Q1 2020 Earnings Call

The CFO.

Joe will begin with the impact of covered that team on our business and our response followed by an update on the progress made against our 2020 priority.

That Michael will provide details of the actions, we're taking to address the challenges presented by the pandemic and review our first quarter results.

We finished the call with QNX.

A presentation for today's call is available on the Investor section of our website at <unk> Dot com.

As a reminder, our comments today contain forward looking statements related to the company, our expected performance economic conditions and our industry.

No assurance can be given as to future financial results.

Actual results could differ materially from those that forward looking statements.

For more information about forward looking statements and the risk factors that could influence future results. Please see today's press release and risk factors described in our filings with the SEC.

Additionally, we'll be referring to adjusted results and outlook.

The press release has information on these adjustments at reconciliations to comparable GAAP financial measures.

Now I'll turn the call over to Joe.

Thanks, Dave Good morning, everyone and thank you for your interest in our business.

As we can point Cove at 19 together.

I'm proud of the resilient demonstrated by our team and stepping up to meet the urgent needs of patients with our critical products.

The pandemic is made clear the importance of global health care.

Our mission to deliver clinically proven medical device solutions to improve quality of life.

Grooves most relevant today.

Early on the World Health organization published guidelines for using a closed suction system on mechanically ventilator patients to help reduce the incidence of ventilator associated pneumonia when covert 19 was expected.

Our market, leading valor closed production system, not only maintains ventilation and oxygen therapy throughout the suctioning procedure, but also helps reduce patient risk of exposure to outside pathogen and cross contamination to the caregiver.

Further core track is being used in the placement and confirmation of nasal gastric tubes as the who also recommends providing cobot 19 patients early nutrition.

Additionally, as a result of this global pandemic, we're accelerating exploration of respiratory innovations that can help provide and expand care in the future.

For instance, we are currently partnering with Dr., Nicholas and and her team at the Yale University School of Medicine to evaluate novel respiratory solutions for ventilated patients.

Across avenues, we're pleased to be playing a leadership role in treating cobot 90 patients and executing on our vision of being the best it getting patients back to the things that matter.

As we face the challenges of the pandemic, we're focused on three priorities.

First maintaining the health of safety of our employees and their families.

Second ensuring we have sufficient supply of our respiratory health products used in treating cobot 19 patients.

And third preserving our strong financial position and ensuring we remain well positioned to support customers when elective procedures return.

While navigating this challenging environment, our top priority continues to be the health and safety of our employees.

Since mid March our non manufacturing employees have been working remotely to minimize their exposure to the virus.

This challenge hasn't been easy, but we remain connected with our employees through frequent communications and provide them with resources, including information sessions with our Chief Medical officer to answer their questions about cobot 19.

At the onset our senior leadership team implemented precautionary measures across the organization to protect our teams.

The leadership team and I mean, almost daily and are providing frequent updates to the board of directors.

And our manufacturing facilities, which continue to operate we've instituted additional rigorous safety precautions to protect our employees and to ensure a safe working environment.

The work of our manufacturing organization is critical to ensure the availability of our products to treat those infected.

The global nature of the pandemic faced challenges on us early in the quarter in managing inventory premium AD, which is manufactured by third party in China, our team anticipated the risk and implemented a mitigation plan, ensuring our products remained available for new customers, enabling us to grow by double digits.

Across the organization I'm proud of the resilience of our employees.

And what they have demonstrated in adapting to this dynamic work environment, while rising to the new challenges facing our business and executing their responsibilities to the highest standards.

The dedication our employees have demonstrated is a testament to the strength of the ominous team.

Also we want to thank the frontline healthcare workers, who are doing so much for all of them.

In keeping with our culture of community involvement we donated $250000 to direct relief for the purchase of PPD.

Additionally, we initiated a program whereby our employees can nominate local charities are directly supporting frontline workers in our communities to receive cash donations.

Moving to our second priority, we're ensuring our clinically proven respiratory health products remain available to customers and patients suffering from coded 19.

As the pandemic spreads we saw an increase in demand for our respiratory health and core cracked products in anticipation of this demand we executed on our business continuity plans to minimize supply chain disruptions and increased production, while ensuring the health and safety of our employees.

We added shifts to our Magdalena plant, which is now operating 24 hours seven days a week to ensure supply of our clothes suction catheters are available for patients.

Meanwhile, our digestive health team has down innovative ways to deliver virtual training for caregivers, who are using core track to play speeding twos.

Moreover, we formed cross functional teams to ensure customers received the products. They need during this time and implemented an allocation process to help prevent porting and minimize back orders.

We're proud are clinically preferred portfolio of respiratory end to just have helped product is essential in treating cobot 19 patients.

Moving to our third priority, we're focusing on taking strategic steps to preserve our solid financial position. So that we can continue meeting customers needs in a post coven 19 environment.

We are confident that our existing cash position will allow us to navigate the global market disruption without requiring other liquidity resources.

We are taking disciplined steps to preserve our cash by strategically reducing our capital expenditures cutting discretionary spending and the spending our 2020 planned merit increases.

