Cantel Medical Corp.
Q1 2015 Earnings Call Transcript

Published: 10 Dec 2014

[Operator:]

Greetings and welcome to the Cantel Medical Corp's First Quarter 2015 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 today, Andy Krakauer, CEO of Cantel Medical Corp. Thank you, sir. You may begin.

[Andrew A. Krakauer:]

Thank you, Kevin. Welcome to our first quarter fiscal year 2015 conference call. Before we start, 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 limitations, 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. Okay, with that said, good morning again to everyone. With me on our call today are Chuck Diker, Chairman of the Board; Jorgen Hansen, President and Chief Operating Officer; Craig Sheldon, Executive Vice President, Chief Financial Officer and Treasurer; Seth Yellin, Senior Vice President, Corporate Development; and Steven Anaya, Senior Vice President and Chief Accounting Officer. Cantel Medical achieved excellent financial results in the first quarter of fiscal year 2015 with record sales and solid net income growth. We reported first quarter U.S. GAAP earnings of $0.27 per share, inclusive of $0.03 of acquisition related although non-amortization of intangible charges, as compared to the prior year's first quarter earnings of $0.27 per share. Sales increased 16% in the quarter to a record $136.8 million, of which 10% of that growth was organic. Starting this quarter and going forward, we will supplement the reported U.S. GAAP financial measures by additionally reporting certain non-GAAP financial measures. Specifically, we will now report adjusted net income and adjusted diluted earnings per share. These non-GAAP financial metrics are measures of the Company's performance presented with the intent of providing greater transparency into the financial information used by Cantel management in our financial analysis and operational decision-making. We also believe these non-GAAP measures provide meaningful information to assist investors, shareholders and other readers of our financial statements in making comparisons to our historical operating results and analyzing the underlying results of our current operations. On a non-GAAP basis, adjusted net income increased by 10.5% over the same quarter last year. Adjusted earnings per share for the quarter was $0.34 as compared to adjusted earnings per share in the prior year of $0.31. Now Craig is going to explain this reporting change in more detail later after my brief review of our major operating segments. All three major segments, Endoscopy, Water Purification and Filtration, and Healthcare Disposables performed well in the first quarter. Our Endoscopy business had strong growth and sales of $55.9 million, set another record for the sixth consecutive quarter, although this quarter did include sales from our newly acquired business in the U.K. Nevertheless, organic growth was strong at 13% and overall sales grew 28% from the same quarter last year. Operating profit for this segment, excluding acquisition related transaction expenses and fair value adjustments, increased by 6%. Operating profit growth would have been higher if not for our significant incremental sales and marketing investments, principally in the U.S., the U.K. and China, as well as greatly accelerated R&D expenses. We are very optimistic that our Endoscopy business very deliver good sales growth and increased operating profits for the rest of fiscal year 2015 and beyond. This quarter we saw increases in our large and growing installed base of endoscope reprocessing equipment. Equipment placements drive sales of our higher-margin disinfectant chemistries, much of which is our proprietary RAPICIDE PA product. This quarter our disinfectant and detergent chemistries grew organically by over 20%. Our growing installed base of machines also provides great opportunities to expand our service and spare parts business, which grew 9% organically this quarter. We expect to see further growth in these categories with our newly acquired businesses in the U.K. which we announced in the fourth quarter of fiscal year 2014, a few months ago, and our recently announced acquisition in Italy of International Medical Service, or we call IMS, on November 4. IMS, located outside Rome, further enhances our global leadership in the endoscope reprocessor and related chemistries markets. In addition to a strong core business and product portfolio, IMS brings to Cantel a first-class chemistries manufacturing operation which could be leveraged to provide manufacturing capacity to serve Cantel businesses throughout Europe and the Asia-Pacific region. On the product development front, we have recently launched several new or improved endoscopy disposable product lines which are now starting to generate some positive sales momentum. We have just launched an important new pass-through endoscope reprocessor in the U.K., the RapidAER, which will be launched in other European markets in the fourth quarter. New product development focus and spending in this business remains high and increasing as we are working on new products and product enhancements which will benefit us in fiscal year 2016 and beyond in all markets. We also remained very confident in the strength and capability of the entire Medivators United States direct sales and service Endoscopy team and their ability to effectively launch and grow our expanding full-circle product portfolio. The U.S. business is off to a great start. As I mentioned last quarter, we have just completed a major reorganization of this team, which included adding a number of additional sales and marketing resources, some of which