Q4 2020 Cantel Medical Corp Earnings Call
Hello, everyone and thank you for joining us today for this cantel medical fourth quarter 2020 earnings call. As a reminder, all phone participants are in a listen only mode. After todays prepared remarks, you will have the opportunity to ask questions and instructions on how to do so will be shared at that time and now to get us started with opening remarks and introductions I'm pleased.
Turn the floor to vice President of F., DNA, and Investor Relations Mr., Matt Makowsky welcome Matt.
Thank you and good morning, everyone.
On todays call, we have Chuck Diker chairman of the board.
George Societies, Chief Executive Officer.
Peter Clifford President and Chief operating Officer.
Yellin Executive Vice President and Chief growth Officer.
Sounds like men senior Vice President and Chief Financial Officer, and Brian <unk>, Senior Vice President corporate controller, and Chief Accounting Officer.
Earlier this morning, the company issued a press release announcing the financial results for the fourth quarter of fiscal year 2020 and it.
In addition, we have posted a supplemental presentation to complement today's call.
This presentation, along with reconciliations of non-GAAP references can be found on cantos website in the Investor Relations section under presentations.
Before we begin I would like to remind everyone that this conference call may contain forward looking statements.
All forward looking statements involve risks and uncertainties, including without limitation. There is detailed in the company's filings and reports with the Securities and Exchange Commission.
Such statements are only predictions and actual results may differ materially from those projected.
Additional information concerning forward looking statements is contained in our supplements presentation and earnings release.
Company will also be making references on today's call to non-GAAP financial measures reconciliations of these financial measures to the most directly comparable GAAP financial measurements are provided in today's earnings press release with that said I will now turn the call over to George.
Thank you Matt.
I will provide a brief overview comments, Sean will cover the financial perspective, and Peter will spend more time on the execution of our key initiatives.
[laughter].
Overall, I'm pleased with how we executed in the fourth quarter amidst the impact from coal.
Our strategy in infection prevention and control has.
He has never been more relevant.
We achieved our goals with respect to management of operating expenses.
We continued to maintain safety protocols and all facilities and achieved on interrupted performance.
We exceeded on cash management in the quarter.
And in early September we paid down $75 million on our revolver.
We worked with customers to drive adoption of new protocols and facilitate a return to normal activities.
And we continue to execute on the huge afridi integration and the initiatives related to Cantel 2.0.
As we said in our release this morning procedures in both medical and dental have steadily improved and are at about 80% to 85% of free coal bid levels.
And they are strengthening.
Given the critical nature of the elective procedures, we support we expect a full recovery we're.
We're just not certain of the exact timing.
Therefore, as we indicated last quarter, we are not providing conventional financial guidance.
However, we do want to give clarity on how we will execute on what we can control.
Operating expenses and profitability.
Specifically.
We expect to gradually improve our EBITDA margin from the first quarter to the fourth quarter. So.
So that we exit the fiscal year at 19 plus percent.
Which is the same EBITDA margin with which we entered the cobot impact earlier in calendar 2020.
We will also continue to execute on cash management and pay down debt as practical.
Finally, we will fund and execute several growth projects, which Peter will cover in some detail.
Before turning it over to Sean I want to underscore a key take away about our future.
Wow coal that has had a near term impact on procedures and revenue.
We are seeing how cold it is elevating the importance and relevance of cantel is offering to customers.
A factor that will be with us for the longer term.
And our medical and dental businesses, we provide infection prevention products and solutions agile.
Education training and on the ground support that are instrumental to providers being able to deliver care and.
And this fast developing new normal.
We are gearing up to serve this demand as you will hear more about so with that Sean.
Thanks, George and good morning, everyone.
I'm going to go through our key financial results with brief commentary follow.
Following that like last quarter I'd like to provide additional context to the financial results during cobot.
I will begin with a year over year comparison.
And given the volume impact I will close with specific references to more relevant sequential comparisons to Threeq, you 20, as well as provide some insight into the first part of 2021.
Of course, the standard reported financial details are available in the earnings deck for you to follow along and we can cover any additional questions. You may have during the acuity.
Net sales decreased 2.5% year over year in the fourth quarter 20 versus the prior year and make it.
And negative 2.7% on a constant currency basis.
And then they accounted for 15.7% growth.
This was offset by an organic decline of negative 18%.
This exceeded our Q4 expectations with procedural volumes in both medical and dental recovering faster in June and July.
Overall, our life Sciences, and dialysis segments have remained resilient during the pandemic with life sciences growing 0.7% dialysis relatively flat as expected.
