Good day, and welcome to the STERIS plc Fourth Quarter 2020 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Julie Winter with Investor Relations. Please go ahead..

Thank you, Chad, 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. And I do have a few words of caution before we open for comments. 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 definitions, is available on today's release, along with 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 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's once again 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 8%, driven by volume and 50 basis points of price.

We continue to experience strong underlying growth from our customers and success with new products. A total of $14 million from tuck-in acquisitions is included in constant currency organic revenue growth, primarily in health care products, spread across capital, consumables and service.

Given the timing of our year-end, we were fortunate to have had a relatively limited impact on our business due to COVID-19 during the fourth quarter. We estimate that revenue was negatively impacted by approximately a net $10 million.

Gross margin for the quarter increased 60 basis points to 44.4% and was impacted favorably by price, productivity and somewhat offset by higher labor costs.

EBIT margin for the quarter was 21.8% of revenue, a decrease of 30 basis points from the fourth quarter last year, due, in part, to an increase in expenses relating to higher incentive compensation related to our strong performance and an increase in R&D spending. The adjusted effective tax rate in the quarter was 17.3%.

This includes the benefit related to stock compensation expense and other favorable discrete items. Net income in the quarter grew 7% to $140.5 million and earnings per share increased to $1.64. I do want to take a moment to discuss our segment changes announced in yesterday's press release.

We recently made some key changes to our management structure and reviewed our go-to-market strategy, focusing on our largest customer group health care providers. These changes include realigning the management of our operations to better serve our health care customers.

Effective April 1, and consistent with the way management is now operating and viewing the business, the current Healthcare Products and Healthcare Specialty Services segment will be combined and reported as one segment, simply called Healthcare.

We have included a recast of quarterly results for fiscal year 2020 in the press release to assist you with your modeling. Our balance sheet is a continued source of strength for the company.

Considering our cash position of $319.6 million, access to available credit lines and a leverage ratio below 1.5x debt-to-EBITDA, we are well positioned from a liquidity standpoint. During the fourth quarter, capital expenditures totaled $60.9 million, while depreciation and amortization was $50.9 million.

Given the uncertainty of the impact of COVID-19, one of the first steps we took was to pause capital spending where we could during the quarter. Free cash flow for the year exceeded our expectations due to lower-than-planned capital spending and a reduction in working capital, primarily driven by accounts receivable.

With that, I will turn the call over to Walt for his remarks..

Thank you, Michael, and good morning, everyone. Before I get into our performance, I would like to take a moment to express our gratitude to the health care providers on the front lines of this pandemic. These are unprecedented times and the challenges facing those caregivers have been unexpected and monumental.

I would also like to thank our people, those out in the field and those working behind the scenes in our factories, labs, offices and increasingly from their own homes. They are busy working to support those caregivers with essential products and services.

I'm impressed with the way our team has come together during this crisis, helping our customers and each other, fulfilling our mission to create a healthier and safer world. At STERIS, we have a clear, long-term approach to running the business. Our customers come first and are followed closely by our people.

If we do our jobs well for those two groups, we believe, we will deliver above-average returns to our shareholders. This philosophy has successfully guided us through several significant challenges over the last decade plus, and we are confident it will see us through this pandemic as well.

We have chosen a strategy to focus on what we believe to be growth areas in health care, for procedures, vaccines, biologics.

While we are not immune to the downturn in procedures, which we believe to be temporary in nature, we have developed a nice balance to our business in terms of exposure to these areas and a good mix of recurring and capital equipment revenue.

Finally, we have employed lean techniques and have been in-sourcing and on-shoring to better protect our product and service supply chains for more than a decade, improving quality, delivery reliability and cost. As a result, we've had a long-term positive run.

And so far, our business has fared comparatively well amidst the significant disruption in the global economy. For fiscal 2020, it is safe to say we would be celebrating this phenomenal, record-breaking year we just completed, were it not for the pandemic.

We broke the $3 billion revenue mark for the first time, joined the S&P 500, had very strong growth rates in revenue and profitability, ended the year with a very strong balance sheet and would have been looking forward to another record year and repeat of solid growth performance in fiscal 2021.

