STERIS plc (STE) 2019 Q3 法說會逐字稿

Good morning, everyone, and welcome to the STERIS plc Third Quarter 2019 Conference Call. (Operator Instructions)

Please also note, today's event is being recorded.

And at this time, I'd like to turn the conference call over to Ms. Julie Winter. Ms. Winter, please go ahead.

Thank you, Jamie, and good morning, everyone. As usual, on today's call, we have Walt Rosebrough, our President and CEO; and Mike Tokich, our Senior Vice President and CFO.

I do have a few words of caution before we open for comments from management. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission or rebroadcast of this call without the expressed written consent of STERIS is strictly prohibited. Some of the statements made during this review are, or may be considered, forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those risk factors described in STERIS' securities filings. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or development. STERIS' SEC filings are available through the company and on our website.

In addition, on today's call, non-GAAP financial measures, including adjusted earnings per diluted share, constant currency organic revenue growth, segment operating income and free cash flow, will be used. Additional information regarding these measures, including definitions, is available in today's release, including reconciliations between GAAP and non-GAAP financial measures. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making.

With those cautions, I will hand the call over to Mike.

Thank you, Julie, and good morning, everyone. It is once again my pleasure to be with you this morning to review the highlights of our third quarter performance. For the quarter, constant currency organic revenue growth was 6.9% driven by volume and 50 basis points of price. Gross margin for the quarter increased 20 basis points to 42.7% and was impacted favorably by currency, price and the impact of divestitures, somewhat offset by higher labor costs and the impact of tariffs. EBIT margin for the quarter was 20.8% of revenue, a substantial increase from second quarter levels and 20 basis points better than the third quarter last year. EBIT margin was negatively impacted in the quarter by 40 basis points due to higher-than-anticipated calendar year-end employee healthcare benefits/claims activity, causing an increase in SG&A for the quarter. The adjusted effective tax rate in the quarter was 18.9%, somewhat lower than we had anticipated due to favorable discrete items. Net income in the quarter grew 11% to $107.2 million, and earnings increased 13% to $1.26 per diluted share, benefiting from both revenue growth and a lower effective tax rate.

In terms of the balance sheet, we ended December with $225 million of cash and $1.25 billion in total debt. During the third quarter, capital expenditures totaled $50.7 million. Given our spending to date and plans for the fourth quarter, we are reducing our expectations for capital expenditures by $10 million to approximately $180 million for the full fiscal year 2019.

As a reminder, during the third quarter, we announced the restructuring plan that will generate profit improvement of approximately $12 million over the next 2 years. In addition, we adopted a branding strategy that included phasing out the usage of a tradename associated with certain products in the Healthcare Products segment. These 2 items have resulted in a significant increase in depreciation and amortization for the quarter. Unlike the P&L, we do not adjust the balance sheet nor free cash flow for these items. Hence, depreciation and amortization for the quarter was significantly higher at $82.7 million, primarily due to $36 million of accelerated depreciation and amortization associated with both the restructuring plan and the branding strategy.

Free cash flow for the first 9 months increased to $252.9 million, mainly due to improvements in cash from operations. We are updating the full fiscal year 2019 free cash flow expectation to include higher working capital requirements, costs associated with our planned redomicile to Ireland and restructuring plan costs. Free cash flow is now expected to be approximately $330 million for the year.

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

Thanks, Michael, and good morning, everyone. Fiscal 2019 is shaping up to be a strong year for STERIS, fueled by solid demand from our customers in all 4 segments. For the first 3 quarters, we're ahead of our expectations for revenue growth and as a result are increasing our full year constant currency organic revenue growth expectations to be approximately 6%.

Each of our business segments have contributed nicely to our revenue growth so far this year. AST and Healthcare Specialty Services are leading the way with 8% constant currency organic revenue growth year-to-date. In AST, we continued to see solid underlying demand from our core medical device customers.

Our Healthcare Specialty Services segment continues to exceed our revenue expectations driven primarily by strength in the United States. Their profitability has improved as planned as we have successfully leveraged the investments made over the past year or so.

Healthcare Products constant currency organic revenue has grown 7% so far this year with strength in both recurring revenues and capital equipment. Even with the growth in capital equipment shipments, our Healthcare backlog has also grown nicely and is anticipated to ship over the next few quarters. We expect a solid fourth quarter in Healthcare capital shipments.

