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Cantel Medical Corp (CMD)
Q4Â 2020 Earnings Call
Sep 17, 2020, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, everyone and thank you for joining us today for the Cantel Medical Fourth Quarter 2020 Earnings Call.
[Operator Instructions] And now, to get us started with opening remarks and introductions, I am pleased to turn the floor to Vice President of FP&A and Investor Relations, Mr. Matt Micowski. Welcome, Matt.
Matthew C. Micowski -- Vice President, Financial Planning & Analysis and Investor Relations
Thank you and good morning, everyone. On today's call, we have Chuck Diker, Chairman of the Board; George Fotiades, Chief Executive Officer; Peter Clifford, President and Chief Operating Officer; Seth Yellin, Executive Vice President and Chief Growth Officer; Shaun Blakeman, Senior Vice President and Chief Financial Officer; and Brian Capone, Senior Vice President, Corporate Controller and Chief Accounting Officer.
Earlier this morning the company issued a press release, announcing the financial results for the fourth quarter of fiscal year 2020. In addition, we have posted a supplemental presentation to complement today's call. This presentation, along with reconciliations of non-GAAP references, 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 risk 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. Additional information concerning forward-looking statements is contained in our supplemental presentation and earnings release.
The company will also be making references on today's call to non-GAAP financial measures. Reconciliations of these financial measures to the most directly comparable GAAP financial measurements are provided in today's earnings press release.
With that said, I'll now turn the call over to George.
George L. Fotiades -- President and Chief Executive Officer
Thank you, Matt. I will provide brief overview comment; Shaun will cover the financial perspective and Peter will spend more time on the execution of our key initiatives.
Overall, I'm pleased with how we executed in the fourth quarter amid the impact from COVID. Our strategy in infection prevention and control has never been more relevant.
We achieved our goals with respect to management of operating expense. We continued to maintain safety protocols in all facilities and achieved uninterrupted performance. We exceeded on cash management in the quarter; and in early September, we paid down $75 million on our revolver. We worked with customers to drive adoption of new protocols and facilitate a return to normal activities, and we continue to execute on the Hu-Friedy integration and the initiatives related to Cantel 2.0.
As we said in our release this morning, procedures in both Medical and Dental have steadily improved and are at about 80% to 85% of pre-COVID levels and they are strengthening.
Given the critical nature of the elective procedures we support, we expect a full recovery. We're just not certain of the exact timing. Therefore, as we indicated last quarter, we are not providing conventional financial guidance. However, we do want to give clarity on how we will execute on what we can control: operating expenses and profitability.
Specifically, we except to gradually improve our EBITDAS margin from the first quarter to the fourth quarter, so that we exit the fiscal year at 19-plus percent, which is the same EBITDAS margin with which we entered the COVID impact earlier in calendar 2020.
We will also continue to execute on cash management and pay down debt as practical. Finally, we will fund and execute several growth projects, which Peter will cover in some detail.
Before turning it over to Shaun, I want to underscore a key takeaway about our future. While COVID has had a near-term impact on procedures and revenue, we are seeing how COVID is elevating the importance and relevance of Cantel's offering to customers, a factor that will be with us for the longer term.
In our Medical and Dental businesses, we provide infection prevention product and solutions, education, training and on-the-ground support that are instrumental to providers being able to deliver care in this fast developing new normal. We are gearing up the service demand, as you will hear more about.
So, with that, Shaun.
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Thanks, George, and good morning, everyone. I'm going to go through our key financial results with brief commentary. Following that, like last quarter, I'd like to provide additional context to the financial results during COVID.
I will begin with the year-over-year comparisons; and given the volume impact, I will close with specific references to more relevant sequential comparison to 3Q 2020, as well as provide some insight into the first part of 2021. Of course, the standard reported financial details are available on the earnings deck for you to follow along, and we can cover any additional questions you may have during the Q&A.
Net sales decreased 2.5% year-over-year in the fourth quarter '20 versus the prior year and negative 2.7% on a constant currency basis. M&A accounted for 15.7% growth, which was offset by an organic decline of negative 18%. This exceeded our Q4 expectations with procedural volumes in both Medical and Dental recovering faster in June and July.
Overall, our Life Sciences and Dialysis segments have remained resilient during the pandemic with Life Sciences growing 0.7% and Dialysis relative flat as expected. The Dental segment grew 59% on a reported basis, driven by the acquisition of Hu-Friedy, but declined negative 20.6% on an organic basis, primarily due to the negative impact of COVID-related deferrals of routine dental procedures.
Finally, the Medical segment decreased by negative 24.8% on an organic basis in the quarter, also driven by COVID-related procedural declines. Capital equipment decreased approximately 36% with recurring revenue declining approximately 22% in the quarter versus the prior year.
