighted in his comments already. We had multiple drivers of growth for the pharma segment in the second quarter. It was strength with the generics program within brand. It was COVID driving that component and then we had these investments and primarily the cost to serve partial offset to those other two drivers. So overall, Phil feel good about the overall health of the business and the contribution of COVID within it.

Yes with respect to the non-recurring adjustments. We previewed this back at the JP Morgan conference and when we updated our commentary around the medical business and our comment that -- is our coming out, which is and we have continued to dig deep across the portfolio, we've taken a decision to take some non-recurring adjustments, which the majority of which hit the at-Home business, which now reports or will report as part of other in Q3, as well as component hitting the wave mark business which is part of the new GMPD business. So if you read through the update to our guidance for the year where we moved from approximately 400 to approximately 380 driven by the impact of the non-recurring adjustments you can reach your own conclusions as to the relative quantification and the distribution given those comments. Thanks. Operator Thank you very much, sir. Our next question is coming Charles Rhyee from TD Cowen, please go ahead.

Yes, thanks for taking the question. Just wanted to follow-up on Allen’s question there on the vaccine impact. I understand your saying that it kind of, you expect it to peak in the December quarter. Would you say that the contribution, though, from vaccine was higher than in the first quarter given that you had still three months of overall and if we look at that relative to what you had expected the higher costs that you incurred? Did you use that to fund those kind of investments? Just wanted to get a sense on relative contribution?

Yes, as I highlighted, October was the peak month and since we only had a partial September, it is clearly higher in Q2 than in Q1. We did have November and December contributions as well, but it really tailed off by the time we got to the end of the quarter and that's why you would expect there it be very little it was just typical for vaccines in general, so there's nothing we're seeing there. And again I think that the way you ask the question around the funding of investments I'll just go back to my prior answer to that question. There were costs associated with the vaccine rollout. As you can imagine, that's a lot of volume to ramp up for really two months-worth of support. Our team did a fantastic job working with the manufacturers and our customers to play that role when we were not involved in the vaccine distribution before for COVID. So I feel very good about our role and we did have to incur cost associated with the ramp up and ramp down in such a short period of time. But that was not necessarily used as currency to fund other programs, where the programs are important strategically and all very consistent with the plans and the actions and the forecast we’ve laid out here, so there is no changes as it relates to how we are approaching these both short-term requirements, as well as long-term investments.

Probably worth emphasizing that Jason’s point is that September and October were the high points for COVID for us from a distribution perspective would we tailing off thereafter.

Next question, please.

Thank you very much, gentlemen. And our last question today will be coming from Mr. Daniel Grosslight of Citi. Please go ahead, sir.

Hi, guys. Thanks for taking the question. I want to just go back quickly to the medical profitability question and confirm one thing, that $20 million one-time item that was wholly kind of concentrated this quarter. So without that, the medical profitability would have been around $90 million. And then on your commentary around shipping rates coming down and benefiting you, and the volatility in Red Sea, if you look at the -- China to Westcoast shipping rates, they have spiked materially in January. So I’m wondering how, I guess couple of thigs there; one how that may kind of roll through you contracts. And then given that you capitalize those costs and expenses over two to three quarters post those cost being capitalized. How that might impact the cadence of your medical improvement plan in fiscal ’25? Thank you.

So the first-half of that question, you are thinking about things correctly. I'll go back and emphasize we were really pleased with the operational performance of the business and given that we've adjusted our yearly guidance just to reflect the impact of the non-recurring adjustments in Q2, your conclusion on the math would be reasonable.

Yes and the second component, you are correct that shipping rates have spiked. I think the word used was materially. And how I would characterize it is yes, that's accurate, but substantially less materially than where they were in the past. So the order of magnitude we're talking about is vastly smaller. It is also something that we do not believe that that will be the permanent level. Yes, we have more flexibility in our contracts, and that will continue to be a lever and a component that will be evaluating, determining on whether, you know, how permanent these are or not. I would also say that our maturity our capability within this space has substantially improved as well as we've invested in the underlying processes and procedures to manage through these types of this type of volatility. So you know overall we feel very good about where we stand and generally don't see this being as a material item, but we'll continue to watch it closely.

Thank you very much sir. Ladies and gentlemen, that will conclude today’s Q&A session. I turn the call back over to Mr. Jason Hollar for the additional or closure remarks. Thank you.

Yes, thanks everyone for joining us this morning. We're clearly excited about the momentum that we have in our business, both the shorter term operational elements that we talked a lot about today, but also about the longer term strategy with the announcement especially networks this week it just highlights that we are looking and acting both short-term and long-term and are really excited about the opportunity still in front of us. So thanks again for joining us today and have a great day.

Thank you so much sir. Ladies and gentlemen, that will conclude today’s conference and thank you for your attendance. You may now disconnect. Good day and goodbye.