These steps are in addition to delivering the 12 to 16 million of our previously announced cost savings measures.

Also we plan to use the tax relief provisions specific to net operating loss Carrybacks provided in the krona virus aid relief and economic Security Act for cares act to enhance our cash flow over the coming quarters.

Michael will provide additional details about our mitigation actions.

Although the current environment presents near term challenges the long term fundamentals of our business remained strong we have a solid financial physician market leadership across our portfolio and operate in attractive market.

These factors combined with the strategic actions, we're instituting to preserve cash position us to meet customers' needs and opposed cobot 19 environment.

Now, let's turn to our first quarter results sales totaled $180 million and we delivered 16 cents of adjusted diluted earnings per share.

Sales were broadly in line with our plans until mid March when our franchises were impacted by coded 19 in the second half of March we saw a tailwind from increased orders of close suction catheters and related respiratory health products.

Offsetting this momentum was the postponement of elective procedures, which impacted our pain management franchise.

This headwind has continued into the second quarter with on Q, and Coolief volumes down significantly compared to the prior year.

We believe this impact will continue into the second quarter of this year and to a lesser extent and in the second half of the year.

Given the rapidly evolving environment and the continued uncertainty surrounding the scope and duration of the impact of Cobot 19, we are withdrawing our previously announced full year 2020 financial guidance.

At this time, we cannot fully quantify the impact of the pandemic on our financial results. However, we anticipate providing more detailed updates later this year.

Although the pandemic is top of mind, we remain focused on our long term strategy and continuing progress on our 2020 priorities.

Our first priority is to build sales momentum. The recent launch of our new state of the are 80 Watt Coolief RF generator has been received favorably by physicians and demonstrates our commitment to innovation.

Also during the quarter a key opinion leader published an article that reviews. The clinical literature that supports the use of Cooley and the treatment of olay knee pain.

The introduction of our new generator, coupled with increasing our robust clinical evidence demonstrating the efficacy of Coolief is expected to drive future growth.

Second we remain mostly on track and integrating the game ready Nia met at summit acquisitions and continue to expect to gain synergies from them post integration.

The immense growth exceeded our expectations for the quarter, while game ready in some sales.

Were impacted at the end of the quarter from the decline elective procedures.

Third given the current environment impacting our business, we no longer anticipate generating positive free cash flow for the year.

However, as I mentioned earlier, we are implementing mitigation actions and planning to use the opportunities in the cares act to help us maintain our strong liquidity position and minimize cash outflow.

Finally, we continue to progress the stabilization of our new system and realize its efficiencies, but for the pandemic, we expected to enter the second half of the year with our IC challenges behind us.

We remain committed to that goal, but given the current work environment and travel restrictions. We now expect a few areas at work to continue into the second half of this year.

In summary, we continue to manage the challenges with a strategic focus and remain confident that our long term fundamentals remain strong.

This coupled with the prudent actions, we're taking to preserve cash position us to weather the storm and maintain our strong financial position in a post coded 19 environment.

Now I'll turn the call over to Michael.

Thank you Joe.

And let me reiterate that amid this pandemic, our priority is a safety and well being of our employees and their family.

I am grateful for our team's unwavering commitment to execute on our priorities in this environment.

As Joe mentioned, given the uncertainty resulting from cover 19, we believe it's prudent to withdraw our full year 2020 financial guidance.

As a first signs of potential disruption surface, we began modeling multiple cash flow sensitivity analyses factoring in various revenue outcome lengthening of accounts receivable collection, identifying discretionary spending opportunities and other potential impacts to stress test our liquidity needs.

This work has an updated throughout the past inland and repeatedly demonstrated across all scenarios, including the most pessimistic that we have sufficient cash to meet our working capital and core investment needs and maintain compliance with our debt covenant.

None of the current scenarios would require us to access our revolving credit facility.

In fact, we anticipate ending the year with more than 100 million of cash on hand, even under the most bearish scenario.

We currently have $188 million cash on hand, minimal leverage and no debt maturities until 2022.

As Joe stated, we plan to use a tax law changes and the care that to carry back our 2019 loss the prior years.

Which will accelerate a refund that we'd anticipate receiving late in 2020 or early 2021.

Also we plan to differ on 2020 payroll tax payments.

Even with our solid financial position, we are focused on cash preservation during this disruption.

As our revenue and cash flow has become less predictable and we want to ensure we are well positioned to the opportunistic as business conditions start to normalize.

Let me highlight five strategic and prudent steps, we're taking to lower expenses across the company.

First we made it difficult decision to suspend our plans 2020 merit increases for all salaried nonmanufacturing employee.

Second we're streamlining processes, while leaving non critical positions vacant.

Third we have identified investment spending that can be postponed in areas like marketing clinical trials and R&D projects fourth were reducing and in some cases, eliminating our travel and entertainment expenses for the year for the balance of the year and finally, while we are decreasing our overall capital expenditures we're selling.

Actively increasing capex related to ensuring additional supply capacity, our respiratory health products.

