Q1 2020 Earnings Call

[music].

Hi answers first quarter 2020 financial results Conference call Today's conference is being recorded.

At this time I would like to turn the conference over to Mike Oh Youre.

Go ahead.

Thank you Savannah.

Thank you for joining me affect her life Sciences first quarter 2020 earnings conference call joining.

Joining me on the call ARPU directly President and Chief Executive Officer, Glenn Cohen, Chief operating Officer, and carry Anderson Chief Financial Officer.

Earlier. This morning, we issued a press release announcing our first quarter 2020 financial results.

The release, a corresponding earnings presentation, which will reference during the call are available evertec or like dotcom under investor events and presentations in the foundation first quarter 2020 earnings call presentation.

Before we begin I'd like to remind you that many of the statements made during this call maybe considered forward looking statements.

That is given the ongoing uncertainty associated with the Covance 19 pandemic. We intend for today's call also include more information about the current and anticipated future status of our business that has been typical during our past quarterly earnings calls.

Factors that could cause actual results to differ materially are discussed in the company's exchange Act reports filed with the FCC ended the release.

Also discussion will include certain non-GAAP financial measures.

Reconciliations of any non-GAAP financial measures can be found in today's press release, which is an exhibit two entegris current report on form 8-K filed today with the FCC.

With that I'll now turn the call over to be thank you, Mike and good morning, everyone on behalf of everyone hears jaguara I'd like to start by expressing our gratitude to healthcare workers were risking their lives certifications during kogas, 19th and done I.

I would also like to thank all our employees around the world their support and resiliency during these difficult times.

If you turn to slide four all begins a presentation.

We started 2020 on strong and our performance from January through early March was tracking ahead of our plants. Despite the initial effects of Kogas 90.

In China strong distributor relationships and our selling model helps eliminate the financial impact from Cobiz 19 in February.

In March as the virus spread throughout Europe, and the U.S. International health organizations as well as federal and state agencies recommended postponement of all non urgent medical procedures.

We have over 4000 county, and dedicated global employees more committed to and checkers didn't even provide the best possible character locations by limiting uncertain for health care professionals.

Glaring carry will provide additional details on her plans in preparation for the rebounded procedures, but let me first provide some perspective.

We still recovering plan based on an underlying assumption that procedure volumes return with sequential acceleration.

Or commercial teams are in close contact with customers evaluating feedback by geographic region and hospital system.

<unk> using this data not only to build our sales forecasts, but also to find ways to work remotely with customers today, while preparing for the recovery procedures.

Our executive leadership team is conducting daily briefings to monitor adjust our response to the coded 19.

Without question, many challenges like phone covering still exists.

<unk> availability, which is critical so vast majority of neurosurgery procedures is one example, while others include operation capacity and the confidence of patients returning to the medical facilities. As these challenges are overcome we're optimistic that we will see month over a month improvement throughout the year.

Before turning the color already Kerry I'd like to provide a view of where we were before the pandemic and to demonstrate why we feel confident that we will <unk> on a gross trajectory.

Please turn to slide five.

And this chart you can see that global orders retraining above our 2019 levels from January through mid March of 2020 or.

Our performance was driven by several factors, including <unk>, you product introductions higher regenerative orders fueled by improve manufacturing supply and strong capital sales.

Mid March you can see dramatic declining that occurred I assumed a surgical procedures were postponed on a wide scale.

For the company has a whole run rage. The last two weeks of March we're down to about 20% compared to 2019 and very by product line.

Despite these declined we close the first quarter with revenues of $354 million roughly flat on an organic basis compared to the first quarter of 2000.

It'd be clear our performance in April bear the form factor coding 19, and based on what we know today the second quarter. It will be the most challenging a year.

And the third quarter, we expect a year over year declines, although not at the same rate I didn't second quarter as many procedures in which our products are employed cannot be deferred for more than 90 days.

In our Bayes case scenario, we assume the fourth quarter of 2020, and we'll be roughly in line with the fourth quarter of 2019 and under more favorable scenarios, we see opportunities growth.

A global impact of this magnitude was unimaginable just three months ago and the timing of a fourth covered his main concern I'm confident that once the environment returns to grow the actions. We're taking a plan. We haven't played position in tag Rep for outperforming over the long term.

I'd like to turn the call over to carry or a more detailed review apart first quarter performance and the ongoing impact until 19 fairy.

Thanks.

<unk>.

I'll keep my comments on the first quarter results relatively painstaking long term more detailed discussion and the impact Kobe 19 pattern that we're having a profile and how we're thinking about the second question.

First quarter total revenues for $354 million, representing will decline at 1.5% on a report it they face and change I don't know mechanic, they say compared to the first quarter of 2019.

Performance is at the high end I'll have preliminary results from our <unk>.

<unk> per share 148 cents compared to 65 from last year.

Revenue any P.S. to curls on aware of the year basis as well as the unfavorable variance to our original guidance expectations for entirely due to the adverse impact of Kuwait 19.

He turned to hide six I'll start with a review of I.C.S.L. segments.

Reported revenues for $231 million.

Hassled, 1% unlike any basis.

Global narrow sexual salary increase 4.5%.

Databases.

Cypress slowed down we saw at the end of the quarter organic row with strong across all neurosurgery franchising.

We reported hives and all that shit grows in both C.S. half management and advance energy and most a little digit growth in both several access and repair.

We are all monitoring.

Sales in our instruments franchise declined about 14% on an organic basis.

Oh instruments continued to show low single digit grow through early March in line with our previous expectations. We did say significant softness in late March as their life just distributors deferred the typical end of quarter orders and like I said, a crime and medical and dental office space procedures.

