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Edited Transcript of CMD earnings conference call or presentation 28-Feb-19 2:30pm GMT

Q2 2019 Cantel Medical Corp Earnings Call

Little Falls Apr 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Cantel Medical Corp earnings conference call or presentation Thursday, February 28, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jorgen B. Hansen

Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director

* Milicent Brooks

Cantel Medical Corp. - Director of Corporate Communications

* Peter G. Clifford

Cantel Medical Corp. - Executive VP, CFO & Member of Office of the Chairman

* Seth M. Yellin

Cantel Medical Corp. - Executive VP of Strategy & Corporate Development and Member of Office of the Chairman

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Conference Call Participants

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* Lalishwar Mitra Ramgopal

Sidoti & Company, LLC - Healthcare Sell Side Analyst

* Lawrence Soren Keusch

Raymond James & Associates, Inc., Research Division - MD

* Matthew Ian Mishan

KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst

* Michael Stephen Matson

Needham & Company, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to the Cantel Medical Corp.'s Second Quarter and Fiscal Year 2019 Earnings Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to Milicent Brooks. Thank you, Ms. Brooks. You may now begin.

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Milicent Brooks, Cantel Medical Corp. - Director of Corporate Communications [2]

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Thank you, Rob, and good morning, everyone. On today's call, we have Chuck Diker, Chairman of the Board; Jorgen Hansen, President, and Chief Executive Officer; Peter Clifford, EVP and Chief Financial Officer; Seth Yellin, EVP, Strategy and Corporate Development; and Brian Capone, Senior Vice President, Corporate Controller and Chief Accounting Officer.

Earlier this morning, the company issued a press release announcing the financial results for the second quarter of fiscal year 2019. In addition, we have posted a supplemental presentation to complement today's call. This presentation can be found on Cantel's 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, the risk 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 supplemental presentation and earnings release. The company will also be making references on today's call to the non-GAAP financial measurements, non-GAAP EBITDA, non-GAAP income from operations, non-GAAP gross profit, non-GAAP diluted earnings per share and net debt. Reconciliations of these financial measures to the most directly comparable GAAP financial measurements are provided in today's earnings release. With that, I'm pleased to introduce to you Jorgen B. Hansen, President, and CEO.

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [3]

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Thank you, Milicent, and welcome, everyone. I'll start off with some brief opening comments followed by Peter who will take us through our second quarter 2019 financial results. Finally, we'll open up the call for Q&A. We are pleased to see continued strong double-digit sales growth in our Medical segment, which was partly offset by softer results in our Life Science and Dental businesses. We grew reported net sales by 5.4%, with 5.3% organic growth. Total growth on a constant-currency basis were was 6.4%. Medical sales grew by 10.2%, driven by double-digit growth in North America and APAC with organic growth of 11.3%.

Total recurring revenue was up 10.4% in the quarter, while capital equipment sales grew by 9.4%. Capital equipment in the U.S. continues to be strong with install rates back at normalized levels giving us confidence in the health of the U.S. AER market. Life Sciences reported a revenue decrease of 0.9% for the quarter, driven by soft capital equipment placements, as previously guided. M&A growth from this year's acquisitions of 4.4%, offset partly by a decrease of 1.6% due to the disposition of our high-purity water business in Canada. Orders for hemodialysis water equipment were down this quarter due to the cyclical headwinds and one of our key customers moving towards a dual source approach. Revenue in our dental segment decreased by 0.4% with an organic decline of 0.7%.

This was mainly due to the continuing inventory adjustments by our distribution partners. While our performance was lower than expected, out-the-door sales with our distribution partners to end users were in the mid-single digits, which give us confidence in the underlying demand for our products.

In addition, the result was impacted by a temporary supply shortage in a key chemistry product line for the alternate care market. Given the restoration of our product supply, we expect this to improve in the second half of the fiscal year. To further strengthen our leading branding portfolio, we closed the acquisition of Vista Research Group in the second quarter and completed the acquisition of Omnia on the first day of February. We expect the profile for our core Dental business will return to the growth territory, and our recently closed acquisitions will accelerate growth to the mid-teens for the Dental segment in the second half of the year.

From a geographic perspective, our international sales increased by 7.3%, driven by 11.3% organic growth.

On a constant-currency basis, EMEA increased 9%, partly held back by capital shipments, delays, which we anticipate, will improve in the second half of the year. APAC increased 25% led by excellent performance in China, despite tariff headwinds. U.S. sales grew by 4.7% in total and 3.2% organically versus prior year.

