Q1 2020 Earnings Call

First quarter 2020, Stryker earnings call. My name is Christie and I'll be your operator for today's call.

At this time all participants are in a listen only mode.

Following the conference we will conduct a question answer session.

During that time participants well have the opportunity. That's one question and one follow up question.

If you would like to ask a question. Please press Star then one on your Touchtone phone.

This conference is being recorded for replay purposes.

Before we begin I would like to remind you. That's the discussions during this conference will include forward looking statements factors that could cause actual results could differ materially are discussed in the company's most recent filings with the S. E. C. Also the discussions will include certain non-GAAP financial measures reconciliation.

Since the most.

Directly comparable GAAP financial measures can be found in today's press release that as an exhibit to strikers current report on form 8-K filed today with the S E C.

I would now like to turn the call over to Mr., Kevin Mobile Chairman and Chief Executive Officer, You May proceed Sir.

Welcome to strikers first quarter earnings call joining me today, our Glenn Boehnlein, Stryker, CFO and Katherine Owen VP of strategy and Investor Relations.

Today's call I'll provide opening comments, followed by Catherine, but some perspectives on our mix of deferrable and capital businesses.

Glenn will then provide additional details regarding our quarterly results and liquidity position.

Before we open the call to QNX.

As you know Kathy will be shifting out of her role on June 1st. So this will be her last Stryker earnings call.

While this is not quite the finished she had in mind at the end of February.

I did want to take a moment to make express my gratitude for outstanding work. The past 13 years. She has been a great helped to me and the management team of Stryker.

Also if you include her time covering Stryker how's the sell side analyst. This will be her 97 Stryker earnings call.

She has seen a lot, but nothing quite like what we're going through right now.

On today's call will review, our first quarter results and provide additional details regarding the impact of called at 19 on our businesses in March and into the second quarter.

And we will also highlight many initiatives underway to ensure we maintain strong cash position.

Too stringent cost controls to manage through this unprecedented environment.

For Q1, we achieved organic sales growth of 2.4%, reflecting strong momentum through the first two months of the quarter and into March followed by a marked slowdown.

Principally to a deferral in elective procedures.

We took a number of steps in March to aggressively limit travel to ensure the safety of our employees and customers, while ensuring our central personnel were available to support healthcare workers around the world.

These efforts along with other cost controls helped to mitigate some of the impact on earnings from the slow down in sales, resulting in adjusted per share earnings of $1.94 cents, a decline of 2% versus the prior year.

The sales drop became more pronounced towards the end of March and in the last week at the month or company sales declined 30% versus the prior year.

The big declines were in hips, knees spine and endoscopy offset by our other businesses.

By geography, Japan, Canada, and smaller countries in Europe, and emerging markets performed well, while China was clearly the weakest.

In Q2, we expect a recovery in China, but most other geographies will get worse, given the spread of the buyers.

For the month of April our company sales will decline by 35% to 40% versus 2019.

Looking at the remainder of the quarter. We are encouraged by the planned gradual resumption of elective surgeries in the U.S. and abroad.

Our portfolio products are being impacted by corporate 19 and numerous ways.

Currently we are seeing a deferral in elective procedures, particularly within orthopedics and spine businesses.

We fully expect given the chronic and progressive nature of the conditions impacting these patients.

But the vast majority of them will be treated in the coming months.

Recognizing that the exact timing of abroad resumption of elective procedures is to fluid to predict.

And that's hospital needs to treat coping 19 patients escalated sharply in March and April we saw a significant increase in the demand products across our roughly $2 billion medical portfolio, which Kathleen will discuss in more detail.

In response, our manufacturing teams have been aggressively ramping capacity much needed products. While also ensuring we scaled back other plants, where demand has been negatively impacted.

Overall, given our mix of businesses and the cost control initiatives underway.

Coupled with our strong balance sheet, we believe we are well positioned to manage through this slowdown.

Given the fluid nature of the current situation, we're not providing Q2 for full year guidance. However, we expect to maintain the cost control efforts for most of 2020.

We're also setting ourselves up to respond quickly as customer demands return.

We are providing financial assistant to hold our Salesforce is in place and continue to invest in our pipeline of new products.

We are proceeding with integration efforts regarding Wright medical and given the impact of the virus on competitive hiring.

We're expecting a minimal level salesforce attrition.

I was just publicly announced right held at shareholder meeting on Friday April 24th and the deal was approved.

This reduced the tender threshold from 95% to 80%.

Tender offer was extended until June Thirtyth, which is customary as we continue to work through the closing conditions.

We expect to close around the end of Q3 2020.

Please note beyond this update we have no new information shared with you regarding Wright medical and will not be taking any questions on this pending acquisition during today's call.

Before I turn the call over to Kathryn I would like to take a moment to thank all of our employees around the globe for their commitment to ensuring the safety of their colleagues their families and our customers.

Our salesforce is across our businesses, who are central to supporting doctors and care good kemper's.

I've demonstrated on wavering commitment during this pandemic.

Manufacturing teams have worked tirelessly to optimize the plant network and to ramp capacity where needed and we have created rapid innovations in response to the pandemic.

We will continue to support our employees and our customers as they work to meet the needs of the many patients that will need treatment.

While our many your growth momentum has been temporarily derail.

The Stryker skirt is alive, and well and we remain poised to capitalize as the situation improves and now over to Kathryn.

Thanks, Kevin My update today will focus on providing greater granularity around our mix of businesses that are particularly impacted by the Kobe 19 virus.

Overall, we estimate that 40% to 50% of our total global revenue include procedures that are considered elective or more accurately can be in many cases deferred for a period of time.

This includes primarily our orthopedic businesses, including hips and knees extremities as well, it's fine Neurotech CMT.

There are also procedures within our endoscopy portfolio that can be deferred including some of the scoping procedures and sports medicine.

Option and general decline in overall activity that traditionally drives trauma procedures.

I'm really truly elective procedures the patients differing surgeries addressed by our product will not improve with time, rather the underlying conditions generally continue to deteriorate. So while the exact timing of the resumption of elective procedures to more normalize level, it's difficult to predict at this point in time, we doing to debate the vast majority.

Patients treated by our products will return.

We also assumed the resumption of procedures will continue to vary by country state and municipality, they increasingly moot pack the peak impact of the virus.

In contrast to the impact we are seeing from differed surgeries other parts of our portfolio or experiencing significantly heightened demand is Kevin noted. This is most noteworthy for medical business, which had sales are roughly 2.3 billion in 2000 in 19 or approximately 15% of total strike or revenue and it's <unk>.

Primarily of capital equipment.

It's important to recognize that our capital equipment portfolio, which represented about 25% of our total sales in 2019 includes both large capital and small capital at about 9% and 16% respectively.

Are large capital equipment offering includes maaco beds instructors within medical and <unk> communication portfolio and spines, enabling technology, which includes mobius and navigation.