So it's all capital purchase is such a surgical lighting slow late in the corridor.

International <unk>, we're up high school of digits during the first quarter led by strength in Japan and advance purchases in several indirect markets, including China data precautionary concerns over the global spread a covert 19.

Moving to our orthopedics and tissue technologies or Oh, two teams segment on slide seven.

Revenues, where $123 represent a million dollars, representing a decline of 1.2% or databases.

Sales of Emil Excel in Surgimend increased double digits in the corridor.

By the increase in supply coming from the capital investments, we initiated last year at our Boston in Memphis facilities.

Are broader regenerative hopefully they'll was on track for low double digit growth through the first two and a half months of the corridor Intel co they'd 19 related procedure deferrals took us out in the last two weeks of March.

Most impacted where nine emergent chronic willing treatments and plastic and reconstructive surgery.

Total first quarter salads, and wound reconstruction were down low single digits compared to the prior year.

Cows in private label increased mid single digits in the quarter in line with expectations.

Limited coated 19 and path to our private label business in the first quarter as orders when life. So pre scheduled.

An orthopedic we were saying positive year over year grows in both our U.S. an international market until proven 19 related to pearls virtually shut down non emergency procedures in mid March.

The full quarter orthopedic sales decline that single digits.

International sales you know to cheat increased low single digits based on strength in tissue products early in the quarter in Europe.

Training decide H.L. normally do a first quarter performance of the K.P.N.L. and Cashwell components.

Adjusted gross margin was 68.3% unchanged from the first quarter of 2019.

Oh, adjusted either don't margin was 21.4% compared to 24.3% in the private yeah.

First quarter gap earnings per share, where 11 sends compared to 38 cents in the prior year.

Adjusted earnings per share for 48 tenths compared to 65 cents in the first quarter last year.

Decreases in gross margin, either we're primarily related to cope with 19, which caused lower than expected revenues as non immersion surgical procedures, where the for primarily in the U.S.

This decline in U.S. revenue relative to growth in international revenue resulted in an civil war gross margin compared to our original expectations.

Additionally, lower right rather than your related relative to R.S.G.N.A., an R.M.D. spending levels.

As well as a higher blended tax rate.

Related to the decline at U.P.S. and we're down by the same covert related factors.

Deluded shares outstanding were down slightly earlier did as a share repurchase program.

We call that in early February we didn't initiate an accelerated share the purchase agreement in the first quarter approximately 80% of the expected total shares to be we purchased on your the program were delivered.

Operating cash flow was $21 million and the first quarter about $9 million lower than last year.

By the earnings and higher in the tray levels of both of which way birthday impacted my coated 19.

Before I leave this try let me elaborate on the steps we have taken to manage a cost structure and because of cash.

During this period of revenue instability.

In April we announce within cost reductions across the organization. We estimate these costs actions will reduce our operating expenses by about 30% in total, including a more than 60% reduction in variable expenses.

We have decreased hours in some of our manufacturing facilities amount into an overall reduction of 20, 25%.

It also significantly reduce capital expenditures.

The duration of these actions a largely depend on the shape of our revenue recovery, but will likely last and took a third quarter.

At the same time, we have been very deliberate on our prioritization of critical capital R., and D. and clinical programs and the supply uncertain regenerative products.

Ensure the company's position for grows as the environment improves.

Even with these significant cost action, what they expected sharp decline and revenues, we expect lower profitability and low single digit either at the margins and the second quarter.

If you turn decide nine now provided update to a capital structure as of March 31st.

We ended the corridor like net debt of approximately $1.3 billion.

Bank leverage ratio of 3.1 times.

The company's maximum allowable consolidated total leverage ratio under its crack agreement remains at five times.

June of 2022.

Important later, we have cash in cash equivalent of $358 million and $1.15 billion on drawn on a revolver.

The company does not have any credit facility principal repayment due until June of 2021.

If you turn to slide 10, I'll provide some insight into a revenue profile in the context of the current code in 19 environment.

And how to think about likely revenues scenarios for the second quarter.

He has reviewed the various guidelines recommend into for all of certain elective surgical procedures during the pandemic and they've been talking to our customers throughout this period.

This data has enabled us to plot, where our products fall on the spectrum of more urgent moderately urgent and more deferrable surgical procedures.

The following slide illustrates or crystals and based on available information.

We have attempted to provide a qualitative scale with the boxes that are skewed to the left indicating slightly more urgent procedures and those scare into the right procedures get that can be deferred for a longer period.

Tomatoes traumatic brain injury is an acute burns and wounds are typically treated on a more urgent basins.

Extremity orthopedic procedures or do more like this and many capital purchases, which are tied to hospital budget.

Expected to be the Fred longer.

And analyzing the moderately urgent category a much wider set of variables, which range from patients specific.

The broader hospital environment.

Be considered.

Also it's important to remember that many of the underlying conditions in which our products or you can only be deferred for a short period of time without risk of more serious outcomes to the patients.

I'd like to turn the call over to cleanse will provide some additional insight in town.

Oh, we're thinking about recovery blank.

Things are in the morning, everyone.

Right.

Holding her in common.

Quarter, and second or 2004.

Oh I photo store, we provided revenues at 5000, a month of April compared to the bar year or two segments.

Under U.S. versus O.U.S. business.

They have all revenue declined about 45% for them as of April comparison per year.

Within our revenue base, there was a wide range of variability is required.

We are getting a surgery and if you drop down lesson, 30%.

Well other.

As for down over 80%.

Racist decline roughly corresponding to the surgical procedure categories coverage is gone.

Geographically.

