Q1 2021 Steris plc Earnings Call
[music].
Welcome to Steris plc first quarter fiscal 2021 called on webcast.
All participants will be in listen only mode.
Neither systems, please smokeable specialist.
Okay, followed by zero.
Oh, just today's presentation, there will be an opportunity to ask questions.
Yes. Good question in your press Star then one let me touch on so.
Well your question Please press star them too.
Please note this event is being recorded.
I would like to telecom scalable to Mr. <unk> Investor Relations Ms., what drove the floor is yours.
Thank you, Mike and good morning, everyone.
On today's call, we have Walt rosebrough, our president and CEO.
Mike Hogan.
Its present CFO.
And then Christine Cho, our Chief operating officer.
I do have a few words of caution before we open for common and management.
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 affairs is strictly prohibited.
Some of the statements made during this review our or maybe considered forward looking statement.
Many important factors could cause actual results to differ materially from those in the forward looking statements, including without limitation those risk factors described in Steris those securities filings.
The company does not undertake to update or revise any forward looking statements as a result of new information or future events or developments.
That is actually see filings are available through the company and on our website.
In addition on today's call non-GAAP financial measures, including adjusted earnings per diluted share.
Segment operating income.
I think currency organic revenue growth and free cash flow will be used.
Additional information regarding these matters, including definition is available and I really including reconciliations between GAAP and non-GAAP financial mattress.
Non-GAAP financial measures are presented during this call.
With the intend to providing greater transparency to supplemental financial information used by management and board of directors in their financial analysis and operational decision, making.
Discussion 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 our first quarter performance.
For the quarter constant currency organic revenue declined 3%.
By a decline in volume offset by 70 basis points a favorable price.
As a reminder, healthcare capital equipment revenue in the quarter reflects a onetime benefit of $15 million for change in the timing of revenue recognition.
You may recall that when we adopted the new rubber new recognition accounting standard at the beginning of fiscal 2019 or operating group integration capital equipment products recorded significant onsite system configuration during the installation process.
As a result, we were required to defer all revenue until installation was complete such that we haven't had the design of our all our product line, which allows for forcibly and configuration of the equipment at our plants before shipment and simplifies the installation process as well.
<unk> revenue is recognized based on this on the shipping terms consistent with other capital equipment products.
In addition constant currency organic revenue for the quarter includes a total of about $10 billion from prior year tuck in acquisitions, primarily at health care spread across capital equipment consumables and service. Excluding both of these items total company constant currency organic revenue would have declined eight per.
But.
Gross margin for the quarter was about flat at 44.1% I was impacted favorably by mix and price somewhat offset by lower productivity due to reduced volumes.
EBIT margin for the quarter was 21.3% of revenue increase of 180 basis points from the first quarter last year due in part to approximately a 5 million dollar benefit from the change in the timing of revenue recognition as I noted earlier as well as lower travel expenses compensation related costs.
And sales and marketing expenses.
The adjusted effective tax rate the quarter was 17.3% and includes the benefit of stock compensation deduction.
Net income in the quarter grew 6% 211.8 million at earnings increased to $1.31 per diluted share.
Our balance sheet is it continued source of strength for the company, considering our cash position of $255.6 million access to available credit lines and a leverage ratio below 1.5 times debt to EBITDA, we are well positioned from a liquidity standpoint.
During the quarter capital expenditures totaled 66.9 billion, while depreciation amortization was $49 million the increase in capital expenditures first the prior year is related to expansion projects within the U.S.T. segment.
Free cash flow for the quarter was 67.4 billion that increase over the first quarter of last year, primarily due to improvements in working capital and deferred tax payments on their government programs with that I will turn the call over the wall for his remarks.
Thanks, Mike and good morning, everyone.
Our solid overall performance in the first quarter reflects the diversified nature of Steris his business across our medical device pharma and health care customers.
Collectively our constant currency organic revenue declined just 3% well adjusted earnings increase compared to the same quarter last fiscal year.
Given the circumstances, we're very pleased with those overall results.
Health care.
Biggest segment most impacted by the reduction in Deferrable procedure revenue declined 10% with mixed performance across the segment.