And finally, Life Science constant currency organic revenue has grown 5% year-to-date with growth across the business. Our fourth quarter last year was a strong record quarter for Life Science capital equipment shipments, which we do not expect to replicate this year. Backlog has stayed relatively steady versus last year and certainly above our historic levels, which gives us comfort that the underlying trends we have experienced over the last year or so will continue.

As I mentioned earlier, we now expect our overall constant currency organic revenue growth to be approximately 6% for fiscal 2019. As a result, we are confident in our ability to deliver another record year with adjusted earnings per share in the range of $4.74 to $4.84. I will note that when we raised our outlook to this range last quarter, our thinking was that the effective tax rate would come in around 20%. With continued favorability on the tax rate in the third quarter due to favorable discrete items, we will likely have a modest upside on the effective tax rate for the fiscal year but not certain enough or substantial enough to re-guide that rate.

We appreciate your taking the time to join us this morning and your continued support of STERIS. I will turn the call over to Julie to open for Q&A.

Thank you, Walt and Mike, for your comments. Jamie, we're ready to start Q&A, if you would give the instructions.

(Operator Instructions) Our first question today comes from John Hsu from Raymond James.

Maybe you could start with the guidance, the organic revenue guidance. I think it implies a pretty decent deceleration in the fourth quarter. So what's driving that? The comp looks to be pretty consistent with the third quarter. But is it just conservatism? Or is there any other -- anything else that you can point to, maybe from a segment standpoint?

Sure, John. A couple of points that I would make. First of all, we've been talking about for a long time that we're trying to move our revenue pattern to be a little bit away from the fourth quarter. We traditionally have a very strong fourth quarter. We like to run our factories more level-loaded to the extent possible, and as a result, we've been trying to pull that forward. We've had some success with that this year, and so I do expect, relatively speaking, as you know, we've been strong the first 3 quarters. We may not be quite as strong relative to historic growth period last year. So that's one item. I will mention there's 1 less shipping day this year than last year, and that doesn't have a big effect on capital equipment, but it does have some effect on the recurring revenue. And I would say you're probably correct. We may be being a bit conservative because we do have a situation where the end of March happens to fall on a Saturday or Sunday. We don't like to run our plants and shipping on Saturdays and Sundays. And secondly, we have Brexit coming, March 29, which is 2 days before our fiscal year. And there are some uncertainty about how the patterns of shipments will relate as to that. So we probably are being a bit conservative in our forecast. We're quite comfortable with the 6%, but we'll see how the end of the month of March turns out.

Okay, great. That's helpful. And then, I guess taking a step back, your organic growth probably, call it, over the last 5 years or so has probably been in the 4% to 6% range. This year, you're now guiding to 6%. You mentioned there's actually 1 less shipping day. I believe there's actually another 50 basis points of Sterilmed contract that you're also hurdling. So I guess just taking all those pieces, are you at a point where you believe you can drive consistent organic growth at the 6% range or better?

Yes. I think it's early for us to be saying we're going to move above or kind of 4% to 6% long-term target. Clearly, we're at the top end of that right now. We could possibly tip over a little bit, but I think it's early to say that. We're looking at our next year's plan as we speak now. We'll talk more about next year and beyond at that time.

Okay, great. And then last one for me on cash flows. I think you were very clear that some of the changes in cash flow from operations, higher working capital, plans to redomicile and then restructuring. But specifically, on the CapEx pieces, can you talk about what's driving the reduction in CapEx by $10 million versus prior guidance?

Yes, John. It's mostly due to timing of projects. We set out a goal at the beginning of the year, and we're just behind our original plans from a timing perspective. It's nothing more than that.

Okay, great. And sorry, just a quick follow-up to that. Just obviously you've baked in some investment for outsourcing projects, and I believe there is an upfront CapEx cost associated with that. So just kind of relative to your comments, Mike, is everything tracking in line as far as the $10 million in revenue that you were expecting from outsourcing for the year?

Yes. Actually, as you can see from that business, the specialty service business in healthcare in the United States, they're just having an outstanding year in growth, and they're having it on both sides of the equation. The instrument management business is growing nicely, and the outsourcing business is growing actually slightly ahead of our expectations. So this year, we had forecast about $10 million of growth. As we sit here today, we've already exceeded that number. And so we fully expect to -- well, obviously, we're going to meet or beat that objective. So it's going quite nicely for us.

Our next question comes from David Turkaly from JMP Securities.