We'll continue to evaluate this ever evolving situation and quickly react when necessary additional cost containment or other strategic initiatives that help strengthen an already solid financial position, while continuing to meet customers' needs.

But that is the backdrop I'll now review, our first quarter result over.

Overall sales for the quarter grew 10% 280 million.

Organic sales increased 3% driven by a 4% volume increase while unfavorable price in sales mix impacted results by 1%.

Our acquisition the Neo men in cement contributed 7% of our.

Yeah.

Chronic care sales grew 16% driven by Neal.

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Part of slowly.

Yes.

Right.

Acres over the first two months, however, I am tracing data indicates no loss of volume at the end user level.

As the quarter unfolded, we saw an uptick in demand for corpak products related to treating coded 19 patients.

This opportunity is likely to offset a slight headwind to our legacy enteral feeding business given the limited access our salesforce has the hospitals and the impact from fewer elective procedures.

Finally, as we mentioned earlier, we saw double digit growth in Neal, Matt and continue to be excited about the growth potential as we move forward.

Pain management sales increased by 1% to 65 million interventional pain delivered mid single digit growth linked quarter and coolief growth increased more than 20% for the first two months of the quarter.

Similar to other companies are Mars performance was impacted by the delay in elective procedures long term. We continue to view Coolief has a solid double digit performer and I've seen the benefits from our investments in innovation and clinical studies.

Acute pain performed primarily on target to our plans through mid March sales and onto were down as expected and we continue executing on our plans to stabilize and return this business to growth.

We continue to move customers to lighters as a presale alternative and saw continued double digit growth sequentially in a number of customers sourcing volume through lighters.

Our international business delivered 6% organic growth driven by a strong increase in respiratory health in response to co. The 19.

Overall, the business is performing in line with our full year expectations and remains a long term both catalyst.

Looking at the remainder of the piano adjusted gross margin for the quarter was 59% compared to 62% last year.

Margin contraction was due to unfavorable product sales mix and higher distribution costs, primarily as a result of end of March coded related activities.

Adjusting operating profit for the quarter totaled $14 million compared to $10 million last year, driven by higher sales and cost savings that were partially offset by lower gross margin.

Adjusted EBITDA totaled 20 million compared to $14 million.

And adjusted net income totaled 8 million compared with 7 million a year ago, and we earned 16 cents adjusted diluted earnings per share compared to 15 cents a year ago.

In conclusion, we had a solid first quarter from an operational and execution standpoint, while also taking the necessary when prudent steps to ensure our financial position and liquidity remains strong as we manage through this near term disruption.

We have been impacted by this pandemic, we remain resilient and particularly focused on ensuring that our products that are most in need during this time, our timely supply with the highest quality.

I'm confident that our actions taken over the past two months and any additional actions that may be required as we monitor the situation for the balance of the year will ensure a strong financial profile for ominous post covered 19.

Operator, we're ready for questions.

And I will begin the question answer session.

Ask your question Chris Star then one on your Touchtone phone.

For use in the speakerphone, please pick up your handset for pressing the key.

Withdraw your question. Please press Star then too.

At this time, we'll pause momentarily to assemble our roster.

First question comes from Kristen Stewart of Barclays. Please go ahead.

Fam are you there.

Let's move onto the next question comes from plenary coach of Raymond James. Please go ahead.

Thanks, Good morning, everyone Im glad to hear everyone's safe.

I guess.

Two two questions, maybe just to start off on on Q.

Okay can you remind us.

What percentage of on Q sales come from orthopedics and.

Where do you see those procedures feeding into the resumption of elective surgeries.

Yeah, Larry Thanks to the question.

Roughly about 50% to 60%.

Of the procedures in on Q orthopedics, there are some procedures that are.

Non elective which is why some of the decline.

As a little bit of a smaller base and then cooley, albeit it is declining alongside of elective surgeries, but.

But it's roughly 50% to 60% on on Q.

And just.

To finish that that question there as as elective surgeries presume.

How are you guys thinking about where we're at the Pete extensively in that sort of early or late or do you have any insights into that at this point.

I mean, I think a less or on the elective side orthopedics aloft oil obviously play a part in the on Q recovery generally.

As we thought about the second quarter, we don't think will be much.

In the way of elective surgeries in the second quarter, but we see that sort of changing at the end of the second quarter into Q3.

And then obviously, we think there's an opportunity in Q4 to get back to a place where we're almost at.

What would have been a normal level of expected performance, particularly 19 across all of that.

It depends on the duration in the severity of the virus and whether or not somebody comes back in the fall.

But there certainly could be some alignment alongside of the orthopedic elective surgery return for on Q, Okay, Great and then just last question.

Well.

Maybe if you could just I'll just ask the too quickly upfront.

Maybe just give some sense of.

Sort of how you have transitioned from March into April across your businesses.

And then on the respiratory side, just sort of curious whats going on there relative to I again, stocking or destocking moves and I guess, what I'm trying to think about as weve.

We've had this.

Dynamic where cobot has picked up significantly hopefully it's going to start to.

