Q1 2022 Steris plc Earnings Call
And everyone and welcome to the <unk> plc first quarter, 2020.2 conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
To ask a question you May press Star and then 1 to withdraw your question you May press Star and 2.
Please also note today's event is being recorded.
At this time I would like to turn the conference call over to MS. Julie Winter Vice President of Investor Relations Ma'am. Please go ahead.
Thank you, Jamie and good morning, everyone.
This morning speaking on our call will be Mike Hogan, and senior Vice President and CFO, and Dan <unk>, our president and CEO and.
Do you have a few words of caution before we open for comments from 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 of terrorists and strictly prohibited.
Some of the statements made during this review are or maybe considered forward looking statements.
Many of its important factors could cause actual results to differ materially from those and the forward looking statements, including without limitation those risk factors described in Sarasota Securities filings.
The company does not undertake to update or revise any forward looking statements of the results of new information or future events or developments.
Theres the SEC filings are available through the company and on our website.
In addition, and today's call non-GAAP financial measures included including adjusted earnings per diluted share adjusted operating income constant currency organic revenue growth and free cash flow will be used.
Additional information regarding these measures, including definitions is available in today's release as well as reconciliations between GAAP and non-GAAP financial measures.
Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the board of directors and their financial analysis and operational decision making.
With those cautions I will hand, the call over to Mike.
Thank you Julie and good morning, everyone. It is once again my pleasure to be with you. This morning to review the highlights of our first quarter performance for the quarter constant currency organic revenue increased 21% growth was driven by organic volume as well as of 130 basis points of price acquisitions.
The acquisitions and total added $141 million to revenue and the quarter, which is broken down by segment and the press release tables.
To assist you with your modeling I will share some color on the acquisition revenue contribution within the healthcare segment.
Of the approximately $96 million and acquired revenue about 70% is consumable revenue from both key surgical and cantel medical.
About 20% of the balances capital equipment revenue with the last 10% being service revenue.
We will not be breaking that down any further as it is already difficult to differentiate some product lines. As we are integrating the businesses quickly and that challenge will only escalate.
And with each passing quarter.
Gross margin for the quarter increased 220 basis points compared with the prior year to 46, 6% of <unk>.
Favorable productivity pricing and acquisitions were somewhat offset by negative foreign currency inflation and mix.
Looking at the rest of the year, we do expect additional headwinds from inflation on raw materials.
EBIT margin for the quarter was 22, 9% of revenue and increase of 130 basis points from the first quarter last year.
As anticipated we are starting to see some operating expenses, such as travel and sales and marketing cost return, which limited EBIT margin growth.
The adjusted effective tax rate and the quarter was 28% higher than last year, but in line with our expectations for the fiscal year.
Net income and the quarter increased to $159.9 million and earnings were $1.76 per diluted share.
Our balance sheet as a continued source of strength for the company.
Our leverage ratio at the end of the first quarter is lower than our expectations and is below 2.9 times.
We have less debt and higher EBITDA than we originally modeled.
Cash at the end of the quarter total of $535 million.
Regarding the <unk> convertible notes, 100% of the holders had elected to convert their notes all conversions will be fully settled in cash during the second quarter of fiscal 'twenty 2.
As of June 30, and the estimated total cash settlement value was approximately $366.5 million.
During the first quarter capital expenditures totaled $56.4 million, while depreciation and amortization was $83.6 million cash.
Capital spending and the first quarter was somewhat lower than planned due to weather related delays for several of our asps construction projects.
Free cash flow for the first quarter was $41.2 million and as anticipated. This is a decline from the prior year due to costs associated with the Cantel medical acquisition.
With that I will turn the call over to Dan for his remarks.
Thanks, Mike and thanks, again to everyone for taking the time to join us today.
We had a strong start to our fiscal year.
The revenue growth and Q1 exceeded our expectations as we saw a faster recovery and customer demands and planned and particular and our healthcare and <unk> segments.
Due to strong volume growth, we were able to expand margins nicely during the quarter.
Our integration teams have been hard at work and inks and significant progress has been made integrating cantel medical.
