STE - Earnings call transcript Q4 2022

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Operator

Good day and welcome to the Steris PLC Fourth Quarter 2022 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Julie Winter with Investor Relations. ahead. go Please

Julie Winter

and Ted, everyone. Thank good you, morning,

few comments. usual, our Senior without time-sensitive on information This our strictly and have consent STERIS call the before as expressed and accurate that rebroadcast or today's Tokich, prohibited. Mike contains redistribution, is President a do I be will CEO. of Any Vice Carestio, written today. re-transmission webcast caution of we for As Dan speaking words President is only CFO open of and this call of

Some may in of results Many could review including described the statements those made STERIS' those actual forward-looking the during important be this are/or limitation, to cause from factors without to undertake update a statements. considered company developments. materially statements, through not does and differ forward-looking or risk factors statements any STERIS' available our these future company The of SEC website. filings. result events of as the on information forward-looking new or or are revise filings securities in

In call non-GAAP currency including adjusted growth, diluted measures, addition, will [Indiscernible]. on per and operating constant revenue organic be of today's cash adjusted share, flow income, earnings free financial

will their to call greater the in financial are with the operational including information the analysis financial and release. Non-GAAP along cautions, Additional hand available and reconciliations Directors of measures. transparency intent presented measures non-GAAP in Mike. between supplemental measures, of is and I providing financial With financial during information Also, this GAAP management with used today's regarding definitions these over Board by decision-making. to call those

Michael Tokich

our quarter you be the again good performance. my you, review is to fourth It of to morning and once Julie, Thank highlights this with morning, everyone. pleasure

prior added was organic down currency which $XXX as with labor increased approximately material basis as is year quarter, XX%. acquisitions as driven Acquisitions broken a somewhat the million points higher press basis for the the quarter, well increased pricing quarter organic and compared margin of in points and favorable revenue to the segment revenue price. productivity For in by costs. Gross the XXX were to constant a XXX by by release volume, Growth tables. offset XX.X%

and face anticipated. the for the was of impressive R&D, We expenses, income increased, $XXX a XX.X% rate supply year, an headwind continued versus plus margin the material performance increase which were is the million as was per At earnings the XX.X% $X.XX. end quarter tax to million quarter increased share XXX and totaled labor basis from the in in inflation. net adjusted cash operating EBIT quarter of $XX This chain diluted quarter about prior continue the $XXX.X revenue million. totaled costs, as The was including fiscal of in year. points the

being the We our ratio, continue debt by now on end leverage evidenced as fiscal under the focus X.XX at year. of repayment to

flow for Our to growth depreciation $XXX.X investments allows making focus expand and our was to the Year-to-date, totaled debt on reduction $XXX.X us and in continue million. million Free opportunities totaled capital provides continue many us cash expenditures amortization while million. businesses. to capital flexibility $XXX year expenditures

from higher with the Cantel of Capital to spending is and acquisition this prior anticipated, the As integration due decline with associated along a year-over-year. costs year,

integration free we associated costs cash million, of the occurred. of Cantel look to we with FYXXXX, forward anticipate of as $XXX majority As and the flow approximately have generation acquisition

higher Total interest continue net to rates expense million. to be non-operating be anticipated as to expect year-over-year, about $XX expenses also is We rise.

for businesses, expenditures continue in reinvesting the to his over totaling call million. addition, turn approximately our we expect with I that, $XXX Dan With In capital will to remarks.

Daniel Carestio

fiscal making join year our fiscal our about the Thank and XXXX, morning, good us to and you for Mike, performance more everyone. for hear outlook to time XXXX. Thanks,

out-performance XXXX, fiscal by we Surgical, it people the of As our Not I of completed a STERIS do and I while also look pandemic, did successfully have remarkable Cantel, of started After of outlook growth constant navigate the was constant the and XX% we would was the this in are growth and you, year not our currency with year, healthcare, revenue all Key twice for two increased Life global for only integrating double-digit but year customers to all STERIS. transitioned leadership. by for the a AST of we X% back acquisition solid organic of XXXX, they we to year. with organic done we revenue on continued be of fiscal segment, All other. currency X% start growth increasing want faster continue Sciences. where our and than today. while thanking expectation well an Without growth driven to in growing anticipated. growth, support outlook. each This year ended above year We our to mid-single-digit the

