Cantel Medical Corporation (NYSE:CMD) Q1 2019 Earnings Conference Call November 29, 2018 11:00 AM ET
Milicent Brooks - Head, Corporate Communications
Jorgen Hansen - President and CEO
Peter Clifford - EVP and CFO
Seth Yellin - EVP, Strategy and Corporate Development
Lawrence Keusch - Raymond James
Mike Matson - Needham
Mitra Ramgopal - Sidoti and Company
Greetings, and welcome to the Cantel Medical Corp First Quarter and Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host for today’s call, Milicent Brooks. Thank you. You may begin.
Thank you, Rob, and good morning, everyone. On today’s call, we have Chuck Diker, Chairman of the Board; Jorgen Hansen, President and Chief Executive Officer; Peter Clifford, EVP and Chief Financial Officer; Seth Yellin, EVP, Strategy and Corporate Development; and Brian Capone, SVP, Corporate Controller and Chief Accounting Officer.
Earlier this morning, the company issued a press release announcing the financial results for the first quarter of fiscal year 2019. In addition, we have posted a supplemental presentation to complement today’s call. This presentation can be found on Cantel’s website in the Investor Relations section under Presentations.
Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements. All forward-looking statements involve risks and uncertainties, including, without limitation, the risks detailed in the company’s filings and reports with the Securities and Exchange Commission. Such statements are only predictions and actual results may differ materially from those projected.
The company will also be making references on today’s call to the non-GAAP financial measurement, non-GAAP EBITDA, non-GAAP income from operations, non-GAAP gross profit, non-GAAP diluted earnings per share and net debt. Reconciliations of these financial measures to the most directly comparable GAAP financial measurements are provided in today's earnings release.
In addition, we renamed our reportable segment effective first quarter fiscal year 2019 so they better align with our key customers in the markets we serve. The new segment names are as follows, Medical, formerly Endoscopy; Life Sciences formally Water Purification and Filtration; and Dental, formally Healthcare Disposables.
With that, I am pleased to introduce to you, Jorgen B. Hansen, President and CEO.
Thank you, Millicent, and welcome, everyone. I will start off with some brief opening comments, followed by Peter who will take you through our first quarter 2019 fiscal results. Finally, we will open up the call for Q&A. Overall we're pleased with our results this quarter. We grew reported net sales of 6%, with 4.3% organic growth.
Our medical segment led the growth for the quarter which helped the recurring revenue and strong capital and equipment sales. We saw modest softness in our life science and dental businesses, largely related to timing of shipments. Medical sales grew by 13.5% driven by double-digit growth across all regions with organic growth of 12.8%.
Total recurring revenue was 13.6% in the quarter while capital equipment grew by 13.2%. Capital equipment in the U.S. was particularly strong, giving us confidence that the U.S. AR market is returning to normalized growth levels. Life Sciences reported revenue decrease of 2.6% for the quarter driven by a large high-purity water order being pushed into the second half of the year and soft capital equipment placements as previously guided.
Orders in capital, specifically medical water were down this quarter due to the normal cycle of this business and one of our key customers moving to a dual source approach. We're encouraged by the progress of our strategy of broadening our life science offering with new margin accretive growth businesses.
In this quarter, we saw increased interest for our REVOX technology by several leading medical device manufacturers, and we installed the first 12,000 liter chamber at our sterilization site in Minnesota.
Finally, we acquired Stericycle's Controlled Environmental business – Environmental Solutions business which I'll discuss later in the call.
Revenue in our Dental segment decreased by 2.8% with organic decline of 4.1%. This was due to inventory adjustments within our channel, and while our performance was lower than expected, out the door sales at our distributor partners are in the mid-single digits giving us confidence in the underlying demand for our products.
In addition, we have experienced temporary supply shortage in the key chemistry product line for the alternate care market that has contributed to the softer performance this quarter. We are confident that the profile at dental will turn to mid-single digit growth in the coming quarters.
From a geographic perspective, our international sales increased 9.3% with APAC and EMEA both growing approximately 14%. International organic sales grew by approximately 8% with APAC increasing 18% and EMEA up 9%, led by excellent performance in China and Germany.
The strong international results include the impact of acquisitions of Aexis Medical in Belgium and the BHT Group in Germany. U.S. sales grew by 5% in total with 3.1% organically versus prior year. With that, I’ll handover to Peter to discuss the financial results.