We are pleased with what we're seeing but of course, we still have significant work to do.
Since the June 2nd close and acquisition, we have made a number of decisions that impact how we go to market with our customer first mentality.
For example, <unk>.
Leveraging the talent and expertise of the Cantel sales organization, we have created a dedicated sales channel focused solely on endoscope reprocessing.
We added a new dental segment and mapped the cantel businesses over to the for sterile reporting segments.
The executive alignment and leadership has been completely defined from both a field and back office perspective.
We have started to educate and implement stairs lean practices within cantel.
And we have made significant progress realigning, our European healthcare business as we bring stairs key surgical and cantel together.
From a synergy perspective, we continue to expect of $25 million benefit for this fiscal year.
As the majority of the savings are driven by the elimination of corporate cost and much of that integration is complete.
In terms of longer term synergies, we are increasingly confident of exceeding our $110 million cost target as we continue to see opportunities to improve.
Shifting to our outlook.
Based on what we have seen in stairs and across the broader industry. We believe there has been of significantly faster rebound and procedures than we anticipated.
This has created stronger demand for capital consumables and services and has led us to raise revise our guidance upward for the year.
Starting with revenue our.
Our constant currency organic growth outlook has been increased to 10% to 11% growth for fiscal 2022.
This improvement combined with additional foreign currency benefit.
And higher expectations for Cantel medical business has increased our expectation for total reported revenue to $4.6 billion.
Our organic growth is driven by revenue recovery across the business, but in particular from our healthcare and <unk> segments.
Within the healthcare segment, we have record capital backlog at the end of the first quarter with strength and both surgical and infection prevention.
The record healthcare backlog is entirely organic.
As we have not yet added the cantel capital equipment to our backlog.
Consumables also had a strong start to the year.
As we have a relatively easy comparisons and experienced some restocking by our customers.
<unk> is also expected to remain strong as our core medical device customers are benefiting from the rebound and procedures and rebuilding some inventory.
In addition, we continue to see strong demand for COVID-19 related products and vaccines as well as bioprocess manufacturing disposables.
Given the strength of Asti.
Our segment allocation will shift from what we shared last quarter.
The ASP is now expected to be approximately 18% of total company revenue.
While dental will be about 8% of total total company revenue for the full fiscal year.
We are increasing our adjusted earnings per diluted share expectations to a range of $7.60 to $7.85.
Based on higher volume growth and improved margins.
We are mindful that there is still considerable uncertainty around procedure volumes as we see COVID-19 variance continuing to spread continued inflationary pressure and we also have an expectation that we will pick up some increases in opex and the second half of the year.
Reflecting on the stronger projected earnings growth free cash flow expectations have been increased by $20 million.
Fiscal 2022 is shaping up to be another record year for Stericycle.
We look forward to continue to update all of you on our progress I will now turn the call back opened over to Julie to open up for Q&A Julien.
And Mike and Dan for your comments, Jamie would you. Please give the instructions and we'll get started on Q&A.
Ladies and gentlemen, we will now begin the question and answer session.
And I ask a question you May press Star and then 1 using a touchtone telephone if you are using a speakerphone and we do ask that you. Please pickup your handset before pressing the keys.
To withdraw your question you May press Star and 2.
At this time, we will pause momentarily to assemble the roster.
Our first question today comes from Matthew Michelle and from Keybanc. Please go ahead with your question.
Hey, good morning, guys and thank you for how much for taking the questions.
Hey, Jim first.
And we'll talk to you the trends youre seeing and the ASC business.
And it wasn't a particularly easy comp this quarter and it seems like you've been able to sustain.
Low double digit leave of low teens growth rate of that business for a little bit and how should we be thinking about that going forward.
I mean, what we're seeing now is obviously driven by a rebound and procedures, especially the highly elective procedures, which are generally the higher value type products that we process. So.
And so that's where we're seeing a lot of the the improvement now.
And in the past that we saw the benefit of PPE and some of the COVID-19 related products, when and when we saw declines and normal procedural type products.
