Steris Plc (STE) — Q1 2021 Earnings Call Transcript

Thank you, Mike, and good morning, everyone. On today's call, we have Walt Rosebrough, our President and CEO; and Mike Tokich, our Senior Vice President and CFO and Dan Carestio our Chief Operating Officer. I do have a few words of caution before we open for comments from management. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission or rebroadcast of this call without the expressed written consent of STERIS is strictly prohibited. Some of the statements made during this review are or may be considered forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those risk factors described in STERIS' securities filings. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments. STERIS' SEC filings are available through the company and our website. In addition, on today's call, non-GAAP financial measures, including adjusted earnings per diluted share, segment operating income, constant currency organic revenue growth and free cash flow, will be used. Additional information regarding these measures, including definitions, is available on today's release, including reconciliations between GAAP and non-GAAP financial measures. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making. With those cautions, I will hand the call over to Mike.

Thank you, Julie, and good morning, everyone. It is once again my pleasure to be with you this morning to review the highlights of our first quarter performance. For the quarter, constant currency organic revenue declined 3%, driven by a decline in volume, offset by 70 basis points of favorable price. As a reminder, Healthcare Capital Equipment revenue in the quarter reflects a one-time benefit of $15 million for a change in the timing of revenue recognition. You may recall that when we adopted the new revenue recognition accounting standard at the beginning of fiscal 2019, our operating room integration capital equipment products required significant onsite system configuration during the installation process. As a result, we were required to defer all revenue until the installation was complete. Since then, we have enhanced the design of our OR product line, which allows for full assembly and configuration of the equipment in our plant before shipment and simplifies the installation process. As a result, revenue is recognized based on the shipping terms, consistent with other capital equipment products. In addition, constant currency organic revenue for the quarter includes a total of about $10 million from prior year tuck-in acquisition, primarily in Healthcare spread across capital equipment consumables and service. Excluding both of these items, total company constant currency organic revenue would have declined 8%. Gross margins for the quarter was about flat at 44.1% and was impacted favorably by mix and price somewhat offset by lower productivity due to reduced volumes. EBIT margin for the quarter was 21.3% of revenue, an increase of 180 basis points from the first quarter last year, due in part to approximately a $5 million benefit from the change in the timing of revenue recognition as I noted earlier, as well as lower travel expenses, compensation-related costs and sales and marketing expenses. The adjusted effective tax rate in the quarter was 17.3% and includes the benefit of stock compensation deduction. Net income in the quarter grew 6%, to $111.8 million and earnings increased to $1.31 per diluted share. Our balance sheet remains a continued source of strength for the company. Considering our cash position of $255.6 million, access to available credit lines and a leverage ratio below 1.5 times debt-to-EBITDA, we are well-positioned from a liquidity standpoint. During the quarter, capital expenditures totaled $66.9 million while depreciation and amortization was $49 million. The increase in capital expenditures versus the prior year is related to expansion projects within the AST segment. Free cash flow for the quarter was $67.4 million, an increase over the first quarter of last year, primarily due to improvements in working capital and deferred tax payments under government programs. With that, I will turn the call over to Walt for his remarks.

