STERIS plc (STE) Q1 2016 Earnings Report, Transcript and Summary

Welcome to the STERIS Fiscal 2016 First Quarter Conference Call. All lines will remain in listen-only until the question-and-answer session. At that time instructions will be given should you wish to participate. At the request of STERIS, today's call will be recorded for instant replay. I'd now like to introduce today's host, Julie Winter, Director of Investor Relations. Ma'am, you may begin.

Thank you Keno and good morning everyone. I have just a few words of caution before we open for comments from management this morning. 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. Our 10-K for fiscal 2015 and our subsequent filings with the SEC identify certain risk factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments. Our SEC filings, including the 10-K, are available through the company and on our website. During the review we will refer to non-GAAP financial measures to provide information pertinent to the underlying performance of our operations. These non-GAAP financial measures should not be considered separately from or as an alternative for, and should be read together with GAAP results. Tables reconciling these measures to the most comparable GAAP measures are available in the schedule accompanying the press release and on the Investor Relations section of our website. One last reminder before we get started, because of our pending offer for Synergy, STERIS is bound by the U.K. Takeover Code, which places restrictions on what may be said by STERIS in this call. In particular, only information and opinions which are already in the public domain may be discussed. With those cautions, I will hand the call over to Mike.

Thank you Julie and good morning everyone. It is once again my pleasure to be with you this morning to review our first quarter financial results. Following my remarks, Walt will provide his commentary on our performance and discuss our outlook for the full fiscal year. We are pleased to report another strong quarter and a solid start to fiscal year 2016. Total company revenue grew 7% in the first quarter, driven by a 4% increase in volume, a 1% increase in price and 4% from acquisitions, offset by a 2% decline from foreign currency. Gross margin as a percent of revenue for the quarter increased 40 basis points to 41.9%. Gross margin was positively impacted by foreign currency and improved productivity, partially offset by unfavorable product mix. EBIT margin increased 30 basis points to 13.9% of revenue due to the improvement in gross margin I just mentioned, somewhat offset by an 11% increase in R&D spending. The increase in R&D spending is primarily related to the development of surgical products and accessories. During the first quarter as part of our plans to fund the Synergy Health acquisition, we issued $350 million in senior notes in a private placement. The notes have 10, 12 and 15-year maturities with an average interest rate of 3.56%. As a result of this issuance, we repaid all of the outstanding debt under our current bank credit facility. We are very pleased to continue to be able to access funds at very reasonable long-term rates. The downside of doing this, at least in the short term, is that we will incur higher interest expense in the fiscal year than we originally planned. The effective tax rate in the quarter was 33.3% compared with 37.8% in the first quarter of last year. Net income for the quarter increased 16% to $37.1 million or $0.62 per diluted share. Moving onto our segment results, Healthcare had a good quarter, growing revenue 9%. Contributing to that growth, healthcare service revenue grew 20% in part to the acquisition of IMS and solid growth in our core service business. Healthcare consumable revenue increased 3% while capital equipment revenue increased 1%. During the quarter we had very strong double-digit growth in capital equipment in the U.S. offset by declines in the rest of the world. Healthcare backlog at the end of the quarter was $119.8 million, a reduction of about 4% year-over-year, and sequentially increased 23%. Healthcare operating margins were 10.1% of revenue in the quarter, an increase of 30 basis points year-over-year due to increased volume and favorable foreign currency exchange rates. Life Sciences revenue declined 3% in the first quarter, with 6% growth in consumables and 3% growth in service, offset by a 20% decline in capital equipment revenue. Backlog in Life Sciences ended the quarter at $48.6 million, an increase of 6% compared with the prior year. Even with the decline in revenue, Life Sciences first quarter operating margin increased 350 basis points to 23.9% of revenue due to favorable product mix as capital equipment represented a lower percentage of the segment's revenue. Isomedix had another good quarter with 5% revenue growth, driven by demand from our core medical device customers. Isomedix operating margin was 30.8% of revenue, a decrease of 90 basis points as compared to the prior year. The reduction, as anticipated, in operating margin is mainly caused by cobalt disposal costs. We continue to anticipate approximately $3 million in total disposal costs for the full fiscal year. In terms of the balance sheet, we ended the quarter with $196.2 million of cash, and almost $690 million in long-term debt. Our DSO is at 57 days, an improvement of five days compared with last year. Our free cash flow for the first quarter was $17.7 million, a decline of $5.4 million due mainly to the cash impact of acquisition-related expenses. Capital spending was $23.5 million in the quarter, while depreciation and amortization was $22.4 million. With that, I will now turn the call over to Walt for his remarks. Walter M. Rosebrough - President, Chief Executive Officer & Director: Thanks Mike and good morning everyone. Let me begin with where we stand with the Synergy transaction. The preliminary injunction hearing is scheduled for August 17, and the trial schedule is public. We've been busy with all the activities you might expect leading up to the litigation and remain as committed to the deal now as we were when we announced it last October. As is our normal policy, we do not intend to answer questions regarding the pending litigation, other than process questions. Having said that, let's talk about some of the other exciting things we have going on at STERIS. We had a strong