will also support our global sales efforts. Moving on to Water, our Water Purification and Filtration segment has shown strong performance for the past three years. This quarter sales grew by 7%, all of which was organic, over the same quarter last year, to a record $42.4 million, which is good performance given the strong results a year ago. This increase was primarily due to solid shipments of dialysis water purification equipment as well as sales of consumables including filters and sterilants and service. Operating profit showed good leverage, good growth of 26% over the same quarter last year. The profit increase was driven primarily by the greater shipments and especially the favorable mix of consumable products, which led to improved gross margins by over 3 percentage points. In spite being global lower corporate average gross margin, this improvement is a continuing positive development given the high percentage of capital equipment sales in this segment. During the first quarter, we continued to see broad acceptance of our heat-based disinfection central and portable water purification systems. These automated systems provide for a higher standard of water purification than the older conventional technology equipment they replaced and provide great benefits to our dialysis customers and their patients. Sales of these more advanced machines which sell for higher average selling prices now account for 65% to 75% of our shipments and orders. The adoption rate for these newer and higher valued technology platforms should continue to grow as customers recognize the performance benefits and cost savings provided by these new products. On a further positive note, total orders in this segment approximated sales, which bodes well for our business over the next few quarters. We are also starting to see a pickup in dialysis water purification system renovations. In fact on a positive note, the majority of the 6,000 dialysis clinics in the United States still run older manual chemically disinfected equipment that will ultimately need to be replaced. This fiscal year, our Mar Cor water purification unit has taken over management of our Therapeutic Filtration and our Chemistries businesses, and these products are now part of what we call BioScience Products or BSP Group, which already included filters and chemistry products that were previously managed by Mar Cor already. This quarter our overall BSP business grew over 15% from the prior year. We had good growth from our existing dialysis customers as well as new filtration customers, also improved sales from our clean-room disinfection chemistries as well as an increased demand from our core blood filtration customers. Again, sales growth in this category was a key driver of our margin improvement in this segment. We are optimistic that over time we have some exciting future opportunities with our unique hollow fiber filters as well as our novel new REVOX Sterilization Service technology. We have added and are continuing to add some sales, marketing and product development resources to pursue what we believe will be profitable growth opportunities in these businesses going forward. Overall, we remain very optimistic that we can continue the great momentum we have achieved over the past few years in the Water Purification and Filtration business. Our Healthcare Disposables business continues to be a strong performer. First quarter sales of $29.3 million grew by 12%, again all of which was organic, over the same quarter last year, primarily driven by strong sales of face masks and sterility assurance products. Some of the sales increase was driven by pull-ahead sales by distributors in advance of a price increase and a very strong face masks business which includes masks with shields, partially driven by the Ebola situation. We do not expect these factors to continue. However, a portion of the growth was driven by general market growth conditions as well as several sales and marketing programs that are underway. Operating profits for this segment grew by 11% this quarter, which was basically in line with the sales increase. This was a good performance given the increases in sales and marketing investments we are making in this business to expand coverage to a variety of customers in different markets and specifically including a restructuring of the United States sales and marketing approach in the dental market. As we go forward, I remain optimistic about the growth of the Healthcare Disposables business driven by our increasing presence in the sterility assurance market, from new opportunities in hospital and alternate-care markets, from new product development activities and from potential international sales growth. We have a number of products currently being registered in several international markets that could bode well for the business in a few quarters. In the Dialysis segment, first quarter sales grew by 2% over the prior year, due to some unplanned concentrate sales. Operating profit decreased by approximately $300,000, primarily as we have made some incremental sales and marketing investments to seek growth globally in this business. Relative to the rest of Cantel, this segment has become a much smaller part of the overall Company, representing only now 6% of our combined segment operating profit in the first quarter of fiscal year 2015 as compared to 8% in the same quarter last year. Nevertheless, this business remains important for the Company and we work hard to continue to take care of our customers while seeking growth globally. Now I'll turn it over to our CFO, Craig Sheldon, to go over some financial details.