This puts us in an enviable position to face the challenges before us today. Revenue in fiscal 2020 grew 9% as reported and 10% on a constant currency organic basis with solid growth across all segments.

This performance was a result of investments we've made in all our businesses as well as the benefit of approximately 100 basis points from small tuck-in acquisitions mostly in health care products. Our AST segment led the pack, growing constant currency organic revenue 15% for the year.

As we've discussed all year, this segment has experienced increased demand from our core medical device customers. Demand will be strong in the long run, in our view, and we plan to continue investing in this business in fiscal 2021 and beyond.

We currently see continued growth in those AST facilities that process for pharma for PPE like gowns and gloves and for personal use medical devices for the home setting, like insulin pumps and blood glucose monitors. We have, however, begun to see declines in time-deferrable procedure-related devices like orthopedic implants.

We expect this to be a relatively short-term phenomenon as health care providers begin doing these procedures again. Healthcare Specialty Services had another outstanding year, growing constant currency organic revenue 12%, despite difficult comparisons with the prior year. We continue to see success across our spectrum of offerings in the U.S.

Specific to the fourth quarter, impact of COVID-19, while our outsourced reprocessing business has been impacted by a decline in procedures, our instrument repair business was relatively insulated as many of our customers took advantage of the downtime for more comprehensive maintenance of their instruments.

As you might expect, we saw a significant year-over-year decline in the last week or so of March and into April, due to the reduction in nonessential procedures across America. Life Sciences had a better year than anticipated, growing revenue 11% on a constant currency organic basis.

Capital equipment sales in this business followed a typical lumpy cadence in fiscal 2020, but our full year growth was 10%, which exceeded our expectations. In consumables, we saw high single to low double-digit growth all year with an upward spike in the fourth quarter, at least, partially due to COVID-19.

Some of our pharma customers appear to have stocked up, resulting in 26% growth for the fourth quarter in our Life Science consumables. We've continued to see strong growth in April. But we expect orders to return to a more normalized level in coming months.

And finally, Healthcare Products also had a strong year with 7% constant currency organic revenue growth against challenging comparisons to fiscal 2019. Organic growth continues to stem from new products, particularly in our infection prevention capital equipment and consumables franchise.

In addition, as I mentioned earlier, this is the segment with the most significant impact from half a dozen or so tuck-in acquisitions this year, which added approximately 200 basis points to our annual growth.

Offsetting the acquisitions, Healthcare Products experienced the most immediate revenue loss from COVID-19 pandemic, particularly in endoscopy products. For the fourth quarter, the positive impact of acquisitions, less the COVID-related reductions combined to essentially offset each other in this segment.

Adjusted operating margins for total STERIS in fiscal 2020 increased 70 basis points to 20.7%, reflecting improved volume and gross margin expansion. Adjusted earnings per diluted share for the full year were a record $5.65, the high end of our recent expectations and represent 15% growth over fiscal 2019.

We are very pleased with these results, which, in addition to our solid balance sheet, position us well for the future. As you've heard from many others, the impact of COVID-19 remains fluid, making forecasting revenue and profit daunting at this time.

Where not for the pandemic, we are confident we would have been comfortable at the high-end of our traditional revenue growth rates of 4% to 6% for fiscal 2021.

The impact of COVID-19 to STERIS will depend on the linked and severity of the pullback in health care procedures, offset by the areas of our business that are not impacted or are experiencing increased demand. In lieu of quantitative guidance, we will share our qualitative views and expect to revisit guidance as the year progresses.

We are fortunate that our business is as diversified as it is across our medical device, pharma and healthcare provider customers, which, we believe, will be a source of strength in the coming months and quarters. Even during the Great Recession of 2008, 2009, our worst fiscal year revenue decline was 3%.

And you may recall, we had a few other things going on at that time. That decline was spread over three quarters that happened to be in different fiscal years. If we look at calendar 2009, it contained our four worst consecutive quarters of revenue decline during the downturn.

