Cantel Medical Corp.
Q3 2015 Earnings Call Transcript

Published: 9 Jun 2015

[Operator:]

Greetings and welcome to the Cantel Medical Corp's third quarter 2015 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Andy Krakauer, CEO of Cantel Medical Corp. Thank you. Sir, you may begin.

[Andy Krakauer:]

Okay, well thank you, Latanya and welcome to our third 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 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. Okay. With that said, good morning to everyone. With me on our call today are Chuck Diker, Chairman of the Board, Jorgen Hansen, President and Chief Operating Officer, Peter Clifford, Executive Vice President and Chief Financial Officer, Seth Yellin, Senior Vice President of Corporate Development and Steven Anaya, Senior Vice President and Chief Accounting Officer. Cantel Medical achieved excellent financial performance in the third quarter of fiscal year 2015 with solid sales and net income growth. We reported third quarter U.S. GAAP earnings of $0.30 per share as compared to the prior year's third quarter earnings of $0.25 per share. Sales increased 18% in the quarter to a record $141.5 million, of which 10% of that growth was organic. Net income grew by 20.6% in the quarter. On a non-GAAP basis, adjusted net income increased by 19% over the same quarter last year to $14,697,000. Adjusted EPS for the quarter was $0.35 as compared to adjusted EPS in the prior year's quarter of $0.30. Our two largest segments, endoscopy and water purification and filtration contributed to the strong organic sales and operating profit growth and more than made up for some weakness in the healthcare disposable segment. Our endoscopy business set another sales record for the eighth consecutive quarter with revenues of $63.7 million, up 35% overall and 17% higher on an organic basis. This would have been a record quarter even without the inclusion of sales from our newly acquired businesses in Italy and the United Kingdom. Operating profit for the segment, excluding acquisition-related transaction expenses and fair value adjustments, increased by 29%. Operating profit growth would have been even higher in not for significant incremental sales and marketing investments, principally in the U.S., U.K., and China, as well as accelerated R&D expenses. We are very optimistic that our endoscopy business will deliver good sales growth and increased operating profits in the fourth quarter of fiscal year 2015 and beyond. This quarter, we saw a solid growth in our already large 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 20%. Additionally, our growing installed base of machines provide a great opportunity to expand our service and spare parts business which grew over 14% 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 2014, and in Italy which we announced in the beginning of this year's second quarter. When combined with our core United States endoscopy business, we see these acquisitions providing Cantel a strong international platform, additional manufacturing capabilities including a European-based chemistry production facility which is in Italy and significant growth potential in European and other international markets, particularly as we move into fiscal year 2016 when we expect to launch several new products designed and manufactured at these sites. On the product development front, we have recently launched several new and improved endoscopy disposable product lines, and we are starting to generate positive sales momentum. Overall, our procedural product lines had sales growth of over 20% for the quarter versus the prior year's quarter. We have recently launched an important new pass-through endoscope reprocessor in the U.K., the RapidAER and are having success winning a number of tenders in the U.K. New product development focus in this business remains high and spending will continue to increase as we are working on new products and product enhancements which will benefit us in future periods. Our Continental European version of the RapidAER along with two additional state-of-the-art endoscope reprocessors will be launched in European markets and other select international markets in the beginning of fiscal year 2016. I will speak more about these product launches on the first quarter conference call in fiscal year 2016. Speaking about Europe, while still early in their development, our newly added direct sales organizations in the U.K., Germany, and Italy are off to a good start and are demonstrating the benefit of promoting our differentiated and highly competitive product offerings directly to our end-customers in three of the four largest markets in Europe. We also remain very confident in the strength and capabilities of the entire Medivators United States direct sales and service endoscopy team and their ability to effectively launch and grow our expanding full circle infection prevention and patient safety product portfolio. The U.S. business has performed exceptionally well in the first three quarters of fiscal year 2015 and is leading the growth in this segment overall. Our success in the United States is a testament to our strong dedicated team and particularly to our highly effective senior sales and service management group. As I mentioned last quarter, we have completed a major reorganization of this team, which included adding a number of additional sales and marketing resources, some of which also support our global sales efforts. And here I’d just say, we anticipate further expansion of this team in fiscal year 2016, but as we speak, we’re already adding some resources that will really benefit us next year. Our water purification and filtration segment continued its long track record of strong performance now for really over three years. Sales this quarter of $45 million were another quarterly record and up 17.5% over the same quarter last year. Organic growth in this quarter was 14%. Sales this quarter were primarily driven by strong shipments of water purification equipment as well as consumables and service. Operating profit growth of 20% over the same quarter last year was primarily