[Craig A. Sheldon:]

Thank you, Andy, and good morning everyone. So I want to turn our focus now to the earnings release that was issued earlier this morning, and just right off the start here, I wanted to review in a little bit more detail our addition of non-GAAP financial information. This is somewhat of a repeat of what was in our release and what Andy commented on, but I want to be really clear about exactly what we did for the first time this quarter. So when we file our 10-Q later on today, you will see that in the MD&A section of that 10-Q, we are having significant disclosure about inclusion of adjusted non-GAAP net income and EPS measurements. Going forward, our non-GAAP adjustments in acquisition accounting as well as direct cost of acquiring companies such as legal and transaction fees, additionally any highly atypical and significant restructuring of tax items will be considered for adjustment as well. You will see that in our first quarter, these adjustments are limited to acquisition related items, namely amortization and transaction costs. Our 10-Q disclosure will clearly delineate and explain the adjustments and provide full GAAP reconciliation, as we also have done in our earnings release. These non-GAAP adjustments and measurements are intended to supplement GAAP and are intended to provide greater transparency to our financial information, which is used by management as well as investors, shareholders and other third parties in analyzing operating performance and decision-making. Further, we believe these non-GAAP measures will provide the best financial information when used in conjunction with GAAP financial measurements and not in lieu of GAAP. That having been said, moving back to the income statement, let me just start at the top and go down. So as Andy indicated, sales increased by 15.7% in the first quarter compared to last year's first quarter to a record $136.8 million. Organic growth for the quarter was 10.1%, after removing the incremental impact of the PuriCore acquisition, which we now call Cantel U.K. Top line growth was driven by all three of our largest segments, Endoscopy, Water Purification and Healthcare Disposables. As you know, on June 30, 2014, we completed the acquisition of PuriCore, which for the first quarter contributed approximately $6.5 million in sales, although as we anticipated this acquisition has not yet generated profits. PuriCore is included in our Endoscopy segment only in this year's quarter. And by the way, the major reason why it's not profitable yet is because of acquisition related items that will be gradually disappearing by the time we get into our third quarter. Further, on November 3, which was early in our second quarter, we completed the acquisition of IMS. So this acquisition did not reported in our operating results for either quarter, and subsequently into the first quarter. Gross profit for the quarter was 44.2%, an improvement over the 43.5% in last year's first quarter. The improvement in GP percentage is due principally to favorable sales mix in all three of our largest segments, coupled with efficiencies associated with higher sales volume. Partially offsetting these favorable improvements in GP was the adverse impact of the PuriCore acquisition, and this really came in two distinct areas. The first was amortization of acquisition accounting fair value items that generated additional cost of sales of $667,000 or 50 basis points of margin. That's a big number for the quarter and that is the bulk, probably over half of the number, and that's specifically the piece by the time again we're in third quarter will be disappearing from our results, so the $667,000 all in the margin section. And the second reason is our U.K. business has lower margins than our U.S. businesses, and we knew that as we bought the company, but we anticipate this situation to improve as we continue to make improvements in sales mix, pricing structures and manufacturing efficiencies as part of the integration process. Lastly on the margin, it's also worth noting that in both comparable quarters, we now have a full medical device excise tax. So this will no longer be part of the year to year fluctuation comparison. However having said that, it's helpful to know that this excise tax is still costing us over $1 million of gross margin per quarter and we still haven't given a poll for that being eliminated with legislation at some point in the future. In the operating expense area, gross operating expenses increased by $8.3 million in the first quarter compared to last year's first quarter, and this can really be segregated into two distinct buckets. The first is acquisition related items and the second bucket is investment related. So let me first talk about the acquisition related bucket. The acquisition related costs were principally in the following areas, having the infrastructure of PuriCore, acquisition costs related to the IMS acquisition, and lastly was adding the infrastructure of the Jet Prep acquisition from last November. So collectively, these three areas, all of which we deem to be acquisition