With that, I'll hand over to Peter to discuss the financial results.

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Peter G. Clifford, Cantel Medical Corp. - Executive VP, CFO & Member of Office of the Chairman [4]

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Thank you, Jorgen, and good morning, everyone. Before we take a few moments to walk through the 2Q '19 financial results, I wanted to remind everyone that due to the prior year passing in the U.S. Tax Cuts and Jobs Act, we made year-to-date true-up to our tax reserve in 2Q '18 to bring our tax provision in line with our estimated effective tax rate of 28%. This onetime benefit has created difficult comparable for our second quarter results year-over-year.

On a consolidated basis, top line net sales increased 5.4% year-over-year in 2Q '19 versus the prior year, and 6.4% on a constant-currency basis. The consolidated net sales walk elements were: organic came in at 5.3%; M&A was 1.1%, which was -- which consists of 1.5% from acquisitions, partially offset by dispositions; and FX was a headwind of 100 basis points.

Gross margins for the quarter. GAAP gross margins contracted by 90 basis points to 46.6% versus 47.5% in 2Q '18. While our non-GAAP gross margins contracted by 128 basis points year-over-year. When adjusted for the recast of APAC service cost, we contracted our core 80 basis points operationally year-over-year. Note, the primary drivers of the dilution were our previously announced livable wage actions, ERP project and REVOX. The impact of these investments on our non-GAAP gross margins was a 50 basis points headwind.

Operating expenses for the quarter. GAAP operating expenses increased by $9.7 million or 14.1% in 2Q '19 compared to the prior year. The impact of acquired cost from acquisitions was roughly $1.7 million or 2.4%. The balance was purposeful investment in line with our strat plan.

Operating profit for the quarter. GAAP op profit decreased 19.4% year-over-year to $26.2 million. Note there were few items, of note, driving our GAAP dilution year-over-year. The accelerated amortization of certain intangible assets that were written off as part of the disposition of our specialty water business in 2Q '19 as well as the continued reinvestment in REVOX as well as livable wage actions taken in 4Q '18 contributed to this overall decrease year-over-year.

Non-GAAP op profit decreased 12.7% year-over-year to $33.8 million. Key drivers were continued reinvestment of REVOX, previously announced livable wage increase in the ERP project. The impact of these investments on non-GAAP op profit was a 150 basis point headwind.

Effective tax rate. GAAP effective tax rate for the quarter was 25.7% as compared to the prior year rate of negative 3.6%. The change was primarily driven by a $9 million onetime benefit that was recorded in the prior year associated with the revaluation of our deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act. Non-GAAP effective tax rate for the quarter came in at 25.4% as compared to the prior year rate of 21.1%. Key drivers were: a prior year-to-date true-up drove the bulk of the year-over-year delta in the non-GAAP effective tax rate.

EPS for the quarter. GAAP EPS decreased 42.1% year-over-year to $0.45. In addition to the commentary discussed earlier related to our GAAP op profit dilution, higher interest expense and a prior year extinguishment of a contingent liability of $1.1 million, which was nonreoccuring, drove the decrease year-over-year. While our non-GAAP EPS decreased 20% year-over-year to $0.57, the impact was previously discussed, investments was $0.06 impact.

Adjusted EBITDAS for the quarter. 2Q adjusted EBITDAS came in at $42.4 million, down 7.7% year-over-year, while adjusted EBITDAS for the last 12 months was $174.4 million, up 1.6% year-over-year, while adjusted for the ERP investment, the last 12 month's adjusted EBITDAS increased 4.1%. 2Q cash from ops came in at negative $3.1 million. Note, there were several elements to highlight in our 2Q operating cash. SAP cutover impact was approximately $10 million of negative flow.

In an effort to simplify our cutover process, we made the following changes to our normal process at quarter-end. We pulled in an additional check run, driving about $4 million of negative flow. We shut down our accounts receivable process 2 to 3 days prior to cutover, driving about $3 million of negative flow. And we also built an inventory of $3 million to $4 million at quarter-end. We expect the bulk of these negative flows to come back to us over the next couple of quarters.

Tax payments as well, from an income tax perspective, our second quarter includes our quarterly estimated income tax payments as well as our federal extension payment.

