Feb 9, 2010
Owens & Minor Inc. (NYSE
OMI):
Q4 2009 Earnings Call
Executives
Craig Smith - Chief Executive Officer & President James Bierman - Chief Financial Officer Charlie Colpo - Executive Vice President Grace Den Hartog - General Counsel Drew Edwards - Corporate VP, Finance Olwen Cape - Controller Trudi Allcott - Director of Investor and Media Relations
Analysts
Richard Close - Jefferies & Co. Adam Pusard [ph] - Barclays Capital Robert Willoughby - Banc of America Glen Santangelo - Credit Suisse Lisa Gill - J.P.Morgan
Operator
Good morning, ladies and gentlemen and welcome to the Owens & Minor’s Fourth Quarter and Full Year 2009 Earnings Conference Call. My name is Tamika and I will be your operator for today.
(Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Craig Smith, President and Chief Executive Officer of Owens & Minor.
Please proceed sir.
Craig Smith
Good morning, everyone, and welcome to the Owens & Minor Fourth Quarter and Year-end 2009 Conference Call. We’ll review our results and take your questions in just a moment.
But first, let me introduce my colleagues on the call today. Jim Bierman, our Chief Financial Officer; Charlie Colpo, our Executive Vice President; Grace den Hartog, our General Counsel; Olwen Cape, our Controller, and Drew Edwards, our new Corporate VP of Finance who has recently joined our accounting team.
Now before we began, Trudi Allcott, our Director of Investor and Media Relations will read a Safe Harbor statement. Trudi?
Trudi Allcott
Thank you, Craig. Our comments today will be focused on company results for the 2009 fourth quarter and full year, which are included in our press release.
The press release as well as related presentation can be found on our website. In the course of our call today, we may make forward-looking statements.
These statements are subject to risk and uncertainty that could cause actual results to differ materially from those projected. Please see our press release and our SEC filings for a full discussion of these risk factors.
And finally, tomorrow we are participating in the UBS 20th Annual Global Healthcare Services Conference in New York. Our presentation is scheduled for 8.30 in the morning.
That’s tomorrow, Wednesday, February 10th. And a webcast of this UBS presentation will be posted in our website under the investor relations section and also a webcast of today’s conference call will be archived on our website.
Thank you, Craig.
Craig Smith
Thank you, Trudi, and let me call on Jim to jump into the financial results.
James Bierman
Thank you, Craig. Good morning, everyone, and thank you for joining us today.
We are very pleased with our results for the fourth quarter and the full year. Despite all the business, market and economic challenges in 2009, our teammates maintained a clear focus on serving our customers and achieving our goals for the year.
Consequently, our fourth quarter results demonstrated improvement across almost all areas of our business. For the year, we reported double-digit increases in revenue and operating earnings and more than $165 million in operating cash flow.
2009 revenues exceeded $8 billion, an increase of 11% when compared to 2008. These results were inline with our expectations for the year.
Slightly more than half of the growth in revenues resulted from net new and acquired business, while net increases in sales to existing customers accounted for the remainder of the growth. For the quarter, revenues exceeded $2 billion, an increase of more than $80 million or 4.2% when compared to last year's fourth quarter.
As we've said previously, after lapping the Burrows acquisition in the fourth quarter, we expected our growth patterns to revert to more normalized levels. As we look to 2010, we continue to target revenue growth in the range of 4% to 6%.
Gross margin dollars increased 9.7% to $787 million for the full year 2009 compared to $717 million for 2008. The increase in gross margin dollars was primarily driven by greater revenues.
Looking at annual gross margin as a percentage of revenues, we reported a decline of 11 basis points to 9.79% for 2009 when compared to the prior year. The decline results primarily from factors we've discussed throughout the year.
These include lower gross margin as a percentage of revenues and sales to new and acquired customers and a decrease in supplier incentive as a percentage of revenue. These decreases were partially offset by the effect of net supplier price changes as well as the effective changes in the mix of inventories.
This resulted in a 2009 LIFO provision of $2.7 million for the year, approximately $10.5 million less than it was in 2008. For the fourth quarter gross margin dollars increased $8 million to $201 million, when compared to the same period last year.
As a percentage of revenues, quarterly gross margin was unchanged at 9.86% when compared to last year’s fourth quarter. As we consider 2010, we continue to target gross margin within a range of 9.60% to 9.75%.
Due to the timing of our supplier incentive programs, as we have seen historically, we would expect the second half of 2010 to see a margin increase when compared to the first half of the year. For the year, SG&A expenses increased $44 million to approximately $566 million, when compared to 2008.