driven by higher shipments, favorable product mix including filters and sterilants, and generally a focus on lean manufacturing, which combined led to continued gross margin improvement. Again, in this segment despite being well below our corporate average gross margins, this improvement is a continuing positive development given the high percentage of capital equipment in this segment. During the third quarter, we continue to see broad market 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 replace and provide great benefits to our dialysis customers and their patients. These more advanced machines carry higher average selling prices as well. 75% to 80% of our new orders and shipments are now for these heated systems. The adoption rate for these newer products could grow further as customers recognize the performance benefits and cost savings provided by the automated heat disinfection, also the adoption of higher water purification standards that could come down the road and also in some states requiring some regulatory changes. On a further positive note, total orders in this segment for the quarter exceeded the strong sales which leads the business with a strong backlog and bodes well for the future quarters. We are also starting to see a pickup in dialysis water purification system renovations. In fact, the majority of the nearly 6,300 dialysis clinics in the United States still run older manual chemically disinfected equipment that will ultimately need to be replaced. In this segment, BioSciences Products or BSP Group, which include Cantel's filter and chemistry products, sales grew over 7% for the quarter compared to the same quarter last year. We had good growth for clean room sterilants, water system disinfectant chemistries, and sterilant therapeutic filters. Again, sales growth in this category is the 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 technologies. We have added and are continuing to add some sales and marketing and product development resources to pursue what we believe will be profitable growth opportunities in these businesses going forward. A number of these opportunities could be realized somewhere mid-year or towards the end of fiscal year 2016. Overall, we remain very optimistic that we can continue to grow our water purification and filtration business. Our healthcare disposables business reported sales in the second quarter of $24.8 million, which is a decline of 3% over the same quarter last year. There were a number of factors that explain the decline. This business is still dealing with overstocked distributors in certain product categories caused by the first quarter buy forward due to our price increase, increased purchases related to the Ebola event also in the first quarter, additionally some bad weather lower dental visits, which is one of our key business drivers in number of markets also in earlier quarters. We have also seen that some of our major distributors are generally reducing their normal stocking levels and all of these factors should not affect the business going forward. We will see, but we are actually tracking good growth in our product sales to third party customers that's basically dental offices which should improve distributor purchases in future quarters I will also point out that for the full year, which we are now of course in the third quarter, in this segment sales are actually higher by 4%. In this segment, we have recently launched some significant new marketing and sales initiatives, plus we have just acquired the DentaPure Dental Waterline Disinfection System, which was announced during the third quarter. This acquired product line enhances our leadership position in infection prevention and control in the dental market and provides this segment good opportunities for growth. We are also excited to include this product category in our portfolio and see great worldwide potential for this product, not just in the United States. Reported operating profits for this segment declined by 19% for the quarter, excluding one-time acquisition costs related to the DentaPure acquisition. Operating profit was actually down 13%. The decline was primarily driven by the lower sales volume coupled with increased sales and marketing investments as we add resources and expand programs increase our reach and promotion to a variety of customers in the U.S. and in international markets. 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, our entrance into the high growth waterline disinfection market as well as from new opportunities in hospital and alternate care markets. In addition, we see continued opportunity for growth from new product development activities and additional international sales growth. I am also optimistic that some of the headwinds may now be finally behind us in the U.S. dental market. In the dialysis segment, third quarter sales declined by 5% as compared to the prior year, as the modest decline in reuse chemistries and equipment continues which were partially offset by an increase in lower margin dialysate concentrate sales. Operating profit actually increased by 7% as overall manufacturing cost were leveraged across all of our businesses. Relative to the rest of Cantel, this segment has become a much smaller part of our overall company, representing only 6% of our combined segment operating profit in the third quarter of fiscal year 2015. Nonetheless, this business remains important to the company and we work hard to continue to take care of our customers while seeking growth worldwide. I would like to point out that we did also dispose of our specialty packaging business during the quarter. This approximately $6 million in sales business was non-strategic for the company and is now in the hands of another company, which is dedicated to this marketplace. This transaction has generated a book loss but also some significant cash flow. This had been the only business that was now being recorded in the other reporting segments, so now that segment we will over with. At this point, let me turn it over to our new CFO, Peter Clifford, who will go over some of the financial details.