Now let's provide some insight into the segment results. For our Medical segment for the quarter, sales grew 10.2% year-over-year to $128.6 million. Organic was 11.3%. Our GAAP op profit increased 4.3% to $25.5 million, while our non-GAAP op profit increased 3.8% to $28.9 million. For our Life Sciences segment for the quarter, sales decreased 0.9% year-over-year to $51.9 million, organic declined 3.4%.

Lastly, our backlog declined in the quarter $12 million of which $5 million was due to the sale of our specialty water business, $5 million was continued slowdown in HD water business; and $1 million was a restatement of the opening backlog for our newly acquired CES business.

GAAP op profit decreased 14.7% to $7.3 million, while our non-GAAP op profit decreased 16.5% to $8.1 million.

Note, ex-REVOX investment non-GAAP op profit decreased 7%. For our Dental segment for the quarter, sales decreased 0.4% year-over-year to $35.9 million. Organic was negative 0.7%, 70 basis points negative. Our GAAP op profit decreased 25.5% to $4.9 million, while our non-GAAP op profit decreased 20.2% to $6.4 million, primarily driven by previously announced liveable wage adjustments and material inflation. For our Dialysis segment for the quarter, sales expanded 2.7% year-over-year to $8.2 million, while our GAAP op profit decreased 37.8%.

Now I'd like to hit a few balance sheet and liquidity details. Our balance sheet remains strong with significant capacity. We ended the quarter with $70 million -- $71 million in cash and cash equivalents, $213.2 million in working capital, our gross debt ended the quarter at $240 million with $45 million of borrowing outstanding under our revolving credit facility. Our net debt was $169 million, and our net debt to adjusted EBITDAS is $0.97. Capital expenditures were $23.2 million, which was primarily due to the ERP project. And to a lesser extent, a new fill line and the continued build-out of our new facility in Minneapolis.

Before I close, I'd like to share with you some of the KPI results that we're using to gauge our acceleration coming out of our go live with SAP. Our sales orders, created on a daily basis, are back to 1,100 per day, our orders shipped are back to 700 plus a day, and our invoices processed are back to 1,500 plus a day. With a key takeaway that we're back to normal pre-go live operating run rates on most KPIs very early on in month 1.

As a reminder, we will be filing our 10-Q tomorrow. I'll now hand the call back to Jorgen for further comments.

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [5]

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Thank you, Peter. Let me transition into a brief update on our strategic priorities as well as comments on our fiscal year 2019 guidance. We continue to drive to our 5-year strategic plan to double sales and profits by fiscal year 2021 through new products, market expansion and M&A supported by the transformation of our operating model. We have launched 5 new products this year, most notably our BHT E series AER, which feature our proprietary RAPICIDE PA chemistry. We continue to see strong performance of our new Fuji valve and we remain encouraged by the last perspective order pipeline of our ADVANTAGE Pass-Thru AER platform in North America as well as strong market response of our Syclone Amalgam Separator by our Dental customers. Finally, in line with our strategy, we continue to invest in R&D across the company, especially in key technology such as REVOX Sterilization platform and remain confident in our new product development pipeline. On the acquisition front, we remain very active. We announced earlier in the quarter the acquisition of Omnia S.p. A., an Italian-based maker of dental surgical consumable products with a focus on procedure room setup and cross-contamination prevention.

This acquisition will serve as a platform to drive our market expansion for the broader European Dental business. In addition, we are pleased to announce the acquisition of Vista Research Group in January. The Vista product helped complete our dental borderline portfolio. With this addition, we have a differentiated offering, which positioned us well to drive compliance and infection prevention in this rapidly growing and important category. We remain encouraged by the activity in our M&A pipeline, and we're actually working on additional important opportunities. A key pillar in our 5-year strategic plan is transforming our operating model to drive efficiency and scale to support organic as well as acquired growth.

As discussed at our last call, we are making major investments in fiscal year 2019 to drive towards this important objective. We are extremely pleased that our ERP implementation went live on February 4 in our Medical business, covering our 2 main U.S. sites as well as our European distribution center with no product supply disruption. This is a tremendous accomplishment by our team that will enable us a very important step in modernizing the company, providing a platform that can help drive process efficiency and margin expansion. The impact of these important investments, including the ERP platform and REVOX in second quarter '19 EPS was $0.05. We're updating our guidance for the fiscal year 2019 to include the acquisition of Omnia, Vista and to reflect the challenging hemodialysis water environment. We anticipate reported revenue growth of 5% to 6% with organic growth of 3.5% and 4.5% and headwind of FX of 1%, announced acquisition of 3% and dispositions of 0.5%. We estimate the Medical business will continue to grow approximately 10%, with Dental at a low-single-digit organic growth and reported revenue of -- in the mid-teens. The Life Science business is expected to decrease in the mid-single digits.