Thanks, John, and good morning, everyone. Before we take a few moments to walk through the 1Q '19 financial results, I wanted to remind everyone that besides renaming the business segments to better align with the markets and customers that we serve, we did recast a small amount of our biological indicators business from our dental segment to our Life Sciences segment in both the prior year and current year results.
On a consolidated basis, top line net sales increased 6% year-over-year in 1Q '19 versus the prior year and 6.6% on a constant currency basis. The consolidated net sales walk elements were, organic came in at 4.3%, M&A came in at 2.3%, and FX was a headwind of 0.6%.
Gross margins for the quarter, GAAP gross margins contracted by 60 basis points to 46.7%, versus 47.3% in 1Q ’18. Our non-GAAP gross margins contracted by a 120 basis points year-over-year although when adjusted for the recast of APAC service costs, we contracted in our core 90 basis points operationally year-over-year. Note, the primary drivers of the dilution were our previously announced livable wage actions, ERP projects, and relauch.
Operating expenses for the quarter, GAAP operating expenses increased by $8.5 million or 12.4% in 1Q’19 compared to the prior year. The impact of acquired costs from acquisitions was roughly $2.2 million or 3.2%. The balance was purposeful investment in line with our strategic plan.
Operating profit for the quarter, GAAP op profit decreased 12.5% year-over-year to $27.7 million. Note there are a few items driving our GAAP dilution year-over-year. The accelerated amortization of certain intangible assets that were written off as part of the disposition of our specialty water business, our continued reinvestment in REVOX, as well as livable wage actions taken in 4Q ’18 contributed to this overall decrease year-over-year.
While on a non-GAAP op profit basis, it decreased 4.9% year-over-year to $36.6 million. Again key drivers were continued reinvestment in REVOX, previously announced livable wage increase and ERP project. Our effective tax rate for the quarter -- our GAAP effective tax rate came in at 25% as compared to the prior year rate of 27.4%.
Key drivers were the impact of the Federal statutory rate change provided a benefit of approximately $1.5 million in the quarter. This was partially offset by reductions in the excess tax benefits associated with our stock-based compensation expense, discrete foreign tax items, state taxes and the loss of the domestic production allowance deduction or DPAD.
Our non-GAAP effective tax rate for the quarter came in at 25% as well compared to the prior year rate of 35.5%. The key drivers were the impact of federal statutory rate change provided a benefit of approximately $2 million during the quarter. This was partially offset by state taxes and the loss of the DPAD deduction.
EPS for the quarter, GAAP EPS decreased 16% year-over-year to $0.46. In addition to the commentary discussed earlier related to GAAP op profit dilution, higher interest rate expense and the prior year extinguishment of a contingent liability of $1.1 million, which was non-recurring throughout this decrease year-over-year.
Our non-GAAP EPS increased 7.9% year-over-year to $0.62. Adjusted EBITDAS for the quarter, 1Q adjusted EBITDAS came in at $44.8 million, up 0.8% year-over-year while our adjusted EBITDAS for the last 12 months was a $178.7 million, up 8.1% year-over-year. Cash from operations, 1Q cash flow from operations came in at $32.3 million, up 7.3% year-over-year.
Now to provide some insight into the segment results, for our medical segment for the quarter, sales grew 13.5% year-over-year to $127.6 million. Organic was strong at 12.8%. Our GAAP op profit increase 28.1% to $25.2 million while our non-GAAP op profit increased 23.2% to $29.3 million providing very strong leverage. For our life sciences segment for the quarter, sales decreased 2.6% year-over-year to $53.3 million, organic declined 6.9% driven by order timing and decline in new clinic medical systems.
Note we do expect our life science business to return to positive growth in 2Q ’19 even with the disposition of our specialty water business during the quarter. Lastly our backlog remains stable in the quarter, increasing modestly from the year end. GAAP op profit decreased 39% to $6.3 million while our non-GAAP op profit decreased 22.4% to $8.6 million.
No ex-incremental REVOX investment non-GAAP op profit decreased 17%. For dental segment for the quarter sales decreased 2.8% year-over-year to $36.6 million. Organic was negative 4.1%. Note it is our understanding that many of our channel partners were impacted by the recent FTC rulings and pulled back on their inventory during the quarter.
GAAP op profit decreased 31.7% [ph] to $5.9 million while our non-GAAP op profit decreased 25.2% to $7.5 million. For our dialysis segment for third quarter sales expanded 1.6% year-over-year to $8.1 million, our GAAP op profit decreased 34.1% while our non-GAAP op profit decreased 34.3%.
