Cantel Medical Management Discusses Q2 2013 Results - Earnings Call Transcript

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Cantel Medical (CMN) Q2 2013 Earnings Call March 7, 2013 11:00 AM ET


Andrew A. Krakauer - Chief Executive Officer, President, Director and Member of the Office of Chairman

Craig A. Sheldon - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Seth Yellin - Vice President of Corporate Development

Jorgen B. Hansen - Chief Operating Officer, Executive Vice President and Member of Office of the Chairman


L. Mitra Ramgopal - Sidoti & Company, LLC


Greetings, and welcome to the Cantel Medical Corp.'s Second Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andrew Krakauer, President and CEO of Cantel Medical Corp. Thank you, sir, you may begin.

Andrew A. Krakauer

Okay. Well, thank you, Brenda, and welcome to our second quarter fiscal year 2013 conference call. Before we start, I would like to remind everyone that this conference call may contain forward-looking statements. All forward-looking statements involve risks and uncertainties including, without limitations, the risks detailed in the company's filings and reports with the Securities and Exchange Commission. Such statements are only predictions and actual results may differ materially from those projected. Okay. With that said, good morning to everyone. With me on our call today are Chuck Diker, Chairman of the Board; Jorgen Hansen, Executive Vice President and Chief Operating Officer; Craig Sheldon, Senior Vice President, Chief Financial Officer and Treasurer; and Seth Yellin, Vice President of Corporate Development.

Cantel Medical recorded the best quarter in the company's history in the second quarter of fiscal year 2013, even after excluding some favorable adjustments. We reported second quarter GAAP earnings of $0.38 per share compared to the prior year second quarter earnings of $0.27 per share. On a normalized basis, as reported in our press release, we reported $0.36 per share compared to $0.29 per share in the prior year, an increase of approximately 22%. Sales in the quarter grew to 9% to a record $106.4 million, exceeding the $100 million mark for the first time. This quarter's great performance continue to illustrate the 3 profit drivers I discussed last quarter which are evolving in our business model, first and foremost is our demonstrated success in our strategies: develop; acquire; and promote higher margin products in all major businesses. The gross margin improvements are derived from a positive mixture with increased sales of products with more advanced technology and greater customer benefits, as well as numerous efforts to continuously realize operating efficiencies. The second profit accelerator highlighted this quarter is our continued benefit from the successful integration of acquired businesses. And the third profit driver is disciplined expense control. I'll expand on all of these key actions as I briefly review the performance of our major operating segments in the second quarter. Our Healthcare Disposables business, which operates under the Crosstex and now the SPS Medical brands, following our latest acquisition of SPS in November 2012, benefited from all these 3 profit drivers this quarter and had great performance. Sales increased by 36%, primarily driven by a very successful first 3 months of SPS Medical's performance following the transaction. We are impressed with the SPS management team and are progressing nicely with integration. I've already met several shared SPS and Crosstex customers to leverage our combined product portfolio. Organic sales growth for Healthcare Disposables was 11%, with roughly half of that growth coming from some major distributors pulling ahead shipments in anticipation of January 1 price increases. But even excluding that pull forward, we still show respectable sales growth. Most importantly, the positive profit drivers were considerable in this business unit and operating profit grew by 80%, almost 2/3 of that was driven organically. We saw an improvement in gross margins partially driven by sales of newly acquired SPS sterility assurance products, which carry higher-than-average gross margins for both on a corporate and on a segment basis. And we had success growing some additional higher-margin product lines including face masks and our ConFirm line sterility assurance products. Now obviously, we benefited from our acquisition program here as well, not just with the contribution from SPS, but also from past acquisitions such as ConFirm Monitoring. And lastly, we saw a very tight control of operating expense management despite significant integration activities related to SPS. And overall, these 3 factors led to the good profit growth. As we go forward, I remain optimistic towards the growth of our Healthcare Disposables business with the help of an increasing presence of our sterility assurance market products and from new opportunities in hospitals and alternate care markets as well.

