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Cantel Medical (NYSE:CMD)
Q1 2019 Earnings Conference Call
Nov. 29, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Cantel Medical Corp. first-quarter and fiscal-year 2019 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today's call, Milicent Brooks.

Thank you. You may begin.

Milicent Brooks -- Head of Corporate Communications

Thank you, Rob, and good morning, everyone. On today's call, we have Chuck Diker, chairman of the board; Jorgen Hansen, president and chief executive officer; Peter Clifford, EVP and chief financial officer; Seth Yellin, EVP strategy and corporate development; and Brian Capone, SVP, corporate controller and chief accounting officer. Earlier this morning, the company issued a press release announcing the financial results for the first quarter of fiscal-year 2019. In addition, we have posted a supplemental presentation to complement today's call.

This presentation can be found on Cantel's website in the Investor Relations section under Presentations. Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements. All forward-looking statements involve risks and uncertainties, including without limitation the risks detailed in the company's filings and reports with the Securities and Exchange Commission. Such statements are only predictions and actual results may differ materially from those projected.

The company will also be making references on today's call to the non-GAAP financial measurement, non-GAAP EBITDA, non-GAAP income from operations, non-GAAP gross profit, non-GAAP diluted earnings per share and net debt. Reconciliations of these financial measures to the most directly comparable GAAP financial measurements are provided in today's earnings release. In addition, we renamed our reportable segment effective first-quarter fiscal-year 2019, so they better align with our key customers in the markets we serve. The new segment names are as follows: Medical, formerly Endoscopy; Life Sciences, formally Water Purification and Filtration; and Dental, formally Healthcare Disposables.

With that, I am pleased to introduce to you, Jorgen B. Hansen, president and CEO.

Jorgen Hansen -- President and Chief Executive Officer

Thank you, Millicent, and welcome, everyone. I will start off with some brief opening comments, followed by Peter, who will take you through our first-quarter 2019 fiscal results. Finally, we will open up the call for Q&A. Overall we are pleased with our results this quarter.

We grew reported net sales of 60% with 4.3% organic growth. Our medical segment led the growth for the quarter, which helped with reoccurring revenue and strong capital and equipment sales. We saw modest softness in our life science and dental businesses, largely related to timing of shipments. Medical sales grew by 13.5%, driven by double-digit growth across all regions with organic growth of 12.8%.

Total reoccurring revenue was 13.6% in the quarter while capital equipment grew by 13.2%. Capital equipment in the U.S. was particularly strong, giving us confidence that the U.S. AR market is returning to normalized growth levels.

Life Sciences reported revenue decrease of 2.6% for the quarter, driven by a large high purity water order being pushed into the second half of the year and soft capital equipment placements as previously guided. [Inaudible], specifically medical water, were down this quarter due to the normal cycle of this business and one of our key customers moving to a dual-source approach. We're encouraged by the progress of our strategy of broadening our life science offering with new margin accretive growth businesses. In this quarter we saw increased interest for our REVOX technology by several leading medical device manufacturers and we installed the first 12,000 liter chamber at our sterilization site in Minnesota.

Finally, we acquired Stericycle's control environmental business -- environmental solutions business, which will -- which I'll discuss later in the call. Revenue in our Dental segment decreased by 2.8% with organic decline of 4.1%. This was due to inventory adjustments within our channel. And while the performance was lower than expected, out-the-door sales at our distributor partners are in the mid-single digits, giving us confidence in the underlying demand for our products.

In addition, we have experienced temporary supply shortage in our key chemistry product line for the healthcare market that has contributed to the softer performance this quarter. We are confident that the profile at Dental will turn to mid-single digit growth in the coming quarters. From a geographic perspective, our international sales increased 9.3%, with APAC and EMEA both growing approximately 14%. International organic sales grew by approximately 8%, with APAC increasing 18% and EMEA up 9%, led by excellent performance in China and Germany.

The strong international results include the impact of acquisitions of Aexis Medical in Belgium and the BHT Group in Germany. U.S. sales grew by 5% in total with 3.1% organically versus prior year.  With that, I'll handover to Peter to discuss the financial results.