Increases in labor cost, occupancy cost and information technology services necessary to serve business growth accounted for the majority of the increase. Expenses related to our strategic initiatives, which are designed to improve future operating margin also represented a portion of the increase during the year.
Looking at SG&A expenses as a percentage of revenue, we are very pleased to report that SG&A decreased 16 basis points to 7.04% for the year when compared to 2008. We see evidence that we are gaining operating leverage with improved distribution center productivity and cost reduction measures company wide.
For the quarter, SG&A expenses remained essentially the same as the prior year at $140 million. As a percentage of revenues, fourth quarter SG&A expense decreased 33 basis points to 6.87%.
When comparing the two periods, please keep in mind that during last year's fourth quarter, we incurred expenses related to the Burrows acquisition and transition. Fourth quarter 2009 benefited from the successful conclusion of our mainframe migration project.
Going forward, we will continue to work on efficiency, productivity, and expense control in an effort to improve SG&A. Keep in mind there is a certain seasonality to our expense profile.
Typically in the first quarter of a year, we experience increases in payroll related taxes and equity based compensation expenses. For 2010, we continue to target annual SG&A to be in a range of 6.90% to 7.05%.
Turning now to operating earnings, for the year operating earnings exceeded $201 million, an increase of more than 11% when compared to 2008. As a percentage of revenues, operating earnings for the year was 2.50% unchanged when compared to the prior year.
For the fourth quarter 2009, operating earnings was nearly $56 million, increased more than 15% when compared to the fourth quarter last year. As a percentage of revenues, quarterly operating earnings were 2.73%, improved 26 basis points from last year's fourth quarter as a result of improvement in SG&A expenses.
Interest expense, a component of net income but not of operating earnings was $13 million for the year, decreased $3 million when compared to 2008. For purposes of comparison, the prior year's interest expense included a $3 million loss from interest rate swaps that were terminated during 2008.
For the year, our effective interest rate was 6.5% on average borrowings of approximately $208 million, compared to 6.2% last year when excluding the interest expense related to the terminated interest rate swaps. For the fourth quarter, interest expense was approximately $3 million essentially unchanged from the prior year quarter.
Turning to our tax rate, the effective tax rate for 2009 was 37.9% compared to 38.5% last year. The lower rate for 2009 resulted primarily from the recognition of tax benefits following the conclusion of IRS audits of our income tax returns for 2007 and 2006.
On a per share diluted basis, income from continuing operations for the year was $2.79, improved from $2.44 when compared to 2008. For 2009, we reported a loss from discontinued operations of $0.29 per share compared to a loss of $0.19 in 2008.
Net income per diluted share for the year was $2.50, an increase of 11% from the prior year. On a quarterly basis, income from continuing operations was $0.76 per diluted share, improved from $0.66 in last year's fourth quarter.
Net income per diluted share was $0.77 for the quarter compared to $0.49 in the same period last year. Turning now to asset liability management for the year, we reported operating cash flow from continuing operations of $165 million compared to $63 million in 2008.
Operating cash flow for the year was positively affected by strong operating earnings and a decrease in accounts receivable, partially offset by a decrease in accounts payable and an increase in inventory to serve our new business. Inventory turns in the fourth quarter were 10.6 compared to turns of 10.9 a year ago.
Our receivable DSO was 21.4 days as of the end of the fourth quarter, improved when compared to DSO of 24.5 days at the same time last year. DSO results were positively impacted by an increase of approximately $17 million in net customer deposits in late December 2009.
Cash used for capital expenditures for the year was approximately $32 million. The cash was used primarily for investments in strategic initiatives such as the installation of automation equipment and voice-pick technology in our distribution centers as well as investments in the health care logistics distribution center and its information technology systems.
These investments were partially offset by proceeds from the sale of two of the properties acquired in the Burrows transaction and a positive $7 million purchase price adjustment from the acquisition. This all results in $20 million of cash used for investing activities.
During the year, cash dividends paid were $38 million. For the year-to-date, cash provided by discontinued operations was $73 million including the $63 million we received from the January sale of certain assets of our DTC business and the collection of accounts receivable partially offset by cost associated with existing the business.
Combining the proceeds from the sale with operating cash enabled us to reduce long-term debt by $151 million for the year. Before we turn to 2010 guidance, I would note that our team is very pleased that our results for 2009 are well within our guidance for the year.