I was looking primarily -- you got asked the question on the guidance, the $12 million, the profit improvement from the restructuring over 2 years. I was wondering if you can comment how that should flow through the P&L. And specifically, as we're looking at that gross margin line, what can we expect? Any color you might give, looking forward, in terms of sort of -- directionally, it sounds like we should be moving higher. But any specific comment you might want to make about how that flows through would be great.

Yes, Dave. This is Mike. So we anticipate that, that $12 million will happen over the next 2 years. About majority of it will actually happen in the second year. Next year, in our fiscal year, we anticipate that will be more back-end loaded as we are just starting our plans and then promoting our plans to close and consolidate our manufacturing facilities and do some product rationalization. That will take some time. So I would say that would be more back-half loaded next year, and then the bulk of it will happen in FY '20, '21, the bulk of the savings.

Got it. And I guess we haven't seen -- I haven't been able to ask a question about the M&A side, and I know you get asked this a lot. But given the environment that we're seeing out there and sort of your plans looking ahead, I guess any color, any update on how we might roll into next fiscal year, anything you're seeing that might get you back on the board on the M&A side?

Sure. We have an active funnel. Again, most of what is active is what I would call tuck-ins, things that are relatively small compared to the businesses they're tucking into. And that's actually our favorite type of acquisitions. So we've had a few of those this year, and we have a good pipeline going forward. In terms of a more significant acquisition, there are things we're looking at. We have been for some time. There are 2 issues in concert. One is again there are possibilities, but none of those possibilities can we take unilateral action. Many times they're private companies that have that decision to make themselves. And secondly, as we've discussed before, right now, the market is fairly high on price across the board. And so we want to be careful not to overpay for something that we may purchase. So it's a combination of those 2 things, I think, that have caused us not to have a purchase in the last little bit. You should not be surprised if we do something significant tomorrow morning. You should not be surprised if we don't do one next year. It's just a matter of the timing.

Our next question comes from Isaac Ro from Goldman Sachs.

Walt, just maybe want to clarify your comments on the planned outlook for fiscal fourth quarter. It sounded like a lot of the items you talked about had to do with timing and maybe just a little bit of conservatism, but I just want to clarify that you're seeing no change in spending pattern in your end markets, just want to maybe look at it from the demand side.

Yes. Isaac, you read that absolutely correctly. From the demand side, in fact, I would say this is all more the supply side, if you will, than the demand side. All of our units are experiencing solid growth from the demand side. We anticipate continuation 1.5 days or a day less, which is 1.5 points on the consumable side. If everything runs to the number of days, that's just a calendar timing issue. The balance, if anything, given, again, the uncertainty of Brexit, there are some people pulling things ahead and pushing things behind to accommodate that. And our plants are running pretty hot. And so if a couple of orders, particularly capital orders, slip, the wrong 2 days out of the year or end of the year, that can have a fairly significant effect on those growth rates in a given quarter. But in terms of pipeline, we see no difference in the healthcare capital pipeline than we've talked about now for probably 18 months or so. And on the consumable side, we have seen no difference in the ordering pattern. So I would not suggest -- I said -- I guess I'd say it differently. I think our full year numbers are more reflective of what we have seen and are still seeing in the pipeline than what might be implied by the fourth quarter.

Okay. That's helpful context. And then just a follow-up on the expense side and really kind of in 2 parts, one on the P&L and then one on the free cash guide. I'm kind of curious on the redomiciling effort you have there. Can you talk about whether or not those incremental costs on the free cash guidance kind of run rate into fiscal 2020? Or is it sort of a onetime thing that sunsets once you're done with the move and if somewhat has that happened? And then on the OpEx side, I think you mentioned that margins were hit a little bit by benefits-related items. Could you talk -- tell us a little bit more what that was and the extent to which that carries through into next year as well?

Yes. Certainly, Isaac. In regards to the Ireland redomicile, most of the expenses will be incurred this fiscal year, both from a P&L standpoint, which are adjusted out; and a cash standpoint, which we do not adjust out. We anticipated early on that it would cost us about $5 million impact. Right now, that estimate has been revised to about $10 million, which is one of the reasons we are taking down free cash flow. In addition to that, the healthcare claims activity that we talked about is we were a little bit surprised by the level of claims activity in the fourth or in the calendar fourth quarter as we seem to be moving a lot of our employees to high-deductible claims. And once they hit their deductible, as anybody would, they would take advantage of hitting that deductible and going through additional procedures, if required or if needed. So we were a little bit surprised by their claims activity. And as I mentioned, that was about an impact of 40 basis points to our EBIT margin so was pretty significant for us in our third quarter.