to constant results. of costs, for since margins successful XXX share segment our our the compared per with supply acquisition, to year-over-year added growth, XX%, Adjusted increased inflation and fiscal costs organic million Cantel X% STERIS. operating unplanned XXXX, labor. we not From record for reflect the XXXX, $X.XX approximately time up currency June. is earnings in profit Helping fiscal Dental diluted of fiscal overachieving the offset targets XXXX, points, While chain a about those despite the absorbing in a new the we revenue grew cost million $XX included with and year were in in related acquisition to which basis perspective, yet ended $XX synergies

for strong we Turning to a expect fiscal very level, at year XXXX, another our business. growth high

calls which foreign as the in impact of Renal the offset acquisition, approximately of includes total Cantel XX% well Our Care outlook by months growth, $XX approximately divestiture, additional the currency. million for two for as revenue unfavorable

organic Excluding all that, anticipate revenue growth approximately currency of constant we XX%.

from assumes that will that of procedure experience outlook in wave normalize U.S. COVID. and not we this volumes significant the Importantly, the do any disruption

essential the increased volume revenue includes of pricing. year-over-year. reflects outlook organic to currency, Pricing points offset growth basis XXX constant help and costs Our is favorable

we This to we which FYXXXX. single-digit we is an labor supply the always million normal amounts, FYXXXX, addition low $XX to expect For in in above will work in outlook, $XX and every year. annual included overcome our occurred in costs, chain incremental extraordinary inflation inflation million our

integration we to from marketing, extent, also our and and anticipated addition the approximately consideration $XX FYXXXX, inflation, spending levels. be In by million to supply the operating expenses. bring be total our FYXXXX. be we Cantel, on the be will other growth synergies will synergies the end and FYXXXX from get the headwinds anticipated from to new of $XXX cost to is of higher chain we FYXXXX, in puts and approaching products expect back to achieved. By we show into expenses all some margin takes, which spending customers. those headwinds, develop in as of R&D travel, to will sales, modest higher Taking cost Offsetting to million to as continue is expected and incremental operating be

earnings outlook of the over is X% full-year diluted $X.XX growth in be to anticipated share range to FYXXXX. Our per or to $X.XX, XX%

we all bottom-line are with moving this pleased Given growth outlook. the pieces,

expected be believe some given all it range conservatism the But is to record on uncertainty we low another for fiscal end. XXXX, usual, exists, year the is that us does warranted. STERIS. All-in-all the As provide

take several of meet our the with needs and trends the teams instructions of three Q&A. our sell give And sales relationships the years, so meeting and us I in to in than breadth prepared in to first allows Our call, to of for can positioned our our continue begin shared of by our remarks history. needs together industry the business advantage is concludes please ever STERIS that that the in offering portfolios we better to segments. to global leveraging customers. meet significant in-person cross our the today before the team come within That honestly customers believe Julie, the our we our better recently

Julie Winter

and your Thank we'd comments. Chad, you for if the would be get give instructions, Dan, to you, started. happy Mike

Operator

we from And be question Certainly. ahead. to roster. the momentarily Please Chris our go will assemble this time, Instructions] [Operator Stephens. Cooley first pause will from At

Chris Cooley

congratulations a fiscal questions for stellar the there taking Thanks year Good and morning. XXXX. on in

for currency out forward, you're year about than to may, The two a the higher seen. lot I thinking first, the how different just there’s [Indiscernible] business. constant is at with historically going morning, -- company start if obviously, Just we've here me, growth aspects what XX% this looking some

Thanks. about it a some appreciate if a through strength, year? seeing call you growth would can just improvement terms from both Then think of and in the out got a Just as of see and as that quick where the you're So, go follow-up. we to I've margin can then result maybe you we operationally need divisional perspective? drivers, from where