In our Water Purification and Filtration segment, which operates under the Mar Cor purification brand, we also had a really good quarter. Now this business has performed well all of last fiscal year and also last -- in the first quarter of this fiscal year and it continues to have steady improvement every quarter. This quarter, our Water division recorded record sales of $29.5 million, which represents organic growth of 15%, leading to operating profit growth of 21%. This operating leverage starts with disciplined operating expense control and is accelerated with higher production volumes to shift to higher technology products, as well as some modest price increases. During the second quarter, we continue to see the mix shift to our heat-based disinfection central and portable water purification systems, which provide great benefits to our customers. Sales of these more advanced machines would sell at higher average selling prices now exceed sales of our conventional equipment, and this shift is expected to continue. In fact, over 65% of our central RO system orders this quarter were for a heat-based CWP central system. We expect this rate of adoption to grow to 80% next fiscal year. Now while gross margins for this capital equipment is lower than our divisional and corporate average, we are benefiting from higher order and production volumes and importantly, we have an expanded base of new dialysis clinics, which we can then provide -- will provide us future demand for our consumables and service. In the quarter, we shipped and installed about 80 new central systems and received the same amount of new orders. This is historically a very strong rate. Further in the segment, our BioScience products shipments continue to grow, generating $5 million in sales for the Water Purification division this quarter. These products include higher-margin filtration, sterilizers and disinfection consumables. This business historically grows at about 10% and provides a consistent revenue stream of good margin business. And also in this segment, we closed a small but strategic acquisition in January in the Philadelphia area, adding the assets of Eagle Pure Water Systems to our nationwide service network. And we welcome its founder and owner, Greg Comitz, to Cantel. So overall, we are confident we can maintain our strong momentum in this business and the rest of fiscal year 2013 and beyond.

Now as we explained last quarter, our endoscopy business faced very strong and unsustainable prior-year comparisons for capital equipment placements. In fact, last year's second quarter of fiscal year 2012 was the best quarter ever for the endoscopy unit in terms of sales. Now despite the expected decline in capital equipment shipments, total sales were down only 2% due to the strength in consumables such as disinfectants and cleaners, parts and service, as well as our newer procedural product lines. This quarter sales of over $39 million were still the second highest ever for the segment and did grow 7% sequentially from the first quarter. Operating profits after adjusting for this quarter's unusual items and medical device tax were down slightly, and that was mostly due to investments in sales and marketing. We are very optimistic that the Medivators endoscopy business led by its visionary leader, Don Byrne, will deliver improved sales growth and increased operating profit as the year progresses. We have a large and growing install base of endoscopic processing equipment to drive our disinfectant sales, much of which is our higher-margin proprietary chemistry Rapicide PA. This quarter, our disinfectant and cleaners category grew by 17%. And with this growing install base of machines, it also provides great opportunities for us to expand our service and spare parts business which, this quarter, grew by 12%. On the product development front, our newly launched endoscopy processor, the CER OPTIMA, has been well-received now worldwide and sales have exceeded our initial projections. We are fully launching several new procedural product lines as well, which we expect will generate positive sales momentum starting in the third quarter and will contribute really much more substantially in fiscal year 2014 and beyond.

We remain highly confident in the strength and capability of our Medivators endoscopy United States direct sales and service team. Only our Medivators team and its full circle of infection prevention products and services can provide a comprehensive infection prevention solution to all of its GI gastrointestinal and endoscopy customers. And the worldwide market potential for our endoscopy business is in several billion dollars range. In the dialysis segment, as expected, sales declined by 4%, primarily due to reductions in lower margin dialysate concentrate shipments. However, operating profit actually increased by 7%, as expert management of manufacturing and distribution cost improve operating margins in this segment to 26.4%. This business remains important to the company and we will continue to work hard to take care of our customers and seeking growth globally. However, it is becoming a much smaller part of our overall company, representing only 11% of our combined segment operating profits in the second quarter of fiscal year 2013, as compared to 14% in the same quarter last year. So that said, a quick review of the first 4 major -- of the 4 major segments. I'll turn it over to Craig, our CFO, to go over some financial details.