This period combined the health care spending uncertainty of Obamacare beginning with the economic impact of the Great Recession, and our revenue declined about 5% for the year. The preponderance of that decline was in capital equipment, and we were more capital equipment heavy at that time than we are today.

As I mentioned earlier, our businesses fared relatively well so far. In the month of March, we experienced modest declines in our Healthcare business, somewhat offset by neutral to positive performance from Life Science and AST. In April, we saw stronger declines in Healthcare with neutral deposit performance again in Life Science and AST.

This resulted in a total STERIS revenue decline of less than 10% for April 2020 versus April 2019. On a positive note, we are beginning to see a return of procedures. While we expect this return to be gradual early on, we are encouraged by the discussions we are having with hospital leaders.

Similar to others in our space, we anticipate ramping back up to more normalized levels by the end of this calendar year and possibly sooner. Given our financial strength and our expectation that procedure volumes will start to ramp back up in the coming quarter or so, our underutilized people are on standby ready to meet customer needs.

We have not instituted layoffs, although some are on short-term paid furloughs. At this point, every one of our people is being paid their basic salary or regular wage for normal working hours, whether they are working full-time or not as long as they are available to work full time.

We believe this is the right thing to do at this time and will help us support our customers as they ramp up their procedures to normal levels. We have highly skilled and committed people in our organization, and we want to maintain and grow that skill set.

We hope to be able to continue this position until business resumes to more normal levels, but we're taking it week-by-week and will adjust as appropriate. We have taken some actions to protect our near-term cash flow from the slowdown.

These include implementing a hiring freeze for most positions, deferring executive wage increases, canceling significant travel events, restricting routine travel and deferring capital expenditures except for strategic growth capital. For the most part, our plants and service operations have been and are running to support our customers.

We have had limited shutdowns of some facilities and some are operating below normal capacity. We continue to invest in R&D at our normal levels and intend to continue strategic growth capital spending, particularly in AST and outsourced reprocessing. We continue to believe that these investments will pay off in the intermediate and longer-term.

As Mike mentioned, our strong balance sheet remains a strength of the company. Our capital allocation priorities remain unchanged. We plan to continue paying dividends and to invest in our businesses to drive anticipated future growth.

Our M&A activities have become more selective and deferred due to the lack of visibility for near-term expectations, but we continue to evaluate opportunities. And lastly, share buybacks have been discontinued for now, even those to offset dilution for executive compensation. As you know, STERIS is an essential business supporting health care.

We are very fortunate to be in the business we're in and to be in a strong financial position. We need to be nimble and ready to support our customers as clinical procedures restart. We are very pleased to be able to provide some relief on the health care front lines with solutions to disinfect hospital respirators during this crisis.

We continue working to enhance the long-term value of your company as we balance the short-term impacts of the pandemic with our longer-term opportunities. We believe the future for STERIS is bright, and thank you for all of your continued support. I will now turn the call back over to Julie for Q&A..

Thank you, Mike and Walt for your comments.

Chad, would you please give the instructions and we'll get started on Q&A?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Matt Mishan with KeyBanc. Please go ahead..

Great. Thank you and thanks for taking the questions guys.

The less than – Walt, the less than 10% decline for April seems like remarkable, given your overall exposures, I just wanted to understand a little bit more around capital equipment and how your – how some of your customers are kind of handling the backlog? Does it reflect like – the backlog was up like 10%, especially in Healthcare Products.

Does it reflect orders that have been pushed out, but not shipped? And like how should we be thinking about like new orders over the like the last eight weeks?.

Yes. I mean, backlog has been – is, by definition, orders coming in minus shipments going out and plus whatever was already there. So it does reflect all those kind of things. It's very common for us to have last minute pushouts for a couple of weeks or a month because their projects are not coming through on time.

Typically, if you think about our capital business in health care, it's divided into what we call turn business or replacement business, where you're just ordering a new table because you want one or because you're other one broke or a new light or something as opposed to a project where they're renovating a major section of the operating room or central sterile department.

And typically, that's a 60-40 split, 60% turn or replacement business and 40% project type business. We've seen this several times whenever hospitals become a bit uncertain on capital, the projects actually, if the steel is in the ground, keep moving forward because once in – the steel is in the ground, they need to finish the project.