[Peter Clifford:]

Thanks, Andy. As Andy indicated, sales increased 17.9% in Q3 versus last year's Q3 with organic growth at 9.7%. For the nine months, sales increased 15.8% overall and 8.8% organically. Top line growth was driven by our two largest segments endoscopy and water purification. On June 30, 2014, we completed the acquisition of PuriCore, which is included in our endoscope segment for the entirety of the fiscal 2015 periods, but excluded in last year's comparative periods. On November 3, 2014, which was early in our Q2, we completed the acquisition of IMS. So this is reported in our operating results for only Q2 and Q3 of fiscal 2015. IMS is also included in our endoscope segment. On January 1, 2015 we completed the acquisition of Pure Water Solutions, a water service business, which is included in our water purification segment. The results of this business are included from January 2015 forward. Lastly on February 23, 2015 we completed the acquisition of MRLB International, or DentaPure, which is a waterline disinfection filter manufacturer which is included in our healthcare disposable segment. Collectively the PuriCore, IMS, Pure Water and DentaPure acquisitions contributed incremental sales of approximately $10.5 million in Q3 and $25.5 million in the nine months. We had a couple of non-GAAP adjustments, three which were meaningful in the quarter that netted both at GAAP and non-GAAP EPS to zero. As Andy pointed out, on April 8, we disposed of our specialty packaging business incurring a $2.2 million loss on the sale. This resulted in a $0.04 loss to the 3Q15 EPS but generated almost $4.5 million in incremental cash. We called up two other meaningful adjustments during the quarter. One, our jet prep fair value adjustment, which generated $0.06 of favorable EPS and two, an impairment of an acquired license which drove $0.02 of unfavorable EPS. Again, the net impact of these three items on our EPS was zero. Gross profits. Q3 gross profit margins expanded 120 basis points to 44.9% versus 43.7% last year in Q3. Margins expanded 150 basis points ex-acquisition accounting charges. Year-to-date Q3 gross profit margins expanded 90 basis points to 44.6% versus 43.7% in the last year's nine months. Margins, again, expanded 140 basis points ex-acquisition accounting charges. The improvement in gross profit percentage is due principally to volume leverage productivity associated with the higher organic sales volume and modest mix favorability driven by continued accelerated growth in consumables such as procedural products and chemistries. We maintain our internal goal to gradually and steadily expand margin rates. Operating expenses increased $6.7 million in Q3 and $23.2 million for the nine months compared to last year. As we have discussed on previous calls, we are continuing to make key investments in the business driven from our strat plan and controlled by our disciplined operating model. Our investments in operating expenses continued to be concentrated in the following areas, geographic expansion, sales and marketing investments in all three major business segments, new product development projects, operating expenses in our newly acquired businesses and in Q3 a net positive non-GAAP adjustments as described earlier. Reported operating income increased by 26.5% and 9.9% for the Q3 and nine months, respectively. Operating income, adjusted for non-GAAP measures, increased by 19% and 14.7% for the Q3 and nine months, respectively, in line with sales growth. Net interest for Q3 increased $84,000 compared to the prior year Q3, but it is basically flat for the nine months. Income taxes. overall our effective tax rate is well at 33.1% for Q3 and at more traditional levels for the year-to-date at 36.5%. There are two items worth highlighting in tax area for Q3. Number one, the jet prep fair value adjustment generated zero tax expense due to the deal structure. This drove over 550 basis points of improvement in the effective tax rate, partially offset by the loss on the sale of specialty packaging business. Part of the loss was nondeductible due to lack of capital gains expected to offset the loss. This lowered the effective tax rate by 180 basis points. Ex these two items, we will back to traditional effective tax rates for Q3. The balance sheet remains strong with significant capacity. We have over $162 million of unused credit facility. We have $25.4 million in cash and cash equivalents at April 30, 2015. We have $115 million in working capital and a current ratio of 2.7

