Cantel Medical Corp.
Q4 2017 Earnings Call Transcript

Published: 28 Sep 2017

[Operator:]

Greetings. And welcome to the Cantel Medical Corp. Fourth Quarter and Full Fiscal Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Milicent Brooks, Director of Corporate Communications. Thank you, Ms. Brooks, you may begin.

[Milicent Brooks:]

Thank you, Doug. Welcome everyone to our fourth quarter and full fiscal year 2017 earnings conference call. The company issued a news release earlier this morning announcing the financial results for the fourth quarter and full fiscal year 2017. In addition, we have posted a supplemental presentation to complement this morning’s discussion. This presentation can be accessed on Cantel’s website in the Investor Relations section under Presentations. Before we begin, I would like to remind everyone that this is a conference call that contains forward-looking statements. All forward-looking statements involve risks and uncertainties, including without limitation, the risks 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. The company will also be making references on today’s call to the non-GAAP financial measurements, non-GAAP EBITDAS, non-GAAP operating income, 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 am pleased to introduce to you, Jorgen B. Hansen, President and CEO.

[Jorgen Hansen:]

Thank you, Milicent, and welcome everyone. With me in our call today are Chuck Diker, Chairman of the Board; Peter Clifford, EVP and Chief Financial Officer; Seth Yellin, EVP Strategy and Corporate Development; and Brian Capone, VP, Corporate Controller. First, I’ll provide you with some brief opening comments, followed by Peter, who’ll discuss our fourth quarter and full fiscal year 2017 results. Finally, I’ll provide some highlights and additional perspective on the state of our business before we open the call for Q&A. Now, let’s move to the fourth quarter and full fiscal year 2017 highlights. Overall, we are pleased with our results this quarter, with 14.8% reported sales growth and 9.2% organic growth. We saw good performance in all segments despite challenging prior year comparisons. For the full fiscal year, we’re extremely pleased with our 15.9% sales growth to a record $770 million just over the high end of our guidance range with overall organic growth in the year of 11%. Sales performance for the year drove nice leverage with 18.9% GAAP EPS growth and 18.7% non-GAAP EPS growth. Our performance in fiscal year 2017 was in line with the growth objectives laid out in our strategic plan and gives us great confidence in our ability to again meet these goals in fiscal year 2018 and beyond. Growth this quarter was nicely balanced with strength in both the U.S. and international regions, and across all segments. This quarter and the full fiscal year, we saw solid performance and evolution in the maturity of our national operations. With the acquisition of our Canadian and Australian distributors this year and the acquisition of an important market leader in Germany just after the quarter ended, we are excited about our market position globally. With that, I’ll hand over to Peter to walk us through the financial results of our fourth quarter and the full fiscal -- full fiscal year 2017.

[Peter Clifford:]