Sequentially from Q3, recurring revenue in the fourth quarter actually increased approximately 4% as elective procedures returned in June and July.
Turning to consolidated margins. Our GAAP gross margins contracted by negative 320 basis points to 43% versus 46.2% in the fourth quarter 2019, while non-GAAP gross margins declined by 340 basis points year-over-year to 43.7%.
If you recall in the third quarter, I discussed that approximately $45 million of our cost of goods sold is fixed. So relative to our pre-COVID margin levels, the Q4 margin degradation from pre-COVID is almost solely attributable to unabsorbed fixed costs accounting for approximately $9 million of margin.
Moving down to op profit. GAAP op profit decreased 51.2% year-over-year to $7.2 million. On a non-GAAP basis, op profit decreased 31% year-over-year to $26.5 million. Regarding tax rates, the GAAP effective tax rate for the quarter was a benefit of 65.1% as compared to the prior year at 26.8%. The tax benefit noted in the quarter was driven by our GAAP loss before taxes and additional federal income tax loss carrybacks allowable under the CARES Act.
Non-GAAP effective tax rate came in at 29.6% compared to the prior year rate of 25.6%. This increase was impacted by geographic mix and an increase in valuation allowances for certain income tax positions. As a result, GAAP earnings per share decreased 125.5% year-over-year to negative $0.05. While on a non-GAAP basis, earnings per share decreased 62.6% year-over-year to $0.24. Finally, adjusted EBITDAS came in at $37.9 million, down 19.6% year-over-year.
I will now move on to key cash flow and balance sheet items. Even with four to five months operating through the pandemic, cash flow has been a source of strength for Cantel. Cash flow from operations for the quarter came in at $44 million, an increase of 138.7% year-over-year, ending the year with $277.9 million in cash. Working capital increased 62% sequentially to $466 million, driven by the increase in the cash on hand.
Accounts receivables were relatively flat. Inventory declined approximately 10%, and accounts payable declined approximately 21%, all on a sequential basis. To put that in perspective for the year, we generated $26 million of positive cash flow from accounts receivables, $12 million from inventory management and $5 million of additional flow from the rest of the balance sheet; by far our best working capital management in the past five years.
We are very pleased that we were able to return operating cash flow to levels between 13% and 14% of sales, for the year, despite the volume challenges during COVID.
Capital expense was $7.6 million this quarter, an increase to keep key projects on-track in light of our better-than-expected cash flows and following a quarter where all but essential capital was suspended. In addition, Cantel is back at more historical capex spend levels, ending the year at $34 million of total spend versus $95 million in 2019.
To conclude the quarterly financials, our gross debt ended the quarter at $1.1 billion, while net debt was $835.5 million. Our net debt-to-adjusted-EBITDAS ratio was 4.73 times, which includes 10 months of Hu-Friedy results.
As a reminder, our credit facility amendment provides for a leverage ratio suspension period through October 2021 and requires us to maintain a minimum liquidity of $75 million. We are encouraged that our cash flow is positive even through our worst collections months, putting us in a position to maintain a balance sheet with ample cushion while paying down $75 million in outstanding revolver debt following the end of the fourth quarter in September.
We are targeting to pay down a total of at least $125 million in fiscal year 2021, including the $75 million paid down earlier this month.
Although we feel the environment is still too uncertain to provide specific guidance for the full year, I'd like to provide some color on our approach for the next two quarters regarding revenue.
First of all, we expect first quarter 2021 revenue to increase sequentially to approximately $250 million to $260 million, given that we see external procedures stabilizing in the 80% to 85% range for the entire quarter versus the Q4 that included EMEA with procedures in the 60% range.
We expect the recovery to continue into our second quarter, though not at the same rate as we saw in Q4. However, it's worth remembering that we have four fewer shipping days in our Q2 due to the winter holiday season. So, even with sequential day rate improvements, I would not expect a drastically improved total revenue number from Q1 to Q2.
Operating expense in Q1 will see a sequential increase from the fourth quarter as we enter our new fiscal year, stabilizing in the $85 million to $90 million range. With volumes recovering, we are opting to gradually cut back on employee furloughs and salary reductions in place through August.
I estimate that normalization of items such as sales commissions, bonus accruals and the cessation of salary furloughs results in approximately a $15 million increase in our operating expense in Q1 relative to Q4. However, we are also taking cost actions driven by removing the equivalent of 125 head count and structural cost, which is expected to result in approximately $13 million of savings on an annualized basis. In Q1, that equates to a savings of approximately $2 million. In Q2, we'll ramp-up an additional $1 million per $3 million in savings relative to Q4 2020.
We believe these costs action set us up well to react to volume changes as we progress through the year and to improve sequentially each quarter.