It costs them too much to slow down or stop. On the other hand, the turn business tends to slow down a little bit until they get more visibility to what is going on. And so that's a typical thing that happens in an economic slowdown for hospitals, not necessarily the general economy, but the health care economy.

We saw that – well, we've seen it many, many times when the hospital is under some kind of financial constraint or financial pressure. If anything, we would expect to see something similar. We have not seen that to date. We've not seen significant pushouts, significant – cancellations are super rare. We haven't seen any cancellations.

And actually, orders have replicated last year for the last couple of months. So we have not seen a change in order pattern. Having said that, since our reps can't talk to hospital people face-to-face these days, I would anticipate seeing an order slowdown here in the next month or two or three, it takes time for orders to occur.

But the question is, what's the magnitude of that slowdown? And the good news is we had extraordinary backlog, as you said. So at this point, we can produce the backlog, assuming those orders don't shift significantly, because they usually do not. We're in pretty good shape for a couple of months after that, then we depend more on the incoming orders.

And we don't have a great deal of visibility to that yet. And hospitals, in a period of uncertainty, there's been a lot more time worrying about how to handle the COVID pandemic right now than what their capital equipment orders are in the next couple of weeks..

Okay. That’s great there. And then just shifting over to the AST dynamics. I think you're clearly outpacing industry volumes.

I'm just trying to understand are OEMs moving away from in-sourcing the service, given the regulatory environment? And then also, I think, one of the comments that struck me, I always thought this was more of a med device sterilization business.

Can you break down the difference between med device and pharma exposure in AST?.

Yes. It – you stated it correctly. It is a med device business that happens to also do some pharma and some other things. But the preponderance of the business is med device. But med devices have various roles.

Again, a big, big piece of it are things like hip replacements and knee replacements and the implants for replacements, I should say, and for pacemakers and things like that. So there's a big piece, as you might expect, are implantable devices, and that's because they have to be sterile if they're implanted.

Having said that, there are other components, we generally don't spend a lot of time talking about, but there are other components that kind of travel with those big pieces normally, that is surgical gowns and masks and things like that, that may need to be sterile. And the sterile versions, we do process those as well.

Now in a normal environment, that travels kind of consistently with procedures, as you might expect. Right now, gowns and gloves and masks are not traveling with procedures, are traveling with COVID. And so we're getting – what I would characterize as extraordinary demand increase in those spaces.

And that's where we see the split, the people doing that. And then also things like the diabetic supplies and other things that are more home-based, they're still medical devices, but they are more home-based medical devices, chronic devices, if you will, as opposed to procedural devices.

Those devices are also seeing a little bit – I think it's consumer pull-forward. If you're diabetic, you're anxious about making sure you have supplies at a time when there's a lot of things that are not very sure.

And so I think we're seeing some pull-forward of people stocking up a bit in diabetic supplies, whether they will continue that stock-up or how they use it downward, if you will, is unclear.

And then, of course, that space is just a rapidly growing space anyway because the innovation that diabetes companies have had in terms of monitoring the – monitoring and having the closed-loop insulin system. So that space is a fast-growing space anyway, and now it's a little bit faster because of people stocking up a bit..

Okay. And then last one for me.

Can you just illustrate how STERIS can support like a ramp in vaccine production? What products in Life Sciences would be supportive of that? And how you could potentially shift manufacturing capacity?.

Yes, sure. This is Dan Carestio. And what I would say is, in Life Sciences, our products, in particular, around our consumable offering is highly focused on maintaining aseptic environments. And that type of offering lends itself very well to vaccine production.

It's one of the areas that we had focused on historically, continue to focus on and we stand ready to help our pharma customers as they look to ramp up to ensure that they can do that production in the proper aseptic manufacturing environments..

All right. Thank you..

The next question comes from Chris Cooley with Stephens Inc. Please go ahead..

Good morning, and appreciate you taking the questions. Congratulations on the record year. Just two for me. Walt or Michael, if you want to maybe address the combination of the Healthcare Products and the HSS division.