Thank you, Jorgen. Let’s take a few minutes to walk through the 4Q ‘17 and full year ‘17 results. On a consolidated basis, our sales increased 14.8% year-over-year in 4Q ‘17 versus the prior year and 15.3% on a constant currency basis. Consolidated sales walk elements for the quarter were organic came at 9.2%, M&A was 6.1%, and FX was a headwind of 0.5%. Sales increased 15.9% year-over-year in full year ‘17 versus the prior year and 16.9% on a constant currency basis. Consolidated sales walk elements for the year were organic was 11%, M&A came in at 5.9% and FX was a headwind of 1%. Gross margins for the quarter, GAAP gross margins contracted 10 basis points to 47.6% versus 47.7% in 4Q ‘16, while our non-GAAP gross margins contracted by 20 basis points. On a full year basis, GAAP gross margins expanded 120 basis points to 47.7% versus 46.5% in the full year ‘16, while our non-GAAP gross margins expanded 110 basis points. Note, this is the third year in row we’ve expanded non-GAAP gross margins more than 100 basis points. We continue to drive favorable and purposeful commercial mix in our consumable product categories, while taking advantage of volume leverage in both our plant productivity and sourcing operations. This important leverage has helped us self fund our infrastructure build out as we mature our business model. Operating expenses for the quarter; GAAP operating expenses increased by $10.9 million or 18.4% in 4Q ‘17 compared to the prior year. The impact of costs from acquisitions were roughly $3 million or 5%, note we had $2.4 million of one-time accelerated amortization in the quarter due to the exit of some purchase technology assets. The balance was purposeful investment in line with our strategic plan initiatives. GAAP operating expenses increased by $44.8 million or 21.1% in full year ‘17 compared to last year. The impact of acquired costs from acquisitions was roughly $15 million or 7%. We continue to be thoughtful on our approach to operating expense expansion. We understand strong organic growth and continued execution on the gross margin line is what allows us to invest in future growth. Op profit for the quarter; GAAP op profit increased 5.7% year-over-year to $27.3 million, while non-GAAP op profit increased 14.2% year-over-year to $36 million. On a full-year basis, GAAP op profit increased 13.5% year-over-year to $110.4 million, while our non-GAAP op profit increased 16.6% year-over-year to $136.5 million, providing solid leverage. Our effective tax rate for the quarter came in at 35.7%, up 90 basis points from the prior year rate of 34.8%. Key drivers were tax legislative changes in the prior year negatively impacted the quarter-over-quarter comparison by about 180 basis points. This was partially offset by the adoption of new accounting standard for excess tax benefits related to share-based awards, our taxes associated with our international operations, and key state tax initiatives. Our full year effective tax rate came in at 32.8%, down 340 basis points from the prior year 36.2%. Again, key drivers were, on a full year basis the adoption of new accounting standards for excess tax benefits related to share-based awards benefited our full year rate by 220 basis points. In addition, key federal and state initiatives, and taxes associated with our international operations provided another 160 basis points of favorability. This was partially offset by tax legislative changes in the prior year that negatively impacted the year-over-year comparison by 90 basis points this year. On an EPS basis for the quarter, GAAP EPS increased 4.2% year-over-year to $0.41, while our non-GAAP EPS increased 11.4% year-over-year to $0.54. On a full year basis, GAAP EPS increased 18.9% year-over-year to $1.71, while our non-GAAP EPS increased 18.7% year-over-year to $2.08. Our 4Q adjusted EBITDAS came in at $42.6 million, up 13.1% year-over-year. While our full year adjusted EBITDAS came in at $161.5 million or up 17% year-over-year. 4Q cash from operations came in at $34.8 million, up 22.3% year-over-year while our full year cash flows from operations were strong at $108.2 million, up 34.8% year-over-year. Now let’s provide some insight into the segment results. For our Endoscopy segment, for the quarter sales grew 13.9% year-over-year to just over $110 million, organic was 9.7%, GAAP op profit increased 5.5%, while our non-GAAP op profit increased 23.8%, providing very strong leverage for the quarter. For the full year, sales grew 16.7% year-over-year to $399 million, organic was 15%, GAAP op profit increased 20.3%, while our non-GAAP op profit increased 23.5%, again providing strong leverage. For Water segment for the quarter, sales grew 13.7% year-over-year to $51.2 million, organic was 13.8% driven by strong backlog of capital sales orders, note while our backlog decreased by $2 million during the quarter due to strength of shipments, our actual orders increased $2 million sequentially from 3Q to 4Q ‘17, GAAP op profit decreased 3.5%, while non-GAAP op profit was relatively flat. For the full year sales grew 10.6% year-over-year to $196.4 million, our organic was 10.6%, again driven by strong capital and our GAAP op profit increased 8.3%, while our non-GAAP op profit increased 7.4%. For our HD segment for the quarter, sales grew 23% year-over-year to $36.2 million, with our organic at 2.9%. GAAP op profit increased 13%, while our non-GAAP op profit increased 21.4%. For the full year, sales grew 28.3% year-over-year to $144.5 million, with our organic at 4.4%. GAAP op profit increased 14.4% for the year, while our non-GAAP op profit increased 23.9%. For our Dialysis segment for the quarter, sales expanded 1.4% year-over-year to $7.9 million. GAAP and non-GAAP op profit increased 11% and for the full year sales contracted 6.9% year-over-year to $30.5 million and our GAAP and non-GAAP op profit increased 3%. Now, I would like to hit a few balance sheet and liquidity details. Our balance sheet remains incredibly strong with significant capacity. We ended the quarter with $36.6 million in cash and cash equivalents, $150.6 million in working capital, our gross debt end of the quarter at $126 million. This includes $74 million of borrowings this year to fund the acquisition of Accutron, our Canadian endoscopy distributor and our Australian endoscopy distributor. We continue to pay down significant levels of debt. We paid down $19 million in 4Q ‘17, while paying down $64 million during the year. Net debt is $89.4 million and our net debt to adjusted EBITDAS is 0.55. Capital expenditures were $6.3 million. As we have signaled CapEx will remain at elevated levels for the next eight quarters to support our ERP implementation project. So I alert everyone we’ll be filing our 10-K before the close of business today.