Daniel Carestio

a yet, seeing way Thank of Yes. rates have still terms you of the the high-value quite I back as significantly real And normalized particular in the of Thanks, the is as highly in return, not challenges recovery in more that last question. pre-COVID said there industry levels. in that type those and into well as quarter-to-quarter a the we fairly to more in devices AST volumes a healthcare on couple recovery move the In we're coming -- Chris, AST that's volumes to going we've that staffing those on business, procedure of generally as think governor more seen the is today, present benefits segment. healthcare our and be basis go. that We're in volume that for robust global Dan. both we more short, recovery devices. Having quarters And hospital elective, business. in the through are this particular

that things and of that nature. orthospine, like So

past. maybe procedures pent-up we've couple those seeing start begin then of year as off the to seen been growth So we're than higher in opportunities backlog what's and recover a demand, working

course the In year, as addition record a us our tailwind in a of hope Equipment from be to And flush bit terms will we coming of that that, through the were over with for of growth. backlog perspective. the obviously a into Capital that revenue all-time to year

Chris Cooley

Appreciate down fiscal just when detail P&L, appreciate 'XX. as then my the the puts color. the but to middle look the takes number I go of and and follow-up, of a as here, into we all And you

business of investment sustainability should making of a trying the the get curious, to about structurally of more return growth when talking normal? just I longer-term Or we How course better SG&A return incremental of broadly was months? about a expense XX of much much the business? the well, as maybe from think normalcy Thank how over what for feel to Just is an is this about under-invested thinking last you. you're for in rate? XX you're be directionally, the that this to R&D a Just higher the to just

Michael Tokich

to normal. going that is prepared Dan say majority first three any remarks, in more meeting what Yeah. of were means, years. least his would would is in we've the as return say I I the at had Mike. Chris, side and by this experience, we're our in under-invested not a SG&A we sales that to said

the you have expense So, years of that imagine that. the compared didn't can we last to that two

Where little in bit bring a So R&D we're growing those increases going of a businesses. in so anticipate all though, products types continue are talking in is investments we see XXXX, of you're R&D. the our fiscal make new of by across R&D change to to double-digits we about. to step-wise

especially we at to that So Cantel. just any the can a by invest the think term. that the there's that forth, lot a are under-invested two, look that We change continuing Not were long bring you is, we acquisition step-wise of means. more if we with opportunity for

Chris Cooley

on I great so appreciate Thanks congratulations And a Mike. again, much. that, year.

Michael Tokich

Chris. Thanks

Daniel Carestio

Chris. Thanks

Operator

question with & Needham next Company. ahead. go from Matson The Mike comes Please

Mike Matson

the quarter guess just taking with for start 'XX. my question. Thanks in first Yes. I I'll

tougher assume lower it a consensus of comp, a around hear didn't growth things? I in think. lower the -- the expecting the revenue. I'd than You've fiscal modeling of safe you got to you're organic a was comfortable commentary quarter you're organic where Is any assume I first the directional bit expect remainder where year. it's

Michael Tokich

Mike talking to is you. This

a at from we're bit is to to more any little of XX% we which help or a suggest about how And point QX, have little your you modeling, have I We we But color give with quarterly a do guidance I of would in time, in point, think say several going comments. have you second-half, give a first-half made would nor tougher first-half, years. your comparison to are and to XX% we percent you operate. we're bit not typical second-half, but that this not in correct. We

Julie Winter

to clarify that's And [Indiscernible] earnings. just

Michael Tokich

Yes.

You're correct.

Mike Matson

talk talk just mentioned a STERIS, it. little could I right. then in Got that. helpful. whatnot, wonder have with trends. the Okay. of some That's [Indiscernible] they're ASTs and but I'd is outfitted sterilization one trends about are and All And them cleaning the industry some that to ASTs, you You bit if just maybe that get just there assume equipment towards the more of industry-wide trend where those about

Daniel Carestio

is both in the sorry, starting Dan. U.S. is -- in that ASCs this an investment, And Acute on and see the clearly, recovery And awful in Yes, in particular. in of to across growth lot this Europe. one there's we're going Care

really So, positioned need in Yeah. in products, our we're we've OR and that as the we're also -- that particular few fill to with SPD growth well-positioned from that And past it portfolio over been seeing an years. with comes. perspective nicely and

AST as which consumables, that I procedural drives getting drives services, our drives we're business. our our tailwind before, recovery other is, that The general mentioned just is it

rebound. we least, in terms on as biopharma last to it well. STERIS for of manufacturing some to beneficial relates of And the aseptic no extent generally Pharma that's there's then investment shortage on see going procedure not rates as but vaccine in So and whenever

that consume an And as in as our have year going in Sciences solutions. relates the packaging our some as Business we investments lot come to it through industry. expansions tailwind investments a of -- to our us start chemistries of online, So, seen those flush backlogs for we've going with Consumables awful the they this to and on that's in that's Life

Julie Winter

as And well. our [Indiscernible]

Mike Matson

it. Got Okay.