related, contributed over $3 million in costs to our operating expenses. And the second bucket is our investments and operating expenses, as Andy has talked about in great length both now and previously, and these investments are really concentrated in a few specific areas. Number one, the increased sales and marketing initiatives to expand into new markets and gain or maintain market share, and this includes the hiring of additional sales and marketing personnel as well as increased travel budgets. Number two, the higher commissions related to our higher sales volumes, so that's a variable cost. Three, normal salary increases. And four, is the accelerated investments in R&D that Andy referred to. These investments impact all three of our largest segments, but the majority are specific to the Endoscopy segment. Furthermore, these investments are worldwide but the bulk is concentrated in key international markets where we anticipate future growth, as well as in our domestic markets. So clearly we are investing significantly in our key businesses as we have previously disclosed, but very strategically and in a very carefully controlled manner. It should also be noted that we are also actively reducing costs in many areas to pay for some of these investments. Operating income overall reporting a $735,000 increase compared to last year, which is a 4% increase. However, on a non-GAAP basis, as you can see in the earnings release, the increase in operating income is 11%, [indiscernible] very strong all three of our segments. On the interest line, net interest has decreased compared to the prior year period. Substantial debt repayments over the past year have been partially offset by new borrowings for acquisitions, or alternatively paying cash for acquisitions thus preventing higher debt repayments. Despite all this, total interest expense is now running at only $550,000 per quarter, so very, very low level. We continue to repay borrowings quickly with strong cash flow and very low interest rates. And I should also mention that future interest rates continue to be well protected due to our strategic use of 12-month LIBOR contracts on a significant portion of our outstanding debt as well as our continued ability to repay in a very rapid fashion. On the income tax line, you will see that overall income tax rate was quite high for the quarter at 39.3%, despite the fact that virtually all of our profits have been generated in the United States or our effective rate is a very normal 37.5%. Internationally, where tax rates are lower, we have not yet generated profits due to substantial strategic investments as we indicated earlier. Furthermore, we incurred significant acquisition expenses mostly for the IMS transaction which closed in November, and these expenses are not tax-deductible because of the stock acquisition, and this impaired our overall tax rate. Just to comment on it further, our [indiscernible] to IMS was really the more significant reason and when you factor in the non-tax-deductibility of those deal costs which will not be repeated, that brings our rate down into the 37 plus range and a much more normal range. So that's really important to understand that. So with the PuriCore and the IMS acquisition expenses largely behind us and with our expectations of improved international profits in the future, we certainly expect to lower our future overall tax rates. I also wanted to point out that in October, our Board of Directors – I'm sorry, actually it's November, our Board approved an 11% increase in the semi-annual cash dividend to $0.05 per outstanding share of common stock, so that's $0.10 annually, which will be paid in latter parts of January 2015. Moving on to the balance sheet very quickly, balance sheet remained very strong. We had $29.7 million of cash and cash equivalents at the end of October, $109.9 million of working capital on October 31, and a current ratio of 2.7 to 1. Our funded debt was $93.5 million at the end of October. This includes $25 million of borrowings at the very end of October to fund the IMS acquisition, which actually closed in the early days of our second quarter. Meanwhile, we continued to pay down significant levels of debt. We paid down $12 million during the first quarter. So our net debt position is $63.8 million at October 31. This represents an increase of only $15 million since July 31, the end of our prior year, and this is despite funding the IMS acquisition of $25 million. Our gross debt-to-equity is 0.25 at October 31 and our gross debt-to-rolling 12-month EBITDA has remained under 1 or $0.9. In the area of cash flows, EBITDAS was $29 million in the first quarter. This is 7.3% higher than last year's first quarter. Cash flow provided by operations was $12.7 million in the first quarter. And finality capital expenditures, $3.1 million in the first quarter. And so finally, just to alert everyone, today is our filing deadline and we will be filing our 10-Q before the close of business. At this point, I would like to turn the call back over to Andy who will go through some closing remarks. Andy?