To window here, and then and then thinking again about the fall so really just trying to get some sense of.

From you guys how much inventory do you think is out there do you think that gets consumed.

Before we get to the fall just just any thoughts as we think about sort of the gating through them through the rest of the year.

Yes, I'll say a couple of things around April and actually Michael May want to savvy things as well because it go played a little bit into the way we look at the full year, but April for us it looks about like what we consider our base to beauty.

We do see.

Chronic care.

We see see chronic you're kind of the levels that we would have expected.

For pre cobot, 19, and obviously a little bit more in respiratory health is back if you think of the over the first quarter, we probably saw about 4 million ahead.

And in respiratory health.

The offset a little bit by Cooley, maybe down 2 million in sort of on Q similar but on a on a smaller base.

And again, we think that the elective surgeries will pick up in Q3 and get back with some form of normalcy in Q4 on the side of of the.

Inventory, we're being very careful with allocation for a number reasons why as we don't want to see a lot of inventory.

Stocked up and they have that be.

Bad situation in the future also.

We're trying to deliver the respiratory construction products to the hot spots. If you will we as you can imagine in some of these situations you get large orders for six months or a year based upon the severity of the situation and were able to kind of look at that we're looking at the patient numbers and and being able to deliver those over periods of.

Time, although we are investing a little bit and expanding our capacity in respiratory because I think would ultimately could come out of this would be.

With that who recommendation close assumption for ventilators and just to.

Natural flu season happening in a different view of these chronic care products and preparedness.

We see that as a positive for the products were obviously have have a lot of sympathy and empathy were then what's happening with the patients, especially that families. They're losing loved ones, but that is emerging out of this as well Michael I don't have you want to see using more about the Larry's question on April.

No I think you covered it that was that was great.

Okay. Thanks, Larry guys, they say okay.

Thank you next question comes from Rick Wise of Stifel. Please go ahead.

Good morning, Joe Hi, Michael.

Maybe just to start with.

At a high level.

Better understand.

What's left to do with your IP.

And.

And resolution of challenges you you were very era.

You know you're not able to make that happen. There's a few areas of work left to do is it 80.

Thanks, Doug and maybe help but.

Better appreciate.

Do only done.

What impact does it have on the business how should we be.

Reflecting that in our thinking about the second half.

Im going to let Michael had about LTM up this way, which is I'm very pleased with the what he and his team accomplished over the last couple of months and we are working very effectively from home.

With this Nike system and are starting to see a lot of improvements that Michael you probably want to talk about that a bit.

Okay, great. Thanks, Joe. Thanks for question right. The reality of writing system and to Joe's plants stood up very well actually work from home did the closing when a file our Q today or tomorrow in line with what our expectations would advance or not taking advantage of any of the extended timeline at the FCC as provided for.

Filers like ourselves.

So from a day to day debits and credits so to speak Rick the systems working as intended now and so you want to put 90% complete you asked about a percentage that would be appropriate.

We're not yet.

Satisfied with the system is on the analytic tools.

How the system speaks to itself how were integrated with Salesforce dot com things that provide data analytic opportunities for us to look around corners.

To more quickly integrate as we do our bolt on M&A is that resumes hopefully back half this year into next year as things start to normalize so it's more the the tools that make us efficient.

That make us.

Put us in a position to be able to like I said look around corners, and provide that kind of front line.

Insights to sales and marketing organization Thats, not quite yet where we are with the S&P tool, but as a testament to this first quarter close on a debit and credit standpoint, getting things closed accuracy of data for financial reporting we feel really good about where that stands at this point.

Great. Thanks.

My next question sort of a two part question.

In general how are you thinking about M&A now you've obviously done them.

A number really compelling interesting.

Deal.

The last.

Ill call it the month.

But how you prioritizing it now.

Are there opportunities are there more right now.

My part B of that.

Given what we're hearing.

Conversations with doctors and hospitals about a likely meter.

Black accelerated yes.

So.

Out of hospital setting like.

Great offenders clinic Dr. Bob.

How are you thinking about out in the positioning there and maybe that I did the M&A I don't know.

Okay.

Some interesting.

Your perspective there thanks.

Yeah, a couple of things on the M&A front, our strategy remains intact in to your point.

Thank you to recognize emanate data has been really value, creating for us in the channel, where we can get a accretive acquisitions and get a lot of synergy.

And the plan is to continue we have a very full pipeline I think you're right.

And then there are some smaller companies.

And even some early technology company that may have liquidity issues that are looking at seeking.

Acquisition is as.

We said in the prepared remarks were coming of our size.

We're in a good position there I still think obviously, what we're focused on until we get completely through the crisis preserving cash in and our and protecting our own liquidity, but it doesn't mean that we couldn't transact something along the lines what we've done before in the past couple of years you at some point by the end of the year always going back to the severity in duration.

Cobot 19.

We do I think you know as the as the.

Various up your systems come back to life regionally and that'll be very basic and regional.

Truly business sample is performed in the hospital outpatient department.

And so as.