Health care consumables were down 28% for the quarter, but we generally so monthly sequential increases culminating in near prior year levels by the end of June.
As we discussed last quarter, our endoscopy business continued to be one of the most impacted areas for steris, but it is following the same trend as the rest of consumables.
Service declined 10%, but also witnessed similar trends as consumable products with June returning to prior year levels in our equipment service business.
And healthcare capital equipment, which grew 6% in Q1 shipments continued from strong backlog entering the year as well as the 15 million dollar benefit and all right that Mike mentioned earlier.
I would add that this benefit in revenue also reduced health care backlog by the same $15 million as those shipments were recognized.
Even with that reduction we ended the quarter at $164 million of health care capital backlog.
I will just $8 million compared to the first quarter of last year, when the or I changed just taken into account.
And up $9 million sequentially from Q4 with the same adjustment.
As I've commented before we would not be surprised to see healthcare capital equipment come under some pressure over the coming quarters, particularly replacement equipment, some of which can be delayed by our customers.
Turning to ask tea, which serves medical device customers that business, whose revenue was flat with the prior year. This was largely the result of continued elevated demand for P.P.E. sterilization.
Offsetting a reduction in devices for the foreseeable procedures.
Once again, we experienced increased procedural device processing on a sequential basis within the quarter.
Life Sciences revenue grew 21% in Q1, as we continue to benefit from our pharma customers expectations for growth in vaccines and biologics.
Supporting that growth life Sciences consumables grew 34% versus last year, which is exceptional performance driven impart by our customers desire to build inventory.
Well, we would not suggest this growth rate is sustainable we do continue to see favorable growth trends what does business.
Our margin and earnings improvement reflected our success in spending reduction in particular travel expenses and variable selling costs, which will generally come back because our business has returned to normal.
In addition, as we discussed last quarter, we chose to avoid unpaid layoffs.
Instead, we placed our underutilized people on short term fully paid furloughs, some of which were partially subsidized by governments around the world.
We have tractor cost related to that decision along with other corporate costs about $9 million net of government subsidies and or excluding these items from adjusted profit in the quarter.
We believe that maintaining our trained and dedicated staff was the right thing to do and is helping US now support our customers as they ramp up health care procedures to normal levels.
Our full our furloughs have been reduced substantially as business has come back.
On another note we've continued to invest in R&D as originally planned and we expect to do so going forward.
As a result of these factors, we anticipate that our adjusted SGN, a dollar spend will rises business rebounds.
Since we last spoke to you in May we witness a turnaround in deferrable procedure volumes in the United States in Europe.
While the recovery is still region by region, and some cold and hot spots are occurring we have been pleasantly surprised at how quickly health care providers have been able to bring procedure volumes back.
Many of our product lines are now running flat to slightly up as compared to the prior year.
Although we may see some reductions due to cold and hot spots, we do not expect to return to a low levels of deferrable procedures experience in April and May as health care providers have improved their ability to combat the disease.
We believe that stances balanced business model will continue to be a benefit and remain optimistic that we're well positioned to respond to changes and uncertainties in the market.
Now changing gears a bit from our financial performance yesterday in our earnings release, We announced the addition of a new board member Chris Holiday.
You May know, Chris from his role as CFO at C.R. Bard prior to their acquisition by Becton Dickinson.
Chris brings a great experience to our board and we're happy to have the benefit of his insights perspective.
We also announced an increase in our quarterly dividends yesterday, bringing us to 40 cents per share per quarter, and representing our 15th consecutive year of dividend increase.
As Mike discussed our balance sheet and cash flow remained strong and we're pleased to be able to continue returning value directly to our shareholders through our dividend.
As you know Steris isn't a central business supporting health care.
We're very fortunate to be in the business, we're in and to be and strong financial position.
Our plans to be nimble and ready to support our customers as needed are already paying off.
We believe that our approach to managing through the pandemic leaves us well position to capitalize on future opportunities.
Before we open to questions, We express I respect and gratitude.
To the health care providers on the front line the pandemic around the world.
These are unprecedented times and the challenges facing caregivers had been unexpected been monumental.
And they continue to do remarkable work to this day.
We also thank the people of Steris, those working with our customers in the field and those working behind the scenes our factories labs offices from their own homes in this unusual time.