Peter Clifford -- Executive Vice President and Chief Financial Officer

Thanks, Jorgen, and good morning, everyone. Before we take a few moments to walk through the 1Q '19 financial results, I wanted to remind everyone that besides renaming the business segments to better align with the markets and customers that we serve, we did recast a small amount of our biological indicators business from our Dental segment to our Life Sciences segment in both the prior-year and current-year results. On a consolidated basis, top line, net sales increased 6% year over year in 1Q '19 versus the prior year and 6.6% on a constant currency basis. The consolidated net sales walk elements were: organic came in at 4.3%, M&A came in at 2.3%, and FX was a headwind of 0.6%.

Gross margins for the quarter. GAAP gross margins contracted by 60 basis points to 46.7% versus 47.3% in 1Q '18. Our non-GAAP gross margins contracted by a 120 basis points year over year. Although when adjusted for the recast of APAC service costs, we contracted in our core of 90 basis points operationally year over year.

Note, the primary drivers of the dilution were our previously announced livable wage actions, ERP projects, and relaunch. Operating expenses for the quarter. GAAP operating expenses increased by $8.5 million or 12.4% in 1Q'19 compared to the prior year. The impact of acquired costs from acquisitions was roughly $2.2 million or 3.2%.

The balance was purposeful investment in line with our strategic plan. Operating profit for the quarter. GAAP op profit decreased 12.5% year over year to $27.7 million. Note, there were a few items, note -- driving our GAAP dilution year over year.

The accelerated amortization of certain intangible assets that were written off as part of the disposition of our specialty water business, our continued reinvestment in REVOX as well as livable wage actions taken in 4Q '18 contributed to this overall decrease year over year. While on a non-GAAP op profit basis, it decreased 4.9% year over year to $36.6 million. Again, key drivers were continued reinvestment in REVOX, previously announced livable wage increase, and ERP project. Our effective tax rate for the quarter.

Our GAAP effective tax rate came in at 25% as compared to the prior year rate of 27.4%. Key drivers were the impact of the Federal statutory rate change provided a benefit of approximately $1.5 million in the quarter. This was partially offset by reductions in the excess tax benefits associated with our stock-based compensation expense, discrete foreign tax items, state taxes, and the loss of the domestic production allowance deduction or DPAD. Our non-GAAP effective tax rate for the quarter came in at 25% as well compared to the prior year rate of 35.5%.

The key drivers were the impact of federal statutory rate change provided a benefit of approximately $2 million during the quarter. This was partially offset by state taxes and the loss of the DPAD deduction. EPS for the quarter. GAAP EPS decreased 16% year over year to $0.46.

In addition to the commentary discussed earlier related to GAAP op profit dilution, higher interest rate expense and the prior-year extinguishment of a contingent liability of $1.1 million, which was non-reoccurring, drove this decrease year over year. Our non-GAAP EPS increased 7.9% year over year to $0.62. Adjusted EBITDA for the quarter. 1Q adjusted EBITDA came in at $44.8 million, up 0.8% year over year while our adjusted EBITDA for the last 12 months was a $178.7 million, up 8.1% year over year.

Cash from operations. 1Q cash flow from operations came in at $32.3 million, up 7.3% year over year. Now to provide some insight into the segment results. For our medical segment for the quarter sales grew 13.5% year over year to $127.6 million.

Organic was strong at 12.8%. Our GAAP op profit increased 28.1% to $25.2 million while our non-GAAP op profit increased 23.2% to $29.3 million, providing very strong leverage. For our Life Sciences segment for the quarter, sales decreased 2.6% year over year to $53.3 million. Organic decline, nine -- 6.9%, driven by order timing and decline in new clinic medical systems.

Note, we do expect our life science business to return to positive growth in 2Q '19 even with the disposition of our specialty water business during the quarter. Lastly, our backlog remains stable in the quarter increasing modestly from the year end. GAAP op profit decreased 39% to $6.3 million while our non-GAAP op profit decreased 22.4% to $8.6 million. Note, ex-incremental REVOX investment, non-GAAP op profit decreased 17%.

For our Dental segment for the quarter, sales decreased 2.8% year over year to $36.6 million. Organic was negative 4.1%. Note, it is our understanding that many of our channel partners were impacted by the recent FTC rulings and pulled back on their inventory during the quarter. GAAP op profit decreased [Inaudible] to $5.9 million while our non-GAAP op profit decreased 25.2% to $7.5 million.