Going forward, assuming that things are resuming at normal levels of procedural.
Occurrences.
And we don't get slipped up significantly by another COVID-19 variant in terms of the procedural.
Slowdown.
The highly confident that we'll continue to grow.
And we believe that the Covid related products are here to stay for the foreseeable future anyways and then clearly the the work that we're doing with bioprocess and disposables is long term sustainable growth for us.
So and I think we are.
Reaping the benefits of a lot of investments we put in place over the last few years in terms of capacity expansion.
Enable able to fill those as customers demand continues to tick up.
And then and then 2 questions on the model first of the corporate cost line came in at a higher level at a higher.
And a higher number of around $75 million is that the normalized rate moving forward for that line and then secondly, I think you previously gave us the first half second half phasing.
And for EPS is that is that is that still intact or has that changed.
Yes, good morning, Matt It's Mike.
And regards to the phasing the percentages we came out with 45.55 split for the year on our last call. It's moved a percent or 2 so.
It's not material and R&R and.
And our view so we have not updated that but it's moving a little bit more towards the second half, but again.
100 basis point of 200 basis points nothing material from our standpoint.
Corporate cost obviously, we have seen.
Travel and we have seen some some return of additional costs. So I would say $75 million, maybe a little high.
But think about obviously, a larger increase as we go on and usually the first quarter is a little bit higher for us as we are providing.
Providing for for bonuses for the year at the start and obviously, there's some commissions also in there.
But I would say relatively youre definitely going to see an increase and the operating expenses.
Everything is assumed without as Dan talked about without seeing any and additional variance we have seen travel pickup for our field and for our corporate staff.
Okay, and then and then loss just the bigger picture question, Dan as Youre coming out of the out of.
Of this the right way to look at the at the long term growth CAGR for for Cerus.
I mean.
Matt It's difficult right now is what I would say coming out of a post COVID-19 year, and the sort of phasing, where we're still and COVID-19, but we're not so.
Of our overarching goals Thats, there says the deliver and the high single digits and the low double digits on bottom consistently at the company I think we probably are getting a little lift this past quarter from a faster procedure will recover the recovery than we anticipated.
But that's our forward looking.
The statement that we've had consistently in terms of our objectives for growth right.
Alright, Thank you very much.
Our next question comes from Mike Matson from Needham <unk> Company. Please go ahead with your question.
Yes. Good morning, Thanks for taking my questions.
The ask about the I guess I'll start with the dental business. So.
Just curious how that how you're viewing that business I don't know if you could tell us sort of the pro forma growth or not but.
What do you think of the business now that you own it given that the new market for you and then.
I noticed the you kind of read the ESP portion of the mix of lower the portion of the the dental mix. So.
Is that dental underperforming or is it just the.
Outperforming.
Yes, it's not dental underperforming they're right on target in terms of 1 of our expectations were and our deal model Tejas.
And just running a little hot right now is what I would say and more.
To give you some context dental I mean, we just had it for 28 days, but it is as Dan said it is performing in line with our expectations and if you look year over year. They have about a 30% revenue growth. So obviously doing very nicely as they are seeing the dental market and the procedures on the dental.
Customers coming back nicely as we have seen that and on the healthcare side.
Okay. Thanks, and then.
The gross margin was.
A bit above what we had been modeling. So I was just wondering if you could comment on that do you expect it to kind of stay at this.
46 level.
The level for.
46, and a half level.
Going forward.
Yes, Mike I would say that.
And it's probably a high watermark for US right now we had a lot of things for.
From a favorable standpoint happened during the quarter and those are going to be hard to repeat.
And I think 1 of the things that we want to make sure we come across with as we continue to expect.
The higher inflation.
As we go out and higher material costs, so that will put some definitely put some pressure on those margins. So I would say, it's it's a little bit lower than that of $46..6 is probably again a high watermark for us.
Okay, and I understand and then you mentioned inflation, but I wanted to ask just about.
The kind of component availability semiconductors things like that and are you are you seeing any issues there that could constrain your ability to meet demand at all.
