Q2 2020 Earnings Call
Thursday
Thursday
Ladies and gentlemen. Hello, and thank you all for joining. This can tell me the second quarter 2020 earnings conference call all lines are in a listen-only mode, but later you will have the opportunity to submit a Live question over your telephone instructions will be given at that time. And now he's started. I'm pleased to turn the floor over to our host Mister Matt Makowski, please go ahead sir.
Thank you, and good morning. Everyone on today's call. We have Chuck Dyker chairman of the board president and chief executive officer Peter Clifford Executive Vice President and Chief Operating Officer said yelling Executive Vice President chief officer. Sean blakeman senior Vice President Chief Financial Officer and Brian Capone senior vice president corporate controller and cheese accounting officer.
earlier this
Morning, the company issued a press release announcing the financial results for the second quarter of fiscal year 2020. In addition. We have posted a supplemental presentation to complement today's call this presentation along with reconciliations of non-gaap references can be found on can tell that website in the investor relations section on your 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 phone now 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 statements is contained wage supplemental presentation and earnings release.
The company will also be making references on today's call to non-gaap financial measures reconciliations of these Financial measures to the most directly comparable gaap Financial measurements are provided in today's earnings, press release Thursday. We're going to do things a little bit differently today. Sean is going to begin with financials and then we'll get into George's remarks with that. Please introduce to you. Sean Lakeman senior vice president and CFO.
Matt good morning, everyone similar to the first quarter. I have simplified our prepared remarks focusing on the most significant financial results with added color on noteworthy drivers wage standard reported Financial details are available in earnings deck for you to follow along and of course we can cover any additional questions. You may have during the Q&A.
Net sales increased 28.5% year-over-year the second quarter 2020 versus a prior year and 28.7% on a constant currency basis with m&a contributing 23.4% and organic growth of 1.3% and an fx solution of -0.2 % the dental segment continues its strong performance. Year-to-date grown not 2.9% on an organic basis in Q2 for a year-to-date 7.5% organic growth in line with our expectations. You free T is outperforming expectations and Thursday are full quarter with can tell growing approximately 7% on an organic basis and we are pleased with the trajectory in the first few months in life sciences sales grew 1.6% on an organic basis, and we're flat on a year-to-date basis.
the year-over-year decrease in our
Ordered results was driven by the prior-year divestiture of our high Purity water business in Canada. Overall. We believe this business has stabilized and will remain relatively flat through the remainder of this fiscal year as previous guided in the dialysis segment. We saw an unusual decrease in Revenue specifically related to our ability to deliver product to our customers our liquid bicarbonate manufacturing line, which was in the process of being upgraded had to be taken offline unexpected leads, which have pacted our ability to make and ship product for a few weeks operations have been restored and we are actively working to rebuild inventory levels with our customers.
We expect to get roughly half a million dollars of Revenue lost in the second quarter and the back half of the year as we catch up with our deliveries.
In the medical segment organic growth increased by 2.2% in the quarter 4% on a year-to-date basis while Capital was relatively flat year-to-date Capital Equipment decreased approximately 6% and a second quarter on a constant currency basis contributing to software Capital Performance with slower growth than us drying cabinets and rationalization of our Platforms in Europe.
Recurring Revenue loss. We expect the rationalization will improve margins in the future.
McCurry and chemistry's grew approximately 4.5% in the quarter and 5.5% on a year-to-date basis sequentially shipment rates for valve extra stable, and we are pleased with the initial performance regarding our cleaning valve lunch.
Turn heat to Consolidated margins are Gap gross margins contracted by 420 basis points to 42.4% versus 46.6% in the second quarter of 2019 a while non-gaap gross margins expanded by fifty basis points year-over-year to 47.1% as a reminder our Gap growth margins included the inventory step-up amortization related to freedy driving the bulk of the year-over-year pressure operationally you free was accretive to our margin profile which helped offset some of the pressure and lower volume and medical.