I'm just curious if you could give us some additional detail there, how we should think about that combined entity going forward ex COVID-19 from both a growth and a margin profile, assuming that there's some benefits that you anticipate on getting there? So I would like to get some color on that front.

And I'll just go ahead and throw my second question in now as well. In your prepared remarks, you alluded to being comfortable ex COVID-19 with the high end of the historical growth range of 4% to 6% in terms of organic revenue growth. I would appreciate just some color about the components of that.

And in particular, maybe some emphasis on the AST segment. There's been a lot of debate whether that can actually sustain high single-digit type growth. So just kind of curious if you could add some color around that, again, independent of COVID-19? Thank you..

Thanks Chris, and appreciate the comments about the year. First, on the organizational side, as – I have mentioned several times that as we started doing this work in America, we found out that it doesn't – and not surprisingly, doesn't work exactly as it does in the U.K.

And so we've continued to experiment, and we have a number of different approaches to the market that we've been working with and many of those, the people, who are in our IPT business, which serve the same set of customers, are extraordinarily useful in bringing together.

Also, as you might expect, if we're running the CSDs, they typically have STERIS equipment and STERIS products in them. And so the integration of that product set we thought was worthwhile.

So all of that business is now under – in term – the commercial side of that business is now under the same individual who handles the historic STERIS capital consumables business in North America and the same is true in the rest of the world. So we've combined the commercial operations around the world.

And we do believe we gain – actually, we transfer the STERIS credibility from – at the commercial level, at the working commercial level. Now they're still different sales forces and still different local management groups. But they're all under the Commercial Head.

And we've actually moved some of the products amongst the businesses in terms of the business unit leaders to get them in the appropriate places. And so it's just now a very much combined set of businesses. And as a result, it's harder and harder to know where the revenue and profits really coming from and really going to.

So we felt it was logical to combine those businesses, both organizationally and the way we are managing customers. And it's all the same customers that if you look at our three businesses, we have historically continued to organize backwards from customer in. So our Life Science business is organized around largely pharmaceutical, also research.

Our AST business is organized around med devices and our Healthcare business is organized around med devices and our Healthcare business is organized around hospitals and ambulatory surgeries wherever they take place. And so that's the logic. And even the historic U.S.

business of IMS, we call IMS and have called Healthcare Specialty Services, that was kind of two basic product lines made up most of the business, the one being the outsourced resource – outsourced reprocessing centers, outsourced CSDs, if you will, and the instrument repair.

And the instruments being repaired are a lot of the same type of businesses – or instruments that are in U.S. endoscopy like, and so there's interface between those. So not only is that true of the ORC-type businesses, but it's also true of the endoscopy-type product line. So we have put those together.

I don't know that we will see radical changes in cost. This is not a cost reduction move. There may be some minor opportunities, but really it's about continuing to ramp up of the efficiency of the revenue generation in those businesses that we're after. So I think that's pretty much the answer to the first question.

Again, that's now – we did that a couple of months ago or three months ago now maybe, and it is a global organization, very smooth. It's not a lot of change in people or change in management structure. It's just the way that they are reporting up through those businesses now. Your second question was – I've now forgotten since I answered the first one.

Do you mind give me a quick help?.

No, happy to. That was – I appreciate all the detail there. Again, just in your prepared comments, you alluded to, ex COVID-19, you would have been comfortable with the 4% to 6% organic growth range, the historical range, but at the higher end of that range.

Just was hoping you could maybe give us a little bit of color around the components that would drive you towards the upper end of the range with a little bit of emphasis on the AST franchises.

As you know, there's been a lot of debate about the sustainability, at least, in the shorter-term of the kind of historical high single-digit organic growth in that franchise based upon the tougher comp in the year. Thank you..

Yes. Thanks, Chris, for the reminder. Like I said, we are confident. We built our business plan pre-COVID. And so we are not only confident, we are sure we are thinking about numbers in the high end of that range. And so very, very comfortable there.

And specific to AST, as you have seen AST continuing to perform both in March and April for the quarter and going into April, we are quite comfortable that it would have been on the leading edge, if you will, or the higher edge of the businesses. We've been saying that for some time now.