Thanks, Mike, and good morning, everyone. Our solid overall performance in the first quarter reflects the diversified nature of STERIS' business across our medical device, pharma and Healthcare customers. Collectively, our constant currency organic revenue declined just 3% while adjusted earnings increased compared to the same quarter last fiscal year. Given the circumstances, we are very pleased with those overall results. Healthcare, our biggest segment, was most impacted by the reduction in deferrable procedure revenue, declining 10% with mixed performance across the segment. Healthcare consumables were down 28% for the quarter, but we generally saw monthly sequential increases culminating in near prior levels by the end of June. As we discussed last quarter, the ASM business continued to be one of the most impacted areas for STERIS, but it is following the same trend as the rest of consumables. Service declined 10%, but also witnessed similar trends as consumable products, with June returning to prior year levels in our equipment service business. In Healthcare Capital Equipment, which grew 6%, Q1 shipments continued from a strong backlog entering the year as well as the $15 million benefit in ORI that Mike mentioned earlier. I would add that this benefit in revenue also reduced Healthcare backlog by the same $15 million as those shipments were recognized. Even with that reduction, we ended the quarter with $164 million of Healthcare capital backlog, down just $8 million compared to the first quarter of last year when the ORI change is taken into account and up $9 million sequentially from Q4 with the same adjustment. As I have commented before, we would not be surprised to see Healthcare Capital Equipment come under some pressure over the coming quarters, particularly replacement equipment, some of which can be delayed by our customers. Turning to AST, which serves medical device customers, that business's revenue was flat with the prior year. This was largely the result of continued elevated demand for PPE sterilization, offsetting a reduction in devices for deferrable procedures. Once again, we experienced increased procedural device processing on a sequential basis within the quarter. Life Sciences revenue grew 21% in Q1, as we continue to benefit from our pharma customers' expectations for growth in vaccines and biologics. Supporting that growth, Life Sciences consumables grew 34% versus last year, which is exceptional performance, driven in part by our customers' desire to build inventory. While we would not suggest this growth rate is sustainable, we do continue to see favorable growth trends for this business. Our margin and earnings improvement reflected our success in spending reduction, in particular travel expenses and variable selling costs, which will generally come back as our businesses return to normal. In addition, as we discussed last quarter, we chose to avoid unpaid layoffs. Instead, we placed our underutilized people on short-term fully paid furloughs, some of which were partially subsidized by governments around the world. We attracted costs related to that decision along with other COVID costs about $9 million net of government subsidies and are excluding these items from adjusted profit in the quarter. We believe that maintaining our trained and dedicated staff was the right thing to do, and is helping us now support our customers as they ramp up healthcare procedures to normal levels. Our furloughs have been reduced substantially as businesses come back. On another note, we have continued to invest in R&D as originally planned, and we expect to do so going forward. As a result of these factors, we anticipate that our adjusted SG&A dollar spend will rise as business rebounds. Since we last spoke to you in May, we witnessed a turnaround in deferrable procedure volumes in the United States and Europe. While the recovery is still region-by-region and some COVID hotspots are occurring, we have been pleasantly surprised by how quickly healthcare providers have been able to bring procedure volumes back. Many of our product lines are now running flat to slightly up as compared to the prior year. Although we may see some reductions due to COVID hotspots, we do not expect to return to the low levels of deferrable procedures experienced in April or May, as healthcare providers have improved their ability to come back to normal. We believe that STERIS' balanced business model will continue to be a benefit and remain optimistic that we are well-positioned to respond to changes and uncertainties in the market. Now changing gears a bit from our financial performance, yesterday in our earnings release, we announced the addition of a new Board member, Chris Holland. You may know Chris from his role as CFO at CR Bard, prior to the acquisition by Becton Dickinson. Chris brings great experience to our Board and we are happy to have the benefit of his insights and perspectives. We also announced an increase in our quarterly dividend yesterday, bringing us to $0.40 per share per quarter and representing our 15th consecutive year of dividend increase. As Mike discussed, our balance sheet and cash flow remained strong, and we are pleased to be able to continue returning value directly to our shareholders through our dividend. As you know, STERIS is an essential business supporting Healthcare, and we are very fortunate to be in the business we are in and to be in a strong financial position. Our plans to be nimble and ready to support our customers as needed are already paying off. We believe that our approach to managing through the pandemic leaves us well-positioned to capitalize on future opportunities. Before we open to questions, we express our respect and gratitude to the healthcare providers on the front lines during the pandemic around the world. These are unprecedented times, and the challenges facing caregivers have been unexpected and monumental, and they continue to do remarkable work to this day. We also thank the people of STERIS, those working with our customers in the field and those working behind the scenes in our factories, labs, offices, and from their homes during this unusual time. Our team has done a great job of adjusting to this difficult situation while serving customers and their patients. Our confidence in our strategic positions and operating capabilities continues to grow. While there is more uncertainty in the near-term given the COVID situation, both potential upside and downside, we stand ready to capture opportunities and mitigate risks. We continue to believe that the long-term future for STERIS is bright. I will now turn the call back over to Julie to open Q&A.

Thank you, Mike and Rob for your comments. Mike, if you would please give the instruction, we can start with Q&A.

Great. Good morning. Walt, maybe just to kick it off here. I would love to get your thoughts, given the customer base that you have, on sort of what the state of the consumer is today, meaning like patients of the hospital, their attitudes towards surgery and going in. I know you mentioned that monthly, your progression improved. I just love to get your high-level thoughts on, do you anticipate that continues ahead? And have you noticed the difference in terms of hospitals opening up to the surgeries that did come back rather quickly?