[Andrew A. Krakauer:]

Alright, thanks Craig. In summary, the first quarter was a good start to fiscal year 2015 for Cantel Medical. We continued the momentum from our strong fiscal year 2014 and achieved record sales and strong earnings growth, excluding those acquisition related charges. This quarter exemplified why we are so optimistic about the future of the Company. We showed excellent sales growth of 16% and have achieved organic revenue growth of 10% or higher for six consecutive quarters. Despite significant investments in future growth drivers, we improved adjusted net income by 10.5% by driving sales growth while focusing on increasing gross margins, accelerating the growth of the businesses we acquire, and driving overall operating leverage as a result of increased volumes and careful expense management and some active programs. More importantly, all of our major businesses have great growth prospects and the addition of businesses in the U.K. and Italy has added important contributors to future global growth. The worldwide market potential for our products continues to grow. As we discussed for the past year, our strategic plan supports our aspirations to double sales and profits in the next five years, and we are now in year two of this plan. These are our aspirations are not predictions, but we are optimistic that we can achieve these goals. Our detailed market analyses have shown that we now compete in total addressable markets well in excess of $5.5 billion and we are looking at programs re to grow this potential significantly. This opportunity and our clear growth drivers are reasons why we believe that Cantel Medical has never been better positioned for meaningful, sustainable growth over the medium to long-term horizon. We are focusing on substantial sales and marketing investments to promote newly launched products, to meaningfully grow international sales and to increase penetration in our existing and growing U.S. markets. We continue to invest in the U.S., Germany, China and now in our go-direct strategy in the U.K. and Italy additionally. These are mostly upfront investment strategies for this fiscal year, obviously investments that we're making this particular quarter and obviously reaping benefits from investments that we made a few quarters ago. We are also investing in future new products, disposables, chemistries and equipment, which we believe have large potential upside. This quarter we had a large increase in R&D, $1.3 million, which is over 50% higher than the prior year's quarter, as we are in the development process of a number of key new products, product platforms and upgrades, including in our newly acquired portfolio in the U.K. You should expect to see us continue to invest heavily in these categories over the next few quarters as the investments are required to build the foundation to enable Cantel Medical to achieve that medium and long term strategic growth objectives. And again, to achieve these objectives of our five-year plan, we added a number of sales and marketing positions in fiscal year 2014 and have a detailed plan for recruiting key positions over the next few quarters in fiscal year 2015. While most of these investments relate to Endoscopy and international, we are also adding positions to strengthen our Healthcare Disposables and Water Purification and Filtration businesses mostly in North America. Not only are we adding to our sales and marketing team, but we are also adding needed infrastructure to support roles such as finance, HR and general management globally. In the first quarter of fiscal year 2015, we added just over 20 professional positions, much of this being our new direct procedural products sales team in the U.K., and have plans to add 50 to 60 more positions over the rest of fiscal year 2015. The majority of these positions are in sales and marketing and about half are dedicated to international markets. Despite these substantial investments in the business, we expect to grow annual earnings this year. Besides increased profits driven by sales growth, we have been implementing cost and operating efficiency programs in part to help pay for these investments. We will also continue our success in identifying, executing and integrating acquisitions worldwide. This is a core competency of Cantel that has brought us top-notch entrepreneurial management, new and higher-margin products and additional growth in sales and profits from our proven strategy to invest and accelerate the growth of acquired companies. This continued search remains a very important role of our senior management team and we continue to look at a number of potential targets, at the moment mostly in the United States. We expect to have an excellent fiscal year 2015 which will be a year of continued investment to accelerate future growth worldwide, and we're off to a good start and we expect similar performance in the second quarter. Again, we are committed to profitably growing the Company while serving our customers and benefiting our shareholders. We feel we have an envious position by having leading businesses and growing multibillion-dollar infection prevention and control market, exciting opportunities before us with new products and expanding worldwide markets, and our entire organization takes great pride in our mission to provide the product, the services and the guidance to mitigate infection risks, improve safety and patient outcomes and ultimately save lives. And I want to personally thank all of our now over 1,600 loyal and hard-working employees for their great efforts and achievements in the first quarter of fiscal year 2015. So with that said, let me turn it over to Kevin and we'll take some questions.