[Jorgen Hansen:]

Thank you, Peter. Overall, we are very pleased with our results this quarter and the full fiscal year. Now let me provide some high level commentary on the results of each of our three major business segments. Our Endoscopy segment had another strong quarter with total sales growth of 39% and organic growth of 9.7%. This is compared to prior year’s exceptional organic growth in the fourth quarter of fiscal year 2016 of over 29%, so very strong performance for the quarter. Sales were led by our recurring revenue categories, while our capital equipment sales lack slightly, given the steep comps in the same quarter last year. Importantly, total sales placements in the prior periods will continue to drive strong ongoing chemistry and consumable sales growth into that installed base. For the full fiscal year, the segment achieved growth of 16.7% to record $399 million in sales, driven by 15% organic growth. Our Water Purification and Filtration segment showed solid growth of 13.7% for the quarter led by strong equipment sales. Despite strong sales performance in the quarter, non-GAAP operating profit growth was flat due to the mix impact of capital sales combined with commercial investments in the business. For the full fiscal year the segment achieved 10.6% growth to $196 million in sales, all of which were organic. In our Healthcare Disposables segment we had fourth quarter total sales growth of 23%, largely driven by the impact of the Accutron acquisition, while organic growth was 2.9% against a very strong prior year quarter growth. We incurred by performance our -- of our higher value branded product portfolio, which grew double digits, offset by modest declines in our lower value legacy products. Our higher branded value paying -- branded categories include our DentaPure waterline disinfection business, our leading sterility assurance product lines and branded facemasks, which continues to be an important differentiator in this segment. In addition, we saw good performance from our Accutron business and we are pleased with the results of this acquisition. For the full the Healthcare Disposables segment achieved growth of 28.3% to $144 million with 4.4% organic growth. Looking at our results on a geographic basis, we are encouraged by momentum in our international business. International sales in the quarter was up 17.3% and for the full fiscal year sales was up 13.9% with 9.2% organic growth, driven by Asia-Pacific, as well as our direct markets in Europe. Establishing leadership in our international markets is a key component of our strategy and the acquisition in fiscal year 2017 of Canadian and Australian -- Australia distributed businesses, as well as our organic investments in operations in EMEA are helping us achieve this goal. M&A continued to be an important pillar of our five-year strategy and we have a healthy pipeline of acquisition targets. In July, we announced the acquisition of BHT Group, the German leader of automated endoscope reprocessing, which closed late August at the outset of our fiscal year 2018. The BHT Group product portfolio and leadership position in Germany is an excellent addition to our company. We look forward to continue executing on our acquisition strategy in fiscal year 2018 and beyond, and we look at complementarily products and technologies to our existing divisions, as well as the possibility of adding additional new related verticals to Cantel. New product development is another key driver in our five-year strategic plan, as new product launches have driven organic growth across our three major business segments over the past few years. We generated strong revenue from products including our new automated endoscopy processors, storage and drying cabinets, product with reverse osmosis systems and denser waterline disinfection products. Over the past year, we’ve invested in key roles and a new structure in R&D organization to accelerate new product development as we continue to explore new opportunities that address unmet needs in infection prevention across the healthcare continue. Through our strategic plan, we envision doubling our sales and profits between fiscal year 2017 and fiscal year 2021. This is driven by healthy growth in our core franchises