STE - Earnings call 2 2024

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Operator

Good morning, everyone, and welcome to the STERIS plc Fiscal Second Quarter 2024 Conference Call. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the floor over to Julie Winter, Vice President of Investor Relations. Ma'am, please go ahead.

Julie Winter

Thank you, Jamie, and good morning, everyone.

today's and be our CFO; CEO. on Senior Tokich, President speaking President Vice and usual, call Mike will our and As Dan Carestio, I caution words comments. And a open we for of have do before few

webcast strictly today. redistribution, without prohibited. of the This only written consent this rebroadcast Any time-sensitive is retransmission information accurate contains with as of expressed or call that STERIS is

results made be factors those the STERIS' statements including, during differ actual considered could statements. of are statements, may filings. this securities those Some or risk from important forward-looking Many cause forward-looking in in to materially review factors the described limitation, without

SEC update a company the are on The company information available our events new and to website. any STERIS' forward-looking future or result undertake filings of statements as does through or not developments. revise or

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

regarding definitions, information measures. measures, including between and non-GAAP in as well is reconciliations these our financial as GAAP Additional release available

the Non-GAAP with during operational of by in and Board are of providing supplemental presented information this management the call transparency decision-making. used analysis financial financial and their Directors financial greater measures to intent

will With over those cautions, hand to I call the Mike.

Michael Tokich

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

XX.X%. by continued was labor X% with by price. quarter, compared decreased and as material the year basis Gross quarter For price the more lower driven as inflation. prior volume for XX XXX the favorable offset currency increased revenue and points productivity to margin organic well than basis of constant The points

diluted income XX.X% in the compensation tax and margin in XXX $XXX.X was the Net decreased incentive revenue, in year-over-year increase was million last decline well per year, expense. EBIT were basis with quarter to effective adjusted rate The which as gross in as the margin anticipated the quarter share. earnings reflects the compared points XX.X%. second $X.XX quarter of adjusted

the while totaled expenditures million. of half XXXX fiscal amortization and $XXX.X million, Capital $XXX.X for first totaled depreciation

adjusting timing fiscal change for for business. allow capital $XXX projects to XXXX down our approximately XXXX, This the cash This higher-than-planned for reflects $XXX free million spending us our We at million. of change inventory are AST fiscal offset from flow to levels, keeping million. outlook outlook will $XXX

was to Free approximately Total half EBITDA increased BD Debt $XXX.X used million lead $X.X elevated second as cash fund tax leverage. billion in customer the to times to quarter, meeting borrowings X.Xx and XXXX for acquisition gross cash lower we decline focus for from as on debt benefited the related payments. Inventory flow a compensation in was and spending end to quarter demand. and assets. reducing remains of fiscal the first capital continue reflecting the at of we

to With for that, call remarks. turn the I'll his over Dan

Daniel Carestio

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

offsetting expectations segment the have pleased very heard the we you our Healthcare we the segments. impacting in quarter original in experienced other As with our for challenges the our demand performance our for Overall, are fiscal few from to macro continued the segment Mike, our quarters. is past second momentum Healthcare anticipated outperform in and year,

share U.S. service price equipment, as organic consumables the grew market and well growth and constant Looking in at again across gains. capital We This in our quarter. volume segments. is as driven experienced rebound by quarter. this Healthcare double-digit primarily revenue procedure currency XX% the

lead in as times our ship for faster orders to normal a backlog to pace are get reduced than able new customers. were anticipated, has our coming As back we as we

the saw orders in in During representing Healthcare. of total orders, replacement our half, first we strength XX%

We confident comparisons Growth of in will, quarter. Healthcare a the expectations fourth second however, for challenging segment. strong decelerate we our year in half our as very are face increasingly in the

constant revenue organic declined Turning to AST, X%. currency

business declined X%, services our grew capital our large due While shipments. of the to business equipment timing

addition, by customer the medtech quarter performance demand. decline continued and destocking the In year-over-year in the space our short-term to in inventory bioprocessing market situations; impacted be X the of