I mean in our international business.

Yeah.

Canada remain stable during the early farms or recorder.

But let's be a country estates children.

He factor in determining how quickly procedures recover.

However, as peacemaking, even in locations, where she just having them.

<unk> I bet availability would impact.

Recovery.

I have a company or revenues are over 75.

5% weighted towards inpatient procedures.

We believe hospital shifted resources overnight.

Back to moderately original procedures will be critical to an improvement in already.

We anticipate revenue in May.

Mmm over April.

Encouraged by the news at Thursday's are beginning to reopen.

Oh, sorry.

We also positive signs of recovery and places like Florida.

Yeah in Germany.

Newsy expecting more significant improvement in June.

The third quarter to show a coffee sequentially.

What is expected to be below two does a nice himself levels.

In our best case scenario, we assume the fourth quarter to 720.

We'll be rough Mannheim before quarter of 2009.

Under more favorable scenarios the opportunities for growth.

It'd be turning <unk> by offering for you all the steps we take injuries verbal quickly once customer demand Ritter.

It Bothers me implemented contingency plans and many of our manufacturing facilities.

Drawer or central products continued to be produced.

Customers patients.

In addition, we've been building based off of a number of products focusing our agenda.

We've been supplied could span over the past 12 months.

Taking advantage of temporary slowed down by building they saw select for me the man.

The one procedures return later this year.

These efforts have been made possible by are dedicated manufacturing employers.

Newsmaker Central health care products rather than.

Thanks for making a difference for customers and patients.

As mentioned earlier, we implemented rented cost reduction measures, while preserving fulltime job.

Oh and or any progress.

It's cost containment actually voted for him into hiring travel.

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Employee benefit costs.

In addition, we've taken paper to our executive leadership team Board of directors.

<unk>.

Two hour work week company why.

We also implemented.

Evasion adjustments for yourself.

<unk> theories and keep the motivated.

<unk>.

If he wants to multiple recovering scenarios or commercial teams for mobile.

So that it would be distributed at central personal protective equipment <unk> whatever customers on a regular basis.

Closely monitoring adhering to local restrictions.

Or feel seems a bit holding version all across time reading and all my friends to maintain close relationships even.

Even have access to hospitals and beverage dresses.

The company's adaptability resiliency.

This Christmas with me, possibly for.

<unk> investment in technology infrastructure and operations.

<unk>.

Committed global workforce.

We are addressing shorter wasn't vampires way for the long term.

And clothing I would I go home and so we're confident underlined demand for products.

You don't have the right people employers in place.

And believe there are recovery scenarios in which we can restore your your role as soon as the fourth quarter.

<unk> remarks, thank you for listening.

<unk> would you please over the line for questions.

Of course, and if you would like to ask a question.

Star one on your telephone keypad.

Make sure that your main function is turned off to your signal tree carpet meant.

Again.

After the question I mean, we'll take our first question different rationally Jefferies.

Go ahead.

Good morning.

What are the C.B. I could start with the commentary around deep expectation for the fourth quarter desire to look like last year.

There you described it as your base Keith I'm, just curious what what speak into that you know does that contemplate grabs the second wave of Kobe.

Is that assume in terms of the economy in in my fault for that really economies you know several of your major categories neural trauma burn.

Related economic activity I imagine into perhaps you could just described sort of your talk you're thinking probably around that recovery outlook.

Thanks Rush for the question you know so I would say and when we talk about our days case, we we think of it as probably more of a you recovery.

We're not contemplating H.R.V. when I'm contemplating A.W., but I mean, we're contemplating what we think is reality, which is that they're clearly will be <unk> in the fall.

And that it won't range than similar piece that we saw here in the spring and for US as going had mentioned in Jerry that a high percentage of our business two thirds of neurosurgery.

Tied to the availability vice you beds, even having an ongoing level of cases out there, but having access to ice you bed.

Euro for seniors.

We think that we'll see the sequential growth coming on board your point about the broader economy.

About Burns accutron.

If they decide to accidents from driving.

On the.

Resign traumatic brain injuries, obviously related involves or work related incidents.

Clearly got an impact here early on and we would you as the economy opens up a that will continue to see that increasing you know how do we do better than that obviously, the the opportunity for the amount of recurrence to be lower.

I was thinking about it but at this point dot net.

Yeah.

Okay. That's okay, well, maybe just curious <unk>.

Commented that because you can reduce or operating expenses by 40%.

And fish you know how to think about that is that sort of if you look at the operating expenses.

Of course, or even in fourth quarter of last year. So runrate consume you could take the absolute dollar amount down by 30% and the second quarter.

Yeah, that's the way we're looking at it if you look at where we landed for Q1 in operating expenses. So that this ensuring our selling.

The N.S.N.R.R. and D. lines, we think the actions that we have I announced to employees in it and the steps for taking but take out about 30% of of those expensive. So that's that's our plan.

Okay.

<unk>.

And our next question will come from that.

It's kind of.

Please go ahead I'm at.

Good morning, Thanks for taking the question so it'd be a follow up just on on some of your comments on the early signs that you've talked about.

Covered in May and I think you you mentioned something like a accelerating improvements.

So many pages improvements over the next several months T.V. talking about what you've seen and I guess.

As you get through second third fourth quarter, or maybe just to focus on Rogers comment about the N.B. assumptions that could lead to that.

Desserts that that's a base case scenario, you know what sort of capacity D.D. expects. These hospitals to the operating as you can into the into onto the second quarter and a third quarter and the fourth quarter and then everyone follow.

Yeah.

<unk> rocket. This one you know as we look at it may obviously shelter in places, where it's being removed.