start to a new fiscal year, with mid-single digit organic revenue growth and mid-teens earnings growth. Our product lines generally continue to show growth and the strength of our product portfolio positions us well to win business. Meaningful new products like our updated V-PRO Sterilizer family, new Washer Disinfectors, and new OR lights and booms continue to bolster our performance in Healthcare capital equipment. The same is true in our U.S. Endoscopy product lines. As a result, we've performed particularly well in the United States, while the continued strength of the U.S. dollar has generally increased our cost in local currency internationally, putting pressure on product sales outside the U.S. Healthcare consumable sales were a bit lighter than we anticipated in the quarter, which we believe is due to the timing of orders from distributors. Our June and July consumable orders seem to confirm that theory. Our Healthcare service business had another solid quarter with high-single digit organic growth plus the benefit from the acquisition of IMS, both in terms of organic growth and the fact that the purchase was mid-quarter last year. On a separate note, we are extremely pleased to have our consent decree related to SYSTEM 1 terminated during the quarter. The court's decision to terminate reflects the hard work of our people over the past five years to comply with the terms of the agreement. STERIS takes our responsibility for the health and safety of patients and caregivers seriously, and our people work diligently together to take care of our customers and meet the FDA's requirements. We have learned a great deal from our experience working with the agency and have a better awareness and understanding of their positions. We have been fortunate that many people at the FDA have helped us to learn and improve. Although this experience has taken significant resources, I believe we have benefited a great deal working so closely with the agency these past five years and are a better company for having done so. We fully intend to continue working with and learning from the FDA in a constructive manner. Our Life Sciences business continue to deliver growth in recurring revenue in the quarter. Life Science had a down quarter in capital equipment revenue, reflecting the characteristically lumpy nature of capital shipments. But capital orders were strong, which is reflected in our backlog. We believe the capital equipment performance was a function of timing as we had several large orders slip into the second quarter. As they have in the past, Life Sciences did a particularly nice job of improving margins, even with the decline in revenue. Isomedix performed as anticipated during the quarter with solid revenue growth. Profitability was hindered somewhat by the Cobalt disposal costs we discussed last quarter, and in Mike's commentary earlier, which was planned. On the M&A front, in mid-June we acquired Black Diamond Video, which complements STERIS' OR integration offering. Black Diamond focuses on the more sophisticated OR integration products that are typically found in large, tertiary, academic and research centers, with high-end technology needs. VTS STERIS' existing products in this space tends to be used more in community hospitals. We believe our greater marketing and sales reach, along with the additional technology platform from Black Diamond will allow us to grow our OR business faster on the same or lower cost base. We're in the beginning stages of integrating Black Diamond with our existing OR integration business to deliver increased value, innovation and support to our customers. Black Diamond will roll up into our Healthcare segment. We also completed the recently announced acquisition of General Econopak or GEPCO, which closed last Friday. GEPCO manufactures consumable product solutions in the areas of sterility maintenance, barrier protection, and sterile clean room products for pharmaceutical, biotech, and veterinary customers. GEPCO will be integrated into our Life Science segment and will further bolster the consumable product range and growth in our global Life Science business. GEPCO products fit perfectly with our existing pharma customer base in Life Science. Their high value-added custom products for clean rooms are the device equivalent of the customized cleaning chemistry solutions STERIS offers to the same call point. Our broader reach, particularly outside the U.S., should allow us to grow this business without adding significant sales and marketing resources. We continue to pursue M&A activity and look for tuck-in acquisitions that are complementary to our businesses around the globe. Now, moving onto our outlook for the year, reflecting the acquisitions of GEPCO and Black Diamond, our outlook for revenue growth is now 6% to 7% which is an increase of 1 percentage point from our original guidance. We have a couple of moving pieces impacting our EPS outlook. Let me spend a few moments on these. First, as previously announced, we do anticipate approximately $0.06 per share earnings accretion this fiscal year from Black Diamond and GEPCO. Second, we were successful in locking in very favorable long-term rates in our May private placement which will increase interest expense this fiscal year, and largely offsets the accretion from those acquisitions this year. When we originally planned the private placement, we anticipated that it would be a part of the funding for the Synergy deal and therefore included the cost of the financing in our models for the combined business, but not for the standalone or without Synergy outlook. Since we've now factored these increased financing costs into our – without Synergy outlook, upon the completion of the Synergy combination, the additional financing costs of the private placement will have already been included. And of course, given the M&A activity we have completed so far this year, we have not made any share repurchases to date. We hope this discussion may be helpful as you factor in these puts and takes in your financial models. With all that being said, we are pleased with our $0.62 EPS at start of the year and are increasingly comfortable with our range of $3.15 to $3.30 for the full year, which excludes the impact of a Synergy acquisition. Thanks again for your time. That concludes my remarks. And I will turn the call back over to Julie to begin the Q&A.