We still think there's a runway for those higher single-digit kind of numbers going forward absent COVID. Now COVID throws everything up in the air. So I would not begin to estimate what our growth rate would be in AST for this year. But as we come out of COVID, we feel comfortable that we're in a strong position.

To do that, first of all, the device businesses are doing nicely.

And secondly, as we've said before, because a lot of this, I'll call it, supply uncertainty question that was going on even prior to the COVID and certainly now post, I think you will see people that, all things being equal, would rather have a relationship with someone who can move things from plant to plant to plant inside their organization as opposed to having to move things from plant A to plant B to plant C that are crossing other people.

So – and as I've said this before, I think companies like STERIS, and there are other companies that have multiple plants, I think, they will be in a stronger position given some of the supply chain things that have occurred in the last six to 12 months, I think we're even in a stronger position than we were before..

Thank you. Stay well..

Thank you, Chris..

The next question comes from Dave Turkaly with JMP Securities. Please go ahead..

Yes, congrats on the year. It was refreshing to get the release last night and see that minimal impact because it's certainly a lot different than your peers. So congrats there. Two quick ones for me. You mentioned in HSS, you're adding capacity.

I was wondering if you could give us a little color on exactly what your plans are? And then in Healthcare Products, you mentioned R&D up 11%. I was wondering if you could just highlight a couple of programs and what kind of investments you're making there, too? Thanks..

Yes, a couple of responses. We are particularly shy about – talking about future products and future investments, in general. We can – we're happy to talk about them in generalized specifics, we're probably a little shy. But we continue the product portfolio enhancements that we have done across the business.

And we're in the double-digit new products every year in our Healthcare business for a long time now, and I don't see that stopping. So we just think a continuation of that product development stream is a good thing. And it's – the same basic types of products that we provide today.

So it's not a – that's not something like a whole new division or anything coming out, but it's just more and more products, some of which are new and some of which are enhancements of our current product lines. So we just will be continuing that and if anything upping the ante.

The second area in the HSS business, as I mentioned, we found that there are more than one way to skin a cat in the U.S. versus the UK version. So we have multiple types of thoughts around how we might help our customers with outsourced ORC-type capabilities.

And those all require investment because unless we are just going into their facility and operating it, which is a rarer case, we need to be adding capacity. That's the real issue. Whether it is constant capacity or peak capacity or other types of capacity adds, we need to be adding capacity, and that takes capital investment.

So that's what we're talking about. And it's largely, to say, outsourced ORC add, but you have to think about that in kind of its broadest context, that's the capacity we'd be adding..

Thank you..

You bet..

[Operator Instructions] The next question comes from Larry Keusch with Raymond James. Please go ahead..

Thanks. Good morning, everyone. For – I guess for Walt and perhaps, Mike, could you talk a little bit – I just want to come back to sort of what you were seeing in April.

And so I was wondering if you could come back and give us some flavors for the various business segments, how those were behaving in April versus March to get you to that sort of wrapped up sort of 10% decline versus a year ago as you talked about? And I'm assuming that, that includes some of the pull-forward dynamics that you talked about.

And then I had a second question after that..

Yes, sure. This is Dan Carestio. And what I would say is between the three businesses, in AST, things were pretty much neutral to slight growth with sort of offsetting puts and takes between COVID-related products and highly elective procedure products being down.

The Life Sciences business was up significantly coming off of a strong backlog and equipment and extremely high demand, as it relates to our disinfectants and chemistries around cleaning. And some of that's pull-forward, we don't anticipate it being sustained.

And then in general, in terms of our Healthcare business on capital, those were already planned shipments coming through. We haven't seen any cancellations. And it was normal shipping for the most part early on anyway in terms of our consumable lines. And those have now slowed a bit, but generally speaking, that's the essence [ph]..

Okay.

And just to clarify, Dan, the pull-forward, again, that you talked about, for example, in diabetes, in AST, again, I assume that was sort of all wrapped into that 10% number you were talking about for the business as a whole?.

That's right. Yes. Yes. And in terms of those products in AST, like I said, it's kind of puts and takes that got them to about neutral..