As we look to 2010, we believe SG&A improvement will be the fundamental near term contributor to operating margin improvement. As we outlined at our 2010 investor meeting in December, we continue to target revenue growth in the range of 4% to 6% and income per diluted share from continuing operations in the range of $2.90 to $3.05.
Thank you. I will now turn it over Craig for his remarks.
Craig Smith
Thank you, Jim. And as Jim said, we are obviously very pleased with our results for 2009.
We reported more than $8 billion in revenue for the year with more than a $165 million in operating cash flow. We also reported double-digit growth in revenue in operating earnings and during the year we successfully on boarded a significant amount of business, while at the same time we made good progress in bringing down our expenses.
Our teammates effectively managed our business growth without sacrificing great customer services, which we are known for. In fact we earned 97% customer satisfaction ratings for the year in 2009.
Considering the overall economic environment and the range of initiatives we tackled during 2009 obviously again, we're very pleased with our financial results and operational achievements. Now, during the year, we completed a number of important projects, one of these projects was the successful mainframe migration initiative, which we have not talked a lot about over the last several quarters, and we completed that in the fourth quarter.
But by migrating these business processes in computer code to Windows environment, we've achieved greater flexibility. We've improved our capacity to accommodate business growth and grow, lowered our day-to-day IDT operating expenses but as we've said we intent to reinvest some of the savings in technology improvements.
Now the project involved in the cooperative efforts of scores of teammates who participated in hours of testing and preparation. Also, in 2009 we continued to invest in our strategic initiatives, which are designed to improve operational excellence, expand into the specialty products and expand our reach into the non-acute-care markets.
Among the strategic milestones in 2009 was the establishment of OM healthcare logistics, our 3PL business. Now this effort provides order to cash supply chain solutions for suppliers.
During 2009, we opened a designated distribution center in Louisville and I'm very proud to say we built a great cross talented team of outsiders and insiders whose expertise are in operation, sales and supply chain technology. We did achieve ISO 9001 certification in 2009 and we're in talks with a variety of potential supplier customers.
Regarding our ASC initiative that we have announced before, we have a new leader in place and he is currently continuing to build out the sales team for this initiative as we speak. We do intend to approach this attractive market with the right mix of products and services and we’ve made great progress with our business model.
During the year, we also completed the installation of voice-pick technology in 40 distribution centers. Already we are seeing productivity improvement in many of those distribution centers and we look forward to achieving the full benefits of this new technology.
Among our key programs and services we saw a double-digit growth in PANDAC, SurgiTrack and MediChoice. With MediChoice, our private label we are seeing growing acceptance by our customer base and our task this year is too increase market share and continue to add new products for the offering.
In light of all we have accomplished in 2009, I cannot say enough about the efforts of all of our teammates. On a day-to-day basis, maintaining and growing business require significant effort.
But in 2009, our teammates not only managed their daily demands, they also achieved double digit growth in revenue and operating earnings. However, our teammates also contributed to the well being of the communities we serve and this is an ongoing focus for us in Owens & Minor and one of our key core values.
In the wake of the earthquake in Haiti, our teammates have volunteered in many ways. Though our DCs across the country we have donated medical and surgical supplies to a variety of groups who are organizing relief missions to Haiti.
We are also matching teammate donations to the American Red Cross on a dollar-for-dollar basis and we hope that in some way our donations can help those poor folks in Haiti. I'm also very proud of our teammates but I'm especially proud when they really reach out to help others.
Now turning to the year ahead in the healthcare market overall, in contrast to a year ago, we’re hearing that our customers are doing their best to get back to normal and our customers are telling us they’re moving forward with or without healthcare reform. As for Owens & Minor, we continue to do well what we do best, which is to provide exceptional supply chain management and distribution services to our customers everyday.
In the coming year, we also recognize that our supplier partners are a vital element of our business. We continue to focus on developing relationships with the most efficient, effective suppliers.
Our supplier agreements for 2010 are in place and I would reiterate that as we said in December, we believe the supplier component of our business model should normalize this year to what we have seen historically.
Also I'm very happy to report that our Board of Directors has approved a 15% increase for the first quarter dividend. At the same time, the Board also approved a three-for-two stock split.
Both the cash and stock dividends will be distributed on March 31st, to shareholders of record on March 15th. We believe the Board's decision reflects confidence in our operational and financial performance as well as support for our strategic initiatives.
At Owens & Minor, we have a long history of paying dividends, as we believe they are an important element of long-term shareholder value. In conclusion, we are very pleased with our 2009 results and we continue to believe that Owens & Minor is well positioned operationally, financially, and strategically for the year ahead.
