Q4 2020 Earnings Call
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Joe the winter with Investor Relations. Please go ahead.
[music], Thank you Ted and good morning, everyone.
On today's call me I want Rosebrough, our president and CEO, Mike till gets our senior Vice President and CFO and I do have a few words of caution before we open for Cameron.
This webcast contains time sensitive information that is accurate only as of today any redistribution retransmission or rebroadcast of this call without the expressed written consent of Steris is strictly prohibited.
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Many important factors could cause actual results could differ materially from those in the forward looking statements, including without limitation those risk factors described and Theres a securities filings.
The company does not undertake to update or revise any forward looking statements as the result of new information or feature that heard about.
There's a SEC filings are available to the company and on our website.
In addition on today's call non-GAAP financial measures, including adjusted earnings per diluted share.
Operating income constant currency organic revenue growth and free cash flow will be is.
Additional information regarding these matters, including definition is available in today's release.
Along with reconciliations between GAAP and non-GAAP financial measures.
Non-GAAP financial measures I presented during this call what the I'm trying to providing greater transparency to supplemental financial information.
Used by management and board and their financial analysis and operational decisions.
But those cautions I will hand, the call over to Mike.
Thank you Julie and good morning, everyone is once again my pleasure to be with you. This morning to review the highlights of our fourth quarter performance for the quarter constant currency organic revenue growth was 8% driven by volume at 50 basis points a price we continue to experience strong underlying growth from our customers at success with new products.
The total a $14 million for tuck in acquisitions is included in constant currency organic revenue growth, primarily in health care products spread across capital consumables and service.
Given the timing of our your AD. We were fortunate to have had a relatively limited impact on our business due to cope with 19 during the fourth quarter. We estimate that revenue was negatively impacted by approximately a net $10 million.
Gross margin for the quarter increased 60 basis points to 44.4% and was impacted favorably by price productivity at somewhat offset by higher labor costs.
EBIT margin for the quarter was 21.8% of revenue a decrease of 30 basis points from the fourth quarter last year due in part to an increase in expenses related to higher incentive compensation related to our strong performance and an increase in R&D spending.
The adjusted effective tax rate in the quarter was 17.3%.
This includes the benefit related to stock compensation expense and other favorable discrete items.
Net income in the quarter grew 7% $240.5 million at earnings per share increased.
To $1.64.
I do want to take a moment to discuss our segment changes announced in yesterday's press release, we recently made some key changes to our management structure and reviewed our go to market strategy, focusing on our largest customer group health care providers.
These changes include realigning the management of our operations to better serve our health care customers.
Effective April 1st and consistent with away management is now operating and doing the business. The current health care products and health care, especially services segment will be combined and reported as one segment simply called health care.
We haven't included a recast of quarterly results for fiscal year 2020 in the press release to assist you with your modeling.
Our balance sheet is a continued source of strength for the company, considering our cash position of $319.6 million access to available credit lines.
Leverage ratio below 1.5 times debt to EBITDA.
We are well positioned from a liquidity standpoint.
During the fourth quarter capital expenditures totaled $60.9 million, while depreciation and amortization was $50.9 million given the uncertainty of the impact of Cobot 19, one of the first steps we took what's the pause capital spending where we could during the quarter.
Free cash flow for the year exceeded our expectations due to lower than planned capital spending and a reduction in working capital primarily driven by accounts receivable with that I'll turn the call over the wall to for his remarks.
Thank you Michael and good morning, everyone.
Before I get into our performance I would like to take a moment to express our gratitude to the health care providers on the front lines of this pandemic.
These are unprecedented times and the challenge and challenges facing those caregivers had been unexpected and monumental.
I'd also like to thank our people those out in the field and those working behind the scenes in our factories labs offices and increasingly from their own homes.
They're busy working to support those caregivers with essential products and services.
Crest with the way our team has come together during this crisis, helping our customers and each other.
Fulfilling our mission to create a healthier and say for world.
It's steris, we have it's clear long term approach to running the business.
Customers come first.
Followed closely by our people.
If we do our jobs well for those two groups. We believe we will deliver above average returns to our shareholders.
This philosophy has successfully guided us through several significant challenges over the last decade plus.
And we are confident it will see us through this pandemic as well.
