Q1 2020 Earnings Call
Thank you for holding ladies and gentleman your line for the Cantel Medical conference. At this time, we are still gathering industry participants who will get started momentarily. We thank you for your patience enough that you. Please remain on the line.
Good day and welcome to the Cantel Medical first quarter 2020 earnings Conference call.
This time all participants are in listen only mode I would now like to turn the call over the Vice President of DNA in Investor Relations of Cantel Medical Corp, Mr., Matt Mccoskey you may begin.
Thank you and good morning, everyone.
On today's call, we have jumped diker chairman of the board.
George for <unk>, President and Chief Executive Officer.
Seth Yellin executive Vice President strategy corporate development.
Sean Blakeman, Senior Vice President and Chief Financial Officer.
And Capone senior Vice President corporate controller, and Chief Accounting Officer.
Earlier this morning, the company issued a press release announcing the financial results for the first quarter fiscal year 2020.
In addition, we've posted a supplemental presentation to complement todays call.
This presentation, along with the reconciliations of non-GAAP references can be found on kids cells website in the Investor Relations section under presentations.
Before we begin I would like to remind everyone that this conference call may contain forward looking statements.
All forward looking statements involve risks and uncertainties, including without limitation the risks detailed in the company's filings and reports with the Securities and Exchange Commission.
Such statements are only predictions and actual results may differ materially from those projected.
Additional information concerning forward looking statement is contained in our supplemental presentation and earnings releases.
The company will also be making references on todays call to non-GAAP financial measurements non-GAAP EBITDA non-GAAP income from operations non-GAAP gross profit non-GAAP diluted earnings per share in that that reconciliations of these financial measures to the most directly comparable GAAP financial measurements are provided in todays earnings release.
With that I'm pleased to introduce to you George but heidi's President and CEO .
Thank you Matt.
Overall this was a good quarter for canto.
Which was accomplished and we are excited.
I have a number of important initiatives underway.
The performance profile across the company. This past quarter has its individual segments stories, but taken as a whole we're pleased with the overall performance for the portfolio delivering solid mid teens revenue growth.
And seeing modest gross margin expansion in the quarter.
Dunno was the strongest performer growing 12% organically.
And 76.3% on a reported basis.
You may recall that in a year ago period in this segment.
It was depressed by inventory de stocking and a chemistry shortage, creating a favorable year over year comparison.
That being said a this quarter, we saw very solid out the door performance driving revenue.
As you know we closed the acquisition a few fredy on October 1st the last month of the quarter.
Well I only contributing one month to our consolidated results Q3 performed as expected and more importantly, the integration of Crosstex and you freed he is in full swing.
The go forward management teams in place and go to market coordination is underway.
It's been a terrific start and we expect a very good second quarter on an organic basis.
In the life Sciences segment revenue was down 1.1% organically and 5.2% on a reported basis because of the sale of the Canadian high purity water business in the base period.
The hemo dialysis water business, well down actually performed better than expected.
We do expect the second quarter to be modestly below year ago, but still see the transition to stable performance and the second half of this fiscal year.
With respect to our hemo dialysis water business, we are finalizing our strategic review and are encouraged with the progress.
We expect a reported an outcome later in the second quarter.
The medical segment grew organic revenue, 5.7% in the quarter versus a year ago.
This performance is less than what we are used to seeing in this business and this is the result of a few specific reasons, which we expect to resolve in the back half of this year.
First we were counting on some new products to contribute to performance this quarter.
Their launch was delayed.
Impacting our results.
One important new product is our cleaning belt.
Which began shipping at the start of the second quarter.
And we are anticipating good market adoption of this important product.
The second factor is increased competitive activity in major health systems.
Notably in the disposable so segment.
So im not referring to any new competitive products or technologies.
But in the disposable categories that we pioneered and are the leader.
We've allowed competition to make inroads.
We have successfully dealt with competition in the past and we need to help our game and new products, while leveraging our full circle of protection value proposition with the right decision makers, both of which we are actively pursuing.
There are three.
Important initiatives that are now in process and our medical segment.
To ensure continued growth of our overall portfolio.