In the first quarter, with the net cost increase described above, we expect that our EBITDAS in Q1 will stay approximately flat from Q4 but will decline as a percentage of revenue. But we are committed to executing a return to a quality of earnings that more closely mirrors our pre-pandemic performance.
As George mentioned, we are targeting to navigate the path to 19% EBITDAS in Q4 2021 with a sequential recovery of volume in each quarter, but not requiring a return to 100% pre-COVID volumes.
I appreciate your patience listening through these additional details. And as a reminder, we will be filing our 10-K by next week.
I'll now hand it over to Peter, to provide a few operational updates.
Peter Clifford -- Executive Vice President and Chief Operating Officer
Thanks, Shaun, and good morning, everyone. I wanted to first provide additional insight on our macro observations of activities on the ground and then focus on actions we have taken for both the short and long term to execute on our strategy.
As we are all aware, the impact of COVID on elective procedures through the spring and summer was significant. Using third party claims data, customer insights through our commercial teams, as well as various industry and other external surveys, we have been aggregating data points to provide us a perspective on the overall U.S. markets.
From the pre-COVID impacted levels seen in our fiscal second quarter, we estimate that elective GI endoscopy procedures in the U.S. fell to a low in mid-April of just 27% of the Q2 baseline volumes.
Since that time, volumes have steadily improved and we are seeing volumes at 80% to 85% of that second quarter pre-COVID baseline in the U.S. Medical and Dental market.
By our estimates for the procedures relevant to our end markets, we believe that hospitals are operating at over 90% of pre-COVID levels, ASCs are close to 85% of pre-COVID levels, and dental practices are around 80% to 85% of the baseline. The month of August shows strengthening in these trends.
Internationally, it has been more challenging to find good data sources and it varies by country and region. Areas like Germany and the Netherlands, where the virus is well-controlled, seemed to be nearly back to normal levels, while countries like the U.K. continued to be at the 80% to 85% range.
Without question, COVID has elevated infection prevention and control to the forefront of priorities for healthcare providers and dental practitioners. And we are encouraged that this heightened focus on IP&C will continue over the long term.
We are seeing shifts in the underlying market with regard to better compliance to existing protocols, as well as the adoption of enhanced infection prevention protocols at all provider types.
A few examples. Dental professionals are switching from the use of one or perhaps two facemasks per day to switching out facemasks with each patient encounter, which is the existing recommended protocol. Rapid conversion of single-use nasal mask for nitric oxide delivery systems from reusable nasal mask, use of face shields and aerosol-producing dental procedures, shifting the single-use tube sets switched out per patient from tubes sets changed daily, as well as a stronger rationale for the use of single-use valves and single-use products in general.
The return of patient volumes coupled with the drive for better compliance with IP&C protocols should benefit Cantel over the long term. With the increased and sustained demand for facemasks and PPE, we have meaningfully invested in expanding our production capacity.
For the last six months, we've been running at maximum capacity -- 24/7 -- on all eight of our mask machines, bringing our total mass production level to just over 16 million masks per month.
In the fourth quarter, we placed orders for an additional eight facemask machines to double our capacity. We anticipate bringing on the first two machines by the end of the first quarter and another two machines online by the end of the second quarter, with the remaining four machines in the back half of fiscal '21. Six of these machines will be located in North America while two will be in our Italy production site, supporting regional demand.
Despite the continued impact of COVID, we remain focused on executing on our key priorities in support of our Cantel 2.0 initiatives. Key among those priorities has been the reconfiguration of the U.S. sales and commercial organization to support the Cantel 2.0 initiatives focused on ASCs as well as enhanced focus on our hospital Complete Circle of Protection strategy.
Within the ASC space, we have created for the first time a dedicated ASC sales and marketing team. We are deepening our relationship with ASCs as well as hospital-owned outpatient facilities. To be clear, we have a strong leading share of the AER market within the ASC space, with the opportunity for us to broaden the penetration of our full portfolio within the ASC market.
We see great opportunity to drive this penetration by an enhanced focus on the overall value and efficiency that our full portfolio brings to the ASC setting, in addition to the improved IP&C benefits.
In the acute care setting, we are seeing early success with our investment in key account directors and the expansion of our infection prevention clinicians in demonstrating the overall value of our CCOP solution. We continue to invest in these CADs and IP clinicians to further enhance our engagement with large healthcare systems and influence their overall reprocessing workflow protocols, which has resulted in broader adoption of our product solutions.
We have transitioned our hospital sales organization to full bag sales reps from product specialist previously focused on solely capital or consumables. With this transition, we have enabled our commercial team to focus on the broad solution of our CCOP offering, while still selling to product users and key department heads.