Daniel Carestio

driving And a procedure our obviously, as business. AST tailwind recovery within for AST that's and biopharma

Mike Matson

-buying having goes, trouble the as just to I getting activities than a that, mean, mean, operating cash of cash the Got $X the Thanks. Okay. then billion little -- in it. in far guidance I'm I from flow coming And my flow you’re assuming as get model. was could free but higher that I I'm things, is is of working up maybe I your inventory on that chain but stocking and the companies. fair capital from that assumption mean, because up way issues, other stuff reasonable pre only a bit. a heard supply there we've I

Daniel Carestio

years a that's exactly and will does go we the the obviously for little levels inventory inventory. last be have level year. we've to and When right chain probably down shipped as throughout the continued get where supply the bring we X bit we actually if backlog that months, Mike, inventory doing been that carry able higher to of XX we easier,

gone has to just-in-case. philosophy from Our on just-in-time inventory

supply inventory lot now. there's So, awful continuity right chain our an of in contingencies built levels into

Mike Matson

Okay, Thank got it. you.

Daniel Carestio

You're welcome.

Operator

from Mishan ahead. Matthew KeyBanc. from go next is The question Please

Matthew Mishan

first Hey, versus looks I fourth least fourth the shifts quarter. the of FY the late in good I Did thank Healthcare little with in morning. at came you for like taking XX. from the Equipment, questions. model, it just the want some into backlog our in to quarter start a Capital

Michael Tokich

ship Matt, $XX we that ish Yeah, you the we've scheduled last been quarters, that not as couple roughly ship have to will. talking been of if did seen, million normal have on course, about - a would

Matthew Mishan

that's Capital is price sustainable moving [Indiscernible] what As forward. its compare you a that for you points level say it what you a look if organic to at level sustainable What back not do XXX organic and I lot adds the compared you then how for out growth to of growth, XX% XX% -- is Equipment. probably guess, basis is 'XX? organic you growth the at FYXX, more look And Okay. of you of do

Michael Tokich

forecast long-term with several in Matt, we better single-digit we Obviously, thinking perspective. but a say the stay on would or the that done that I in that Yeah, revenue aspirations. general, from would are mid-to-high growth over years, our still still than we've long-term last

Matthew Mishan

we've it Hospital seen And companies different some Capital as the year? from spending I couple thoughts a that's opinions through just moving. of longer-term on on just progresses potentially Dan, Okay. then where think your

Daniel Carestio

those and opinions Yeah, we've seen as well.

we surgical rate-driven. order $XX,XXX that's some is, accommodate lights procedural is, Whether for SPD. think the Capital tables it's equipment, the procedures. to is to sell STERIS everything $X make typically increase machines. I they at whether that's to have like the times these of for in is utility or And the that of stuff in million would aren't have hospitals, $XXX,XXX the point a it's basically, other Equipment differences them dollars, an I selling in and pieces in, it is almost million And

cost future. speaking, equipment of we And investment. continued our see know. But strong long generally the the don't the it given changing will So it utility nature, see near in of and don't we in how last, anytime it I

Matthew Mishan

much. very you Thank

Operator

ahead. The Wolfe Please next Research. with go question is Polark from Michael

Michael Polark

Good the Matson's morning. EPS? taking XH, XX, clarification or revenue progression Thank to Mike XX, Tokich, was response comment questions. question, for XH, on a One you that on the the Mike

Michael Tokich

back that us. welcome was to Mike. and Mike covering on Welcome back EPS

Michael Polark

your three made was Mikes my level you, on too many. been you 'XX? would to too question set the frameworks I'm this fiscal comments out first across past. like work willing but in think little precisely? fiscal more have imputed much, segments, struggling Mikes model How level splits be -- I can $X.X we just to to that give the of or maybe bit for in or don't revenue 'XX a three There set take And billion in so the the not