The dental segment grew 59% on a reported basis driven by the acquisition of you free but decline.
But declined to negative 20.6% on an organic basis, primarily due to the negative impact of Kobe related deferrals of routine dental procedures.
Finally.
The medical segment decreased by negative 24.8% on an organic basis in the quarter also driven by Kobe unrelated procedural declines.
Capital equipment decreased approximately 36%.
With recurring revenue declining approximately 22% in the quarter versus the prior year.
Sequentially from Q3 recurring revenue in the fourth quarter actually increased approximately 4% as elective procedures retired in June and July.
Turning to consolidated margins.
Our GAAP gross margins contracted by negative 320 basis points to 43% versus 46.2% in the fourth quarter 2019.
While non-GAAP gross margins declined by 340 basis points year over year to 43.7%.
If you recall in the third quarter I discussed at approximately $45 million of our cost of goods sold is fixed so.
So relative to our pre cobot margin levels. The Q4 margin degradation from pre Cove. It is almost solely attributable to unabsorbed fixed costs accounting for approximately $9 million of margin.
Moving down the op profit GAAP.
GAAP op profit decrease 51.2% year over year to 7.2 million.
On a non-GAAP basis, our profit decreased 31% year over year to 26.5 million.
Regarding tax rates.
The GAAP effective tax rate for the quarter was a benefit of 65.1% as compared to the prior year at 26.8% to 10.
The tax benefit noted in the quarter was driven by our GAAP loss before taxes and additional federal income tax loss carry backs allowable under the care Zack.
Non-GAAP effective tax rate came in at 29.6% compared to the prior year rate of 25.6%.
This increase was impacted by geographic mix and an increase in valuation allowances for certain income tax positions.
As a result, GAAP earnings per share decreased 125.5% year over year.
Five cents.
Well on a non-GAAP basis earnings per share decreased 62.6% year over year to 24 cents.
Finally adjust.
Adjusted EBITDA EPS came in at $37.9 million.
Down 19.6% year over year.
I will now move onto key cash flow and balance sheet items.
Even with four to five months operating through the pandemic cash flow has been a source of strength for cantel.
Cash flow from operations for the quarter came in at $44 million, an increase of 138.7% year over year, ending the year with $277.9 million in cash.
Working capital increased to 62% sequentially to $466 million driven by the increase in the cash on hand.
Accounts receivables were relatively flat and the.
Inventory declined approximately 10% and UC.
And accounts payable declined approximately 21% on a sequential basis to put that in perspective for the year, we generated $26 million of positive cash flow from accounts receivables $12 million inventory management and $5 million of additional flow from the rest of the balance sheet by far.
Our best working capital management in the past five years.
We're very pleased that we were able to return operating cash flow to levels between 13, and 14% of sales for the year. Despite the volume challenges during coded.
Capital expense was $7.6 million this quarter.
An increase to keep key projects on track and light up our better than expected cash flows and following a quarter were all but essential capital was suspended.
In addition, cantel is back at more historical Capex spend levels ending the year at $34 million, a total spend versus $95 million in 2019.
To conclude the quarterly financials.
Our gross debt ended the quarter at 1.1 billion.
While net debt was $835.5 million are.
Our net debt to adjusted EBITDA ratio was 4.73 times, which includes 10 months if you freaky results.
As a reminder, our credit facility Amendment provides for a leverage ratio suspension period through October 2021, and requires us to maintain a minimum liquidity of $75 million.
We are encouraged that our cash flow was positive even through our worst collections months, putting us in a position to maintain a balance sheet with ample cushion, while paying down $75 million and outstanding revolver debt. Following the end of the fourth quarter in September.
We are targeting to pay down a total of at least $125 million in fiscal year 2021, including the $75 million paid down earlier this month.
Although we feel the environment is still too uncertain to provide specific guidance for the full year I'd like to provide some color on our approach for the next two quarters regarding revenue.
First of all we.
We expect first quarter 2000, and revenue to increase sequentially to approximately $250 million to $260 million given that we see external procedures stabilizing and the 80% to 85% range for the entire quarter versus the Q4 that included a me with procedures and the 60% range.
We expect the recovery to continue into our second quarter, though not at the same rate as we saw in Q4.
However, it's worth remembering that we have four fewer shipping days in our Q2 due to the winter holiday season, so either.
So even with sequential day rate improvement I would not expect a drastically improved total revenue number from Q1 to Q2.