Our team has done a great job of adjusting to this difficult situation, while serving customers and their patients.
Our confidence in our strategic positions and operating capabilities continues to grow.
Well there is more uncertainty in the near term given the current situation both potential upside and downside, we stand ready to capture opportunities and mitigate risks.
We continue to believe that the long term future for Steris is bright.
I will now turn the call back over to Julie to open Tonight.
Thank you, Mike and a lot for your comments.
Mike If you. Please give me instruction <unk> get started with county.
Yes, well.
Get 'em, we will now begin the question answer session.
Yes. Good question in your press Star then one on your Touchtone phone.
If using a speakerphone, please pick up perhaps it before person the keys.
Any type of question husband, adjusted we'd like to drive the question. Please press Star then too.
This star then one to ask a question.
Oh, just pause momentarily to assemble roster.
On the first question, Rob will come from Dave Turkaly of JMP Securities. Please go ahead.
Oh, great good morning, well, maybe doesn't kick it off your.
I'd love to get your dog, you know given the customer base you have.
I'm sort of what the state of the consumer is today, meaning like patients for the hospital their attitudes towards you know surgery and going in I know you mentioned that monthly a you know your progression improved.
I just love to get your high level thoughts on you know.
Do you anticipate that continues ahead and have you noticed the difference in terms of the hospitals opening up the surgery said it did come back rather quickly.
Well the answer is certainly, yes, and I think.
The health care systems around the country and around the world.
I have done a fantastic job of assuring.
Patients that it is safe to go to their facilities for procedures in there they've done a number of things done that in a number ways I don't know if you happen to have been into.
The hospital or surgery Center recently I have.
And.
The precautions that they're taking our fantastic.
Both with their own staffs and with the.
The patients who are coming in visitors no longer come in so.
Taking care of that problem pretty pretty straight forward Lee.
There are all kinds of methods of debuts in and again, we're talking to him all the time about this of course my understanding from speaking with a number of them as it.
The kind of the.
Patient or potential patients.
Number one factor in making that decision is their physician and so they they've done great works you outreach using their physicians to and their physician offices to.
Give outreach to the patients reassuring them that the hospital, maybe one of the safest places to be as opposed to.
All kinds of other things that people are doing.
On the country, which is what's causing cope with the be spread so.
I think the facts bear that up a they've they've done a great job with PPV, we know a number of of a physician groups, who have extraordinarily low amount of colder in their own staffs, even though they are actively involved heavily actively involved in covert patient. So it's both.
The work they've done to make their places safe and the a halt the marketing, but its marketing to let people know that it's safe to return, it's largely the physicians doing that not the facility so much.
The other things they've done is.
They have moved more and more procedures into spaces, the patients feel more comfortable so in the ambulatory surgery centers and other types of centers like that as well as the standard operating room. So I mean really it's it's pretty miraculous the work they've done.
Last two or three months to offset this significant.
Concern among potential patients.
And of course, you know the tapas areas, where the places like New York City that were overrun early.
And it's been I think somewhat easier in other spaces, where we didnt see that level of burden on the hospitals.
Thank you for that and had a quick follow up hurt for Mike. The 15 million is is that the last we see that or is that something I know you mentioned it was from at 29 can change, but it does that happen again in the future is that this is that done now.
That is a onetime.
Adjustment that we had so we are we our final at this point in time, you will not see that again.
Great. Thanks, so much.
[noise], David only to the extent that that business grows the growth will come quicker just because the revenue is recognized quicker, but there's not a.
If you will pull forward like effect.
Got it thanks.
Next let Chris Cooley, Oh Stephens, Inc.
Thank you. Good morning, appreciate you, taking the questions and congratulations on solid quarter there.
Maybe if I could let's take a little bit of a look at the margins for my first question on both life Science, Susan I S T and appreciate the commentary Walt the.
You saw some stocking of consumables in particular in life Sciences.
You hit a record gross margin there in life Sciences, a 41%, which is really India will.
Help us think a little bit, though about how that business may have shifted structurally.
Such that as we start to see some normalization there in consumable purchasing patterns.
How we think about that operating margin.