Daniel Carestio

somewhere little comparison we And at true in, we'll say Life have a be bit Sciences Dental, is think time, done if and We this you normalized for point I you going part, that at its a that point obviously, would in we look will AST that then But not the so. I at the normalized growth. than I exceeding growth. most better have be their time, tell will maybe Mike, not. will to in growth. normalized growth, don't at still be Healthcare

Michael Polark

that say one yet. as the initiatives and of to for learn do Okay. market? piece hasn't Dental, How about work-streams integrated is acquisition 'XX the What that is you continue fiscal I impressed the early you Dental? the feel what's that and business? assessment would this of

Daniel Carestio

Mike. Yeah. It's Dan,

it yeah, the time-frame. had in happy where recently, it Healthcare unlike saw in particular surge with the with And So we're effect. of more I would the little say -- affected business. we January that very February or is Omicron

want level of at couple if get lot infections the if in a pent-up across space. time that, a in there's of and terms call in broad the months today of ended or you anyways, lot the U.S. before can first dentist year. fact-check lost calendar July Just demand in delaying see of particular, of you because procedures in And this Dental the postponing your up to

So, like in serve what how efficient couple make in on saw terms calendar operating we terms little a more terms think That's and [Indiscernible] continuous recovery other they going it's driving we ton the months time opportunities and improvement. year. the a we business the that, through business, But demand, of to out in of track wring there's customers. in steady efficiencies of us than to barring some take the of their of a first of

Michael Tokich

that acquisition, below a is just clarity. COVID is We have point segment, Mike, little impacts, of which you since a bit And little to grew the the that give to for of little a which the add would further to some that to bit. anticipation mid-single-digits some because Dan's we X% below

Michael Polark

- like that's pro a X%, forma

Michael Tokich

Correct.

Michael Polark

Okay. rate for growth - the business?

Michael Tokich

Yeah.

Michael Polark

have from R&D wish importance product category you noticed do I to one I don't And not any launches efforts last. overtime. Obviously, But launched, the that relatively Thank And with if late come products time-to-time. comments for And single-use more about appetizer interesting. that can saw so overly curious be of or reliant much recently overstate your some the Ureteroscope, on single-use are the this this have and any this I is as category to you topic an and so seems question. that I scope just to single if a product, think recently, I'd single up more, there. questions. taking STERIS year I and in The

Michael Tokich

Sure, Mike.

that time. and new in in would with around see and positive our teams and goes of scope in a this perspective, So point. And that with I repair we're market how leaders, positioned days lot the nice that right the in collaboration progressive put is IMS over early What it's is understanding that commercial terms now scope. STERIS Urology at we've the it release how key limited received uniquely our and vast position and And feedback say we have engineering a we'll a space. design us yes, opinion from business early, of has from

and it's that to point, At product information begins so, realistic too launch, be discuss provide able we'll early into to as it. update And it. days go to more us for just on some this

Operator

you. ahead. from question Windley come Jefferies. the Dave next from And Thank Please will go

Dave Windley

my taking for of follow-ups. questions, Thanks most them

drivers AST, mentioned, picking those demand You've and those recovery market comment but other the of broadly as commented on contributors that? Healthcare and be -- wondering whether volumes to if you you I'm share you've could might much predominantly the in and how volumes gains on being see recovery, primary any

Daniel Carestio

I somewhere hospitals because mean, are to straightforward, lag into the necessary. up pretty time, at pre-COVID. and pent-up And recover anyway, getting some I region-to-region, demand. intake That others we think the is disease staffing provided, in as over market the also terms improve a of they're operating what of them step think the is in moving terms system, where be as towards of procedure on diagnosing I demand, as U.S. in now where there's slower XX%. a the back there operating XXX%, with that see lot now, can we'll are, But volume, well. you where meeting back at people terms saw of full back Depending beyond may surgery around we're that's pre-COVID, hospitals XX% in

it's So, to take time. going some

we're growth overall believe taking STERIS. those of I that AST. market and to also expansion In -- terms majority investments significant and spaces. the And very relates discussed past of bit doing a think a than made portfolio we're in our terms years it business and I significant of We've the we've and over do at across share the different in bit overall Life as the in here on the in better in businesses investments little in rate, consequently, of Healthcare rates capacity demand Sciences

