Avanos Medical Inc (AVNS) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Halyard Health First Quarter 2017 Conference Call.

(Operator Instructions) Please also note that this event is being recorded.

I would now like to turn the conference over to Mr. Dave Crawford, Vice President, Treasurer and Investor Relations.

Please go ahead.

Thank you, and good morning, everyone.

It is my pleasure to welcome you to the Halyard Health First Quarter Earnings Conference Call.

With me this morning are Robert Abernathy, Chairman and CEO; and Steve Voskuil, Senior Vice President and CFO.

Robert will begin with an assessment of our first quarter performance and discuss our progress on our 2017 priorities, then Steve will review our results and provide additional detail on our outlook for the balance of the year.

We will finish with Q&A.

A presentation for today's call is available on the Investors section of our website, halyardhealth.com.

As a reminder, our comments today contain forward-looking statements related to the company, our expected performance, economic conditions and our industry.

No assurance can be given as to future financial results.

Actual results could differ materially from those in forward-looking statements.

For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and our prior filings with the SEC.

Additionally, we will be referring to adjusted results and outlook.

Both exclude certain items described in this morning's press release.

The press release has further information on these adjustments and reconciliations to comparable GAAP financial measures.

Now I'll turn the call over to Robert.

Thanks, Dave, and good morning, everyone.

I appreciate your interest in Halyard Health.

I'm excited to discuss the solid progress we've made against our 2 2017 priorities: Delivering our plan; and fueling our growth pipeline.

We're off to a strong start to the year on both fronts.

Net sales totaled $396 million and we delivered adjusted diluted earnings of $0.48 per share.

Performance was driven by accelerated Medical Devices growth, manufacturing cost savings and favorable currency exchange rates.

Medical Devices sales increased 15%, strengthened by our CORPAK acquisition and solid demand across all product categories.

In S&IP, increased demand for exam gloves continued, and we also experienced higher demand for Facial Protection.

Overall, volume growth was offset by price loss, resulting in a 3% lower sales.

Turning to our second priority.

We continue to invest in fueling our growth pipeline to shift our portfolio to higher margin, faster growing Medical Devices.

We're on course to fulfill our commitment to double R&D investment over our first 4 years.

We launched 4 new products during the first quarter and are on track to launch more than a dozen this year.

Pain management is the fastest growing part of our Medical Devices portfolio, and is a focal point for investment in future growth.

In that regard, we've been accelerating funding for clinical outcomes data that validates the efficacy of Halyard therapies.

I'm encouraged that our focus has raised the awareness of nonopioid pain solutions and enable us to make additional clinical claims.

The FDA recently cleared our COOLIEF therapy for the management of osteoarthritic or OA knee pain.

COOLIEF is the first and only radiofrequency treatment to be cleared specifically for OA knee pain.

This indication will enable us to better focus our marketing efforts on physicians and their patients who suffer from chronic knee pain.

In addition to organic growth, M&A remains an important aspect of our transformation.

I continue to be pleased with our acquisition pipeline and we remain focused on executing an acquisition this year.

As we disclosed earlier this month, we are extremely disappointed with the recent adverse jury verdict in California, but despite that verdict, we believe that our long-term strategy and our ability to pursue M&A transactions has not materially changed.

We recognize though, that the verdict is just the first step of a multistep legal process.

We believe the verdict is not supported by the facts or the law, and we intend to challenge it through posttrial motions and if necessary, we will appeal to a higher court.

Turning to our balance sheet.

We generated $27 million of free cash flow in the first quarter and expect to generate $100 million for the year.

Our strong balance sheet provides us with the financial flexibility to pursue our strategic priorities.

In summary, we delivered a solid start to the year and reiterate our 2017 adjusted diluted earnings guidance of $1.70 to $2 per share.

We are well positioned to advance our transformation into a leading medical devices company by generating organic growth and pursuing M&A opportunities.