Craig A. Sheldon

Okay. Thank you, Andy, and good morning to everyone. I'd like to turn our attention now to the earnings release, which was distributed this morning. And as always, I'll start by going down the income statement. As Andy indicated, sales increased by 9.3% in the second quarter to $106 million, another all-time sales record for our company as we surpassed the $100 million quarterly mark.

For the 6 months, sales increased by 8.1%. Top line growth was driven by Water Purification and Healthcare Disposables, and includes $4.7 million in sales contributed by our SPS acquisition. But even without the SPS contribution, sales still increased by 5% in the second quarter. As for their -- some of our big recent acquisitions, Byrne Medical, which is in our Endoscopy segment, as you recall, was acquired on August 1, 2011, the first day of the prior fiscal year, so that acquisition is fully reflected in operating results for all periods presented.

The SPS Medical acquisition was acquired on November 1, 2012. So that was the first day of our second fiscal quarter this year. Therefore, the acquisitions reflected in the full second quarter of this year and not in last year's results at all. Gross profit in the second quarter was 42.4%, up from 42.0% in last year's second quarter. I know I should mention that this year's second quarter gross profit would have been 43.0% if not for acquisition accounting charges and severance charges, which we consider to be atypical and not reflective of our ongoing business. That's all part of the $0.02 that Andy mentioned in the beginning of the call.

For the 6 months, GP percentage was 43.1% compared to 41.3% last year. A higher GP percentage in the current year periods was attributable principally to favorable product mix, such as endoscopic processing consumables, procedural products, which is the Byrne Medical business, face masks and sterility assurance products, and that includes the SPS products, as well as higher production volumes leading to favorable manufacturing variances and overhead absorption.

I also wanted to mention, with regards to the new medical device tax, the cost to our company was $322,000 in the second quarter, which was 0.03% negative to our gross profit percentage. Now we only incurred this tax for 1 month, because it commenced on January 1. So in the future, as we have that for the full quarter, it will be closer to a 1% negative impact on our GP percentage, which translates to about between $0.02 and $0.025 per share, that will be on a quarterly basis. Moving down to operating expenses. Gross operating expenses increased by only $628,000 in the second quarter, and that's 2% above last year's second quarter. For the 6 months, operating expenses increased by $1.2 million, which is also a 2% increase. Now there is a little bit of noise within operating expenses, again, part of the $0.02 that Andy alluded to at the beginning of the call. We have a significant positive effect from acquisition accounting adjustments, medical recurring fees. Again, these are atypical and not representative of future core operating expenses, so that would increase the operating expenses without those items. However, this positive impact was also -- was offset by the new infrastructure from the SPS acquisition. And those items pretty much offset. So even if you pull all of those items out, operating expenses still went up by about 2% in the second quarter.

As we have reported over the last couple of years, we have invested substantially in sales and marketing, as well as R&D functions. These investments are now built into our base operating expenses and are paying off. Having said this, we have spent a considerable amount of time clarifying future growth opportunities including new products, as well as international expansion. And we do expect to see increased future sales in R&D investments related to ongoing initiatives.

Operating income for the quarter overall reporting a substantial 28% increase compared to last year's second quarter, and for 6 months to date, 37% increase. For the second quarter, once again, as Andy discussed, and we indicated in our earnings release, we had about $850,000 or $0.02 of our earnings this quarter attributable to events, which are not reflective of the ongoing business. However, notwithstanding these non-core items, operating earnings in the second quarter still increased to a robust 22%.

