STE - Earnings call 3 2024

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Operator

Good morning, everyone, and welcome to the STERIS plc Third Quarter 2024 Conference Call. [Operator Instructions] Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Julie Winter, Investor Relations. Ma'am, please go ahead.

Julie Winter

Thank you, Jamie, and good morning, everyone.

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

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

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

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

Michael Tokich

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

to basis well as and diluted compensation EBIT XXX the revenue increase in basis for million with X segment and of anticipated in cash million Free with higher last billion adjusted declined for in in mix price. $XXX.X points expenditures. that, for of the AST of quarter the income I was $X.XX decline used XX.X%. fiscal his by for million. X.Xx per approximately With payments will first earnings the driven end while debt-to-EBITDA and Capital the $XXX.X 'XX flow amortization at quarter. leverage. was million third were totaled quarter million, $XXX.X depreciation Net share. the expenditures slightly to Total was and Debt for gross in $XXX.X earnings the first quarter XXXX months of totaled fiscal fiscal was well cash months in of the X months Dan compensation-related X inflation a in call third XXXX. points income incentive compared The XXXX currency. fiscal remarks. shift declines continued over tax was as for to Gross first in by turn year We $XXX capital $X.X impacted with revenue from XX.X%. year. along volume operating XX organic For expense, the Healthcare basis Price decreased more Healthcare currency negative offset compared quarter, XX.X% increased margin impact continue year-over-year labor to to in from margins. material will compared prior than to XX our increased shift as and fourth the rate the addition EBIT the the the the margin that the as The anticipate the segment points XX% income to adjusted mix constant with quarter from quarter AST effective increase quarter. The in operating tax driven

Daniel Carestio

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

with experienced quarters, Life our Overall, our in improvement are in also As the we in momentum you heard Sciences. continued quarter few segment from past nice saw third the our we pleased have and Mike, a performance. Healthcare we

outperform will our We offsetting continue segment segments. to challenges for other demand original our the our fiscal macro in year, expectations expect impacting that Healthcare

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

As as historic continues to coming continue faster production to goal normalize and new times Remember, to lead our pace in. back orders meet at demand. shipping we customer anticipated, to than backlog are is a are get

in Healthcare segment Speaking quarter. of capital equipment orders demand, digits the grew the in double

Turning currency below which our organic expectations. X%, Constant to was revenue AST. grew

remains for While we anticipated. U.S. of U.S. medtech, continued have in the the volumes to than outside normalized softer see more

are volumes Sciences have for quarter. Life grew constant Until bioprocessing to approach XX% a to XXXX, conservative more capital fiscal addition, in XX% on In taking the X% shipments quarter we which quarter to relatively equipment Consumables grew for contract. comparisons. another quarter organic the and the constraints. the supply some due basis. quarter in XX%. against of strong revenue had from fourth we fourth revenue continue a expectations more We clarity, currency Remember, to third consumables chain and grew increased service capital was our shifted easy both

from As murky the a space, in demand short-term and remains we the optimistic growth continue for this be bit opportunities others you're long-term about segment. to hearing

organic temporary incident X% to a limited result quarter. as of revenue large a a currency is the quarter a reduced experienced third disruption a they segment from operations Revenue their by Dental during declined basis. on orders of due customer Our constant cybersecurity

in have a volumes. for which would patient revenue reflects material in led decline combined flat EBIT continued the the about disruption, with the in been margin in lower quarter volume, the increases quarter. The to that decline Excluding costs

STERIS, elsewhere. XXXX again, the one few not anything, we anticipated. In for to outlook. be have had for year outperforms up is to Time years, the diversified Fiscal to benefited exactly shaping portfolio. albeit and of taught strong our they've our compensate last way value time us the we another of as Turning if segments our it's challenges

year revenue to increase Healthcare of the to for reflect segment. outperformance outlook continued our updating are the We our

X%, ranges. XX% points expect currency grow constant XXX to X% growth each up AST now have now our volumes. That concludes and our on customer of For Healthcare. to believe Julie, single-digit low call. revenue from we for $X.XX until revenue bioprocessing some in constant shift year and income margins outlook to shipments prepared currency for begin this additional clarity the constant year's are fiscal destocking decline record-setting revenue a on earnings in organic warranted in remarks basis from XX% per conservatism share caused fiscal would basis quarter. quarter is for year, fiscal the to you prior last the the slightly by currency organic organic I'm range operating primarily it sorry, will -- of but EBIT diluted we from the fourth $X.XX the assumes we includes fourth growth give to We total the reflecting in XXXX, the anticipated be the recognize XXXX. see mix Adjusted and AST can This Q&A. instructions, abate the please to