For our Dialysis segment for the quarter, sales expanded 1.6% year over year to $8.1 million, our GAAP op profit decreased 34.1% while our non-GAAP op profit decreased 34.3%. Now I'd like to hit a few balance sheet and liquidity details. Our balance sheet remains strong with significant capacity. We ended the quarter with $64 million in cash and cash equivalents, a $173.8 million order in capital.

Our gross debt ended the quarter at $197.5 million with no borrowings outstanding under the revolving credit facility. Our net debt was $133.5 million and our net debt-to-adjusted EBITDA was $0.75. Capital expenditures were $38.8 million, approximately $23 million was due to the purchase of a new facility in Minneapolis and $5 million was due to the ERP project. As we've signaled CAPEX will remain elevated the next several quarters to support our ERP implementation project.

As a reminder, we will be filing our 10-Q tomorrow. I will now hand the call back to Jorgen for closing remarks.

Jorgen Hansen -- President and Chief Executive Officer

Thank you, Peter. Overall, we're pleased with our performance this quarter, the positive trajectory of our business, and our strong competitive positions in the markets we serve. We continue to drive to our five-year strategic plan to double sales and profits by fiscal-year 2021 through new products, market expansion, and M&A supported by this transformation of our operating model. In the first quarter, we launched five new products, most notably are in our medical division.

We launched our BHT E-series AER, which feature our proprietary [Inaudible]. We've also seen excellent customer adoption of our proprietary Advantage Plus pass-thru AER platform in North America with several installed units since it launch in the spring in a large perspective order pipeline. In our life science segment, we recently initiated the launch of EON, our next-generation portable RO, and we received -- where we have received a lot of positive feedback. In addition, we are encouraged by the strong interest for our Syclone Amalgam Separator [Inaudible].

This new product would enable dental offices to be compliant with the recent EPA ruling on dental water -- dental waste water management. Finally, in line with our strategy, we increased our R&D investments across the company, especially in key technologies such as the REVOX sterilization platform. At the start of this fiscal year, we closed our acquisition of Stericycle's Controlled Environmental Solutions business, a leading provider of testing, certification, environmental monitoring, and decontamination services. Their services expand the portfolio of offering we can bring to our life science customers as we continue to strategically invest in this important segment.

In combination with our REVOX platform, our sterilization portfolio, and our disinfection product line, we are positioning this division to become a leading solution provider to life science customers seeking broad sterilization and infection prevention solutions through our complete circle of protection strategy. As a consequence of our strategy to focus on growing in margin accretive life science markets, we successfully completed the divestiture of our high-purity water business based in Burlington, Canada just in last -- in this quarter. Finally, we entered into a definitive agreement to purchase Omnia S.p.A., an Italian-based market leader in dental surgical consumable products with a focus on procedure room setup and cross-contamination prevention. This acquisition will primarily serve as a platform to drive our market expansion for our European dental business.

Suffixed with the customary closing conditions, we expect this transaction to close in the beginning of February 2019. We remain highly encouraged by activity in our M&A pipeline and are cautiously optimistic about additional near-term opportunities. A key pillar in our five-year strategic plan is transforming our operating model to drive efficiency and scale to support organic as well as acquired growth. As discussed at our last call, we are making major investments in FY '19 to drive toward this important objective.

Hence, we are modernizing the company through implementation of state-of-the-art Information Technology and processes centered around one global ERP platform that is scheduled to go live in the beginning of the third quarter of this fiscal year. The impact of these investments in this project to 1Q '19 EPS was $0.03 per share. In addition, to enable a more productive work environment, we acquired 160,000 square foot building in Minnesota that allows us to consolidate several sites and will serve as a divisional headquarters for our medical and life science businesses. And will include a new product development training and customer experience center.

We are reaffirming our guidance for the fiscal-year 2019. We anticipated reported revenue growth of 6.5% to 7.5%, with organic growth of 6% to 7%, and an FX headwind of 0.5%, previously announced acquisition of 1.5% and unanticipated dispositions of 0.5%. We anticipate total fiscal-year FY '19 GAAP EPS of $2.16 to $2.19 and non-GAAP EPS from $2.57 to $2.62. This does not include the announced, but not yet closed, acquisition of Omnia, which we will -- we expect to close in February.