U.S. do during of improving environment burn the of medtech down reflecting saw the growth in recovery see signs in demand. very procedure and the inventory. positive We the We good quarter, customer the

bit We do From continue not said, take a fiscal a procedure bioprocessing is year-over-year 'XX where anticipate reset, to in see FY as recovery taking however, markets a we perspective, represents to have in hold. returning bioprocessing XXXX. bit European a growth to the and longer of in weakness, we

our As to in outlook growth strong it XXXX the fiscal half continues compared of our very we of the first we reflect head as the half, for second into factors, when these half. comps to the ease on fiscal witnessed segment our the quarter as third declines in Based was year second bioprocessing. AST first

revenue as Consumables the constant service the capital organic capital in were Sciences from was currency X% grew X% delayed growth flat. contributing basis shipments XX% grew Life quarter in equipment. quarter a to recognized the on first and

many remains from hearing a are the other demand spaces, bit short-term murky. you As

manufacturing about optimistic trends We demand biopharma. the in driving very for aseptic be continue, to however, long-term

sequentially X% total control business in was in a Our Dental the destocking delivering we second constant margins inventory, of are customer organic on improve impressed of segment, Despite limited above these infection the basis margins, quarter. company revenue for by currency challenges, quarter with particular, products. the EBIT as revenue to declined ability

remain shift abated are year. which uncertainty, first execute has fiscal of a pockets U.S. challenges products outside trends there we our to pleased Healthcare delivery ship of have times segment. That the continue our in said, greatly the procedure direction, and chain still with and in, to supply ability positive half All our to improved. capital of are largely

organic XXXX second will as fiscal total quarter in for We are a revenue growth we constant maintaining strong growth half. fourth to our expect very a by quarter our the limit followed X% expectations of third comparisons, currency X% tough which

addition, perspective, earnings an absorbing $X.XX are now we our we headwind about outlook of to In in which $X.XX. $X.XX, have of currency an current additional from from

for our start the Julie, prepared instructions please concludes can That would you Q&A. remarks the we call. give the and

Julie Winter

please get Mike we comments. you, and Thank for Q&A Dan, started. for Jamie, you can and your the give can instructions

Operator

[Operator from Instructions] Our comes from first Jacob today Johnson Stephens. question

Jacob Johnson

the or last also -- better the other just like of X Mike and is it but those material, the expected, and going maybe Dan other like of talk year, is playing segments curious most? playing seems expectations? kind Life is Sciences year following how It X you of think year comps, versus Dan, Healthcare beginning appreciate I expected. XXXX out changed Can and biggest the the as outlook. where reading on comments Maybe than some the seems out it kind like segments this the about up just the the delta are but since seems things have of the original I

Daniel Carestio

good continued across, tools And Sciences. there's are either pharma the the billion see sells in companies other we And Yes. in is Pfizer Life suite. or going in everybody still doing biopharma I some this destocking -- mean that I cut. some been and expect to you space. year on It's still disposables It's reported so just the deliver that's think following in that a announced other sort general. last $X.X or pharma industries, into of a month

which pullback start short-term happen, the in positive, we generally speaking, the well. see there'll really is But space be we and a for aseptic to that great sweet So portfolio expect manufacturing, we is to have when long-term a our outlook see and and -- industry. do really biopharma

I in AST the as terms a business, mentioned, the U.S. trend seen of we've In positive

think quarter, out positive of customers. over procedures crossed I from was our and very Medtech seeing that the inventory with there growth excess the we're past in have the sort

In the to way have terms longer abate shortages strikes the a delivery There's of have in date. it's sitting bit they're if will Eventually, been they around. just down taken has even of and that a Europe doesn't Europe, lot there's U.S. that and happen. burn the inventories of many not eventually, going that to places lot and access mobilized in and been labor healthcare for to a