[Andy Krakauer:]

All right. Well, thank you Peter. So in summary, Cantel Medical continued its strong performance in the third quarter of fiscal year 2015. We achieved record sales and had 10% or greater organic sales growth for seven of the past eight quarters, including this quarter. This quarter exemplifies why we are optimistic about the future of the company. Despite significant investments in future growth drivers, we improved net income, GAAP and adjusted, by about 20%, by driving sales growth while focusing on increasing gross margins, as Peter pointed out, 1.5 percentage points this quarter, accelerating the growth of the businesses we acquire and driving overall operating leverage as a result of increased volumes and careful expense management. More importantly, all the major businesses have great growth prospects and the recent additions of businesses in the U.K. and Italy in endoscopy and one acquisition each in healthcare disposables and water purification and filtration segments have added important contributors to future global growth. The biggest benefits of these acquisitions will start to be achieved during fiscal year 2016. The worldwide market potential for our products continues to grow as we discussed for the past two years and our strategic plan supports our aspirations to double sales and profits in the next five years and we are now moving into the fourth quarter of the second year of that plan. These are, of course, our aspirations and 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 $6 billion. We are looking at programs and potential acquisitions that could grow this further. 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 our direct teams in the U.S., Germany, China and now in the U.K. and Italy where we have made strategic acquisitions. These are mostly upfront investment strategies for this fiscal year, as well as we get into fiscal year 2016. We are also investing in future new products, disposables, chemistries and equipment, which we believe have large upside potentials. This quarter we had a large increase in R&D, $900,000 or a 34% increase as we are in the development process of a number of key new products, product platforms and upgrades, including in our newly acquired portfolios in the U.K. and Italy. You should expect to see us continue to invest heavily in these categories over the next few quarters as these investments are required to build the foundation to enable Cantel Medical to achieve our medium and long-term strategic growth plans. To achieve the objectives of our five-year strategic plan, we added a number of sales and marketing positions in fiscal year 2014 and have continued to add positions as I have been reporting on for all the three quarters of 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 business mostly in those businesses in North America. Not only are we adding to our sales and marketing team, but we are also adding needed infrastructure and support roles such as finance, HR and general management globally in all the businesses. In the third quarter of fiscal year 2015, we added about 25 professional positions and have plans to add 20 to 25 more positions over the rest of this fiscal year 2015. The majority of these positions are in sales and marketing and a substantial number are dedicated to international markets. Despite these substantial investments in the business, we expect to deliver solid growth in annual earnings this year. And besides increased profits driven by our sales growth, we have been implementing cost and operating expense efficiency programs to in part help pay for these incremental investments. We 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 through our proven strategy to invest and accelerate the growth of the acquired companies. The continued search and identification of synergistic markets and potential acquisition targets is a key role of our entire senior management team and we continue to look at a number of potential targets worldwide and we do have a robust pipeline. We expect to continue to have an excellent financial year in 2015. Again, the first three quarters have been very strong. Fiscal year 2015 has been a year where we will continue and have made major investments to accelerate the future growth in the future quarters and future years. Nevertheless, we expect to end this fiscal year with a strong fourth quarter performing at, I would say, roughly the same level as the last two quarters and should continue to show significant growth year-over-year. I would also like to welcome, now that he is already spoken, our new CFO Peter Clifford to Cantel. Peter brings over 20 years of senior financial and accounting experience in the manufacturing and industrial space at companies such as GE and most recently with IDEX Corporation. His experience at IDEX as they grew from $800 million to $2 billion in sales will be invaluable to Cantel as we expand our international footprint and continue to execute on the company's active acquisition program. Peter is an expert not only in finance and accounting, but also has an extensive background in leading and building global teams, M&A and related integrations, international business and information technology, all of which are just crucial to us as we grow forward and head towards our $1 billion. I would also like to thank Craig Sheldon, our former CFO, who retired after 20 years of great service to the company. I would like to welcome Dr. Laura Forese who was appointed to the Cantel Board at our March Board of Directors meeting. Dr. Forese serves as President of NewYork-Presbyterian Healthcare System. She has been responsible for the strategy and execution of that rapidly evolving network that provides significant services to patients throughout the New York area. Dr. Forese is also the Group Senior Vice President and Chief Operating Officer for NewYork-Presbyterian/Weill Cornell where she has responsibility for all programs and operations at that academic medical center and related campuses. Her extensive operational and leadership experience at one of the leading medical institutions in the country, together with her practical medical background, will make her an exceptional board member. So I welcome Dr. Forese Laura to our Canter Board. With that said, we are committed again to profitably growing the company while serving our customers and benefiting our shareholders. We continue with our leading positions in a growing multibillion-dollar infection control marketplace with great opportunities for new products and expanding worldwide markets in all three of our businesses. Our entire organization takes great pride in our mission to provide these products, services and guidance to mitigate infection risks, improve safety and patient outcomes and ultimately save lives. And I would like to personally thank all of the 1,800 loyal and hard-working Cantel employees for their great efforts and achievements in the third quarter of fiscal year 2015. With that said, Latanya, I will now take some questions.