from increased market penetration of our solution -- our solutions on a global basis, new product development and strategic acquisition supported by the enhancement of the Cantel operating model. Our plan envisions annual sales growth of just under 15% that is made of our annual growth 8% to 10% on organic basis, with acquisitions making up the remainder. We expect fiscal year 2018 to be no different and our full fiscal year results should be consistent with this overall strategy. For the full fiscal year 2018 including the impact of acquisition closed to-date, we anticipate reported revenue growth of 12.5% to 13.5% with organic growth of 8.5% to 9%. FX impact approximately 0.5% and announced acquisitions contributing approximately 3.5% to 4% of total sales growth. We anticipate FY ‘18 GAAP EPS of $2.08 to $2.13 and non-GAAP EPS of $2.30 to $2.35, inclusive of announced acquisitions. As always, any additional acquisitions closed in fiscal year FY ‘18 would be an incremental to this guidance -- will be incremental to this guidance. We remain optimistic about our near and longer term outlook and we have confidence that fiscal year FY ‘18 performance will be very much in line with our overall strategic plan. Before I close I would like to comment on Hurricane Harvey that severely impacted the Houston Metro area and at the end of August an Hurricane Irma that impacted many areas of Florida earlier this month. We reached out to all of our employees in Conroe, Texas -- in our Conroe, Texas facility and employees based in our industries in Texas, Louisiana and Florida, who all confirmed their safety, as our primary focus is to ensure that -- to ensure the well-being of our employees and their families. We work with employees who had experienced major loss and provided support and assistance to them. Our operations team prepared very well and we returned to normal operation status with a minimum disruption. While both storms have affected medical procedures in Texas and Florida, it is too early to determine the possible impact to our sales. In closing, we are very pleased with our fourth quarter and full fiscal year performance. Our entire company takes great pride in our mission to provide solutions to mitigate infections, improve patient safety and outcomes, and ultimately help save lives. I thank our 2,400 loyal and hard working team members for their efforts and achievements this quarter and this year. Thank you for listening. I look forward to speaking with you on our first quarter earnings call in December. Doug, we are now ready to take questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Mike Matson from Needham & Company. Please proceed with your question.

[Mike Matson:]

Hi. Thanks for taking my questions. I guess I just wanted to start with the inorganic growth, that 6.1%, it was a little bit above what we were kind of expecting. So why was that so strong and then were there any additional acquisitions in there, may be smaller deals that you haven’t previously disclosed?

[Peter Clifford:]

No. The only three acquisitions we really have had for the year are the Australian acquisition, the Canadian distributor, and Accutron, so no unannounced deals in that number.

[Mike Matson:]

Okay. Thanks. And then, with regard to the hurricanes, are you in the areas, South Florida and Houston area. Are you still seeing procedures being disrupted? And then, I guess, I am a little confused about how I should sort of model the first quarter, so I assume some sort of impact and then, if you -- as we get closer to the end of your first quarter, do you expect to give us any sort of guidance or update in terms of what the impact actually will be?

[Jorgen Hansen:]

Yes. This is Jorgen. Mike, it’s a great question. As I said in my commentary, we really do not have great understanding of the impacts. We expect that there will be some delays in procedures. We have had other years where there being major snowstorms and other things that had some impact in some months, and then we saw business come back at a later time. So, I think, we do not have a strong understanding of that. At this point, we keep monitoring it very closely and if there something material that occurs, I mean, we would -- we will get back to you on that.