Thank you and now we would be happy to take your questions. Operator?
Operator
(Operator Instructions) Your first question comes from Richard Close - Jefferies & Co.
Richard Close - Jefferies & Co.
Just curious if you can talk a little bit about the revenue growth as we progress through 2010. I guess it was a little softer in the fourth quarter than we expected but if you can just give us a little bit of an update on what, any trends you're seeing in the purchasing environment currently?
James Bierman
Sure, Richard. Let me start by saying in reaffirming the fact that the results for the year really came in pretty closely to where we had expected and where we had indicated in numerous calls and discussions with the investors and analyst community.
So we were very pleased with 11% growth and the results for the quarter came inline with that. That being said, I think, as we have also indicated on numerous occasions, including Investor Day in December, we will selectively decide where to invest in customer relationships.
And, certain relationships that don’t have the profit potential or profile that meet our criteria, we will take action with. And, that’s a continual part of our business but certainly a factor to consider as we look into 2010.
All that being said, we reaffirm the targeted growth that we’ve talked about of 4% to 6% for the year and we’re approaching 2010 with that initiative and confidence in mind.
Richard Close - Jefferies & Co.
The follow up to that, can you go into it a little bit more in terms of the comment there to decide to invest in certain customer relationships? Anything that happened in the fourth quarter that you can point to or as we enter 2010, anything with regard to that statement?
Craig Smith
I would just go back and reiterate what Jim said. At Investor Day, I did say we would be somewhat selective in terms of profitability and I would not guide to the fourth quarter or any quarter in particular.
I would stand to the 4 to 6 next year and that’s part of the plan. It is that, anytime we go through major growth, we take a step back, we look at the profitability of certain customers whether it’s credit worthiness.
We look at the distribution centers and the throughput in the distribution center, so there is a lot of variables that go into this. But clearly we had said last year that we would start to look either at large IDMs that we want to go after or maybe there are smaller books of business that perhaps just are not as profitable as we want them to be there is a credit risk.
So I would stand with that and just say that 4 to 6 is still above industry growth, which is projected for 2010 and we feel comfortable with guidance that we gave for this year.
Operator
Your next question comes from the line of Larry Marsh.
Adam Pusard - Barclays Capital
James Bierman
As you know, and we’ve talked about in other calls, the calculation of the LIFO provision is an annual event and during the course of the interim quarters you’re always estimating what the annual impact is going to be. What we saw in the fourth quarter was an element of the change in the mix in the inventories.
It was not a result of additional significant price decreases in any customer switch was the triggering event in the third quarter but it did relate to the mix of the inventory at the end of the year differed from estimates over the -- during the course of the year. As we said in Investor Day and as we think 2010, we would target the LIFO provision would revert to more of a normalized level and to that we would look sort of the 2007, maybe 2008 kind of timeframe to think about the provision.
But clearly 2009, with the significant price changes that we saw during the course of the year was a bit of an anomaly and so we would look to a more stabilized period, again 2007-ish timeframe.
Adam Pusard - Barclays Capital
Then secondly, I guess could you elaborate on your comments about the second half of 2010 just kind of why the supplier payments are more back-end loaded for next year?
James Bierman
Many of our supplier incentive agreements are annual contracts, they tend to follow somewhat of a calendar year basis, and they tend to have various incentives associated with them be their floors or ceilings or other aspects of those contracts such that for accounting purposes we need to have achieved the levels of performance before we start recognizing the benefits associated with that performance. That tends to be a back half of the year issue.
In the third, fourth quarter historically, we've seen us achieve those thresholds and therefore begin to recognize the benefit associated with those arrangements.
Adam Pusard - Barclays Capital
Just to clarify, you said, I think the margins in the second half would be greater than the margins in the first half, that was your specific comment?
James Bierman
Correct, you really expect in large part because of this that you would see correspondingly the second half of the year have better margins than the first half of the year and I think that that would to tend to prove out if you look at the historical experience of the company.
Operator
Your next question comes from the line of Robert Willoughby - Banc of America
Robert Willoughby - Banc of America
Your debt-to-capital has fallen to recent lows, I mean are we thinking about perhaps moving that back up? I know you just obviously paid down a bit of debt, but what’s your thought process on the long-term capital ratio for you?
James Bierman
Yeah, Robert. Obviously, we are constantly looking at that and particularly in light of a significantly changing economic environment.