Now I will turn the call over to Steve, who will provide more details on our first quarter performance.

Thank you, Robert.

Let me begin by saying that I'm pleased with our start to 2017.

For the quarter, sales increased 3% to $396 million, including more than $15 million of CORPAK-related sales.

Volume including CORPAK increased 5%, which was partially offset by 3% lower selling price.

Adjusted gross margin was 37% for the quarter, compared to 36% a year ago.

Our portfolio shift to Medical Devices, manufacturing cost savings and favorable currency exchange rates drove our margin expansion, which was partially offset by lower selling prices and higher nitrile costs in S&IP.

Adjusted operating profit and operating margin for the quarter were $42 million and 11%, respectively, compared to $45 million and 12% in the prior year as we invested in organizational capabilities.

During the quarter, we incurred $1 million of post-spin related charges, $2 million for acquisition-related charges, $8 million for litigation matters and $6 million for intangible amortization expense.

Adjusted EBITDA was $53 million for the quarter, compared to $55 million in the prior year.

As Robert mentioned, we reported $0.48 adjusted diluted earnings per share for the quarter.

Our performance benefited from an increased demand for Facial Protection, driven by the earlier timing of the cold and flu season compared to the prior year; second, we drove greater plant and manufacturing cost savings; third, R&D expense of $8 million was lower than expected due to the timing of certain projects.

Despite a slower-than-anticipated start, we remain committed to fueling our growth pipeline by investing $40 million to $45 million in R&D this year.

Our adjusted effective tax rate was 35.2% as the full year impact of a few discreet items were recorded in the quarter.

Despite these discrete items, we remain confident that our full year adjusted effective tax rate will be within the 32% to 34% range.

Now turning to our segment results.

Medical Devices delivered another solid quarter of growth.

Net sales increased 15% to $146 million, aided by CORPAK-related sales.

Organic volume growth was in line with our plan at 4%, as we experienced solid demand across all categories.

Medical Devices operating profit increased 28% to $38 million from $30 million a year ago.

Performance was driven by higher sales volumes, which were partially offset by planned higher SG&A expenses.

Moving to S&IP.

Markets remained challenging as net sales decreased by 3% during the quarter to $247 million.

In total, S&IP volumes increased 1% compared to the prior year, driven by continued demand in exam gloves and higher demand in Facial Protection.

Volume growth was partially offset by anticipated lower volume in surgical drapes and gowns due to a customer transition to a GPO where Halyard is not currently on contract, as previously discussed.

Lower selling prices, concentrated in exam gloves, led to a 4% price loss for the quarter.

S&IP operating profit was $18 million compared to $25 million in the prior year.

Lower selling price and higher nitrile costs were offset by manufacturing cost savings and favorable currency exchange rates.

As Robert mentioned, our balance sheet and cash flow generation remain strong.

We ended the quarter with $143 million of cash.

Cash from operating activities, less capital expenditures or free cash flow, totaled $27 million for the quarter.

We invested $10 million in capital expenditures, in line with our expectation to invest between 2% and 3% of total sales in 2017.

Shifting to our 2017 outlook.

While we do not provide quarterly guidance, I would like to remind you of the timing of a few factors that will impact our second quarter performance.

On our last conference call, we highlighted our expectation that nitrile costs would increase in the first half of the year.

We began to see elevated costs at the end of the first quarter.

We continue to anticipate nitrile costs will peak in the second quarter, rising more than 20% compared to the first quarter before returning to more normalized levels in the second half of that year.

This will lead to lower gross margins in the second quarter.

Second, we are committed to investing in R&D to drive growth through innovation and to add value to our pipeline.

Because of our lower spending in the first quarter, we expect R&D to accelerate, beginning in the second quarter.

Given these factors, our second quarter earnings are expected to be our lowest for the year.

However, as Robert mentioned, we are maintaining our adjusted diluted earnings guidance of $1.70 to $2 per share.