As we have already discussed, the substantial increase reflects many factors including solid core growth from both Healthcare Disposables and Water Purification, contributions from recent acquisitions, strong gross profit margins and very careful management of operating expenses. Our interest expense decreased substantially this year, which is reflective of debt repayments. Total interest expense in the second quarter is only $775,000, which is extremely low particularly given that we've borrowed over the years for acquisitions including $37 million borrowed in the second quarter for the SPS acquisition, yet we still managed to reduce interest expense. We continue to repay borrowings quickly with strong cash flow and very low interest rates.

Our effective tax rate for the second quarter was 35.0%, and for the year-to-date, 36.3%, very close to -- right in line with my comments from prior quarters. As I've indicated in the past, the overall effective rate is difficult to predict and directly impacted by geographic mix and the timing and extent of new tax legislation. However, currently, we have about 90% -- 97% of our pretax income is generated in the U.S. So assuming no legislative changes in tax rates or credits which probably will happen but if you assume that there wouldn't be any, I would expect our effective tax rate in future quarters to be close to 37%. And I would also note that year-to-date this year, we would have been closer to 37.1% if not for a onetime favorable item in the second quarter, and that was the retroactive reinstatement of research experimentation credit, which contributed about $0.01 to our earning, that was all part of the fiscal cliff negotiations that happened at the end of the year.

Moving on to our balance sheet. It remains very strong with $26.8 million in cash and cash equivalents at January 31, $86.7 million in working capital and a current ratio of 2.7:1. Our fund to debt at January 31 was $107 million. And again, this includes $37 million borrowed for the SPS acquisition.

Meanwhile, we continue to pay down significant levels of debt. We paid down $10 million for each of Q1 and Q2, and we're on track to repay a similar amount in the third quarter. Our net debt at January 31 was $80.2 million. Gross debt to equity is 0.36 at January 31, and our gross debt for rolling 12-month EBITDAS is 1.32. EBITDAS was $22.3 million in the second quarter, that's a 20% increase from the prior-year second quarter. Rolling 12-months EBITDAS is now up to $81 million. Our cash flow provided by operations was $9.7 million in the second quarter and capital expenditures in the second quarter were $1.4 million. We continue to demonstrate strong cash generation capabilities and ability to pay down meaningful portions of debt every quarter.

So I remind everyone, we will be filing our 10-Q on its normal schedule, which would be next Tuesday. And before I turn the call back over to Andy, I wanted to mention one other item. Effective with our July 31 upcoming 10-Q, we have now become a large accelerated filer for SEC reporting purposes. And that is due to the fact that we have now exceeded $700 million in public float. So previously, we've been an accelerated filer. So now, we're moving up with the largest category. As a consequence, our 2013 Form 10-Q -- excuse me, Form 10-K, will now be due within 60 days following the end of the year, whereas previously, it was due within 75 days, so that will put the 10-K filing right at the end of September. And also -- but we haven't permanent earnings release date yet for the yearend results, I would expect that would be sometime roughly within the week prior to when we file our 10-K. So that's a change once again for the yearend. It does not affect the future filing dates for our quarterly 10-Qs. So at this point, I'd like to turn the call back over to Andy for some closing remarks. Andy?

Andrew A. Krakauer

Thank you, Craig. While this quarter exemplifies why we are so optimistic about the future of Cantel, we showed good sales growth of 9%, and then leveraged the sales increase to an approximately 22% increase in normalized EPS. This type of growth has been our historical model now for the past 6 years. We've demonstrated consistent growth following our three-pronged approach: Investments in new product development; sales and marketing activities; and the proven acquisition program. And we accelerate the operating profits by focusing on improving gross margins, accelerating the growth of the businesses we acquire and then driving overall operating leverage as a result of increased volumes and careful expense management. Most importantly, all of our major businesses have great growth prospects. And now, with the addition of SPS Medical, we have added another important contributor to growth, which has already proven to be accretive in the first 3 months as part of Cantel.