Julie Winter

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

Operator

from [Operator Instructions] Patrick Our comes first question Wood from Stanley. Morgan today

Patrick Wood

maybe It's calls the most Healthcare. one much still with I of time. all earnings starting run guys of appreciated. guess efficient You

all been X/X quarter it, have that kind Is equipment you're we of kind that sort and And then remain was strong little of let's projects year installing As three thing we equipment amount consumables you unpack look across I of of replacement that call a kind bit. seeing sheer roughly within expansionary. I'd should love think sort XX%, guys you double-digit to mean growth this capital of side, to main if of the of last the pretty said, expect forward? style now? line verticals. the the same given through I

Daniel Carestio

procedures. what the is would demand number is to say terms two if a board in is over the then North just the obviously, out you sheer other of on across obviously, gain. And least American that volumes the patient at of things. Yes. demand share through that Patrick, in One consumables. maybe we up last I'll I is And take bit the placements there capital. the function little terms markets, factor of in Mike, terms year the hospitals. in is really a want take flowing consumables of the of put of

Michael Tokich

obviously, the growth we levels, you our us our see to continuing which more more demand. then we side, in to within meet quarter. that customer backlog continue is normalized the included capital But double-digit and in times to orders reduce that, getting have And third on lead historic did Healthcare

double-digit future. that So strong quarter, orders for good but growth with also the in shipments outlook in

Patrick Wood

And maybe themselves famously. there struggle bioprocessing, on guess of forecast demand Amazing. within then quickly own the AST. kind to companies their I just

get thought side too little are have been don't some more like forward bioprocessing something think fair? quarters, equally do how strong. AST, of to within things in want better? And the optimistic So inventory Is But you look, that players. the a move far procedure would the we burn Is then volumes say, would big that I we given think long the through with that from through too generally on that so you necessarily as -- I few the commentary next left. much put down I stock bit wouldn't you the you resonates on that have of have there. seems that

Daniel Carestio

Patrick. Yes. We that too, would have thought

and little is forever. look can't the there's that's procedures relates inevitably, They've able most in that lines and down the cross. And So the we've turn as the for significantly. up the have mean inventory eventually, what where is they're burn that comes a yet in our business. customers will number? And as first countries, believe will destocking. still half seen to growth translate the efficiency our that our fairly earnings burn going high in for to the single been them you've their destocking, seen in during more of the The when will medtech growth -- that to we of over with go being it couple pandemic, say believe levels term, I starts occurred question a And a this blip exception fits I of of the a on And the procedure growth health spike, number. we that terms that and able historically medical a but has to the care we do then it of return solid inevitably, it calendar -- the been of inventory. but year those here lot AST approach forward, volumes not do systems get half. Europe, the their that the If reset that we to volumes of of of second And the will those the than conservative subset in for function strong if true, In over market, sterilize. a the many and of would blip of on off down to I in U.S. from that meaningful in customers digits heard see to bioprocessing part, long a up quicker. reset very years outlook, of taking many been depending products

Patrick Wood

here and live in treated the been I'm from both Having I healthcare glad perspective. U.S., the U.K.

Operator

question next Our KeyBanc. Brett comes Fishbin from from

Brett Fishbin

to around piece wondering this quarter. some the into margins wanted with mix key have some start give productivity previous unfavorable color more the a the could the cost question revenue and back moving on But the dynamics. half? and of those of pieces just you Just moving shift progressed off was if how a margin like bit on Understand inflation primary

Michael Tokich

the talking I missing million been did million Brett. of about that, that about incentive $XX all Yes, we which of talk bulk year about to that about, was is refill, thing third one that was had headwind. we've The in $XX a hole The the quarter. are impacted comp we

huge a hole is fill QX. that had in that So we to

the as actually productivity the favorable seen we out On process. in did see touching positive them we moving, moving had the flat price inflation. get those for have more manufacturing productivity. the order equipment first And as were seen to capital times offset labor in talked side, about We several our we we and door time especially products, negative products

productivity. in actually So improvement -- an improvement we've significant seen

I XXX basis this quarter, flat was around negative XXX, quarter. and it's right points think productivity last

to there getting to movement good doing very continuing manufacturing normalized our lead of chain shows just and backlog standpoint. times. are job a ease our supply chain reducing So and standpoint, nice that more from a That back a we from seeing supply