We have chosen a strategy to focus on what we believed to be growth there isn't health care procedures vaccines biologics.
Well, we're not immune to the downturn in procedures, which we believed to be temporary in nature.
We have developed a nice balance to our business in terms of exposure to these areas and a good mix of occurring in capital equipment revenue.
Finally, we have employed lean techniques and had been insourcing and onshoring to better protect our product and service supply chains from within a decade.
Improving quality delivery reliability and cost.
As a result, we have had a long term positive run and so far our business has fared comparatively well amidst this significant disruption in the global economy.
The fiscal 2020.
It is safe to say, we would be celebrating this phenomenal record breaking here. We just completed were it not to defend a pandemic.
We broke the 3 billion revenue Mark for the first time joined the S&P 500.
Very strong growth rates in revenue and profitability ended the year with a very strong balance sheet and would have been looking forward to another record year and repeat of solid growth performance in fiscal 2021.
This puts us in an enviable position to face the challenges before us today.
Revenue in fiscal 2029% as reported and 10% on a constant currency organic basis with solid growth across all segments.
This performance was a result of investments we've made in all our businesses as well as the benefit of approximately 100 basis points from small tuck in acquisitions, mostly in health care products.
All right U.S.T. segment led the pack growing constant currency organic revenue, 15% for the year.
As we've discussed all your this segment has experienced increased demand from our core medical device customers.
Demand will be strong in the long room in our view and we plan to continue investing in this business in fiscal 2021 and beyond.
We currently see continued growth in those DST facilities, a process for pharma for PBC like gallons of gloves and for personal use medical devices for the home setting like insulin pumps and blood glucose monitors.
We have however began to see declines in time deferrable procedure related devices like orthopedic implants.
Sectors to be a relatively short term phenomenon, that's health care providers begin doing these procedures again.
[noise] healthcare specialty services had another outstanding year growing constant currency organic revenue, 12% despite difficult comparisons with the prior year.
We continue to see success across our spectrum of off offerings in U.S.
Specific to the fourth quarter impact of Cobot 19, while our outsourced reprocessing business has been impacted by a decline in procedures are instrument repair business was relatively insulated as many of our customers took advantage of the downtime for more comprehensive maintenance of the restaurants.
As you might expect we saw significant year over year decline in the last week or so marching into April due to the reduction in non essential procedures across America.
Life Sciences had a better year that anticipated growing revenue, 11% on a constant currency organic basis.
Capital equipment sales in this business followed a typical lumpy cadence in fiscal 2020, but our full year growth was 10% which exceeded our expectations.
In consumables, we saw high single to low double digit growth all year with an upward spike in the fourth quarter at least partially due to covert 19.
Some of our pharma customers appear to have stocked up resulting in 26% growth for the fourth quarter in our life science consumables.
We continue to see strong growth in April, but we expect orders to return to a more normalized level in coming months.
And finally health care products also had a strong year with 7% constant currency organic revenue growth against challenging comparisons to fiscal my team.
Organic growth continues to stem from new products, particularly in an infection prevention capital equipment and consumers franchise.
In addition, as I mentioned earlier.
This is the segment with the most significant impact from a half a dozen or so tuck in acquisitions this year.
Which added approximately 200 basis points to our annual growth.
Offsetting the acquisitions health care products experienced the most immediate revenue loss from covert 19 pandemic, particularly in endoscopy products.
For the fourth quarter, the positive impact of acquisitions less the cobot related reductions combined to essentially offset each other in this segment.
[noise] adjusted operating margins for total Steris in fiscal 2020 increased 70 basis points to 20.7%, reflecting improved volume and gross margin expansion.
Adjusted earnings per diluted share for the full year were a record $5.64. The high end of our recent expectations and represent 15% growth of over fiscal 2019.
We are very pleased with these results, which in addition to a solid balance sheet position us well for the future.
As you've heard for many others the impact of Cobot 19 remains fluid, making forecasting revenue and profit daunting at this time.
We're not for the pandemic, we're confident we would've been comfortable at the high end of our traditional revenue growth rates of 4% to 6% for fiscal 2001.
The impact of covert 19 to Steris will depend on the linked and severity of the pullback in health care procedures offset by the areas of our business that are not impacted or experiencing increased demand.