If we think back to a year ago and the situation that existed, there were certainly different factors and pressures on companies than they exist today and the same may be true a year from today. So, as we all know these are challenging times to navigate the capital structure.
With that being said, I would point out that our bank revolver is due for renewal or expire in May of 2011. As would be normal in customary practice, we would expect that sometime during 2010, we would be renegotiating and re-signing that agreement.
I think that’s where we are focused initially and as we think about the rest of the year and have better clarity on the credit markets, we’ll look accordingly. My last point would be, I'd reaffirm Craig's point that he made earlier, which is we are a dividend paying company, have been so since 1930s and that we've just increased our dividend 15% as we go into next year.
Robert Willoughby - Banc of America
And did you break out Jim in your review of CapEx number, I may have missed that, for 2010?
James Bierman
I did in Investor Day and, yeah, let us check on that, I was just trying to remember off the top of my head. I think it's in the $35 million to $45 million range, but I would point you to the Investor Day discussion and along those lines.
Operator
Your next question comes from Richard Close - Jefferies & Co.
Richard Close - Jefferies & Co.
Just a clarification maybe on the incentives from the 3Q, obviously that caused some pain in the 3Q, did those incentives end up coming through in the fourth quarter? If you can talk a little about that, and then just exactly again where does that hit on the P&L?
James Bierman
The results for the fourth quarter, our margin did benefit from achieving the supplier funding we had been targeting and there was a bit of a carry-forward from the third quarter into the fourth quarter as we achieve certain levels that had a catch-up aspect to it. So, the answer is, yes, we did revert back to far more normalized levels.
Second part of the question?
Craig Smith
I think it's just the standard gross margin.
James Bierman
Where do we report this? Yes, it’s reported as part of gross margin.
Operator
Your next question comes from the line of Glen Santangelo - Credit Suisse.
Glen Santangelo - Credit Suisse
Craig, just a couple of follow up questions on those supplier agreements. You said you kind of put some supplier agreements in place, are those different than the ones you had in place last year because I'm trying to understand if you are sort of contractually protected from what happened in the third quarter of this year.
So what I am trying to surmise is if you are right on your revenue assumptions should those supplier incentives be more predictable this year versus last year.
Craig Smith
Again there is a lot more that goes into gross margin than just the incentive plans, but these are just standard plans, Glen, that we have annually with different, with all the major suppliers. We have different programs with smaller suppliers, medium sized, so it's not a one stop agreement that we kind of lock over multiple supplier.
So there were some volume levels that we had hit, we're moving around a little bit more in terms of, it isn’t all about growth incentives, it’s also about operational incentives. There’s a whole host of different programs that we work with on our suppliers based on what they want to do on an annual basis.
So, it’s pretty tough on a call to break it down into a three-minute explanation. But, I think, based on my remarks, based on Jim’s remarks, we’re comfortable with where we are in the supplier agreements.
Charlie’s worked pretty hard over the last three of four months to work on these and get them squared away. And so, what I would say is we’re locked in for 2010.
Glen Santangelo - Credit Suisse
And Jim, just to follow up on some comments you made regarding SG&A, it sounds like that’s going to be a big focus for the company in 2010 and you laid out that guidance of 6.90 to 7.05 and you were kind of already below that this quarter. I’m trying to understand if there is a reason why SG&A as a percentage of revenue would tick up before it comes down a little bit more.
James Bierman
As we have looked at that, and certainly we will have more information as we produce first quarter results. A couple of points, I would point out, as I said in my remarks that there is a bit of a seasonality profile to our expense pattern and we would expect, based on historical experience, the first quarter to potentially increase relative to as a percentage of revenues at the very least.
I think, what we’re attempting to try to reach is, what is the normalized SG&A level for the volume of business, an $8 billion annual run-rate. And we’re constantly challenging our teams to achieve new and better levels.
As we think about 2010 though, keep in mind that there are a handful of strategic initiatives that will be gaining more traction during the course of the year that will not achieve break even profitability until probably 2011 and I think the offset of all that makes us as we look at 2010 still comfortable with the range that we have targeted.
Glen Santangelo - Credit Suisse
Craig, I hear your comments that you are a dividend paying company, but kind of looking at your stock in the way it kind of dipped after those third quarter results, I’m kind of curious as to why maybe share repurchases wasn’t considered a little bit more strongly than it has in the past given the levels where the stock is trading?
Craig Smith
Well, Glen, as I have said, I’ve been asked this question a lot. We, on a quarterly basis as a Board decide what we are going to do with the cash and the feedback that we continue to get back from our larger shareholders and many of our shareholders is that they see us a value stock and that the dividend is key for them from the standpoint of holding onto Ownes & Minor and look at our total shareholder value as that dividend piece being a key to it.