Now I’d like to hit a few balance sheet and liquidity details. Our balance sheet remains strong with significant capacity. We ended the quarter with $64 million in cash and cash equivalents, a $173.8 million order in capital, our gross debt ended the quarter at $197.5 million with no borrowings outstanding under the revolving credit facility. Our net debt was $133.5 million and our net debt-to-adjusted EBITDAS was $0.75. Capital expenditures were $38.8 million. Approximately $23 million was due to purchase of a new facility in Minneapolis and $5 million was due to the ERP project.
As we’ve signaled CapEx will remain elevated the next several quarters to support our ERP implementation project. As a reminder we will be filing our 10-Q tomorrow.
I will now hand the call back to Jorgen for closing remarks.
Thank you, Peter. Overall we’re pleased with our performance this quarter, the positive trajectory of our business and our strong competitive positions in the markets we serve. We continue to drive to our five-year strategic plan to double sales and profits by fiscal year 2021 through new products, market expansion, and M&A supported by the transformation of our operating model.
In the first quarter we launched five new products. Most notably in our medical division we launched our BHT E series AER which feature our proprietary requisite PA chemistry. We've also seen excellent customer adoption of our proprietary [indiscernible] AER platform in North America with several installed units since it launch in the spring and a large prospective order pipeline.
In our life science segment we recently initiated the launch of EON, our next generation Portable RO and -- where we have received a lot positive feedback. In addition we are encouraged by the strong interest for our Syclone Amalgam Separator by our dental customers. This new product would enable dental offices to be compliant with the recent EPA ruling on dental waste water management.
Finally in line with our strategy we increased our R&D investments across the company, especially in key technologies such as the REVOX sterilization platform. At the start of this fiscal year we closed our acquisition of Stericycle's Controlled Environmental Solutions business, a leading provider of testing certification environmental monitoring and decontamination services. Their services expands the portfolio of offering we can bring to our life science customers as we continue to strategically invest in this important segment.
In combination with our REVOX platform our civil insurance portfolio and our disinfection product lines we are positioning this division to become a leading solution provider to life science customers seeking broad sterilization and infection prevention solutions through our complete circle of protection strategy.
As a consequence of our strategy to focus on growing and margin accretive life science markets we successfully completed the divestiture of our high purity water business based in Burlington Canada just in last -- in this quarter.
Finally we entered into a definitive agreement to purchase Omnia S.p.A, an Italian based market leader in dental surgical consumable products with a focus on procedure room setup and cross contamination prevention. This acquisition will primarily serve as a platform to drive our market expansion for our European dental business. Suffixed with the customary closing conditions we expect this transaction to close in the beginning of February 2019.
We remain highly encouraged by activity in our M&A pipeline and are cautiously optimistic about additional near-term opportunities. A key pillar in our five year strategic plan is transforming our operating model to drive efficiency and scale to support organic as well as acquired growth.
As discussed at our last call, we are making major investments in FY '19 to drive toward this important objective. Hence, we are modernizing the company through implementation of state of the art Information Technology and processes centered around 1 global ERP platform that is scheduled to go live in the beginning of the third quarter of this fiscal year. The impact of these investments in this project to 1Q'19 EPS was $0.03 per share.
In addition to enable a more productive work environment, we acquired 160,000 square foot building in Minnesota that allows us to consolidate several sites and will serve as a divisional headquarters for our medical and life science businesses, and will include a new product development training and customer experience center.
We're reaffirming our guidance for the fiscal year 2019. We anticipated reported revenue growth of 6.5% to 7.5% with organic growth of 6% to 7%. And a FX headwind of 0.5% previously announced acquisition of 1.5% and anticipated disposition of 0.5%. We anticipate total fiscal year FY'19 GAAP EPS of $2.16 to $2.19 and non-GAAP EPS from $2.57 to $2.62. This does not include the announced, but not yet closed acquisition of Omnia which we will -- we expect to close in February.
Before I close, I would like to announce some recent leadership changes. In October, Bill Haydon was promoted as Senior Vice President and General Manager of Cantel's Medical division. Bill is a proven leader with 20 years of experience in the medical industry.
In addition, Brian Capone was promoted to Senior Vice President, Corporate Controller and Chief Accounting Officer in October. Brian also has over 20 years of accounting and financial reporting experience in various marquee Life Science and Medical Device companies.