As that ship happens, where they're ready that that will pickup over time, although I think also various so these are prioritizing emergency procedures and the severity procedures, how they actually come back we are working on ambulatory surgical center reimbursement Cooley and the even for the Elastomeric pumps the on Q.

And do think that there will be a ship there it might move in mind just my personal view would you asked tours. For example, take one example, orthopedic I think will now make up faster move and I view to the to the at the and so Thats why she somebody orthopedic companies, having offerings more oriented to assay and the talking a lot about the.

Pump economics, and patient throughput, there and services related to that and so I do think unit in the pain segment in particular that will meet some opportunities.

For us and we actually are looking at some technologies and smaller companies that are in around what we're doing in pain that would be outpatient related so.

Generally I agree with what you're saying.

Breaking down.

Joe have direct growth like is it on evaluation level in theory valuations have come down a little bit.

But I think most people that were looking at the types of private companies that are that are fulfill our bolt on.

Technology take a model right now.

Our seeing this as hopefully temporal in transient and aren't looking necessarily sell into this weakness now some that may have other cash liquidity concerns maybe looking too.

I do that it to raise capital as a part of that the back from or something like that but we don't see the type of valuation that would instruct us to act in M&A right now versus to Joe's point continue to focus on cash preservation in near term.

Okay, just a somewhat we came on board and helping.

Clearly.

You highlighted some of the second Gen any lot lead generator along.

How important that what gets you to maybe second half volume.

Does that and the recovery together get back to that.

20% paid by the fourth quarter and Thats, the right way to think about it any color would be appreciated. Thanks. So much.

Sure I mean, obviously, Rick you know, it's really hard to predict it. So now I do think that the new console gives us a another technology jump over our competitors as faster throughput better actually greenham procedure for the patient as well and then there's other.

Releases that we'll have throughout the year and I do think that it's possible for us to get back to that sort of double digit type performance that we were we were delivering heading into the last part of margin will all be dependent upon when others a surge in the in the fall and how many of the major metropolitan areas.

Obviously come back, but generally between the clinical studies that were doing and Cooley.

The installed base that we have and the lead in technology, we see that as a sustainable double digit grower for us for sure.

In the in the near mid future for sure.

Thanks again.

Yeah.

Thank you.

A question then come from Kristen Stewart of Barclays. Please go ahead.

Hey, guys can you hear me now.

We've been here you now it's like all right [laughter], that's something [laughter] technical difficulties I guess this will be the newly I life as Lee at work from home unparalleled al.

So I was wondering sorry, if I missed this early on did you guys quantify what you thought the Escondida Ed.

Net benefit our are kind of.

Impact one quarter for coal that I know, it's probably difficult there that maybe relative to plan. They thought some benefit obviously within the respiratory business, maybe a little bit.

Meaning within the broader chronic health.

Got a little then to offset the impact any anyway to quantify that.

Yes. So a couple of things one is we were feeling that we were certainly comfortably on our plan.

Coming into the close of March for the first quarter and very happy and bullish about that obviously is the last two weeks you probably heard on call after call that change with elected.

Surgeries, but generally respiratory health is about a $4 million sort of ahead of expectations.

In the last two weeks and cruelly.

You know drought, where it's where we actually perform this procedures in the hospital outpatient department.

What was behind the about 2 million is sort of similar on on cues that kinda offsetting how would you always still were there or thereabouts.

On our on our quarter.

Generally we've said.

That we feel like that that kind of profile elective surgery is going to continue into Q2 start to come back.

In Q3 with the possibility of getting back to more quote may normal pre cobiz 19 elective procedure.

Volume in Q4.

Okay, and then you know last year you guys had tried to our we're hoping I guess I should say for an impressive payment for Coolief amnion.

Physician office is lot ambulatory surgery Center do you think there any hope I'm sure you guys are trying very hard, but do you think theres any real opportunity there now with what's just going on with cold it in and Jeff.

Yeah, maybe just this push to get more patients density planetary surgery centers just use the this kind of moment to identify and maybe some not that disparity to Medicare and maybe use this as an opportunity to kind of push some changes from a reimbursement standpoint.

I guess went when would be the next update that we could maybe.

I see that.

Actually changing reimbursement date.

Raised in the physician office and ambulatory surgery center for fully particularly if any.

I think it's an opportunity for sure we have a multi.

Pronged approach one is that the clinical studies, obviously that slowed a bit with code 90, but that's part of it.

We're currently in dialogue on regular basis around ambulatory surgical center reimbursement now for on Q, but also for the cool product I do think the tone, it's a different world right. So many things have changed.

The way that for example, the is working with people and CMS right now is completely different than it would have been you know just 345 months ago. So I think there's opportunity, but extremely difficult to forecast. The that's for sure in probably the second half of the year maybe into the falls, we could update a little bit further on successes there, but definitely we are going.

We're going after that strongly.

Okay, how many greedy like ranking ample mark.

Any.

Opportunity just from a restructuring perspective, and it sounds like you guys aren't making an effort from the cost management front.