First.
We have launched a new key account directors structure in our field sales organization to elevate our call points. The C suite and major health systems.
Our unique and differentiated selling proposition is the economic value and clinical benefit of our complete circle of protection and endoscopy.
Nearly two thirds of the value of what we offer is untapped potential.
The customer messaging and focus as most relevant to C suite decision makers, where we have not.
Then as visible as we will now be.
Secondly.
We have restructured our R&D effort and organization and our reallocating more focus to new consumable products to continuously refresh the offering.
Starting with the cleaning valve launch and this quarter.
Our goal is to produce a steady cadence of new product introductions and product enhancements over the next 36 months.
Third.
We are meaningfully stepping up our effort to broaden penetration of procedural products and underdeveloped markets.
Geographically in Europe , and in high potential surgery centers in the U.S.
Peter Clifford and I were over in Europe recently to review our efforts we have added more support and the team is energized about the opportunity.
Likewise, we have initiated a new effort and the surgery Center segment, where they focused initiative.
We know that surgery centers are more economically conscious and we have a compelling value story that we can more clearly articulate. This important segment. In addition to the demonstrated clinical benefits of our consumable procedural products.
I will now turn this over to Sean for a closer look at financial performance and developments and I will come back to discuss the outlook for the balance of the year.
Thanks, George and good morning, everyone.
In an effort to simplify the prepared remarks, I am paring down the financial commentary to the most significant financial results with added color on noteworthy drivers. The normal reported financial details are available in the earnings that for you to follow along.
And of course, we can cover any additional questions you may have during the Q and eight.
Net sales increased 14% year over year Q1 20 versus 2019, and 14.7% on a constant currency basis, with M&A, contributing 9.9% organic 4.8% and FX and negative 0.7%.
Our GAAP gross margins contracted by 170 basis points to 45% versus 46.7% last year, while non-GAAP gross margins expanded by 60 basis points year over year. Our GAAP gross margins include issue freed inventory step up amortization driving the bulk of the.
Year over year pressure.
You freed was accretive to our margin profile, which along with increased operations productivity intend to one life Sciences helped offset some mix pressure in medical.
Moving down to op profit GAAP op profit decreased 47.9% year over year to 14.4 million, mainly driven by associated costs of the Hugh free acquisition, which came in at just under 12.5 million and restructuring related expenses of approximately 3.4 million.
On a non-GAAP basis, our profit increased 16.1% year over year to 42.5 million.
While he afridi accretion contributed to this increase it is important to note that actions taken in fiscal year Nike within the life Sciences segment helped drive approximately 100 basis points, an improvement in that business unit.
Moving to tax rate.
GAAP effective tax rate for the quarter was 33.8% as compared to the prior year rate of 25%.
Increase was primarily driven by higher excess tax expense associated with our stock based compensation and to a lesser extent increased non U.S. earnings with the addition, if you freed.
non-GAAP effective tax rate came in at 25.9% as compared to the prior year rate of 25% with the increased primarily driven by changes in the valuation allowance associated with non us denominated losses and again due to increased non U.S. tax exposure, which you freeze international operations.
As a result, GAAP EPS decreased 70.3% year over year to 14 cents. In addition to the commentary discussed earlier related to our GAAP profit dilution, we incurred higher interest expense as a result increased borrowings related to the acquisition if you freed.
On a non-GAAP basis, EPS increased 4.8% year over year to 65 cents again solid result, with the anticipated contraction of hemo dialysis water from the first quarter of the prior year.
Finally, adjusted EBIT US came in at 51.3 million up 14.6 year over year I will now move onto the key cash flow and balance sheet items.
Cash flow from operations came in at 8.9 million, we ended the quarter with 49.3 million in cash and cash equivalents and 266.3 million and working capital.
I would like to note our reported working capital metrics. This quarter will be skewed by the addition of few freeze and higher balance sheet, but only one month contribution excluding few free working capital was flat sequentially. There is still more work to do however, we believe that we have stabilized post sep working capital as an increasing use of cash this quarter and anticipate.
Further improvements as the year progresses.