We're seeing issues, but nothing thats constraining in terms of our ability to deliver for customers or certain instances, where maybe we are paying a little more than what we paid historically.
But generally speaking we've been managing through it.
Pretty well at this point.
Okay, great. Thank you.
And once again, if you would like to ask a question and please press star and 1 of our next question comes from Michael <unk> from Baird. Please go ahead with your question.
Hi, good morning.
For starters, just curious on the the.
The development of the equipment backlog healthcare and life sciences and continuing to be.
And impressed by the resilience and strength in that line for you and some other companies that I follow so is this simply reopening procedure recovery and company and customers are.
And of replacing and of service equipment, and adding capacity or is there something else.
Going on on the capital side that you think is.
And is contributing to the the ongoing strength there.
And some of those numbers.
As you know our biggest concern probably this time last year. When we spoke was what was going to happen with capital spending and.
And it actually recovered much quicker than we thought and we.
And we were building backlog all because of the second half of the year.
And what we're seeing now is just there is there seems to be a lot of spending both in healthcare and.
And we're seeing some of the replacement business and the research market and the healthcare also coming back at this point so.
The other.
Hospital systems, just seem a little more bullish in terms of long term growth expectations and.
So we're well positioned to accommodate those expansions, both and SPD and and also and the surgical suites.
Are there any new products that you've now you're rolling out that are kind of <unk>.
Helping there or regular way the type of yes, and I would say, we have a steady diet of sort of iterative new products that we continue to rollout our R&D teams have done a really great job over the last 4 of 5 years, and making sure that we're able to be well positioned with new feature.
<unk> and new benefits.
And on core products around washing and steam and hydrogen peroxide and.
And now with <unk> around <unk> as well so.
Theres nothing Thats, a revolutionary in terms of new type of applications, but.
Like I said of steady diet of iterative, new new product development, that's coming to market.
The the comment on weather related delays to some of your capital projects and Asps can you just provide a little more color of what type of weather and where and then.
Slippage of of quarter meaningful and the Grand scheme of things I think these capacity expansions or new.
The facilities tend to be multiyear build cycles. So just.
Is this something that normalizes over the course of the back half of the year is really the question.
It does.
I would say is it's been during COVID-19.
This is universally applied across the globe. It is very difficult to build major projects.
Buildings, let alone complex engineered structures and getting resources getting the skilled labor across borders to be and the right place at the right time.
Weather delays and are all factors that.
You can kind of slowdown and the process, having said that our teams are we're building a number of facilities right now and our teams are working aggressively to compensate.
But we're optimistic that although a little later than anticipated or originally planned for.
And we're in a pretty good spot in terms of our ability to bring them up successfully and and the right time.
The last 1 probably for Mike and the leverage metric you're quoted Mike 2.9 turns is that pro forma for cantel.
<unk>.
Kind of on a 12 month basis, just whats the numerator denominator.
And.
And in light of the acquisition to get to that number yes.
Yes, certainly so it does include <unk> talent and so 1 of the as part of the calculation, we do have the ability.
And to include the prior 12 months of Kent Hills, EBITDA, and obviously you can't tell of performed much better over the last 2 quarters than we anticipated in our and our model. So that's 1 factor of why Leverages lower the other factor is <unk> actually was able to pay down their debt.
Much much more quickly and it was lower than we anticipated at close and in addition to that they actually had a higher cash balance than we anticipated. So that also was a factor and allowing us to continue to pay down but more importantly borrow less.
The debt as the transaction closed so those are those of the 2 main factors.
Alright, Thank you very much.
You are welcome thank you.
And ladies and gentlemen, with that we'll end today's question and answer session I would like to turn the floor back over to the management team for any closing remarks.
Thanks, everybody for taking the time to join US. This morning, I know many of you around vacation and I. Appreciate you dialing in and it looks like the catching up with you and the coming week.
Okay.
Ladies and gentlemen that will conclude today's conference call. We do thank you for attending you may now disconnect your lines.
Yeah.
[music].
[music].