Moving down to profit operating profit decreased 71% year-over-year to 7.6 million mainly driven by Associated cost of the U Freeky acquisition which came in at approximately $24 million restructuring related expenses were approximately four million for the quarter on a non-gaap basis operating profit increased 33.3% year-over-year to 45.1 month moving to tax rates Gap effective tax rate for the quarter with the benefit of 14.7% as compared to the prior-year rate of 25.7% This benefactor was primarily driven by our pre-tax loss in the quarter offset by. Costs related to the Hue free acquisition non-gaap effective tax rate came in at 25.9% as compared to the average rate of 25% As a result of the Knicks of are non us earnings and the impact of Euphrates International operations.
as a result
Gaap earnings per share decreased 111.1% year-over-year to minus $0.05 in addition to the commentary discussed earlier related to our gaap operating profit dilution related to Acquisitions and receive charges. We also encourage higher interest expense as a result of increased borrowings related to the acquisition of you free non-gaap earnings per share increased 7% year-over-year to $61, which includes approximately $0.03 of pressure due to year-over-year increases in sap and other investment costs. Finally adjusted even us came in at fifty five point eight million dollars off of 31.6% year-over-year. I will now move on to the key cash flow and balance sheet items.
Cash flow from operations came in at thirty four point six million. We ended the quarter with fifty eight point seven million in cash and cash equivalents and 233.8 million and working capital working capital decreased 12.2% sequentially primarily driven by a decrease in inventory and a couple of one-time items related to you free, excluding the one-time acquisition with the Iraqi Capital decreased approximately 8% accounts receivable and inventory provide a benefit of approximately ten million dollars a positive operating cash flow met a few free to be in the second quarter Thursday. We believe we have stabilized working capital post s a p e and it's promising to see modest steps back in the right direction. It is also worth noting that capex was ten point four million dollars is quarter and laughing hysterical rates pre sap in the addition of you free moving to our debt profile gross debt ended the quarter at 925.3 million while net debt and it at 866 South
5 million
A debt to adjusted ebitda ratio was 4.43 which includes four months of huge 3-D results on a pro-forma basis net debt to adjusted ebit us was 3.8 times as it remains. We will be filing our 10-q at the end of the week. I am now going to hand you over to George for his remarks Clinic Sean. I am going to start on slide ten for those of you following along with the presentation.
We Believe today that can tells business strategy has evolved to be more compelling and relevant than ever
With the acquisition of Hugh Friday and it's novel instrument management system. Mm. We are uniquely positioned to provide solutions for complex reprocessing wage close to prevent healthcare-related infections in both the GI and dental Suites.
three key supporting factors
First we have a breadth of products and solutions that provide a complete circle of protection in both endoscopy and dental.
Second in both businesses. We have recognized Global brands.
And finally in both businesses, we are leaders in providing clinical education and Technical Training to our relevant sites of care.
We like our strategy it has longevity and can drive above-average long-term growth. So the focus is on excellence in execution.
Let me now focus more specifically on our takeaways by segment.
Looking at slide eleven and the current state of the medical segment. We have identified three key areas which lead to imperatives for driving significant future growth.
These areas are first Ambulatory Surgery centers or a s CS.
Second delivering on our promise of our complete circle of protection solution in larger Hospital systems and third accelerating new product introduction.
Beginning with a SCS We Believe over half of GI endoscopy procedures today are taking place in the ambulatory setting and growing.
Well can tell has a large installed base of a e r as in ASCS. It has not been a channel where can tell and others have focused to sell the broader range of those portfolio.
Today ASCS represent approximately 15% of our us medical sales. We know that the risks and challenges that these customers face Em are similar to those faced by the acute providers. So the opportunity is Meaningful. This Market will require a different sales model and representation of the medivators value proposition, but we believe the potential is significant.
in hospitals
We have had great success in demonstrating the value of our individual products in particular our our platforms and single-use disposable valves off today Val penetration in large Health Systems is significant with can tell having the clear leadership position.
However on average these customers utilize only one third of the entirety of our portfolio.
As we better understand the needs of large Health Systems and their demand to standardize processes across their facilities. We see a clear opportunity to demonstrate the value of our complete circle of protection to see sweet leadership.
This is an extremely attractive opportunity for can tell one that we are uniquely positioned to deliver to our customers and we know requires more presidential with the c-suite level of Health Systems.
Finally, we need to restore the Cadence of new product introductions to address unmet Market needs and affirm our continued leadership in GI endoscopy. We must have the right balance between investing and lower-risk faster product improvements and longer-term Investments a healthy procedures pipeline is vital to maintain our growth in this category and we can do this quickly and efficiently with a focused new product development program.