Also, our 2017 key planning assumptions, which we provided on our year-end 2016 conference call, remain unchanged.

As the year unfolds and we gain additional visibility into factors that could affect our performance, such as continued currency and commodity variability, we will provide an update on our outlook and key planning assumptions as appropriate.

In summary, I'm pleased with our start for the year.

We have a strong balance sheet and remain committed to investing in growth opportunities that advance our transformation into a leading medical devices company.

With that, operator, we are ready to take questions.

(Operator Instructions) Our first question comes from Chris Cooley of Stephens.

Just a quick question on the gross margin side here this morning, and I appreciate the color there, Steve, with FX and the manufacturing efficiencies.

But could you maybe help us think a little bit as well when we look at that.

I think historically, you all have targeted kind of a 1-ish-plus percent cost savings improvement in the S&IP side.

Can we assume from looking at this that you're running ahead of that basis through the first quarter?

I'm just trying to get a little bit more finite on the contributors to that better-than-expected gross margin in the [core].

And I had 1 quick follow-up.

Okay.

Yes.

We're really pleased with gross margin.

It's kind of been a multiyear strategy to improve our gross margins across the company.

We're up almost 200 basis points since the point of the spin and gross margin is clearly the strategy of shifting the mix to higher-margin medical devices is starting to pay off.

CORPAK is a key part of the gross margin improvement year-on-year.

We're up 90 basis points versus last year, and CORPAK contributed the largest majority of that.

But we also had other improvements, and you mentioned the cost savings.

The short answer to your question, Chris, is yes.

We delivered cost savings higher than we had in our plan and expect those cost savings to continue to be generated quarter-by-quarter throughout the year.

We do have a discipline of delivering cost savings and it's not only focused on our S&IP business, but it's across the entire company and we're particularly focused to getting at some of the corporate costs that we've talked about in prior quarters.

Yes, the only thing I would add to that is the -- notwithstanding the strong start on cost savings, we're still going to face the nitrile pressure, particularly, in the second quarter.

And so I think if we kind of step back on a full year basis, I think we said on our last call, we said, gross margin for the year roughly flat to prior year.

And I would say, as we sit here today, that's still our thinking.

Understood and great job on that in the first quarter.

And then I guess, just as my follow on.

I guess, I misunderstood this earlier, but you mentioned on your prepared remarks that you started to see an elevation in nitrile pricing as you exited the calendar quarter.

And I think you still expect to see 20-plus % here of a rise in that, but you expect it to not only increase but also flow through the P&L same quarter, that's a 90-day window.

I guess I thought there was a little bit longer lag there.

Could you maybe help refresh my thinking on that [on just the] commodity price?

Yes, I will.

Yes, before we talk about it being in the first half of the year, as it turned out, we had very little impact in January, February, more of an impact as it spiked up in March.

We now expect over the next 90-day window, as you said, including April, May and June, that we'll see the worst of the nitrile pricing.

We expect it can be a sequential increase of $0.05 to $0.10 for total currency impact -- I mean, total commodity impact hitting the second quarter.

Then beyond that, all the forecast show it dropping back to 2016 pricing levels, so that we'll be back toward a more normal pricing structure for the second half of the year.

So we're optimistic about that and that's one of the reasons that we feel quite confident in maintaining our current earnings guidance in the $1.70 to $2 per share range.

Our next question comes from Matthew Mishan of KeyBanc.

We've seen some really strong, kind of, volume numbers in Medical Devices from some of your peers.

And if 4% is pretty much in line with what you guys have been, and that's 4% to 5% range, and you've been able to sustain it.

Were you a little bit surprised you didn't see the same volume bump that some of your peers have seen?

And maybe if you could parse that, what pieces of the portfolio did really well in the quarter and maybe what kept it down?

Well, let me start by saying, we're really pleased all 4 of our big segments: Respiratory care; digestive health; surgical pain; and interventional pain, all grew year-on-year.