In lieu of quantitative guidance, we will share a qualitative views and expect to revisit guidance as the your progress.
We are fortunate that our business is as diversified as it is across our medical device pharma and health care provider customers, which we believe will be a source of strength in the coming on some quarters.
Even during the great recession overweight or nine our worst fiscal year revenue decline was 3% and you may recall, we had a few other things going on at that time.
That decline with spread over three quarters that happened to be in different fiscal years.
If we look at calendar 2009, it contained out for worst consecutive quarters of revenue declined during the downturn.
This period combined the health care spending uncertainty of Obama care, beginning with the economic impact of degree recession.
And our revenue declined about 5% for the year.
The preponderance of that decline within capital equipment, and we were more capital equipment heavy at that time to me are today.
As I mentioned earlier, our business, it's relatively well so far.
In the month of March we experienced modest declines in our health care business somewhat offset by neutral to positive performance from life Sciences Nasty.
In April we saw a stronger declines in health care with neutral to positive performance again in life Science and Asap.
This resulted in a total steris revenue decline of less than 10% for April 2020 versus April 2019.
On a positive note, we're beginning to see a return of procedures.
While we expect this returned to be gradual early on we are encouraged by the discussions we're having with hospital leaders.
Similar to others in our space, we anticipate ramping back up to more normalized levels by the end of this calendar year.
Possibly sooner.
Given our financial strength and our expectation the procedure volumes will start to ramp back up in the coming quarter. So.
Our underutilized people are on standby ready to meet customer needs.
We have not instituted layoffs, although some on short term paid furloughs.
At this point every one of our people is being paid their basic salary or regular wage for normal working hours, whether they are working full time or not.
As long as they're available toward full time.
We believe this was the right thing to do at this time and will help us support our customers as they ramp up their procedures to normal levels.
We have highly skilled and committed people in our organization and we want to maintain and grow that skill set.
We hope to be able to continue this position until business resumes to more normal levels that would take it week by week and we'll adjust as appropriate.
We have taken some actions to protect our near term cash flow from the slowdown.
These include implementing a hiring freeze for most positions.
For executive wage increases canceling significant travel events restricting routine travel and deferring capital expenditures, except for strategic growth capital.
For the most part our plants and service operations have been and are running to support our customers.
We have had limited shutdowns of some facilities in summer operating below normal capacity.
We continue to invest in R&D at our normal levels and intend to continue strategic growth capital spending, particularly in Asia as to an outsource reprocessing.
We continue to believe that these investments will pay off in the intermediate and longer term.
As Mike mentioned.
Our strong balance sheet remains the strength of the company.
Our capital allocation priorities remain unchanged.
We plan to continue paying dividends and to invest in our businesses to drive anticipated future growth.
M&A activities have become more selective and deferred due to the lack of visibility for near term expectations.
But we continue to evaluate opportunities.
And lastly share buybacks have been discontinued for now even those to offset dilution for executive compensation.
As you know Steris is an essential business supporting health care, we're very fortunate to be in the business, wherein and they're being a strong financial position.
We need to be nimble and ready to support our customers as clinical procedures restart.
We're very pleased to be able to provide some relief health care front lines with solutions to listen Vac Hospital respirators during this crisis.
We continue working to enhance the long term value of your company as rebalance the short term impacts of the pandemic with our longer term opportunities.
We believe the future for Steris is bright and thank you for all of your continued support.
I'll now turn the call back over to Julie for Q.
Thank you Mike and route for your comments Ted would you. Please give the instructions I'll get started on county.
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At this time, we will pause momentarily to assemble a roster.
First question will come from Matt Nation with Keybanc. Please go ahead.
Great. Thank you Evan thanks for taking the questions guys.
Less than the bulk of less than 10% decline for April seems.
Like remarkable given given your overall exposures.
Just wanted to understand a little bit more around capital equipment and and how your how some of your customers are art.
Our kind of handling the backlog as it does it does it reflect the backlog was up 10%, especially in health care products. It does it reflect orders that that had been pushed out but not shipped.
Like how should we be thinking about like new orders over over to like the last eight weeks.
Yeah, I mean backlog.