Operating expenses in Q1, we'll see a sequential increase from the fourth quarter as we enter our new fiscal year stabilizing in the $85 million to $90 million range.
With volumes recovering we are opting to gradually cut back on employee furloughs salary reductions in place through August.
I estimate that normalization of items, such as sales commissions bonus accruals and the cessation of salaried furloughs results in approximately a 15 million dollar increase in our operating expense in Q1 relative to Q4.
However.
We are also taking cost actions driven by removing the equivalent of 125 head count and structural cost, which is expected to result in approximately $13 million of savings on an annualized basis.
In Q1 that equates to a savings of approximately $2 million in Q2 will ramp up an additional 1 million for $3 million in savings relative to Q4 2020.
We believe these cost actions set us up well to react to volume changes as we progressed through the year and to improve sequentially each quarter.
And the first quarter with the net cost increase described above we expect that our EBITDA EPS in Q1 will stay approximately flat from Q4, but will decline as a percentage of revenue.
Well, we are committed to executing a return to a quality of earnings that more closely mirrors are prepared to any performance as.
As George mentioned, we are targeting to navigate the path to 19% EBITDA EPS in Q4, 2021, with a sequential recovery of volume in each quarter, but not requiring a return to 100% pre cobot volumes.
I appreciate your patience listening through these additional details.
As a reminder, we will be filing our 10-K by next week I will now.
Ill now hand, it over to Peter to provide a few operational updates.
Thanks, Sean and good morning, everyone I wanted to first provide additional insight on our macro observations of activities on the ground and then focus on actions we have taken for both the short and long term to execute on our strategy.
As we are all aware the impact of Colgate on elective procedures through the spring and summer was significant.
Using third party claims data customer insights through our commercial teams as well as various industry and other external surveys we have been aggregating data points to provide some perspective on the overall us markets from the pre Colgate impacted levels seen in our fiscal second quarter, we estimate.
That elective Gi endoscopy procedures in the U.S. fell to a low and mid April just 27% of the Q2 baseline volumes since that time volumes have steadily improved and we are seen volumes at 80% to 85% of that second quarter pre cobot baseline.
The U.S. medical and dental market.
By our estimates for the procedure is relevant to our end markets. We believe that hospitals are operating at over 90% of pre kobin levels SCS are close to 85%, a pretty kobin levels and dental practices around 80% to 85% of the baseline.
Month of August shows strengthening in these trends.
Nationally it has been more challenging to find good data sources and it varies by country and region areas like Germany, and the Netherlands, where the virus is well controlled seem to be nearly back to normal levels, while countries like the UK continued to be at the 80% to 85% range.
Without question Colgate is elevated infection prevention and control to the forefront of priorities for health care providers and dental practitioners and we are encouraged that this heightened focused on IP and C will continue over the long term we are seen shifts in the underlying market with regard to better comply.
Science to existing protocols as well as the adoption of enhanced infection prevention protocols at all provider types. A few examples dental professionals are switching from the use of one or perhaps two face masks per day, just switching out face masks with each patient encounter which is the existing reckon.
Amended protocol.
Rapid conversion of single use nasal masks for nitric oxide delivery systems from reusable nasal masks use.
Use of face yields and aerosol producing dental procedures.
Shifting to single use two sets switched out per patient from Twoq sets change daily as well as a stronger rationale for the use of single use spouse and single use products in general.
The return to patient volumes, coupled with the drive for better compliance with IP and see protocols should benefit cantel over the long term with.
With the increased and sustained demand for face masks and PDP, we have meaningfully invested in expanding our production capacity.
For the last six months, we have been running at maximum capacity 24, seven on all eight of our mass machines, bringing our total mass production level to just over 16 million mass per bond in the fall.
In the fourth quarter, we placed orders for an additional eight face mask machines to double our capacity, we anticipate bringing on the first two machines by the end of the first quarter and another two machines online by the end of the second quarter with the remaining four machines in the back half of fiscal 21.
Six of these machines will be located in North America, while two will be in our in lead production site supporting regional demand.
Despite the continued impact of co bid we remain focused on executing on our key priorities in support of our Cantel 2.0 initiatives key among those priorities has been the reconfiguration of the U.S. sales and commercial organization to support the Cantel 2.0 initiatives focused on hfcs.
As well as enhanced focus on our hospital complete circle protection strategy.
Within the AMC space, we have created for the first time, a dedicated assay sales and marketing team.
We are deepening our relationship with assay as well as hospital and outpatient facilities to be clear, we have a strong leading share of the aer market within the C space, but the opportunity for us to broaden the penetration of our full portfolio within the market.