So strong performance there.

This continues a multiyear improvement in terms of growth rates in Medical Devices.

You'll remember, in 2014, devices were only growing at 1%.

Then in 2015, it was 3%.

Last year, it was 4%.

So the first quarter this year matched last year's growth rate at 4%.

But we feel quite confident in the midpoint of the range at 5%, so growing in that 4% to 6% for the full year.

One of the reasons we feel good about that is that our COOLIEF just got the approval for the marketing, specific indication that we can start talking specifically about the osteoarthritic knee pain.

So we expect to see stronger growth in the back half of the year as we begin to market that.

Also, we're starting to see some benefits now that will increase in the back half of the year for the HealthTrust GPO award for respiratory care, that's the oral care contract that we talked about last quarter.

What performed well?

I'd say, every one of the businesses performed as we expected.

We expected COOLIEF to deliver double-digit growth, it did.

We expected our ON-Q business to deliver mid-single-digit growth and it did.

And we expected our respiratory care and digestive health, independent of CORPAK, to deliver in that low single-digit growth rate and they did.

So really, the story is more about ramping up the growth for the remainder of the year because of some of the things like the new marketing material we'll have with COOLIEF and the HealthTrust contract that's coming for oral care.

Okay, got it.

And then on to the medical device margin.

Was it -- when you look at it, was it predominantly timing of -- because they came in well above where we had it estimated.

Was it predominantly the cadence of R&D?

Can you talk about some of the moving pieces around the strength in the margin there?

Yes.

It's mostly the -- let me add that we're pleased with 20% operating margins for Medical Devices.

It is a spike up, but it's predominantly due to CORPAK.

And as we look at second quarter, we certainly expect it to drop back some because we had lower R&D spending in the first quarter and we're going to be ramping up that R&D spending starting in the second quarter.

So you'll start to see a little bit of margin pullback in medical devices off of that 26% level.

Got it.

And last question on the free cash flow.

Year-over-year, it was a little bit lower.

And I think your expectation for $100 million is down year-over-year.

Can you talk about some of the headwinds to free cash flow year-over-year that you're facing?

Well, we continue to be pleased with the cash flow story, $27 million of free cash flow, we've now got $143 million of cash on the balance sheet.

We knew it was going to be lower this year because we had tremendous progress on working capital in 2016 for the full year.

There were some things that we were able to accomplish last year that we won't be able to duplicate year-on-year.

So we knew it was going to be below the $160 million number.

But we also said last year was a historically low capital spending year.

We were coming off a fairly large capital spending as we separated the company, had some planned spending that we needed to do to get separated from Kimberly-Clark.

So we're back toward a more normal capital spending level of somewhere between 2% to 3% of sales.

So that's the other contributing factor.

Our next question comes from Dave Turkaly of JMP Securities.

I was just wondering, could you maybe spend a little time talking about the COOLIEF, the market, maybe if there are other indications you can go after.

And then maybe some of the competitive landscape and sort of what you're seeing on the reimbursement side as well?

Yes.

Let me start with, this is about 2 years of work to get this clinical evidence through the FDA and approved.

So it's been a big celebration around our headquarter operation, not just with our Interventional Pain team but with everyone.

Everyone's known that this was an important milestone for us.

It does give us the ability to talk about the biggest opportunity area, which is knee.

So there's more knee replacements being done and projected to be done over time.

So this is a tremendous opportunity for us to have, very specific marketing material that can go to physicians around the pain relief.

And we market directly to consumers, we have consumer marketing.

So this allows us to talk -- instead of talking generally about pain relief, we can talk very specifically about pain relief and what to expect in terms of the pain relief.

So our biggest opportunity is to concentrate on using this new indication with knee pain.

Over time, yes, there's other indications that we could pursue, there's clearly hip replacements, there's shoulder pain.