Huh is obviously a positive sign for us as we see more more I view, but nobody knows the pauses is fine for.

So we are seeing an improvement in U.S., even many markets outside the U.S. places like Japan, China.

<unk>, 80% or so levels from work.

Oh.

Yeah, one of the things that we've we learned during the cold in 19 situation is we have a lot of nine elective procedures that they are that are.

Neuro surgical procedures being differ for 30 or in some cases, they could be screwed up to 60 days that they really didn't go beyond that without.

Issues with Asian so.

When you look at our recovery last.

<unk> now that we've been incidents for several months that will start to see a pickup and procedures that may vary thing in the first.

So.

Continuing to June.

He knows that back then then.

Flourishing going into 234.

But from our perspective, that's the way we do things at the moment, obviously, we don't have a crystal ball and things could change the virus.

Big way and.

Yeah like you three to four time frame, but for now I think this is what where modeling and different scenarios could play out different ways, but right now.

Given everything we know we'd expect to be.

In a position where we're flat 2019, when we did before.

Yeah, and then to this I need that your comments correctly. It sounds like you know not improving could be used as capacity, but not maybe reaching.

You know not banking on 100%.

You know as you get into the entity or just yet.

Yeah, I I think that's fair and I think <unk> pent up demand for procedures that have been put on all at the same time, we have seen just isn't climbing trunk fanatic injuries.

Yeah.

Surgery as well for the ones that everybody I mean, a shelter in place.

Situation did you want any.

The same out I think if you compare what we went through in April of what we think the fall day. So differences I think everybody would say.

As a you know country, we were had more surprise issues to deal with and so orange of coding actions like no. You know elective procedures will be done hold all your I.C.U. beds for this can be wave of code and basically they come or they did y'all added bigger.

<unk> quarterly what our elective procedures I mean, you don't see near the surgery is like a you know <unk> drama, but when you basically say, we're shutting everything down for the case that impact. If you go to the ball you improve testing is out there better understanding of.

How did great green zones within the and you should manage that that's the feedback we're getting and we have our sales forces with a pretty nice quantitative way to collect ongoing weekly data from I.D.N. different health systems around the world and I think that's the feedback that are saying that they you know.

<unk> no no surgical procedures tend to be reasonably profitable procedures for health system as well as some of that particular trauma cases on top of the fact that are prepared as you said you know you can delay maybe up to 90, that's maybe but nine doom or something that's my Wakeman.

You know you get past 30 to 45 days you start creating other issues and we're starting to see some of the those cases come back again and again, we believe what properly gnagey whatever types of peaks happen urine ball that those type of procedures will get priority.

And then a follow up with a good just on you you've mentioned I see you beds and in a hospital two care centers is to say is as a service and procedures. You know maybe if you could talk about alternate saying you know and sees won't care you know you're seeing anything there and and a remind just kind of how that.

Yeah that mix and match your business now that speak into your expectations. Thanks.

Yeah. So good questions. So we in our chronic wouldn't care business, which is the E.W.C. events wound care business. Some parts of our instruments business and parts of our plastic and reconstructive areas all deal with the S.C. surgical centers for actually doctors' offices.

And so you could imagine in the hot spots New York in L.A., because such Chicago through the beginning of this to up to the end of April those are very limited cases, as well now they're not hampered by hospitals and and those capabilities. So we're starting to see some of those.

Dangers come back I would say as as go invention orthopedics would probably be one of the the the laggards, but that's because that standpoint with our extravagant due to business. Most of those are are done actually out in outside the hospital. So yeah, we had confidence.

We're going to be able to see does come back at a at a reasonable range I would also say that on the crime. One care friends you know many areas, where basically trying to have patience stay at home and do it they can with lower technologies type solutions, but what that means that there are many patients that were delayed for a period of design.

That may actually have more huge issues to deal with that the hypothesis, we'll see how that plays we're assuming that we'll start seeing volume's pick up again on sequential rating for that as well, but the reality of it is the majority of our revenues are still driven by invitation procedures.

Thanks for the color.

Except I do.

And our next question will come from K. like homeless contrast.

Go ahead.

Great, Thank god for taking or questions and and for all the detail it and transparency on on the carpet and path.

So that's kinda just talk a little bit about your neural circuitry business I mean, I'm mixing business, that's you know moderate or or more urgent, but you have some exposure on the capital side, which which is more deferrable, Sir no. What what do you just talk they sort of the Hudson takes in that business and what you're serving as it relates to the top x. environment.

Later this year.

Yeah, maybe I'll I'll give a little bit of of comments and then go out or carry you guys can jump but.

I think you look into charged that we went through I think the chart.

I think.

It was he's down or something and the implications for rubbing profile does a good job of framing between words into more verbal and if you think of our neurosurgery business R.C.S.S. business, which I was instruments.

Obviously capital, which includes the cruise or the issue ablation products Mighty may feel those clearly if it'd be viewed as more deferrable now that being said they are small small capital for the site and some of these are you know 20 30000. Some of these are a couple hundred thousand they're not 2 million dollar objects.

So we believe that there's obviously a level of differ ability to decide how big the capital Y. is our but our assumptions are that those are going to be delayed.

The majority of the year, if you think about girl access increases disposable.

The other products that are you doing crazy odd a major a little bit tumor there than disposables used in the case, where the market leader in all of the and so those are on the shelf. So we see the move through our sale God gives is pretty good insights in confidence about cases come from God.

The point to that made earlier you know if you have a malignant tumor you, we obviously more into a more urgent but some of those could even be delayed 30 days did you have it but nine humor someone could make a decision on pressing on anything that would cause damage for 60 days. They make holds you off and I think that's what I'm, saying.