In terms of earnings, we anticipate the total fiscal year 2019 GAAP EPS of $1.91 to $1.96 and non-GAAP EPS of $2.34 to $2.39. In the supplement presentation, we have included a bridge that walks our original guidance to a revised guidance. Let me briefly provide some added color and clarity on those changes.

We lowered the midpoint sales guidance from $933 million to $920 million, a change of $13 million. The key drivers of this change are: hemodialysis water sector has softened significantly since our original guidance, causing a $17 million headwind.

As we shared in our original guidance, we expect the Life Science to be flat. We now expect it to be down at the mid-single digits due to the aforementioned industry challenges.

FX impact of a near grade of $5 million headwind, caused by the strengthening of the dollar, partially offset by M&A that added $11 million.

We have lowered our midpoint non-GAAP EPS guidance to -- from $2.59 to $2.37, a change of $0.22. The key drivers of the changes are: the hemodialysis water flow through impacting $0.16, higher interest rate expense causing $0.02 driven primarily by the purchase of our facility in Minnesota, and tax rate driving $0.02, our internal view was 24.5% for the year, and now it's 25.3%.

We continue to experience difficult operating environment in our hemodialysis water business. In response, and as part of our 5-year strategic planning process, we are actively exploring all options to drive profitable growth and strengthen our Life Science segments, including new technology investments, cost structure alignment and continued M&A activity.

Notwithstanding these short-term challenges, we remain highly confident in our team, our strategy, our leadership in infection prevention and our strong competitive position in the markets we serve. I would like to thank our 2,800 loyal and hard-working team members for their efforts and achievements this quarter. And our entire company takes great pride in our mission to provide infection -- provide solutions to mitigate infections, improve patient safety and outcomes and ultimately helps stabilize. Thank you for listening. I look forward to speaking with you on our third quarter earnings call in May. Rob, we're now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today is coming from the line of Larry Keusch with Raymond James.

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Lawrence Soren Keusch, Raymond James & Associates, Inc., Research Division - MD [2]

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Two questions. I guess, the first one, Jorgen, is just thinking about the LRP. I guess the real question there is, is it still intact even what we're seeing for this year? And within that context, sort of 8% to 10% organic that you've been targeting?

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [3]

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Yes. So that -- we still are very confident on our long-term 2021 strategic plan. And as we talked about, at our previous calls, that the pressure we have right now is really isolated to our Life Science business, which we're working actually to resolve.

For this year, as you can see our guidance, obviously, from an organic perspective, is below 8% to 10%, while we do believe that we have strategies and activities, both organic and inorganic, that can bring us back into the box over the next 2 years.

So we still stick into that -- to our long-term target. Just want to qualify also that this is the midpoint of our strategic plan, and we are in process of updating our next 5 years outlook. So we will be talking about that in our Q1 call of 2020.

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Lawrence Soren Keusch, Raymond James & Associates, Inc., Research Division - MD [4]

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Okay, that's helpful. And then I guess the other thing that I just want to really try to wrap my arms around is the medical water business. And I recognize some of the issues with one of your customers going dual source. But I guess what I'm more interested in is your thoughts around whether this is a temporal issue with this overall water market for medical usage? Or is this really a structural headwind that we're now beginning to face?

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [5]

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Yes, so as you know, Larry, we've been a leader in hemodialysis water for close to 20 years and have a dominating market share in the U.S. in this area. If you look over the last 3 or 4 years, we really have -- we really coming out of the peak in central orders, peaking in '18 and '17 where we were close to 500 -- over 500 centrals per year. If you go back to '16, that level was about 400. And historically, we've been installing about 400. So we think, for '19 our outlook is, we're back to this 400 install level.

And what happened, in the meantime, really was let's say, very aggressive de novo build by the major OEMs and you can go back and look at their earnings calls that were recently out over the last 8 to 10 days, that they are really looking at getting better utilization of those clinics. So on overall industry perspective, this is really a cyclical issue. And then in addition to this, we have this dual source strategy by one of the OEMs that we are also working through.