But our concentration right now, because of the growth area and the biggest opportunity for penetration of this therapy in the market, is with the knee.

In terms of reimbursements, we've had some reimbursement challenges that we've been able to get around during this last year.

We continue to focus on using the new information that we have now to get preapprovals for surgery as well as to get to those providers who have declined coverage.

So this gives us a lot more firepower in terms of being able to address any reimbursement issues.

So it's a big win all around.

Great.

And then just 1 follow-up, I guess, on the selling efforts there.

Do you need to hire more people?

Or is there going to be sort of a specialized group that will target the OA opportunity?

Or how are you planning to tackle that?

We have planned ahead for that one.

So you'll remember we were adding people last year, both on the clinical side and on the selling side, so we ramped up the sales force last year.

The entire sales force is trained specifically to be able to sell the knee procedure as well as other procedural usage, hips, spine, et cetera.

So there's not a change in strategy, but we were planning on this success.

And we got ahead of it in terms of our hiring.

So we're mobilized already to be able to use this information going forward.

Further to that, obviously, you can tell how optimistic I am.

We also planned on success when we did our guidance for the year.

So we built that into our expectation of growth, and that's why we've got that 5% medical device growth as our planning assumption because we expected to get this approved in the first half of the year to allow us to accelerate growth in the back half.

Our next question comes from Jonathan Demchick of Morgan Stanley.

So Robert, S&IP had a solid quarter.

But I wanted to dive a little deeper into a couple of factors there.

First, I guess, on the volume side.

I was curious if you could help us understand, and perhaps quantify the flu tell in this quarter and potentially the sequential headwind we can be expecting in the next quarter, just given about the later timing of flu last year?

And then second on pricing and margins in S&IP, those have been a bit lower in the last couple of quarters.

Are these the levels that we should be expecting moving forward throughout the year?

Or are there efforts being made to maybe bring margins back up a bit?

Yes.

Let me talk about S&IP first quarter and potential impacts on the second quarter.

We did have a strong cold and flu season, which drove Facial Protection sales.

It's not one of our largest categories in S&IP, but it was still significant.

And as you compare that to last year, the lighter cold and flu season that did hit, hit predominantly in the second quarter.

So you get a little bit of shifting there between first quarter and second quarter when you compare '16 to '17.

The second element in our S&IP growth is all about gloves.

We've continued to be very strategic in terms of growing gloves, it's margin accretive for our S&IP business.

But unfortunately, it's got majority of the price loss.

So 50% of our total price loss is coming from gloves.

But it's one of those levers that we're finding the sweet spot of driving top line, getting margin improvement while unfortunately, realizing some price loss.

I think that will certainly continue.

The other impact that I need to talk about on margins is certainly the nitrile impact.

As I mentioned earlier, we had some nitrile impact in the first quarter, but we expect margins to dip in the second quarter for S&IP, and then start to rebound in the third and fourth quarter.

So I caution not to be too optimistic about holding operating margins in Q2, but looking for operating margins to stay in that high single-digit range throughout the second half of the year as we drive strong cost savings and we see nitrile return to more normal pricing levels.

Very, very helpful.

And just a quick follow-up on about the MICROCOOL litigation.

Robert, you're very clear on the disappointment with the April jury verdict.

And it seems pretty clear that the penalties are going to be reduced substantially at the very least.

But how are you looking at the risk for damages in this case as well as in future cases, including the VA and DOJ?

And then also, have you seen any additional filings following the recent ruling?

Yes.

So let me start by, for those on the call that might not know some of the background.

We did have an unfavorable jury verdict in a California class-action case.

We're disappointed with the verdict.

We don't believe it's supported by the facts or the law.

We recognize that the verdict is just the first of a multistep process, and we intend to challenge it through posttrial motions and if necessary, appeal to higher court.

But the key messages hasn't changed.

We continue to stand by the safety and efficacy of our MICROCOOL surgical gowns.