In November, Danoc Lily [ph] joined Cantel as its first Chief Technology Officer. Danoc is accomplished leader with over 25 years of experience in R&D, new product development, regulatory affairs and quality assurance from leading companies such as Stanford and Baxter. In addition, Paul Helms, Executive Vice President Operations and Craig Smith, Vice President, Regulatory Affairs and Quality both retired after serving 22 years with the company. We thank them for the valuable contributions to Cantel, and wish them all the best.
In closing, I would like to thank our over 2,700 loyal and hardworking team members for their efforts and achievements this quarter. Our entire company takes great pride in our mission to provide solutions to mitigate infections, improve patient safety and outcomes and ultimately help save lives.
Thank you for listening. I look forward to speaking with you on our second quarter earnings call in February. Rob, we are now ready to take questions.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Larry Keusch with Raymond James. Please proceed with your question.
Thanks. Good morning, everyone.
Good morning. Maybe you can start Jorgen with talking a little bit about how you're thinking about the durability of the U.S. capital AER business now. That you've called out that you're seeing that begin to normalize?
Yeah. So I think that was a very big positive for this quarter that we're now getting back to regular levels of USA AER capital sales, which obviously is the cornerstone of our business. The outlook we have for the year remains positive and we believe we will have a year, where we will have sort of mid-single digit growth overall, even though this quarter was significantly above that. But overall, we have, it's good trending across the business and positive feedback from the field on both the pipeline and on current orders.
Let me add some context there, Larry. We don’t typically have a long backlog on the endo side, and we sort of typically make the stocks, so most of what we ship sort of more than 50% of that comes in the same month and goes out the same month. So our visibility to it is limited. That said, our turnaround orders were especially strong, and as we’ve thought about in the past the sort of median for the U.S. market being sort of 750 a year on our participation. That implies sort of a 187 a quarter and we’re not quite to that level but we were very, very close to that level which was meaningful and pertinent from last year first quarter.
Okay that’s helpful. Two other ones for you guys. So I guess I think Jorgen, if I caught this correctly given some of the distributor destocking issues, perhaps you can touch on how do you have visibility on kind of the end user demand. I was always under the impression that tracing data lags a bit and then along with that, I think you indicated that you would not expect to get back up to again single-digit growth rates where a couple quarters out. So how do you maintain your organic growth guidance and then I have one other one?
So, we do get for the U.S. very good tracings on our dental business. And as I mentioned in my comments, those tracing shows sort of mid-single-digit growth of our products this quarter. Like you said, it’s a little hard to exactly call it that with the actual out the door sales that we will have. But certainly we do anticipate to get back in to growth mode in the coming quarter and getting back into sort of normal growth levels.
One particular item has impacted this quarter, which is the chemistry that we sell into the alternate care. We had some supply issues out of one of our key vendors. That’s now resolved, but that certainly did impact the quarter, and we do -- are playing some catch up now in Q2 which will be a positive upside.
In terms of -- if I understand your question correct, Larry, in terms of our overall growth we feel that the mix is coming out a little different than we anticipated in the medical as we talk about now, it’s much stronger and it’s really carrying through the overall growth of the company and when we look forward we do anticipate more normalized growth levels in the two other businesses. So net-net getting back into back into the range that we have previously guided.
Okay and last…
I'm just going to follow up there Larry as well, the finds in the market place besides probably impact on revenue, we didn’t see the same behavior a little bit that our DSO moved down. So I do think some of our channel partners were trying to recover some cash this quarter.
Okay perfect, and last one for you and maybe this is for you, Peter, have you guys attempted to quantify the impact in both the life science and the dental from sort of the delayed order and the inability to ship that product and the distributor destocking as you sort of thought about kind of what that may have impacted your top line?
Yeah, I think here’s I would answer that as when we look out here at the first half of the year against our own expectations which was, I think generally logical or aligned with what we’re seeing from modeling is, look we’ve got enough to a bit better start candidly in medical, our water business we had some push outs on some projects from 1Q to 2Q, but we feel with the backlog that we can see, we feel very good about the backlog or about the first half of the year for water, life sciences, and candidly as we’ve said we’ve gotten off a little bit of a slower start at dental in the first quarter.
I think we see a more normalized second quarter,[Author ID1: at Mon Dec 3 17:10:00 2018
] and the reality is I think the first half is there, just how we get there is a bit differently. We probably get there with a little bit more strength in medical offsetting probably the one time hit in dental that we probably don’t make up this year, but I think we feel pretty good in terms of having line of sight to what we thought like the first half of the year will look like. We feel pretty confident again based upon the medical start, backlog that we can see in life science,[Author ID1: at Mon Dec 3 17:11:00 2018
] and a likely return to a more normal second quarter on the dental side.