It is also worth noting that Capex was 10.4 million, reflecting the ramp down in Sep costs.
Moving to our debt profile with the Q3 acquisition our gross debt ended the quarter at 911.1 million, while net debt is 861.8 million.
Our net debt to adjusted EBITDA loss ratio is 4.73 similar to working capital. Please note that they reported leverage ratio is skewed due to having only one month of few for your contribution within the first quarter. As a reminder, we will be filing our 10-Q at the end of the day I will now hand, the call back to George for closing remarks.
We continue to affirm our non-GAAP EPS guidance for the fiscal year $2 on 78 cents to $2 an 83 cents.
Which includes the impact from Q3.
Well, we don't give quarterly guidance I will say that we expect a second quarter performance profile by segment like the first quarter.
With a meaningful step up in performance and medical in the second half of the year.
Okay, we are ready to take questions.
Thank you ladies and gentlemen at this time, we will conduct a question answer session. If you would like to ask a question. Please press star one on your phone now and you will be placed in the queue in order received.
Your question has been answered all your western maybe yourself from the Q. Please press the pound.
We're now ready to begin just one moment.
Our first question comes from Larry Kish at Raymond James.
Thank you good morning, everyone George I wanted to start with the comments around.
Medical water and I guess that two points there.
I heard that you know you obviously indicated that you anticipate.
Reporting an outcome later in the two Q on the strategic review for that business for the medical water business units.
So I'm just trying to understand what exactly does that mean does that mean.
You know and whether you decide to keep it or decide to ultimately.
Remove it will there be a press release associated with that and I guess, the second part of the question as.
I'm just struggling to understand why this is taking a long asset as it is.
Since you were prepared at 1.2 can provide an answer at the time in the fourth quarter. So again, just trying to understand what's gone on thank you.
Okay sure.
I'll go to the second question first why has it taken so long to do those of the principal reason for it and frankly.
A lot longer than I would have.
Guess, but is it more it came to understand the.
The issue the more I tell you.
Understood why took more time and that's because water.
We tend to think of it is almost synonymous with the life Sciences segment, but it's actually you know three quarters of the segment, we really did not have.
Readily.
Available way of pulling out all the numbers, including the history and representatives and.
And asset that if one were contemplating sale that needed to provide all the you know the attendant historical piano tiles and balance sheet and the information you would really need to extract that.
And then be able to have it validated by an outside accounting firms so that really took.
A considerable amount of time to get on us a lot longer than I would ever expected at the outset, but that's that's really.
Secondly.
Of all the options the new articulated what those are I mean, we can sell the business we could keep it.
Obviously that takes time to organize.
To evaluate.
The options, who the potential interested parties could be and thats been obviously, it's a part of the process. So when the time comes to report out I mean, the expectation is clearly we're reporting out.
Afinitor believe they know that it's part of cantel or it's not part of cantel or at some other form of.
External opportunity, but thats what the answer is we expect to provide and will be a press release. So certainly we because it's a material event.
We will disclose that in some public fashion.
Okay perfect that that that's helpful.
I guess there'll be plenty of questions on on medical so I won't go there, but I just want to come back.
To the ERP implementation and just make sure I understand so.
Just where are we with addressing the challenges that you that you had obviously heard the comment that working capital was.
Got sequentially when you exclude Ukraine.
But just want to really understand what's sitting out there if anything that's still left to be done here and what does start to begin to drive that that incremental improvement that you talked about and when should we expect that thanks.
All right so.
I'll take that first and then Sean will.
Speak more.
Specifically about how we're looking at working capital benefits.
So for just a refresh everybody's memory.
We started this back.
Conversion in the United States in February 2019.
The initial transitioned at least in terms of maintaining shipments and customer satisfaction.
When exceptionally well, where we've stumbled is really in the higher order functionality.
Particularly the kind that allows you to sort of manage inventory to more productive way and ultimately some of the working capital benefits.
We put some resource against that the best where I can answer that is.
Each day is better than the.
Tomorrow is better than today in today is better than yesterday, I mean, we're making good progress.