Has been is by definition orders coming in minus shipments going out and plus whatever was already there. So it does reflect all those kind of things. It's very common for us to have last minute push outs for a couple of weeks or a month because their projects are not coming through on time.
Yes.
Typically if you think about our capital business in health care, it's divided into what we called turn business or replacement business, where you just ordering a new table because you want one or because your other one broker a new light or something as opposed to a project where the renovating.
Major section of the operating room or central sterile Department.
And it typically that's 60, 40 split, 60% turn or replacement business and 40%.
Project type business.
Do you know we see this several times whenever hospitals become a bit uncertain on capital the projects actually the steels in the ground keep moving forward because once in the steels in the ground they need to finish the project cost them too much to slow down or stop.
On the other handle the turn business tends to slow down little bit until they.
Get more visibility to what is going on and so that's a typical thing that happens in an economic slowdown for the for hospitals not necessarily the.
General economy, but the health care economy.
We saw that well we've seen it many many times when the hospital for under some kind of financial constraint or financial pressure. If anything we would expect to see something similar we have not seen that today, we've not seen.
Significant pushouts significant.
Cancellations are super where we haven't seen any cancellations.
[music].
And actually orders.
I have replicated last year for the last couple of months. So we have not seen a change in order pattern.
Having said that since our reps can talk to hospitable people face to face. These days I would anticipate seeing an order slowdown.
Here of the next month or two.
Three it takes time for orders to occur.
But the question is what's the magnitude that slow down and the good news is we had extraordinary backlog as you said so at this point.
We can produce the backlog assuming those orders.
We usually do not.
We're in pretty good shape for a couple of months. After that then we depend more on the incoming orders that we don't have a great deal of visibility to that yet.
And hospitals in a period of on certainly there's been a lot more time worrying about hallahan handled the go with that doesn't make right now than what their capital equipment orders are the next couple of weeks.
Okay. That's it that's very fair.
And then just shifting over to the S T dynamics.
I think you're clearly outpacing industry volumes I'm, just trying to understand our.
Oh, yes, you're moving away from enforcing the service there given the regulatory environment and then also they want to more of a comment that struck me I always thought this was more of a med device sterilization business can you break down the difference between med devices farm exposure and and I see.
Yeah it.
Your you stated it correctly it is a bad device.
Business that happens to also do some pharma and some other things, but the preponderance of the business is med device, but med devices have various roles again, a big big piece of it.
Things like.
You know hip hip replacements, and me replacements and implants for replacements I should say.
And for.
You know pacemakers and things like that so there's a big piece as you might expect our implantable devices and that's because they have to be sterile third implanted.
Having said that there are other components, we generally don't spend a lot of time talking about the there are other components the kind of travel with those big pieces normally.
That is surgical gowns and masco things like that.
May need to be sterile and the sterile versions, we do process those as well, but in a normal environment that travels.
Consistently with procedures as you might expect right now.
Gowns and close a mass are not traveling with procedures are traveling with Goldman and so we're getting what I would characterize is extraordinary demand increase in those spaces Ed.
And that's that's where we see the split people doing that and then also things like the diabetic supplies and other things that are more home based.
There are still medical devices, but there are more home based medical devices chronic devices. If you will as opposed to procedural devices.
Those devices or also seeing a little bit I think its consumer pull forward. If your diabetic your anxious about making sure you have supplies at a time when there's a lot of things that are not very sure and so I think we're seeing some pull forward of people stocking up a bit in diabetic supplies, whether they will compete.
I knew that stock up or how they use it.
Downward if you will.
Is unclear and then of course that space, it's just a rapidly growing space anyway, because the innovation.
The diabetes companies have had in terms of monitoring.
Monitoring and having the closed loop insulin system. So.
Space of the fast growing space anyway, and now it's a little bit faster because of people stocking up a bit.
Okay.
And then last one for me.
What can you just illustrate how starts can support like a ramp in vaccine production you know what products in life Sciences.
Would would be supportive of that.
And how you could potentially shift manufacturing capacity.
Yesterday. This is Dan Christie and what I would say is you know in life Sciences, our products in particular around our consumable offering is highly focused on maintaining a septic environments.
And that that type of offering lends itself very well to vaccine production.
It's one of the areas that we've had focused on historically you continue to focus on.