I guess similar to that little bit of a taper [noise] and they S T which is to be expected with.
The shifts more towards PPD in some instances, but is that something that we should think about lingering throughout the fiscal year and kind of slowly working its way back out or is that something that.
Let's start to reverse itself, maybe more so in the second half of fiscal year, just want to make sure. We're thinking about the margin contribution correctly I've got one quick follow up.
Okay, Hi, This is Dan Chris do you actually and on the life Science question.
I think the increase margin that you saw in the first quarter was heavily based on the fact that we had a mix so very high consumable revenue stream.
Some significant portion of that is stockpiling by our customers just for surety of supply.
And some portion of it is actually also increased demand from those customers.
With all the investment.
Being doled out right now in vaccine production.
That is an area that is really in cerus life Sciences sweet spot for our portfolio because it requires a septic manufacturing.
So and to the extent that.
That is sustained we believe we'll see some sustained benefit for consumables business in particular.
To the extent that pharma starts, making significant expansion investments and in either Cmos or their factories.
Then we may we may see some benefit in our capital equipment side of the business in the future, but in the interim short term we see it is truly a consumable play at this time.
And Chris I guess I would add I don't think anyone's picking vaccines are going to slow down for next year too so probably not any if anything we feel.
Bullish in general in the space that is 34% year over year, we're not planning on that for very long, but but we're bullish in the space and ideas to you called it dead on dead on Pp.
Yes.
He is a high volume relatively speaking lower margin product than.
Many of the.
Consumables that are related to surgeries that have been deferred and so.
That is largely a mix issue.
And I would expect it to slowly reverse as the.
As the Conns does the.
Surgical type devices.
Come back no.
I don't know that we're going to see PPG slack off a great deal. So it may not move back to the original.
Numbers, but.
There's a magnitude I would expect some of it to come back due to mix.
I really appreciate the color than just finally from me.
Waltermire 15, plus years here, the leverage ratio being below one of the half times.
Toggling across here I mean, it's been a you've got to really long time, sometimes see maybe 10 [laughter].
Yeah, I'm, a and and I understand and greatly appreciate that you've always or ran the business very conservatively I'm not leveraging up here and especially not in you know a challenge time, but.
This is a relative to historic low level for debt to EBITDA.
Just curious where you see opportunities from an M&A perspective.
From an opportunity to invest packing business to either enhance the margin profile longer term across gross.
But I'm, assuming rather than just accruing cash on the balance sheet, even after the 8% increasing the dividend here this quarter.
Your there's got to be opportunities to deploy cash. So just how do we think about.
The capital structure. Thanks, so much.
Sure Chris you know, we've spoken about that and have been.
Very very consistent over the decade, or so you've talked about in terms of how we intend to spend our capital.
We do intend to provide dividends, we think Betsy.
Good discipline of management to grow dividends somewhat in line with the profit and cash flow the business.
Absolutely intend to continue to investing in the businesses, we already habit and you're clearly seeing that were as Mike mentioned, we actually spent more capital.
This quarter than we did a quarter ago last year, we have significant investments moving forward in the S. T space for growth, which we absolutely believe is coming and and also in the hospital outsourced processing business we are.
Tending have and intend to spend a significant capital so those and we're spending capital every place. Those two are just orders of magnitude cow larger.
Than some of the others at this moment in time, and that's an RV because of the long term opportunity in those spaces.
But but in general I'd, rather spend money in the business is already run to make them either more efficient or new products then.
Running around looking for new things after that we want to run around look for new things and we did have.
You know a number of things on our plate. When this goal would issue hit US answer we pulled back on that due to the near term or uncertainty in the space.
We are feeling.
More comfortable that our own cash situation is in good shape and that that we can kind of go back to the the search and hard to us.
But you know those those things timing of those are never know so.
Well I wouldn't suggest something could happen tomorrow morning, but it would be surprising if over the next year too we don't see.
Things that are worth worth investing in and that add to our portfolio. We like things that are either in our space are right next door to our space. We don't don't like stepping out you know wildly into things, we don't understand so at high level that hasn't changed since we took a little pause.
And you know it seems like when it rains affords you from last year, that's six or seven they are relatively small companies before we did some relatively large ones.
