Julie Winter - STERIS Plc Michael J. Tokich - STERIS Plc Walter M. Rosebrough, Jr. - STERIS Plc.

David L. Turkaly - JMP Securities LLC John Hsu - Raymond James & Associates, Inc. Matthew Mishan - KeyBanc Capital Markets, Inc. Isaac Ro - Goldman Sachs & Co. LLC David M. Stratton - Great Lakes Review.

Good morning, and welcome to the STERIS Plc Fourth Quarter 2018 Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference call over to Julie Winter, Senior Director, Investor Relations.

Please go ahead..

Thank you, Austin, and good morning, everyone. As usual on today's call, we have Walt Rosebrough, our President and CEO; and Mike Tokich, our Senior Vice President and CFO. I do have just 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 on 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 definition, 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. Good morning, everyone. It is my pleasure to be with you this morning to review the highlights of our fourth quarter performance. For the quarter, constant currency organic revenue growth was 5.2%, driven by volume and 30 basis points of price. Gross margin as a percentage of revenue for the quarter increased 70 basis points to 42%.

Gross margin was impacted favorably by product mix and price, along with a 60 basis point improvement from divestitures. Currency had an unfavorable impact on gross margin of 60 basis points. EBIT margin at 20.5% of revenue for the quarter represents a 20 basis point improvement.

EBIT margin expansion was limited somewhat by a 12% increase in R&D spending, a hiring ramp in our North American IMS business and higher corporate costs which are partially attributable to a higher bonus attainment percentage year-over-year.

The adjusted effective tax rate in the quarter was 21.4%, somewhat lower than we had anticipated due to favorable discrete item adjustments mostly relating to U.S. tax reform. Net income in the quarter grew 12% to $105.8 million or $1.24 per diluted share, benefiting from organic revenue growth and the lower effective tax rate.

Segment growth has been detailed in the press release in both the tables and the copy. In terms of the balance sheet, we ended March with just over $200 million of cash, $1.3 billion in total debt and a debt to EBITDA leverage ratio of just under 2.1 times.

As we forecasted last quarter, we took the opportunity to repatriate approximately $83 million of cash during the fourth quarter, primarily from Canada and the UK, which was used to pay down debt.

Free cash flow for the year was $294.3 million, a 15% improvement year-over-year, mainly due to higher net income and lower requirements to fund operating assets and liabilities.

During the fourth quarter, capital expenditures totaled $51.9 million, which was the highest we had in any quarter this year, while depreciation and amortization was $44.5 million. With that, I would now turn the call over to Walt for his remarks..

Thanks, Mike, and good morning, everyone. It is my pleasure to review another record year with you today. Our results for the full fiscal year were in line with the high end of our expectations as constant currency organic revenue grew 5%, while adjusted earnings per diluted share increased 10% to $4.15.

As reported revenue growth was better than we expected, even though it was about flat as organic revenue growth, and approximately $20 million of favorable currency offset the impact of the divested businesses from last year.

At the segment level, our full year results largely mirror the first nine months, so I will be brief in my remaining remarks about the year. The majority of our business grew at or above our expectations on a constant currency organic revenue basis.

The two fastest-growing segments, HSS and Life Sciences, both exceeded our expectations for the year as each grew revenue 9%. The trends driving these two businesses are anticipated to carry into our new fiscal year, although year-over-year comparisons will be more difficult on top of this past year success.

AST continues to deliver strong results with 7% constant currency organic revenue growth for the year. Remember, this includes about a 1% reduction in our growth rate due to the Sterilmed contract moving into the segment.

AST profitability actually improved faster than we anticipated in fiscal 2018, reflecting the better-than-expected use of our capacity, including that which came online during this past fiscal year.

While we continue to expect improvements in profit in FY 2019, the year-over-year change is now expected to be more modest than we thought originally due to the earlier-than-anticipated success in FY 2018. With regard to Healthcare Products, we continue to experience solid organic growth in recurring revenues.

I remind you of the divestiture of Synergy UK Consumables business in Q3, which will impact our comparisons in November of this fiscal year. Total segment revenue grew 2% on a constant currency organic basis, driven by meaningful growth in both consumables and service, which was offset by a modest decline in capital equipment shipments.

As I mentioned last quarter, we've launched about 30 new products in our Healthcare Products segment this past year, many of which are consumables. Looking ahead to fiscal 2019, we expect to continue at similar pace of product introductions, but we'll shift a bit more to capital equipment.