Turning to smaller capital equipment. This pocket includes medical emergency copy and distribute later and Doctor. These cameras instruments power tools and waste management and neural powered instruments that are recorded within neurotechnology.

Note small capitals typically used in the U.R. and as such attract more closely to growth in procedures.

Against that backdrop, we are seeing strong demand across essentially the entirety of the medical offering including beds and structured video emergency costs and Sage. We're also seeing meaningful increasing demand for instrument flight personal protection offering which is included in their based product portfolio within surgical technique.

Allergies.

Across the board, we have ramp capacity to meet the current demand and what we anticipate will be ongoing demand, it's hospitals looked better position their capacity and stockpiles going forward.

In late March we develop the striker emergency relief bad, which helps emergency responders manage patients efficiently. During this critical time, we started manufacturing this low cost said at the end of March which broadens our medical offering beyond I see you and met surged beds to better me customer needs other efforts to assist with respect.

<unk> 19 include the production of stay shields for healthcare professionals, and a new patient protective covering products, which attaches to our ambulance structures.

Overall, while to slow down and elective procedures has and will continue to impact our top line, we are able to leverage our unique product portfolio and offset part of that impact through demand for our medical and instruments offering. We expect this trend will continue into two two with an ongoing gradual increase an elective procedures.

With that I will now turn the call over to Glenn.

Mmm.

Things go through your comments ours insightful as always.

Because they're a little focus my comments on our first quarter financial results related drivers and certain liquidity matters.

Detail financial results have been provided in today's press release.

Or organic sales growth was 2.4% Mcwhorter. These results included U.S. growth of 2% an international gross of 3.3% recognizing that approximately 75% of total sales or businesses significantly weighted in the U.S.

As a reminder, this quarter included one additional selling day as compared to Q1 2019.

Pricing in the quarter was unfavorable 0.4% from the prior year quarter, well foreign currency had an unfavorable 0.9% impact on sales.

During the quarter, our growth was significantly negatively impacted by reductions in elective surgeries that occurred in the last two weeks of March This impact was most pronounce on our joint replacement procedures.

Light of the current environment, we wanted to provide additional detail with respect to our businesses and geography.

A month of April R.U.S., orthopedics, and spine sales were down roughly 65%, while med surgeon Neurotechnology COSA declines roughly 25%.

[noise] Asia Pacific decline, roughly 20%, while Europe was down nearly 55%.

Or Latin American business was solid delivering 20% growth for the month of April.

Are adjusted quarterly E.P.S. of $1.84. It represents a decline of 2.1% from Q1 2019.

Our first quarter E.T.S. was negatively impacted by two cents from foreign currency, which was slightly higher than our previous expectations given currency fluctuations.

In other factors resulted in disproportionately negative impacts on N.P.S., including the loss of higher margin sales and a loss of leverage related to manufacturing and operational fixed cost.

In addition, the lack of share buybacks in Q1 2020 resulted in a higher than average share account outstanding.

I went out provide some brief comments on segments cells.

Orthopedics had constant currency and organic decline at 1.2%.

Included <unk> growth a 0.3% this growth included positive impacts from neat trauma extremities and make.

Internationally orthopedics had an organic decline, a 4.3%, which primarily reflects on earlier downturn in certain geography.

Met search had constant currency growth of seven per cent in organic growth of 6.3%, which included a 5.6% increase in the U.S.

Instruments at U.S. organic sales growth 10.8%.

Them by gains in their surgical cutting blades waste management stares she'll surge account and smoke evacuation product lines.

This performance was particularly impressive given the top comps from Q1 2019, and further validates our decision to split the sales force into orthopedic instruments and surgical technologies.

<unk> organic sales decline of 2.9%.

Reflects positive growth in its core video in general surgery products offset by a slowdown in its communications and sports medicine businesses.

The medical Division had U.S. organic growth of 9.1%, reflecting strong demand across its bad an emergency care businesses, which accelerated meaningfully in the latter part of March owing to demand pride to cope in 19.

Internationally, Menser chat organic sales growth of 9.1%, reflecting a slower impact the capital businesses in key geography.

There were a technology and spine had constant currency growth at 1.5% in organic growth a 0.3%.

R.U.S. Neurotech business posted constant currency growth 0.2%.

And 8.6% organic decline for the quarter.

This reflects a slowdown in procedures and the latter half a march and some temporary supply disruptions during the quarter.

Internationally, Neurotech knowledge and spine had organic growth of 9%.

Reflects balance growth across most geography some businesses.

Now, we'll discuss operating metrics for the quarter or.

Are adjusted gross margin of 65.3% was unfavorable 50 basis points from the prior year quarter.

Impaired to the prior your gross margin was unfavorably impacted by price acquisitions business mix and Fiske fixed cost absorption.

The latter two of which were more pronounced during the second half of March.

Adjusted R. and D. spending was 6.4% of sales are adjusted S.G.N.A. was 34.8% of sales, which was 40 basis points unfavorable to the prior your quarter.

Compared to the prior year S.G.N.A. with unfavorably impacted by business mix.

Averaging of selling and marketing costs.

And foreign exchange and this was partially offset by operating expense savings actions taken during March.

In summary for the quarter or adjusted operating margin was 24% of sales.

Given the current environment, we enacted measures in March covering most of our discretionary spending.

Included curtailments in hiring travel meetings consultants as well as the idling of certain manufacturing lines and facilities, including Furloughing. The related workers. Subsequent to March. We also have enacted salary reductions impacting most of our leadership positions.

Related to other income an expense, we saw benefit and investment income, which was partially offset by increased interest expense related to the eurobond offering that was completed late last year.

Moving forward, though given an unexpected decline in investment income earned on deposits and the impact of other rate changes.

Any will increase by approximately $5 million to $8 million per quarter.

Does not include the impact of any additional debt issuance for right medical.

Our first quarter had her and adjusted effective tax rate a 14.3%. This included the benefit related to stock compensation expense and other discrete items.

Turning the cash blown liquidity, we ended the first quarter with cash 'em marketable syrup securities of $4 billion in generated approximately $591 million of cash from operations in the quarter.

This is ahead of our internal targets and significantly more than in Q1 2019.

This reflect increase earnings and a reduction and working capital primarily determined by accounts receivable during the quarter.

As I noted in January we did not repurchase any shares in Q1, nor do we plan to do so during the remainder of the year.

In addition to the discretionary spending controls I previously outline we've also taking steps to conserve cash including reductions and plan capital expenditures and project spending focusing on opportunities accounts payable and slowing M&A activities.

Considering our cash holdings and available credit lines from a liquidity standpoint, we are well positioned.

We currently have available credit lines, none of which are drawn on at this time of approximately 3 billion.