Good morning, everyone and welcome to the stairs plc first quarter, 2020.2 conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
The ask a question you May press the Star and then 1 to withdraw your question you May press Star and 2.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to MS. Julie Winter Vice President of Investor Relations Ma'am. Please go ahead.
Thank you, Jamie and good morning, everyone.
This morning speaking on our call well, the Mike Hug, and our senior Vice President and CFO, and Dan <unk>, our president and CEO of <unk>.
And do you have a few words of caution and before we open for comments from management.
This webcast contains time sensitive information that is accurate only as of today any redistribution retransmission or rebroadcast of this call without the express written consent of ferrous and strictly prohibited.
Some of the statements made during this review are or maybe considered forward looking statements.
Important factors could cause actual results to differ materially from the other than the forward looking statements, including without limitation those risk factors described in Sarasota Securities filings.
The company does not undertake to update or revise any forward looking statements of the results of new information or future events or developments.
Theres the SEC filings are available through the company and on our website.
In addition, and today's call non-GAAP financial measures included including adjusted earnings per diluted share adjusted operating income constant currency organic revenue growth and free cash flow will be used.
Additional information regarding these measures, including definitions is available in today's release as well as reconciliations between GAAP and non-GAAP financial measures.
Non-GAAP financial measures are presented during this call with the and tons of providing greater transparency to supplemental financial information used by management and the board of directors and their financial analysis and operational decision making.
With those questions I will hand, the call over to Mike.
Julian and good morning, everyone. It is once again my pleasure to be with you. This morning to review the highlights of our first quarter performance for the quarter constant currency organic revenue increased 21% growth was driven by organic volume as well as of 130 basis points of price acquisitions.
Acquisitions, and total added $141 million to revenue and the quarter, which is broken down by segment and the press release tables.
To assist you with your modeling I will share some color on the acquisition revenue contribution within the healthcare segment.
Of the approximately $96 million and acquired revenue about 70% is consumable revenue from both key surgical and cantel medical and about 20% of the balance of capital equipment revenue with the last 10% being service revenue.
We will not be breaking that down any further as it's already difficult to differentiate some product lines. As we are integrating the businesses quickly and that challenge will only escalate.
With each passing quarter.
Gross margin for the quarter increased 220 basis points compared with the prior year to 46, 6% as favorable productivity pricing and acquisitions were somewhat offset by negative foreign currency inflation and mix.
Looking at the rest of the year, we do expect additional headwinds from inflation on raw materials.
EBIT margin for the quarter was 22, 9% of revenue and increase of 130 basis points from the first quarter last year.
And as anticipated we are starting to see some operating expenses, such as travel and sales and marketing cost return, which limited EBIT margin growth.
The adjusted effective tax rate and the quarter was 28% higher than last year, but in line with our expectations for the fiscal year.
Net income and the quarter increased to $159.9 million and earnings were $1.76 per diluted share.
Our balance sheet as a continued source of strength for the company our leverage ratio at the end of the first quarter is lower than our expectations and is below 2.9 times, we have less debt and higher EBITDA than we originally modeled cash.
Cash at the end of the quarter total of $535 million.
Regarding the <unk> convertible notes, 100% of the holders had elected to convert their notes.
All conversions will be fully settled in cash during the second quarter of fiscal 'twenty 2.
As of June 30 of the estimated total cash settlement value was approximately $366.5 million.
During the first quarter capital expenditures totaled $56.4 million, while depreciation and amortization was $83.6 million cash.
Capital spending and the first quarter was somewhat lower than planned due to weather related delays for several of our ASC construction projects.
Free cash flow for the first quarter was $41.2 million and as anticipated. This is a decline from the prior year due to costs associated with the Cantel medical acquisition with that I will turn the call over to Dan for his remarks.
Thanks, Mike and thanks, again to everyone for taking the time to join us today.
We had a strong start to our fiscal year <unk>.
Revenue growth and Q1 exceeded our expectations as we saw a faster recovery and customer demands and planned and particular and our healthcare and <unk> segments.
Due to strong volume growth, we were able to expand margins nicely during the quarter.