Are you guys thinking holistically about you know something bigger and broader to from a pop perspective.

Hi, Thanks.

Dave there too early in the past that thank you. It's it's too early right now to be talking really kind of of the major program, but I would I would highlight that and certainly pick up on this if he would like to but we definitely have plans structural and cost the efforts.

That we're working on even above beyond the dollars that we talked about because if we just want to continually be after efficiency, but.

It's nothing that we would be announcing now.

In the future, we certainly when we're ready to do that would do that but Michael do you want to talk a little bit more about somebody just journal cost the.

Component.

Yes, I think Chris and the way that we thought about this initial phase is ensuring that were being prudent but also making sure that were not getting too far out ahead of it depending on the depth and the length of of the Coven 19 situation. So we want to make sure to your questions around coming back in elective surgeries and whether we can be active.

M&A getting after the ambulatory scenario, there's a lot of things that we can be very active on I want to make sure that we have the REIT structure and the right dollars available to do that.

At the same token we have also not been not the fact that if we get a second wave or thirdly.

That would go a little bit deeper into where we currently estimate our base plan to be and that would obviously trigger some additional cost savings initiatives that would lend itself to a larger restructuring opportunity above and beyond the types of things already talking about.

Perfect. Thanks, so much guys hey, thank you.

Yes, you do.

Thank you. Our next question comes from Robby.

So for any of our capital markets. Please go ahead.

Hi, good morning, Thanks for taking the questions.

I hope everyone's okay, just like everyone else, you're saying I have a question on international sales as it comes to respiratory Joe you talked about strength in that business.

Due to covert just just wondering how.

The awareness maybe of your products and portfolio, maybe increasing given that this is a global pandemic and how many some of the strength or weakness is that you're seeing in international markets as a result.

And then second maybe one for Mike If I heard you right did you say that kind of your cash flow or your cash position expectation is around 100 million.

Yeah that would be a pretty significant degrees from where we are today. So just if you could just walk us through the the drains on cash for the rest of the year that would be great. Thank you.

Thanks, Rob it's Joe what ill start and Mike will follow the cash a question, but generally you know we see.

International.

As a mid single digit type grower for us.

You know moving from the low single digit and certainly the awareness of close assumption would be use of ventilators is helping the who has published guidelines that you know at least these health care system should be using close assumption and we do have high share. So I do think theres opportunity internationally on the adoption level, but.

So probably for our core pet products incorporate the placement of the feeding tubes as well has become.

Theres a lot of awareness with all these codes 90 patients unfortunate.

Because of what's happening these patients and then obviously the deaths, but it has created an awareness for us that we'll look to.

Addressing it as we get through this I'm. So I think what it really essentially does just bolsters that longer term view that we have a mid single digit growth internationally, which is a key growth driver for us and our overall plan.

With that Michael I'll turn it over you for some of the cash discussion right and Robbie. Thanks, a question on the 100 million to have a chance to clarify that point, which is only in the most bearish of cases I would we see anywhere near that.

The point of that number was that we would not be meaning it was a demonstration of non means to go into the revolver. The reality, though is even in that most bears a page back to Christian christened point, we would be enacting other cost savings and restructuring measures. So the 100 is our most bearish case and not doing any other cost savings initiatives.

I was just to demonstrate that there'll be no need for us to tap the revolver under any sort of liquidity scenario.

300 million would not be necessarily a real number because we wouldn't act not that we have the plant necessarily already to go yet, but we wouldn't act by back half year meaningful restructuring and other cost containment measures that would put us well north of 100 million even in the most aerospace.

Great. Thanks for that detail and then maybe one last one on on Q and supply issues. Just a are you can you give us your kind of latest take on anything that may be seen there. Thanks.

I mean.

On the positive side, we do continue to see sequential improvement was the with lighters and customers coming over we've converted some larger accounts.

As well and we're happy with what we're seeing with some of the initial opportunities with summit, which was our acquisition of electric.

Tom.

We see now as we talked about a little bit earlier in the call we're going to be that business. So has come down significantly with elective surgeries and we'll build up over the course of the year.

But our but our strategy there of stabilizing and then enhancing our electric profile then moving to breakthrough.

You know with our internal R&D remains intact.

Thank you next caller.

For the question is masking machining of Keybanc. Please go ahead.

Great. Thank you for taking the questions and <unk> I really like this free for all that will happen in Q1 day, we might the overlap.

All right [laughter].

Well, we gotta have something to do math you right [laughter].

[laughter].

Just first off most of the other companies have been able to give does tend to come out.

What April volumes have looked like I think you said chronic care what was fairly normal and out can you give a sense of what what does the the base.

Oh, you know pain management volumes were and on kids versus versus versus Cooley.

So that we can kinda give a sense of where we go from here getting that April the bottom.

So a couple of things a unit Michael me when I mean, when you have been to exist chance for him to talk about some of his baseline forecast, but what we've seen in April is pretty much align with the based forecast that we have you know most of our product gear as expected with a bit more obviously.

Respiratory health.