[Operator:]

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

[Kyle Bauser:]

Hi. Good morning. This is actually Kyle, on for Tom. Perhaps I will start with a couple of housekeeping Items. What was the percent of total sales that were international this quarter, and do you still think 30% as a long-term goal to be in line with your current expectations?

[Andy Krakauer:]

They are roughly 19%, including Canada, and we have not changed our goal. We expect to get to 30%, especially with the acquisitions and investments that we are making.

[Kyle Bauser:]

Okay. Thanks. And what was the overall constant currency growth rate in the quarter? If you can talk a bit about what the dynamics were of FX headwinds to both sales and earnings?

[Andy Krakauer:]

Yes. Really, from a top line perspective, there was very little impact on FX. If you recall both of the key acquisitions of IMS and PuriCore don't really have year-over-year comps from a translation perspective. So really it's our biolab business in Canada. So really the effect on the top line was negligible.

[Kyle Bauser:]

Okay. And then just a couple questions on the endoscopy segment. It was clearly very strong this quarter. If you look at operating margin growth and in particular with regards to achieving your internal goal of doubling earnings by 2018, can we expect the endoscopy segment to contribute the most growth? And do you anticipate these margins being able to eventually climb back to levels seen before the PuriCore acquisition of around 18% from high margin chemistries, et cetera?

[Jorgen Hansen:]

Hi, Kyle, this is Jorgen. The margin improvement in endoscopy has been largely driven by the growth in our procedure products and in chemistries this quarter, and we see very strong growth in that segment also when we look forward. At which time we will get to the same level, I think it's a little bit hard to predict, but I think what we can say is that we are very confident about the team's execution on our procedure line, the products in the U.S., and we are excited to see very good growth there outside the U.S. as well. So that segment will definitely continue to impact our gross margin positively.