So if you look at '19, we still believe that we will see those headwinds cyclical and dual source and also in the beginning of our financial year '20, we'll see that because it will go through the calendar year. And then beyond that, we're expecting a normalization. And then what we're doing, meanwhile, is really focusing on other categories in our Life Science segment that we anticipate will help to improve the overall picture for that segment.

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Operator [6]

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The next question comes from the line of Matthew Mishan with KeyBanc Capital Markets.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [7]

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My first one is like a follow-up to one of Larry's. If you -- if structurally in that medical dialysis business, if you're thinking that there may be a market share shift towards either peritoneal or home hemodialysis, how do you -- can you participate in that growth and play a role in infection prevention there?

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [8]

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I would say that the home hemodialysis is still a very small part of the business or of the overall dialysis market, and we definitely think there is a place. But if you look at the last -- next sort of 3 to 5 years, it's our assumption it will have a fairly minimal impact on the business we are in. So our assumption is that we will still participate in, sort of, a low-single-digit underlying growth for, let's say, clinic dialysis and then alongside that, you would see a slow pickup of home-based clinics. And so the question, will we participate in that home-based treatments? Nothing immediate that we have, but we do have worked on certain projects over time. So there will be a little bit of business for us in that segment as well.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [9]

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Okay. And then on medical, you have the second half medical growth looks like it's decelerating a little bit from the first half growth. Can you talk about some of the drivers of that? And maybe some of moving pieces around the timing of the ERP implementation. Did you send some shipments before the go-live? And maybe there will be some giveback in the second half?

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Peter G. Clifford, Cantel Medical Corp. - Executive VP, CFO & Member of Office of the Chairman [10]

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Yes, let me address, sort of, just the Life Science medical water view revenue. Look, we were watching orders closely after 1Q. We took in about $39 million of orders, which is very soft for us in the second quarter. And as Jorgen mentioned, we've had the opportunity to, obviously, listen to some of our larger OEMs in this space and their earnings call and their guidance for this year. That we're expecting CapEx to be pretty constrained, and that is what we're seeing, it's not just 1 customer, the base in medical water is down across the customer base.

And as well, in January, we saw an unusually high number of units move out. Traditionally, our month 3, we tend to see about 20% of our centrals, kind of, break and get rescheduled out to future quarters. And this January, we saw nearly 50% of the orders, kind of, move out. So again, consistent with the language from our customers. Hence, why we've adopted a more pessimistic view of the space in the back half of the year. And as Jorgen mentioned, with our July 31, year-end, at CapEx on a calendar year basis for our customers is going to be challenge than really our medical water starts the impact at least the first half for us of '20. As it relates to SAP go live, we actually did not see any extra shipments out. It was one of our issues of wanting to position to go live the first day of the quarter was really to make sure that we were in a position that if we had any disruption that we would have plenty of time for recovery, which candidly as we talked through some of our KPIs. Knock on wood, and we've gotten off to a really good start post go live. And we did build, as mentioned, about $3 million to $4 million worth of buffer inventory in the last month of the quarter. And really most of that went out to our international markets to make sure that if we didn't have any disruption, that the guys furthest from the home-base would be fine. And again, so far, knock on wood, shipments invoicing things have been going very well for the first couple of weeks of this quarter.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [11]

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All right. And then last question. Can you talk a little bit about the Dental margins in the quarter? The pullback there? And what you're expecting in the second half?

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Peter G. Clifford, Cantel Medical Corp. - Executive VP, CFO & Member of Office of the Chairman [12]

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Yes. The margin picture there is -- our Dental business was probably impacted the most with our liveable wage actions that were taken in the fourth quarter of last year, which was raising some of lowest wages in the plants, both in upstate New York as well as Pennsylvania. And as well as adopting a new benefits program in those businesses. So as the bulk of the pressure coupled with some modest material inflation that we are starting to see in that business. And we've since taken price increase actions early in the year to try and counterbalance some of that. So our first quarter price realization was candidly a little weaker in that business, and we expected and that was a bit stronger in 2Q. So I think our margin profile should stabilize now for the back half of the year.

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Operator [13]

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Our next question is from the line of Mike Matson with Needham & Company.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [14]

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I just wanted to go back to the Life Sciences business again. Jorgen, you kind of made a comment that you are, kind of, looking at all options there. So does that include selling or divesting that business? And if so, would you retain the REVOX part of that? Or would that go along with it?