[Operator:]

[Operator Instructions] Our first question today comes from Tom Gunderson from Piper Jaffray. Please proceed with your question.

[Thomas Gunderson:]

So some numbers questions first. Andy, in your closing remarks you commented on the higher R&D costs. We had forecasted higher R&D costs but you came in a little higher than even we thought. So I'm curious, do you expect these rates – my typical model is that a lot of R&D is human labor, getting those smart engineers in there and running the projects, do you expect those levels, dollar levels to continue through the year or is there going to be some waxing and waning as we go forward?

[Andrew A. Krakauer:]

We're having a complete review of R&D expenses in a meeting coming up still next week. I can tell you, we did spend a little more than we had earlier budgeted. Some of the new projects that we're working on do have some significant on-site expenses, including programming software in different languages and some significant industrial designs and a few other things. So it's not just our own people cost. And those do come and go as you would say. So I think [indiscernible] to be a little more thought and maybe address it more next quarter, but I would not necessarily just take this quarter and multiply by four. But we're actually reviewing that now as well as some of the – R&D is a little more confusing, because we have a lot of R&D going on in some of the acquired businesses like in the U.K. and we have some things that we're going to be doing in Italy. So maybe in total, this level this quarter is probably a reasonable level, but yes, we have to do a little more work on this which I'll talk about in the next quarter.

[Thomas Gunderson:]

Okay, thanks. And then, Craig, I loved the detail but then the more detail you get, the more questions you get. I still loved the detail. The tax rate, you explained, that was one of the things that you sort of highlighted in the press release and then you explained that and a lot of that is the non-tax-deductibility of the acquisition cost, but just to clarify, those acquisition costs for IMS came in Q1 because you book them and bill them when they happen not when the deal closes, is that right?

[Craig A. Sheldon:]

Yes, that is exactly right, and this is related to new accounting items from a few years back. So these acquisition costs now are, number one expensed and number two expensed as you incur them. So almost all the due diligence for that field occur in the first quarter because I think we closed the deal November 1. So that's exactly right. It was about $0.5 million of expenses, all non-deductible.

[Thomas Gunderson:]

Got it, thanks. And then on the improved gross margin, good job. I'm assuming that more consumables and mix and those kinds of things is a continued focus but you also talked about a pushback, one of the headwinds on PuriCore amortization costs of somewhere in the neighborhood of $667,000 I think you said. Can you give us a sense of what that would be in Q2 and is it zero in Q3 or going to zero in Q3?

[Craig A. Sheldon:]

That number is one of these acquisition accounting fair value type items that push the gross profit in the months after you close a deal, a concept that we don't necessarily agree with but it's the rule. That $667,000 number is roughly half of the total. In fact I think it might even be more than half of the total that is going to need to be amortized. It happens very, very rapidly. And so let's say we have another roughly $600,000 number yet to go, most of that will unfold in the second quarter and probably just a few dollars trickling into the third quarter and then we'll be done with it.

[Thomas Gunderson:]

Okay, thanks. That helps. And then I forget the initial intro, Andy. Is Jorgen there, and if so, can we talk a little bit about international expansion? You've got U.K. and Italy. Maybe a little bit more focus on emerging markets, if you could give us some color there?

[Jorgen B. Hansen:]

I'm here, Tom. And in fact, I'm calling in from Sydney, even though that's not really an English market.

[Andrew A. Krakauer:]

It's almost, it's 3.30 in the morning where they are calling in from.