Moving to the dental segment on slide twelve the pace of integration and execution between and Prosthetics is exceeding expectations off raising our confidence in the overall strategic fit of this combination and the ability to realize our cost synergies and opportunities.
Recently the company rolled up the new branding for the combined entity, which is now known as the group bringing together all our Dental businesses took her a single brand which is an important milestone for this business.
In parallel with the rollout of the new entity. We have launched an integrated field organization selling the combined portfolio of our respective businesses.
I attended the combined National dental sales meeting in Texas in early February bringing together our commercial teams for the first time the energy and excitement of our organization was palpable.
Well, it's still early days and this integration. We are encouraged by what we have seen and commend the devil leadership team for their execution.
13 look into our life sciences segment recent actions we've taken in our hemodialysis water business give us confidence to expect Revenue performance in the near-term and low single-digit growth over the longer-term. We restructured the organization refocus the new product development program and have multi-year Supply agreements with our major customers.
finally we
Have a number of opportunities for increased efficiency and overall operating Improvement through clear actionable initiatives in our endoscopy business office is a pathway to simplify our supply chain working capital requirements and overall business complexity by reducing our our platform almost two-thirds over the next three years. In addition. We are turning the corner in our us sap implementation so we can begin a playing offense with its spectrum of functionality. We've also made recent Investments and rooftop consolidations and updated manufacturing lines that are anticipated to yield improved margins over the next 24 months.
So as a result of this learning we see a host of executable opportunities that will be critical growth drivers for our business over the next 36 months. We have mobilized the organization and our resources to execute these growth drivers in an initiative. We call can tell 2.0.
Peters
Going to speak to the details of can tell 2.0 which entails these seven components that are summarized on slide 14.
Expand penetration of procedural products into these Drive greater adoption of full circle of infection protection.
expand penetration of procedural products into Europe
accelerate procedural products new product pipeline
FasTrack the integration and go-to-market if you free d group.
Deliver consistent performance and life sciences and finally Drive significant operating improvements and business simplification across can tell.
with that Peter
Thanks, George. I'm going to begin with our medical segment on slide. Number fifteen. There are four core drivers that will Propel a growth in the future. The first is to expand penetration of endoscopy products in the afc's to do this we have assigned in a sales leader and are reallocating commercial resources. This team is creating programs tailored specifically to the same value proposition to address a total usase Tam of approximately 750 million.
the second item is
To drive greater adoption of cantwell's complete circle of protection and major Health Care Systems to address this. We've added 10 key account directors and partnered them with our expanded clinical Education and Training specialist to drive greater influence within the c-suite at the idea and level we estimate the total us Hospital Tam of approximately 750 million with nearly two-thirds of the market left on penetrated as we have discussed previously expanding penetration of procedural products in Europe is a third key growth driver for medical. We have established a very strong presence in a in chemistry. However, PRP is historically under-penetrated we have assigned to senior sales Executives to Europe to provide same training dedicated commercial sales programs and overall management support to enable our European commercial teams to accelerate growth. We estimate the total of Mia off.
procedural products opportunity to be approximately four million and we are
Still in the early days of this effort.
Finally the fourth is the is to accelerate PRP product development capability and dramatically improve introduction contains. We have re-established our Houston operation off the center of excellence for new product development of procedural products. This expanded dedicated R&D team will focus exclusively on the PRP pipeline. We have seen some signs of progress with the launch of our clean valve adapter and the scope buddy plus in the second quarter and we expect to launch two dozen new products over the next 36 months with Nero half of them in the PRP category.
Moving to Dental on slide sixteen we are encouraged with our progress to date and look to continue to fast-track the integration process and go-to-market strategy of our combined home business now known as the heat Freda group from a commercial execution perspective. We're focusing on accelerating instrument management system penetration and consumables capture page as well as dry penetration of the combined portfolio into the dental and hygiene schools on the integration front. We are encouraged by the progress to date and we are looking to except a great realization of cost synergies where possible we estimate these actions will only able cancel Dental to realize and even the margin profile of approximately 24% off in eighteen months in life sciences. We're going to continue to focus our energy on delivering consistent cash generation and profitability. We estimate low single-digit growth dead.
optimize price
Scene and the delivery of our next Generation to pass machine in addition. We are looking to streamline and simplify this business where possible to maximize profitability and consistency We Believe with diligent focus on our cost structure that the business will deliver mid-teens operating margins in cash flow of twelve to fifteen percent of Revenue on a slide number 17. We have mapped out our areas that we believe will drive significant operating improvements in business simplification in terms of working capital. We are targeting approximately $20,000 billion of incremental operating Cash Flow by the end of fiscal 2021. In addition. We are looking to undertake strategic product rationalization and continued Roofing consolidation to drive profitability and balance sheet efficiency putting this all together. We estimate our opportunity to get to 23% ebitda margin rate Thursday.
fiscal year 2022
I will now hand it back to George.