I'll, let John talked about specifically what were what we are looking out for the back half of the year in terms of working capital improvement.
What I can't say from a longer term point of view. It business was just a pre epicentral question will come about how does this manifests itself ultimately in the.
The improved operating performance of the company you know we talk about what we're trying to achieve as an EBITDA margin.
The 23% that we've talked about and I think the last time, we spoke about it we said as we exit fiscal year 2021, we expect to be there at Sep.
Obviously as a contributor to that which we continue to feel is going to.
Transpire given the rate of progress, we're making but with that let me give it to shown to speak more near term about what we expect to see from an improvement perspective.
Hi, Larry this is Sean.
I would think about working capital going forward as you know again to reiterate I think Q1, if we believe we kind of hit the trough so to speak.
Working capital at an accelerating source of cash that we've been able to arrest that trend.
With the improvements you've been able to make in both the use and the reporting out of Sep.
And so I would expect as we've mentioned in the exited Q4 call and we still believe that to be reasonable expectation that we will de leverage if you will $20 million of that off the balance sheet from compared to 2019 uses of cash.
I would expect most of that probably happen in the second half of the year because as of August rolling a little bit slower, but again I think we've hit that trial and you'll start seeing modest improvements in and you'll you'll see some more acceleration latter half the year towards that 20 million.
Okay, great. Thank you guys appreciate it.
Well go next to Matthew Mishan at Keybanc.
Great. Thank you for taking my questions and good morning, I guess.
Just as a follow up to that that what is what is the expectation for free cash flow.
In 2020, and 2021 as you kind of.
Restructured the business.
And build out the next stages of.
CRP.
Well I mean, I would say that I expect to be kind of close to a more normalized historical which for us to be around 10% to 11% of an accord me. The 10, 11% of our sales and then Q3 D. would add approximately 150 to 200 basis points on top of that so going forward on annualized basis, I expect to see somewhere between.
I'd say 12 percentage to 13% as free cash flow percentage of sales.
We had 21 on and on a normalized annualized basis.
Boy I mean, it is that normal as it normalizes doesn't wondering what what would you say would be the number would be in 2000 for 2020.
Well I.
Let me give anything you can go next question, let me get back to you on the 20 number because Q1, obviously had quite a bit of AUD one offs. So.
Annualized number that I have for you, but let me get back to you on that.
Doug.
That's fair and then I guess, given the that the debt level.
How active is your M&A pipeline and the M&A strategy kind of moving forward here.
Well, obviously the short term.
We continue to what we've made the obviously the acquisition a few freudian were.
Not expecting to be doing anything in the in the very short term.
If you look at you freed is a model of how we looked at.
Acquisitions we.
This is whether it was a little as an acquisition, which took a while to cultivate and just state.
So obviously, we're working on things now.
That are would be a proprietary nature of many of them are with relationships. We've we've had.
In the past that week, we continue to cultivate them, but it continues to be an important part of how we view the the growth.
Picture for Cantel going forward.
And so it's it's active.
Okay.
And then we're moving to medical.
I'm just trying to understand the actions you're you're you're taking that they think they can vary.
But they seem they seem like they're not necessarily in response to it to some of the competitive disruptions you're seeing they see it seemed like the rebate strategic actions that you would have implemented anyway. So these.
I'm just trying to understand like this so they what you're doing.
You would have been doing this anyways or this in response to kind of what you're kind of what you're seeing.
Yes, I think theres a bit of both that's going on look this.
What's transpired this quarter, obviously didn't just start.
Good day, one of the quarter they.
Starting last quarter we.
So all the slowdown, particularly in the valve product.
And I think there's a recognition amongst us that we've been very valves centric as an organization and thats whats fueled a lot of our growth, particularly.
And the major health systems, and I think you know we needed.
Two well these are all good ideas, we really needed the step them up.
And I think.
When you look at new product cadence, obviously, new product cadence ought to be part of the Arsenal on an ongoing basis, but to be honest we.
Our new product performance over the last.
Three years or so it's not been what it should be.
Particularly I think we've allocated a lot to more transformational.