But Isaac, I would not characterize that as a significant change when you look at it over the course of the year. I do think it's a timing adjustment. We've been seeing that, and we do this on an actuarial basis. So the actuaries are always a bit behind. But I would not expect that to be a significant effect for the full year. If you look at just over the 9 months, it's not particularly significant. And I think as you go through the 12 months, we'll find that the same.

Our next question comes from Jason Rodgers from Great Lakes Review.

Yes. Regarding your HSS segment, nice operating leverage in the quarter. And wonder if you could talk about that going forward and how we should think about further investments in that segment compared to what you saw this quarter.

Yes. We've talked about that in the past, and I don't feel a difference in view at this point in time. Again, on the outsource reprocessing business, in general, it's still relatively small. So as we make investments, there will be more fluctuation on a quarter-to-quarter basis, maybe even a year-to-year basis. But over the long term, we see that being kind of mid-double -- I don't know the way you say this. Mid-teens is probably the best way to say it, mid-teens kind of return on sales-type business. So we don't feel differently about that. Obviously, we invested early, as we said we were going, late last year and early this year, as we said we were going to. That impacted the margins early. And they're now flowing through almost exactly as expected, except they're a bit ahead on revenue. So it's a little better on a dollar basis. So -- and again, I think you will see some fluctuations as we move forward, if you talk specifically about the ORC business. But having said that, when you combine it with the instrument repair business, it moderates those fluctuations a bit because that business is larger. So in total, we don't feel any differently about that than we've been saying now for a couple of years.

And then, Walt, wonder if you could just provide some thoughts on hospital spending globally, if you're seeing any material change from what you said last quarter.

Really, the short answer is no, no significant change. The pipeline that we see -- well, first of all, our backlog, as you can see, is at record levels and record by pretty significant differential. And so in terms of shipments, that portends well for the next little bit. But our pipeline also continues to stay solid, so we're feeling pretty good about. In healthcare, we don't have quite the visibility we do in Life Science. Life Science has a longer pipeline. But still, on large projects, we see things out 18 to 24 months. They may not materialize in the time frame that we like, but what we see out there in pipeline looks quite healthy to us.

And then, Mike, as far as the tax rate, do you have an estimate for the fourth quarter and maybe any early thoughts for fiscal '20?

Yes. As we have continued to say, approximately 20% for the full year is going to be our effective tax rate. We did get some favorability this quarter, in particular, due to some stock comp deductions that we've typically planned 0. And we did have some compensation related to stocks, some equity options that were exercised during the quarter which obviously helped us. But we still think in the low 20s or 20% approximately is the range that we would look at for the fourth quarter, and we will guide in May time frame as we look out to next year.

And then do you have what the current debt to EBITDA is? And what is the target for that?

Yes. We are currently just under 2x levered. Remember, we took up leverage to about 2.9x with the acquisition of Synergy just over 3 years ago, and we've been talking about working to bring that down somewhere in the low 2 ranges. We really don't have a specific target per se, but we feel comfortable operating at the levels that we are.

Yes. You may recall that STERIS historically was well under 2 for a long time. We have taken those debt levels up. I think if you look at the capital structure, the optimum capital structure most of our bankers would say sits someplace between 1.5 and 2.5, and it's fairly flat. So we don't feel pressure at this point on a capital structure issue in terms of what our debt rates are, our cost of capital is. So it's pretty flat between 1.5 and 2.5 and very flat between 1.6, 1.7 and 2.3, 2.4. So we don't feel pressure there.

Our next question comes from Chris Cooley from Stephens.

Just a couple for me at this point. Walt, would you help us a little bit with AST in the quarter? That's the first time we've seen 40-plus percent op margins, and you did it growing 6% off a very tough high teens comp in the prior year. Could you just talk to us a little bit about what's driving that upside to the op margin in AST? Is that utilization of the capacity that you've brought on here over the last 12 months? Is that a change in mix that we're starting to see? Just want to kind of level set expectations there for the contribution margin from AST going forward. And I've got a couple of quick follow-ups.