Before I close, I would like to announce some recent leadership changes. In October, Bill Haydon was promoted as senior vice president and general manager of Cantel's Medical division. Bill is a proven leader with 20 years of experience in the medical industry. In addition, Brian Capone was promoted to senior vice president, corporate controller, and chief accounting officer in October.

Brian also has over 20 years of accounting and financial reporting experience in various marquee life science and medical device companies. In November, Daniel Khalili joined Cantel as its first chief technology officer. Daniel is an accomplished leader with over 25 years of experience in R&D, new product development, regulatory affairs, and quality assurance from leading companies such as Danaher and Baxter. In addition, Paul Helms, executive vice president, Operations, and Craig Smith, senior vice president, Regulatory Affairs and Quality, both retired after serving 22 years with the company.

We thank them for their valuable contributions to Cantel, and wish them all the best. In closing, I would like to thank our over 2,700 loyal and hardworking team members for their efforts and achievements this quarter. Our entire company takes great pride in our mission to provide solutions to mitigate infections, improve patient safety and outcomes, and ultimately, help save lives. Thank you for listening.

I look forward to speaking with you on our second-quarter earnings call in February. Rob, we are now ready for questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Larry Keusch with Raymond James. Please proceed with your question.

Larry Keusch -- Raymond James -- Analyst

Thanks. Good morning, everyone.

Jorgen Hansen -- President and Chief Executive Officer

Good morning.

Larry Keusch -- Raymond James -- Analyst

Good morning. Maybe you can start, Jorgen, with talking a little bit about how you're thinking about the durability of the U.S. capital AER business now that you've called out that you're seeing that begin to normalize?

Jorgen Hansen -- President and Chief Executive Officer

Yes, so I think that was a very big positive for this quarter that we're now getting back to regular levels of U.S. AER capital sales, which obviously is the cornerstone of our business. The outlook we have for the year remains positive and we believe we will have a year, where we have sort of mid-single-digit growth overall even though this quarter was significantly above that. But overall, we have -- it's good trending across the business and positive feedback from the field on both the pipeline and on current orders.

Larry Keusch -- Raymond James -- Analyst

OK. And then in terms of context.

Peter Clifford -- Executive Vice President and Chief Financial Officer

Context there, Larry. We don't typically have a long backlog on the [Inaudible]. We're sure to typically make the stocks, so most of what we ship sort of more than 50% of that comes in the same month and goes out the same month. So our visibility to it is limited.

That said, our turnaround of orders was especially strong and as we've thought about in the past, sort of median for the U.S. market being sort of 750 a year on our participation. That implies sort of a 187 a quarter. And we're not quite to that level but we were very, very close to that level, which was meaningful and pertinent from last year first quarter.

Larry Keusch -- Raymond James -- Analyst

OK. That's helpful. [Inaudible] for you guys. So, I guess, I think, Jorgen, if I caught this correctly, given some of the distributor destocking issues, perhaps you can touch on how do you have visibility on kind of the end-user demand.

I was always under the impression that tracing data lags a bit. And then along with that, I think you indicated that you would not expect to get back up to again single-digit growth rate for a couple of quarters. So how do you maintain your organic growth guidance? And then I have one other one.

Jorgen Hansen -- President and Chief Executive Officer

Yes. So we do get, for the U.S., very good tracings on our dental business. And as I mentioned in my comments, those tracing shows sort of mid-single-digit growth of our products this quarter. Like you said, it's a little hard to exactly call it that with the actual out-the-door sales that we will have but certainly we do anticipate to get back into growth mode in the coming quarter and getting back into sort of normal growth levels.

One particular item has impacted this quarter, which is a chemistry that we sell into the alternate care. We had some supply issues out of one of our key vendors. That's now been resolved but that certainly did impact the quarter and we do -- are playing some catch-up now in Q2, which will be a positive upside. In terms of -- if I understand your question correct, Larry, in terms of our overall growth, we feel that the mix is coming out a little different than we anticipated in the medical.

As we talk about now, it's much stronger and it's we've been carrying through the overall growth of the company. And when we look forward, we do anticipate more normalized growth levels into two other businesses, so net-net, getting back into the range that we have previously guided.