In fact, to date we sold nearly 70 million of them with 0 complaints of injury due to barrier protection.

So that part of the case, while disappointing, it's not new news out there in terms of what's being reflected.

We certainly expect any punitive damages to be reduced.

There's a reason to have confidence in that.

The U.S. Supreme Court has stated that the constitutional outer limit of the ratio between the punitive damages and compensatory damages in a case like ours, is somewhere in the 9:1 or lower.

In our case, we believe the ratio should be lower, obviously we believe that.

We intend to rely on this and other legal remedies in seeking to reduce the jury's punitive award because the award that they gave was 100 times compared to that 9:1 ratio that I just mentioned.

It was 100 times of compensatory damages.

So we certainly expect that to be addressed on appeal or through earlier decisions.

There haven't been any other actions that have been issued and anything will be listed in our Q and our K that will be published here in the next few days.

(Operator Instructions) Our next question comes from Larry Keusch of Raymond James.

So just a couple of quick ones here.

So Robert, maybe help us understand, at least it is my understanding that part of the issue with the spike in nitrile prices is somewhat supply driven.

So a, is that the correct way to think about it?

And if it is, how much of visibility do you have to that second half reduction in pricing that you're looking for?

Yes, let me talk through that a little bit.

It's both supply and demand.

There were issues related to -- on the demand side where key materials of nitrile can go into automobile production in China, predominantly.

And there had been some issues related to natural rubber latex where manufacturers of automobile parts like tires switch to nitrile, which spiked up demand.

That has now dropped back.

There was also some issues in terms of some of the major manufacturers were taking some maintenance downtime.

So it was both the supply and demand issue.

What we get visibility to is certainly forecast around acrylonitrile and butadiene.

And typically, those forecasts will be able to indicate over the next few months, whether there's going to be a spike in those key materials that go into making up the nitrile material that we use for our exam gloves.

So we did have visibility.

There is a lag between the movement of the pricing that you can look up and follow of butadiene and acrylonitrile.

It's a month or so lag.

So that lag is what pushed some of the pricing into the second quarter that we had anticipated could have come in the first quarter.

But we're now starting to see those prices drop dramatically.

So we're confident that it looks like we're containing that nitrile spike in the second quarter.

Okay, that's very helpful.

Two other ones.

CORPAK continues to do really well, certainly looks like revenues coming in better than we were looking for.

So just wondering if you can give it a little sense of where the strength is coming from in CORPAK?

And maybe refresh us on your accretion targets for that business for 2017.

Yes.

CORPAK has been a terrific acquisition.

It's a strong strategic fit.

The teams that have joined us are very skilled.

We've been able to combine the sales organizations in our digestive health businesses, so that they're carrying the full bundle now, both through the abdomen feeding as well as the nasogastric feeding.

A lot of the growth, which we anticipated and which was built into our plans, is going to come from our -- the new technology around CORTRAK.

Clearly, that's the opportunity for us is to have more and more of the CORTRAK technology, which is higher margin.

It's new.

It's a better clinical outcome in terms of lower costs for the physicians and hospitals.

So that's where we're focused on growing that part of the business.

But we're also pleased that across the total business, having the full bundle, will give us a better leverage on both the -- through the abdomen feeding, the MIC-KEY product, as well as the CORPAK nasogastric products.

I didn't answer the -- let me get to the accretion part.

So last year, we delivered $0.12 accretion.

This year, we're planning on $0.20 accretion.

So that [can be] partly because it's the full year.

We were able to get synergies faster than we expected.

That's why last year, overdelivered.

And that's why this year we were able to raise the expectation from what was $0.12 up to $0.20.

We still have more synergies that will be delivered late this year.

You'll start to see those hit more of the P&L in 2018.

But -- and that comes from our manufacturing synergies that we will get.

Okay, that's great.

And last one for you and, I guess, for Steven.

And I don't mean to get totally into the way you deliver every message here.