QX And I the it's of QX weeks saw or take. and time around we covered we high it we've bioprocessing previous fiscal in the mentioned slowing of sometime it I've And give have matter guess. a as quarters then case. of year, few our generally and length. QX a at think sort the into fall then point. year, speaking, point, the that seeing But I in this expected by calls, was That's at in out would could I still in that think winter, I bottomed ultimately Last started months, burn period. the expected U.S., or we our time That not

So comps especially easier year. get in half into our the we for us second performance, for next as fiscal in of and that QX terms then the get

Jacob Johnson

it. Got

guess, I follow-up. Just, my

times a it both anything on you and backlog, Sciences Sciences on to Life else Healthcare little on and down Just is lead of or about share that? maybe say more up and at macro Life catching fair the bit Is sequentially. healthcare kind you'd execution

Daniel Carestio

Sciences, out get stuff just We I the prior products of didn't and Yes. lot are say in recognized quarter. to this supposed slipped quarter Life No, the out end the in until particular, in till of that move door. quarter getting a both, would had was that the

issue, been of just out that's times get strong. orders and we've significantly. And to So factories as able our purely a down more pretty remain we pretty a lot stuff our bring just lead timing

and delivery So great quarter we businesses. a had general cross-post capital for just

Operator

comes question Securities. JMP next from Turkaly Dave from Our

David Turkaly

the super devices Or shift of AST seeing? experiencing and that I'm of mentioned inventory to curious, are you is demand some what bottlenecks are going to you you're there They're It ask on a the sterilized, one saying companies high. just like get I for there? between the follow-up the just some wanted is that highlighting timing customer modalities seems have on actually we Medtech projects exactly side. like AST.

Daniel Carestio

have are I really not say we like past busy the U.S. plants versus and of is North happen the I growth taken demand seen what outside back sort come bit recovery of normalized what U.S. in busy in guess, rates for X the in X to America, would what of we for quarter, -- saw get strong would they're quarters. back or I It's U.S. market a as past I I said, Well, the the longer would to that The outside consider

in change the to next so. quarter that or expect We

Julie Winter

think, And Dave, the have shortages, to tied been EO more I sterilization.

Daniel Carestio

Yes.

Julie Winter

side. been softness on our has the radiation Where

Daniel Carestio

Yes.

David Turkaly

you? for the -- sense. how it's it's I as or but to means for I moving pilot of to that analyze then forward? master Obviously, that just That you think sort mean you think I'm Julie that -- team don't filed curious makes you And a the think you said maybe what follow-up know just program. is STERIS for will what first, or that

Daniel Carestio

Yes.

So resilient supply ability more -- improve really what it gives so chains. it does is to and our significantly customers much the build Dave,

allows within refile our our network them regulatory sterilization, Specifically, even from gamma to of it without to between a X-ray different technologies even EO e-beam whether of that's X-ray either or do massive or to switch gamma or or to facilities switch perspective. having to a modes to

course the XXX(k) They when under of they a file a would between significant and allows refile it So make also place. a effectively. they regulatory say, master switch just technologies. not everything But check sure would do that more had products are then I in normal from to lowers our customers under of build would that hurdle, their much And enter sort resiliency records was their agency, next program. audits would to have to

Operator

Our from comes from Wolfe question Polark Michael Research. next

Michael Polark

so for set back break has of it the obviously, helpful. the lot you a expect question half? half. in in the you the out, Not It and that's half. back Mevex how Can AST much help in you segment Mevex the it level front Mevex

Michael Tokich

but million. large, $X dollars less be are of versus but million second total not the will material, year-over-year, than half, the revenue not. the percentages unfortunately, first which was half, the Again, it are about In $XX

Michael Polark

Yes. rate it worst Understood. tunnel, AST the that's No, look, And devices end like of I services I'm AST now. of and at What's growth to and up phasing, light a good services the growth in sequential or hear helpful. at U.S. the half, year-on-year. X% all destock in for rate annualized especially comments, in of either on half? back kind sounds bioprocess front year-on-year then in the it planned looking

Michael Tokich

rates getting normalized. expect double-digit growth the Yes, in double-digit back half, second -- to like more low we