Thank you Walt and Mike for your comments. We're now ready to begin the Q&A session. So Keno, would you please give the instructions and we'll get started.

Thank you Ms. Winter. Our first question is from Mr. Matthew Mishan with KeyBanc. Please, go ahead.

Good morning and thank you for taking my questions. Walter M. Rosebrough - President, Chief Executive Officer & Director: Good morning Matt.

I guess I'm going to start with Healthcare operating margins. Could you give us an update on where you are at as far as your in-sourcing and the closure of SYSTEM 1 manufacturing? I believe you had quantified the SYSTEM 1 is like a $10 million impact annualized and I think you had $8 million to $10 million of cost savings you were expecting to get from the in-sourcing and Lean manufacturing? I was just curious where you guys are at with that now? Walter M. Rosebrough - President, Chief Executive Officer & Director: Yeah Matt. You've described that correctly. Both of those – just as the math happens to work out, both of those were over two-year periods. And roughly half in each of the two-year periods. So you're exactly correct. And so half for both of those which are roughly $10 million would be about $10 million – $10 million each would be about $10 million this year. And we think we're right on our plan there. Clearly the SYSTEM 1 plant closure or the Hopkins plant closure is a later in the year project. So one is more ratable over the course of the year and the other is much more heavily rear-end weighted. But we're dead on our plans.

Okay. And then you mentioned an increase in R&D spending. Could you elaborate on where you're spending and maybe the rationale for doing it now? Walter M. Rosebrough - President, Chief Executive Officer & Director: Well, first of all, R&D spending is often lumpy. And the nature of it as, particularly as you kind of get toward the end of a project, there is a number of expenses that kind of come rushing in. And for example – project expense where you're building prototypes and things like that get pretty expensive. So some of it is, I would call it, just purely timing. But what we have invested significantly in R&D in our operating room business, pretty much across-the-board. We have new tables, new lights. We're doing a lot of work in the integration space. Now it'll even go up with, in both VTS and in Black Diamond. And we believe those investments are good long-term investments for the business. And so it just kind of happens that the quarter was a little higher than we even expected. But we don't see the year being higher than we expected. It's just the timing of the expense.