The worldwide market potential for our product continues to grow and has never been greater. Now while we do not give guidance and certainly cannot predict each future quarter to be as strong as the record $0.36 this quarter, this second quarter here, we do have a few headwinds that we have to overcome. The medical device tax is here to stay for now, although we believe this is bad tax policy and hope to see it repealed in the future, this tax will cause the company about $0.025 per quarter. In January, the first month of the tax, this expense was offset by a retroactive tax credit due to the resumption of the R&D tax credit for all of calendar year 2012 and 2013, which as Craig mentioned, was part of the fiscal cliff legislation, which is resuming this pro-business policy although it's only for 2012 and '13, and we believe that is good tax policy.

In any case, the net effect of the 2 tax policies will cost us about $0.02 per quarter. We also highlighted that some sales at Healthcare Disposables in the business were pulled ahead for some of our distributors anticipating price increases from suppliers at the start of the year, and this will negatively impact sales in the third quarter in this segment. Now compared to our current earning capabilities and asset absolute amount and our growth plans, these headwinds are really minor and will not change our course or our focus to deliver good medium-term growth by following our three-pronged approach. As I mentioned, all our major businesses are performing well and we will continue our strategy of increased investments and we are very optimistic about the future.

In our Healthcare Disposables business, we see great prospects to grow given our leadership position in the dental market. And with the help of our growing sterilization accessories business by expanding into the hospital and alternative care markets, we also see great future growth in international markets for these products. In our Water business, adoption of our higher technology platform will continue as base dialysis business central capital business is very strong, in fact, February orders were an all-time high -- at an all-time high, and our higher-margin builders and sterilants business continues to grow consistently. This does not even include the potential benefits of further acquisitions and a potential accelerated replacement market in any of the 6,000 dialysis clinics in the United States. In our Endoscopy business, we just had our second best sales quarter ever and we have a number of new products that have not yet begun to contribute to our sales line. We have aggressively -- we have aggressive forecast for growth as we move into fiscal year 2014 and beyond. This is another business segment where we see upside in the medium term for international growth and synergistic acquisitions. We also continue our success in identifying, executing and integrating acquisitions. This is the core competency of Cantel that has brought us top notch entrepreneurial management, new and higher-margin products and additional growth in sales and profits from our proven strategy to invest and then accelerate the growth of those acquired companies. The continued search and identification of synergistic markets and potential acquisition targets is a key role of our entire senior management team. We have an active pipeline of potential acquisitions that we are aggressively pursuing. We are expanding our corporate development team led by Seth Yellin, to enhance our capabilities to identify, evaluate and ultimately, close deals. Now last quarter, I introduced our new Executive Vice President and Chief Operating Officer, Jorgen Hansen, and explained his extensive background in health care and experience in sales and marketing, manufacturing, business development, new product development and especially, international business. Among his many duties, Jorgen is leading 2 major initiatives, an improvement in our R&D effectiveness a detailed review of our international growth opportunities. Jorgen has been with Cantel now for 100 days and he's been to every major Cantel facility and office around the world. Our reviews have left me more optimistic in our ability to deliver substantial new product offerings, as well as significant international growth in the future.

Just as one example. We are very optimistic that we have a great base of business and strong team already in China where Jorgen just came back last week. And we have added to that team further this year, we've been adding into it now for several others, we believe that there's significant growth potential that exist just in this one market over the next few years. Further, with respect to international growth and R&D effectiveness, we have already made several important organizational changes to strengthen our capabilities in these 2 areas. So overall, we expect to have an excellent second half of fiscal year 2013, and good growth beyond. We have great, strong momentum, we have leading positions in the growing and multibillion dollar infection prevention and control marketplace, and we are excited about opportunities as we go forward for new products and expanding worldwide.