And we stand ready to help our pharma customers as they look to ramp up to ensure that they can do that production and the proper aseptic manufacturing environments.
Alright, thank you.
Our next question comes from Chris Cooley with Stephens, Inc. Please go ahead.
Sure just taking the questions congratulations on the record year just two for me.
Wall or Michael if you want to maybe address the combination of health care products and Dhss Division at this.
Curious if you could give us some additional detail there how we should think about that combined entity going forward X cold. It 19 from both a growth and margin profile assuming that there's some.
Benefits that you anticipate on getting there so I would like to get some color on that front and I'll. Just go ahead until my second question and now as well.
In your prepared remarks, you alluded to being comfortable.
[noise] X cobot 19 with the high end.
Of the.
You know historical growth range of 4% to 6% in terms of organic revenue growth.
I would appreciate just some color about the components of that.
<unk> side.
I mentioned several times that as we started doing this work in America, we found out that it doesn't and not surprisingly doesn't.
Work exactly as it does in the UK and so we've continued to experiment and we have a number of different approaches to the market that we've been working with many of those people.
People, who are in or I.P.T. business, which serve the same set of customers.
Are extraordinarily useful in bringing together.
Also as you might expect if we're running a C.S.D.'s. They typically have stereo equipment steris products in them and so.
Integration.
Of that.
Products that we thought was.
Was worthwhile so.
All of that business is now under in turn the commercial side of that builders is now under the same individual who handles the the historic Steris capital <unk> business.
North America, and the same as true in the rest of the world. So we've combined to the commercial operations around the world and we do believe we gain.
Actually we transfer the stairs credibility.
From.
At the commercial level at the working commercial level, another still different sales forces and skill different.
Local management groups, but they're all under the commercial head.
And we've actually move some of the products amongst the businesses.
In terms of the.
Business unit leaders to get them in the appropriate places and so it just now I very much combined.
Set of businesses.
And and as a result.
It's harder and harder to know where the revenue profits really coming from and really going to.
So we thought it was logical to combine those those businesses, both organizationally and the way, we're managing customers and it's all the same customers that if you look at our three businesses.
We have historically continue to organize backwards from customers in so our life science businesses organized around largely pharmaceutical also research are.
Hey, as T. business organized around met devices, and our healthcare businesses organized around hospitals and every three surgery separate type places so.
That's the the logic.
Even the historic <unk> business.
Of.
I am mess.
We called I, amassing have called Health Health care specialty services, you know that was kind of two basic product lines.
Most of the business the one being outsourced resource outsource these source outsourced re processing centers.
<unk> if you will.
And the instrument repair and the instruments being repaired are a lot of the same type of businesses are instruments that.
Are you <unk> like it so there's interface between those so not only is that true of the R.C. type businesses, but it's also true of the in the ASCII type product line. So.
We have.
Put those together I don't know that we will see radical changes in cost. This is not a cost reduction move there may be some minor opportunities really it's about.
Continuing to ramp up.
The efficiency of the revenue generation in those businesses that were after.
So I think that's pretty much answer the first question again, that's now we did that a couple months ago or three months ago now maybe and it is a global.
Organization very smooth, it's not a lot of change and people are changing management structure is just the way that they are reporting up through those businesses now.
Your second question was I've now forgotten since I answered the first one to make me a quick help.
Oh happy to that was we should all the tail. There again, just you're prepared comment you alluded to X. cope at 19, you would have been comfortable with a 4% to 6% organic growth.
Arranged historical range, but at a higher end of that range.
Yeah, just was hoping you could maybe give us a little bit I call around the components that would drive you towards the upper end of the range with a little bit of emphasis.
On the A.S.T. franchises as you know there's been a lot of debate about the sustainability at least in a shorter term.
Kind of historical hi single digits organic growth in that franchised based upon the <unk>. Thank you.
Yeah that thanks, Chris from the reminder.
Yeah.
Like I said, we we are copper we built our business plan pre covert and so we are not only competent we are sure we.
Thinking about numbers in the high into that range and.
So very very comfortable there and specific to A.S.T. as you have seen as t. continuing to perform both in March and April for the quarter and going into April.
You know, we we are quite comfortable it would've been on the leading edge, if you will or the higher edge.
The businesses, we've been saying that for some time now.