Management or managing the pressure or in your brain. There are different levels of it a child that may have a hydrocephalus as you can be very urgent as well as a sort of adult patients. So we see those cases, taking place more.

I don't need any drive Ah Ah I see you follow up for the most parts. So those are more neighborhood and then things such as instrument. Does example, we show dissipating abroad. Her area why well some of our <unk> could be into a individual doctor Dentist's office well some of the more urgent ones are instruments that.

Actually be using potentially coded patients or somebody urgent procedures. So that's kind of are are you events and the mix, but the key part for neurosurgery that you want it started in Europe research neural procedure. When you know you have the corresponding I see you bet moving patients too and we're now starting to see that over.

Where that for the most part of June excuse me April was not available.

Got it.

Some kind of sounds a lot of upgrade color <unk>. So you mention I guess with a 20 to 25 nine impact in the first quarter, but.

Also you know a lot of your state just like you mentioned you can't do you prefer beyond 90 days.

I'm just thinking about those 'cause teacher sort of coming back are you seeing a science of that yeah.

Right, Yes, yes, I I would just say to the point, yes, we are starting to see these procedures come back in early may it'll be gradually I you beds over that.

And that's fire hall modeling and scenario that'll be that around here in terms of why.

You too bad half of the quarter should be better than the first huh.

We get better into the third quarter. So we are starting to see the three.

Oh, sorry, it'd be gradual and we do expect that.

Really throughout written here.

Great. Thank you guys.

Thank you.

And next time I hear from Robbie Mark F.F.T.P. Mark.

He's got.

Hi, this is actually a little on so I do them.

So yeah.

So the morning.

That was shot expend control measures do you think that yes, Uh huh yeah.

Okay.

Mm.

One.

Yeah.

<unk>.

Yeah, why don't think everyone's I'd go ahead.

Yeah, I I would say I I think we have in and everything was done really taken the most aggressive and stance on discretionary spending on on several reflects that's pretty hard obviously, we can I'm smacks that we can turn to foster back on pretty rapidly.

We have tried to protect and preserve fulltime jobs and so we <unk> is you know a great catching that's going to allow us to recover so I think in terms of that the spectrum of cross sections that we've done.

I I would say that the.

There's nothing that we can't turn influx back on when we need to and I would say that as we've looked at the prioritization I've I spend the costs and what we want to preserve for spending we have really tried to prioritize they protect critical aren't doing clinical programs.

Even in our plan. So they think about that the average 20% to 25% hour was actually in our concept facilities, even that and all that is Glen maybe the talk a little bit more boxes.

Wasn't a a peanut butter spread it was really very classify plant specific in terms of the actually it's we took out the plants.

In some cases, we were below safety stocks particular on average on it a tissue products and so those are the areas.

<unk>, because we do expect to to be able to to see friendly covering those areas that we want to take advantage of of getting or in the train like a rubber factory. When you go and maybe you can talk a little bit about the a cursory clicking on the manufacturing facility.

Yeah sure. So we have about 17 manufacturing sites not all people at each other sides to carry his point.

Necessary fans like Boston in Memphis, which are repetitive.

Issue with.

Surgimend used for hernia outlaw classic reconstructive along party majors for one care in Boston those plans are pretty much running normal capacity and during this period or lower demand.

Well actually buildings. They stop these are going to be products that we should do very good growth.

Back to normal.

Get back to you know the regular procedure so.

Double digit growth, we are posting last year, we continue to expect that once we get back to normal and we're going to have funny.

Thinks he stopped to support that ran up when it comes back so that's the good news.

What I would highlight is during this period in our recovery.

Rents are carefully taking care of during this so we've done some things to shore up.

Natural incentives for us to get through this period and then when we do see the rat pack.

When we recover even faster.

We ought to see continue to make sure we've got all that personal protective equipment.

For a feel for all the space employees may come back so that's about it a bit of her impressed as well.

You can come back into it normal routine as quickly as possible.

Okay. Thank you <unk>.

Pipeline.

They Pennsylvania Okay.

<unk>.

Yeah.

The the <unk> any of the the critical program that we deem environmentally we could keep moving what do I mean by that in clinical studies.

Doctors were doing procedure, obviously, we would delay and some of those games somebody studies my delayed <unk> you mind based on that I don't see how that phrase out during the summer, but crinkle already programs, particularly acquisitions that we recently made.

Rebound into the stroke market as well as different products that we utilize for a catheter technologies Andre and technology. All those are advancing in our remotes approach or what specific engineers on site and select location to keep them moving forward.

So those were areas that we really focused on preserving and keeping them going so at this point in time I don't see any substantial went back to our pipeline plans.

Right.

Thank you.

And next we'll hear from Shacking up with I'll start now.

He's going to high. Thank you so much for taking the question. So I guess I was just wondering if you guys can share you know any data with respect to the backlog you beat me seeing and you just said to me with his began with an auto you know what percentage of the features are being rescheduled you know how far or 10 food.

And then you know I guess the second question is you know the slide that you gave it was pretty helpful. Just stick to their gets on me neither.

You know what kind of trends that you're seeing in those categories and me and what percent is just all those fields can afford within those two categories. Thank you.

So she can I'll I'll call them in a little bit the first part and then maybe carry you can comment a little bit about how the percentage.

Installed into the the category, but I was just got at this point, we're not in addition to kind of give any details relative to how we would see what build up in pens demand I mean, our discussions with surgeons as well as sort of thing the different hospitals, I think you're still try and signs that question themselves.

