Michael Polark: Hey, good morning. AST question for the back half. It obviously, the segment has the Mevex in it and you break it out, so that’s helpful. Not a lot of Mevex in the front half. Can you help level set how much Mevex you expect in the back half?
Mike Tokich: In the second half, it will be less than $15 million of total revenue versus the first half, which was about $3 million. Again, not material, but unfortunately, year-over-year, the percentages are large, but the dollars are not.
Michael Polark: Yes. Understood. No, that’s helpful. And then on the AST services phasing, look, I hear all the destock comments, and it sounds like light at end of tunnel, especially in U.S. devices and bioprocess worst of it annualized in now. I’m looking at AST services in the front half, up 5% year-on-year. What’s kind of a good either sequential growth rate or year-on-year growth rate to planned for in the back half?
Mike Tokich: Yes, in the second half, like we expect double-digit — low double-digit growth rates getting back to more normalized.
Michael Polark: In the AST services line?
Mike Tokich: AST services line, exactly.
Michael Polark: Okay. Helpful. I appreciate that. And then the follow-up topic equipment, healthcare, it’s not a metric you report, but we can do our own math, I calculate a book-to-bill, if you will for you, for healthcare equipment. It’s — it was like 1.0 last quarter. It was sub 0.9 this quarter. But — my question is unlike the fresh order environment, and I want to set it up this way, like you have a big backlog, your — you have been working real hard to convert the backlog and we’re seeing conversion rates tick up, and that’s pretty clear. I wonder about like your willingness to refill the backlog as fast? Like is there an element where are you just — do you need to bid for new business as much at the moment right now as you otherwise would because of the backlog, and that’s a dynamic.
So I’m curious there and then just broadly on hospital capital spending, if you will, as we move into calendar ’24, like similar seeing stresses and strains, no impact? And any thoughts on this would be great. Thanks.
Dan Carestio: Yes. Just a couple — it’s a lot. Just a couple of comments. And I would say our orders remain strong, and I mean there’s so much activity out in the field in terms of our portfolio right now. And, yes, one of the positive signs I saw was the significant increase in the replacement business in the last quarter or so versus the prior few periods. And that tells me that: A, our customers have confidence. We can — and our field also has confidence and we can deliver in a relatively short period of time with normal lead times; and B, they’re willing to spend money on a lot of pent-up maintenance CapEx that hospital systems have. I’ve talked about this before, and that is that although the healthcare providers are not necessarily killing it financially right now, they definitely are on a path to profitability and many of them are in a good cash flow situation where there was a lot more concern a year ago.
And the reality of it is as well is that our capital equipment is not — they’re not luxury products. These are capacity enablers. You can’t do procedures without lights and tables. You can’t do procedures without adequate capacity in the sterile processing department. And that’s really what we do. It’s not all that sexy, but it’s a requirement.
Michael Polark: Thank you.
Operator: And our next question comes from Mike Matson from Needham & Company. Please go ahead with your question.
Michael Matson: Yes, thanks. I guess I’ll start with the Dental business. It was down again. It looks like you’re starting to lap some of the declines that you’ve been seeing. So — is that, I guess, just what’s the outlook there? Is it just really boil down to kind of the economic headwinds or something else, maybe?
Dan Carestio: Yes. I mean short term, we expect it to be about flat this fiscal year. And we would attribute that entirely to the economic downturn and the ability of people to spend cash right now on elective type dental type procedures, and it’s just generally impacting the entire industry, and others have spoken on that topic prior to us, I’m sure, in the last couple of weeks. Long-term, we think it’s a solid mid-single digit grower. But some of these challenges facing discretionary spending, in particular, the U.S. economy you’ve got to get sorted out in order for it to get back to those type of numbers.
Michael Matson: Yes. Okay. And then it does look like you’re obviously working on the backlog in the Healthcare business. But — and I wanted to ask about just hospital staffing with regard to the — getting the equipment installed. I know that, that’s been an issue in the past, at least, with some companies. Have you seen that improving? Is that still a constraint on the ability to book the revenue there?
Dan Carestio: No. We’ve seen that. I mean, there’s more coordination today than there used to be maybe in terms of getting stuff received at the docks and getting shipments married up, so we do install. But keep in mind, we’ve got well over 1,000 techs in the U.S. that do this work for us, that are full-time STERIS employees, that are ready to go to help shepherd the process to get our stuff into the doors and also get it installed properly.
Michael Matson: Okay. Got it. And then I know you may have addressed this in the prepared remarks, if I got on the call a little late. So I just wanted to ask about the gross margin. It did look like it was down a little bit sequentially. And you had a nice improvement, I guess, last quarter sequentially from the fourth quarter, but just any kind of commentary there would be helpful.
Mike Tokich: Yes. Mike, we had mentioned in the prepared remarks that even though margin — gross margin was down 50 basis points, we did have favorable price. But unfortunately, that was more than offset by lower productivity and continued material and labor inflation. So the productivity, as we are moving stuff through the facility, we are not as efficient as we typically would be. So that negative productivity is hurting us in the short run.