New product opportunities and we got out of balance with the kinds of opportunities as you ought to be doing in a more regular cadence like newbuild products as an example, or new consumables, so we needed to.
To accelerate this reorganization restructure to things which could be.
The kinds of things that have sales organization can take into health systems or to the agencies and.
Generate new news about so that's certainly one the key account director, obviously, we've had a fairly robust sales organization.
Selling or bundling together capital equipment and consumables.
What's transpired here is the.
As we've been very valve centric.
We said look we are a real distinctive distinctiveness is is that the full circle protection.
Thats sale.
And the discussion around assessing people's infection prevention and control processes.
The health system is a C suite discussion, we have not really had a focused.
C suite organization, what's transpired, obviously as you all know over the last three four years as these health systems and gotten considerably larger.
And so the need to be there to talk about.
Our bundle relative to the competitions bundle has become more apparent.
And then finally look I think there's always been this question about what's the penetration in the hospital market.
With respect to our consumables, obviously each year that's increased.
And so this need to sort of expand into markets, where we've been underpenetrated, we've talked about them in the past, but in terms of really.
Putting the kind of emphasis behind it that needs to take place now that's changed so that's my best that's the way I'd characterize it.
Great. So lot less to for me and then then I'm going to jump out.
I guess, if you if you've been seeing this coming for a while why are you got little more conservative with your guidance and when you wouldn't initially said.
Approximately 10%.
In medical to start the here and then right and then what just about after this one is what does it cleaning valve and why why is it is important for you guys.
Thanks for taking questions well.
Look I.
But first question I don't Thats kind of like asking me if I knew.
If I knew.
Three months ago, or six months ago, what I noted they want to do things differently. The answers probably yes look I think.
Yes, I think we saw coming but the guidance with respect to the guidance I think we we still believe.
It gets to where do we think medicals performance is over the.
The longer term and we're not sort of changing our expectation around where that ought to be.
Which we've talked about being a 10% or would it be 8% one quarter and 11, the next quarter sure.
I think the transition that we've made and look I'm sort of festering up a little bit here.
You know the metaphor may be were like the Viking ship on the water, we've had a tailwind and our sales and you sort of trying to figure out how long the tailwind less in the order the situation, we really need to we need to Roe.
Some of the things, we're starting to do and you get to the same goal, but you have to perform differently to get there. So I think thats a bit of the transition we needed to make in terms of execution.
And other cleaning valve will answer your question here.
The valve itself is in the reprocessing cycle for and then the scope.
Theres certain valves that are used in order to put the device into the reprocessor and ensure that you get the appropriate cycle to run through all the other internal channels historically that valve has been or call. It cleaning adapter really has been something thats been a product that's been supplied by the OEM. It was an all.
Yes category to have a single use disposable product that can be used in that cycle. It's been a gap in our portfolio and candidly I think we're pretty excited to be able to have that because it gives us more to talk about in the overall instrument reprocessing cycle of the and the sweet and how we can help sort of drive efficiency in that practice. So I know, there's a lot of enthusiasm.
Our team to have their hands on they add value product.
Thank you.
Once again, ladies and gentlemen star one of you had a question or comment on him next to Mike Matson Needham and company.
Hi, Thanks for taking my questions just want to continue what's more questions on the medical business. So I guess, you've had a competitor in that market. That's how to file for while I guess, they've launched a newer valve here. So is it just the case that the newer valve is better than their old bow of has there.
Strategy or behavior change somehow or they now doing a better jobs or bundling with their other products I guess, what's changed because in the past it seem like there really wasn't a huge impact as the market maybe just more penetrated now and there's just not as much more of a zero sum game or something.
This is Jeff I'll take the first part with respect to new product introductions, we have not seen any new differentiated valves for many of our competitors in the marketplace. There are.
Additional players in the field with valves that are the same in any equivalent to what we've been offering we don't see any meaningfully differentiated products that are out there that that compare against Aurizona features and benefits basis, I think really what we've seen is different level of focus and approach to bundling.
That you spoke of in your question as the change in the marketplace and Thats really some of the efforts that we are undertaking to respond competitively from a sales process perspective.