We still think there's.
A runway for those higher single digit kind of numbers going forward absent covert makeover throws everything up in here. So.
I would not begin to estimate what our growth rate would be.
T for this year, but as as we come out of covert.
Feel comfortable that we're in strong position to do that first of all the the device that businesses are doing nicely.
And secondly, as we said before because.
A lot of this I'll call it supply uncertainty question.
That was going on even prior to the covert in South certainly now post.
You will see people that all things being equal would rather have.
Relationship with someone who can move things from planned to plant the plant inside their organization as opposed to having to move things from plenty to plant be to plant see that are crossing other people. So.
As I said this before.
I think.
Companies like stare are some there are other companies have multiple plans I think they will be.
In a stronger position given some of the supply chain things that have occurred glass six to 12 months.
Even stronger position than we were before.
Thank you say well.
Thank you Chris.
The next question comes from Dave Turkaly with J.M.P. Securities. Please go ahead.
Yeah second D. a congrats on the year is refreshing to get the release last night and see that minimal impact because it's certainly a lot different than your peers. So.
Grass there too quick ones for me you mentioned in H.S.F., you're adding capacity as wondering if you could give us a little color and exactly what your plans are and then.
Care products, you mentioned R. and D. up 11% I was wondering if you could just highlight a couple of programs and what what kind of investment you're making their tail. Thanks.
Yeah. A couple of response as you know we are particularly shy about talking about future products and treat investments in general we were happy talk about them generalized.
Pacific two are probably a little shy, but you know we continue.
The.
The product portfolio.
Enhancements that we have done across the business and you know we were in the you know double digit new products.
Every year in our health care business.
For a long time, now and I don't see that stopping so.
Just think continuation of that five developments stream.
Is a good thing and it's you know the same basic types of products that we provide today. So it's not that's not something like a whole new division or anything coming out, but it's just more and more products some of which are new ones on which are enhancements of our current product lines.
So, we'll just we'll be continuing that and if anything upping upping the ante.
The second area in the H. assess business as I mentioned, we found that there are.
More than one way to scan a cat in the U.S. versus the.
U.K.
Version, so we have multiple.
Types of thoughts around how we might help our customers with outsourced or c. type capabilities and those all require investment because unless we are just going into their facility and operating it which is a rare rare case.
Need to be adding capacity, that's the real issue.
Whether whether it is a constant capacity or peak capacity or other types.
Types of capacity ads, we need to be adding capacity and that takes capital investment so.
That is that's what we're talking about it's largely to say outsourced R.C. at but you have to think about that kind of his brothers context.
That's the capacity we'd be adding.
Thank you.
You bet.
[noise] again is from honor if you'd like to ask a question. Please press start getting one.
The next question comes from very cool with Raymond James. Please go ahead.
Oh, Thanks, good morning, everyone.
For I guess for <unk>, and and perhaps Mike could you talk a little bit I, just want to come back to to sort of what you're seeing in April and so I was wondering she could come back and give us some flavors for.
Various business segments have those were behaving.
In April.
<unk> March to get you to that sort of.
Kept up you know sort of 10% decline versus a year ago as you talked about and now I'm assuming that that includes some of them to pull forward dynamics that you talked about.
Second question after that.
Yeah sure. This interest you and what I would say this you know between the three businesses.
In a nasty things were pretty much neutral disliked road.
Offsetting puts and takes between Ovid related products and highly elective procedure products being noun.
The life Sciences business was up significantly upcoming alphabet strong backlog and equipment and extremely high demand.
As it relates to our disinfectants and chemistries around cleaning.
And some of that Billboard we don't anticipate being sustained.
And then in general in terms of our health, our health care business on Capitol.
Yeah, those were already plan ships coming through we haven't seen a cancellation and it was normal shipping for the most art early on anyway in terms of our our consumable lines.
Load a bit but generally speaking.
That's.
Okay, just just to to clarify down the.
The the pull forward again, they talked about for example in diabetes in S.T.I. again, I assume that was sort of all wrapped into that that 10% number you were talking about for that for the business.
That's right yeah.
In terms of those products in A.S.T. is I guess, there's kind of puts and takes that got them to about neutral.