Just one example, we've recently launched our newest hydrogen peroxide sterilizer, V-PRO maX 2, which offers a fast 16-minute cycle time for non-lumen devices in addition to other new features.

With new products, a solid year in backlog and continued expectations for a stable hospital capital equipment spending environment, we anticipate capital equipment revenue growth returning to more normal low- to mid-single-digit growth in fiscal 2019.

Shifting to our balance sheet, we committed to reducing debt back to our historic levels after the completion of the Synergy combinations some two and a half years ago. We accomplished that goal in fiscal 2018. From a capital allocation perspective, we will revert to our normal long-term priorities.

Our first priority is dividend growth in line with growth of earnings. Our second is investment in our current businesses for organic growth in revenue and profitability. For fiscal 2019, we will be making substantial investments in our HSS segment to grow our outsourced reprocessing business in the U.S.

We have several projects in the pipeline for these services and are planning to invest not only capital to build out the facilities, but also substantial hiring during the year to run them. We remain optimistic that this business model will succeed in the U.S. over the longer term.

In addition, we will continue to invest in AST expansions around the globe to meet increasing demand. These two areas of investment alone will total more than $60 million in growth capital out of our total capital spending of approximately $190 million in fiscal 2019.

Our third priority is acquisitions, which we continue to find available in the marketplace. We prefer tuck-ins to enhance our current businesses, but will also consider deals that would broaden our portfolio. We've not planned for any acquisitions in fiscal 2019, as the timing of deals is unreliable, as you know.

We will modify our outlook during the year, if we complete material transactions. Lastly, our outlook contemplates share repurchases to continue at the level to offset dilution from our equity compensation programs.

Turning to the specifics of our 2019 outlook, as you saw in the release, we expect total company revenue growth to be in the range of 4% to 5% on both an as-reported and constant currency organic basis.

Based on forward rates at the end of March, we would anticipate approximately $30 million in benefit from currency year-over-year, which will be offset almost entirely by the negative impact of divestitures.

As I mentioned earlier, in addition to Northwell, we have several new projects in the pipeline for our outsourced reprocessing centers in the U.S.

Our outlook includes approximately $10 million in revenue for Northwell and the new projects combined in FY 2019, which translates into approximately $50 million on a full year run rate basis in future years. However, with substantial startup costs this year, the revenue is not anticipated to drop through to earnings.

In fact, we expect to lose $2 million to $3 million during fiscal 2019 for all these facilities combined due to the startup costs of the facilities. As we discussed last quarter, given the timing of our fiscal year, we had a partial benefit from U.S.

tax reform in our full fiscal year 2018 of approximately 150 basis points and we expect another 150 or so basis points of additional improvement in fiscal 2019. As a result, the adjusted effective tax rate in our guidance is in the range of 21% to 22%.

I will add, as I did last quarter, that there is still moving parts in the details of the new tax act, but we are comfortable in this range for fiscal year 2019. We will be making substantial investments in our business this year, which we think is prudent given the additional dollars available to us from the U.S. tax reform.

We will be spending approximately $10 million on growing our HSS outsourced reprocessing business and increasing R&D spending in all four of our segments. Despite these investments, we anticipate operating profit to grow faster than revenue on a year-over-year basis, including about a $5 million benefit from currency.

With share count about neutral, we anticipate adjusted earnings per diluted share to be in the range of $4.63 to $4.75 for fiscal 2019, which would be a 12% to 14% growth over fiscal 2018.

For your model purposes, we anticipate that our quarterly distribution of earnings, which has been quite consistent in the past three years, will be similar to fiscal 2018. Reflecting the growth in earnings and reduced spending on acquisition and integration-related charges, free cash flow is anticipated to be approximately $340 million in FY 2019.

Of course, this will change if we're successful on the acquisition front. We're excited to start our new fiscal year with solid momentum, new products and services and the team to create record years in fiscal 2019 and beyond. In that regard, I would like to say a few words about the changes to our board of directors also announced this morning.

Jack Wareham, who has served on our board since 2000, and as Chairman since 2005, has announced that he will retire when his current term expires at our Annual General Meeting this summer. Jack has played a vital role in shaping our board and our company the past two decades.

I didn't work with Jack before coming to STERIS, but knew him from our Industry Association, AdvaMed. The fact he Chairman when I was recruited to STERIS a decade ago made my decision to come very simple.

