Dan Carestio: That’s it. It’s specific to Europe, too, because we’ve seen pretty decent recovery in our Asia Pacific plants. So this is a predominantly European demand issue that’s just well, not necessarily demand, its ability to deliver health care issue that’s taking longer to burn down inventories.
Michael Polark: The second piece, it’s just like large interventional multinational medtechs, I’m thinking hips, knees, stents, pacers, stuff like this. Are these customers telling you that they maybe have a little too much that need to be slower on ordering? Or are you just — you’re not hearing that and you’re just…
Dan Carestio: That’s the communication we get — we’ve received from customers. We’ve had — many say that they’re burning down inventory as much as 40% from where their current levels were. That’s a function of what happened during the pandemic and post pandemic and inventory in the supply chains and manufacturing and raw and everything got fairly bloated because of concerns around the surety of supply and that compounded with a reduction in procedure rates over and Europe is taking longer to burn it down.
Operator: And our next question is from Jason Bednar from Piper Sandler.
Jason Bednar: I’ll start first, following up maybe on some of the prior questions on segment margins. I was going to take a stab at fiscal ’25 but Mike already tried that. So I’ll go a different route. It sounds on the margin side, like you’re not too worried about the AST profit level. We saw third quarter is the seasonal low point. But is there anything structural keeping us from getting back to the upper 40% margin levels we saw in fiscal ’22 and the first part of ’23? Or are those just tough to match given the volume lift you were seeing at the time. And then similar question but on the other side, in Healthcare, how sustainable do you see segment margins in that segment? I think it hit a new high this quarter. Is the strength there simply a function of the consumables and equipment volumes you’re seeing? Or is there any kind of uplift that’s coming from the assets you acquired from BD.
Mike Tokich: On the AST side, it’s all volume, Jason. This is a very high fixed cost base segment. The more volume we put through, the better opportunity we have to drive increased EBIT margin. So there, it’s all volume. Dan, do you want to address Healthcare.
Dan Carestio: Yes. No, I don’t see any fundamental changes really in Healthcare. It’s that, once again, as long as our delivery rates stay up high, it should be fairly consistent, plus or minus a — a bit different to one way or another from quarter-to-quarter.
Julie Winter: And BD is slightly incremental, Mike [ph].
Jason Bednar: Okay. I don’t want to lead either of you but it sounds like Mike, you’re saying nothing structural from getting from tariffs getting back to the upper 40s in AST. And Dan, you’re saying nothing structural that would keep you from maintaining the margin level you’re at right now in Healthcare.
Dan Carestio: Yes. Correct.
Jason Bednar: Okay. All right, great. And then over on Dental, I’m sorry, I probably have asked this a few different times now in consecutive calls, you’ve been reviewing internally the future plans for the asset. This was a weak quarter, part of that out of your control, you had Henry Schein cybersecurity attack. But I guess maybe two questions on those items. Can you say first, whether near-term trends have normalized following that cybersecurity attack and the kind of the resolution we’ve seen with that business and that issue? And then can you talk about the conversations you’re having regarding the future for this segment, do you have a time line on when you’ll announce the formal decision here?
Dan Carestio: Yes. I guess on the first, we have seen things normalize in terms of regular order base and whatnot. The challenge is a lot of that revenue kind of evaporated and get shifted into Q4 is at least is what we anticipate to some degree or found other venues to get to the customer which we don’t really have the ability to track or fully understand. So we’ll see what the outcome is of that more definitively this quarter. On the other question, we continue to look at the portfolio in general but no decisions have been made at this point. And as soon as we have something to update you and everyone else with on this matter, we will do so.
Operator: [Operator Instructions] Our next question comes from Mike Matson from Needham & Company.
Michael Matson: I just want to ask one on use of cash. So I think you’ve done a fair bit of M&A. I don’t recall any recent share repurchases but maybe I’m forgetting one. But can you maybe just give us an update on your kind of priorities and whether or not you’d be willing to kind of come in and do some share repurchasing?
Mike Tokich: Yes, Mike, our capital allocation methodology process has not really changed over the last decade plus. We did, if you remember last year in the fourth quarter, we did — we were opportunistic in share repurchase. We bought about $225-ish million of shares. We have not purchased any in FY ’24 to date. We’ve actually been focusing more on paying down debt since rates are higher. We feel there’s value in paying down debt. So all of our excess cash has been going towards debt repayment which has driven our leverage ratio even with the BD acquisition, we’re at 2.2x gross leverage. So that’s been our focus.
Michael Matson: Okay, got it. And then, I believe you’ve been able to get a little more pricing in recent periods. How sustainable do you think that, that rate of price increases as we see inflation kind of slowing down here a bit.
Dan Carestio: Yes, I think that to some extent, our ability to justify putting through price increases with customers has to be some basis of cost. And as costs can normalize in certain areas, there will be a market trend towards less price grab, I guess, what I would say.