Our integration teams have been hard at work and inks and significant progress has been made integrating cantel medical we.
We are pleased with what we're seeing but of course, we still have significant work to do.
Since the June 2nd close and acquisition, we have made a number of decisions that impact how we go to market with our customer first mentality.
For example, <unk>.
Leveraging the talent and expertise of the Cantel sales organization, we have created a dedicated sales channel focused solely on endoscope reprocessing.
We added a new dental segment and mapped the cantel businesses over to the for sterile reporting segments.
The executive alignment and leadership has been completely defined from both a field and back office perspective.
We have started to educate and implement stairs lean practices within cantel.
And we have made significant progress realigning, our European healthcare business as we bring stairs key surgical and cantel together.
From a synergy perspective, we continue to expect of $25 million benefit for this fiscal year as the majority of the savings are driven by the elimination of corporate cost and much of that integration is complete.
In terms of longer term synergies, we are increasingly confident of exceeding our $110 million cost target as we continue to see opportunities to improve.
Shifting to our outlook.
Based on what we have seen in stairs and across the broader industry. We believe there has been of significantly faster rebound and procedures than we anticipated.
This has created stronger demand for capital consumables and services and has led us to raise revise our guidance upward for the year.
Starting with revenue.
And our constant currency organic growth outlook has been increased to 10% to 11% growth for fiscal 2022.
This improvement combined with additional foreign currency benefit.
And higher expectations for Cantel medical business has increased our expectation for total reported revenue to $4.6 billion.
Our organic growth is driven by revenue recovery across the business, but in particular from our healthcare and <unk> segments.
Within the healthcare segment, we have record capital backlog at the end of the first quarter with strength and both surgical and infection prevention.
The record healthcare backlog is entirely organic.
As we have not yet added the cantel capital equipment to our backlog.
Consumables also had a strong start to the year and.
As we have relatively easy comparisons and the experienced some restocking by our customers.
<unk> is also expected to remain strong as our core medical device customers are benefiting from the rebound and procedures and rebuilding some inventory.
In addition, we continue to see strong demand for COVID-19 related products and vaccines as well as bioprocess manufacturing disposables.
Given the strength of ASP.
Our segment allocation will shift from what we shared last quarter.
<unk> is now expected to be approximately 18% of total company revenue.
While dental will be about 8% of total total company revenue for the full fiscal year.
We are increasing our adjusted earnings per diluted share expectations to a range of $7.60 to $7.85.
Based on higher volume growth and improved margins.
We are mindful that there is still considerable uncertainty around procedure volumes as we see COVID-19 variance continuing to spread continued inflationary pressure and we also have an expectation that we will pick up some increases in opex and the second half of the year.
Reflecting.
<unk> on the stronger projected earnings growth free cash flow expectations have been increased by $20 million.
Fiscal 2022 is shaping up to be another record year for cerus, and we look forward to continue to update all of you on our progress I will now turn the call back opened over to Julie to open up for Q&A Julie.
Thank you, Mike and Dan for your comments, Jamie would you. Please give the instructions and we'll get started on Q&A.
Ladies and gentlemen, we will now begin the question and answer session. SaaS. Good question, you May Press Star and then 1 using a touchtone telephone.
You are using a speaker phone and we do ask that you. Please pickup your handset before pressing the keys.
To withdraw your question you May press Star and 2.
At this time, we will pause momentarily to assemble the roster.
Our first question today comes from Matthew Michelle and from Keybanc. Please go ahead with your question.
Hey, good morning, guys and thank you for how much for taking the questions.
Hey, Dan first can you just talk to the trends youre seeing and.
And the ASC business.
I mean, it wasn't a particularly easy comp this quarter and it seems like you've been able to sustain.
Low double digit EBITDA low teens growth rate of that business for a little bit and how should we be thinking about that going forward.
What we're seeing now is obviously driven by a rebound and procedures, especially the highly elective procedures, which are generally the higher value type products that we process.
And so thats, where were seeing a lot of the the improvement now.