Okay, so moving the slide eighteen. The first thing I want to point out is that we anticipate the medical segment to modestly improve its Revenue growth in the second half of this fiscal year.
Next we believe that the actions included and can tell 2.0 will enable the company to return to the store growth rates in the second half of fiscal year, 2025 and the second half of 2021. Specifically we estimate medical to be 8 plus percent Dental in the five to seven percent range and Life Sciences to be low single-digits.
Looking at slide nineteen after taking a hard look at the remainder of the current year. We are updating our guidance to better reflect the current wage garment.
We anticipate total fiscal year 2020 gaap EPS of a dollar sixty to a dollar ninety-nine cents and non-gaap EPS of $2.58 to $6.61 in this guidance. We have projected some impact from coronavirus in China and is still evaluating the potential future Impact Office procedures.
Would that we are ready to take questions?
Gentlemen, thank you for your remarks this morning if you would like to ask.
Clarification on anything covered in today's update simply press star and one on your telephone keypad again that is star and one pressing star on one will place your line into a queue and a friendly reminder said if you're joining us today on speakerphone, please ensure that you return to your handset prior to pressing star and one to make sure that your signal does reach our equipment. Once again, ladies and gentlemen, that is star and one if you would like to ask a Live question over the telephone line, we'll go ahead and take our first question from Larry kusch at Raymond James, please go ahead your line is open, sir. Okay. Thanks. Good morning. Everyone. Just a couple of questions here. Maybe just starting with the quarter itself. You referenced that, uh, Capital Equipment decreased 6% Could you could you just talk a little bit about what what drove at Birth? Um, uh Dynamic within the Capital Equipment side.
Yes, sir, Larry. This is
Shawnee most of the softness was contained to us cabinets on the year-over-year basis as well as RAR rationalization and particularly in Germany and emea region office. And again kind of the color. There is at the beginning of the year. I thought process was you know, we'd be going from five machines something more like 3 and then when we got into the analysis and the actual costs, you know, that really became off the realization was that would come to go down to one machine. And so that's been a little bit more of a bump in Q2 that we had anticipated at the beginning of the year. But as far as our external competition in these regions we perceive as to be changed right now. So, um just to be clear on the on the drying cabinets. So you just looking at this as you had a you know, somewhat of an abnormally High one key and an obviously you pulled some shipments into that quarter and but you're not seeing anything from a competitive Dynamic out there or a change in, you know, utilization of these these types of products dead.
Yeah, you know I I'll take that one. Our first quarter was relatively strong second-quarter activity was was solid in terms of quotations closure of was shorter than expected. We are expecting a stronger back after the year on cabinets as far as competition. No new entrants. Um, you know, I think we've got some opportunities to to package our cabinets a bit better and and we've got some activities in place with various bundling programs that we're looking at in the back after the year. Okay, perfect. I'll just ask two more and then jump off. Um, I guess the the two questions are when you talked about the ASC Tam of of that 750 million dollars. I just wanted to get some Club is that being built up from the total is out there in in the United States or is that being built up around that look a lot more and Ed.
like acute care settings if if the if
It is the former and that's the total. How should we take about 2 Tam when you when you kind of consider, you know today a sees that that already look like acute care settings, and then the second question is just on the the margin Target of 23% that's been pushed out a year and just again want to really understand that the drivers of that of that push out. Thank you.