But on the free cash flow generation, I thought that previously you were indicating free cash flow and recognizing, obviously, it was going to be down meaningfully from a year ago due to all the things you talked about.

But I thought you were sort of diminishing free cash flow of $100 million or more, the wording on the slide deck today says $100 million, just want to check if there was any change or am I just reading too much into that?

Let's Steve...

No major change, I think.

We're still feeling good about how we started the year.

We saw a lot of working capital benefit last year and as we talked about, it can be tougher to lap that kind of or even match that kind of working capital improvement, although we remain focused in that area.

So we certainly aspire to do more than $100 million, but I wouldn't read too much into that language, it's not that precise.

Yes, I think the one thing that I'd probably highlight is something that we've got a slightly different thought process now is our legal expenses.

Clearly, with the jury verdict, we had expected high legal costs in the first half of the year because we expected a favorable outcome on the jury verdict.

Now that, that hadn't happened, I expect we're going to have continuing a higher legal spend that we might have originally built into the plan.

Our next question comes from Rick Wise of Stifel.

Let me start off with ON-Q.

Can you just update us on the competitive environment?

It seems like ON-Q had a solid quarter and as you said, I think, very clearly, met your expectations.

But maybe just again, in general, what are you seeing?

And any impact or any impact expected from the Pacira-J&J joint venture or relationship on the orthopedic side?

You're right in how you classified ON-Q.

We are pleased, mid-single-digit growth, right on plan.

It returned to growth 2 years ago, so we're now at 2 years of growth in the business.

And it's been a key contributor to our total Medical Device business returning to more healthy growth levels.

Nothing really new to report relative to the competitive set, particularly Pacira.

We see no meaningful change following the announcement of their arrangement with J&J.

We've always said that this is all about penetration.

Our products are used in less than 10% of the surgeries where we say they should be used, large incisions as an example.

So we're all about talking about concerns over opioid.

And like with anything, if you've got more people giving that same message and Pacira, last year, when they modified their key messages instead of being marketing directly against ON-Q and started marketing more specifically as being an alternative to opioid treatment.

I think that's one where the messages are being heard and it benefits all of those who have a passion for eliminating the opioid treatments, particularly postsurgery.

So we're pleased with ON-Q, no real change relative to competitive set or anything that's come out since the J&J arrangement with our competitor.

And on a separate topic, to follow-up on Larry's question on acquisition.

Obviously, CORPAK has been an excellent transaction for you and it sets a high bar for whatever you're going to do next.

Any chance you could give us an update on your thinking about current or near term or the possibility further M&A?

Are you feeling more or less optimistic than you felt in the past about something happening potentially possibly in the second half or this year?

How are you thinking about it now?

Yes, Rick.

Still feel the same as I did last quarter and the quarter before that.

We've got an expectation of having a second acquisition this year.

We're seeing more smaller-sized acquisitions than larger size.

Clearly, there's been a lot of focus on the Covidien assets that came out, but those were too big for us to be involved in that discussion.

So most of the acquisition sizes we're seeing are in that $30 million in revenue up to about $70 million in revenue, kind of CORPAK like.

And there's some that are even smaller, that would be no regrets moves as well.

The pipeline is pretty full.

We're starting to see some nice opportunities.

I was worried that companies, particularly family-owned companies, would be sitting on the sidelines waiting to get some very exact information around corporate tax rates.

But we're seeing a lot of activity right now.

So I remain optimistic that we'll be able to achieve that second acquisition in 2017.

(Operator Instructions) There appear to be no further questions at this time.

I would like to turn the conference back over to Mr. Robert Abernathy for any closing remarks.

Well, thank you again for your interest in Halyard Health.

As a reminder, tomorrow morning, I will be presenting at the Deutsche Bank Health Conference in Boston.

Information on how to access that presentation can be found on the Investor Relations section of our website, halyardhealth.com.

Thank you, everyone.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect your lines.