[Andy Krakauer:]

Yes. I am not sure and if you are looking at the actual reported numbers, I mean there is a lot of data that we have to sort through with the one-offs that happened in this quarter that were in the endoscopy segment, but I would say in general, listen we are making some investments, most of the international investments, they do get charged to endoscopy because that's where most of the investment is, but I think the answer is, where we currently are today and the investments that we are making and the fact that probably $4 billion of the $6 billion or even more of the opportunity is endoscopy and most of the R&D and not all but most of the investments we are making start with endoscopy. That is the leading growth area that we have at the moment. But that could change with certain market dynamics in other acquisitions. But we are confident that the portfolio that we are trying to get to and the idea of going direct is to improve overall margins and that's again our long-term goal to keep improving margins.

[Operator:]

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

[Mitra Ramgopal:]

Yes. Hi. Good morning. First, I was wondering if you could provide us a breakout regarding the acquisitions. I know they contributed in total about $10 million, but wasn't sure if it was possible to get the individual breakdown, from say, PuriCore IMS, et cetera?

[Andy Krakauer:]

We will be happy to give you whenever we put it in the public documents. So Steve is about to tell you that.

[Mitra Ramgopal:]

Okay.

[Steven Anaya:]

Okay. So for the water purification, we are talking about PWS, we had organic growth for the quarter and for the nine months of 13.5% and 7.5% for three and nine months. And then if we are talking about --

[Andy Krakauer:]

Do you want the dollar amount? I mean we can obviously, we have the number, because we calculate it in the organic growth.

[Steven Anaya:]

We present the dollar number providing organic to a percentage. So it's the same thing.

[Mitra Ramgopal:]

That's okay. I can come back later on that.

[Andy Krakauer:]

We can come back. It's not -- since we are giving organic growth, it's not already calculated and --

[Mitra Ramgopal:]

No. I was just trying to get to break --

[Andy Krakauer:]

We will just give it to you separately, because again it's not unique. Anybody can calculate it.

[Mitra Ramgopal:]

Right. No. Okay. I was just trying to get the exact PuriCore versus IMS, et cetera in terms of what each did. But I can get that later. That's okay.

[Steven Anaya:]

I think the biggest difference is PuriCore and followed by IMS and then PuriCore is statistically small. So that's [indiscernible].

[Mitra Ramgopal:]

Okay. Thanks. And I was just wondering on the G&A line, if we have to adjust for the impairment, it seems like just a very nice number for the percentage. I was wondering how sustainable that could be going forward?

[Peter Clifford:]

Again, of the three items we talked about, keep in mind the sale on the safety pack, and the loss was below our profit. So the two items really impacting operating expenses quarter are the one-time headwind from the asset impairment on the license offset by the significant good guy on the jet prep fair value adjustment. So the quarter has got a bit depressed operating expense in Q3, given the good guy from the jet prep adjustment.

[Andy Krakauer:]

We have a pretty extensive section in the Q which will be released a little later today.

[Mitra Ramgopal:]

Okay. Thanks. I will look forward to that. And given the increased focus on the international front, just a couple of questions there. Andy, I know you have been investing heavily in Europe and I know you plan to continue to investing there, but relative to your goals over the next five years, how far long are you in terms of the investments you plan on making there? Are we sort of like in the seventh inning or is that sort of, if you have to use a baseball analogy?

[Andy Krakauer:]

No. I think it depends on the region.

[Jorgen Hansen:]

And we have got people, but I think we have been, as Andy mentioned, we are direct now in Europe in three out of four major markets, meaning there is still one more major market there we need to look at and I think this is going to be an ongoing activity. But we are mindful on each investment and trying to do our best to make investments that make sense and does not have a long return. But there will be some investments. I think we shouldn't miss to mention that our biggest international investment continues to be in China where we believer there is a lot of opportunity as well and that is something that we are looking at a little more like mid-term return. So there will still be lots of activities in international. We have a large potential that we feel that with the new product launches that we are ready to introduce, we are really well positioned to build up our position there as well.

[Andy Krakauer:]

Mitra, I will give you my estimate of where we are. In China, we are in the top at the second and in Germany we are in the top at the second and in the U.K. and Italy we are in the fourth and fifth inning.