In addition, we are experimenting with inside sales to assist the field reps in a model that we have had notable success within the U.K. This builds a capability that ensures we have strong commercial presence even when access maybe limited. This has been a reconfiguration rather than a restructuring, allowing us to get better focus and broader capability. Yet, overall, this is cost neutral to the P&L.
Looking to Europe, we have made good progress on both the footprint consolidation as well as our commercial efforts. We are on-track with our site consolidation with the successful move of all AER production from the BHT operation in Germany to our Pomezia Italy facility on August 1st. This was an important project to simplify our Germany business as well as continue to expand our manufacturing center of excellence in Italy.
In the fourth quarter, we closed our Dusseldorf sales office, moving all German activity to our existing Augsberg location, as we continue to streamline our processes to improve profit and accelerate growth.
In parallel, we have continued to execute on our commercial excellence training and deployment across Europe at an accelerated pace. We expect this to translate into strong second half '21 commercial performance in EMEA.
Finally, we continue to make excellent progress on the integration of Hu-Friedy into our Dental business. As mentioned earlier, the value proposition of infection prevention in the dentist office is unprecedented, and the addition of Hu-Friedy enhances this unique offering. There is more to come over the next few months. But in short, a new scaler, increased instrument management system setups, Greenlight 2.0 launch, and an overall enhanced focus on education add to our confidence on the future for this business.
Despite the impact of COVID on our end markets, we have continued to focus and execute on our key strategic priorities while carefully managing our expenses and key resources.
I want to take this time to thank our global teams for their daily efforts to produce essential products and deliver critical services to our customers and stakeholders during these extraordinary times.
With that, we are now ready for questions.
Questions and Answers:
Operator
Gentlemen, thank you for your remarks. And to our phone audience joining today, we will now segue to our interactive Q&A session. [Operator Instructions] We'll hear first from Larry Keusch at Raymond James.
Larry Keusch -- Raymond James -- Analyst
Thanks. Good morning, everyone. I guess just a couple of questions and maybe the easiest one first. So, just with the new mass manufacturing, you're obviously doubling your capacity. What does that incremental capacity represent in a dollar amount? Just trying to think about -- once you're up at full speed, how we should be thinking about that? And does it also imply that with all those machines on, you should be at full capacity by the end of this fiscal year?
Peter Clifford -- Executive Vice President and Chief Operating Officer
Yes, Larry, I'll give some color on capacity here. Look, it's going to probably take us a month or two with each deployment wave of the machines coming in to calibrate and get those up to full capacity. So, I would think by the end of fiscal '21, we should have at least six of the eight machines probably up and running at full capacity.
From a monetized perspective, look, I think the way we're looking at the revenue opportunity is -- look, this capacity obviously gives us an ability to be very opportunistic in markets right now that are looking for high quality manufactured PPE. And it also gives us an opportunity to use mask as an effective bundling anchor in the portfolio on the Dental side of the business.
So, we feel very well positioned to again grow that business pretty aggressively. Whether we can cover eight machines 24/7 is something that we've got to determine as we get deeper into the year.
Larry Keusch -- Raymond James -- Analyst
So, maybe just on -- thank you for that, Peter. And maybe just on that, just in case I missed it. So, if you had all those machines running full capacity, what would the incremental revenues be coming off of that?
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
I would say the size of the prize, if we could get to full capacity is probably $3 million or $4 million a quarter.
Larry Keusch -- Raymond James -- Analyst
Okay. Perfect. Then secondly, just trying to think through Dental. And if I have my numbers right, I think it got worse both on a dollar and percentage basis in the 4Q versus the 3Q. So, just trying to understand, obviously you didn't have April in your 4Q. So -- and things start to recover as you start to talk about. So, again I'm just trying to understand what else may be going on there that resulted in that?
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Yes, I think that the -- it's like all of the business, right? Even though April wasn't in our Q4, you still had overall Q4 being COVID volume affected; whereas in Q3, you did have two months that arguably weren't yet materially affected by COVID. So, I really don't think there's any more to it than that really from our point of view that is just like volumes overall. We're down more in Q4 than they were in Q3, even though the month of April itself was obviously the worst.
Larry Keusch -- Raymond James -- Analyst
Okay. Perfect. And then last one, I guess, for you Shaun is, just as -- and thank you for the color. As you think about '21, I recognized that it's challenging to put any real numbers out there given the dynamics and some uncertainty around the fourth quarter -- fourth calendar quarter here.
But as I think about the commentary around the EBITDAS margin, again, just help me understand kind of how you're thinking about sequential improvements to get to that? I think you're saying the fourth quarter itself for the quarter should be 19% or better. And it does look like that's a little bit below what the Street was anticipating. So, kind of, any color that you can provide as to what might be different from what the Street expectation is, where it looks like that was kind of over 20% on that fourth quarter EBITDAS, and what might be different as you guys are looking at your plan for the year? Thank you.