There's clearly in neurosurgery a list of patients that had been from certain areas. So that's a little bit more of a clear pathway and his day when our traumatic brain injuries burn from trying not going to come back with the economy opening up and then it's trickier as well isn't things such as chronic ones.

Care I'm sure you've seen as well as others about institutions, putting out oh. Thanks. Thanks to come back we have ranged I would say we are starting to see the according to what was that we had before and May again, why it gives us confidence that will continue to see that but.

I think brought into that we really don't have a lot of Ah yeah sure carry you want to talk a little bit about.

On the revenue profile and the implications later now.

Yeah sure don't I would say that I got 1%.

It. It you know didn't have the vertical lines out at <unk> clearly indicates that something like a one bucket press. The other it is very much a sliding scale and will be very much influence by the factors that we know what I'm I remember 11 that are considerations for the piece of recovery I I would say you know our.

Capital is probably about 10% of my <unk>.

As a question on on the capital Peas, and then you're gonna you're going to do a a big spectrum completely different sizes.

Some of the buckets like <unk>, we can get to what what that is at the center by South.

The majority of our portfolio really falls in the middle and that moderately urgent and will be very dependent on.

Oh really cool three factors, which is the I.T.V. guide availability, a wire availability as well as patients <unk> coming back and really I guess the fourth factory.

And I can chili, but that's a stay at home to shelter in place things being listed and and all of that will determine the I.T. bag or they were dirty a wire as well and on patients confidence. So I I would say you know the bulk of multiple he's going to sit there somewhere in the middle.

And then we've got the two towers down the more urgent on the market parental side, but certainly the broker to cookery was <unk> somewhere in Netscape sliding scale moderately origin.

I got a thank you so much.

And next door.

<unk>.

Thanks.

I love decide on that page 10, actually I tried to create a similar matrix for my coverage universe and I got some right and some really wrong in this new nine elective, but affordable world. So.

That's helpful.

We look at your.

Label that might want to sort of.

<unk> in in that moderately urgent category.

I'm just curious how much the or did they are kind of like dinner for how is the disability on that part of the business.

Davis glad I mean, we have good line to say and visibility into private label. These are long term partnerships you usually get the water is.

A quarter to an advantage of a when customers need actual fraud.

Quarter, we held up quite well because we got the waters in having queue for.

Having said that you know some of the band and the poor cat that we're getting from a larger privately of apartments politely modifying the second quarter be good things have changed.

We have I'd say from commitments and forecasts.

<unk> be working with them here on the second quarter to adjust to.

What they're seeing in the marketplace, but we do have been lot affected visibility to it.

Normally <unk> that long term locked forecast in words, but just give unique circumstances with dealing with we're going to have flexible with our.

You know partners I make.

Adjusting oh interesting anymore.

I think it's fair to say games, you know, it's a diversified portfolio ready we don't control young market is but we have some insights into them from dental procedures that at some point, you're gonna have to pick up and aren't competing procedures, probably closer to the more to urban one side of things do products that are used.

To reduce infection, nowadays central line or take line or being used in other areas excuse me, but tissue reconstruction. So.

The day it conditions in that area. This is one that was the rebound that everyone is expecting we picked was probably position. If I do you see things last as a whole lot longer than probably harkrider label. It she's got a little bit more insufferable range, but that's not what we're sitting area now mainly because of the diversification.

Procedures that either.

Got it thanks for that one quick financial follow up the the 4.7 million Kobe related charges I just wondered if you could comment on exactly what that way. Thanks a lot.

<unk>.

Absolutely. So 4.7, <unk> <unk> <unk> <unk> related charges, then I would say that 80% of that had to do with incremental reserves, who took inventory on accounts receivable downfall account. So let me give you some context to <unk> work to I balance sheet.

Recorder with her auditors we've looked at.

Given the environment, so as rapidly declining.

Understanding I wish expired product over the next two to three months and so taking a look at what additional reserves, we would likely need as a as a result of that kind of environment. The a our reserves really looking at our age because superbowls as at 331.

No I would say, we didn't see a dramatic slow down customers.

The corridor, we do expect again with the financial strain it doesn't cost a little kind of me that it could create some issues for some of our customers. So taking a different language honor into a super bowls and with particular focus on your out and certainly some of the particular countries in Europe like Italy looking at.

Those and determining whether or not we need additional research. So obviously will continue to look at those the sales do continue to pick up.

And and we we find this house working through a lot of that inventory then how the table reverse Barry and it'll go through that sort of special targets as well and then the removed. So that's that was about 80% ones those incremental reserves on the training and everything to switches around 900000 miserable.

Incremental charges for T.V. cleaning of facilities expedited spray cancellation striking.

That's helpful to you.

Yeah, I think it.

Yeah.

And we all take our next question from Matt Taylor with P.B.S.

Go ahead.

Monica Hi, this is a yellow confirm that good morning. Thanks for taking the question maybe it's just the first four I think you know your comments on Germany, and Chinese market stabilized and the coding just wondering how much do you think we can meet for for their recovery for for the U.S.

Market are you assuming similar recovery curved okay. When U.S., maybe just a few months later if you can.

Yeah. So.

Yeah.

Take your question is what kind of read through it we can see from Germany and shine in a beautification didn't do the United States I I think there's some in particular around probably more germany than than China, but I think is you know Glen comment and not have in common you manage your.

You know China, we definitely remain optimistic about the recovery and protects away just worrying about when you're locked down on neurosurgery. What are some of the first procedures to come back that need I view bed at we're definitely saying that neurosurgery gets more of a priori you there but go out and then do you want to comment.

I can see you on you run all over all international Yeah, I would say Ah as relates to China are probably think something close to 80% to 85% Oh features coming back at this point as you know pretty much February March was shut off so.