I speak on behalf of the entire board when I say that we were very, very fortunate to have his leadership as Chairman for over decade and we certainly wish him and his wife well in their retirement. The board intends to appoint long-standing board member, Dr. Mohsen Sohi, to the role of Chairman after the Annual General Meeting.

I'm extremely pleased that Mohsen has agreed to take on this responsibility. Lastly, we are also pleased to welcome a new board member, Dr. Nirav Shah, who we appointed as a member of the board last week. With that, I will turn the call back over to Julie to open for Q&A..

Thank you, Mike and Walt, for your comments. Austin, if you would give the instructions for Q&A, we can get started..

Absolutely. And our first question will come from Dave Turkaly with JMP Securities. Please go ahead..

Hey, can you hear me?.

Yes, Dave..

We hear you well, Dave..

Hey. Good morning. I understand the spending, the investments, and thanks for all that detail. But I got to ask you a question I really never get to ask.

So given your capital allocation priorities, why no increase in the dividend?.

We would argue, all things being equal, we haven't made that decision. We do look at it each and each board meeting, and we make decision in each board meeting. But note, we would expect to raise our dividends in line with earnings growth over time..

And Dave, we have consecutively – 12 years of consecutive dividend growth. And obviously, as Walt said, we will be looking forward to possibly 13 year of consecutive dividend growth..

Good to hear. And it is noteworthy that you're one of the few that I cover that actually has that component. So I guess, as a follow-up, just looking at gross margin, specifically in the quarter and then as we're looking just kind of to the year ahead, we're a little below what we thought.

And I'm curious in terms of your outlook for 2019, are you assuming some improvement in that kind of 42% range? Should we be looking for maybe some basis points of improvement as the year progresses? Any thoughts there? Thanks a lot..

Yeah, Dave. This, this year we actually had some, especially in the quarter, was a little bit lower than we anticipated as we did have about 60 basis points of unfavorable FX impact in the gross margin, which got us down to 42%.

And as we talked about, we did see nice improvement all year, and part of that was because of the divested businesses and we actually had that at 42.2%. And as we normally do, we strive to improve not only gross margin, but we also strive to improve the leverage we have in our business from an SG&A standpoint.

So in total, our thought process continues to be that we will continue to expand EBIT margin as we have stated in the past in our normal 50 basis points to 75 basis points in that range going forward. So yeah, we would expect to continue the margin improvement..

Thank you..

You're welcome..

And our next question comes from John Hsu with Raymond James. Please go ahead..

Good morning. Thanks for taking my questions. First, maybe we could start with the guidance. The top-line guidance you provided organic constant currency growth 4% to 5%. You performed nicely in fiscal 2018 coming in at the high end of that range.

So with – I'm just trying to understand with $10 million in new projects baked in for the HSS segment, for outsourcing, and it sounds like some new products driving improvement in capital equipment, why is 4% to 5% still the right range for this year?.

Yeah, I think, a cat on a hot tin roof, once burdened, is a little cautious. And so, if you go back two years ago, we moved to 6% as the top end of our guidance range and we didn't perform at that level. So, I think we're going to watch this a little bit. And we're very pleased to be 5-ish this year.

And of course, we'll strive to be 5-ish or as well as we can above that next year or this coming year, I should say. But at this point, we think 4% to 5% is probably a prudent place to sit..

Okay. Great. Thanks for that. And then on HSS, it sounds like the projects that you have slated for this year at a full run rate will be around $50 million at some point. So, I guess, how fast can you get there and how do you think about the margin profile? You obviously are investing in that business.

But kind of at a full run rate basis, the question is really, the timing that you can get there is – and how should we think about the margin profile?.

Yes. I mean, obviously, if we're getting $10 million this year and $50 million over the long term, it's a little bit of time before we get there. So, you should be thinking about months and years, not days and weeks in terms of that timing. That's the first point.

The second point is, again, as we said, we will be losing money actually in that space this year in these new projects, not in total, but in these new projects, we'll be losing money this year. And that's normal for us when we're starting things up in any of the business where we have significant expenditures, AST or HSS type businesses.

But we do expect to get to reasonable margins relatively soon and, in the long run, to nicer margins..

Okay. Great. And if I may, just....

The trick for both, us and you, in forecasting that is how many new ones come on as the other ones grow. You may remember if you go back in time, in AST, when we were much smaller in AST, every time we added a new plant, had an impact on the margin rate.