In addition, our investment Greg credit rating supports good access to the capital markets and we would anticipate taking advantage of historically low rates to complete the funding for right medical.

In terms of future capital requirements are quarterly dividend is approximately 215 million and we have one 300 million dollar bond maturity do in Q. for.

As it relates to guidance for Q2 in the full year, we reaffirm our previously announced decision to withdrawal guidance, even the significance of uncertainties at this time.

We will continue to evaluate operating circumstances and the market environment for stability prior to re institution of guns and now I will open up the call for two in.

Thank you we want map again the question answer session. If you have a question. Please press star one on your telephone if you wish to be Romeo from the queue. Please press the pound or hash key.

As a reminder, callers will be limited to one question and one follow up question.

Your first call comes from the line of Bob Hoskins from Bank of America.

You May proceed.

Thank you very much and thanks for taking the questions and.

Congrats to Catherine at 97 is a big number.

A couple of two things one first Kevin.

For you I love, some help and how to think about your capital businesses.

Curious or their sinners, increasing demand that you're seeing last.

A few quarters and then you know just generally what could happen to growth on the other side of the demand search.

So Bob I'll take that the first part and then I'll pass it to Catherine as it relates to large capital attacking Catherine provided you the breakdown of our large capital in her prepared remarks, the beds on stretchers are the ones experiencing kind of a spike in demand.

And at this point, it's really too difficult to to ascertain whether that's pull forward or whether that's just extra demand because there. There is this need to build stockpiles. There is this needs to have that's a certain number of beds and it's an expansion of beds.

<unk>, primarily run into Corona virus, but it may it may not be something that's just pull forward. It may be additional demand as it relates to the other large capital communications make one that goes other components those.

That's going to start to slow down as as you probably would imagine we're not seeing orders being cancelled, but there is a bit of deferral going on.

That I would expect to would continue to pick up in the future maybe I'll turn it to Catherine to talk about small capital.

Yeah, I've I've talked about thank you and it's I would say if you look at small capital that's about 16% of the total and it it does tend to track with surgery. So that businesses not benefited anywhere near to the same degree add the medical particularly beds instructors have so I think you're going to see that.

More in line with back elective procedures come back on and some of that is going to be tied to hospital liquidity and keep in mind through flex financial we have a a lot of ability here to help hospital think about different constructs to finance those purchases. So it's very different from the great recession account hip hop medical business is being impacted.

But I do think there's gonna be continued uncertainty around the poll for it because we just don't have a strong sense, yet what the new norm, it's going to look like Chris stockpiling.

And then I guess, just one quick follow up sort of another big picture question, giving a few of the other medical device C.E.O.'s of offered up that they think growth could return by the by the fourth quarter and I'm. Just curious if you you know from what you're seeing in the world in terms of what you're seeing you know from your customers.

You know do share that optimism or are you a little more cautious.

<unk>.

Well. Thanks Bothers, you can imagine we've run a lot of scenarios and I don't have a crystal ball, but certainly that that is a scenario that that we think could very well happen.

Depends up demand is there I think the recovery will probably come in waves. So you have a number of employees that are her loaded that would love to get their procedures done now while they have health care coverage I'm worried about what could happen in the future that can be a first wave <unk> procedures and then you also have people who've taken time off.

May not be able to take the time off later, so that could cause a slight tip and then a resumption again, but it really is going to relate to how the the overall economy recovers and and how the how the virus of all of us in the future, but but that that's certainly is a scenario that I that that we believe could happen, but again.

This is a uncharted waters, so we'll see.

Your next color comes from the line David Lewis from Morgan Stanley. Please proceed.

Good afternoon, I Echo Bob's common scattering congratulations just a couple of questions for me I wanted to follow up a little bit on maybe a different way of focusing on Bob's question, but you know there's a view Kevin right now that amongst some of your peers.

Economic exposure to reconnaissance about difference of that versus other device procedures. It's somewhat you know lashed that are more or less deferrable orthopedics it sort of more to <unk>. What are your thoughts around and the economics sensitivity of of hips and knees. The it sort of a perception that they are very economically sensitive at the data is not exactly clear initially into a notion that people think or feel.

Would recover after other types of medical device implantable procedures <unk>, what's your view on that economic exposure in your your recovery relative to other med Tech.

[noise] well David It I mean, obviously this is a uncharted waters as I mentioned at the end of my answer to Bob's question, but what I would say is that the hospitals are very motivated to do our procedures.

Think about orthopedics is fine procedures. They are moneymakers for hospitals and the hospitals, who are treating corona fireplaces patience now are or eating in their panels. So there's a financial motivation also patience certainly got our suffering would like to get those procedures done so I'm not in some of the other spaces of other elective procedure. So it's hard for me to do.

Compare and contrast, but the hospital C.E.O.'s and that and the searches that I've spoken to her all absolutely gearing up to to start bringing back their patience and the surveys they've done with patients have suggested that patients are very comfortable coming back as soon as a hospital say, it's going to be safe for them I think those patients will be coming back. So so I don't I don't believe that there.

Something unique about orthopedic surgery that would cause that could be pushed the back of the line on the contrary given its.

Comic impact to the hospitals I think it can be a little bit earlier in the change.

Okay, but very helpful. And then it just several that a question just Glen gave us some numbers on the percent decline in April 4th Peter procedure. So couple of questions. There were just have you seen in recent days or Rolling 70 average hey recovery already kind of bounce off the trough for your orthopedic procedures and it's been a lot of discussion around impatient versus outpatient.

Seen a difference in turn you have procedures are recovering if they are impatient versus out patient and is there an opportunity to use this particular pandemic as a way of pushing more procedures to the outpatient market. Thanks. Thanks, so much.

Yeah, David there's a there's a couple of question than that I I think the first one the percentages I gave you are absolutely up today and so I I don't have any sort of further data or information that would support a bifurcation on that.

In terms of looking at what's going to outpatient or what's impatient I think I think it's it's still too early and it's still dynamic it and it's evolving in the moment. So it's something that we obviously are are watching very closely and you know as soon as we have data or monitoring on it we would we would provide that but I'll, let catherine comment on that.

As well.

Yeah, I just would follow up Dan did you keep in mind is shifted to recon procedures in A.S.C. setting.

Already underway. This probably continues that down that path, but there's only so much capacity. There's there about 300 a season. The U.S. that are doing hip and knee procedure. They are essentially running at full capacity now they may be able to do more by staying late later I'm working weekends.

That is really dwarfed by the number of hospitals and the U.S., which is about 5000, so I think you're going to see the shift continue but I wouldn't expect some massive seismic change in the the trend because the capacity just isn't there to absorb it.

Your next color comes from a lot of features <unk> from ever car I.S.I.P.'s proceed.

Oh, Hey, guys. Thanks to take my question then now.