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Well, to just kind of go back to what we've talked about on the call, right? It doesn't require that we get back to 100% of volumes. So, that's not within our model or thinking on how we get to 19%. It really requires something north of 90% in Medical and Dental. So, we are anticipating a sequential recovery in volumes, but that is going to be more modest slope, obviously than we saw in Q4, which is not -- shouldn't be surprising to anyone going from 80%, 85% to 90%, 95% is a much slower slope. And then continue progress against our Cantel 2.0 initiatives as well that we anticipate will continue to give us an advantage, right, even as we deal with procedural volumes be something south of 100% for the near future.
It's combined with that, right? We're committed to, again, going back to -- we think we set our cost base very well right now to see how volumes go here in the first quarter to second quarter, right? And we're committed to reacting to any of the conditions that are thrown at us to get to that 19%.
So, we're thinking -- obviously, things won't be back the way they were in April, in that scenario, but certainly we are baking in an inherent conservatism, if you will, that we're not out of this and there's potential for other shocks -- give or take -- in certain months as we continue to progress through this. So, we're baking that all in as best as we can and we think that that's right where we're going to end up.
Larry Keusch -- Raymond James -- Analyst
And -- [Speech Overlap]
George L. Fotiades -- President and Chief Executive Officer
I was just going to say -- I'd like to add to what Shaun said. Larry, I wouldn't read too much into the difference between 19-plus-percent and 20%. I'm not even sure we put out a number before we spoke today about where we thought we'd end up at the end of the fourth quarter.
I will tell you, look, we're going to be in the business of being on the more conservative side of things. We tell people that on the wildly optimistic side, because there is no upside in being optimistic and missing expectations. So, I think that's one way to look at how Cantel is going to talk about the future, particularly in the current environment.
Larry Keusch -- Raymond James -- Analyst
Okay. Thanks for that, George. That was really helpful. And last one on this and then I'll drop. So, Shaun, should we be thinking about sort of sequential improvements in EBITDAS margin through the year or is it kind of flatter in the first half and then you'd get more of a pronounced step-up? Just any thoughts as you kind of start the year out here, just so we make sure we're thinking about this correctly.
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Yes. So, if you think about again, Q4 to Q1, I had said that I think we'll be relatively flat on a dollar basis. On a revenue basis, that's obviously going to degrade the margin somewhat. And then given that revenue back with four days tipping even with the sequential increase in day rates with revenue probably not being drastically improved from Q1 and Q2 because of that, I would expect the margin to be also, right, not drastically improved in Q1 to Q2. So, you would see that bump-up to 19% more in Q3 and Q4.
Larry Keusch -- Raymond James -- Analyst
Okay. Perfect. Thanks, guys. Appreciate it.
Operator
Thank you, Larry. Our next question comes from Matthew Mishan at KeyBanc. Please go ahead, Matt.
Matthew Mishan -- KeyBanc -- Analyst
Thank you for taking the questions, guys, and good morning. With the large swings that you're going to see in your markets, I'm just curious how you're going to be able to track your progress on Cantel 2.0 and understand kind of what is working and what might not be? And kind of what metric should we be paying close attention to, to try and gauge your performance?
Peter Clifford -- Executive Vice President and Chief Operating Officer
Yes, Matt. This is Peter. Look, I think we are -- on the ASC strategy specifically, obviously, we're looking at revenue comps. We're looking at new account setups and looking at audit or process reviews and studies that we're doing with ASCs as sort of key indicators to tell us how we're progressing down that path.
On the hospital CCOP play, we've been measuring here for a couple of quarters an index that basically tells us the product basket execution in the hospital network system. Obviously, we've been looking at revenue by CAD territories versus non-CAD for over a year now. That's obviously moved the needle in terms of our investment as we saw growth categories much higher in CAD-supported territories than in territories where we did not.
On the Europe side, we're tracking right now since we're really still in the midst of still doing some of the deployment of COMEX [Phonetic]. The key indicators there are really by country, by rep, by regional sales manager, how we're progressing in each module of commercial excellence from a deployment perspective.
Matthew Mishan -- KeyBanc -- Analyst
Okay. Peter, thank you very much for the detail around that question. And then moving to Dental, it seems as if the dental offices are going to be running incremental costs, some of which is going to be a tailwind for you. So, I guess what is the trade-off for dental offices? And if you look at the overall portfolio from Cantel and Hu-Friedy, is it a net benefit? Is it neutral or potentially a headwind?