Now that we have 60 plants, we can add four or five without hardly noticing, if you will, because some are maturing as others are coming in. We'll have some of that phenomenon, if you look only at the U.S. business, how you look at it on a global basis, it will even out, much like it does in AST..

Excellent. Thanks for that, Walt. And then just maybe the last one, your leverage ratio down nicely towards 2 times.

Obviously, got your comments on the renewed focus for capital allocation priorities, but just related to M&A, how do we think about a size, maybe some timing? And then also maybe just if you could talk about the complexion of the pipeline, where you see opportunities by segment? Thank you..

Sure. I've given up on timing. So if you were to take any timing, you want to pick and you're likely to be as good as me. But if you step away from the timing question, we do have a pipeline of things that we're working on. I wouldn't characterize any of the segments as radically different in terms of their possibilities.

And just when I think one has no possibility, something pops up in that segment. So, I don't feel radically different about any of the segments. It is clear, we now have a much broader portfolio and we're putting that portfolio together in different ways, and we have opportunities, if we will, sometimes between those segments.

And so, that creates more opportunity. And we've also, as I mentioned, broadened our horizon a bit to look not just at tuck-ins, which we pretty much gone to inclusive tuck-ins post the Synergy deal, and moving more to thinking about extensions, if you will, as opposed to what I'll call clean tuck-ins..

Okay. Great. And if I could just maybe follow-up on that one quickly, Walt.

How do we think about the complexion of what you're looking at just from a capital versus consumable and service perspective?.

Yes. We're 75%/25% recurring revenue, if you will, versus capital now. I don't know of any reason to suspect that we would be radically different in particularly the tuck-in side of the equation. If there's a newer opportunity, then it will depend on the nature of that business, obviously.

And we do not have a gross bias for or against any of those segments. In my view, capital which does tend to have maybe a little bias in the marketplace, but capital is consumable, it just takes a little longer.

And in some sense, there's more opportunity there because if you can reduce the life of the product, you actually have more opportunity; if you're a consumable, the life is one use pretty much. And so, we do not have a strong bias there.

And the other thing I would add is our service business, which is a very nice recurring revenue business in both Life Sciences and Healthcare, is there because we have – in the large part, because we have this capital business. So if you don't have the capital, you can get to the consumable side of that as well. So, we don't have a strong bias..

Great. Excellent. Thanks for all that color..

You bet..

Our next question comes from Matthew Mishan with KeyBanc. Please go ahead..

Great. And thank you for taking the questions. Walt, I just want to start off with the 4% to 5% guidance and just generally understand kind of the moving pieces as far as the segment goes.

With healthcare cap equipment recovering to a low- to mid-single-digit range, what is growing below the company average, that 4% to 5%, to keep it at that range? Because I think AST, Healthcare Specialty Services, Life Sciences, all are potentially growing at 5% plus the consumables businesses as well..

Yeah. I mean the statement is correct. And if you take our capital business last year, which was slightly below flat, and move it into the higher range, the math, if you take last year's math, the math would suggest something higher, no question. Now, we did mention we had a couple of segments that were just on fire last year.

And as much as we would like to believe that that fire will continue raging at the same speed, we are a little cautious about that reoccurring. And there is a couple of places where we know that there was a little – I'll call it, just a little more than normal growth.

But generally speaking, I would put it on the side of caution of going over the top of that 5% level very much..

Okay. Got it.

And then can you talk a little bit more about the growth that you're seeing in Life Sciences, in particular? Like what's driving the equipment purchases? And also, whether or not you have consumables that are attached to that, and to the point where we'll start seeing some stronger consumable growth as that installed base increases?.

Sure. On the capital side, it's really a twofold issue. There's what's going on in the market and what we're doing about it. The first is, we had a long period where there was very little capital equipment spend in the pharma business.

And since the bulk of our business really is related to the pharma side, for that matter, a dearth of research too, which is a smaller component. And research is not dissimilar, but pharma has clearly increased our spending and we happened to be in the spaces where it's pretty attractive to do that.

There was a lot of consolidation going on and people weren't adding plant capacity. They're now increasing capacity and/or replacing equipment, because of, for lack of better terms, pent-up demand from not having done that for a long time.

So, we're seeing kind of a double positive going on there as it relates to the biologics and vaccine type businesses that we support. So, that's really the driver from the market side. And clearly, we've seen that in the marketplace, in general.