Okay, great. Thanks guys. Appreciate it.
[Operator Instructions] Our next question comes from Mike Matson with Needham and Company. Please proceed with your question.
Good morning, thanks for taking my questions. I guess I wanted to start with the life sciences business. So you mentioned the order timing and I know its discussed at one of your customers is trying to in-source some of that business, so was there any impact from that or is it really just purely about the timing, some bigger orders.
From our own view internally, we knew that first quarter was going to be very tough comp. Our last year first quarter was a high watermark for Cantel’s to one of our larger OEMs and so we knew that drop-off was going to happen this year from the visibility of the backlog. Really most of the pressure that we saw was on a specially water business and there were couple of key projects that we due to ship in the fourth quarter that moved in the second quarter that likely are going to ship here early in December.
We held on to our agreements, one or two larger orders that we already built prior to the disposition of the business and we anticipate those going up. Again here before like the year-end much less January.
Okay, and the presentation mentions a large water order being pushed in the second half of the year, so would that -- does that imply to the -- do you expect the second quarter to be stronger, I mean based on what you just said, it sounds like it should be stronger but is this big order is that coming in the second half does that mean the recovery will be more in the second half of this fiscal year.
You know as I mentioned in my comments, we would expect the life science division to see positive growth in the second quarter.
Okay, and then is it possible to quantify and forgive me if you already said this earlier in the call, I got on a little late. But the underlying kind of operating margin if you were to back out the investments that you have made in things like ERP and REVOX et cetera. I mean core operating margins still down year-over-year, if you back all that stuff out?
Okay, all right. And then finally just have to ask the obligatory tariff question. So I think you’ve addressed this maybe on some earlier calls but I just wanted to make sure that you’re not seeing any significant impact there from the tariffs and you don’t expect that to if they were to go to 25% next year.
Our view that I don’t think it's material yet, but I would say for the first time we are starting to see a bit more material inflation than we have seen in the last couple of quarters. So it is that we’re obviously watching closely. And it's -- we’re debating internally as to commercial actions and what we might even do in the back half for this year.
Yes, and it's coming a little different, I would say from in market sales in China we had an incredibly strong quarter because our team was really trying to get ahead of some of these tariffs coming in and pulled in really strong orders in anticipation of things getting worse.
So that’s I think we are okay there. What we are starting to see as Peter mentioned is particularly materials that we’re sourcing in for capital equipment, are getting more expensive and more precious everywhere and [indiscernible] across the goods sold and we are evaluating any action we need to do there to comment on.
Okay, all right. That’s all I have. Thank you.
Our next question is from Mitra Ramgopal with Sidoti and Company. Please proceed with your question.
Yes, good morning. First, I believe you mentioned about $0.03 of investments in terms of infrastructure for the first quarter, and I was just wondering if you should still expect it $0.20 for this year or some of that go into fiscal 2020.
No, I think we still pretty good about our views on cost and timing on both European facility move in Minneapolis.
Okay, thanks. And given the investments you’re making on REVOX, I was just wondering if you could give us an update in terms of the placement and the traction you’re starting to see?
Yes, as you know, Mitra, REVOX transformational solution that is targeted for in launch decision predominantly in the device. And we continue to see lots of positive feedback we have several systems testing running some systems also used in inline manufacturing and some key vendors.
And I think one milestone this quarter as we mentioned that our call was that we installed 12,000 liter chamber in our sterilization our own sterilization side in Minneapolis which will allow us to run much larger batches than before and this equipment is actually sort of prototype for an order that we're working on for major life science customer that we anticipate to ship in the back half of the year.
So a lot of good progress, It is a long cycle business. That's the bad news. The good news is we believe there's a tremendous opportunity for this technology in life science and also on medical business.
Great. And then switching on the dental side, obviously the Omnia acquisition prior to that you had a very small presence in Europe. This certainly expands it a lot, and I was just curious, in terms of the strategy going forward and to focus on Europe if you could give us some more color there?
This is Seth, thanks for the question. I think as you said, were European Dental franchise historically had been fairly moderate and we've had very limited commercial resources. And, with the Omnia acquisition, with that acquisition it brings us those both a good business in its own right with a nice portfolio of single use disposable consumable products used in Dental surgical procedures.