We don't we don't control the timing on those things. These are the seller has more control the timing than we do.
But we certainly continue to see a pipeline of things in and intend to be active and we are.
Far more comfortable today than we were 90 days ago in making those kind of decisions.
Okay.
Thank you.
It looks to have Mike Matson Needham and company.
Hi, Thanks for taking my question I.
I guess I just wanted to start with the what you're hearing from hospital spot the outlook for.
Capital equipment spending you know the hospitals have obviously been hit by the elective deferrals Theres also been a huge infusion of cash from the government.
So just any thoughts there would be helpful.
You know and I.
Probably so this 100 times since the last what's happened at Steris.
Good.
The.
Haas health care capital spending.
Loves change and hate uncertainty.
And so.
We've been in a little bit more uncertain time, the last little bit, but we're also seeing changes so.
It's not all clear exactly how that's going to work out over the next year too.
As I said this this move we already saw the greatest.
Growth rate in our capital spending for health care was moving to ambulatory surgery type.
Type of.
Facilities, whether they'd be a part of a hospital system or not and so with that I would not be surprised that accelerates given.
What I said about trying to move patients to places that they feel more comfortable is closer to their homes and be ads.
There's just less traffic if you will and so I would not be surprised to see that spending celebrate.
We have felt for some time that that both particularly entry surgery centers.
As you see them take on more and more extensive surgeries.
They cannot have the same type of capital equipment, they need a stronger infrastructure to do that so I would expect to see that makes move up and ambulatory surgery.
And again.
They can do.
Peak implants.
Sterilization capacity. They currently have so we think that's opportunity both for capital spending anthro RC So.
We do see you know the intermediate to longer term positively in that space and and for every time for every surgery that moves out of the hospital. They put in to two more complex surgery as you know heart lung could one heart lung transplant does not equal one.
Artificial me and so even though the numbers may stay constant the intensity continues to rise.
So in the long term, we see you see growing with of hospital or health care revenue generally speaking as it has for the last 30, some odd years in the very short term.
There are a number of places just like we did put on capital freezes.
But I think as they see as they get visibility into their cash flow. They will begin spending again more than normal fashion and then the good news for US is a we had a very good backlog going in which we rarely see cancellations and then lastly, the.
The big projects.
Our rarely us stopped or slow down there may still that little bit just for labor, but they are rarely stop or slow down any consequential way once you put steel undergrad me to fill the.
Phil the facility. So those will I think will continue as they would have.
The pipelines a bit softer right now than what we saw 90 days ago, let's say or before.
If we get serious and the best but.
For a roughly 45 to 60 days, we had no billing for our salespeople to access facilities, they shut down everything but patient care and so.
Now back in the field.
RC facilities on their needs. So I think it's early to predict.
The exact straight or lack of strength in capital equipment, but.
I think the intermediate to longer it looks pretty good.
Okay. Thanks, and then just as far as if he goes that sounds like you're done because he.
Has been driving a lot it sterilization demand.
You expect that to continue to remain strong at the same time devices that the elective procedures seem to be recovering so I'd imagine that.
I am a device to release sterilization can be going up so.
Is that the right way to think about it and then do you feel like you've got adequate capacity to meet all that demand at the those things are both I'm seeing a high volumes. Thanks.
In short, yes, the answer to your first question is that the way we.
She is almost exactly how we see.
The second question in terms of capacity.
There's a reason we're spending several hundred million dollars.
Over the next few years building capacity DNA as teens, because we believe the demand will be there to utilize that capacity and we always try to stay ahead of it to the extent we can't so.
So we do think that there will be capacity requirements going forward, we're building to meet that demand.
Great. Thank you.
The next question, we have will come from Larry Corash.
James.
Thanks, Good morning, everyone.
Well I wanted to.
Touching just couple of quick things here first on.
Health care.
Just curious how you're thinking about.
Surgical procedure volumes, you know, let's call it in the second half of the year.
I know that things have obviously improved through June and.
And and probably there's been at least some stabilization in July but.
You know just trying to understand how do you think surgical procedure buying to actually can grow.