[Mitra Ramgopal:]

Okay. No, that's very helpful. And as you start to become more involved in these markets, I don't know if you can give us a sense in terms of what you are seeing in terms of local competition and the ability to enter these markets and gain share, et cetera?

[Andy Krakauer:]

Well, the competitive space is very different in Europe and Asia than some of what we see in the U.S. And I think our key learning is that there is really no one competitive set that is the same anywhere. There is very few competitors that we see in markets, which means that we have to adjust our approach just a little bit in the way that we operate in each of these markets. I think that is a good opportunity for us that will have helped us adjust our product development and with some of the products that we are putting out here in the next couple of quarters, I am very confident that we have a myriad of very competitive line of products to really meet and compete with a broad range of competitors that we are now facing in our every day efforts in international markets.

[Mitra Ramgopal:]

Okay. Thanks. And I guess when you look at just the overall business, I know you had some temporary headwinds in the healthcare disposables segment, but going forward it seems like there is really nothing in front of you that is really a cause of concern that should hurt you in being able to grow the business. It seems like in the U.S. you are up, even Asia et cetera, everything remains pretty favorable with you right now and we should continue to see revenue growth and margin expansion over the next few years. Is that pretty fair?

[Peter Clifford:]

Obviously, we are optimistic. We are confident. We are working hard everyday. But we also have very capable competitors out there and unfortunately we are not able to predict the future very well. But with everything we can control, we are feeling good about the future and we will just keep doing what we are doing everything we can here.

[Andy Krakauer:]

Yes. I mean there is no doubt that there are competitors sitting in the rooms right now that are budgeting just like we are in the process of budgeting where all of our budgets are going to add up to something that's not going to happen in total. So they are planning, they are investing, we are investing. I think that probably the biggest message is that to get to where we want to be in 2018 and beyond, we still have significant increases and investments to make to get to the market shares and to compete in those markets. Again, we are early days in a lot of these markets and so there is still a lot of work to be done. I think that's probably the message. We obviously plan it. We are trying to be careful and execute in a planned way while still trying to grow our profits at a meaningful growth year-on-year while still investing for the future and ultimately to the goal of accelerating in the later part of our five year plan. But you just made it sound too easy, Mitra.

[Mitra Ramgopal:]

But you guys are making it look really easy. So I guess just one follow-up question and then I will leave you. But on the acquisition front, again, I know you have been pretty active over the past ear in particular and as you look at new opportunities, are you seeing any change in terms of maybe having to pay up a little more and more competition for these acquisitions? Or again, you are pretty much ready only when you are looking to consolidate here?

[Seth Yellin:]

Yes. Hi. Thanks, Mitra, this is Seth here. Overall, we are pretty please with our pipeline where it stands and the opportunities we see ahead of us. Certainly with markets and the acquisitions that our competitors are making in market, there certainly is a lot of players in the space looking for quality assets. So multiples and valuation expectation certainly have risen from where they were, I would say, 18 or 24 months ago and we remain committed to being disciplined in acquisition program and being focused on strategic acquisitions that are going to drive shareholder value for us. And so we are mindful. We understand that that valuations are today and we are mindful of the value creation potential of all these acquisitions and we will continue doing what we are doing and if it becomes too expensive for us, we are not afraid to walk away. But we are also willing to put our money forward for deals that make good strategic sense for the company.

[Mitra Ramgopal:]

Okay. Thanks again for taking the questions and I will certainly look out for the Q.

[Andy Krakauer:]

Thank you.

[Operator:]

[Operator Instructions]. There are currently no questions in queue at this time. I will like to turn the call back over to management for closing comments.

[Andy Krakauer:]

Okay. This is Andy Krakauer again. So listen, thanks everybody for listening. We look forward to speaking with you on our fourth quarter and year end fiscal year 2015 earnings call that will be in the late September. All right. So thanks again, everybody.

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect at this time. And have a great day.