Okay. And then lastly, on the Life Sciences capital equipment. Obviously it was a tough number in the quarter and I think you mentioned timing, but in reality it's been down for a significant period of time and you're seeing in that end market, biotech, pharma, a lot of strength. And you're seeing some stability on the research in government, academic side. What's the disconnect between your numbers over the last three or four quarters and maybe with some of the other life science tools providers? Walter M. Rosebrough - President, Chief Executive Officer & Director: Yeah. First of all Matt, we've clearly seen pharma consolidation in plants. And it depends on what part of the space that you're in. Now, I'm going to break pharma from research to discuss it first. But on the pharma side, we've seen consolidation and continued consolidation in pharma for quite some time. And we did see kind of a bottoming out of that reduction, I don't know, a year-and-a-half, two years ago, when we talked about it at that point in time. We haven't seen continued significant reductions, there is lumpiness. We're expecting a very strong quarter next quarter so I think you'll see kind of the opposite of this view. And for the year, we're expecting kind of a flat line performance for the year – up a touch, but generally flat. So that's point one. In terms of others, it's very hard to get a handle on that because many – in our types of equipment, many of the competitors are local manufacturers. And you may recall that it was not so many years ago where we were losing a lot of money in that space and we decided to quit chasing after jobs that were not profitable. And so we purposefully took a reduction in share at that point in time to go after places that were interested in doing high quality and paying for the work that they were expecting. And we've been quite successful with that. I don't think that we've, since that point in time, when we made that decision, I don't believe that there's been a significant share loss. We do have some new products in the vaporized hydrogen peroxide space, and so we've probably had a little lag here the last little bit on that and we expect to see more of VHP product going out in the future. So that's the pharma side. On the research side, that business has really collapsed, if you will. And it is quite small at this point in time. And we're just not seeing a return to the Life Science side. You are right though, we do like the spaces we're generally in, in Life Science. And you see our consumable business just keeps growing significantly there. And in the long run, once we get through kind of these consolidations of companies, and as a result, factories, in the long run, that means they are going to invest in factories. So that's a good thing. But we continue to see the growth coming on in the consumable side.

Right. Thank you Walt. That was very helpful.

Thank you. Our next question is from Mr. Chris Cooley with Stephens. Please go ahead.

Good morning everyone. And thanks for taking the questions. Just two quick ones from me here this morning, maybe Walt or Mike. If you look at Isomedix in the quarter, solid mid-single digit growth, but historically we've seen that in kind of the upper single digits. And I realize you've brought on new capacity. We've seen fairly positive commentary from a number of the Healthcare service providers out there, just in regards to procedure volumes during the quarter. Help us think a little bit about lead lag with your end customers relative to what we see on the service side, and kind of maybe reframe our expectations for unit volume growth in that business? And then I have a follow-up. Thanks. Walter M. Rosebrough - President, Chief Executive Officer & Director: Sure Chris. We do see a lead lag and unfortunately it's not uniform. Between what sales are, not so much on the service side of that business, but on the device volume side. So if you watch device volume globally – high-end device volume or devices that have to be sterilized volume globally, we will tend to track that. We lead in lag based on their expectations and how they build inventory and don't build inventory, and how their hospitals build inventory and don't build inventory of these products. And sometimes they get it right and sometimes they get it wrong. Over long stretches, six months, a year, we will tend to track that very closely; over short stretches, it varies. And then the other thing that causes it to be, again, somewhat not as uniform as what you might expect, is our pricing tends to be fairly stable in that business, so we go up kind of with inflation kind of numbers. And so our prices are a little more stable, whereas sometimes they get very strong price increases because they bring in new products, which is typically the way devices get strong price increases. And then sometimes if they have less new products, or they're having GPO pressure or whatever, they may not get the prices. So where volume – if you're talking strict volume, unit volume, as opposed to revenue volume, which has some price effect. And often, new products pricing is buried in revenue volume, because it's a new product so it doesn't have a historic price. If you can kind of work through that, then our volumes or our volume growths tend to be very similar to the global medical device growth. So that's kind of a long answer to a short question but that's how we typically see it.

So just to be clear, I mean, if – just kind of looking at some of the trends that we've seen overall, can we expect that to migrate back towards kind of the mid to upper single-digits over time in terms of just volume growth? Walter M. Rosebrough - President, Chief Executive Officer & Director: Yeah. We think, as we've said before, kind of in general across our business kind of mid-single digits is what we're expecting to see in that business in general. And naturally, we hope to pick up a little bit in price and a little bit in share. And so something in that mid to maybe on the high side of the mid. But I don't think we're expecting anything like double-digit growth in that area.