[Peter Clifford:]

Yeah. As we have shared Mike, we lost three full days of production down there after the hurricanes. So, obviously, with that hitting on the Friday and the Saturday, we were shut down fully in Conroe for Monday, Tuesday and Wednesday, both production and logistics. We came back online on Thursday and Friday, but pretty high absentee rate as you could imagine. So really it took us about a week to kind of get back to what I would call full operations. So we’ve been working Saturdays, but certainly, we are trying to make up more or less those five days, but we will be pressured to kind of recover fully on that.

[Mike Matson:]

Okay. So you’re seeing -- you expect some modest disruption from a supply perspective as well as from a demand perspective from procedures being put on hold or delayed?

[Peter Clifford:]

Yeah. A modest amount.

[Mike Matson:]

Yeah. Okay. And then, just finally on the gross margins, I mean, you’ve had, I think, a streak of 15 quarters in a row where your gross margins have increased year-over-year. This is first time they’ve been down in a long time, I know it wasn’t a big decline, but is this just a one-off or has anything changed in terms of the gross margin story at Cantel?

[Peter Clifford:]

I think two elements really pressure on us this quarter and one is known is look, our Water business has been really robust and it was record sales in the fourth quarter for our Water business, and as we kind of said, it is almost exclusively a capital story and capital is obviously meaningfully dilutive to our corporate average. So as weighing on the margins this quarter we will probably have a little bit of that in the first quarter, so we anticipate our first quarter to be pretty healthy, given the backlog in Water as well. And I would say we saw an unusual shift in the fourth quarter that I don’t think is the new norm, but in our Dialysis business, we did see some customer mix, more sales on the concentrate side and less on the chemistry and -- less on the chemistry side for the sterilants. So it has a pretty meaningful margin impact as well. So that’s really the two mix elements driving that to really modest dilution.

[Mike Matson:]

All right. Thank you.

[Jorgen Hansen:]

Thanks Mike.

[Operator:]

[Operator Instructions] Our next question comes from the line of Mitra Ramgopal from Sidoti & Company. Please proceed with your question.

[Mitra Ramgopal:]

Yes. Hi. Good morning. Just a few questions, first, on the Water segment, I know entering 4Q, you had a record backlog and given the strength we saw in the quarter, if you can just give us an update where you are with backlog heading in now to fiscal ‘18?

[Jorgen Hansen:]

Yeah. So as you’re aware with that business, we can usually see about two quarters out just due to the cycle time of the products and the installs, so our backlog actually did compress $2 million from the end of the third quarter to the end of the fourth quarter. And as I noted, it was really an issue of exceptionally strong sales, i.e. we saw it in the mix. But actually our orders in 4Q ‘17 are sequentially $2 million stronger than our third quarter orders, so we still see a lot of buoyancy in the market, but again, in fairness we can usually see pretty comfortably about two quarters out in that business. So we feel good about the first half of ‘18, but we really can’t see beyond that in terms of our backlog.

[Mitra Ramgopal:]

Okay. No. That’s good enough. And on Endoscopy, if you can give us also a little sense in terms of especially on capital equipment, any slowdown in that, given the uncertainty we are seeing in a lot of healthcare right now?

[Jorgen Hansen:]

Yeah. I think the main takeaway, Mitra is that, we came out red hot in 2016 on capital sales with some very unusual high quarters, and I will say our business is very healthy and we have a good performance across both the U.S. and international markets in capital equipment, but just compare to some very high quarters coming out of financial year ‘16 and coming into ’17, that relative growth was a little down. So there’s no real change in the market other than that respect to that it was extremely hot last year.

[Mitra Ramgopal:]

Okay.