We see great opportunity to drive this penetration by an enhanced focus on the overall value and efficiency that our full portfolio brings to the AMC setting. In addition to the improved IP and see benefits.
Any acute care setting we are seeing early success with our investment in key account directors and the expansion of our infection prevention clinicians and demonstrating the overall value of our CLP solution. We continue to invest in these cats and IP clinicians to further enhance our.
Gauge men with a large healthcare systems and influence their overall reprocessing workflow protocols, which has resulted in broader adoption of our product solutions. We have transitioned our hospital sales organization. So full bag sales reps from product specialists previously focused.
Solely capital or consume malls with this.
With this transition we have enabled our commercial team to focus on the broad solution of our CLP offering while still selling to product users in key department heads.
In addition, we are experimenting with inside sales to assist the field reps and a model that we have had notable success within the UK. This builds a capability that ensures we have strong commercial presence even one access may be limited.
This has been a reconfiguration, rather than a restructuring, allowing us to get better focus and broader capability. Yet overall this has cost neutral to the PNM.
Look into Europe, we have made good progress on both the footprint consolidation as well as our commercial efforts. We are on track with our site consolidation with the successful move of all our production from the BHP operation in Germany, So our Pulmonology, Italy facility on August 1st this was.
This was an important project to simplify our Germany business as well as continue to expand our manufacturing center of excellence in Italy in the fourth quarter, we closed our dusseldorf sales office moving all German activity, so our existing oxburgh location.
As we continue to streamline our processes to improve profit and accelerate growth.
In parallel we have continued to execute on our commercial excellence training and deployment across Europe at an accelerated pace and we expect this to translate into strong second half 21 commercial performance in EMEA.
Finally, we continue to make excellent progress on the integration of few Freddie into our dental business as mentioned earlier the value proposition of infection prevention and the dentist office is unprecedented.
And the addition of hue Fredy enhances this unique offering there is more to come over the next few months, but in short a new scalar increased instrument management system setups, Greenlight 2.0 launch and overall enhanced focus on education add to our confidence on the future for this business.
Despite the impact of Covance honor end markets, we've continued to focus and execute on our key strategic priorities, while carefully managing our expenses and key resources.
I wanted to take this time to thank our global teams for their daily efforts to produce essential products and deliver critical services to our customers and stakeholders. During these extraordinary times with that.
With that we are now ready for questions.
Gentlemen, thank you for your remarks and to our phone audience. Joining today, we will now segue to our interactive Q and a session. If you would like to ask a live question over your telephone line.
Star and one on your telephone keypad pressing star and one will place your line into the queue and we will take your questions. One at a time also a reminder, that if you are joining this morning on a speaker phone. Please return to your handset prior to pressing star and one to be certain that you're.
Does reach our equipment.
Again, ladies and gentlemen that is star one if you would like to ask a question, we'll hear first from Larry Keusch Raymond.
Jim and James.
Hi, Thanks, good morning, everyone.
I guess, just a couple of questions and and and maybe.
Just one first so just with the new mass manufacturing, obviously doubling your capacity.
What does that incremental capacity, representing a dollar amount just trying to think about.
Once you're up.
Full speed, how we should be thinking about and.
It also imply that that with all those machines on you should be at full capacity by the end of this fiscal year.
Yes, Larry.
To give some color on on capacity here.
It's going to probably take us a month or two with each deployment wave of the machines coming into calibrate get those up to full capacity. So I would think by the end of fiscal 21, and we should have at least some.
Six of the eight machines, probably up and running at full capacity.
From a monetize perspective look I think the way we're looking at the revenue opportunity is look this capacity, obviously gives us an ability to be very opportunistic.
Markets right now that are looking for high quality manufacturer PD and also gives us an opportunity to use mass as an effective bundling.
Anchor in the portfolio on the dental side of the business. So.
We feel very well positioned.
To again grow that business pretty aggressively whether we can cover eight machines 24, seven is it's something that we've got a determined as we get deeper into the year.
So maybe just on thank you for that Peter maybe just on that just in case I missed it so.
If you had all these machines running full capacity.
But with the incremental revenue coming on to that.
I would say the size of the prize if we could get to full capacity is probably $3 million to $4 million quarter. Okay perfect.
Then secondly, just trying to think through.
True dental and.
And if I have my numbers right I think it got worse both on a dollar.
And percentage basis in the Fourq versus.
Threeq, so just trying to understand.
Absolutely.