And in the past that we saw the benefit of PPE and some of the Covid related products when when we saw declines and normal procedural type products.
Going forward, assuming that things are resuming at normal levels of procedural.
Occurrences.
And we don't get slipped up significantly by another COVID-19 variant and terms of procedural.
Slowdown.
Highly confident that we'll continue to grow.
And we believe that the Covid related products are here to stay for the foreseeable future anyways and then clearly the the work that we're doing with bioprocess and disposables is long term sustainable growth for us.
So and I think we're.
Reaping the benefits of a lot of investments we put in place over the last few years in terms of capacity expansion.
Enable able to fill those as customers demand continues to tick up.
And the and then 2 questions on the model first the corporate cost line team.
And at a higher level at a higher.
And a higher number of around $75 million is that the normalized rate moving forward for that line and then secondly, I think you previously gave us the first half second half sales.
Saving.
For EPS is that is that is that still intact or has that changed.
Yes, good morning, Matt It's Mike.
And regards to the phasing the the percentages we came out with $45.55 split for the year on our last call. It's moved a percent or 2 so.
It's not material and R&R and.
Our view, so we have not updated that but it's moving a little bit more towards the second half, but again of 1.
100 basis point of 200 basis points nothing material from our standpoint.
Corporate cost obviously, we have seen.
Travel and we have seen some some return of additional costs. So I would say 75 million may be a little high.
But to think about obviously, a larger increase as we go on and usually the first quarter is a little bit higher for us as we are.
Providing for for bonuses for the year at the start obviously there are some commissions also in there.
But I would say relatively youre definitely going to see an increase and the operating expenses.
Everything is assumed without as Dan talked about without seeing any any additional variance we have seen travel pick up for our field and for our corporate staff.
Great. Thanks, and then and then launch just the bigger picture question.
As of coming out of the out of this flow.
The right way to look at the at the long term growth CAGR for for Cerus.
I mean.
Matt It's difficult right now is what I would say coming out of a post COVID-19 year, and the sort of phasing, where we're still and COVID-19, but we're not so.
Our overarching goal and Thats there is the delivery and the high single digits and the low double digits on bottom consistently at the company I think we probably are getting a little lift this past quarter from a faster.
Procedural recover the recovery than we anticipated.
But that's our forward looking.
The statement that we've had consistently in terms of our objectives for growth.
Alright, Thank you very much.
Our next question comes from Mike Matson from Needham <unk> Company. Please go ahead with your question.
Yes. Good morning, Thanks for taking my questions.
Wanted to ask about the I guess I'll start with the dental business. So.
Just curious how that how you are viewing that business I don't know if you could tell us sort of the pro forma growth or not but.
Or do you think of the business now that you own it given it is the new market for you and then.
Noticed that you kind of read the ESP portion of the mix of lower of the portion of that the dental mix. So.
Is that dental underperforming or as ESG just the outperforming.
Yes, it's not dental underperforming they are right on target in terms of 1 of our expectations were and our deal model ASC just.
And is running a little hot right now is what I would say and Mike to give you some context dental I mean, we just had it for 28 days, but it is as Dan said it is performing in line with our expectations and if you look year over year, they have about a 30%.
<unk> growth, so obviously doing very nicely as they are seeing the dental market and the procedures on the dental customers coming back nicely as we have seen that on the healthcare side.
Okay. Thanks, and then.
The gross margin was quite a bit above what we had been modeling.
Wondering if you could comment on that do you expect it to kind of stay at this.
46 level.
The level.
The $46.5 level.
Going forward.
Yes, Mike I would say that.
It's probably a high watermark for US right now we had a lot of things.
From a favorable standpoint happened during the quarter and those are going to be hard to repeat.
And I think 1 of the things that we want to make sure we come across with as we continue to expect.
The higher inflation.
As we go out and higher material costs, so that will put some definitely put some pressure on those margins. So I would say, it's it's a little bit lower than that $46.6 its probably again a high watermark for us.
Okay and understand and then you mentioned inflation, but I wanted to ask just about.
And of component availability semiconductors things like that of <unk>.