Seth Yellin -- Executive Vice President, Strategy and Corporate Development
Matt, this is Seth. I think in the dental suite, obviously they are looking for broad solutions to enable them to get back to an efficient practice flow and to enable them to get back to the procedure volumes that they're used to. I think on average it probably is incremental for the Cantel and Hu-Friedy portfolio. I think in particular, we're able to provide bundles, product bundles, to the customers that they're looking for, that includes -- whether it's PPE, chemistries, other consumable products in addition to the reprocessing type of elements that we've historically sold, we see substantial incremental demand for those sorts of products.
And I think in particular our IMS product offering, which provides both -- the most efficient type of reprocessing system as well as a more overall efficient workflow is well suited to enable dental practices to respond well to this -- to the current environment and get back to a higher overall volume practices.
Matthew Mishan -- KeyBanc -- Analyst
And then lastly around free cash flow. First off, congratulations on the best sustainable free cash flow over the last several quarters. That's been excellent. Can you talk about some of the puts and takes around free cash flow for this year? And then, how are you thinking about next steps and cost of the ERP implementation to other parts of the business?
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Okay. I'll start with cash flow for '21. Just one thing I would keep in mind is that we did successfully de-leveraged the balance sheet to the tune of almost $50 million during the latter half of '20. So, as volumes continue to recover, AER is going to be a natural outflow in the first half of the year. And I would also expect that we will have some modest inventory investment as we rightsize to the right mix and react to volumes coming up.
So, I would expect that in the first half of this year, while we've been very successful and we're certainly -- we're not degrade in our execution, there's naturally going to be a cash outflow, if you will, as we invest in working capital modestly here in the first half and probably claw back some of that benefit that we saw in the latter half.
Obviously, we have the sequential expenses, right, that are going to come back -- as I discussed in Q1 -- that will also -- if you think about launching off of Q4, that are also going to mitigate what we saw in Q4, as well as some continued restructuring costs and pay outs and things that we'll have.
So, there could be some mitigation, although I think most of that will happen more in the latter half of the year where we'll start getting some of the benefit of our tax clawbacks as we get those returns filed and get the cash from those.
So, I think our cash position in terms of total cash is going to stay pretty stable through Q1 and then you'll see that operating cash ramp back up through the year to get back to that $40 million-plus type numbers as we get to the latter half of the second half of '21.
Peter Clifford -- Executive Vice President and Chief Operating Officer
And just to add some color, Matt, on ERP, quietly here during COVID we've been working very hard of note that we expect the legacy Dental business to be brought up on the SAP platform of Hu-Friedy early in the spring. And we've done that pretty cost effectively, as you haven't seen that spike up in capex obviously, in the results. And I think we will use the remainder of '21 to make sure we've laid out an appropriate plan for EMEA, but I think EMEA Medical will be the next platform that we'll move to SAP and that'll be a fiscal year '22 action.
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
And you can expect capex is not going to go off the rails more than like $8 million to $10 million a quarter type run rate on average, so -- for '21.
Matthew Mishan -- KeyBanc -- Analyst
Excellent. Thank you very much.
Operator
Thank you, Matt. Our next question will come from Mitra Ramgopal at Sidoti.
Mitra Ramgopal -- Sidoti -- Analyst
Yes. Hi. Good morning. Just -- first -- wondering as you look out this next year, how we should think about restructuring and acquisition-related costs, etc., that's largely behind us?
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
I mean other than -- you'll see some Q1 restructuring costs probably come throughout the year and see some restructuring costs come through. But I think most of the large acquisition cost, -- to your point -- that's behind us. I mean, again, you'll still see some footprint type restructuring cost come through as we continue with some of those actions in Europe in Dental. But, yes, the bulk of the Hu-Friedy acquisition costs to the extent that those are now just going to be embedded in an ongoing amortization depreciation, they're behind us.
Mitra Ramgopal -- Sidoti -- Analyst
Okay. Thanks. And obviously, you've had two quarters now where COVID has obviously affected the operations. And just curious as you look to implement the Cantel 2.0 initiative, how has it really changed your outlook as it relates to accelerating product introductions or even rationalizing the global AER portfolio, maybe any new opportunities etc. you've seen as a result of that? And then, obviously, you've highlighted, for example, facemasks was obviously a plus, but any other comments around that would be great.
Peter Clifford -- Executive Vice President and Chief Operating Officer
Yes, Mitra, I think the biggest thing that we've wanted across the business is just changing the cadence, right, that you can fall into a cadence that's running your business on a weekly or monthly and quarterly basis. And I think the best opportunity for us that we've seen collectively from an execution standpoint is getting back to running the business on a daily basis.
As far as things that we had started to lay out pre-COVID, I think actually the opportunity for us with some of those activities required extra pairs of hands to get work done. And I think the excess capacity that was created with the downtime in certain parts of the business allowed us to move smart people to those Cantel 2.0 initiatives to move faster at a quality pace.