You didn't have.
April in your Fourq, so and things start to recover as you start to talk about so again I'm just trying to understand what what else may be going on there that resulted in that.
Yes, I think that.
Just like all of that.
The business right that even though April wasn't in.
It wasn't in our Q4, you still had overall Q4 being coded volume affected whereas in Q3, you did have two months at arguably weren't yet.
Materially affected by co bid. So I really don't think there is any more to it than that really from our point of view. This as a big volumes overall were down more in Q4 than they were in Q3, even though the month of April itself was obviously the worse okay.
Okay perfect.
Perfect and then last one I guess for you Sean is [noise].
Just as as Anne and thank you for for the color.
As you think about 21 I recognize that it's it's it's challenging to put any real numbers out there given the dynamics and some uncertainty around the fourth quarter fourth calendar quarter.
But as I think about the commentary around the EBITDA margin.
Again, just help me understand kind of how you're thinking about sequential improvements to to get to.
That I think you're saying the fourth quarter itself for the quarter should be 19% or better and.
And it does look like that.
I'm a little bit below what the street was anticipating so so kind of any any color you can provide as to.
Might be different from what the street expectations, where it looks like that was kind of over 20% on that fourth quarter EBITDA loss.
And what might be different is as you guys are looking at your plan for the year. Thank you.
Well, it's kind of go back to what we talked about on the call right. It doesn't require that we get back to a 100% of volumes. So thats not within our model are thinking and how we get to 19%.
It really requires something north of 90% and medical and dental. So we are anticipating a sequential recovery in volumes, but that is going to be more modest slow obviously than we saw in Q4, which is now.
Shouldnt be surprising to anyone going from 80 85 to 90 95 is a much slower slow and then continued progress.
And then continued progress against our Cantel 2.0 initiatives as well.
That we anticipate will continue to give us an advantage right, even as we deal with procedural volumes being something south of 100% for the near future.
It's combined with that right we're committed to.
Again going back to we think we've set our cost base very well right now to see how.
See how volumes go here in the first quarter to second quarter, right and we're committed to to reacting to any of the conditions that are thrown out at as you know to get to that 19%. So.
We were thinking obviously things will be back to the way they were in April and that scenario.
Certainly we are making then an inherent.
Conservatism, if you will that we're not out of this and theres potential for other shocks right give or take in certain months as we continue to aggressively this ER.
We're making now that all in as best we can and we think that that's where we're going to end up.
Yes really.
I was just going to say I thought I'd just add to the what Sean said, Larry I wouldn't read too much into the difference between 19.8% and 20%.
I'm not even sure we put out a number before we spoke today about where we thought we'd end up at the end of the fourth quarter.
I will tell you you know look we're going to be in the business of being on the more conservative side of things, we tell people that on the wildly optimistic side, because there's no upside and being optimistic and missing.
And missing expectations. So I think thats, one way to look at how cantel is going to talk about the future, particularly in the current environment.
Okay. Thanks that George that was that was really helpful and last one on this and then I'll drop so.
So Sean should we be thinking about sort of sequential improvements in it.
EBITDA margin through the year or is it kind of flatter in the first half and then and then you get more of a pronounced step up just any any thoughts as you kind of started the year.
So we make sure we're thinking about this correctly.
So if you think about again Q4 to Q1, I said that I think will be relatively flat on a dollar basis on a revenue basis, that's obviously going to degrade the margin somewhat and then given that revenue back with the four day shipping even with the sequential increase in day rates with revenue in probably not been drastically improve.
From Q1 to Q2 because of that I would expect the margin to be also right not drastically improved from Q1 to Q2. So you would see that bump up to 19% more in Q3 Q4, okay. Perfect. Thanks, guys appreciate it.
Thank you Larry our next question comes from Matthew Michelle.
Please go ahead Matt.
Thank you for taking the question guys and good morning.
With a large swings that you're going to see in your markets I'm. Just curious how you are going to able to track.
Progress on Cantel, 2.0, and understand kind of what is working and what might not be.
And what metrics should we be paying close attention to to kind of gauge your performance.
Yes, Matt this is Peter.
Look I think we are.
On the AMC strategy, specifically, obviously, we're looking at revenue comps, we're looking at new account setups.
And look at AAD audit or process.
Reviews, and studies that were doing with.
Hey sees as sort of a key indicators that tell us how we're progressing down that path.
On the hospital CLP play.
We've been measuring here for a couple of quarters it in.
At index that basically tells us the product basket.