Brett Fishbin

a All a question follow-up, other longer-term around right. little just then bit Great. one AST. of And

and are around I'm as update online provide if capacity wondering have of in an more X-ray could Just running. you modality adding might a you there a an up few years. some the bit that think your I not your of across already come mistaken, And alternative next additional couple network. sterilization locations in progress If ones

great. be details just additional any So would

Daniel Carestio

Yes, the Illinois sites Ontario, then year. this testing and months. in will come phase in next the sure. the California, That's Chicago, will second U.S. that be fall. The online online now will that will Dan. This come be product two that running in and is few of Libertyville, the calendar area is in should California, And be one

Julie Winter

have U.S., And several projects then outside the we of underway.

Daniel Carestio

do. online site will coming then pacing of sites, well. as but the come few We have head And a off I I European that online the top there's months Asian well we those I XX my don't the the mean next remember Yes. -- couple the of as can't of a in now. of

Operator

question next Johnson Jacob Stephens. comes Our from from

Jacob Johnson

one just Maybe start. margins on to

call Was a comp? you'd think there? into And the how revenue that mix? quarter? on fourth sequentially declined any What they that thoughts we think should I margins, that AST about was anything similar incentive base. out Just on on Just

Daniel Carestio

you see because that goes We comment, Year. Mike, the on right? of there's week the shutdowns and to over have the general A I'll So not between customers week decline billing QX, -- and some Christmas that's Thanksgiving not add as because Christmas over in often New days holidays, many and let holiday we're it. typically of

on So some in tend to factories, time sitting there. lose backlog we're unless we the

in through that has plants. So a trend bucked backlog. much you QX. Unless something. a where trend it fact that's anticipated few European as We normal we burn-off generally a volume or probably to -- bioprocessing impact run normal in because the a QX we But It's margin. has lower thing to a we a result, bit has that from But see been roof expect. volumes had the by speaking, than would not that's saw the exaggerated a was that that times there sequential an on history

Michael Tokich

line we where some actually the for have did loadings of And quarter. cobalt took our we plants off

or eight think had I six we cobalt loading.

from also margins, productivity hurt that So negatively impacted which standpoint, a yes.

Jacob Johnson

this segment, of Got been the easy follow-up Sciences tone because to longer-term it. maybe of you Dan, comments, outlook kind you're in focus just some in relates there also as obviously, a some And from was that maybe it around I'm terms seeing there. aseptic positive struck just demand strong Life that's curious of of as like what just clients seems performance. comps, kind somewhat then the week? but manufacturing your on it

Daniel Carestio

because of year the if Life ship nice QX you business, In comparisons booked we those product, Science the in easy fairly we funny. last advance. terms -- QX. are then anxious in a you revenue we to It's shipments. really really really Yes. when And recall, that's history oftentimes, in had had as we for orders year our a us indicated, And

still term the all right in on term, cell markets clearly injectable on long pharma now. But type pressure to those in of and and destocking of a yet is those know it's So demand. going what's view of biologics, term, I demand. some think some raise in those the things, sterilization not going gene type ready high that's But long short and We still drugs, in with we big things. drugs, serve there's products be that long-term manufacturing a outlook. generally, aseptic going two We're are aseptic services flag therapy, to on terms all great there's

Operator

question Michael comes next Research. from Polark Wolfe from Our

Michael Polark

organic posture expansion be portfolio AST to for we to and maybe algorithm? to a -- see fair on as that shoot takes feel revenue the plan now. year, and like do -- historical Penciling it XX the at early you you but mean, there's fiscal touch at for path puts -- you the do last that get for bps you level, but here early, and overall differently an better I Might see STERIS I puts XX, you pending feels out be next a model and at I'd sets STERIS allows margin, out for of EBIT STERIS feel this night, growth, too takes, normal into ready just curious like do it Or 'XX. stage? move as environment knowing for X%

Michael Tokich

to point comment this Mike, too your a at us in bit comment opening time. it's early for

You process. the we're of planning answered Obviously, bit. question little in middle your own a our there

We on FY we guidance will, May as our in provide 'XX call. typically year do, fourth quarter full

So that's where we stand right now.

Michael Polark

Had guess behaving probably to the see two-part. I back. mean I procedures -- try. AST is are medtech AST question Obviously, we well.

little to is is thinking kind the it? that's of of still is kind it just still the OUS, there and that's PPE? any iffy. good. a of OUS, I'm European contributing procedure product Or U.S. COVID sober recovery this? saying category is more You're

Daniel Carestio

it. in Pacific our we've too, seen It's Asia because plants. specific That's pretty to Europe, decent recovery

this burn ability care demand, its predominantly taking So is issue a just down issue that's not necessarily to well, deliver demand that's health European to longer inventories.