Mitra Ramgopal -- Sidoti -- Analyst
Okay. No, that's great. And again, just on M&A front or the mix things of different companies, obviously, it's difficult to get some deals done in this kind of environment. But the same token, you are seeing some opportunities as a result of pressures in a number of maybe potential competitors, etc., are facing. I was just curious, you covered up about a year now for Hu-Friedy and I know the focus is still to de-lever the balance sheet somewhat. Just any thoughts around maybe being active again on the M&A front?
George L. Fotiades -- President and Chief Executive Officer
Yes. Look, I think for the time being, we're very focused on these Cantel 2.0 opportunities which are significant. And as Peter said, we've been using this time wisely to push those ahead. So, we have obviously work still ahead of us to focus on that and I think that's where we can get the greatest deployment of our -- at least our people resource is there.
Secondly, look, we -- obviously, COVID, if it's had some impact, it's certainly then on how quickly we could pay down debt. You all know we had to -- we took out the issuance on the convertible debt. And the good news is our cash management has improved meaningfully, so we will -- we'll be paying down debt as we go through the year, but that's going to continue to be -- our primary focus is to get that down before we start looking more assertively to things on the outside.
We obviously stay active and we look and continue to follow things because, as you know, the way we do acquisitions in the past are usually of a proprietary nature and those are based on building relationships with companies that ultimately want to become part of Cantel.
So, that part, we continue to do. But in terms of actually pulling the trigger on anything that's -- that will be a few months off as we work on getting our capital structure where we want it to be.
Mitra Ramgopal -- Sidoti -- Analyst
Okay. No, that's great. Thanks. And then finally, again just to be clear, George, I know you talked about the EBITDAS margin, etc., by year-end should be improving off of what we saw this past year, but just interested in some of the assumptions on that in terms of what I think you've mentioned, as the business picks up, you'll obviously be bringing people back. And there obviously are going to be some cost savings that will be more of a permanent nature etc. But in terms of just some of the costs that -- were sort of -- you didn't have to incur: travel, a lot of non-essential capex etc., how much of that really should we see as going away on a more permanent nature?
George L. Fotiades -- President and Chief Executive Officer
Shaun, I'll let you answer that question. I guess, look, what -- as we sort of said at a high level, what we can't control are these operating expenses. And if there's one thing that's transpired over the last six months to eight months is the discipline that we have developed and put in place to manage these things in a very precise way, certainly been helped by -- our SAP's functionality has improved. But we really have put together, I think, a pretty robust playbook.
So, this operating expense number, look, it's not a precise science because you have to put things in place in order to satisfy the improvement in volumes. But at the same time, we know the levers we can continue to control to hold off on opex until we really understand where revenue is going. But Shaun, if you want to add a little more color, please go ahead.
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Yes. I mean, that is the key because we have the playbook to react as necessary. And we're landing at that $85 million to $90 million in the first half year, because that's right what we're targeting to get to that 90% based on our anticipation of the recovery, which again, Medical and Dental being north of 90% the latter half of the year is kind of how we view the world and how we get to 19%.
So, to your point, right, Q4 obviously, the base includes very, very, very strict expense control on any type of expense around travel and other discretionary expense. And so, we do show that coming back very, very slowly with tight controls on it, and we'll continue to react as necessary given volumes. But the raw numbers, again, to reiterate are roughly you have $15 million of headwind sequentially from Q4 coming back. And then on a full quarter basis, you should be just little over $3 million of benefit back off of that from the round of restructuring that we just took.
Mitra Ramgopal -- Sidoti -- Analyst
Okay. Thanks again for taking the questions.
Operator
Gentlemen, our next question will come from the line of Mike Matson at Needham & Company.
Mike Matson -- Needham & Company -- Analyst
Yes, thanks. So, I just had a few questions on the Cantel 2.0 program. So, you mentioned in the slides and I think on the call that you've taken the -- you've created kind of a sales force within Medical, the U.S. business, that creates all the capital and procedural items, I think, in the past. Did you have a separate sales force for each of those categories, and is there any risk of any disruption from having a sales force now selling both, maybe some things that they're not as familiar with? And then can you comment on the size of the ASC team? I know you're probably not going to give any numbers, but maybe just relative to the hospital team, how big is that currently?
Peter Clifford -- Executive Vice President and Chief Operating Officer
Yes. Mike, this is Peter. In terms of -- again, I'm not going to give you the size. So, I'll just tell you the focus for the ASC and that dedicated team, full bag reps, we've targeted the largest eight metro ASC regions in the U.S. And that's where we're starting and with the ambition to hopefully eventually cover the top-10 metro ASC regions.