Execution in the hospital network system, obviously, we've been looking at revenue by CAD territories versus non CAD for over a year now. It's obviously moved the needle one's arms of our investment as we saw growth categories, much higher and not cat supported territories than not.
Stories, where do we did not.
On the Europe side.
We are tracking right now since we are really still in the midst of still doing some of the deployment of comex.
The key indicators, there really by country by revenue by regional sales manager, how we're progressing in each module of commercial excellence from a deployment perspective.
Okay. Peter Thank you very much for the detail around that around that question.
And then moving to dental.
It seems as if the dental offices are going to be running incremental costs.
Some of which is is going to be a tailwind.
I ask what is the trade off for the dental offices and if you look at the overall portfolio.
From Cantel antifreeze.
Isn't a net benefit is it neutral or.
Hello.
Hi, This is Dan I think in the dental suite, obviously, they're looking for broad solutions to enable them to get back to an efficient practice flow.
And to enable them to get back to the procedure bonds used to.
I think on average it probably.
For the Cantante portfolio.
I think in particular, we're able to provide a bundled product bundle to the to the customers that they are looking for that includes whether TV chemistries. Other consumable products. In addition to the reprocessing type of.
Elements that we've historically, so we see substantial incremental demand for those products and I think in particular, our imus product offering which provides both the most efficient type of reprocessing system as well as a more rural efficient.
Workflow is well suited to enable dental practices to respond well to this to the current environment to get back to a higher overall volume in their practices.
And then lastly around free cash flow first off congratulations on the on both sustainable free cash flow over the last several quarters.
That's an excellent can you.
Can you talk about some of the.
And takes around free cash flow.
For for for this year.
And then how are you thinking about next steps and costs are you.
ERP implementation to two other other parts of the business.
Okay, I'll start with the cash flow for 21.
Just one thing I would keep in mind is that we did successfully de leverage the balance sheet. The tune of almost $50 million here in the latter half of 20, so as volumes continue to recover a ours going to be a natural outflow in the first half of the year and I would also expect that we will have to have some modest inventory investment as we right size.
To the right mix and react to volumes coming up so I would expect it in the first half of this year, while weve been very successful and we are certainly we're not going to degrade in our execution. There is naturally going to be a cash outflow. If you will as we invest in working capital modestly here in the first half and probably claw back some of that benefit that we saw and the.
Latter half obviously, we havent.
Obviously, we have the sequential expenses right that are going to come back as I discussed in Q1 that will also if you think.
If you think about launching off of Q4, they're also going to mitigate what we saw in Q4.
Well lets them continued restructuring cost and payouts and things that will have so.
There could be some mitigation, although I think most of that will happen in more in the latter half of the year, where we'll start getting some of the benefit of our tax clawbacks as we get those returns while to get the cash from those so I think our cash position in terms of total cash is going to stay pretty stable through Q1, and then you'll see that operating cash ramp back up through the year to get back to that 40 million plus type numbers that we get.
To the latter half of the second path 21.
I would just add some color Matt on ERP quietly year during cold bid we've been working very hard of note that we expect the legacy dental business to be brought up on the SAP ERP platform from a few fredy early.
Early in the spring.
On that pretty cost effectively as you haven't seen that spike up in Capex, obviously in the.
In the results and I think we will use the remainder of.
21 to make sure we've laid out.
Great plan for EMEA, but I think it'd be a.
Medical will be the next platform that we've moved past 80, and that'll be a fiscal year 22 action.
You can expect that Capex is not going to go off the rails more than like $8 million to $10 million a quarter type run rate on average so or 21.
Excellent. Thank you very much.
Thank you Matt Our next question will come from Mitra Ramgopal Sidoti.
Yes, hi, good morning.
I was just wondering as either.
This next year, how we should think about restructuring and acquisition related costs et cetera, that's largely behind us.
Yeah, I mean other than you will see some some Q1.
Restructuring cost probably come through or throughout the year and restructuring costs come come through but.
Most of the large acquisition cost to your point, that's that's behind US I mean again, you still see some footprint type.
Restructuring costs come through as we continue with some of those actions in Europe, and dental, but yet the bulk of the Q3 acquisition costs too.
To the extent that those are now this is going to be embedded and ongoing amortization depreciation those are behind us.
Okay. Thanks.
And obviously you know you've had two quarters now we've got quite a bit as obviously.
Back to the operations and I'm just curious as you look to implement the two O. initiative how.
How has it changed your out.
Change your outlook as it relates to.
Accelerating our product introductions.