Yes, Chris, a couple of comments. The underlying driver is the growth in the business. And as you guys who follow medical devices know that most of the device makers are having pretty solid quarters. And so when they do, we tend to, too, because, I mean, that's the ultimate demand of that business. We have expanded geographically, and we've expanded our capabilities. And we've talked about that, and those expansions are paying off. As we bring things online, they tend to have a negative effect on our margins because we have greater depreciation and early startup costs. But now that we have 60-some-odd plants, any individual plant tends to have less of that impact. And we have seen our utilization rates outrun our expectations for this year, and so we're getting to where a lot of our plants are running fairly high. I wouldn't suggest that -- I mean, numbers between those high 30s and low 40s, I wouldn't suggest that those are not kind of a normal run rate for that business. We do spend a lot of capital to make that money. So the ROICs are attractive but not stupendous, but -- so I wouldn't suggest that those are not, but you will see fluctuations around that range. I wouldn't say we'll always be over 40% , but I wouldn't bet my life against that either.

Understood. Appreciate it. So great performance there. And I guess the only real nit when you look at the quarter, the Life Science backlog, and I realize last year we had phenomenal growth there. I think it was up 43% in the prior year quarter before being down 7% on a year-over-year basis this time and up 1% sequentially. But are we starting -- I'm trying to kind of get at here is what's kind of the normalized capital growth rate? Are we going to essentially go back to that mid-single-digit Life Science capital growth, kind of having worked through a lot of these projects from a retooling enhancement that had been put off and that we've seen that kind of driving growth here over the course of the last 2 years? Is that -- is it starting to normalize a bit there? Or if not, why should I think that this would start to turn up on a year-over-year basis as we go into fiscal '20?

Yes. Chris, I think your comment or -- and question is excellent. And we've been saying for some time, we don't really expect 30%, 40% growth rates in this business. When it jumped very strong, about, I guess, now 2 years ago, it started headed up. Those 20%, 30% kind of percent growth rates, we don't anticipate staying that way. Our bigger, I'll call it, concern or thought was, "Gee, is this going to stand up at this level." We're going to -- is this is a onetime blip, then we're going to drop down from that. And we don't think so. Even though, again, just like shipments, are kind lumpy in Life Science, backlog is kind of lumpy in Life Science because the orders come in the same way that shipments go out, kind of in big chunks. As it turns out, as we speak today, our backlog is roughly the same as it was last year. It was down a bit at the end of December. But end of January, we're right back to within $1 million. I don't remember where we were last year. So to us, it looks steady state. So I don't expect a big downturn nor do I expect a big upturn. But all things being equal, looks kind of a steady state.

Super. And then just lastly for me, so I make sure I picked up on those correctly. When I look at the cash flow, original guide was $340 million, now $330 million. But kind of when you're reconciling the 2, you did have an additional $5 million there in expense to redomicile to Ireland. You do have additional $5 million headwinds you kind of called out there. So in essence, I'm looking at -- if that's the $10 million with the offset, of course, of the reduction in the timing on CapEx, so just trying to go back to that $340 million to kind of just work my way back. That's -- those are the 2 essential driving factors. Am I correct in thinking about it that way?

Yes. There's actually 3 driving factors, Chris. There's the increase in the redomicile expenses by about $5 million. There's also some restructuring costs from a cash perspective, again about $5 million. And then on top of that, we have additional working capital requirements, mostly inventory, as our backlog is high. And as everybody knows, not all that backlog is going to ship in Q4. So some of that will carry over in Q1, but we have to start billing that product. And so we've got about $10 million in increased inventory there. So that helps you reconcile. And then take the $10 million reduction in CapEx, and that gets you to roughly the $340 million to the $330 million.

Got it, got it. So the underlying leverage there, clearly not tapering it, just those different factors offsetting each other partially in...

Exactly. And as you know, we do not adjust like we do on the P&L. So the restructuring and the Ireland get adjusted on the P&L, but we do continue to account for those in the free cash flow and on the balance sheet. So -- and...

And, Chris, I would add, just as we said, we have demand to ship more than we are now forecasting we would ship. It's a matter of ability to make -- to match the orders. It's not can we make it. It's just if a customer calls up a week before the end of the year and says, "Hey, I need to delay this 2 weeks because my construction is not going as anticipated," they usually don't do it a week before but a month before. We've already built the product, and as a result, if it's -- particularly there are certain products that are specific to the job. And so we forecast or that we've put in our forecast that some of that does slide into next year, which is why the revenue -- it's the same conversation we had on the revenue to start with, that ends up being inventory. So that's the logic.