Well, the answer is certainly yes. I think the healthcare systems around the country and around the world have done a fantastic job of assuring patients that it is safe to go to their facilities for procedures, and they have done a number of things and done that in several ways. I don't know if you have happened to be into a hospital surgery center recently. I have, and the precautions that they are taking are fantastic. Both with their own staff and with the patients who are coming in, visitors are no longer coming in. So, they have taken care of that problem pretty straightforwardly. There are all kinds of methods they have used, and again, we are talking to them all the time about this. First, my understanding from speaking with a number of them is that kind of the patient or potential patients' number one factor in making that decision is their physician. And so, they have done great work in outreach using their physicians and their physician offices to give outreach to the patients, reassuring them that the hospital may be one of the safest places to be, as opposed to all kinds of other things that people are doing around the country, which is what is causing COVID to spread. So, and I think that the facts bear that up. They have done a great job with PPE. We know a number of physician groups who had extraordinarily low amounts of COVID in their own staff, even though they are actively involved, heavily actively involved in COVID patients. So, it is both the work they have done to make their places safe and the marketing to let people know that it is safe to return, it is largely the physicians doing that, not the facility so much. The other things they have done is they have moved more and more procedures into spaces that patients feel more comfortable, so in the ambulatory surgery centers, and other types of centers like that, as well as the standard operating room. So, I mean, really, it is pretty miraculous the work they have done in the last two or three months to offset this significant concern among potential patients. And of course, the toughest areas are the places like New York City that were overrun early. And it has been, I think, somewhat easier in other spaces where we didn't see that level of burden on the hospitals.

Thank you for that. Maybe quick follow-up for Mike. The $15 million, is that the last we see that or is that - I know you mentioned from that 2019 change. But does that happen again in the future? Is that something done now?

No, Dave, that is a onetime adjustment that we had. So, we are finally at this point in time, you will not see that again.

Great, thanks so much.

David, only to the extent that that business grows, the growth will come quicker just because the revenue is recognized quicker, but there is not a, if you will, pull-forward-like effect.

Got it. Thanks.

Thank you. Good morning. I appreciate you taking the questions, and congratulations on a solid quarter there. Maybe if I could, let's take a little bit of a look at the margins for my first question on both Life Science and AST and I appreciate the commentary, Walt, that you saw some stocking of consumables in particular in Life Sciences. But, you hit a record growth - margin there in Life Science of 41.5%, which is really enviable. Help us think a little bit about how that business may have shifted structurally, such that as we start to see some normalization there in consumable purchasing patterns? How we think about that operating margin? And I guess, similar to that, a little bit of a taper on AST, which is to be expected with the shift more towards PPE in some instances. Is that something that, we should think about lingering throughout the fiscal year and kind of slowly working its way back out? Or is that something that would start to reverse itself maybe more so in the second half of the fiscal year? Just want to make sure, we are thinking about the marketing contribution correctly and I have got one quick follow-up.

Okay. Hi. This is Dan Carestio actually. And on the Life Science question, I think the increased margin that you saw in the first quarter was heavily based on the fact that we had a mix of very high consumable revenue stream. A significant portion of that is stockpiling by our customers just for assured supply and some portion of it is actually also increased demand from those customers. With all of the investments being rolled out right now in vaccine production, that is an area that is really in STERIS Life Sciences' sweet spot for our portfolio, because it requires aseptic manufacturing. So to the extent that this is sustained, we believe we will see some sustained benefit for our consumables business in particular. To the extent that pharma starts making a significant expansion investments in any other CMOs or their factories, then we may see some benefit in our Capital Equipment side of the business in the future. But in the interim short-term, we see it as purely a consumable play at this time.

And Chris, I guess I would add, I don't think anyone is thinking vaccines are going to slow down in the next year or two. So, if anything, we feel bullish in general in the space. 34% year-over-year, we are not planning on that for very long, but we are bullish in the space. And on AST, if you call it that, on PPE, it is a high volume, relatively speaking lower margin product than many of the consumables that are related to surgeries that have been deferred. And so, that is largely a mix issue, and I would expect it to slowly reverse as the surgical-type devices come back. Now, I don't know that we are going to see PPE slack off a great deal. So, it may not move back to the original numbers, but orders of magnitude I would expect some of it to come back due to mix.