Are you seeing any issues there that could constrain your ability to meet demand at all.
We're seeing issues, but nothing thats constraining in terms of our ability to deliver for customers. There are certain instances, where maybe we are paying a little more than what we paid historically.
But generally speaking we've been managing through it.
Pretty well at this point.
Okay, great. Thank you.
And once again, if you would like to ask a question and please press star and 1 of our next question comes from Michael <unk> from Baird. Please go ahead with your question.
Hi, good morning, Thank you.
For starters, just curious on the day.
<unk> of the equipment backlog healthcare and life Sciences and continue to be.
And impressed by the resilience and strength in that line for you and some other companies that I follow so is this simply reopening procedure recovery and company and customers are.
And of replacing and of service equipment, and adding capacity or is there something else.
Going on on the capital side that you think is.
This is contributing to the the ongoing strength there.
And some of those numbers.
As you know our biggest concern probably this time last year. When we spoke was what was going to happen with capital spending and.
And it actually recovered much quicker than we thought and.
We were building backlog all through the second half of the year.
And what we're seeing now is just there is there seems to be a lot of spending both in healthcare.
And we're seeing some of the replacement business and the research market and the healthcare also coming back at this point so.
The.
Hospital systems, just seem a little more bullish in terms of long term growth expectations and.
So we're well positioned to accommodate those expansions, both and SPD and and also and the surgical suites.
Are there any new products that you've now you're rolling out that are kind of <unk>.
Helping there or regular way of type of yes and.
I would say we have a steady diet of sort of iterative new products that we continue to rollout our R&D teams have done a really great job over the last 4 of 5 years, and making sure that we're able to be well positioned with new features and new benefits.
And on core products around washing and steam and hydrogen peroxide and.
And now with <unk> around <unk> as well so.
Theres nothing thats revolutionary in terms of new type of applications, but.
Like I said of steady diet of iterative new product development, that's coming to market.
The the comment on weather related delays to some of your capital projects and Asps can you just provide a little more color of what type of weather and where and then.
Slippage of of quarter meaningful and the Grand scheme of things I think these capacity expansions or new.
The facility, which tend to be multiyear build cycles. So just.
Is this something that normalizes over the course of the back half of the year is really the question.
It does.
What I would say is it's been during COVID-19 and it's.
This is universally applied across the globe. It is very difficult to build major projects.
The building is let alone complex engineered structures and getting resources getting the skilled labor across borders to be and the right place and the right time.
Weather delays and are all factors that.
You can kind of slow down the process of having said that our teams are we're building a number of facilities right now and our teams are working aggressively to compensate.
But we're optimistic that although a little later than anticipated or originally planned for.
We're in a pretty good spot in terms of our ability and bring them up successfully and and the right time.
The last 1 probably for Mike on the leverage metric you're quoted Mike 2.9 turns is that pro forma for cantel.
<unk>.
Kind of on a 12 month basis, just whats the numerator denominator.
And.
And in light of the acquisition to get to that number yes.
Yes, certainly so it does include <unk> talent and so 1 of the as part of the calculation, we do have the ability.
And to include the prior 12 months of Kent Hills, EBITDA, and obviously you can't tell of performed much better over the last 2 quarters than we anticipated and are in our model. So that's 1 factor of why Leverages lower the other factor is cant tell actually was able to pay down their debt.
Much much more quickly and it was lower than we anticipated at close and in addition to that they actually had a higher cash balance than we anticipated. So that also was a factor and allowing us to continue to pay down but more importantly borrow less.
That is the transaction closed so those are those of the 2 main factors.
Alright, Thank you very much.
You are welcome thank you.
And ladies and gentlemen, with that we'll end today's question and answer session I would like to turn the floor back over to the management team for any closing remarks.
Thanks, everybody for taking the time to join US. This morning, I know many of you are on vacation and I. Appreciate you dialing in and it looks like the catching up with you and the coming weeks.
Yes.
Ladies and gentlemen that will conclude today's conference call with you. Thank you for attending.
May now disconnect your lines.