Maybe one the one on the robotic side I know it falls into the large you know Kappa bucket is there a view that either hospital see this as a differentiated in less than as a way of differentiating themselves from computers. So when we think about it in the post code were the mantra normalized for you know something like.

<unk> or you know just maybe give us some color on how well we should be thinking what may club because there is a view of that.

As a systems are you know capacity constrain maybe utilization of robotics might be might like a little bit here.

Yeah. Thanks for the question I I would say that those certain things that are that are believers and make all believers in robotics will resume their normal amount of work we had terrific momentum.

Anything you could look at in the line of other orthopedics, performing very well and recorder, we did see a bit of a slow down and some of the illegal orders being delayed a little bit so liquidity of the hospitals is important when you're outlaying, a large amounts of money, but we see a tremendous signs up continued interest.

No orders being council, just being played a little bit until elective surgeries resumes and yes hospitals do see it as a difference here and we continue to be very bullish about the prospects at maaco underscoring what Catherine said earlier about flex financial I think that's something that we we're going to use even more probably.

As S.C.'s wants to acquire makos. They they don't typically have the same size of capital budgets, but we have a a number of different vehicles to help them finance our capital and so we do expect may go to absolutely resume the kind of trajectory are on the one steer like a surgery comes back and course.

That's helpful, Kevin and maybe one for Glenn <unk> on on the cost structure fixed worse. This up very well you know how should we think about that come under marches here as you think about the next call it to to 12 months. Thank you.

Yeah, you know <unk> <unk> <unk> at this point, just given sort of the fluidity of the situation and looking forward I'm not sure that I can guide you to to an exact sort of margin number I will say that you know to the extent expenses are discretionary what I mentioned travel meetings.

Consulting in many other things we have curtailed those are discontinued those discontinued most of our hiring and we for load manufacturing employees that are facilities, where we slowed down or stop certain lines, it's it's really difficult to sort of predict.

Or exact operating state I do think some of those expenses, obviously, we'll come back as we as we ramp back up.

But but at this point in time, you know, it's I think about our future cost structure I do you anticipate that many of these things will be impacted and will feel the impact from them throughout the remainder this year and frankly on into 2021.

Your next color comes from line of Mac mistake, some credit space you May proceed.

Hi, Thanks for taking questions just one follow up if I could on and she for Catherine your comments on the number of orthopedic oriented sort of his she's out there can you talk a little bit about the potential impact on on spine and then I have one follow up.

Yeah sure I can tell that part of that.

Okay, sorry top and I'll start that so spine procedures are done in the S.C.'s, but they tend to be the the more basic procedures like a C.D.S. So it's not an enormous part of the overall spine market and we think we're well position there to be able to deliver the proxy for those procedures sorry, Catherine go ahead.

No nothing traditional just to say, it's it's probably low single digits per cent. That's fine procedures that are done in the F.T. setting at this time.

Got it Okay and then on just just some of the you know do your point about the the bulk of the lift here in terms of returning to to elective orthopedic procedures sounds like.

I'm your description needs to happen in in acute care centers, what what are the next steps that you see happening there and what are the constraints. I guess you know states are just starting to open up is it.

No is it the middle of May is it is it do you know some percentage of utilization that we started to see what would be the things that you expect to see over the next several weeks to help us understand if that's happening and to what degree.

I think it's done at the very gradual we're seeing states and not just in the U.S. overseas, they're moving slowly and it really just depends where they are meeting guidelines that where they are in peak cases. So we don't have a perfect formula that tell you what it's going to look like it just seems to be pointing in the direction and this into uncharted 10.

<unk> pointing into Jackson that we're going to continue to see more and more skate within an elective procedures those patients need to be treated as Kevin indicated that profitable procedure for for hospital.

I think it's just going to be gradual so we're probably in a better position a month from now than we are today, but it's also very much wait and see as hospitals get increasingly comfortable.

And start to recognize the new normal how they deal with Kobe patients. While also recognizing they have to treat the broader spectrum of patients.

That's the only thing I'd add to that comment there's a lot of hospitals are actually gearing up to be able to work extra hours, even on weekends not they want to that day, one obviously, they're gonna gradually start to bring patients back, but that's something they're planning for in the back half of the year and so I do expect that I mentioned before seeing it that's where.

They come back in waves is a is pretty likely.

Your next color comes from the line of Larry <unk> from Wells Fargo. You May proceed.

Thanks, guys say for taking the questions up one product question in one kind of Big picture question just on the April trend of negative 25% I think for Neurotechnology. It's fine did that a apply to your neurovascular business as well or is that bit more resilient that I had one follow up.

Yeah <unk>, yeah that that did include our neurovascular business as well in that statistic.

God and Kevin.

Just taking a step back <unk>, what do you think the long term implications are of this stuff Corona virus for for Med Tech and and how are you positioning strike or for success in in a post carota virus world. Thanks for taking the questions guys.

No. Thanks, that's that's a big question I I would tell you that I think we're very well positions given the diversity of diversification of our portfolio.

Asleep elective surgeries are very important to us, but we're not wholly an elective surgery company.

And the fact that led surges the largest of our three segments certainly helps protect us and insulate us from the full effect I think that diversification will surface, well, but but and we believe still in our strategy and this is not going across a change in our strategy of category leadership.

Leading positions and all the segments, we choose to plan, it's not going to take us off our our approach <unk>. We we will emerge from this and we believe it's the fact that we've stayed conservatives are like.

Conservative balance sheet has really helped us even with the impending upcoming right medical acquisition. We we have very good strong financial position things a little change there will be a lot less travel.

Could tell you that we've learned a lot about technology. So we we're engaging cost with customers through this has has been amazing for me to watch a surgeon engagement hospital engagement and even our employees we tend to be a high touch culture and we're we're learning that technologies. You can you can do a lot of a really amazing education things with technology. So that I think we'll be it.

No more permanent thing.

And our R. and D. teams are learning how to work very very effectively including searching collaboration.

Virtually so those are the things that will be more I I take more permanent the trend to ask Caesar will only accelerate but has Catherine mentioned a long way to go still at that pace will increase those are probably the two things I would point out to about other other than that I think we're just going to be getting back to the regular all kinds that we had before.

Your next color comes from life I <unk> Chickering from go each bank you May proceed.

Get up and guys take my questions I want to echo things to Catherine for lots of your help over over the years. First question is as several states are moving to allow a service to start happening again, what is your sales force in those states telling you about with the doctors are planning and how does or a block schedules look in the states.

Thanks Tito.

<unk>.

Don't have any definitive data because it really does very you have hospital.

Even in New York, where we know they're gearing up to read them procedures elected procedures Ah hitting the knees in particular in May and I think it's really going to depend on the type of.

Hospital, or teaching institution or where they're located geographically so they may be doing more procedures on the weekends more procedures in the evening I think they're all going to be highly motivated.