Oh, that's an encouraging signs and and well I've seen some fall off in procedure still isn't as easy 5% range as well so I would say.

Two markets are actually holding on quite well in Canada.

In Australia Europe, the mixed bag for US right now I'm in Germany looks like it's about 80, 85% that's normal.

<unk> doing quite well.

I was the a a very strong healthcare system, there, but other markets like stay in the U.K. in Italy, Yeah, we're still laughing so country might countries mixed bag and it's a largely depend on how are these the virus.

Even in Italy, though now it's starting to see some signs of recovery either in the southern part of Italy. So.

Things are coming along here market by market country by the country is different but.

Overall, we ask you hold on a plane nicely in the first quarter.

<unk>.

Almost 7% organic row, we were on pasted do double digit her hair grows so really getting on it and then or international business <unk>.

19 head and then obviously you okay.

<unk>.

The international business not down as much as the overall company so.

That's how many things outside the U.S. so.

Okay.

<unk> I guess, maybe another question Corona N.A., because you know understanding your focus on cash and expense controlling the short term I'm. Just wondering when do you think you can focus on emanate again, and maybe your thoughts on validation of strategic assets.

Yeah, I'd say look from an engineering standpoint, as we came into this we had you know a significant pipeline of opportunities as we've talked about before were primarily focused on.

Getting acquisition, but I I would say during the time periods, giving us enough to take a hard luck and think about our broader portfolio, which we we spend some time on it's also a a window, where we'll see where valuations go I think it's been a secret.

Market valuations required I some of some of the private followed as well and so you know we believe already goods produced is one of the reasons. We were aggressive on her cost moves in all of our actions is that we want obviously keeps company are very strong position I want him to take advantage of.

Rebound that we see coming but secondly, do that position you take advantage of the rate types of hamadei or actually partnership opportunities that men come up around the world. So I think I'll read the comments it back.

Okay. Thank you.

I shall come from Ryan Zimmerman.

You just go ahead.

Thanks for taking the questions couple from the maybe.

Related to what to ask for for number one.

This question to ask you know from time to time and I'm just wondering if your outlook on extremity. Okay has changed a little bit over this time period. I mean, you certainly have W.M.G. I won't be a cold on strike or and.

<unk> endemic yeah, because it's still makes sense in in your portfolio.

Right, now and and or you know overtime I guess is the question.

Hmm.

Yeah right. Thanks for the question I I think you know obviously when you start taking a look at.

The base procedures in the world, where you're debating what is you know slightly urging or more emerging it brings that question, but you know we still believe that just orthopedic segment of any of these segments.

Is the area, where there's the most future growth potential I'd say that wine and that hasn't changed I think secondly, it's really the primary area that more synergy with some of the tissue products. We there it'd be and didn't repair nerve repairing sausage, which is why that is that it does make sense, but we believe.

That you know continued to add scale with these boards and I stayed at the other integrations an acquisition takes place I mean that will be part of plastic the a a crucial look at where the market setting and can we add more scale within the business set up at the right time, So I would say dad from our time Horizons is big.

Yeah, nothing in cold and fundamentally change.

We think about the.

Okay. So and then carry on gross margin dynamics, you know the manufacturing sites have certainly help gross margin over the past couple of quarters.

I know side, but I'm, just wondering how you're thinking about gross margin going forward with the pandemic impact you know measure against way you've invested in from a manufacturing perspective thinking yeah. Yeah. A couple of thoughts on that one obviously, if I think about the first quarter.

With a gross margin at 60%, which is really it was not what we expect a we expected that to be much better inch and that was really driven by by I'm Technical next we had international tied into business actually still gonna bring really nice growth a quick to seven for sounds like Anna grounds and and that meant.

Last basically declined organically quarter.

Oh that looks really tempered glass bicycle why names and we didn't see the wedding permit me expecting.

Think about the second order I don't see I don't expect to see that dramatic of and mix issue points in the second quarter. The first quarter International performance really held up quite well because if I interact models.

And in particular international markets like China is an example.

And that will balance out probably morning, the second quarter as we've seen some declined both on the international side as well as the U.S. side, but as it relates to to to go surprising given a relatively high fixed costs nature of our business would expect to hide decorating margin rate on the loss.

<unk>.

That would impact the gross margin, even with other direction, a labor hours of 20% to 25%.

So you know as it is a compared to 60% gross margin into one you could you could get you certainly revenue scenarios that we've given with some data points on April you've heard some comments from Keaton Glen that you know I think you could get to a gross margin in in about that 60, 60% region.

Into too I hope that will do better than that I hope that our revenue comes in a bit stronger by giving some of the comments that people have made on a quarter from two children, where we're headed for April I think we'll see in in packet breast nicely, especially for a certain kitchen.

Okay. Thank you very much appreciate the costs.

Oh My next question will come from Stephen like than for the Oppenheimer.

I think tank you hi, guys.

Overall crowed in one Q. and neurosurgery look like it held up versus recent trends you know despite the obvious fall off so I'm wondering if the core business was running ahead heading into made Barca enters you call that Japan, which.

That's held up relatively well in a court you got the momentum their data factor and again, they're holding up just any underlying comments on that business would be helpful.

Here you want to start and then maybe blend you could add some college.

Yeah I'll have you start first is that that's okay.

Yeah sure. So see in terms of Q1 are quite a business was actually doing quite a hollow until mid March were actually trying to get at.

Oh on that yeah.

Oh, sorry, as well as you know.