Michael Polark

line? AST the In services

Michael Tokich

exactly. line, services AST

Michael Polark

that. do last appreciate healthcare calculate but -- have a will we're the for X.X own I pretty And it math, healthcare, the you environment, Helpful. working not equipment. a book-to-bill, order you, unlike it's was conversion metric But a then you It up, our quarter. the can Okay. quarter. -- want report, if you to I follow-up and big was equipment, X.X topic we way, It's your and been you question seeing this sub like and to real that's is -- tick hard like it backlog have clear. up set fresh rates my I convert this backlog, for

a would much because to refill Like to just backlog, backlog moment is do you element the the dynamic. I as business -- the for fast? wonder that's about where need at there your are now and as like of willingness right new otherwise bid as an you you

there on And into be like we and strains, if 'XX, similar stresses great. capital curious seeing and broadly would thoughts hospital on you will, no impact? just calendar as spending, I'm So this then move any

Daniel Carestio

Yes.

a a Just it's -- couple lot.

of the couple one say And quarter in of right a remain yes, positive prior our And, last I and the strong, versus increase the out business in of Just there's signs comments. so so few activity field saw I was portfolio much I the in terms our in mean or orders now. periods. the replacement the significant would

time year hospital and willing We deliver me normal b, money they confidence about a, in cash they're necessarily spend there that period that pent-up where on more tells CapEx to lot situation a healthcare many are that as to of and have. are that maintenance is and customers good And field now, can that: definitely times; a lead concern systems can have also are of path lot talked a killing I've providers on before, relatively a profitability our this ago. short although confidence. a them the was of -- in we financially and not it a our flow with right

And equipment These is luxury not reality -- that capital are it of they're the well as our is not is capacity enablers. products.

do procedures tables. and lights can't You without

sexy, really You the can't do all in adequate processing capacity And a department. that but we It's not sterile what do. procedures without it's that's requirement.

Operator

question comes Matson next Mike from our & And from Needham Company.

Michael Matson

that lap start guess I was starting Dental seeing. It the of business. you've down been with I'll you're some the It to again. looks declines like

economic just outlook that, really the So to kind I else, or -- something what's is guess, headwinds just boil down there? Is maybe? the of it

Daniel Carestio

elective the it Yes. to the short cash would And entirely I and entire on generally mean we be term, we that people topic couple I'm sure, year. on have ability and it's of impacting to expect just right to weeks. procedures type type us, about industry, the in downturn and flat this that to of spoken fiscal economic dental others the attribute now last prior spend

get you've some Long of discretionary grower. term, got the of But to economy solid are to U.S. order for it's those type it we mid-single-digit get numbers. these to particular, out sorted in back spending, facing think a challenges in

Michael Matson

Yes.

there? equipment installed. it some Have about in business. and you're wanted getting been issue book constraint But working then Is ability a And to seen backlog to hospital to regard that's staffing the I -- the obviously on least, the I that, in just past, look still know that the -- with like the Healthcare that the ask an revenue you Okay. the with on improving? at companies. does

Daniel Carestio

for than mind, do No. married at and stuff we've used But keep so there's coordination well got received I getting to in to ready terms the that more are also us, U.S. docks shipments be employees, We've are up, STERIS go install. in full-time maybe shepherd get in our of and do to properly. we that this that. seen doors mean, today that there work to getting X,XXX get help process the over the installed stuff the techs into it

Michael Matson

I in prepared the Okay. then I addressed got this And call Got the you may a on little remarks, have it. late. know

to guess, the sequentially would just I And improvement, a just about had sequentially. quarter, like look commentary helpful. wanted quarter you gross nice last little any It I ask the it of fourth kind was from margin. bit but a there So down did be

Michael Tokich

the we margin was that down XX more basis remarks was in continued unfortunately, labor prepared -- even But lower and material did we Mike, though gross had Yes. that price. mentioned have by margin than offset points, and productivity favorable inflation.