Peter Clifford -- Executive Vice President and Chief Financial Officer

I'm just going to follow up there, Larry, as well. The finds in the market place besides probably impact on revenue, we did see the same behavior a little bit that our DSO moved down. So I do think some of our channel partners were trying to recover some cash this quarter.

Larry Keusch -- Raymond James -- Analyst

OK, perfect. And last one for you and maybe this is for you, Peter. Have you guys attempted to quantify the impact in both the life science and the dental from sort of the delayed order and the inability to shift that product and the distributor destocking as you sort of thought about kind of what that may have impacted your top line?

Peter Clifford -- Executive Vice President and Chief Financial Officer

Yes, I think here's I would answer that, is when we look out here at the first half of the year that gets our own expectations, which was I think generally logically are aligned with what we're seeing from modeling is, look, we've gotten off to a bit better start candidly in medical. Our water business, we had some push-outs on some projects from 1Q to 2Q, but we feel with the backlog that we can see, we feel very good about the backlog or about the first half of the year for the water or life sciences. And candidly, as we've said, we've gotten off to a little bit of a slower start at dental in the first quarter. I think we see a more normalized second quarter and the reality is I think the first half is there.

It's just how we get there is a bit differently. We'd probably get there with a little bit more strength in Medical offsetting probably the one time hit in Dental that we probably don't make up this year. But I think we feel pretty good in terms of having a line of sight to what we thought like the first half of the year looked like. We feel pretty confident again based upon the medical start, the backlog that we can see in life sciences, and the likely return to a more normal second quarter on the dental side.

Larry Keusch -- Raymond James -- Analyst

OK. Great. Thanks, guys. Appreciate it.

Operator

[Operator instructions] Our next question comes from Mike Matson with Needham and Company. Please proceed with your question.

Mike Matson -- Needham & Co. -- Analyst

Good morning. Thanks for taking my questions. I guess, I just wanted to start with --

Jorgen Hansen -- President and Chief Executive Officer

Good morning.

Mike Matson -- Needham & Co. -- Analyst

Good morning. Just wanted to start with the life sciences business. So, you mentioned the order timing and I know it's discussed that one of your customers is trying to in-source some of that business. So, was there any impact from that or was it really just the -- purely the timing, some bigger orders?

Peter Clifford -- Executive Vice President and Chief Financial Officer

From our own view internally, we knew that first quarter was going to be very tough comp. Our last year first quarter was a high watermark for [Inaudible], one of our larger OEMs. And so, we knew that that drop-off was going to happen this year from the visibility of the backlog. Really, most of the pressure that we saw was on our specially water business and there were couple of key projects that we due to ship in the fourth quarter that moved to the second quarter that likely are going to ship here early in December.

We held on to our agreements, one or two large orders that we had already built prior to the disposition of the business and we anticipate those going out again here before like the year-end, much less January.

Mike Matson -- Needham & Co. -- Analyst

OK. And the presentation you mentioned a large water order being pushed in the second half of the year, so would that -- does that imply that the -- do you expect the second quarter to be stronger? I mean, based on what you just said, it sounds like it should be stronger but if this big order isn't coming until the second half, does that mean the recovery will be more in the second half of this fiscal year?

Peter Clifford -- Executive Vice President and Chief Financial Officer

As I mentioned in my comments, we would expect that the life science division will see positive growth in the second quarter.

Mike Matson -- Needham & Co. -- Analyst

OK. And then is it possible to quantify, and forgive me if you already said this earlier in the call, I got on a little late. But the underlying kind of operating margin if you were to back out the investments that you've made in things like ERP and REVOX, etc. I mean, core operating margins still down year over year, if you back all that stuff out?

Peter Clifford -- Executive Vice President and Chief Financial Officer

We were relatively flat.

Mike Matson -- Needham & Co. -- Analyst

OK. All right. And then finally just have to ask the obligatory tariff question. So I think you've addressed this maybe on some earlier calls but I just wanted to make sure that you're not seeing any significant impact there from the tariffs and you don't expect that to, even if they were to go to 25% next year.

Peter Clifford -- Executive Vice President and Chief Financial Officer

Our view is that I don't think it's material yet, but I would say for the first time, we are starting to see a bit more material inflation than we have seen in the last couple of quarters. So it is that we're obviously watching closely. And it's something obviously that we're debating internally as to commercial actions and what we might need to do in the back half of this year.