David Windley

was floating and just topic leverage, free expectations. you year coming X.X different follow-up, big in cash flow recovery rates mentioned general rate interest and you think about of mentioned your times, you more the rising thanks capital Great, priorities environment getting do talk in quickly. I debt and is interest have, interest around a structure, is to capital much the deployment more how rising and Maybe that off that rate encouraging pay

Daniel Carestio

would say we that top. Yes. same We've for capital We're the anticipating in done are general, cash last as or I remained dividends. about a that the flow, off years basically believe the $XXX in have XX decade, those million free our our in in more. We row. increasing priorities

would segment, directed Next about our our anticipating expand that of CapEx, -- is year. $XX that million to continued higher invest We're to to prior lot do in we're to $XXX facilities continuing AST is and which CapEx compared million into going our ourselves segment. to to in the and we as be, be continue a that. continue almost And of opportunities

finally, in repurchases would be imagine down then And those, looking in M&A. about do most continue over done share nature, the or future, the But a that tuck-ins. and on share as or last of had so. dilution. a standpoint, for those $XX share in hiatus into transactions million that years to We've offset QX. just And tuck-ins be dollars we I for we will of would the path, Third XX the years. this XX built we towards from repurchases of have two did M&A our just last are in we months Most XX repurchase year, plan

to operate last that how operate how prioritization So, we and several years. from is the a have we over continued standpoint,

David Windley

you. Thank

Julie Winter

Dave.

-- debt I think quarter you've asked debt. that of our about a Just about floating-rate is

David Windley

Okay. Thanks.

Operator

ahead. is Instructions]. Chris The Stephens. Cooley from [Operator from go follow-up Please next a question

Chris Cooley

Thanks the for follow-up. taking

quick stabilization margin when to throughout me, sound Could to profile sense Just of take maybe the curious fiscal was It progression a start discuss place a for that just I modalities, sterilization then just to to the we 'XX. volume-related? downward on impacted get better fourth color may. the if prior in expect sequential States of emphasis Bit from on decline saw particular if we to AST you you provide think in follow-up. a you much But should two Just in lift could trying better. you response when so the Thank much. different that follow-ups you does build-out quick a Dental x-ray it's a in that or the about or and any there here How quarter additional business? And like speak continues United maybe question. abroad.

Michael Tokich

Dan, I'll AST Dental the if give take one okay? I'll one; that's and you the

Daniel Carestio

good. it sounds Yes,

Daniel Carestio

rest were On of seen of of a has standpoint, our being from business in and margins like still degradation Dental profile materials impacted a inflationary the Dental, business. EBIT we back in dramatically labor year. correct margin in the are half In Chris, the they changed quarter that you fiscal have the first not that the our that we had

And patients impact then of -- a large volumes with that earlier, So impact about driver definitely negative business. as Dental. that negative we one talked is had have impact on to

having say more continue in we but to volume. to would corporate that then its I operations that definitely impact streamline on the look Dental have a general, business, is ingrained So, would average we of longer-term, on own. segment above that inflation definitely as larger in that and And our get the

Chris Cooley

Understood.

Daniel Carestio

of to technologies, have in across either shortages particular, which facilities a nothing network year, phase the few in, likely construction In Dan the of build has California very addition fiscal Illinois. of the late x-ray and facilities that multiple pretty challenging York. over New that question. across of actually for years, or it's a by we've online the e-beam numerous in come one we COVID most Chris last in three -- And recently. are environment on got our process EEO short build-out a will earliest in AST definitely late and going We're of will significant the next the expansions, currently plants Chester, then labor or looking the during another, couple couple there's this in up be US, The followed been couple of but years.

Chris Cooley

you. Thank

Operator

This would turn closing question-and-answer gentlemen. I like and to Julie to concludes session. remarks. for Winter our any Ladies back the up Conference

Julie Winter

to this and the with Thanks to the us time everybody, for catching many forward in morning up days. of coming you taking live look join

Operator

for The presentation. now Conference attending has you Thank concluded. today's

may disconnect. You now

STERIS (STE) 12 May 222022 Q4 Earnings call transcript