In addition, our guys have done a really nice job in product development and, specifically, around the vaporized hydrogen peroxide space. And that has really played well for us as they are building that capacity, because a lot of the new space does require a VHP-type application.

We've done a nice job on the other, the washing and the steam sterilization as well, but I would say, in general, that's the driver..

And on that V-PRO, that hydrogen peroxide space in Life Sciences, J&J is potentially divesting their advanced sterilization business, or their infection (27:12) prevention business, and that's where you compete with them.

Are you seeing competition in Life Sciences on that V-PRO side or is that a market where you're alone and advancing that?.

We have never had the good fortune to be walking in the wilderness by ourselves in any of our product lines. So, we have good competitors in literally every space we work in. We do tend to be one of, if not the largest player in most of the spaces we work in; not all of them, but most of them. So yeah, there's plenty of competition.

And you have to remember that pharmaceutical business is a global business, in general, and more for us than some of our other spaces. And so, there are multiple competitors around the globe, too..

Okay. And then lastly on, if – I understand the investments that you're making in Healthcare Specialty Services, and I'm really excited to see some of the growth over the next couple of years.

But what are – like, how should we be thinking about the long-term margin profile of that business over the next couple of years? And are we still looking at mid- to high-single digits or can you potentially get that over the long run into like low doubles? And then the new deals you're doing in that space, are they also JVs or structured differently?.

Yeah. I think if you look at mature components of the business, those mid-single digit or mid-double digits are appropriate numbers to consider at the business unit level. And so, that's really clear. So, I do think that is the case.

However, in the short run, you have to work your way up to that, particularly in this HSS business or the outsourced reprocessing center business. It will take a little bit longer, because we have the capital infusion and the people infusion. And we do rely on getting productivity over the course of time to improve those margins as well.

So, it will take a bit longer to get to maturity, and as I mentioned earlier. So, it really will depend on how quickly it grows. It's the kind of good news/bad news story. The faster it growth, the longer it will take us to see, quote-unquote, ultimate margins. But the flipside is, the greater the long-term potential is..

And Matt, just to add to your question about the capital investment, the ones Walt is talking about and referring to, those would be 100% owned, operated, our capital going into that business, and then we would sell the service associated with that.

So, no joint ventures at this point in time, other than obviously Northwell is a joint venture and Vmed (30:00) is a joint venture..

All right. Thanks, Mike..

I'm sorry. I'll add one more thing that mid-teens margin is, obviously, not reflective of corporate allocation..

All right. Thanks, Julie..

And our next question is from Isaac Ro with Goldman Sachs. Please go ahead..

Good morning, guys. Thanks. Walt, just a question on the FY 2019 guidance. In that 4% to 5%, obviously, that's a relatively consistent growth rate with prior years. And at the same time, there are probably some dynamics in the underlying end markets that are evolving.

And what I was most interested in was the nature of just where surgical volumes are taking place in the healthcare system. And the reason I ask is, if you look at what's going on with hospitals seeing slightly lower in-patient days, but yet the device companies are seeing pretty good growth.

Help us think through where you're trying to find marginal growth. Is it the primary care centers or is it more tertiary? Just kind of curious where you're trying to access at/or above-market growth rates as you move through this fiscal year? Thanks..

Sure. Great question. And particularly in capital, it's always a game of moving parts. I would say, first, in general, in-patient, everyone is working to reduce the length of stay or the patient days on the same amount of surgery.

So, the procedure volume and patient day volume actually for the last 30 years hasn't matched up, because we have shrunken the number of patient rooms over the last 30 years by 20%, 25%, at the same time, we've grown procedures significantly.

So, it is indeed clear that when hospitals report patient days, that's very different from when they report procedures. The second issue you raise is in terms of where those procedures are going.

Clearly, we are seeing more and more of those procedures going into an outpatient setting, whether that be a hospital-based outpatient setting, or whether it be an ambulatory surgery center or other procedural center, like a GI center, that may or may not be on the hospital campus.

And in very recent time, the last year, year and a half, we've clearly seen a significant expansion in that ambulatory setting. Again, it seems it go in cycles a bit.

If you kind of look back over the last 20 to 30 years, there have been two or three cycles where ambulatory surgery centers grew very rapidly relative to hospital operating rooms, and that seems to kind of be going on right now.

But in the long run, it tends to sort of work its way through as hospitals put their own "outpatient centers" either in the building or in another building where they can capture their customers. But we do see ambulatory growing relative to inpatient, if you will.