Jorgen Hansen -- President and Chief Executive Officer

Yes, and it's coming a little different. I would say from -- in market sales in China, we had an incredibly strong quarter because our team was really trying to get ahead of some of these tariffs coming in and pulled in really strong orders in anticipation of things getting worse. So that's I think we are OK there. What we are starting to see, as Peter mentioned, is particularly materials that we're sourcing in for capital equipment are getting more expensive and more precious everywhere and it's starting to push our cost of goods sold and we are evaluating any action we need to do there to combat that.

Mike Matson -- Needham & Co. -- Analyst

OK. All right. That's all I have. Thank you.

Peter Clifford -- Executive Vice President and Chief Financial Officer

Bye.

Operator

Our next question is from Mitra Ramgopal with Sidoti and Company. Please proceed with your question.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Yes, hi. Good morning. First, I believe you mentioned about $0.03 of investments in terms of infrastructure for the first quarter, and I was just wondering if you should still expect it $0.20 for this year or will some of that go into fiscal 2020.

Peter Clifford -- Executive Vice President and Chief Financial Officer

No, I think we still pretty good about our views on cost and timing on both European facility move in Minneapolis.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

OK. Thanks. And given the investments you're making on REVOX, I was just wondering if you could give us an update in terms of the placement and the traction you're starting to see?

Jorgen Hansen -- President and Chief Executive Officer

Yes. So as you know, Mitra, I mean, REVOS is really a transformational solution that is targeted for in-launch [Inaudible] predominantly in med device. And we continue to see lots of positive feedback. We have several systems testing -- running some systems also used in inline manufacturing in some key vendors.

And I think one milestone this quarter, as we mentioned in our call, was that we installed a 12,000 liter chamber in our sterilization -- our own sterilization site in Minneapolis, which will allow us to run much larger batches than before. And this equipment is actually sort of a prototype for an order that we're working on for a major life science customer that we anticipate to ship in the back half of the year. So a lot of good progress. It is a long-cycle business.

That's the bad news. The good news is we believe there's a tremendous opportunity for this technology in life science and also over time in our medical business.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Good to know. That's great. And then switching on the dental side, obviously the Omnia acquisition -- prior to that, you had a very small presence in Europe. This certainly expands it a lot and I was just curious, in terms of the strategy going forward and to focus on Europe if you could give us some more color there?

Seth Yellin -- EVP, Strategy and Corporate Development

Hi, Mitra. This is Seth. Thanks for the question. I think, as you said, our European dental franchise historically had been fairly modest and we've had very limited commercial resources.

And, with the Omnia acquisition, with that acquisition it brings us those both a good business in its own right with a nice portfolio of single-use disposable consumable products used in dental surgical procedures. It's an organization with great leadership and a great commercial organization that we really believe will be a strong foundation to help build our overall dental franchise. So it's a business that we talked about in the release to have around $19 million or so in the sales and we have a small franchise today in Europe of a few million dollars. We expect that to be a good grower going forward with the commercial team that's going to be selling the full bag of the Cantel and Omnia portfolio going forward.

And we're really encouraged with the energy, enthusiasm that team and the potential we see it for dental franchise globally.

Jorgen Hansen -- President and Chief Executive Officer

Yes, and maybe just to add on what Seth said, Mitra.If you go back five years at the initiation of our first strategic plan, we had very aggressive growth objectives for our international business but decided to focus that on our endoscopy or medical business, which we've done through acquisition and through organic investments. It was very clear to us that, A, we couldn't afford to do that in conjunction with -- or concurrently with all three of our franchises. And we now believe that with this acquisition, we are able to kick-off a similar, while there's differences in the execution and products and everything else in the market, has similar growth trajectory for our dental business in Europe and modeling the success we've had in building a leadership position in medical endoscopy over the last five years.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

OK. Thanks. And then just finally for me, I think on the life sciences side, one of the reasons in terms of the margins compressing I think you'd reference material inflation. I'm just wondering in terms of your ability to be able to offset that with higher prices.

Peter Clifford -- Executive Vice President and Chief Financial Officer

Yes. Good question. I mean, candidly more of our inflation that we've seen so far is really more on our medical and dental side of the business. So it's been less of an issue on a life sciences side.