Do you know that they're weightlifting patients, it's pretty high we are hearing that that patients I know, there's some concerns will they be willing to go back to hospitals, what we're hearing and when we talk to customers in their weightless remain healthy adaptations are listening to the doctor they listen to them. When they said don't have this surgery right now and when they tell them, it's safe to come back.

In and they realize they're not going to be going in to get there had been need down to the emergency room, where they're concerned too much greater they're comfortable with it but there's no perfect model to say this is how they're going to deal with it I think there's gonna be flexibility in a number of different methods that take place to to address the backlog of these patients that need to be treated.

Great and then Oh.

Neuro I'm like.

Like you mentioned that there are some <unk> supply disruptions that they saw for neuro supply <unk> can you go thinking that a little more and talk about which other facilities you idols and look how your the country levels for this products think someone.

Yeah sure we we had.

Heard an earthquake in Salt Lake City, which is one of our manufacturing facilities for a nerve ask her that caused a slight disruption in that business and then we also had a bit of supply challenges for the neural powered instruments portfolio.

And those are getting our temporary nature. This happens to rest of the time to time over the years here. This one quarter you might have a slight disruption.

In supply and so those are the two things that hit the neural technology business, both of which are largely resolved or will be resolved certainly by the time, we get to kids three to four.

[noise]. Your next color comes from line of Kayla come from the Sun Trust you May proceed.

Thanks, guys for taking our questions said you mention that you've made you know several cost cutting adjustment answer. My question is if demand does return to the fairly quickly in the second part of this year are you are you comfortable that you have the infrastructure, you know supply and manufacturing employees.

In place to to support that the norm.

Yeah, <unk> <unk>, it's one of the things that literally we are meeting almost every other day on in terms of how do we need to position ourselves to ramp back up.

And getting a good feel for what products will be in demand and where are we from an inventory standpoint with those products and also how are we preparing for employees to come back to work. So that we can meet the demand. So I do feel like we are positioning ourselves very well and we have a pretty good understanding of where we think demand will.

Peak and we're we're doing all we can to be ready for that to happen.

Okay. That's that's helpful. And then you guys mentioned near slowing yeah I'm an activity you strips does that effectively mean, you know we shouldn't expect any I'm an activity outside of right for the rest of the year or what would be sort of a catalyst push you guys to be more sort of opportunistic on them in a in this environment. Thank you.

Yeah, and you <unk> you mentioned right. We we actually have the the biggest seminary going on right now that we've ever had hours of.

That's that's one thing that we obviously, we're focused on I guess I would say that you know business development remain sort of an ongoing part of our long term strategy.

And obviously will balance potential opportunities with our liquidity position, where we want to be even next year in the following year on liquidity, but I I could see that we would get back to smaller pumpkin acquisitions, we have slowed it we have pause it we have not turned at all.

We're we're keeping close to the market just to understand but I think in some ways it'll allow us to have more time over target and it'd be smarter about where we are choosing to execute on emanate opportunities.

Yeah.

Your next color comes from the line of Robbie Marcus from J.P. Morgan you may precede.

Oh, great. Thanks for taking the question I wanted to ask about Med search you gave some gray clarity and to the areas that are benefiting and Kevin I think you said it really well you don't have a crystal ball you don't know what's can happen, but maybe it in in the two scenarios one way there is a second wave one where there is.

Not you know it is this a business that you think saw stockpiling or acceleration of purchases here or do you think there's still a lot more to come through the rest of the year or should we see another wave of infections.

Yeah, I think the demand were in some of our categories. We're selling everything we can make right now so I would say, we're a long way from having filled up any stockpiles. So I think it assists current virus continues an accelerated pace or if there's a second wave I would expect a commensurate increase.

In the sales of those products be at the play protection system and instruments or.

The majority of the medical portfolio.

Great and maybe on the financial side, you know how should we be thinking about free cash flow. This year relative to earnings are you going to be building inventory here, you know and anything that we should pay attention to that would change the conversion rate materially from free cash.

Floats from net income to free cash flow. Thanks, Yeah, I think Robbie you know the single biggest thing we're going to feel in the coming quarters related to free cash flow is just going to be reduced earnings and frankly, if there's less sailed there's less accounts receivable to collect so that'll be the single biggest impact or I think that will.

Feel we obviously with with manufacturing slowed and certain manufacturing lying idle old. We're we're mindful of not building inventories and where we do think that we might have to build inventories were were very selective in terms of how we think that will come back. So I really think you know given.

The the the uncertainties that we will be facing we're we're making a very prudent decisions relative to cash conservation.

Your next color comes from line of Rick Wise from C.. So you May proceed.

Hi, Kevin and congratulations Catherine will Miss year.

For Kevin maybe expand on your comments on the international business. Generally you you you highlighted obviously, China was that we just in the first quarter internationally and you give us the April down 35, 40% right I think that was a worldwide and I was.

Sure that was won't bother us but regardless.

Are you seeing any signs of recovery in some of the weakest international market. Yeah. So maybe you could just give us a little additional color about how you expect the you know those weaker international areas to recover and whether that.

Informs your thinking at all about the web.

Yeah. Thanks, Rick what I would say is it certainly China was the most negative in the first quarter. The 35 to 40 per cent number I gave it was a global number. So that's what April is finishing the I don't have the exact number because as the last day, we hadn't closed a month, but it'll be in that 35% to 40% range.

What we saw in the first quarter certainly China was very negative that is recovering I think they're back to roughly 60% to 70% of where they normally were prior to the the virus. So it and it's sort of gradually improving so China is getting healthier Japan, we had a terrific first quarter in Japan, and I think that will get a marginally worse.

The second quarter, but they've done a very good job managing it same thing with South Korea, we had a very good first quarter and and we're not seeing South Korea slow down at the the big a wildcard I and the international market is Europe.

And even Australia to some degree where Australia had initially said that they were going to cancel all elective surgeries for the entire quarter and now two weeks later, 25% of the cause. She just are now back up and being scheduled so that's how fluent it is just in two weeks. They went from nothing for the whole quarter to that to 25 per cent so that all the.

US to say, it's gonna be difficult to predict you know what happens in the U.K., what's gonna happen in Germany, and so Europe is a wildcard area I think it's certainly going to be worse than it wasn't the first quarter and how much worse. It's it's hard to say right now I think for US Europe was something in the 55% Downrange in April and I think that's likely going to continue.

Through throughout this quarter it should get better towards the end of the quarter, but again, you know it's hard to predict.

And just as a follow up on the need.

Maybe you could just again give us a little more color and your your high level thinking I know, we don't have all the numbers yet more to come but you're you asked me that's held up relatively well I mean honestly and.

Maybe talk about some of the initiatives that you're pursuing to sustain what would it seemed to be.

Likely outcome form and.

In the first quarter and even under challenging conditions in the second quarter.