I really appreciate the color. And then just finally from me, Walt, in 15 plus years here, the leverage ratio being below 1.5 times. I'm toggling across here. It has been a really long time since I have seen that. And I understand and greatly appreciates you always ran the business very conservatively not leveraging up here and especially not in a challenge time. But this is a relatively historic low level for that either. Just curious, where you see opportunities from an M&A perspective, from an opportunity to invest back in business to either enhance the margin profile, longer term or current growth. But I'm assuming rather than just accruing cash on the balance sheet, even after the 8% increase in the dividend here this quarter, there has got to be opportunities to deploy cash. How do we think about the capital structure? Thanks so much.

Sure, Chris, we have spoken about that and have been very, very consistent over the decade or so. You have talked about in terms of how we intend to spend our capital, we do intend to provide dividends. We think that is a good discipline of management to grow dividends somewhat in line with the profit and cash flow of the business. We absolutely intend to continue investing in the businesses we already have, and you are clearly seeing that. As Mike mentioned, we actually spent more capital this quarter than we did a quarter ago last year, we have less significant investments moving forward in the AST space for growth, which we absolutely believe is coming. And also in the hospital outsourced processing business we have and intend to spend significant capital. So those, we are spending capital every place; those two are just orders of magnitude larger, with some of the others at this moment in time. And that is in our view because of the long-term opportunity in those spaces. But in general, I would rather spend money in the businesses I already run to make them either more efficient or in new products than running around looking for new things. After that, we want to run around and look for new things. And we did have a number of things on our plate when this little COVID issue hit us, and so we pulled back on that due to the near-term uncertainty in the space. We are feeling more comfortable that our cash situation is in good shape, and that we can go back to the search and hunt. But those things' timing is never known. So, I wouldn't suggest something is going to happen tomorrow morning. But it would be surprising if over the next year or two, we don't see things that are worth investing in and adding to our portfolio. We like things that are either in our space or right now close to our space. We don't like stepping out loudly into things we don't understand. So, at a high level, that hasn't changed; it is just we took a little pause in. It seems like we are going to return to a range of four. You remember last year we did six or seven relatively small ones before we did some relatively large ones. We don't control the timing on those things; usually, the seller has more control of the timing than we do. But we certainly continue to see a pipeline of things and intend to be active. We are far more comfortable today than we were 90 days ago in making those kinds of decisions.

Hi, thanks for taking my questions. I guess I just wanted to start with what you are hearing from hospitals' outlook for capital equipment spending. The hospital has obviously been hit by the elective deferrals, but there has also been a huge infusion of cash from the government. So, just any thoughts there would be helpful.

You know I have probably said this a hundred times since I have been at STERIS. But the healthcare capital spending loves change and hates uncertainty. And so, we have been in a little bit more uncertain times lately, but we are also seeing changes. So, it is not clear exactly how that is going to work out over the next year or two. As I said, this move, we already saw that the greatest growth rate in our capital spending for healthcare was moving to ambulatory surgery type of facilities. Whether they be a part of a hospital system or not. And so, I would not be surprised if that accelerates, given what I said about trying to move patients to places that they feel more comfortable A, closer to their homes, and B, there is just less traffic if you will. And so, I would not be surprised to see that spending accelerate. We have felt for some time that both, particularly entrance surgery centers, as you see them take on more and more extensive surgeries, they cannot have the same type of capital equipment. They need a stronger infrastructure to do that. So, I would expect to see this mix move up in ambulatory surgery. Again, they can’t do orthopedic implants with the sterilization capacity they currently have. So, we think that is an opportunity both for capital spending and for our ORC. So, we do see the intermediate to longer-term positively in that space, and for every surgery that moves out of the hospital, they put in two more complex surgeries; one heart-lung transplant does not equal one artificial knee. And so, even though the numbers may stay constant, the intensity continues to rise. So in the long-term, we see it growing with hospital or healthcare revenue, generally speaking, as it has for the last 30-somewhat years. In the very short-term, there are a number of places, just like we did, put on capital freezes. But I think as they get visibility to their cash flow, they will begin spending again more than their normal fashion. And then, the good news for us is we had a very good backlog going, which we rarely see cancellations. And then lastly, the big projects are rarely stopped or slowed down. I mean, they just slow down a little bit just for labor, but they are rarely stopped or slowed down in any consequential way. Once you put steel on the ground, you need to fill the facility. So those will continue as they would have. But the pipeline's a bit softer right now than what we saw 90 days ago, let's say, or before COVID got serious in the U.S. But for roughly 45-60 days, we had no ability for our salespeople to access facilities. They shut down everything but patient care. And so, we are now back in the field, working with facilities on their needs. So, I think it is early yet to predict the exact strength or lack of strength in capital equipment. But, I think the intermediate to longer-term looks pretty good.