[Jorgen B. Hansen:]

So obviously the focus, Tom, as you could imagine, for the entire organization has been Italy and U.K., two very important transactions that impacted our revenue in Europe. So that has been the focus. As you know, as well outside Europe and in emerging markets, our key focus is China and we continue to be very active in China, have managed to now launch our top-of-the-line automatic industrial reprocessors into the Chinese market and have [virtual] [ph] machines now at the largest endoscopy center, GI center in Beijing. So we are moving ahead with our strategic focus building and marketing leadership position in China leading with our Endoscopy products and that will be followed by several products in some of our other businesses including sterility assurance and other key products that are getting through registration the next several quarters. So I think that's the key point. We have had also good growth in some of the [east European] [ph] markets where we have some good distributors that are [buying] [ph] business as well, but I think from a sort of a Company focus, the strategic focus, China is definitely our focal point at active time.

[Thomas Gunderson:]

Okay, thanks. And that's it for me, Andy. Thank you.

[Operator:]

[Operator Instructions] Our next question today is coming from Mitra Ramgopal from Sidoti. Please proceed with your question.

[Mitra Ramgopal:]

I guess I'll [indiscernible] but I was reading recently again that Europe seems to be potentially could be heading into a recession. Are you more inclined to sort of slow things down there like the recent acquisitions and focus more in Asia, especially China and beyond?

[Jorgen B. Hansen:]

I'll take this question. I mean as you know, Mitra, [indiscernible] maybe provide healthcare and our key businesses in Europe are focused around [indiscernible] Endoscopy which is a top focus for most of the healthcare systems in Europe. We haven't really seen any pressure on that in terms of investment. So even that you see some slowdown in the currently overall economy, I don't think we anticipate anything that has a material impact on the businesses we are in, which are very important to the healthcare providers and a small subset, very small subset of their overall healthcare spend. So I don't really think it's time for really refocusing that.

[Mitra Ramgopal:]

Okay, that's very helpful. Andy, I just wanted to circle back on the Healthcare Disposables business. I know you mentioned you had pretty nice organic growth in the quarter but some of that was driven by face masks and I guess Ebola related issues and some [figures of] [ph] price increases might have driven some business there. I was wondering if there was a way of maybe stripping that out and get what the underlying business grew at?

[Andrew A. Krakauer:]

Obviously we don't know exactly the answer to that question, but I would estimate that we probably had a 4% to 6% organic growth, so somewhere between 40% to 50% of the growth, and that's just an estimate.

[Mitra Ramgopal:]

No, that's great, that's very helpful.

[Andrew A. Krakauer:]

So probably closer to market which is probably now back to 2% to 3% and then we usually do a little better than the market.

[Mitra Ramgopal:]

Okay, thanks. And [indiscernible] in terms of acquisitions looking at both the U.S. and outside, and I was wondering if you could just maybe give us a sense as to when you are looking at [indiscernible], if in the U.S. it's more going to be technology driven and outside probably more in terms of expanding distribution?

[Seth Yellin:]

Mitra, this is Seth here. I think from an acquisition perspective, international we're certainly looking at transactions that would perhaps give us some scale and some presence in the platform in various geographies in addition to technology, but I have to say that also when we evaluate acquisition opportunities in that take, we are looking very clearly at new platforms and new businesses beyond just technology and looking for new sizable acquisitions to pursue into evaluating part of the overall Cantel family. So I think it's a real mix. I think it's probably likely that other acquisitions international would be less technology driven, more scalable businesses, and then in the U.S. it could be a variety of different opportunities.

[Mitra Ramgopal:]

And again you're seeing, you have a pretty good pipeline both in the U.S. and outside?

[Seth Yellin:]

Yes, we do. We feel pretty good about where our pipeline is today.

[Operator:]

[Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to management for any further or closing comments.

[Andrew A. Krakauer:]

Alright, great. Again, thanks everybody for listening. We look forward to speaking with you on our second quarter fiscal year 2015 earnings call which will be in early March. Alright, thanks a lot.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation today.