In the fourth quarter. This year do you do you think that kind of run at levels that are actually down year over year and I guess is part of that question do you kind of view the fiscal fourth quarter, you know sort of total.
Growth here, the Lois that you would expect for the year and then I'd to other ones quickly.
A question I'm little confused by the last piece of it but yes. The short short answer is I do think.
Procedure volumes still has room to grow from where it is.
If you if you think about it we're approaching last years levels and you know I would say most of the places that I've talked to.
The yet.
Facilities are saying, they're running 85 or 95% kinda numbers of last year, but typically we see three four or 5% growth. So you don't.
The same areas tea business. We've described is you know, it's basically did last year, but that's not that's not normal for US right. We would expect to see 567% growth. So.
My answer to that is there's probably some catch up from the last quarter. So that is going to occur and then there's also catch up of the growth that would have occurred there how quickly that all happens I think is is a wildcard.
But in general if you take a more 18 to 24 month view My my view is that the normal growth. We would have seen will occur and they were likely to see some catch up on top of it.
Okay perfect.
And then just to make it in state. The question clearly not I was just again trying to understand if you think.
This fiscal fourth quarter as you think about the dynamics across the business you know kind of marks the low.
For the for that for the fiscal year for you guys.
As you look at that growth year over year, and then I guess I'll just ask why they're quick question.
UK and certainly seems to be lagging.
Quite a bit from the rebound in surgical procedure volumes over there. So again, just sort of wondering what you're seeing.
In in your outsource business and instrument repair business and I guess one for Mike.
I get I, just I know you mentioned this on the call when when we're always chatting in his prepared comments, but what exactly was being excluded from from gross profit associated with Kobe costs. Thanks very much.
Sure Larry again, I'm, not if we were comfortable.
Understanding.
Relative growth rates quarters of course, we'd be giving guidance and so you know timing is probably the toughest thing to call right now as opposed to.
General trend and so I think we've laid out our views the general trends, but timing.
We're not nearly so comfortable on that on that question.
So I don't know that we would have a strong feeling that second or third quarter fourth quarter is going to be our best or worst year over year performance.
The.
You're absolutely correct about the UK.
At this moment it tends to be the lagging entity in Europe. It's the converse is true the rest of Europe. The rest of Europe has been ahead of the U.S. and bringing back procedures are.
Our businesses, but they asked universities are showing that.
So.
The Kockott Continental Europe for lack of better terms has been a stronger.
Coming back quicker I should say and and UK has been be slowest.
Entity in our space as you know the UK is relatively small piece of our business.
It is.
It is real and can we have seen the our season are coming back from there very low levels.
They were in earlier in the year.
But there they're not as.
Far back as the or season, the United States on average so at a high level. That's the answer that question great.
And then Larry from your question regarding what is being adjusted out for the Cobot 19.
Costs as Walt talked about the majority of that $9 million is related to.
The opportunity we talk to furlough some of our underutilized folks and we also received some of the benefit.
From the cares Act in particular also from some of the other government benefits in the UK and Italy's that we're paying a portion of our furloughed.
Employees at that point and as we did in the fourth quarter. Oh. We also had some meeting cancellation costs, we did not hold our annual meeting. This year. So we had some cancellation costs associated with that we had some P.P. knee specifically for our employees and we had some above and beyond enhance cleaning protocols that we've also put into that incremental costs. So.
The total net.
Cost of all that is $8.7 million in the quarter compared to about $800000 in the fourth quarter of last year, Okay. I think orders of magnitude Larry without giving a numbers the.
The non.
Furlough piece, probably is pretty similar.
Last quarter, and this quarter orders of magnitude and the bulk of that money is.
The furloughed people and they're largely back to work at this point. So so just to finish that thought as you look into the next quarter, we should it's in that.
Any excluded costs from from you know gross profit should go down I would think.
Our expectation is that revenue will rise and gas will fall.
On the horizon cost will rise with it as excuse me as we bring people back to do that work.
We will continue to have certain costs very well, we will have and lesser costly protocols, but not to this extends if you will.
Okay, great. Thank you.
Yeah, that's what am I Wonder if you like to participate in today's can I. Please press Star then one on a cut some some again not a star then one to ask your question what sort of not the most solid of Keybanc.