Okay. Thanks. And then just as far as AST goes. That sounds like the PPE has been driving a lot of sterilization demand, and you expect that to continue to remain strong. At the same time, devices reduced for the elective procedure seem to be recovering. So, imagine the volume of device or laser specialization can be going up. So, is that the right way to think about it? And then do you feel like you have adequate capacity to meet all that demand if those things are both seeing high volumes? Thanks.

In short, yes. Is the answer to your first question, is that the way we see it, this is almost exactly how we see it. The second question in terms of capacity, there is a reason we are spending several hundred million dollars over the next few years building capacity in AST. Because we believe the demand will be there to utilize that capacity and we always try to stay ahead of it to the extent that we can. So, we do think that there will be capacity requirements going forward and we are building to meet that demand.

Thanks and morning, everyone. Walt, I wanted to touch on just a couple quick things here first on Healthcare. Just curious how you are thinking about surgical procedure volumes, let's call it in the second half of the year. I know that things have obviously improved through June and probably there has been at least some stabilization in July. But we just don't understand, I don't think, surgical procedure volumes actually can grow. In the fourth quarter of this year, do you think that kind of run at levels that are actually down year-over-year? And again, as part of that question, do you kind of view the fiscal fourth quarter, sort of total growth here, the lowest that you would expect for the year? And then two other ones quickly?

I will try to answer those questions. I am a little confused by the last piece of it. But the short answer is, I do think procedure volume still has room to grow from where it is. If you think about it, we are approaching last year's levels. And I would say most of the places that I have talked to, the facilities are saying they are running, 85% or 95% kind of numbers of last year. But typically we see 3%, 4%, or 5% growth. So, in the same AST business described as it is basically did last year, but that is not normal for us. Right, we would expect to see 5%, 6%, or 7% percent growth. So, my answer to that is there is probably some catch up from the last quarter or so that is going to occur and then there is also a catch up of the growth that will have occurred. How quickly that all happens, I think is a wild card. But in general, over an 18-month to 24-month view, my view is that the normal growth we would have seen will occur, and we are likely to see some catch up on top of it.

Okay, perfect. And then just maybe I didn't state the question clearly enough. I was just again trying to understand if you think this fiscal fourth quarter, as you think about the dynamics across the business, kind of marks below for the fiscal year for you guys. As you look at growth year-over-year. And then I guess I will just ask one other quick question. UK certainly seems to be lagging quite a bit from the rebound in surgical procedure volumes over there. So again, just sort of wondering what you are seeing in your outsource business and instrument repair business. And I guess one from Mike, again just I know you mentioned this on the call when Walt was chatting in his prepared comments. But what exactly was being excluded from gross profit associated with COVID costs? Thanks very much.

Sure, Larry. Again, if we were comfortable understanding relative growth rates for quarters, we would be giving guidance. And so, timing is probably the toughest thing to call right now as opposed to I call it general trend. And so, I think we have laid out our views of the general trends; the timing we are not nearly so comfortable on. So I don't know that we would have a strong feeling that second quarter, third quarter, or fourth quarter is going to be our best or worst year-over-year performance. You are absolutely correct about the UK. At this moment, it tends to be the lagging entity in Europe. The converse is true; the rest of Europe has been ahead of the U.S. in bringing back procedures in our businesses, both AST and ORCs are showing that. So, I will call it Continental Europe for lack of better terms has been stronger, coming back quicker, I should say, and UK has been the slowest entity in our space. As you know, the UK is a relatively small piece of our business. But it is real, and we have seen - the ORCs are coming back from their very low levels that they were in earlier in the year. But they are not as far back as ORCs in the United States on average. So, at a high level that is the answer to that question.

And then Larry, from your question regarding what is being adjusted out for the COVID-19 costs. As Walt talked about, the majority of that $9 million is related to the opportunity we talked to furlough some of our under-utilized folks, and we also received some of the benefits from the CARES Act in particular, also from some of the other government benefits in the UK and Italy that we were paying a portion of our furloughed employees at that point. And as we did in the fourth quarter, we also had some meeting cancellation costs. We did not hold our Annual Meeting this year, so we had some cancellation costs associated with that. We had some PPE specifically for our employees, and we had some above and beyond enhanced cleaning protocols that we have also put into that incremental cost. So, the total net cost of all that is $8.7 million in the quarter, compared to about $800,000 in the fourth quarter of last year.