Or even rationalizing the global Aer portfolio, and maybe any new opportunities et cetera, you've seen as a result that I know obviously you highlighted for example face mask is obviously, a plus but any other.
Comments around that would be great.
Yes, that's right I think the biggest thing that we warned.
Across the business is just changing the cadence right that you can fall into or.
A cadence that is running your business on a weekly or monthly and quarterly basis, and I think the best opportunity for us that we've seen.
Collectively from an execution standpoint is getting back to running the business on a daily basis.
As far as.
As.
Things that we had started to lay out pre co bid I think actually the opportunity for us with some of those activities required.
Extra pairs of hands and get work done and I think the excess capacity that was created with the downtime in certain parts of the business allowed us to move smart people to those cantel 2.0, and old initiatives to move faster at a quality pace.
Okay, that's great.
And again, just on the M&A front or mixed things from different companies, obviously, it's difficult to get some deals done in this kind of environment at the same token you are seeing some opportunities as a result of.
Russia is in a number of maybe potential competitors et cetera, you guys. Just curious you've got up to about a year now.
BD and I know the focus is to also de lever the balance sheet that somewhat.
Just any thoughts around maybe.
Being active again on the M&A front.
Yes look I think for the time being we're very focused on of these cantel 2.0 opportunities, which are significant and as Peter said.
You know we've been using this time wisely to push those ahead. So we have obviously work is still ahead of us to focus on that I think thats, where we can get.
The greatest deployment of our lease our people resource or is there secondly look we obviously.
Obviously coal would have its had some impact but certainly been on how quickly we could pay down debt. You. All know we had that we took out the issuance of the convertible debt.
The good news is our cash management has improved meaningfully. So we will will will be paying down debt as we go through the year, but that's going to continue to be our primary focus is.
Is to get that down before we start looking more assertively to things on the outside we obviously stay active and we look and we continue to follow things because as you know the way.
The way, we do acquisitions in the past there are usually have a proprietary nature and those are based on building.
Relationships with companies that ultimately want to become part of cantel. So that part we continue to do but in terms of actually pulling the trigger on anything that's that will be a few months off as we work on getting our capital structure, where we want it to be.
Okay Thats great. Thanks, and then finally again just to be clear.
George I know you've talked about the EBITDA margin et cetera by year end should be.
Improving off of what we saw this past year, but just.
Interest in some of the assumptions on that in terms of as I think you've mentioned as the business picks up you will obviously be bringing people back and they obviously are going to be some cost savings.
Would be more of a permanent nature et cetera, but.
In terms of just some of the.
Cost that were.
Sort of.
You didn't have to incur with travel.
Non essential capex et cetera.
How much of that really shouldnt.
Should we see as going away at a more permanent in nature.
John I'll, let you add I'll, let you answer that question I guess look what well see as we sort of said at a high level. What we can control. Our these operating expenses and if theres one thing thats transpired over the last six months to eight months is the discipline that we have developed and put in place to.
Yeah.
To manage these things in a very precise way certainly been helped by our safeties functionality has improved.
We really have put together I think a pretty robust playbook. So this operating expense number look good.
Look it's not a precise science because you have to put things in place in order to satisfy the improvement in volumes, but at the same time, we know the levers we can continue to control to hold off on Opex until we really understand where revenue is going.
But.
Sean if you want to add a little more color. Please go ahead.
Yes, I mean that is the key is that we have the playbook right to react as necessary and we're landing at that $85 million to $90 million in the first half year, because that's right. What we are targeting to get to that 90% based on our anticipation the recovery, which again medical and dental be north of 90% the latter half of the year.
There is kind of how we view the world and how we get to a 19%.
Percent so to your point right Q4, obviously of the base includes very very very strict expense control on any type of expense around travel and other discretionary expense and so we do show that coming back very very slowly with tight controls on it and we'll continue to react as necessary given volumes.
But the raw numbers again to reiterate our roughly you have $15 million that headwind sequentially from Q4 coming back and then on a full quarter basis, you should get it.
Just a little over $3 million of benefit back off of that from the round of restructuring that we just took.
Okay. Thanks, again for taking the questions.
Okay.
Gentlemen, our next question will come from the line of Mike Matson Needham and company.
Yes. Thanks, So just had a few questions on the cancelled 2.0 program. So.
You mentioned in the slides and I think on the call that you.
Taking the.
You created kind of a salesforce within medical the U.S. business that creates all the capital and procedural items I think in the past.
Did you have a separate sales force for each of those categories and is there any risk of any disruption from having.