Some of the detailed and make sure that you're undertaking with surgeons using maaco just any additional commentary would be very well. Thank you so much.

Okay. Thanks for I'll start baby Catharine can add to it what I would say there was nothing magical about our first quarter knee, it's the continuation.

Of the trend of the last four years or five years, where weeping consistently taking market share I I'm very proud of the work that our team. It has gone on on maaco as well as some analysts both of which as you saw with the last two or three years I've had steep increases in their adoption rates and and that continued into the first quarter I can tell you at the end.

At February we were feeling really really good about our new number and then just like everybody else. There was a fall off that occurred about midway through March. The fact that it's so entity a quarter in a positive territory for U.S. knees.

Is is pretty incredible we're we're really pleased with that and so again, it's just continued amazing momentum with maaco and with some analysts which are both huge portions of the knee sales that we have and the surgeons are very very loyal to both maaco and to some atlas based on that.

Great outcomes are getting with their patients.

Your next color comes from line of Matt O'bryan from paper Sandler you May proceed.

Good afternoon. This is Patrick on from that thank you so much for taking the questions and I'd like to start on your spine business 2019, you know you made a lot of good progress.

Integrating k. to London, and getting out business up and running so.

Prior to you know the Kobe 19 disruptions I'd love to hear more color as to the dynamics that was happening you know within a business in January and February. Thank you.

Yeah, I I'm very pleased with how they respond businesses have progressing certainly in the international market see you see very good numbers you can close to you know pretty good numbers in the first quarter. That's a continuation of what we saw last year in the U.S.. We started to see the improvement really in the November sort of December timeframe that was continuing.

Into January February and a number of new products for launched in the first quarter. Unfortunately that got the rail just like everybody else is fine business around the middle of March and we're not immune from that but I would say I've I've I feel as good as I felt about our spine business since the acquisition of K. two m. everyday we sort of continue.

To build momentum.

And even the mobius business, which we acquired towards the the end of last year is seeing a tremendous demand us some hospitals are actually using it to to do x. rays of the chest or for the Corona virus. So we're actually trying to ramp up our capacity of Moebius, which is a as you know immobile C.T. scan.

And really the only one of the market, that's that's immobile and and they're using it for current of our so we're actually ramping that capacity. So over all the outlook for the future for spine as positive as as positive as we felt kinda venturing there.

Great. That's really helpful color. They see so much and I have a quick follow up if you don't mind I'd like to talk about clinical trials. You know we're hearing from other you know medtech peers that they're seeing anywhere from six months of of delays on some of their trials. I know you know strikers had a a great track record of new product introductions and has.

Lot of clinical trial catalyst. So is there anything material you know we need to think about from a clinical trial or new product perspective, then it's six months the right way to think about some delays due to current virus. Thank you.

Yeah, I said, we're actually pretty fortunate that we don't have any major launches upcoming that are continuing to clinical trials. It's always a timing issue to just look awareness vascular or P.M.A. products portfolios are in their life cycle. We really don't have anything major pending I think six months is it is a good way to look at it we do have some.

Minor delays in approvals. So some products just getting them approved if you think about our aspiration products nerve ask are getting improved in Europe. They they are approved in the U.S. and.

And we had a limited launching the first quarter, which is proving very successful, but those aren't yet approved in Europe. So Europe is just overwhelmed.

With the U.M.D.R. another pocket brutal site, that's more probably in a three month time frame than six month, but what's affecting us or at least in the short term is more around getting products approved outside of clinical trials and there really isn't anything major that's holding us back from a clinical trials.

Your next color comes from the line of Kristen Stewart from Barclays. You May proceed.

Hi, Thanks, everyone for taking my question and I go to the commentary on Catherine it's been really great snow anybody from the South I perspective, and on the company perspective.

A great job just in your role on both on the I.R. and on the discount that from.

So I guess when I just wanted to go back to the question on this med search engine or attack down 25, because I would imagine a lot of different moving parts within those two kind of categories is there any way just to kind of give us a little bit more detail there to just kind of help us understand some of the.

Puts and takes I would <unk>, yeah imagine on that medical seiger seem quite a bit of the benefit.

You know probably within a narrow vascular Larry was kind of thing, it's probably one that's pretty defensive and then maybe within some other areas within that search you're probably seeing a little bit more of down in Texas is something that's more kind of capital so any way to just kind of frame.

There's nothing parts are quantify some of the benefit that you're seeing from <unk> that that'd be really helpful. Thank you and I <unk>.

Okay.

Yeah, I think why you did a pretty good summary, but I guess, what I would say is as you look at the number you're right medical.

Is showing fairly strong positive numbers I would say across the rest of the portfolio. It was negative and it ranged anywhere negative from 20%.

Ah to as much as maybe 40% or 50% depending on the business capitals, a little lumpy too. So some of the capital businesses were able to deliver and make deliveries during the month of April and so they saw a little more favorite ability I do think that you know as we move into May will will continue.

See some of those downturns and that similar trend that we saw in April and it might be a little more pronounced as some of the capital businesses Trail off.

Anyway to quantify medical and then my follow but just be on I'm course margins Hush. They just think about as some of the plants are seen lower third putting you have some sitting idle.

Are you going to be expensing some of those on the manufacturing absorption Cos. It period costs are well some of that be capitalize into inventory and will that be a drag that'll just kind of sit there and be recognized too cos it gets old and feature periods things.

Okay sure yet on the on the medical I mean, let's let's leave it but it's positive and that in the short term, we do sort of see the demand will still be heavy no moving out I think medical be it will be impacted especially their beds and stretchers business.

To the to the extent that that's large capital and there there could be good quality issues with hospitals on the gross margin question, you're you're absolutely right. The single biggest thing that will probably be a big impact in Q2 will be fixed cost absorption.

And you know right now we don't see that we would be capitalizing that in the balance sheet, we would only be able to capitalize to the extent, we actually produced the inventory and so you'll see that flow through the P.N.L. and that will be more significant and more pronounced than it certainly wasn't Q1.

Your next question comes from the line of <unk> from Jeffrey's you May proceed.

Oh, Thanks, I, just really had one question just to follow to the earlier question on the A.C. or the inventory surgery Centre side, you know I appreciate that the capacity there is still somewhat limited range of one of the trends people hearing about we've cogut is that perhaps more volume will shift over time and so one of things I was curious about as if you could maybe just grounded some kind of what to.

<unk> the profitability environment is for you guys you know when you sell jointing to that channel.

Yeah. Thanks, right now the <unk> a profit profiles very similar to what we see the hospitals. Most S.C.'s are affiliated with hospitals hospitals have a partial ownership of course in the A.S.C. and and they tend to buy the implants on the same price contracts that that that we have for their hospitals so for us the profit.