be. are So not as would we the as productivity, we we as facility, through typically stuff moving the efficient are

negative us hurting that short is in So run. the productivity

Julie Winter

Again, AST don't volumes declined sequentially margin. help

Operator

Jason next Sandler. Instructions] Piper from from Our [Operator comes question Bednar

Jason Bednar

maybe side day on, with start topic but first to want I here think, CapEx the on the of AST. AST, the with I

AST, to for risk to appreciate you you're those CapEx projects future at that's thinking the of And the there this here year is about just growth foregoing spend out all a CapEx free wanting of year. spend? above just protect of year cash next should in an being outlook some Just into CapEx normal But postpone influencing 'XX capacity? shifting decision that been and 'XX adding fiscal the flow. I not we be

Daniel Carestio

Yes. Dan. you the Thank Jason, is for this question.

to environment delaying installed clear, natural and Just just else. and be everything getting everything by very we're and They shipments. else delayed building just things were processes permitting and current of these not

And we way So those intentionally a into bleed fiscal over it's would they've -- CapEx naturally as to we answer slowed be those in now have next yes, is perspective. -- from slowed. would not any year the just expect

specifically. any We haven't pulled projects

Jason Bednar

recognizing not revenue, be the talking you're the clear? you're about just and Dan, to spend CapEx Okay. equipment as that

Daniel Carestio

CapEx about talking I'm Yes. Correct. spend.

Jason Bednar

Okay.

spend was this of it year? shifting like million $XX into year that's out So of next

Michael Tokich

$XX in to AST, XXX% the but segment. is is bulk The that of not the that related AST of directly It's million AST. bulk

Jason Bednar

it. Got

much $XXX know a work that Where million some then on baseline? of above levels. level? down down had backlog. normal that to see you the think It normal How in again, normal settles were backlog see running for we peak period do What do we've from here I you a more before long And well sits time. do you questions kind environment? as need we're we at of backlog think Okay.

Daniel Carestio

normal from around past our if artificially We to in deliver. but down and manufacture is we've of in now supply accelerated we're coming to we solve It it's chain those orders. of it pulling XXX, issues really keep high an the ability at pace. think because keep was sort a happy somewhere as And higher perspective,

Michael Tokich

would our to be. like times that would say than I continue Although longer them lead to be we

Jason Bednar

what right. How All Okay. seems And Are markets? improving. think it, bifurcate heard but dependent much like last seeing you able I what X did, then business I that your U.S. you're don't you across for to the for those me. you're contrast the market seeing with are in seeing one services and opportunity apologize. here AST if Europe? delta I rate is It improvement against more European on growth I

you So encouraging just your be or wondering what you're in if hearing recovering would that that an and partners, kind leading of anything seeing indicator? anything on from have procedures geography visibility

Daniel Carestio

look at it. We do

have the a of also going lot of on all being a the from with in their public information Europe. directly in market. We what's And public insights and of of other there's and NHS data customers with hospitals commissions the and points, -- lot obviously, health in dealing our

crosses it's improve, the we from some don't even procedure is to get perspective. burn inventory What if stocking And over to customer say the rates get at our and down back got normal better. I would point,

to to relative the U.S. we crossed the over relates the definitely in said, to or I say really in it European got is time. bring much get we'll on to considerable it some that and and last And heard say, we've everybody customers takes inventory XX% believe couple weeks we destocking that years, XX% coming that that Like everybody I And months, not quarters, now as of or point line down. trying as would And as the over Medtech. bloated

back headwind easier quarters other become single-use driver been for into talked the the bioprocessing, the of That's we year. half little against And X comps on is us. the the a as we of disposables get year, first real a about the the

Operator

gentlemen, team And at any floor questions, the additional in closing management and back point ladies to showing this no for over turn like the remarks. I'd to

Julie Winter

Thank have time you, the you everybody, of weeks look next the I the We to to you a of join few know busy us. do campuses. on several over for out seeing road taking forward week. many

Operator

that joining. with will gentlemen, and presentation. you for Thank conference conclude and Ladies today's call

may You now disconnect lines.

STERIS (STE) 8 Nov 232024 Q2 Earnings call transcript