[Peter Clifford:]

And I would say, our mix now as a percentage of revenues is pretty back down on more normal levels where we were probably elevated 200 basis points as a percentage of total revenue for capital. We are back down on that 20% to 21% range, which is more normal for the business and we’re still seeing very healthy growth rates on the consumable side in that business as well. And I guess one last point on the gross margins is to be clear, we expanded gross margins in our Healthcare Disposables as well as Endoscopy segment in the fourth quarter as well.

[Mitra Ramgopal:]

Okay. No. That’s very helpful. And then, on international, obviously, you had really nice growth and I was just wondering if it’s pretty much the same markets like U.K., France, Germany and Europe, were there any new markets that are starting to have an impact?

[Jorgen Hansen:]

No. I think you spot on, I mean, these are the key markets that we have been investing in over the last three years now. U.K. had very good performance. We invested last year, set up direct sales team in Germany and have a very high growth there. And we also set up a direct organization in France. So they did a very nice job in terms of growth. And in Asia we see good growth in China and we see very good growth in Australia as well. So it is the market that we have invested in and focused on that continues to drive our international growth.

[Mitra Ramgopal:]

Right. Okay. No. That’s great. And speaking of the investments you’re making, obviously, fiscal ‘17 was a big year and we saw it in the SG&A moving up, as we look out again the fiscal ‘18 and even beyond, at what point should we start expecting when we look at as a percentage of revenue, maybe SG&A starting to come in a little?

[Peter Clifford:]

Yeah. I think ‘18 is still going to be a year when we take a little bit of our gross margin expansion and reinvested in the business, and I think, ‘19 as we start to bring SAP online, is when you will actually start to see us kind of show some percentage of sales improvement in the back half of this ramp point.

[Jorgen Hansen:]

As -- we have investing in the business as according to our strategic plan and to drive 11% organic growth this year requires that we invest in sales and markets and new products. But at this time also some of the supporting functions to really run the business at this high click. And like Peter said, we are building infrastructure, we are building our operating model, so we are in the later years of our strategic plan, can see a little more leverage than you see today.

[Mitra Ramgopal:]

Right. And again on international, Jorgen you said, one of the goals is, I guess, ex-U.S. in terms of the 11 direct markets you are in. You want to be the leader in each of those markets. I know if you can give us a sense is to how many of those markets right now you would say you are a leader or how far along are you?

[Jorgen Hansen:]

Yeah. So we are the leader at least in terms of new installations now in the U.K., with acquisition we did in Germany we are also becoming the leader from new installations and business perspective. We are the market leader in Italy. France we still have good growth ahead of us there, but have a good team of growth and similar with our acquisitions in Canada and Australia, we are definitely on path to be the leading company in Endoscopy. And finally, China, while it’s a growth market and a small market, we are a leading company in the business that we compete as well. So I feel really good about this journey. Like we commented, the majority of these businesses is improving and that we have a very good confidence in those direct investments over the next year and MIDTERM.

[Mitra Ramgopal:]

Okay.

[Peter Clifford:]

I would like to add, in the markets where we are -- as a percent probably the leader, our ambition is always a sort of trying get above that sort of 40%, 45% share, because that’s where we feel like we can really start to drive the market. And then, I think, that’s really what the next two years is about us, moving us from maybe a leadership position to a more meaningful position in each space to again start to drive and dictate the market.

[Mitra Ramgopal:]

Okay. No. That’s very helpful. And just final question, maybe on the tax rate, I know, obviously, in terms of the tax overhaul that could really be a big plus for you. But in terms of the guidance for fiscal ‘18, what sort of tax rate are we assuming for that?

[Peter Clifford:]

Yeah. I mean internally we’re thinking about a range of 34% to 35%, obviously there is a lot of news out yesterday that we’re still trying to digest and a lot of missing details, but we are hopeful that the parties in Washington can deliver something that would be helpful or upside to our equation right now.

[Jorgen Hansen:]

But just want to make clear that, in our guidance we do assume that med device tax will be…

[Peter Clifford:]

Remain out.