It's really been the dilution of REVOX, coupled with the fact that our volume is down pretty meaningfully in the core business, when you adjust for the acquisitions. And we saw just less I'll say productivity on the service and product side in the first quarter.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

And then, Peter, as you mentioned, I guess, it's more of an issue in the medical and dental side. So I don't know, if again you have the ability to try to offset that with higher prices?

Peter Clifford -- Executive Vice President and Chief Financial Officer

Yes, historically, we've always pushed an annual price increase on the dental side and obviously I think that's what we're challenging and debating internally as we need to look at frequency on the commercial actions. And obviously their distribution and through some of that non-affiliated on the medical side, it's obviously easier to push price more frequently. So again those are things that we're debating passionately right now and more to report on as we get through further in the year. I think we've got to see a little bit more in the second quarter and what continues to either happen or not happened on material inflation to decide the next course of action.

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

OK. Thanks again for taking the questions.

Jorgen Hansen -- President and Chief Executive Officer

Thanks, Mitra.

Operator

Our next question comes from Larry Keusch with Raymond James. Please proceed with your question.

Larry Keusch -- Raymond James -- Analyst

Yes. I just had two other ones. You already mentioned again activity with REVOX in the first quarter. Could you expand on that? Was that new discussions with a different set of customers? Or any color that you could provide to kind of what's changing there.

Jorgen Hansen -- President and Chief Executive Officer

Well, I would say that, for this business, it's a very concentrated customer universe. I mean, the customers that we are talking to and have been active with in this quarter and over the last several quarters are really the top medical device manufacturers predominantly in the U.S., but many of those companies have operations across the world. We have REVOX systems both in Europe and in Asia at this time actually we are proceeding with the first installation. So it is -- this is A quite global business.

So I think, this call, I can really add to this is that we continue to get very positive feedback for our customers. It is a long selling cycle, because you need to convert or reapply your 510(k)s with this new technology and that does take time. On the flipside of that, there's lots of benefits due to our technology, cost reductions that the customers absolutely understand. And so we keep being bullish on this business, we keep investing.

And now that we have actually production side manufacturing equipment in our stabilization plan in Minnesota, we also have a short cycle, we can really demonstrate larger volume stabilization and really demonstrate how an optimal workflow will look for a customer. So more to come. We are highly encouraged, but it is a longer cycle to change or implement something -- transformations like REVOXs.

Larry Keusch -- Raymond James -- Analyst

OK. I appreciate that color. And then, I guess, the last one for me is so you maintain guidance so that implies obviously 6% to 7% organic growth for the year. You did fourth quarter 3% in the first quarter.

I recognize that you obviously don't guide two quarters. But just trying to think about some of the comments around the first half, Peter. And so is the right way to think about the first half, given some of the comps and some of the order patterns and etc., that you would be below the year-end guidance range for the first half and then accelerate that in the second half of the year?

Peter Clifford -- Executive Vice President and Chief Financial Officer

Yes. I'm trying to be careful not to get into too much of a quarterly view. Again, what I would say is from the forecast we've seen for the first half of the year. Again, I think we would align pretty tightly to what most of what we've seen or read on the first half of the year.

Larry Keusch -- Raymond James -- Analyst

OK. So we're left to our own to figure out what the Q2 have to look like here. But again, just with the comps and etc., I mean, it would just be like you would have to be -- you would see better growth in the second half of the year, I guess.

Peter Clifford -- Executive Vice President and Chief Financial Officer

Yes. I mean, it's per se.

Larry Keusch -- Raymond James -- Analyst

OK. Perfect. Thank you.

Peter Clifford -- Executive Vice President and Chief Financial Officer

All right. Thanks, Larry.

Operator

[Operator signoff]

Duration: 40 minutes

Call Participants:

Milicent Brooks -- Head of Corporate Communications

Jorgen Hansen -- President and Chief Executive Officer

Peter Clifford -- Executive Vice President and Chief Financial Officer

Larry Keusch -- Raymond James -- Analyst

Jorgen Hansen -- President and Chief Executive Officer

Mike Matson -- Needham & Co. -- Analyst

Peter Clifford -- Executive Vice President and Chief Financial Officer

Mitra Ramgopal -- Sidoti & Company, LLC -- Analyst

Seth Yellin -- EVP, Strategy and Corporate Development

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