Our next question comes from Matthew Mishan from KeyBanc.

On the ORC centers, congratulations on getting that revenue in the U.S. up and running. You mentioned that there were 3 centers that you had contracted. Are 1, 2 or 3 of those open right now? And then can you say whether or not that you -- whether or not you have more than 3 contracted to open at some point now?

Matt, 1, 2 or 3 of those are open right now. And as I mentioned last time, Matt, we're not going to talk about specific customers. We never have liked doing that early on in this process when people were -- when there was absolutely a startup. We talked about orders of magnitude, the kind of numbers. And so we're going to get away from the individual contracts. The answer to your question is yes. We have multiple contracts up and running. Some of those are full ORC, what you would think of as a full ORC. Some of those are places where we are doing the work. We're outsourcing the work, we're outsourcing it inside their facilities, some of which we may own the capital, some of which they may own the capital. And we have a number of places where we are beginning that walk by taking a piece of their business. And over time, we would anticipate taking more and more. So there's a full spectrum of outsourcing in this ORC business, some of which is what you would think of as a traditional standalone ORC, but just as we do in the U.K. In the U.K., we have certain customers where we do all the work in a center that's off their site, and we are trucking it back and forth. But we have a number of centers where we are doing the work inside their site and outsourcing the work. So it's very much like the U.K. model, and it is progressing nicely across the various fronts that we can grow it. We're not going to continue to break that down into details. All I can -- what I will say is we've already achieved our yearly targets, so we're obviously going to go over it, and we're quite comfortable with this business.

Sure. And then this is a new model for the U.S. Can you give us a sense of how the transition has gone with those customers as you move it from their facilities or their operations to yours?

Yes. Well, like all transitions, some of them were a little testy, and some of them were easy. And it is work, but -- and that's why, in a number of these cases, we're not trying to transition the whole thing at once. Both we and our customers think the idea of moving pieces is not a bad plan, and then you do more and more. And the next thing you know, you're fully across. There are other places where their capacity is such, and they would have to rebuild, if you will. And so building the center off-site as opposed to sticking it in the middle of their hospital. It's better for them to have it off-site for any number of possible reasons. So then it's more of a transition as you would think of it. But even then, it's not like you turn a switch off in the facility and a switch on in the other facility and 100% moves. That would be a bridge too far. So it typically is over the course of time.

Okay. And then, Walt, I know not to take every word literally, and I know you mentioned you wouldn't be surprised if you were to close a significant deal tomorrow or not within the next year. But just what would you consider to be a significant deal? And does that mean you're actually looking at several like significant deals in the pipeline?

Yes, Matt. I guess I think of -- orders of magnitude, I think of tuck-ins, things that are 10% or less the size of the business that we are putting them in, if you will. I think of those as kind of tuck-ins. And then if it's bigger than that, either for a specific business or for STERIS as a whole, those are more significant deals. And we are looking at some in that order of magnitude, but we've been looking at those -- some of those, we've been looking at for a long time, some of those we -- are newer to us. I don't see a big differential in that pipeline, even over the course of the last 5 to 10 years. The only difference is we're getting bigger. And so, in some sense, that shrinks the -- it doesn't shrink the number of deals. In fact, it opens wider the number of possible deals, but it shrinks those that are greater than 10% of either the individual businesses or ours. So it's a category switch, not an overall pipeline question.

Okay. And this is the last one. Mike, how confident are you that you've captured all the changes in tax reform in that low 20s guidance? And is the way to think about it is you have the low 20s within -- on any given year, depending upon where stock comp comes in, you probably have an extra 100 basis points of cushion in that?

We could, depending on the volume of the exercises from a stock comp standpoint. That definitely, as we have seen this year, has been more favorable than we originally anticipated. And as far as capturing what has been published, at least at this point in time, and that is finalized under the Tax Cuts and Jobs Act, I would say that we are very confident that we have captured all of the pieces. Now there's proposals out there. Obviously, we can't speak to those because those aren't final. But whatever is final, we are very comfortable.

If we could get tax laws around the world to stop changing, we would be very confident with our forecast.

(Operator Instructions) And at this point, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Thanks again, everybody, for joining us today and all of your continued support of STERIS. We'll talk to you again next quarter.

Ladies and gentlemen, the conference call has concluded. We do thank you for joining today's presentation. You may now disconnect your lines.