No. No. Understood. And then, maybe just two quick housekeeping questions. In the quarter, could you maybe break out for us, Mike, what the contribution was from acquisitions? I believe, of the two, you had closed one on the 24th, so I guess technically would have still fallen in the quarter. Was there a revenue or just was there any contribution there in the quarter? And then, could you also maybe just elaborate, again I apologize, I was shuffling a couple of calls here this morning. But what you saw in sales and marketing expenditures during the quarter, maybe how we think about that, that particular line item over the course of the fiscal year? Thanks so much.

Yeah. Certainly Chris. So on the acquisitions, acquisitions added 4% to our revenue growth. The bulk of that was, in part the IMS, what do we have at six or eight weeks or something of that nature. We only had Black Diamond for a short period of time and that added roughly $1 million in total so not much impact there. The bulk was definitely from IMS. On marketing expenses, I don't really see anything unique or different in what we – our expectations are. So I don't know, Walt, do you have any comment? Walter M. Rosebrough - President, Chief Executive Officer & Director: No. I would say that there's nothing material in sales and marketing expenses, other than those that track with new products and will be captured in kind of R&D – the R&D side, the front end of marketing. But from the back-end of marketing and sales expenses, we don't see any significant changes.

Understood. Thanks so much.

Thank you. Our next question is from Mr. Mitra Ramgopal with Sidoti. Please go ahead. Mitra Ramgopal - Sidoti & Co. LLC: Yes. Hi. Good morning. Just a couple of questions. First, Walter, I was wondering if you can give us an update in terms of how the surgical repair business is doing. And is there an opportunity for that outside of the U.S. for you? Walter M. Rosebrough - President, Chief Executive Officer & Director: We are extremely pleased with the business we now call IMS, which is both surgical and scope repair. And as you guys know, we've merged several companies together, five companies over the last three or four years, to build that business. And it's built quite nicely and doing quite nicely there on our profitability improvement targets. Probably the biggest risk we had in our planning or thinking about that business, it was not whether the revenue is there. We believe the revenue is strong and will continue to be strong. The opportunity we believe is strong. But the biggest risk was whether we were able to consolidate the businesses and keep growing the revenue and get the cost reductions we expected. And we absolutely have seen that a little more rapidly actually than we expected. So we're very pleased with the business. The – and we're getting very good comments from customers, particularly customers that – our larger customers that spread across geographies, because this has historically been a local geography business, and now they're seeing consistency across broader geographies. So we think that's been a plus for our customers. In terms of international expansion, there is some opportunity there. It would be a nascent business outside the U.S. So it will be a longer-term investment, longer-term opportunity. But we do think there is opportunity there. Mitra Ramgopal - Sidoti & Co. LLC: Thanks. Also on acquisitions and international opportunities, I mean, the one thing we keep hearing more about, especially in places like in Asia and the Middle East, more specialized hospitals, more medical tourism, et cetera and more surgeries, et cetera being done in these places. I was wondering if that's something you're going to be looking to see if that's also an opportunity for you? Walter M. Rosebrough - President, Chief Executive Officer & Director: Yes. Clearly, we hope and expect to grow our business outside the U.S. faster than the U.S. And we've talked about this before, it's – we've actually grown our OUS business organically faster than our U.S. business. It's just as luck would have it, the things that we've found to purchase and been able to purchase have been more U.S.-centric. So actually our acquisitions have brought us back to our historic level, every time we kind of move – we've been about 75%/25% now for a very long time. We've moved the needle organically, but then we buy more U.S.-centric, if you will, acquisitions. And that's something that clearly we started to do some different things. We bought Eschmann in the U.K. We bought the company in Brazil. We bought in a number of places, smaller businesses around, and we will continue to look at that. And obviously, the Synergy acquisition, one of the principal purposes of that is to grow our OUS business both by acquisition and post that through non-acquisition. So that's been an area that we are quite hopeful of with that acquisition. So we do expect to see the markets outside of the industrialized world growing more rapidly than inside. Right now that's taken a pause. The – Latin America is having significant difficulties. Much of Europe and the Eastern Europe, which is probably a little higher growing, is having some significant difficulties. The Middle East is very tough right now. So although that was one of the kind of the real growth spots, it's pretty tough in the Middle East right now due to both some political turmoil as well as the reduction of the price of oil, which is a significant component in their economy. But we think those are short to intermediate term positives, and we will go back to more rapid growth in those areas, and we anticipate participating. Mitra Ramgopal - Sidoti & Co. LLC: Thanks again. That's very helpful. Mike I just had two quick housekeeping questions. I was wondering how we should think of the tax rate for the rest of the year? And also, I don't know if you have in terms of the share buyback, what the average repurchase price was?