Taylor this is Seth. I'll take the first question on a sec. So the SC Market sizing that's really done Bottoms Up from a procedure volume perspective looking at what is our understanding of the procedure volumes that take place in the NFC setting and applying to that, you know, a uh, a a value associated with the entirety of our portfolio adjusted for what we think is the right price points in in that setting that that may be different from the acute care setting. I think the the the the second question you have around the sub segmentation within a s is a good one. Our best understanding right now is about a third a third a third of the split of the SCE between hospital-owned sort of the corporate consolidators and then the independent and obviously I think the opportunity said is slightly different within that we continue to be refined or or analysis of that in our strategy to Target each of those sub-segments. Obviously the most um, you know, we think attractive of of the the categories of the first two which are the ideal job.
I'd end or Hospital on the SES and the corporate on the SDS, which the
Once we believe we have the largest penetration opportunity within that segment, but our work continues there but you know our analysis of the market sizing there is really a bottoms-up assessment based on procedural to take place in that setting and as far as the question Larry look at it is basically one year out at reflects really are progression off with that say pee in the fact that we're candidly just getting back to about 3 go live operational efficiency and performance here in the third quarter as we mentioned in remember that we feel like we're starting to turn the corner a couple of sound bites on sap just from our last call in between now and then we've replaced our prior sap partner with a smaller local Boutique partner saving about a half a penny a quarter while raising service levels. We filled out finished. Our internal sap was Stronger Talent dead.
Over the last four months most of our functions, I would say it's stabilized most are back to pre pre go live performance. We've done a lot over the last four months to get the off the run the business reporting in place in most tier-one areas. Now, we put a lot of great deal on effort launching and training around sort of ad hoc reporting capability with sap. How did you see that? Has it manifest itself? I would say in this quarter. If you look at the operating cash or the cash statement from this is the first time we got basically about ten million dollars worth of work with capital flow. When you think of accounts receivable and inventory, we got about ten million dollars worth of flow and the second quarter and I would honestly as I think our teams would attribute that to have a much better visibility with understanding and being able to get that data to help Drive results, uh and impacts and then just last piece as to some things that are coming to us you're in this quarter. There's a particularly important job.
Mm, that will be valuable to our Logistics folks who are not yet back.
So pre sap go live performance and we will be putting in a module called Shippy or P here in the third quarter and we would expect that would start to get us some efficiency and productivity and for you and obviously carryover to 2021. Okay that as well to that. We've done a number of years. We've spent the money and deployed the capital and are yet, you know to to get the benefits from these which we expect to materialize now as we move into the second half of next year the Dead really consolidate a rooftops or Donald business. We've Consolidated rooftops in our electromechanical assembly Europe. We put a new filling lines in Minneapolis in our Italian facility and all of these were our our margin Improvement opportunities, you have the benefits of those have not materialized on our first happened will going forward over the next month.
18 months, so I think those are our contributors as well. Okay? Perfect. Thank you for the for the answers.
Next we'll hear from the line of Matt Vachon had KeyBank, please go ahead your line is open great and thank you for taking the questions first. I apologize if I missed that but can you talk about your operations in in Italy and kind of what you're expecting as far as as far as down time?
Yeah, so our our largest manufacturing facility is is located just outside of Rome. It's close to FCO and it's in a city called Asia name is where we do most of our electrical mechanical assembly of a for a couple of the models that we sell primarily in Europe and it is well where we do the bulbs chemistry manufacturing. There is some chemistry that's exported from the US for the Amiga Market. But most of it is supplied out of our facility wage. And and that is where we are moving the bulk of our BHT manufacturing here over the next couple of months.
Are you are you know as it relates to the coronavirus, you know, we are looking at how we potentially move some of our finished goods inventory to offer a dutch-based warehouse to to create buffers in case things get worse. And Italy is it is the facility is the facility still open or are you expecting downtime? There it is. We've not seen downtime, you know on our Dental side of our business. We've got small sales offices in the north up in Milan and as I understand it we've been allowing people to basically work from at home and obviously since it's a sales office primarily. It's not certainly disruptive to have sales and marketing folks were confirm at home. And then the EPS revision to guidance. How much is that is is new investment in in can't you can't tell 2.0 and how much is kind of change in in kind of Revenue age?
Citations, none of it's really related to any incremental investment.