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [15]

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No, it doesn't. I mean, we are regularly looking at our portfolio on an annual basis and through our strategic plan, looking at where to best deploy our capital and best deploy our investments, but a sale is not on the table at this point. What is on the table is really to look at other -- both organic and inorganic growth opportunities, the purpose of changing the name of this segment to Life Science is really with lot of intent that we are looking at other areas that can shift this business to be less dependent on capital. And you followed us long enough to know that if you go back 3 and 4 years, we actually have had other years where our Medical Water business were going backwards. And being a company focused on growth and being a company focused on the market expansion, it's obviously something that we're trying to build areas that are more in, let's say, recurring revenue profile. Our life science business today is about 60% capital, 40% recurring. The total company is 75:25 in terms of reoccurring versus capital. So we're looking at a host of options in that business. I would say, all options are on the table but at this point, we really are focused on building the right long-term strategy for this segment.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [16]

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Okay. That's helpful. And then you called out the Pass-Thru product. I think in the Medical business, you've mentioned you seen some strong orders in North America. So what is the outlook there? Do you foresee more of your customers shifting to the Pass-Thru configuration over time? And how would that impact the medical business growth?

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [17]

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Yes. So yes, we do, as we talk about on earlier calls in North European markets, Singapore or other key, sort of, high-end markets are already dominating -- the Pass-Thru is already a dominating technology. We're the only company with the Pass-Thru in the U.S. and we have a very solid pipeline today on this platform. As a comparison, a typical -- a traditional AER, we sell at, sort of, $40,000 price point and a Pass-Thru is about 2 to 2.5x that. So there's a meaningful upside in terms of revenue. I just want to qualify that a Pass-Thru really is something that is used at larger hospital settings with larger volumes and the selling cycle is a bit longer because it does require reconstruction. But with the different issues you hear about in the market with pressure on making sure you have the right processes and don't have any infection prevention issues in GI is certainly something our customers are really starting to be very interested in and as I said, we have a very solid pipeline of product in the North American market that we're excited about.

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Michael Stephen Matson, Needham & Company, LLC, Research Division - Senior Analyst [18]

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Okay. And then just one final one on the reinvestments that you're making in fiscal '19, I know you are a long way from giving guidance for fiscal '20. But how should we think about those reinvestments? I imagine some of it will carry into '20, but is there a potential that you could have, kind of, a spring back of some of that EPS, kind of, coming back in 2020, in addition, to kind of the baseline EPS growth?

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Peter G. Clifford, Cantel Medical Corp. - Executive VP, CFO & Member of Office of the Chairman [19]

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Yes, our largest investment, obviously, is the SAP platform as we've kind of guided at the beginning of the year, most of our acceleration is really in '21, we will see some acceleration and impact in '20, but it's got to be more back half of '20 than it is the first half of the year.

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [20]

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And just to follow up on that. The biggest part of our operation is now, of us, this project that just went live. So we're covering about half of the company now, and it was a major accomplishment. So the continued rollout will be a little bit smaller in terms of scale, which should also help that picture.

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Operator [21]

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(Operator Instructions) The next question is from the line of Mitra Ramgopal with Sidoti.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [22]

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First, just wanted to start with the Dental space regarding the inventory rightsizing, et cetera. I was wondering if you're seeing any -- if there are any competitive issues there.

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [23]

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I wouldn't certainly say the competitive issue, that this is an industry-wide rightsizing for inventory. If you look at some of the reporting from the OEMs that's been a very conscious program, if you will, over the past 6 months to significantly reduce the inventory levels and talking to our peers in the business everyone have seen a very soft back half of calendar year '19, which we are now slowly starting to see improvement that's why we believe that we will go into, sort of, positive growth territory from organic perspective in the back half of the year. So this is really, as I said, really a rightsizing across the industry. We have great adoption of the new products that we put into the market. We're very excited about what we're doing there, we know our distribution partners are very excited about as well, and as a part of that, we used to be only, sort of, dental consumable company but now also with our Accutron, nitrous oxide business, related with amalgam separator we're now getting into working with other sales teams at the main distributors that drives nice profitable growth. And even more importantly, we have a solution that we're selling Dental at full circle of protection similar like we've talked about in our medical business. So a lot of good stuff going on, a lot of good opportunity for market expansion in the next several quarters in that business and growth, more importantly.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [24]

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Okay, that's great. And on the Omnia acquisition. I was just wondering, are you seeing the growth of that business now and especially, in the foothold or expansion you have in European market?