It's an organization with great leadership and a great commercial organization that we really believe will be a strong foundation to help build our overall Dental franchise.
So it's a business as we talked about and the release of around $19 million or so in the sales and we have a small franchise in Europe of a few million dollars. We expect that's going to be a good grower going forward with the commercial team that's going to be selling the full bag of the Cantel and Omnia portfolio going forward and we're really encouraged with the energy, enthusiasm that team and the potential we see it for Dental franchise globally.
And maybe just to add on what Seth said Mitra, if you go back 5 years at the initiation of our first strategic plan and we had very aggressive growth objectives for our international business but decided to focus that on our endoscopy or medical business, which we've done through acquisition and through organic investments.
It was very clear to us that A, we could afford to do that in conjunction with concurrently, but all three of our franchises. And we now believe that with this acquisition, we are able to kick-off a similar, while there's differences in the execution and products and everything else in the market, has similar growth trajectory for our dental business, in Europe and modeling the success we've had in building a leadership position in medical endoscopy over the last 35 years.
Okay. Thanks. And just finally for me, I think on the life sciences side, one of the reasons in terms of the margins compressing I think you'd reference material inflation just wondering in terms of your ability to be able to offset that with higher prices?
Yeah, good question. I mean candidly more of our inflation that we've seen so far as is really more on a medical and dental side of the business. So it's been less of an issue on a life sciences side. It's really been the dilution of REVOX, coupled with the fact that our volume is down pretty meaningfully in the core business, when you adjust for the acquisitions. And we saw just less I'll say productivity on the service and product side in the first quarter.
And then Peter, as you mentioned my guess is more of an issue in the medical and dental side. So I don't know, if again you have the ability to try to offset that with higher prices?
Yeah. Historically, we've always pushed an annual price increase on the dental side and obviously I think that's what we're challenging and debating internally as we need to look at frequency on the commercial actions. And obviously their distribution and through some of that non-affiliated on the medical side, it's obviously easier to push price more frequently.
So again those are things that we're debating passionately right now and more to report on as we get through further in the year. I think we've got to see a little bit more in the second quarter. And what continues to either happen or not happened on material inflation to decide the next course action.
Okay. Thanks again for taking questions.
Our next question comes from Larry Keusch with Raymond James. Please proceed with your question.
Yes. I just had two other ones. You already mentioned again activity with REVOX in the first quarter. Could you expand on that, was that, new discussions with a different set of customers or any color that you could provide to kind of what's changing there?
Well, I would say that for this business, it's a very concentrated customer universe, I mean, the customers that we are talking to and have been active with in this quarter and over the last several quarters are really the top medical device manufacturers predominantly in the U.S., but many of those companies have operations across the world. We have REVOX systems both in Europe and in Asia at this time. Actually we are proceeding with the first installation. So it is -- this is a quite global business.
So I think, this call, I can really add to this is that we continue to get very positive feedback for our customers. It is a long selling cycle, because you need to convert or reapply your 510(k)s with this new technology and that does take time.
On the flip side of that there's lots of benefits due to our technology, cost reductions that the customers absolutely understand. And so we keep being bullish on this business, we keep investing and now that we have actually production side manufacturing equipment in our sterilization plan in Minnesota, we also have a short cycle, we can demonstrate larger volume sterilization and really demonstrate how an optimal workflow will look for customer.
So more to come. We are highly encouraged, but it is a longer cycle to change or implement something transformations like REVOXs.
Okay. I appreciate that color. And then I guess the last one for me is. So you maintain guidance so that implies obviously 6% to 7% organic growth for the year. You did 4.3% in the first quarter. I recognize that you obviously don't guide to quarters. But just trying to think about some of the comments around the first half, Peter. And so is the right way to take it back the first half given some of the comps and some of the order patterns and et cetera, that, you would be below the year-end guidance range for the first half and then accelerate that in the second half of the year?
Yeah. I'm trying to be careful not to get into too much of a quarterly view. Again, what I would say is, from the forecast we've seen for the first half of the year. Again, I think we would align pretty tightly to what most of what we've seen or read on the first half of the year.
Okay. So we're left to our own to figure out what the Q2 have to look like here. But again, just with the comps and et cetera, I mean, it would just make your life easy, you would have to be, you'd see better growth in the second half of the year, I guess.
Yeah. I mean it's per se.
Okay. Perfect. Thank you.
Ladies and gentlemen, we've reached the end of the question-and-answer session. And this concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.