Yes, So look I think just add to Scott's comments.
A couple of ways to think about it because we've had of this val focus.
In order to make continue to be that's it.
We we led that market we were.
Honestly way ahead for a long period of time, a 100% market share.
Competitors starting to show up in 2016 2017, it sort of took a while for.
For.
For them to.
To get their penetration there story across we've made the battlefield.
Well battlefield as Weve.
Which is penetration increase we continue to grow as a result that battlefield. It when we make adjust that battlefield and they go into the health systems, where they are bundled. They can you know those start the leverage that bundle to give more val penetration. So I think what we've learned is two things. One look if you want to kind of just continue to compete on the valley.
He got to innovate more which is what we're we've commenced to do with our cleaning valvoline and some others that we have in Q and secondly, we have to revert to the fact of what is it that we have as a distinct competitive advantage it can't be replicated by either the major two major competitors and that is.
The complete circle and the clinical story that we taken in education and training that we provide.
And that story, you can't necessarily take it to the same call point that we've historically been app that we needed to take it to a higher level in order to get people to embrace a broader message.
And that's where we started that in the summer and earn is to build that out and of course, it's beginning to continue to flush. It out now so I think thats the way to think about how we see what's transpired from a competitive view on some of its taken a while to just state because look you know contracts come up every three years these things aren't happening.
I'd like people are switching everyday so there's a period of time that this takes them to.
To emerge in some of the major health systems, where you've had a situation that you.
And complacent with an all of a sudden you find out that if it's just on the valve story. The bundle can get you. So we've we've learned that we know.
This is why we're pushing the focus now on the on the total on the total bundle and why we need to take the call point to a higher level.
Okay. That's very helpful. Thanks, and then.
Just within the medical business any new products, you can talk about outside of the procedural products area.
Well.
I'm just trying to think go up once we will talk about that are present, some sort of a competitive issue. We have a product called the scope Buddy plus which is used in manual the manual cleaning process.
You know two to enhance compliance and facilitate that which weve. That's one of the products are referred to that we were anticipating having a full or impact in the first quarter net was delayed so that's that's certainly one.
That we see a lot of promise for particularly given the second quarter.
We have another it's not really a new product, but it's certainly part of.
A longer term projects, we've had on sterilization and endoscopy, which.
We're launching in Australia, which has a different.
Requirements for.
For.
The sterility benchmarks that they require in the machine and.
We had anticipated that being a first half phenomenon thats a second half phenomenon that provides a sterilization claim within our AG ours and Thats.
On another new effort that ultimately we're going to school on for broader application around the world depending upon the requirements for each individual market.
Okay. Thanks, and then just just on the dental business I mean, the 12% organic growth was really strong so.
Is that just.
With the distributors, having gone through some de stocking is that restocking of some of their inventory or is it the tracings actually indicate that there was double digit demand out the door there.
Yes, I think.
Look we pointed out and you may recall in a year ago period, we had a chemistry shortage on lpa and we talked about destocking that so clearly there is a benefit to having a weaker year ago period.
That said the out the door performance, which was you know I would call it mid to high single digit depending upon the category.
So I said I've, 12% wouldn't be an ongoing organic performance, but.
Maybe four or five points of that has to do with people that are sort of.
Having to deal with a year ago scenario and if you look at a two year stack it may be of sort of a.
Strong performance, but obviously more at the higher end of the mid single digit.
But it was across the board an all virtually all the categories of dental sterility assurance Chemistries water treatment are actually tron business. So again, a good profile.
A good profile overall.
Alright, Thanks, a lot.
Well go next to mature Ramgopal at Sidoti.
Yes, hi, good morning, Thanks for taking the questions first on the dental.
Business I, just wanted to get a sense as it relates to the Crosstex integration clearly who fleet is the biggest acquisition you've done it's only been two months.
Since closing it but I was just curious in terms of.
The initial take.
Because of what you're seeing right now as it relates to the integration if it's going better than expected.
Yes, Hi, Mitra I think the integration itself, if you freed going really well and we feel very confident in achieving the synergy targets we set out.