And at the same profile in April really for the last two weeks in March for the pain business, which as you know as much as you know 75 percentage off in a in Coolief.

Similar but on smaller base.

To on Q, but the difference in April is a we've been serving our customers directly as you can imagine talk to them quite a bit is the discussion about coming back and we may see some or some early bounce back but low numbers.

You know in that in in May and June, but then really expecting the fourth quarter to be more where you get to a sort of us somewhat normalize or close to what was a normalized projection for electives, but Michael is probably a good opportunities. They wanted to think about your base scenario.

Yes, just add to that that that April as you noted.

Hopefully be the the deepest part of the quarter, but we do anticipate may and June to also be fairly deep although with increasing.

You know improvement on two fronts one.

Filling some of the back orders from our respiratory health business that we've accumulated with some large orders that have come in both internationally and domestically and then to Joe's point electives hopefully starting to show themselves as we get into May and June but the second quarter.

It's a deepwater it's going to be down no matter, how you slice it the trends that we saw coming out of the first quarter.

And in some cases accelerated into April but in line with to Joe's point inline with what we estimated so we feel like we've done a decent job looking at what those trends look like how they can worsening.

Okay, and we're looking at May and June optimistically number standpoint that second quarter is going be any any sort of great shakes from a total number standpoint, but starting to see some improvement in areas that have been down for 567 weeks consecutively.

That's a <unk> that's actually very helpful. Thank you very much Mike on on that one and then just on the close suction catheter yeah.

The way you could help us kind of size, what what that would be as a percentage of sales or as a percentage of respiratory for you guys and also I think it it seems like everyone is making no ventilators today from from test the general Motors the getting below so that there are a lot of ventilator being laid out there is your solution.

On a universal solution that would work with <unk> across the ventilators and also work across lower cost solution.

That may transition, you know potentially into the emerging markets.

So what we did say that was that in Q4, you know we thought respiratory health was about 4 million ahead of experts of expectations and we have a fairly significant backlog its little early to tell about what kind of long term effect vis vis may have although I do think there's some positivity.

The guidelines in the recognition of the importance it does work across.

All of the the the ventilators Ah so that the product can be.

Used for each one of the ventilators.

Natural production is about two thirds of the overall respiratory health business.

Yeah.

Okay and.

And then a laugh when I work, either I won't be the phase I won't be the free for all.

If there.

[laughter], where.

Awareness among.

Orthopedic.

Peter how much orthopedics.

Around Cooley.

To the point, where they have patients who may be hesitant to come in and get a total knee. They say like listen I want to put it off potentially for a year until the situation evolve is there enough is enough awareness to the point, where you can go back those are things and say well. This is a good solution for somebody who may want who may want to wait until that.

Equation kinda resolves itself and you should potentially consider doing coolief procedures on more hesitant patient.

Yeah, we've been working with orthopedic surgeons and the Academy and they're involved in a lot of what we're doing longer term.

On reimbursement and to your point I do think they see it as a.

Right technology, they would use instead of how we're on a gas it with a better outcome and as a as a catchment. If you will four pages. The folks that are using an hour and a gas at indoor fully or a different state. They ultimately will need a total knee repair, but they definitely viewed that way.

Thank you very much.

Uh huh.

Thank you. Our next question comes from Chris Cooley Stephens incorporated.

Please go ahead.

Good morning, everyone. Thanks for taking my questions I wanted us to this on the over here I guess.

[laughter].

Yes for me at this point just doing a loss at the outset I just wanted to get some clarification you mentioned that to TESTOPEL franchise started slow but was ramping and just kind of one of them.

At a better sense again for the baseline of where we're starting here in the June calendar quarter next kind of rough expectations as we flow through the back of the here.

And then maybe just as a an offshoot of that.

And it was asked I think a couple of different ways. This morning, but overall hearing on various calls about non essential personnel.

Being allowed.

Anywhere near the Doctor's office or the hospital, where seed improve productivity look sales force.

No travel just curious from a big picture perspective are you seeing things structurally in the way that you go to market.

That you think will further enhance the middle of you know not so much just from a cost cutting initiatives, but just.

Changes fundamental changes to the business and I realize it's early but you know that you might be able to just opine on a little bit there for US here. This morning, I guess total round out the the hour. Thanks, so much okay. Okay, Chris a there's not really been any fundamental fundamental change into just the health and we see it as a global mid single digit grower.

We definitely have variability quarter to quarter on the trace is the underlying trace sales or our mapping with what we would expect them to be one thing you may be seeing in January February I think some of the other companies were talking about a distributor building and really a lot of different categories.

I think if we added new met in.

You know a year over year, we've been more level ish or in the in the quarter in total and do you we are dealing a little bit with the bounce back in Q3 from the <unk>, you backlog situation, where folks over or a bit.

Q4, but we don't really think feel like there's been any.

You know a fundamental change in that business and that's also why we continue to make acquisitions like Numit I do think your onto something on the future Upsales interactions obviously been very different regionally you know some help your says or acquiring testing in P.D. and in some cases, they want and that our procedure.