Yeah. Mitra, on the tax rate, we are still anticipating an effective tax rate of 35% for the fiscal year. We were slightly favorable to that this quarter, but still 35% for the full fiscal year is our anticipation. And then on buybacks, I think as Walt said earlier, with the acquisitions we completed in the quarter, we did not complete any buybacks in Q1. Mitra Ramgopal - Sidoti & Co. LLC: Okay. Thanks.

Thank you. Our next question is from Mr. Larry Keusch with Raymond James. Please go ahead. Larry S. Keusch - Raymond James & Associates, Inc.: Okay. Good morning everyone. So Walt, I wanted to ask you, and hopefully this is within the rules that you set forth for speaking about Synergy, but to the extent that that deal does not get consummated, and your very ample access to capital, which I think has been demonstrated in going after that target, is there a scenario under which we could see an acceleration in M&A activity? I mean, I recognize you did a couple of smaller deals this year, but could we see a pickup in M&A activity? And again, if that deal were not to be consummated, could you give us any thoughts as to perhaps how we should think about size of potential M&A targets? Walter M. Rosebrough - President, Chief Executive Officer & Director: Sure Larry. I mean, I would I guess make a couple of points. First is we fully anticipate consummating the deal. We hope to do that and expect to do that. And we're doing our planning that way. But to your point, if for whatever reason that were not to occur. I'd even go further, and if we do that deal, by definition, there'll be some pause of taking a breath and integrating that deal because that's a very significant deal for us. So there'll be some pause, but both Synergy and we were on a track to do accretive acquisitions that fit into our strategic bailiwick, and we would not – doing that deal, we would not want to stop the kind of acquisitiveness they were interested in and not stop the acquisitiveness we're interested in, which are largely tuck-in kind of deals that fit with the businesses we already have, fit with our strategy. So A, we would continue. We obviously wouldn't be doing a deal of that size soon because we would have both cash and integration efforts to sort out for the next little bit. To the extent that's not true, we would feel free to do significantly sized deals, not unlike the Synergy acquisition, which is large. But all things being equal, we typically prefer things that fit with what we already have and tuck in nicely. If you kind of look at the spectrum of things we've done, U.S. and (33:24) was pushing a couple of hundred million. GEPCO was pushing a couple of hundred million. When you take the IMS quintet, you're in the several hundred millions again. So those kind of deals are nice fits for a company that's a couple of billion dollar revenue company, $4 billion market cap, so we like those sizes. But if we see an opportunity, a rare opportunity to do something significant like we saw here with Synergy, we would naturally be attracted to it. Larry S. Keusch - Raymond James & Associates, Inc.: Okay. That's really helpful. And then, I had two other ones. The other question is, you guys have historically concentrated your sterilization efforts, your contract sterilization efforts, on ethylene oxide and gamma radiation. I believe you have two e-beam lines, if you will, that are anticipated to come up in the near term. And so I guess the question that I had for you is, you clearly see some utility in e-beam, and obviously gamma and EtO speak for itself, but have you guys ever even dabbled in trying to develop any X-ray technology at any point, call it, over the last five-plus years? Walter M. Rosebrough - President, Chief Executive Officer & Director: Larry, we as you know, we do almost every kind of sterilization modality in almost every kind of institution in the world. And we have looked at, if dabbled is looked at, thought about, studied, any of the kind of words you want to use for that. I don't know of a modality that we haven't dabbled in, thought about, looked at, considered relative to those that we are or are not doing. And that's the full gamut, whether that's ozone or X-ray, or pick your poison, any of the modalities. And literally, our R&D people are constantly searching for better ways to sterilize and disinfect things in every possible space. So the answer to your question, broadly speaking, is yes. The answer to your question specifically is yes. Larry S. Keusch - Raymond James & Associates, Inc.: Okay. Walter M. Rosebrough - President, Chief Executive Officer & Director: We've looked at and considered all those things, and we do the ones we think makes sense. And we don't do, or at least makes sense to us or for us, and we don't do the other ones. Larry S. Keusch - Raymond James & Associates, Inc.: Got it. Okay. And then lastly for you, you obviously both in your prepared comments and then answering some questions talked about the international markets and some of the challenges that those are facing currently. I guess just to parse it out a little bit, is it fully a function of the dollar is stronger and perhaps there is a combination of some lost business to local competitors as well as perhaps some delayed orders, if you will? And is there anything that you guys can do to, outside of just outright lowering price, is there anything that you can do to help drive some of that international business while we're in this period of a stronger dollar? Walter M. Rosebrough - President, Chief Executive Officer & Director: Yeah. Sure. And you're correct. It's not strictly the stronger dollar, which but of course a stronger dollar is not helpful if you're producing in the U.S. But it's not strictly that. The Middle East is largely not a question of a stronger dollar, it's a question of bad oil prices and political unrest. And that's true in Latin America, for example. We used to be very strong in Venezuela. And Venezuela has both political unrest and of course is an oil-driven economy. So they just do not have the hard dollar. So that's not loss of share to anybody, that's just they slowed down. And they need to slow down because they've got to develop the currency to put themselves on track. So there are – and so there are places in the world where it's more, I'll call it, political and/or their particular economy driving it more than anything else. And most healthcare economies are driven by governments, and so that's the case. Now having said that, there are other places in the world where the economies are doing fine or okay where the dollar does make it more difficult for us. But we still – we continue to compete and, as you know, we're working to lower our cost. We don't – we have not raised our prices significantly in the U.S. for some time. We've been able to do that by lowering our cost and we talked about that. Not every dollar we save that we put into our pockets, some of those dollars we put in our customers' pockets to continue to try to grow our business and we think that's a good thing to do for our customers and for us. So we do that internationally. I will say we tend to broad-brush things and I've broken it down a little bit more but we tend to broad-brush things. We say EMEA we're down. Well, in Europe, Europe's fine for us. It is Middle East, that is way down. And so they are more than offsetting the nice work that's being done on the continent, if you will. Again, in Asia, there are countries we're doing well. There are countries that are kind of tough right now. In Latin America absolutely, Latin America we're more down across the board but still Venezuela if you take the last couple of years Venezuela is the biggest reason for international or Latin American business not being as strong as it has historically been. Larry S. Keusch - Raymond James & Associates, Inc.: Okay. Excellent. Thanks for thoughts Walt. Walter M. Rosebrough - President, Chief Executive Officer & Director: You bet.