And then what happens is you'll see a phenomena where you get two or three significant procedures, like when we start seeing heart, lung transplants, where even though it's only one procedure, that procedure takes six hours. That's very different from one that takes 30 minutes.

And so, it's not just procedures, but volume of procedures and we watch those phenomenon..

That's helpful. And then maybe just a follow up on capital allocation, it's kind of tied to the prior question which is, you talked a little bit about wanting to both invest organically as well as through M&A.

Could you help us frame some of the types of businesses where it would make sense to be adding to existing product lines versus getting into totally new categories, where you can either leverage your expertise or your channel to tap into a new vein of growth? I'm just kind of trying to balance going into something that's sort of directly adjacent versus kind of new product category all together?.

Yes. We don't get into that level of granularity, I'll call it. But I will say, all things being equal, we prefer to bring new products and services into businesses where we have channel and where we have expertise.

So, that would dominate our thinking in each of the major segments and then moving, I'll call it, another half step out, as we do with US Endoscopy five years ago is, I'll call it, the secondary in our thinking.

But clearly, we've done that a couple of times in a significant ways when we moved to the IMS business or HSS business, instrument repair business, that was clearly a next step adjacent move. We like the move because a big piece of that business is very much in the Central Sterile Department, where we're already strong.

Even though we feel that it's best to have separate sales forces and separate service forces for that right now, it was still a customer set that we highly understood and had a great deal of presence in. So, that's the kind of thinking we will look at.

Same with GI, obviously, we're in GI in the cleaning and care side of GI for the long time, 20, 30 years and we moved more into the specialty procedure products to assist the GI procedures. So, that would be the kind of thing we would be looking at..

Understood. Thank you..

And our next question is from David Stratton with Great Lakes Review. Please go ahead..

Good morning and thank you.

Really quick, I was wondering if you could remind us of your input costs and especially given the backdrop of commodity volatility and how much of part (35:47) sales or your margins that is in and what you see it trending as going forward into the new year?.

On our manufactured product, which is I think the areas that you're really talking about here, 55% of our business now is service. So, a lot of the input variables aren't as, we want to call it, the inflation in those variables, it's all about labor more than materials.

And so that, if you think about what labor costs or prices are likely to be doing in the next couple of years, you would have pretty good indication. On the product side of the business, there are significant inputs. And it's fairly typical, I would guess, of manufacturing type of it is in (36:38) 50% to 60% of our cost is raw material.

And it depends on how much we're in-sourcing versus how much other people are making for us. And so, it varies by product line. And we are seeing a little pickup of inflation. We're seeing a little bit on the nickel and steel side.

Obviously, the work going on right now, it's difficult to predict what is going to happen to steel prices the next a little bit, depending on how we handle trade. But we don't think that will be a significant number or barrier for us.

So in general, we are seeing a little pick up, but it's not something that we're losing sleep over at this point in time..

Great. Thanks. And then, when you talked about your shifting in the Healthcare Products segment to more of a capital equipment with your new products, I was wondering if you could give a little color into what you're seeing on the demand side.

Is that being meeting customers' needs or are you just coming out with new products to refresh old systems?.

Yeah. Our product development function does look at two components. The first is, are there things that our customers can use in current products we have. And the new V-PRO is a great example of that. It is hydrogen peroxide sterilization and they've had hydrogen peroxide sterilization for a while.

But what we're giving them is a more rapid approach to sterilizing certain things. So instead of taking a half hour, it takes 15 minutes kind of thing. We're also giving them less aborts from some technology we put into the system, so they don't run half a cycle and waste the hydrogen peroxide and have to redo it, plus that they lose the time.

So, the question is, is that – we view that as meeting customer demand and we think most of our products in the capital equipment side should have something like that happening with them in the five- to seven-year timeframe, because again if you want to reduce the average life of the product, you have to give people a reason to do something different, that's a true value to them.

Then there's a flip side, where we have a product from nowhere, if you will, a new product to the universe. We have more of that in the US Endoscopy side of our business than other places, but we have a number of products that are those kind of products.

But again, in terms of, I'll call it, percentage basis, we're probably 2% or 3% to 1% (39:22) to the product improvement side, type of new product to the kind of first-to-the-universe product..

Thank you..

And this concludes our question-and-answer session. I would like to turn the conference back over to Julie Winter for any closing remarks..

Thank you, everybody, for taking the time to join us this morning. And we look forward to seeing many of you out on the road in the next few weeks..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..