We are committed to profitably growing the company while serving our customers and benefiting our shareholders. Our entire organization does take this great pride in its mission to provide the products and services and the guidance to mitigate infection risk, improve safety and ultimately, save lives. And I have to, again, thank all of our 1,500 loyal and hardworking employees for their great efforts and achievements in this another record quarter for the company. So thank you, look forward to speaking to all of you again at our third quarter fiscal year 2013 conference call in June. And with that, Brenda, we will take some questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Mitra Ramgopal with Sidoti.

L. Mitra Ramgopal - Sidoti & Company, LLC

Andy, I just want to get a sense in terms of margins as we go forward. I think this is about 4 quarters now, we are seeing about 43% on the gross margin, you did talk about some headwinds going forward but is this sort of the new base and potentially can go even higher?

Andrew A. Krakauer

Well, again, I guess the way we look at it is, again, I look at it by businesses, all of our businesses have targets to improve their gross margins. And the products that we are pushing are higher margins generally than our corporate average and certainly higher than the product that they're replacing. But obviously, it's a mix of any 1 given quarter. So for example, while we are growing our margins in our Water business by selling all that large cap equipment, our large cap equipment though have lower margins. So if we're very successful in capital equipment sales and endoscopy and in water, that could hurt the overall average but always improving compared to what we were selling in the past. So I guess the answer is we're certainly not going backwards and the goals of our acquisition program are only look for product, it's for company that would increase the margins of our company. All the programs we have in place are, in fact, focusing on products all with higher margins, so I think, given the dramatic improvement that we've made, notwithstanding the medical device tax, this is a good level and then we should look for continuous improvement, slow but steady improvement.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay. And you talked in terms of the Healthcare Disposables segment did benefit little from price increases, was that the only segment where you try to implement that or is it something going forward we should be looking for?

Andrew A. Krakauer

In terms of price increases, again, this is a constant -- we try to implement price increases based on, obviously, our internal cost increases for people, material, et cetera, et cetera. We've had some limited price increases in Water, we've had some limited price increases in Healthcare Disposables. A lot of our -- a lot of the Water business and a lot of the -- and certainly, all of the -- most of the Endoscopy business that are under long-term contracts, that get negotiated sometimes every year, sometimes, the GPO contracts, every 3 years. And we do our best to make our cases to our customers. But I would say, as a general rule though, it is -- we're not going to be testing on the medical device tax in any easy way. Well, obviously, those customers and hospitals et cetera, they all have, as they pointed out to us repeatedly, increasing costs related to the Affordable Care Act. And they're not looking for any special increases related to this tax but we will do our effort to increase pricing as we do at normal contract renewals based on the overall normal cost increases and -- but it will not be large but we should get some, we deserve to get some.

L. Mitra Ramgopal - Sidoti & Company, LLC

Great. And then just a few big picture questions. On the acquisition front, clearly, Byrne Medical and SPS, et cetera, had just been great additions for you, I don't know if you could comment a little in terms of the pipeline and the opportunities you're seeing out there?

Andrew A. Krakauer

I'll let Seth Yellin address that.

Seth Yellin

This is Seth here. We have a very rich pipeline right now that we're excited about and we are looking at acquisitions across all our segments, both domestically and internationally. For obvious reasons, I won't talk about specifically what we're looking at but we're very excited about what we see in front of us and we hope to be able to execute on that in the very short term.

L. Mitra Ramgopal - Sidoti & Company, LLC

And again, in terms of -- I know you can't get specific but if we look at the size of the acquisitions of the Byrne, for example, and SPS is very different in terms of revenue contribution, et cetera. Again, is there sort of any limitations that you put on this?

Seth Yellin

No. I think, to be honest, we have the acquisitions we're exploring that are early stage companies with near -- with 0 in sales to companies that are well established with an excess of $50 million to $60 million in sales, so we're looking at a wide array of companies. And our goal, of course, if we're to look at acquisitions that has the ability to move the needle but we'll execute on deals as they become available and as we're able to proceed on terms and prices that make sense to us.

L. Mitra Ramgopal - Sidoti & Company, LLC

And again, the deals are really to expand what you already offer in terms of health care, water, et cetera, as opposed to anything very different?