2.0 is Peter mentioned anything we're doing in can tell 2.0 for the most part is an allocation or reallocation of resources. He's dead. So we're talking about the sales organization or we're talking about R&D. So there's nothing really incremental their DPS reduction and traces to change the revenue change in our medical business and some allowance for the potential impact of coronavirus large in our China operation. May I just add the look if you looked at our full-year profile X you are operating expense on the core business is going to be relatively flat and Thursday swap setting, um, you know headwinds from the sap depreciation, um, you know, Merit increases benefits inflation. So the reality is that the company is dead.
for managed operating expenses quite well
It has in the last 12 months and and most of our investments as we think about cancel 2.0. There's going to be a uh, a meaningful lean-to to read a poem and and and not necessarily incrementally add a lot and then moving on the medical why is 8% the right level of growth for Thursday. I mean, is it is it is it for both the reprocessing side and the procedural products side or is there or is one, you know expected to grow, you know much faster than than the other.
Yeah, I think with capital being 20% of the portfolio and that not be necessarily procedure driven. The reprocessing side is always going to be a little bit. Whatever the Blended growth rate is obviously implying that procedural just because of penetration opportunities is always going to tend to be the the vehicle or the part of polio. It's going to grow faster than the average.
Okay, so it's
So the procedural side and then just last question on the on the procedural side and you know jump out have you as you've seen the committed the competitive Dynamics, you know change in that area. We need this a matter of you guys just winning less than you were before or have you actually had, you know lost like, you know material contracts in that area.
Yeah, I'll take that. Look. I think it's a combination of two things. We've had a few key account losses, but I would argue the bigger challenge that we've kind of FaceTime what we've had a fantastic run on the valve franchise in the hospital and and we had penetrated that market pretty deeply there are still some Headroom to grow within hospitals, but the header image chunk and and if procedures continue to move from the hospital stay at CiCi's, you know it it's harder for us to get growth, you know offsetting the penetration that is is tougher to come by. Um,
Okay understand. Thank you very much.
Oh, well next we'll hear from Mike Mattson at Needham & Company, please go ahead your line is open sir.
Thanks, just with regard to the the updated guidance. You mentioned that you did include some impact from the coronavirus. So can you quantify how much it baked in for Revenue any PS4 that and is that really just limited to the impact you're expecting to supply and or demand in China?
Yeah, hi. This is Shawn. So on the EPS side, it's about $0.03 that we baked into the second-half for procedural, you know downfall of China about four million dollars on the top line would be the exact be bacon. And again more around the procedures that it is around supply chain supply chain side. We feel like we're pretty well covered, you know for a few months and certainly on the medical side. There's not a lot of exposure there anyways, but meaning we're not assuming any other pressure around the globe that that number is really given that China is sort of turned off procedures in the hospitals. We don't know how long that's going to last month, you know, the pressure we put in is is the Chinese market specifically
Okay. Thanks.
And then so I I understand the argument about the SES and the the size of the market opportunity there. But I guess can you give us some specifics on what you're planning to do to track improve the value proposition in that setting? I mean, I don't know if you're willing to talk about that for competitive reasons, but you know, is it is it discounting? Is it bundling is there some kind of segmentation you can do where you can come out with your products tailored specifically to that setting somehow and price them lower point.
Well, look, I mean as we talked about before we're not invisible on today. I mean we do about sixty million dollars worth of Revenue annually in Georgia. Now, it's obviously a bit more slanted towards and obviously the chemistry that pulse through there but, you know, we really feel like with our cat structure that's down twice and and having the c-suite contacts with these larger ID ends that in many cases are accelerating their consolidation and acquisition of ACS that the time is not right that we can influence the protocols more forcefully in the now our own map. That's we're looking at validate externally is uh, I'm assuming that it's the same full bag or same portfolio products that we would sell as an opportunity into the hospital. It's a subset of that but we do feel like there are many procedures.
products that have a place in the ACs and as we
And have a track record of changing and transforming and penetrating the hospital Market because we have the best sales team in the industry. We think we can do that as well on the afc's home. If I can just add to that. I think the the value property we have to demonstrate the ACs is a slightly different message that focuses as much on infection prevention as well as on efficiency and return on investment and throughput that are going to be key critical factors for for those customers and that's really how we're going to be tailoring our message to demonstrate the overall value of adoption of our portfolio. And and like I think of it makes sense, you know, if we look at the opportunity in a s c again, I I'd almost argue synergistically. I think there's things that we can learn from our Dental business that I think that Dental sweet and a lot of wage behaves almost more similar to the ASCS than the S III to the hospital. So I think there's going to be some good cross-pollination between certain how the Dell folks are approved.