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Seth M. Yellin, Cantel Medical Corp. - Executive VP of Strategy & Corporate Development and Member of Office of the Chairman [25]

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Mitra, it is Seth here. We're very pleased with, sort of, the progress we have seen today with the Omnia acquisition, we're just about 4 weeks post close in the transaction and I think integration is proceeding well, and the business seems to be performing well. As you mentioned, key part of the commercial strategy with the Omnia acquisition is to get real commercial acceleration and commercial synergy out of there, European commercial infrastructure to drive our full portfolio and as a great example of that potential of that synergy, we -- just 4 weeks into post-closing, we see already some large orders being placed in the Italian market of our amalgam separator product. Just a few weeks after close. So we're starting to see good traction with that team, good integration and doing a lot of cross-training and we're really pleased with the results we are seeing out of that acquisition thus far.

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [26]

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And just not to underestimate the significance of this. I mean before this acquisition, we had give-and-take 2 or 3 people in the European market, and now we have a full organization, have a direct presence in Italy setting up teams, even have set up teams in the key European markets to drive our broader portfolio. And the order that Seth mentioned, on amalgam separator, we simply would not have been able to do that just a month ago. So we're excited about really opening up Europe as a new expansion areas for out dental business, which largely until a month ago was a U.S. business more or less.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [27]

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Okay, thanks for the additional color there. And actually switching on to U.S. side, I believe, in the past you have mentioned that you thought the DentaPure Waterline Disinfection System, et cetera, were -- and the waste water management there with some new growth categories. I was just wondering if you're seeing any traction there.

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Seth M. Yellin, Cantel Medical Corp. - Executive VP of Strategy & Corporate Development and Member of Office of the Chairman [28]

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I think we're very pleased with, sort of, the overall portfolio we've been able to put together in the Dental water system. And with the acquisition of the Vista Research Group that we announced in January, we are really able to complete the full portfolio of water solution for the dental practice and our objective is really to have a broad portfolio of solutions from water entering the practice to water leaving the practice as it is used in every site within the operatory and the overall dental practice be the steri-center and elsewhere. So we think we have an incredibly compelling overall portfolio and a highly differentiated portfolio in what has become a very important and high-growth category in dental waterline and it's been an exciting and important growth driver for that business that we expect to continue.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [29]

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Okay. And Jorgen, I just wanted to touch on the international, in terms of the investments you've made in the past, billing out direct sales and service. And I was just curious if you feel there are still some more markets you need to get into? Or is this more a question of trying to consolidate and lever where you're in right now?

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Jorgen B. Hansen, Cantel Medical Corp. - Former CEO, President, Member of Office of the Chairman & Director [30]

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Yes, that's a great question, Mitra. I would say at this point, we really have the key infrastructure we need in most important markets and all our focus now is to drive deeper growth in those markets and drive profitability as well. We are coming a long way in our EMEA operation and from a medical or legacy [inter-perspective] have -- are now the market leader, both from a capital and a procedure product perspective. We have a lot of growth opportunity in our procedure products and that is the fastest-growing category in Europe, which is exciting because we got a lot of room to grow and it also, absolutely, are helping our profitability so we can drive towards U.S. like margins over the next couple of years. From an Asia perspective -- Asia Pacific perspective we have a great team in Australia growing the business there and as I mentioned, on our call, we have, I wouldn't call it a hyper-growth but close to hyper-growth in our Chinese market all by from a small position, but approaching $20 million business in China, which just a few years back was just a couple of million. And again, we are driving our full portfolio there and our proprietary chemistry, which helps the profit margins. So there's a couple of white spots, Japan is something we're not doing too much in, we have a very limited presence there but that will probably be the only area where we would consider to expand over the next period here. But meanwhile, we are at laser-focused on driving what we have and now with the acquisition of our dental business in Italy, we have a real platform where we can drive profitable growth in the dental business, which is a very -- is a really, really meaningful upside to our business that we were not able to pursue just a few months back.

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Lalishwar Mitra Ramgopal, Sidoti & Company, LLC - Healthcare Sell Side Analyst [31]

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Okay, that's great. And then finally, Peter, following the Omnia acquisition, if you could just remind me as you look in terms of firepower you have for more acquisitions, how much is available under your facility?

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Peter G. Clifford, Cantel Medical Corp. - Executive VP, CFO & Member of Office of the Chairman [32]

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Yes, I mean, our facility is we have only used $45 million of our revolver. So we've got plenty of capital to deploy.

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Operator [33]

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This concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.