Thank you. Our next question is from Mr. Chris Cooley with Stephens. Please go ahead.

Thank you very much for the follow-up. Walt, I just was hoping you could remind us procedurally about the upcoming court hearing. I think you're on the docket for the 17th along with several other cases. I think three explicitly for that date. Could you just remind us again in broad strokes about the expected timelines there and when you would hopefully expect to have a ruling from the court? I think that you'd previously stated in mid-September, but I just wanted to walk through the components there. Thanks so much. Walter M. Rosebrough - President, Chief Executive Officer & Director: Sure, Chris. Again, the docket is public. You've hit all the high points very well. It is a hearing in Federal Court and a Federal Judge has wide discretion of what – in this case, it's a he, what he chooses to do with the case and how he hears it. We are scheduled for the 17th. I think there is no indication of anything other than that. So unless something happens in his docket that forces him to move out that, I believe he and we are planning on moving ahead on the 17th. I don't remember exactly. It's a three or four-day hearing time that he has set out for us and I think everyone is anticipating it would be done in that timeframe a few days. And then in terms of ruling, again, this is a Federal judge and he has his time schedule and there is no real time schedule for when he will or will not rule. But generally speaking, our understanding is that inside of a month or so is kind of a normal timeframe. So that's an expectation, but it's not a firm deadline. Again, it is up to the judge's discretion. And largely depending on his docket and what else he has that could cause him to go faster or slower.

Thanks so much. Walter M. Rosebrough - President, Chief Executive Officer & Director: You bet.

Thank you. I show no other questions at this time. I'll turn the call back for any closing remarks.

Great. Thanks everybody for joining us. This wraps up our first quarter conference call, and we'll talk to you all soon.