Oh, Yeah, you saw what attracted Pete Wentz room during has prepared remarks or orders were up our sales very nicely through the parts of even though it's a pretty soon special decline and about the mob.

The numbers that we put up for the flavor actually pretty good <unk> Raleigh.

You know the single digits.

Obviously would still be impacted our instruments business and then outside the U.S. quite well a long way through.

The end of the corridor, which would even better I think that.

Not transpired over 19 outside the U.S., but yeah. We were in fact printing in our for business ahead of our plan though.

In March.

Yeah, and I I would add as I mentioned before on the international side. It's a combination of Japan really holding outside will continue to cool <unk> that we had launched and maybe 29 pool and the indirect models they mentioned as really.

Some of our distributors are really concerned about borders clothing with the spread of Cozadd. So certainly that recording advance orders <unk> [noise].

One that will obviously correcting sounds a little bit Institute and that's why we as <unk> International complaining is negative I'm, 35% there in that in that <unk>. So like I would across the board say that we were trying to actually quite well.

Reconstruction size for the L.P., two starting a business so I I low double digit growth with some of that surprising corrected.

And.

Austin could really since a nice girls down overall as well.

Thank you and it and then just one quick the product related question actually.

[noise] Coovick 19 impact on regulatory processes impact.

Your thought on <unk> I know you were getting a 510 k. would be he did you know and any changes and when you think that I could come back.

They see you broke out can use repeat the question one more time Uh huh, Yeah, I'm sorry, you just on on any product relative to probably make you can pack on regular.

Does it impact your thoughts.

<unk> <unk> that I know, you're thinking about a 510 k. with.

Yeah. So I did the short answer is we've actually had a good responses I mean discussions with the agency and so we haven't had any effect at this point in time without any party product.

In some delay on the U.M.B.R. is it's helpful relative to resource management and I would say specific <unk>, we were talking a beginning in 2021 lunch now's gaze up nicely negatively.

Thank you.

And our next question all come from Matthew O'brien with hyper Sandler.

Go ahead.

Morning, or getting a little bit late nichol here. So I'll just stick with one you know the commentary on cue to keep three I think are largely as expected you know with with the declines as true anticipating I think the queue for.

Commentary, there's a little bit different number here at the most other med Tech names. So yeah. I know you talked about this a little bit with rises question, but you know what what headwinds it really moved to happen is that of pricing headwind or you know all the capital D.V.L.M.Q. for for you to kind of hit that based case scenario and what would need to happen for you to deliver some upside the numbers.

Or to the cigarettes profile versus which are laid out in the base case in q. for thanks.

Right I think I think relative to our our base case. The first part is Ah you know, we see sequential improvement within obviously, primarily neurosurgery, but also across the portfolio, which you know we we believe that's going to take place I think from up more spiral level is that.

I opened up that we plan on actually seeing more traumatic brain injury more fundamental try other things that happened in everyday life that don't happen. When majority people are staying at home I think the variability between you know getting to a few for level in outperforming.

Thank you for level is a couple things one is how much normal g. is back into the system I think that.

Relative to the tissue side of the business, we actually that's a really great opportunities in herty repair breast reconstruction and the orthopedics, we talked about and I would say we're planning in our our models that recoveries take longer for those areas out into the end of this.

<unk>.

This is open up faster all of the countries around the world aren't getting back to I'm more normal level of procedures I won't say necessarily home life as we know it by the procedures that we think there's there's potential outside but you don't we're trying to be I'd say appropriately cautious about how we think.

About it and you know by the time, we have our next call it and we're in July.

Much better view of what that <unk> looks like the fact that a large percentage of our revenue in time to hospitals and <unk>, that's something that we keep a sharp I on but again, if I compare what took place in March April so what could happen in the fall I just think farm.

Country as well as other countries around the world, we're going to be much more better prepared to come to manage what the curve <unk>. They basically shut down all I see use we think that risk is lower obviously, we'll see how that plays Dal, which would bode well for continued neurosurgery procedures.

And Green zone components of us, though so that's that's kind of the range as we see Ya.

Retirements about neural trauma, you guys getting back in business in longer term, it's about adding those things that we talk is Morgan horrible back into the phone.

Thank you.

Thank you.

And we will take our final question from Jason that forward with Raymond James.

Hi, Jason.

It'd be good morning, just a couple of quick questions. The 30% reduction in effect sequentially what percent of your objects is variable versus six.

Yeah.

Yeah, it's 60% <unk> inspects still fun, because once variable, but I understand that the cost action to dictate actually impacted for another <unk> Wow. So when we talk about from the <unk> work hour a week and the pets. That's aren't we did it inactive that would be part of that too.

<unk>, so that's where.

30% overall operating expenses.

More complete going in terms of of what we targeted.

Right. Okay. That's helpful. And then you mentioned in answering the question Sixtyish per cent gross margin in two two potentially just for clarification. In this based on you know the the down 45 per cent in April.

With modest improvements in may or June or just yeah <unk>. Okay. Yep, Yeah, that's how I would say if if you're not if there is somewhere in the below 200, <unk>, that's whereas friendship.

50% of grass margin, it's likely that to mid to hundreds <unk>, we would expect that surprises decides to see some Christmas so.

Comes on on on your view of what Manger looks like a debate going on N.P., they've given you. Some indications that we do expect certain sent to prison, but I would tend to 60% <unk> as modest recovery in May and June and it doesn't get some 25% for for the entire quadrants, but I would.

You know it's from my.

Perspective, there for more conservative be of course margin until I have more experience of Y.R.P. now looks high time as we continue to close your books for eight though.

Okay. That's helpful. Thank you.

And.

Question and answer session and it also I think that's today's huh.

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