Profile is very similar to what we see in the hospital keep in mind that the biggest savings that they have they make more money in procedures in the F.C. The surgeon usually has a part ownership so they're very motivated but the but Ah. They S.C. is higher than hospital under the Big reason for the is the savings in the facility costs, that's really why they make more money in the.

Procedure, they don't need to drive down our implant prices to be able to drive dot higher degree of profitability.

Obviously, they're they're different kind of <unk> facilities, you have to make life easy for them in terms of buying we've created a an entire all fence around the S.C. that I'm really excited about if you ask me three or four or five years ago I was kind of concerned about A.S. He's not sure how it would be for strikers business now I'm actually bleeding that it's going to be.

Very good thing for us because we have the boomers the lights the operating tables, the makos that all the capital power tools Neptune racing has her everything that they need for the the surgery. We can help them and we have this disposables ending implants, and and dropping that up in a financing solution gives us a a really tremendous advantage asthma.

More and more procedures go to the A.S.C.'s.

So really <unk>. This point, we haven't seen much in the way of severe price pressure.

Oh, it's helpful. Thank you.

[noise]. Your next color comes from line of <unk> from I.C.D. Silicon Valley You May proceed.

Hi, Thanks, and taking the questions wanted to ask.

The any protocol changes that are happening or they you're hearing about from your customers with respect to.

In the way you deliberately or <unk>, you know implant businesses to the to the positions being allowed in the large in the hospital how is that going to change if at all and then that would follow thank you.

Yeah. So far we haven't really seen any change as you know today. Many of our wraps are in the hospitals are trauma reps are neurovascular wraps. So today and even if you think about revision surgery or on on colleges surgeon within joint replacement. Our ups are in the in the operating room today arm in arm with the with.

Medical style doing those procedures and so.

We've heard some I did there could be some testing required for our sales reps in some places that's it's very very early making sure. They have the rent a T.V. that that they're equipped correctly to to make sure that they're not transmitting the current virus, but other than that we haven't heard really any discussion about a a blocking access for limiting access.

Again, it's pretty early hospitals are are preparing their plans, but most of what we've heard so far as his P.P.E.N. are they trained and do they know how to to put the proper P.P. on.

And.

Centrally having some degree of testing the same the expectation that they would have for their own staff, who would be attending mail servers.

Great. Thank you and then just on the Big ticket capital items I'm, just Jerry you said you know no one's really cancelling isn't right now it's more postponement I'm curious what what are they saying that they're going to need to see as you have you know the conversations what do they need.

C potentially resume their decision, making process and that you're getting the said these are six to 12 month delays or or truly just just indefinite.

Yeah, I I think they're temporary delays I don't think they're indefinite look there's a lot of uncertainty right now they don't know if they're going to get a bowl of some new patients for Corona virus and and the hospitals that are let's say New Jersey, New York those that are at the epicenter or even Detroit.

They lose a lot of money, while they're hospitals are not having elective surgery and while they're treating current of ours patients. So obviously, the first 30 billion husband doles out to the hospitals. The next 30 billion is coming the the general allocation method didn't provide extra money to those patients those hospitals that we're treating corona virus.

10 billion or the next 30, there's going to be disproportionately pushed to those hospitals, so waiting to receive the money and seeing how much is a hospital get it's very important to their overall liquidity profile and then as they resumed elective surgeries as I mentioned earlier that that is really going to help shore up their financial situation and so that's what.

They're waiting for if they have if the governor's to declare delays in the elective surgery Ram.

Financial situation deteriorates, just like ours to us and so that's the that uncertainty has to be sort of with lifted and even if they're not back to 100%. It's their back from doing elective procedures and they they they have some line of sight to financial stability, then there'll be inclined to start to make those purchases because they do on differentiate themselves. They do.

<unk>.

They do want to deliver great service to their customers and so it's just the uncertainty around a their financial stability and their liquidity, which is which they're waiting to tourism.

Your next color comes from line of Joanne <unk> from Citibank you May proceed.

Thank you very much for taking a question and Catherine Congratulations I have two questions and they were laid it well how do you think about the recovery and the procedures that have been postponed another management team thought that may be zero at a 15% would come back in the back half of this year can you comment on that and then.

Big picture in your portfolio, which ones have your procedures come back first.

Thank you.

So I'm not sure I got the first part 210% to 15% of.

Does that have been delayed so if you had 100 procedures that I've been delayed in the month of April or March what percentage of them come back and this year or next year forever.

I think in our in the procedures that we operate in virtually all of these procedures come back I.

I mean these are the osteoarthritis degenerative condition. These people are going to need these procedures and so I would expect that they they would come back at least in hips and knees and is fine you know what we're seeing a little bit in in the stroke area, which is kind of sad is you know a lot of patients are afraid of going to the E.R.

And so we we thought that that would be largely protective just like trauma cases, that's actually not true and so they're not they're actually suffering with strokes at home and so hard about is actually elective, which I would never have guessed as they get more comfort and as the incident rates and death rates start attack I will continue to decline, which they're doing in many.

Locations they'll start to get more comfortable going to the E.R. and you'll see that volume resume but to me is there were to 15 per cent seems like the historically low number we would expect a lot more to come back what I can predict is how fast they come back.

Yeah, I'm I'm, sorry, that's here at a 15% how to deal with those coming back in 2020.

Yeah again, I believe to me that that seems awfully low mean with the surgeon surveys that surgeons in hospitals I've spoken to.

The patients are on the waiting list, they're not they don't Wanna leave the waiting list they would like to get their procedures done or the big wildcard is just how deep is this recession.

And you know how to it.

More layoffs, what most people get their procedures those are things I can't predict credit to me that sounds low in my view I again, I don't have a crystal ball, but that sounds awfully low to me I don't know Catherine if you'd want to add anything.

No I I agree Kevin It I think we just have to wait and see how it plays out. It's this is a v. or u. shaped recovery to different implications, but I I don't think we could give any.

Anymore granularity or specificity.

And then other procedures, which ones come back first thank you.

Again, I can't really answer that because it really depends on.

On the locations. The hospitals you know are they equipped can they have a separate facility that separate from their current fire stations. If they can they'll they'll do the whatever procedures. They got the equipment horn in those ours. So for us I I'm hearing a lot of pent up demand certainly in the orthopedic side.

Those a lot of those positions are not employed by hospitals, they might have affiliation with the hospital, but they're unemployed and they are.

Eager I would say very eager to get back to work and they are very lucrative procedures for hospital. So I I do believe those procedures will come back fairly quickly.

Your next color comes from the lives of Ryan Zimmerman from V.T.I.G. you May proceed.

Great. Thank you for taking the question Rodgers earlier question, it's really around price and I met surged came in positive the first time and I think eight corridors on pricing and.