So again, in the past, the strategy was really what we called our pod structure concept was a single capital rep with large territory, sharing that territory with multiple account reps, obviously benefits of expertise of the product knowledge. But it left us an opportunity to further sell the full bag or the solution sales, so that is the key change on the hospital side is we have migrated to full bag reps dedicated solely to the hospital, partnering with the CADs and the clinicians to drive that CCOP sale to achieve better pocket share in the hospital customers that we have really strong relationships with today.
So, on a total headcount basis of feet on the street, its relatively flat. It might be modestly up a couple of heads, but the mix is different. And in terms of risk, we were pretty proactive here in the late third quarter and the fourth quarter, anticipating that the structure was going to change. And we were executing many training sessions with our sales teams in the U.S. to get people far more familiar with the full bag.
So, that training had already started before the reconfiguration in June and obviously continues here in July and August and September.
In terms of talent, look, we kept our best reps. That's one of the key takeaways from the reconfiguration in June is -- in the entire year of fiscal '20, we probably saw about 20% of our reps turnover. So, at the end of the day, we feel very strongly that we had the best team in the industry from a sales perspective and we kept the lion's share bulk of that team and really spent the time required to retrain people to be successful here in '21.
Mike Matson -- Needham & Company -- Analyst
Okay. Thanks. And then, I know you had talked about -- prior to COVID -- trying to improve the new product cadence. I think there were at least two things that you had launched. Medical one was a Cleaning valve, and then you had the new SCOPE BUDDY PLUS.
So, I know that investors maybe aren't as focused on new products just given everything that's happened with COVID, but I was just curious if you could comment on any traction you're seeing with those products and any other new products that you're willing to talk about in Medical or Dental for that matter? Thanks.
Peter Clifford -- Executive Vice President and Chief Operating Officer
Yes. In many ways due to COVID, right, the comment on it just gives us almost a second window to relaunch full SCOPE BUDDY PLUS and the Cleaning adapter came really late in 1Q and the start of 2Q. So, in fairness, the results were extremely positive but most -- like most things, the third quarter and fourth quarter were nontraditional.
So, again, I think it offers us an opportunity in the first half of '21 to be very aggressive in our programs as we push these products out as they hold huge potential over the next two to three years on the Medical side.
And then the other one that we are really, really excited about is Hu-Friedy has just launched a new ergonomic scaler in the last 60 days. And obviously, at a time right now, where dental practitioners are keenly aware and concerned about aerosol in the suite, which is driving a reality of folks either eliminating or dramatically reducing the amount of power scaling that's happening, so we've got a lot of hygienists that had been used to using manual scaling as a supplement to power that are now going 100% to manual scaling. And so, again, there's folks that are not used to that volume and we think this product is going to be a home run coming at the perfect time into the marketplace given again, the post-COVID world.
Mike Matson -- Needham & Company -- Analyst
Okay, thanks.
Operator
And thank you for your questions. Ladies and gentlemen, that was the final question from our audience today. I will turn it back to the Cantel leadership team for any additional or closing remarks. George?
George L. Fotiades -- President and Chief Executive Officer
Good. Thank you. You know it has literally been six months since COVID was declared a pandemic back in the middle of March. We're all very well aware of how this has impacted the world and individual businesses. What I can tell you today, sitting here on September 17th, is that it has been a transformational time for Cantel. As we sit here today, our mission that we've talked about for years has never been more relevant as I said, and we have really geared up to work in our end markets as the leaders in both of these end markets to serve customers. And this is going to, as I said, pay us dividends long term.
Secondly is, we've really stepped up our game on how to execute and manage our operations. It was driven by necessity but now we see it developing into a competency, such that even with the kind of uncertainty that still remains on that top line where we are putting force that we want to be at the 19-plus-percent by the fourth quarter. And depending on where revenues go, it could be even better. But again, at least gives our shareholders an understanding and having some confidence on our ability to execute.
So, with that, we look forward to speaking to you on our Q1 results in a few months' time, and thank you for participating in today's call.
Operator
[Operator Closing Remarks]
Duration: 53 minutes
Call participants:
Matthew C. Micowski -- Vice President, Financial Planning & Analysis and Investor Relations
George L. Fotiades -- President and Chief Executive Officer
Shaun Blakeman -- Senior Vice President and Chief Financial Officer
Peter Clifford -- Executive Vice President and Chief Operating Officer
Seth Yellin -- Executive Vice President, Strategy and Corporate Development
Larry Keusch -- Raymond James -- Analyst
Matthew Mishan -- KeyBanc -- Analyst
Mitra Ramgopal -- Sidoti -- Analyst
Mike Matson -- Needham & Company -- Analyst