I think orders of magnitude, Larry, without getting into specific numbers, the non-furlough piece probably is pretty similar last quarter and this quarter in orders of magnitude, and the bulk of that money is the furlough people, and they are largely back to work at this point.

So, just to finish at that, as you look into the next quarter, we should assume that any excluded costs from gross profit should go down, I would think.

Yes. Our expectation is that revenue will rise and costs will fall or revenue will rise and costs will rise with it as, excuse me, as we bring people back to do that work, we will have certain costs.

We will continue to have certain costs or we will have certain costly protocols. But not to this extent, if you will.

Okay, great. Thank you.

Hey Walt, Mike, Julie, thanks for taking the questions. Just a follow-up on vaccine production. Assuming that we are going to get to full production of vaccines sometime in 2021. What are your customers indicating their needs might be from you? And any chance you could put some context or quantify what the opportunity might be?

At a high level, the demand for COVID vaccines is the same as what we do for other vaccines. The consumables that we would use would be very similar at a high level, and in terms of quantities, it is way too early for us to make any judgments on that because we don't know who isn't going to be making which drugs, nor which will be the most effective. And there are two types, right? The prevention side of the equation and the helping patients recover side of the equation, and both are under clinical trials right now. It is just unusual for people to begin spending money on production before they know the answer to that question. So, we have a number of people that are spending money for potential production that may or may not end up manufacturing the drugs. So, that is the thing to call, and some of those people would be our customers, and some of those people would not. So it is, I think, at this point, early to call, but having said that, our general expectation is that we will see an increase out of that production.

Okay. I'm assuming this is a more fragmented area than Healthcare for you. For your very high market share, you have a lot of different competitors here. Is there a particular vaccine or biologics customer or technology that would have an outsized impact for you that we should be monitoring?

I don't know that it is more fragmented than maybe less fragmented. If you step back and call hospitals or healthcare systems, there are a lot more healthcare systems in the country or in the world than there are vaccine producers. So, I wouldn't say that, and I don't think there is any one specific technology that we would say it would be a step-out change for us, versus our General Growth of vaccines. And the other side of this equation is going to be interesting, is other vaccines. Right, I think people are going to get far more sensitive to taking flu vaccines than they used to be. Because, you don't know whether you have flu recovered until you have been tested, right? And you certainly don't want both. And all those things. So, the question is, what is going to happen with vaccines in general? I think right now, vaccines are going to be on the uptake.

And then on the capital equipment. I mean, if I remember correctly that the lead times on those machines are longer and they are more specialized. When do you think those customers are going to have to put in those orders to ramp up more quickly for that kind of equipment?

This is Dan Carestio. Currently, our lead times in GMP equipment, depending on the product, can extend from 30 days to 7 or 8 months, depending on how customized it may or may not be. And former customers are continually investing in capacity to stay ahead to the extent they can. And so, our backlog will flow through over the next few quarters and our intake of orders remains strong. Sort of the capacity-limiting information is not necessarily going to be capital equipment in the short-term though, as it relates to vaccine. It is going to be more production-level equipment for the production of vaccines as opposed to the sterilization and decontamination equipment.

Okay, understood. And then last question, as you think about the AST as a positive driver for your capital over the last couple of years. I think most people would understand that on the part of the surgical equipment side. How has the ASTs managed their sterilization needs, and is that a net positive for you when you see a procedure move from the hospital to an AST?

In general, the answer is yes. It is a bit positive. Again, if you go back to the original general statement I made, capital levels change, and of course, uncertainty moving from North to South, cities to suburbs, suburbs to cities, hospitals to ASCs and ASCs to hospitals generally create capital spend, increased capital spend. Because you don't tear a sterilizer out of a wall and then stick it in a brand new facility typically. It is less true of tables, but it is very true of lights and all that. Tables you can move, but if you are two-thirds of the way through with the life, maybe you go ahead and put in new tables in this new facility. So generally speaking, any kind of change or movement from one place to another creates capital spend in the spaces that we operate.

Thanks everybody for taking the time out of your morning to be with us today, and we look forward to chatting with all of you soon.