Okay. And then I guess just around one of the things I've been thinking a lot about is clearly, hospitals are going to be in a very challenged financial position coming out of this. We're all acutely aware of the negative mix shift that goes along with treating a COVID patient versus losing a surgical procedure.

And it certainly feels like capital spending is going to be under a significant pressure here for, I mean, it could be six, 12 months, who knows. But when do you start to see or start to get some visibility on kind of how that may impact your business? It sounds like, as Walt indicated, you haven't had a lot of discussions yet.

Your reps obviously aren't in the hospitals. Hospitals have been focused on treating COVID patients and putting other things aside at this point.

But when do you start to really get a flavor for how this may start to shake out in the coming months here?.

Yes. Larry, we've seen this movie or at least I've seen this movie lots of time since 1982. When hospitals get put under pressure, the general move is they continue to buy the things they were going to buy, if you will, that were already on the docket. They will put in a capital freeze and just not unlike we do.

We put in a capital freeze, but it's a freeze, but it's not a freeze. If they're in the middle of building a hospital, they're going to build it. If they think it's strategic, they're going to do the strategic builds. And then they slow down the replacements. Now when stuff breaks, they got to have it.

So that will – they still – it's not like replacements stop completely. They just slow down. 2008, 2009 is a great example. In 2008, 2009, we have the combination, as I mentioned of the Obamacare uncertainty and capital abhors uncertainty. And so there was a lot of uncertainty.

And then right behind it, the debt window for short-term debt froze up, and many of the hospitals had financed their long-term financing with short-term debt because it was very inexpensive to do so. And literally, they didn't have the cash. And so exactly what I've described happened. They put on – in general, they put on some capital freezes.

It slowed down a bit for a while. Usually, what happens is it's like truly frozen for a month or two, that's okay because we go through the backlog and then they start releasing the things they really need, it slows down a bit.

So I would think in the next six or eight months, we would see the impact and begin to have better visibility to the pipeline. Right now, our pipeline visibility for the last four, five weeks has been pretty much negligible because there's nothing really going on.

Those conversations are not happening right now, except for give me the stuff I've already – I've anticipated putting in place in my hospital. So the next time we talk, I suspect we'll be able to talk about pipeline..

Okay, great. And I guess I'll just sneak one more and just quickly on the longer term view. Given any lessons learned from this pandemic, how do you think about investment into AST? Clearly, I understand that you've got an investment plan in front of you and you've been executing against that.

But do you think about it differently now? Do you need to sort of perhaps scale up more EO capacity than you've had in the past? Just again, kind of, thinking about as we come out at the other end of this, what may change for you guys as you think about investment spending?.

Yes. Larry, as you know, we're pretty bullish in this space. And we like our competitive position for the reasons I've described. We have a very broad array of technologies.

And we have the ability to help customers if something happens in one of their plants and they needed to go to a different plant or if something happens in one of our plants and it needs to go to a different plant, we think that's a good place to be.

And the same with technologies, to the extent you can move across technologies, we have the ability to do that. So we like the business. We think our plan is a solid one for the future growth of that space, and we don't see a whole lot of reason to be backing off of it. We're pleased to have the capital position that we have.

At this moment in time, the only reason we'll spend less capital in that business is because it's – we can't get permits and things like that because the governments are effectively closed. They're doing other things besides permitting, building permits and things like that.

So that – and/or construction companies not being able to provide labor or whatever, I mean, we want to do it on the schedule, we were doing it. We see no reason to be stopping. It takes us two years from the time we start to the time we can turn on the gas. We don't see any reason to be stopping gas right now.

In terms of shifting among modalities, I think we have that pretty well scoped out. And I don't believe we have any great reason to change what our current plans were. But we'll be watching that, of course. We've continued to add capacity in EO in the last 12 months or so and going forward. And the bulk of that has been outside the U.S.

just because that's where the business was, not because of any other reason. And we will continue to beef up that space as well as the various radiation modalities..

Okay, terrific. Thanks for the response. Appreciate it..

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

Thanks, everybody, for taking the time to join us today. Stay healthy and stay well..

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