As George said, we've defined the new leadership team in the organization structure, our preliminary focus for the integration efforts is really on the commercial front where were carmont harmonizing. The the commercial structure of the product offerings are marketing strategy.
So we can really deliver the complete circle protection to our customers in the dental market as we.
Have discussed on the European front, we're defining the commercial operating model there.
We've started to finding the back office strategy, which includes harmonizing, our IP systems, the customer service and supply chain and R&D is actively working on prioritizing the new products funnel.
So all in all I mean were little over.
Two months in its going well I think theres, a lot a positive energy and that organization and clear vision as to what the potential as of this combination and I think we feel very confident our ability to realize.
The 10 million plus and synergies by year three.
As as you know targets that are that are achievable.
Okay, that's great and again the consolidation.
In Europe , it's pretty much isolated there, there's not much or anything on that of that nature to doing the U.S. is that fair.
As a consultant just to clarify vishay, which consolidation are you talking about I think you referenced the.
The electro mechanical manufacturing in Europe , Im sorry, southwest, Yes, yes, we we initiated that.
That happened in this in this past quarter its.
Basically completed now.
So the benefits from that will start to accrue going forward.
Okay.
And then just switching back on to medical side I know I'm, just trying to get an update on reebok's I know what else let's be pretty.
Significant long term growth catalyst for the company and I'm, just trying to get a sense in terms of where you stand the or how you see DAF contributing over the next.
Couple of years.
Yes I.
I think we continued to be very encouraged with reebok's I think there's a lot of energy and focus in the market for alternative solutions to the existing sterilization technologies that exist.
I think that our.
Our understanding of the science behind Bay price parasitic acid has.
Really given us a great deal of confidence and the potential for this technology and for this market.
Again, we view this as a niche opportunity in terms of focusing on inline applications for low volume.
Higher value type product categories with complex sterilization requirement.
And.
There's a lot of interest in an inquiry from potential customers around that that opportunity. So we continue to pursue this we look forward to you know.
Working with customers and beginning to see development of this product in later in 2020.
And I think our focus on this as a longer term growth driver remains as strong as ever.
Okay, that's fair.
And then also on medical I know.
The growth you saw here was largely driven by the captain increase in do you asked and I guess QSR in terms of.
The environment, you're seeing in Europe , and Asia Pacific.
Especially in light of some of the uncertainties, we are seeing out there.
Yes, I think we.
Continue to be very of bullish on the opportunity outside the U.S.
I think the.
In China, we continue to make steady progress.
In Australia Likewise is.
Okay very good market for us little soft in the first half because of this delay the new product opportunity, but we've got an opportunity to take the initiative down there with.
Liquid sterilization.
Europe .
We have obviously very good position from a capital point of view each markets a little bit different there's still opportunity improved penetration of capital side, but as I've articulated I think were.
Where we the opportunity does exist on procedural products.
Frankly, Europe has been more diligent around infection prevention and control.
There are the ones that sort of pioneered or insisted upon the 30 clean arrangement on a our pass through tech pass through machines. So we always felt that this.
Opportunity on procedural products was should be meaningful and you know look good.
We've learned that they need to be convince the persuaded about the opportunity there are a little more value conscious and it's not too different for the surgery centers in United States you have to.
Talking about a value story and the time saving aspect to it and be more creative around how you present, the the opportunity to when you did for the major health systems, the United States.
We took.
One of our top use salespeople, who sort of healthy.
And in our sales training in particular and are on our health systems of what procedural products and moved to Europe has now been there three months and so we're going market by market in the analysis the opportunities for he's giving them.
Jim skill sets and data analytics to.
You know to deal with a higher target higher opportunity accounts and to perfect. The sale and I think we should see some good benefit of that starting in the second half in particular.
Okay. Thanks, again for taking the questions.
And with no other questions holding I'll turn the conference back to management for any additional or closing comment that good. Thank thank you first of all thank you for the questions and again for being on our call. We look forward to our.
Putting back to our second quarter call in wishing everybody happy holidays as well. Thank you.
Ladies and gentlemen that will conclude today's call. We thank you for attending have a great Dane.