In some of those efficiency practice issues as well as the safety issues on the IP and seaside.
Eric and you mean it sounds like you're already calling out sort of an impact from from that on your Revenue growth in medical in even in the second quarter. So, you know, just how do we think about the impact on growth going forward at least until that's done and then, you know, are there going to be restructuring costs inventory write-downs Etc associated with that? I mean that would I would assume be excluded from your adjusted numbers, but it could still have a cash, you know expenditure.
Look, I'll tell answer it just the high-level never Peter so I can talk a little bit more about restructure. I mean one of the things to keep in mind is a we we acquired Pura Kore in the UK. We acquired BHT in Germany all of which come with a our platforms including the Legacy ones which we've had. So we really had done any restructuring work of any kind and you know part of our Focus going forward is there are these kinds of opportunities which we needed to get to that that short-term have some impact like it like it is in Germany today at least for the short-term but have a significant opportunity to you know to improve margin and this is you know, honestly, this is something that perhaps we could have done sooner but we're laser light focused on it now and obviously is a contributor to why we think we can get the 23% ebitda margins and yep.
Okay, thanks. That makes sense. And then just this reduction in the platform is by two-thirds. That seems pretty dramatic.
Beyond longer-term
I would just say it's very difficult for us as we've sort of reconfigured our R&D team and trying to get more throughput come out of that organization in defense of that group wage. Um, they've been charged historically with trying to sustain an an onerous and overly complex, you know Legacy of a are based on order for us to execute better and and get more out of the phone all this is one of the keys to to driving more group put is is getting more time spent on new products and less on sustained and obviously with a far more rationalized platform. There's a lot more efficiencies whether it be leveraged on sourcing agreements to you know, just better plant efficiency to better off velocity on inventory with the more rational product offering
Okay. Thanks a lot.
Once again, ladies and gentlemen, that is star and one if you would like to ask a Live question over your phone, and please be sure that you return to your handset before you press star and one to make sure that your signal does reach our equipment next. We'll hear from home and the line of Metro Ram gopal. Go ahead, please good morning. I just wanted to follow up first on the question. How comfortable are you that with the loss Avenue from the implication simplification of the platform that you will be able to more than offset it as you look to penetrate more on the side.
Yeah, I I I think at the end of the day was a a more simplified Global footprint of a ours one for the hospital one for I'll call it the offsite took a sec practices Center. We feel like it would enable us to actually pick up share not lose share. So there might be some short-term disruption but long-term, I think it's a driver for us again. If we can get to a simpler footprint that meets Global requirements versus having today. It's George mentioned basically a pure core machine, which is our rapid a r r i s a machine which came with the I and that's acquisition a large product line of of various products out of BHT along with our own metaphors. Well, I guess see product base.
You know what Peter much afford the key point, which is the opportunity to focus the next generation are indeed development on our platforms. It's much more facilitated from both of you know, a resource. I mean a dollar resource and a People resource the more we simplify these platforms, uh, and there are you know, obviously some meaningful opportunities for next-generation AER updated software cybersecurity all these things which become terribly vital going forward and and much better managed if we can get these, you know, we get these platforms to a place that's um, um much more focused. Okay? No, that's great. And then as you look for ways to for marja mention, obviously you have highlighted the focusing on the cost structure in the Life Sciences business. You expect to get some nice energy captures associated with who freely. I just wondering that a medical obviously the simplification
Can should help you on that front and I'll just wondering also if you have any other initiatives, um in terms of improved.
Morgan's they are especially given you all going to be rolling out some new products and maybe adding the sales Etc that might offset any potential cost-savings. Just wondering if there's any net additional might be expecting. Yeah, I I think will be different even specifically in the back half of this year is is like we've it's taken some time but we've built up sort of our source capability within the company and it's one of the areas when we think about, you know, upside to the back half of the year and how early offsetting some of the volume pressure that's that's come into the picture a good piece of that is going to be accelerating sourcing savings, uh on our a our side of the business as well as even on the chemistry side. So you've got some good activities there and I think that those will carry over into 21 as well.
Okay, thanks. And then I'll finally for me obviously Acquisitions have always been a big part of the story. You clearly have a lot on your plate now with the 200 initiative and I'm just wondering how we should think about that if we should probably expect a pause on that front, but I know you're always evaluating opportunities.