Seth Yellin

Well, certainly, [indiscernible] within the infection control umbrella. We are looking at businesses that fall within each of our existing parallels, and we're exploring some transactions that fall outside of our core categories but make a logical sense from a strategic perspective within the infection prevention and control focus we have.

L. Mitra Ramgopal - Sidoti & Company, LLC

And Andy, if you could comment a little more in terms of a potential for the RAPICIDE OPA you recently introduced and maybe looking out over the next 12 months and beyond, are there any new chemistries and products that you would consider significant to move the needle?

Andrew A. Krakauer

Well, you're right. RAPICIDE OPA, in fact, was press released yesterday at our formal corporate beginning of sales to the marketplace in yesterday's press release. I'm optimistic but I don't want to give a forecast. I'm optimistic that this product serves in multiple customers and will be sold by multiple sales teams because it has such great benefits in automated reprocessing, as well as manual applications in hospitals and alternative care sites and dental offices. But I don't know if I want to predict it. I mean, the introduction of new chemistries takes time. It takes trials, in some cases, it takes contracts. So I'm optimistic that it will be a significant contributor in 2014, but I would not be looking for a lot -- necessary a lot in the next 6 months as it gets introduced. As far as other chemistries go, we are still increasing our penetration with our existing chemistry RAPICIDE PA. We are growing our Actril admin care products and pharmaceutical clean rooms and look for that to continue. So we have a lot of existing chemicals and chemistry that are on nice growth projection. Now longer term, we do have, I'll just say, a few interesting chemistries that are under development. They're still probably more than 2 years away but they're going to be significant players for us as you look at the medium term. And as we get closer, I guess we'll probably talk about them but I don't like to talk about things that are really at least more than 1 year away. But what I can tell you is we're working hard in what we think could be some very interesting chemistries.

L. Mitra Ramgopal - Sidoti & Company, LLC

Sure. That's very helpful. And finally, I think you've talked about international expansion as a nice opportunity. I think roughly about 85% of your business relatively comes from the U.S. Do you see that changing meaningfully over the next year or 2 or is this more of a 5-year plan?

Andrew A. Krakauer

Well, I've spent a lot of time talking to Jorgen and he just came back from Asia and spent a long time in Europe hitting with the teams and laying out some strategies. I'm going to let Jorgen Hansen, our COO, speak to that.

Jorgen B. Hansen

Thanks, Andy. I mean, obviously, we do have a great growth potential, both in Europe and in Asia, and we're right now putting together some very exciting plans for those specific markets. We think we will have softer growth in markets outside the U.S. in the next coming years. But obviously, for this to have significant impact to our company, it would be sort of a midterm outlook. So in the next couple of years, we will introduce more products. We would look at various go-to-market strategies. We will work with new business models in some of the key markets like China where we already have a good platform. So it will be something that would be a growth driver for us in the next several years. And then we would look 5 years out, we anticipate we would have that significant -- very significant -- more significant presence in those markets.

Andrew A. Krakauer

Yes. And one other thing, I'd like to just add, Mitra, it's not just about products but it's also about decision, strategy decisions such as timely putting our plans on the ground in Asia that could be a source of lower-cost chemistries and maybe even lower-cost equipment. These are all parts of the strategy that could really accelerate the opportunities. And also, for the first time, I'd say that we are seriously looking at a number of acquisitions in Asia, as well as in Europe, and that could significantly make a difference. It gives -- it could give us more bulk and especially if it's a good established operation. So we are very excited about the opportunity. We obviously need to implement, execute, but it's a major commitment for the company and I'd say more now than anytime in the past.


[Operator Instructions] It seems there are no further questions at this time. I would like to turn the floor back over for closing comments.

Andrew A. Krakauer

Okay. Well, again, thanks, everybody, for listening. We look forward to talking about our third quarter in 3 months. Thanks a lot.


This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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