Hey, well like Julie.
Taking the questions.
Just a follow up on a on vaccine production.
You know assuming that that we're going to get to full production of vaccine sometime in in 2021, you know what are your customers, indicating their needs might be from from you and what and any chance you could put some context or quantify what.
But the opportunity might be.
At a high level the.
What we do for.
Okay.
A lack of verticals covert vaccines are the same as what we do for other vaccines.
The consumables that we would use.
Would be very similar at high level and in terms of quantities. It is way too early for us to make any judgments on that because we don't know who isn't isn't going to be making which drugs are not going.
To be the most effective and there's two types right the the prevention.
Side of equation and the.
Helping to patients recover side of the equation and both are under.
Clinical trials right now it's just it's unusual for people to begin.
Spending money on production before they know the answer to that question. So we have a number of people that are spending money for potential production that.
You know that may or may not end up manufacturing.
The drugs. So that's that's the.
That's the tough thing to call and some of those people would be our customers. All those people would not so it's I think at this point.
Early to call, but having said that.
Our general expectation is that we will see arise out of that production.
Okay.
[music].
I'm assuming this is that this is a more fragmented areas and then health care for your work for you have very.
Very high market share if you ever bought a different competitors here is there a particular vaccine or biologic customer or kind of very or technology that would have an outsized impact for you that we should that we should potentially watching.
I don't know that it's more fragmented in fact that maybe less fragmented if you step back and call hospitals or you know health care systems.
There's a lot more health care systems in the country or in the world than there are vaccine producers.
So I wouldn't say that and.
I don't think there's any one specific.
Technology that we would say it would be a step out change for us.
This is all call general growth and vaccines and.
The other side of this equation is going to be interesting is.
Other vaccines right I think people are going to get far more sensitive to taking flu vaccines than they used to be.
Because you know you.
You don't know whether you have flu recovered until you've been tested right and so and you certainly don't want both the novel things. So the question is what's going to happen to vaccines of general on it I think right now vaccines are going to be on the uptake.
And then and then on the capital equipment I mean.
If I remember correctly that lead times and those are those machines are longer and and there are more specialized you know.
When do you think when do you think those customers you're gonna have to putting those orders you know two to ramp up you know more quickly.
That kind of equipment.
Yes. Currently this is Dan Prestea currently our lead times on GMP equipment, depending on the product can extend from from 30 days to seven eight months, depending on how customized and may or may not be.
And you know former customers are continually investing in capacity.
To stay ahead of us to the extent they can't.
And so you know our our backlog will flow through over the next few quarters.
And our intake of orders remain strong.
The sort of the capacity limiting.
Not necessarily going to be capital equipment in the short term, though as it relates to vaccine.
It's going to be more production level equipment.
Production of vaccine as opposed to sterilization decontamination Chris.
Okay.
Understood and then last question as you think about the AMC is being are being up positive driver for your capital or over over the last couple of years I think what people would understand that on the on the surgical equipment side. How is that how has the how did they suits.
Managed their sterilization needs and.
Is that enough positive for you when you see a procedure moved from the hospital too and I guess it.
Oh the.
In general the answer is yes, it's a bit positive again.
If you go back to the original general statement I make capital.
Lows change and of course.
Certainty.
Moving from North to South.
Cities to suburbs suburbs. The city's hospitals. This season has seized to hospitals generally creates capital spend increased capital spend because.
You don't Terrace, Sterilizer out of a wall and then sticking in a brand new facility typically.
As less true of tables, but it's very true lights at all that like tables, you can move but you know if your two thirds of the way through with the life. You don't maybe you go ahead and put in tables in this new.
Facility. So generally speaking any kind of change or movement from one place to another creates capital spend in the spaces that we operate.
Thanks, a lot.
Oh, sorry, no further questions at this time, we will go out and conclude our question answer session I wouldn't like to turn the conference call back over to Mr. only went through for closing remarks mob.
Thanks, everybody for taking the time out of your morning to be with US today, we look forward to chatting with all of it then.
And we thank you Bob for your time also.
And also to the rest of the management team I give the conference calls now I'm. It at this time you may disconnect. Your lines. Thank you again, everyone take care have a great day.
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