You want them, others are moving more towards remote.

Type of interaction we've seen over the course of the past couple of weeks a lot of opportune do virtual education, reaching a broader group.

Physicians in areas that were that we're focused.

I do think that it will have the opportunity in the future too.

Huh.

Segment, where you need to be in one person or on a procedure versus where you have an account that really is just as well educated or adept at the procedure and can deal with the.

Medical device company more through telephone conversations or you might be face time or video conferencing. So I do think there'll be some efficiencies in different models in different ways that beyond social media you can.

Yet adoption and take a product to market and so we're looking at that.

As well so I I agree with you I think there will be opportunistic there.

And Chris just to just to summarize a little bit has just after a couple of <unk> earlier question.

Our initial.

Attempt at looking at our business over the last handful of each was really about liquidity solvency near term moves that we should be making to ensure product supply, especially around respiratory for those that are suffering from this disease and that was our kind of phase one. These other questions around how do we get.

Back in the market are there new go to market strategies. Those are definitely things that we're looking at not just because of what we've seen over the last five six weeks and as we see as things start to open up whether it be around elective procedures or other areas, where those procedures will be done or how productive we can make sales.

Organization sales and marketing with new strategy, but just overall, what we learned last two and a half years as a company as we've embarked upon this pure play med devices that broken into pain management.

And chronic care and so there's a lot of great learnings that we've developed and they've been heightened by those learnings in the last six weeks and so the Joe's point there absolutely things were going to be analyzed but its first few handful of weeks here has been about ensuring that weren't as good.

Offensive position to be and as we entered the back half a year just to clarify the two different ways. We thought about this early on.

Thank you so I wonder if I could squeeze one last just clarifying question in with the carriers Act is that retroactive or do we see that implemented.

On a rolling basis here in the June quarter, only thinking about the deferral payroll taxes I'm, just wondering about how to how to treat that as I was on model going forward as well.

Thanks, again and say well.

Go ahead, Mike on the payroll tax.

So I repeat that question again.

Yes, certainly it just in terms of the deferral of the 2020 payroll taxes.

Payment.

Does that is that kicking in now in the second quarter or was it.

Maybe we on a retroactive basis I'm, just thinking about how to model that.

Into Twoq you in enrolling forward, yes, I 7 million that $7 million for the full year and we would have to pay that back during 2021 or 2022 that being said our determination of one we pay back would be determinant upon.

Our tax filings and and we don't want to lose any sort of deductibility that may be available. So.

We will differ through the duration of 2020, it'll be about $7 million and then our determination of payback and 21 in 2002 as Jimmy totally determinant upon permanent ability to deduct some of those taxes.

Thank you stay well.

You do.

Thank you next question from David Lewis with Morgan Stanley. Please go ahead.

Hi, This is Matt I saw on for David Thanks for taking my questions today I want to thank you for any commentary you gave back on what you're seeing in procedures versus the past five affect me I'm. Just curious if he would be content thing that you've seen a try a elective procedures are itself too early to really make that conclusion.

And then secondly are you seeing any demographics that 450 procedures that maybe coming back in May and June whether that I care setting or by reading any that's not pilot be great. Thanks again.

I'm, Russia I do you think it's early days.

To predict some of these things because of the unknown on further surges or what happens in the fall, but I will say that are.

A question with customers that dynamic is changing and with our sales channels are starting to talk about plans to come back and we are seeing that into your point, it's a bit at the moment more regionalized. So for example areas like Texas and some of the southeast.

Opposed to California, and there and the northeast and generally on the just what types of procedures. If a procedure can be done in the ambulatory surgical center then it looks like it's just coming back sooner.

Or areas, where you know there's still some.

Healthcare systems, though no they're not all the same there that they're looking at more urgent type of surgeries and sort of how they're going to stack those but certainly the hospitals and the surgeons are focused on needing to get back to work themselves and obviously there are big revenue sources for the hospital.

Okay, Great and then just a quick follow up I know, we're coming up on the our you touched on earlier, but just want to ask if you could quantify any of the cost savings that you just got into cool weather I mean, you're.

Modeling OPEC and any other greater detail for his comments earlier not that for me. Thanks.

Okay. Michael I'll, let you go ahead cover some that you'd like it yet we're not going to lay out specifics on those cost savings out right now because we may be adding to them is as the year goes on I mean, maybe adjusting them.

So that the categories are still relevant out of dollars, maybe shifting they are meaningful though and again they support the primary focus of their support is on cash preservation.

Thank you. This concludes our question answer session.

I'd like to turn the conference back over to Mr., Joe Woody Chief Executive Officer. Please go ahead.

Thank you Nick and thank everybody for your continued interest in Albinos, while cobot 19, and its pandemic is presented unexpected challenges to our business I'm confident the team is going to continued rise to challenge.

Were taken as you heard down the call prudent access to preserve cash and maintain our strong financial position I think this coupled with our are clinically proven portfolio and the markets that were in gives me a lot of confident about our financial position remaining strong so wish everybody a good weeks day healthy intake. Thank you.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.