Michael Matson: Yes. Got it.
Julie Winter: AST volumes declined sequentially don’t help margin.
Michael Matson: Yes. Okay. Thank you.
Operator: [Operator Instructions]. Our next question comes from Jason Bednar from Piper Sandler. Please go ahead with your question.
Jason Bednar: Hey, good morning. Thanks for taking the questions here. I want to start on, I think, the topic of the day here with AST, but maybe first on the CapEx side with AST. Just the decision to postpone some of those projects that’s influencing the CapEx outlook for the year. I appreciate you wanting to protect free cash flow. But is there a risk at all here that you’re foregoing future growth in AST, just been not adding capacity? And should we be thinking about this CapEx spend shifting out of fiscal ’24 into ’25 and just next year being an above normal year of CapEx spend?
Dan Carestio: Yes. Jason, this is Dan. Thank you for the question. Just to be very clear, we’re not delaying these shipments. They were delayed just by the natural building and just current environment of getting things installed and everything else and permitting processes and everything else. So it’s — we have not intentionally slowed those in any way as they’ve just naturally slowed. And yes, the answer is we would expect those now to be — would bleed over into next fiscal year from a CapEx perspective. We haven’t pulled any projects specifically.
Jason Bednar: Okay. Dan, you’re talking about the CapEx spend, not the equipment that you’re recognizing as revenue, just to be clear?
Dan Carestio: Correct. Yes. I’m talking about CapEx spend.
Jason Bednar: Okay. Okay. So it was like $65 million of spend that’s shifting out of this year into next year?
Dan Carestio: Yes.
Mike Tokich: The bulk of that is AST. It’s not 100% in AST, but the bulk of that $65 million is directly related to the AST segment.
Jason Bednar: Got it. Okay. All right. Thank you. And then we’ve had some questions here on backlog. It sits down $100 million from peak levels. I know we were running well above normal for a long period of time. What do you see as the baseline? Where do you think backlog settles in a normal environment? How much more backlog work down do you think we need to see before we’re kind of at that again, that normal level?
Dan Carestio: Yes, we think normal is somewhere around 350, but we’re happy to keep it higher if we keep pulling in orders. It was artificially high in the past because of our ability to manufacture and deliver. And as we’ve sort of solve those issues from a supply chain perspective, it’s now really coming down at an accelerated pace.
Mike Tokich: Although I would say that our lead times continue to be longer than we would like them to be.
Jason Bednar: Okay. All right. Thanks. And then last one for me. I don’t think I heard it, but if I did, I apologize. Are you able to bifurcate what you’re seeing with your U.S. AST services business and contrast that against what you’re seeing in Europe? How much the growth rate delta are you seeing across those two markets? It seems like the opportunity for improvement here is more dependent on the European market improving. So just wondering what kind of visibility you have on procedures in that geography recovering and if you’re seeing anything or hearing anything from your partners, that would be an encouraging leading indicator?
Dan Carestio: We do look at it. We have a lot of data points, obviously, being in the hospitals and also dealing with — directly with all of our customers and their insights of what’s going on in the market. And there’s a lot of public information from NHS and the other public health commissions in Europe. What I would say is it’s got to get better. And even if the procedure rates don’t improve, at some point, the inventory burn down crosses over and we get back to normal stocking from our customer perspective. And everybody got really bloated on inventory over the last couple of years, and everybody now is trying to bring it down. And we’ve heard some customers say as much as 40% or 50% and that takes considerable time. Like I said, we crossed over that line in the U.S. And we believe that we’ll get to that point in the coming weeks or months, definitely not quarters, I would say, relative to the European destocking as it relates to Medtech.
And the other driver we talked about is as we get into the back half of the year, the comps on bioprocessing, the single use disposables become a little easier against us. That’s been a real headwind for the first two quarters of the year.
Jason Bednar: Okay. All right. Thank you.
Operator: And ladies and gentlemen, at this point in showing no additional questions. I’d like to turn the floor back over to the management team for any closing remarks.
Julie Winter: Thank you, everybody, for taking the time to join us. I know you have a busy week. We do look forward to seeing many of you out on the road over the next few weeks of several conferences.
Operator: Ladies and gentlemen, with that we will conclude today’s conference call and presentation. Thank you for joining. You may now disconnect your lines.