Answer part of the question. We're always evaluating opportunities with this is one of the reasons why we appointed Seth this role of Chief growth officer. We've we've got a lot of opportunities internally. I mean something I'll let you talk about some of the things you're you're that you can't talk about publicly that you're focusing on. Yeah, and I think wage I think we're going to continue always to look at uh extra opportunities. I think there may be, you know, good reason to think we're going to have a pause for for a number of quarters while we are dealing with integration and and focusing on what the internal initiatives but I think up here in cantil 2.0. We see a lot of organic growth opportunities on initiatives that are executable, uh of in the markets we serve today in with our existing business platforms. So, you know, a lot of my attention our focuses is ensuring we have the right resources alignment internally and the focus on the execution plan to get us back to a position of growth that that we expect for the long-term. So I think that there is dead
For us to work on and Acquisitions will continue to play a role in the future. But I think for the over the short-term it's a matter of internal execution and focus on uh on integration as well.
Thank you. Next we'll take a we're happy to take a follow-up from Larry. Coscia Raymond James, please. Go ahead. Thanks. Just two two quick ones here on Earth. You had been targeting 10% EPS accretion for 2020. I just wanted to see where we stand with that if that's still the right way to think about it. And then I guess that's the question is, you know is you've as you've guided to the second half Twenty-One growth targets, how do we think about you know sort of bridging ourselves from where we are and what's implied in fact the second half of 20 20. What what does that say to the first half of Twenty-One? I just want to make sure we're sort of thinking about you know, sort of an improvement and growth appropriately the answer because we were taking bets with some of them might ask that my look. We aren't really sitting here in a position to give you know, specific guidance for twenty Twenty-One, but look we feel pretty confident job.
This is going to be a you know, a ramp going forward and obviously have the kind of consider the the base. As well being what it's been in medical for the first half but I think that's um these programs, you know, they're not uh step change. These are ramped up. So he look at the take the the launch of the new products out in the cleaning valve the focus on the the focus on Europe Erp penetration. I mean, these are all things that we view as as as rack up toward the toward the goal. The only thing that may produce spurts of opportunity will be new products that come along that out of the The increased focus on procedures, but those won't you know, other than cleaning valve in scope buddy in the balance. That's for school buddy. We're not going to have new products are going to happen in the next six months. So those will be a little bit longer term. So I think you can view this as a rampage.
Okay, that's great. Thanks again for taking the questions.
We're talking about being virus.
And Medical in the second half around that being a plus percent somewhere in the first half. It's it's in in the middle somewhere you bring you Larry need to think about it in our invent a Guidance just sent that to you freely when you adjust for interest and tax effect. Okay, um, uh, great. All right, that's well, actually while I have you just one last one, just any update on Black Box again. I I think you had been sort of suggesting that you'd be in a position to begin to take orders in the fall of the next calendar year.
Yeah, I think that's the right way to still think about it. I mean our scientific Milestones really passed here in December feel really good about that long. I think the next nine months leading up to the fall or the winter and taking orders really be two Milestones or two phases one or both in parallel one will be blocking in I'll call the commercialized design of the product so finish and dry and getting bills of materials mapped out vendor based off assembly instructions. And as sort of one parallel path the other being really engaging with customers right now and this is already started. We're we're doing the material accountability testing, uh in parallel to position ourselves for the fall that hopefully we will work with enough customers on enough, um products to be position.
and to start taking
Order from people, you know after sort of or around Thanksgiving is sort of the vehicle. Okay, perfect. Thank you.
And ladies and gentlemen. We thank you all for your participation as well as the VIN of your questions today at this time. We have no further signals from the group. I'd like to turn it back to our leadership team for any additional or closing remarks.
Yeah, thank you. Hopefully what you can see is we're very mobilized around the can tell 2.0 initiative. Yes, many of these things. We have been focused on for the past few months, but we are organized this under can tell 2.0 to mobilize the internal organization behind this which they are wage. Also externally to be able to, you know, speak to the company's progress by referring to cancel 2.0 and talk about the progress. We're making on each of these initiatives, which we will plan to do on next quarter's call. We look forward to that. So thank you again for being on the call today.
Ladies and gentlemen, this does conclude.
There's business update and we do thank you all for joining you may now disconnect your lines and we hope that you enjoy the rest of your day.
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