[Jorgen Hansen:]

Yeah. Remain out and certainly that has not been resolved yet. So there is just obviously some risk to that.

[Mitra Ramgopal:]

Okay. No. Thanks pointing that out. That’s it for me. Thanks again for taking the questions.

[Jorgen Hansen:]

Thanks, Mitra. All right. There is no further question.

[Operator:]

Our next question comes from the line of Raymond Myers with The Benchmark Company. Please proceed with your question.

[Raymond Myers:]

Thanks for taking the questions.

[Jorgen Hansen:]

Hi, Ray.

[Raymond Myers:]

Jorgen, I want to ask about the Endoscopy growth rate. It was little better here in the fourth quarter than in the third quarter, but we all know that prior history had been much stronger. Can you give us a sense of what the future trajectory growth rate is reasonable to expect in Endoscopy?

[Jorgen Hansen:]

Well, thanks for that question, Ray. I mean, when we look at our strategic plan, we do believe that our Endoscopy segment overall has the greatest organic growth opportunity, just given the fact that there is a major total available market that we are in the process of penetrating there. So we still feel that we are now at a level -- a growth level that is very healthy and we still believe that we can drive organic double-digit growth on the -- at least within the strategic plan that that is our expectation.

[Raymond Myers:]

Okay. Thanks. And can you talk about the accounting provision for -- how are the ERP conversions expenses be accounted for, is it primarily capital expense or is some of it going through the P&L?

[Peter Clifford:]

It’s probably 85% plus capital and being amortized once the project goes live and the years of live service is seven years is the assumption. So it’s going to be about $20 million to $25 million of capital deployed at amortized over seven years. And as we kind of said, it’s probably anywhere from six quarter to eight quarters is sort of how you layer in that $20 million to $25 million of capital.

[Raymond Myers:]

Perfect. Good. Thanks and exactly what I wanted. Jorgen, we have talked in the past about, how the adoption of the Cologuard test from Exact Sciences might affect colonoscopy utilization, there have been some who have been fearful that it might decline colonoscopies, others, like myself believe that it will accelerate the colonoscopies? Have you see now on the ground now that Cologuard has been heavily promoted now for over a year, any change in colonoscopy utilization here in the states?

[Jorgen Hansen:]

I would say not. I mean, as I said before, our business is very healthy and we still see a healthy growth in procedures in the U.S. where this product predominantly is promoted, which I don’t know if it’s promoting well. But we still see good solid growth in procedures. So we have not seen -- I wouldn’t say, we haven’t seen uptake. We haven’t seen anything going to other direction as well. And as you know, I agree with your assessment that this technology is putting more attention to preventative colonoscopies and that will help drive procedures in the future.

[Raymond Myers:]

Okay. Thanks for taking the questions.

[Jorgen Hansen:]

Thanks, Ray.

[Operator:]

Our next question comes from the line of Larry Keusch from Raymond James. Please proceed with your question.

[Larry Keusch:]

Good morning, everyone.

[Jorgen Hansen:]

Good morning, Larry.

[Larry Keusch:]

So -- maybe just starting, I just want to come back to the guidance for a second and the impact from the hurricanes. So I recognize that you don’t fully have your arms around what the impact may be on procedures within the impacted geographies. But as you look at your guidance, did you assume normal levels of growth in those geographies and to the extent that there is any impact that would be a potential negative to the guidance or did you actually make some assumptions in there in the guidance that’s been provided thus far?

[Peter Clifford:]

Yeah. I mean, our guidance would not include any softness from the events I -- and I don’t think we feel like on a full year basis, really there is likely to be any impact, but on a 1Q basis, I think, that’s still where we are really trying to get smarter as to the impact on our plant shutdown. So again we are -- a lot of folks working very hard on a lot of Saturdays and occasionally a Sunday to make this a non-event, but it’s probably more of a 1Q, 2Q issue than it is necessarily a full issue from the guidance perspective.