And this seems that pricing is a little less pronounced right now and and is that a function of hospitals, maybe taking their foot off the gas and kind of what are your expectation for pricing in the back half a year, maybe when they have a little more time to focus on it could we see that increase a little bit and then the second one is a follow up to that and you didn't call of pricing and spine.

And the press release I'm, just curious if you could comment on some of the price and dynamics there isn't that segment of the market. Thank you.

Yeah.

I'm sure. So so first of all up in terms of pricing and you'd think about our portfolio businesses on the generally on the orthopedics side, we we have more pricing pressure than on the met search site and actually even within Mad surge. If you look at some of our businesses that that largely sometimes a positive pricing.

Medical it would be one of those businesses.

So I would say that as you look at Q1 or you'd think about cue to business mix is going to really influence where pricing is going to land and if there's sort of less ordinarily more med surge I would say pricing would be a little muted I do think though you know moving forward.

The the the same controls and pricing sort of procedures and functions that exist in the hospitals will always continue to exist. We have all was built pricing pressure and I don't I don't expect that that will let off at all.

So I do think that that it's not really a function of hospitals getting back to it for us, it's really going to be a function of sort of business mix within our sales line and then on on the spine Brunch you know I don't have any real specific guidance on spying pricing I mean spine is probably within orthopedics one of the most.

Sort of price sensitive products lines that we sell there's loads of spying companies I would say if anything maybe the current environment will drive out some of the spine competitors and so with must competitors, maybe find pricing on level out a little bit.

It's really uncertain at this point.

Thank you.

Your next question comes from the line of Josh Jennings from <unk> you May proceed.

Thanks, a lot just too quick questions first is just one of the check in on development programs, particularly the maaco, new indication development spine and extremities thinking of talked about historically it provided time when his but does.

This crisis delay any time ones, even though we don't know what they are at this point for one and then second just Kevin being the the chairman of adamant than any court initiatives. A group is pursuing to to support them at tech industry. Thanks, Thanks for taking the questions.

Sure on on the first front I would tell you. If you looked at the aren't you spend we out in the first quarter. It was very much in line with our but our normal spend we are not taking our foot off aghast at all with respect to R. and D. pipeline and that includes maaco teacher indications, we aren't going to get specific about timelines yet because we are not really ready to do so.

We'll keep you posted but full speed ahead with all of our on D. as it relates to add the met a yes. It's been a very busy time I happened to determine this is my going to my second year. My two year term and so we're on a weekly calls with all of our C.E.O.'s within the industry I would say the first stayed focus was a ventilator says you could.

I imagine and now the major focuses on testing because the diagnostic companies are also members of ads on that.

And I really just working with the administration.

And who came in particular to make sure that they have a clear supply signal and trying to get them to to to get the demand signal. So we can kind of have some kind of matching and obviously, it's not our job to to find the protocols for when you do live virus testing windows antibody testing appropriate and serology testing and what companies should do but we're we're in active disks.

Option that I would say testing is it's it's moved away from ventilators P.T. is still a common topic that we that we're talking about but much more of the focus right now has shifted to testing as as governments around the world are trying to figure out 10 states are trying to figure out how to bring.

People back to work so well that's the big focus right now I'm testing.

It's however, I'm really you know.

When you're part of that trade association that really.

It makes you a appreciate this industry, it's an amazing industry that does that that so much for people, especially in these kind of trying times and I'm really proud of how the industry a step forward to really to help our customers.

[noise]. Your next color comes from line of Matt Taylor from U.B.S. you May proceed.

Hi, This is that true you only from that maybe just a one question was wondering when it comes to your hospital customer finances do you have the view, maybe how many of 'em are a little bit this.

Dressed in this in this environment and how can that disrupt the Ah recovery curve.

Yeah, We you know I don't have insights into into what hospitals, maybe distressed.

My guess is the the obviously their their cash flow most hospitals is under stress just because.

They don't earn as much money treating kobe patients as they might during elective procedures.

Do you think that.

When government grants external financing ones hospitals can demonstrate positive cash flow again, and even our own programs with flux finance, there's plenty of capital availability for hospitals.

Think that you know moving forward once things settle down and we see sort of trajectory ahead that a lot of those programs will kick and allow hospitals to sort of reinstate capital buying programs.

Okay. Thank you.

Your last question comes from line of Kyle Rose from Cannacord you May proceed.

Great. Thank you very much you're taking the question. So just supposed to talk this a little bit about maybe the commercial structure is particularly with the backdrop of some of the the costs changes you. You've discussed are you seeing any the big picture trends with respect to changing <unk> I guess, the support level or the requirements for what the the.

Sales Rep us on a case by case basis, and I guess secondary question is coming out of that we've seen the potential for you know breathless models or maybe there's a virtual model in in the operating room, what does that do from from the cost structure of what S.G.N.A. line looks from a long term perspective.

So look at this point in time, we're not really seeing any change to the to the way our our reps provide a service and and support our customers I think what we're learning about virtual tools as they can be additive to our office the idea of completely replacing ourselves <unk>. You know companies have tried this in the past.

Has met with pretty big failure, but I do think there was a role for technology, we are seeing a little bit of this in Japan.

And so I think technology can be can be an additional tool you know arsenal certainly for training.

And even in terms of support that it could provide some benefits potentially some.

Benefits, an S.G.N.A., but I would say those are very modest at this time, it's very early and I think as things resume it's going to resume much more in the manner that we saw prior to quote a virus hasn't and then potentially you could see acceleration afterwards, I think rehab for sure.

Patients are very comfortable going home and trying to do the rehab at home and using virtual tools I think you're going to see a lot more of that there was spent some movement, but that's increasing.

The surgeon consultations that used to occur in surgeon offices, that's going to be a lot more virtual that's happening now and and certainly the payers are a lot more comfortable paying for that which they weren't before but as it relates to the nuts and bolts of our procedures and the operating room I don't I don't see any dramatic change at this time.

One follow up on a pricing perspective, I appreciate the earlier commentary around spine.

You talked a lot about positions in in hospitals, you know coming other you know financial distress just are there any expectations for potentially some increase price pressure specifically when you think about the recon side of the business.

You know, we we haven't seen any any sort of step change.

Impetus for price change within implants. This has been going on for some time certainly our prices go down every year.

They have moderated and there really isn't this is not a new impetus to drive significantly reduced pricing. So I don't expect I think our price outlook will stay very similar I'm moving forward.

No further questions that this time I, we're now trying to conference back over time, Mr. Kevin Lowball for any closing remarks.

As I said to my opening remarks, I would like to once again, thanks, frontline health care professionals and first responders for everything that they have done and continue to do.

I'm also proud of the efforts of our employees, who are showing great resiliency in continuing to serve our customers and this difficult time.

Thank you all for joining our call we look forward to sharing our two two results with you in July.

[noise]. Thank you, ladies and gentlemen, 15 seats today's conference call. Thank you for participating he may now disconnect.

[music].