Okay, and then I guess you know just around you know one of one of the things I've been thinking a lot about is you know clearly hospitals are going to be in a very challenged financial position coming out at S., where all acutely aware of the negative mic shift that goes along with treating a a covert patient versus.
Losing a a surgical procedure and you know it certainly feels like.
Capital spending is going to be under significant pressure here forever.
Could it could be six 612 months, who who who knows but when when do you you know start to see or start to get some visibility on on kind of how that may impact your business it sounds like.
Whereas Walt indicated you know you haven't had a lot discussions yeah, you're wraps obviously aren't in the hospitals hospitals have been focused on treating kobe patients and.
Putting other things aside at this point, but when do you start to really get a flavor for how this may start to shake out in in the in the in the coming months here.
Yeah.
We've seen this movie.
I've seen lots of times since since 1982.
Hospitals get put under pressure.
The general move as they they continue to buy the things they were going to buy if you will that were already on the docket. They will put in a capital freeze.
And just not unlike we knew we put in the capital freeze, but it's it's a freeze, but it's not a freeze.
If they're in the middle of building hospital, they're going to build it if they think it's strategic they're going to do the strategic.
Builds and then they slowed down the replacements no one's stopped breaks.
They got a habit so that will they still did not like replacements stop completely they just slow down.
Oh, you know nine is a great example.
Oh, you know nine you know we had the combination as I mentioned the Obamacare.
Uncertainty and capital of Whores uncertainty and so there was a lot of uncertainty and then right behind it.
Window for short term debt froze up and many of the hospitals had finance their.
Long-term financing the short term debt because it was.
Very inexpensive to do so.
Literally they didn't have the cash and so exactly exactly what I've described happen they put on in general they put on Capitol freezes it slowed down a bit.
For a while yeah, usually what happens is.
It's like truly frozen for a month or two that's okay. Because we go through the backlog and then they start releasing this the things they really need.
It slows down a bit so I would think in the next six or eight months, we would see.
The impact and begin to have better visibility to the.
<unk> right now are pipelay visibility for the last four or five weeks who's been pretty much negligible because there's nothing really going on those conversations are not happening right now except for give me the stuff I've already.
I have anticipated.
Putting in place in my hospital so.
You know the next time, we talk I suspect, we'll be able to talk about pipeline.
Okay, Great and I guess I'll just sneak one more in just a quick way on the longer term view you know given any lessons learned from from this pandemic.
How do you think about investment into to S.T., clearly I understand that you've got an investment plan in front of you and you've been executing against that.
But do you think about it differently now do you do you need to sort of perhaps scale up more.
Capacity, then you've had in the past just again kind of thinking about.
As it come out the other end of this you know what what May change for you guys. As you think about investment spending.
Yeah, there as you know.
We're pretty bullish in this space and we like our.
Competitive position for the reasons I've described we have.
Very broad array of technologies, and we have the ability to help customers if something happens in one of their plants when they needed to go to a different plant or something happens in one of our plants and needs to go to a different plant we think that's.
A good place to be and the same with technologies to the extent you can move to across technologies, we have the ability to do that so we liked the business.
We take our plan is a solid one for the future growth of that space and we we don't see a whole lot a reason to be backing off of it you know we're we're pleased to have the.
Capital position that we have.
At this moment in time, the only reason will spend less capital in that business is because it's we can't get permits and things like that because the governments or effectively closed you know they're doing other things besides permitting.
You know building permits and things like that.
So you know that indoor construction company has not been able to provide labor whatever we wanted we want to do it on the schedule. We were doing it we see no reason to be stopping it takes US you know two years from the time, we start to the time, we can turn on the gas we don't see reasonably stopping gas right now in terms of shifting among.
Modalities I think we have that pretty well scope doubt I don't believe we have any great reason to change what our current plans were but we'll be watching that of course.
We've continued to add capacity radio.
The last.
12 months or so and then going forward and the bulk of that has been outside the U.S. just because that's where the business was not because of any other reason and we we will continue to beef up that space as well as.
Various radiation modalities.
Okay terrific. Thanks for the responses appreciated.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back up to Julie waiter during the course remarks.
Thanks, everybody for taking the time to join US today, they healthy and say well.
Thank you conferences no acquitted. Thank you pretending today's presentation you may not disconnect.
Hmm.
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