[Larry Keusch:]

Okay. That’s helpful. And then, Peter, while I have you, could you just come back just to provide just a little bit more detail around that accelerated amortization that you are talking about?

[Peter Clifford:]

Yeah. We had purchased some technology two years or three years ago was more of the physician product and we had in our sales bag for a couple of years and not from lack of effort, it was just something that we were struggling to commercialize and we made a decision to -- with the salesman’s time being precious commodity, we felt like it would be dilutive to the sales guys time to keep it in the bag and so we made a decision to exit that technology and we wrote-off basically the patent technology associated with it.

[Larry Keusch:]

Okay. Got you. And then, just one last one, again, maybe, I just want to hone in on the Healthcare Disposables and maybe again just review a little bit of the strategy there both from an organic side, as well as your interest there in doing further M&A?

[Peter Clifford:]

Well, so we -- I mean, I think, if you look at this year, Healthcare Disposables, we’re doing really well from an overall perspective. We bought a very exciting company in the beginning of the year. We drove organic growth around 4.5%. We think maybe long-term it could be a little bit more than that, but if you look at the overall growth in potential business, which is the dominant -- dominating underlying growth vehicle for this business. We are certainly growing 200 basis points or 300 basis points over the market and the reason why we are doing that is that we continue to add a new technologies like DentaPure, Accutron franchises accretive to growth and we are really focusing on driving our branded portfolio where we have unique benefits to the customers and building -- continue to build a full infection prevention solution in the dental office. So I would say, we feel really good about Healthcare Disposables. There’s lots of interesting technologies that we are looking at to acquire into this business and we have a very good track record buying a company or technology each year for the last several years in Healthcare Disposables as well. And then, again, it’s a very much U.S.-based operations today and there should be interesting technologies and products and companies OUS that may also get go online in the next couple years.

[Larry Keusch:]

Okay. Thank you, guys. Yeah.

[Jorgen Hansen:]

And one follow-up point there, Larry, just as you are thinking about 2018, again one nuance that’s unique about Cantel right with our 7/31 year end is our second quarter is always November, December, January, which means we typically always lose four days of shipment sequentially from 1Q to 2Q, so it’s just something for everybody to be thinking about as they think about what the year looks like.

[Larry Keusch:]

Okay. Well, that was helpful. And last one for you, Jorgen, just -- sort of just as a segue on to your last point there relative to international growth and the opportunities in the Healthcare Disposables. I think in your five-year strategic plan, you sort of talked about the objective to grow international and essentially double the rates of the U.S. Obviously this quarter was 17% nice growth, U.S. was 14%. So, obviously, we are not there yet for the doubling of the U.S. growth rates. So, I guess, the question is that still the right way to think about the objectives for the international business over the five-year plan and if so what really accelerates the growth to level above where we are currently?

[Jorgen Hansen:]

Well, I think, that’s still, that’s definitely still the division and aspiration we have for international markets to keep the high growth rate and in many of the geographies we are in we are still sort of early days in terms of penetrating our infection prevention solutions and the opportunities within M&A is still absolutely there. So I feel good about that inspiration. I mean, it’s not going to be exactly twice the growth rates each quarter and necessarily each year. This year we started buying U.S.-based company in the beginning of the year, and obviously, you compete with that. But the opportunity is certainly there and we aspire to continue to drive the global opportunity for our product solutions. I don’t know if you have anything you want to add from an M&A perspective.

[Peter Clifford:]

I think it’s fair characterization and I think we still certainly have lots of opportunities we see ahead of us both organically with our core franchises, as well as complimentary businesses that we could bring to the Cantel family in international. So I think we still have good opportunities in international markets that consistent to plan.

[Larry Keusch:]

Okay. Very good. Thanks for the time.

[Jorgen Hansen:]

Thanks, Larry.

[Operator:]

There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

[Jorgen Hansen:]

Well, thanks all for calling in and we look forward to talk to you all at our December first quarter earnings call. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.