So, it’s not that we don’t look at it, the Board takes their responsibilities very seriously and it’s a part of the things that we look at in terms of what we are going to do with the cash on a quarterly basis.
Operator
Your next question comes from Lisa Gill - J.P.Morgan.
Lisa Gill - J.P.Morgan
Craig, earlier you talked about opportunities in the IDN market. Are there any large contracts that are up for renewal this year for you to be able to go after and then secondly can you give us a status on the update with the DoD contract renewal?
James Bierman
On the first part, Lisa, our agreements with IDNs are usually separate agreements from GPO contracts, so we're always working IDNs on a regular basis and as you know, that's what I've talked about is, we think that's an area where we do very well in terms of competition and we've got 14 of the top 21 hospital systems and we continue to go after larger systems on a regular basis. The DoD I believe is still sometime late in 2010 and so it would be if anything a fourth quarter phenomenon but that's really up to the federal government when they want to announce that.
I mean, we continue to do well with them, we continue to support them operationally across the world and so we're all just kind of waiting to hear. Again, I would say that we have a great relationship, we've done, I think a great job.
We continue to be recognized for our work in Iraq and Afghanistan and in the eastern part of the United States. So we're looking forward to the announcement, but I would say it would still be sometime late in 2010 when we all hear from the federal government.
Lisa Gill - J.P. Morgan
Just to go back and understand the IDN relationships, are they generally three years in length, so if you've got 14 of the 21, the other seven today, they talk renewal every three years and do they go out to bid or is this just a relationship type business where you maybe have a relationship with someone in and they say okay, we're thinking about moving our contract to you. I'm just trying to understand that market a little bit better.
James Bierman
Usually, Lisa, the GPO contracts are the three-year contracts with one-year extensions. The IDN contracts and then I’m going to give you a very big answer because it is very big.
You might have a ten-year deal with one customer, you might have a one-year deal with another customer. Based on what you are trying to accomplish and as I have said many times before, usually these larger systems are in it for the long haul.
Now, that doesn’t mean that in the middle of a contract they are unhappy with the service or perhaps strategically they want to go another direction. We think they were very well placed strategically in terms of asset management, logistics, a lot other things that these larger systems are looking for today.
But once you start to get in the integrated service centers that we do for customers, they are little bit longer contracts. So I couldn’t give you a pat answer.
The pat answer is, the GPO, it’s usually a three-year deal with extensions. The IDNs they can be evergreen, they can be one-year, they can be three years.
I will say historically in our larger healthcare systems, the average length of business relationship is somewhere around seven or eight years. So they have a tendency to stay with who they are with and the objectives are just totally different than price, you are looking for process improvements, you are looking for software support, you are looking for logistics, you are looking for a lot of different things.
But those are clearly the ones that we are always trying to get.
Lisa Gill - J.P.Morgan
Then just one last follow-up is just around the new 3PL supplier relationships. What do you have in your guidance for 2010 as far as cost or any revenue as it pertains to this initiative?
James Bierman
Yeah, Lisa, we haven’t broken that out separately at this point in time. I think the point we said at investor day, that I'd reaffirm here is that our milestone benchmark is that we reach a revenue run rate in this business by the end of 2010 that is a breakeven amount and that’s what we’re looking to accomplish.
Other than that, it is not material enough to break out separately and we've chosen not to.
Lisa Gill - J.P.Morgan
But is that impacting the SG&A in the earlier part of the year? If you're going to have - if this isn't going to breakeven until the end of the year, some of the cost associated with this?
James Bierman
It does have an impact, yes.
Operator
And there are no further questions at this time; I will now turn the call back over to Mr. Smith for his closing remarks.
Craig Smith
Thank you, operator. Before we wrap up today, again, I just have to tell you that we’re extremely pleased with the results, with double-digit improvement in annual revenue, and operating earnings with strong operating cash flow, and we feel we've really made great progress on operational, financial and strategic goals, and we clearly intend to remain focused on these goals and we will continue to invest in making our business more effective and more efficient.
And thank you for your participation today. Operator?
Operator
Thank you for your participation in today's conference call. This concludes the Owens & Minor fourth quarter and full year 2009 earnings conference call.
You may now disconnect. Good day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet.
(Until now investors have had to pay thousands of US dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com.
All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS.
IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: [email protected]. Thank you!