Salesforce now selling boats, maybe some things that they are not as familiar with and then can you comment on the the size of the assay team I know, you're probably not going to give a number any numbers but.
Maybe just relative to the hospital.
Hospital team, how big is that currently.
Yeah, Mike This is Peter.
In terms of again I'm not going to give you sized I'll just tell you that the focus for the AC and that dedicated team full bag reps, we've targeted the largest eight ventral AC regions in the us and Thats, where were starting and with ambition to hopefully eventually cover the top 10 Metro AC rigs.
And so again in the past that strategy was really what we called our pod structure concept was a single capital Rep with large territory sharing that territory with multiple account reps.
Yes, obviously benefits of expertise of the product knowledge, but it left us.
And opportunity.
Further sell the full bag or the solution sales. So that is the key change on the hospital side.
Is is we have migrated to full bag reps dedicated solely to the hospital.
Hardened rain with the cabs and the clinicians to drive that CCOH piece sale.
To achieve better pocket.
Pocket share and the hospital customers that we have really strong relationships with today so on.
Total head count basis of feet on the street, it's relatively flat it might be modestly up a couple of heads.
The mix is different and in terms of risk.
We were pretty proactive here in the late third quarter and the fourth quarter anticipating that the structure was going to change and we were executing many training sessions with our sales teams.
The U.S. to get people far more familiar with the full bag.
Training it already started before the reconfiguration in June and obviously it continues here and in July and August and September.
In terms of talent look we kept our best reps. It's one of the key takeaways from the reconfiguration in June is in the entire year fiscal plenty, we probably saw about 20% of our reps turnover.
So at the end of the day, we feel very strongly that we had the best team in the industry from a sales perspective, and we kept the lion's share bulk of that team.
And really spent the time required to retrain people.
To be successful here in 21.
Okay. Thanks.
And then I know you talked about your prior to co that trial.
Try and improve the new product cadence I think there were at least to two things that you launched in medical one was I think it's getting about many of the new scope Buddy clause, so I know that those.
Investors, maybe aren't as focused on new products, just given everything that's happened to co bid, but I was just curious if you could comment on any traction you're seeing with those products and any other new products that you are willing to talk about medical or dental for that matter. Thanks.
Yes in many ways due to Covance right.
You know the comment out of this gives us almost the second window to re launch both.
Full scope body plots in the cleaning adapter came really late one Q in the started to Q so in fairness.
The results were extremely positive, but most like most things the third quarter.
And fourth quarter were non traditional so again I think it offers us an opportunity in the first half to 21 Didnt.
To be very aggressive in our programs as we push these products out as they build huge potential over the next two to three years on the medical side.
And then.
The other one that we are really really excited about as you free is just launched a new arrogant omics scalar.
In the last 60 days and obviously a time right now.
Dental practitioners are keenly aware and concerned about aerosol.
In the sweet.
Which is driving a reality of folks either eliminating or dramatically, reducing the amount of power scaling that's happening. So you've got a lot of high Janice that had been used to using manual scaling as a supplement to power that are now going 100% of manual scaling and so again, there's folks that are.
Not used to that volume and we think this product is going to be a home run covenant.
Come in at the perfect time into the marketplace.
Given again the post Kobin world.
Okay. Thanks.
Thank you for your question, ladies and gentlemen that was the final question from our audience today I will turn it back to the Cantel leadership team for any additional or closing remarks George.
Okay. Good thank you.
You know it is literally been six months since co bid was declared a pandemic back in the middle of March.
We're all very well aware of how this has impacted the world and individual businesses. What I can tell you today sitting here on September 17th is that it has.
It has been a transformational time for cantel as we sit here today.
Our mission that we've talked about for years has never been more relevant as I said and we have really geared up to work in our end markets.
As the leaders in both of these end markets to serve customers and this is going to as I said pay us dividends long term second.
Secondly is we really stepped up our game on how to execute and manage our operations that was driven by necessity, but now we see it.
Developing into a competencies such that even with the kind of uncertainty that still remains on that top line.
Where we are putting forth that we want to be at the 19 plus percent by by the fourth quarter.
You know, depending on where revenues go could be even better but again at least gives our share.
Our shareholders, an understanding and having some confidence on our ability to execute.
So with that we look forward to speaking to on our Q1 results in a few months' time and thank you for participating in todays call.
Ladies and gentlemen, this does conclude todays update we thank you all for your participation you may now disconnect your lines and we hope that you enjoy the rest of your day.
Hello.
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