Michael Polark

hips, large you to it's like little just The Or have need multinational a you piece, not Are telling too just -- that customers maybe be you're I'm hearing second much medtechs, knees, ordering? they pacers, stuff this. interventional and these like that on stents, thinking are just... you're slower that

Daniel Carestio

compounded inventory rates is and and that and of inventory surety supply we -- the that to XX% happened over from with received down. the That's function because reduction it That's procedure from a customers. and post taking of manufacturing the -- fairly bloated a everything had supply communication in their and Europe we've were. current burning pandemic of where got concerns around many much during in chains burn and get levels say longer as they're raw and the as pandemic down what We've

Operator

Sandler. Piper from Bednar Jason from is question next our And

Jason Bednar

tried prior margins. at following was 'XX, start I a first, fiscal already on to going take of stab segment up but some Mike I'll that. maybe the questions on

us time. And margin go sounds the is worried saw is you're match different route. anything tough from quarter like But just Or side, a levels fiscal the those about on profit 'XX the It and getting the are part first So level. margin We to upper that to the back a seeing low in XX% and the 'XX? segment structural volume Or acquired but how similar keeping other hit it the simply you BD. in of do see question, you assets lift there quarter. in margins AST seeing? given equipment seasonal think side, were high not this point. consumables too saw sustainable on third I'll we you're at uplift there you there strength the segment? new I the Healthcare, from from of that's of any a the coming volumes Is the function kind then is

Michael Tokich

volume, better On This the have cost opportunity the drive all very Jason. margin. is EBIT to more fixed segment. put high we The increased AST through, side, a it's volume base we

there, do Dan, So to address want all volume. you it's Healthcare.

Daniel Carestio

as Yes. a or don't consistent, quarter-to-quarter. fairly be It's stay delivery should in really to as I long it another fundamental from No, again, or that, one plus [ ] changes way different our bit any see a once rates up Healthcare. high, minus

Julie Winter

And incremental, [ ]. BD is slightly Mike

Jason Bednar

lead don't level would of to maintaining nothing upper And structural Healthcare. margin I AST. at but tariffs XXs Dan, you're Mike, the like that keep you're structural you you're from now in to from sounds it right either from the you, saying back want Okay. getting getting nothing saying in

Daniel Carestio

Correct. Yes.

Jason Bednar

first, about can this of Can following here? items. segment, different for and regarding that then kind of had decision the say now have the having calls, on you a announce of future I and have conversations we've attack. And control, the formal a asked you've in this those I you been weak was future when guess on Schein quarter, on attack seen business have Okay. normalized few talk issue? But that that you you're I'm cybersecurity the resolution two asset. All you maybe plans This you'll questions then line sorry, near-term a consecutive out times the with time Henry trends reviewing the right. do probably cybersecurity And whether Dental, the your that part internally Great. over for

Daniel Carestio

whatnot. things normalize get revenue evaporated The or first, I at to which that is or some have order of into other challenge a Yes. and in least found the of on regular we is QX to we the to is lot we customer, seen terms get degree venues base track shifted of ability kind don't fully guess understand. have what really the anticipate to and

is definitively this So that we'll what quarter. of the see outcome more

On And on the portfolio everyone at to we the decisions as made we question, with and so. look update you else as to this other will but do we no in soon been have something matter, have point. continue general, this at

Operator

Our Needham Instructions] from next Mike question comes & Company. [Operator Matson from

Michael Matson

I use of just want to ask one on cash.

I give but can and a update So kind fair do maybe us willing M&A. not priorities share recent repurchases, or done be an one. come I you've and don't recall bit I'm whether to think any of But forgetting in you'd repurchasing? on kind of your just maybe of you share some

Michael Tokich

quarter, capital changed has plus. in we we fourth over last Mike, about were Yes, last shares. not of -- if our methodology share you We the in remember the did We really opportunistic repurchase. million $XXX-ish bought decade allocation did, year process

not paying We We down in date. paying FY been down higher. purchased 'XX to there's on rates We've actually are since focusing in have value debt. debt feel more any

has repayment, has with excess acquisition, ratio the cash at our all our gross leverage. X.Xx of been which going even BD we're debt towards driven So leverage

So been focus. our that's

Michael Matson

that, Okay. Got How rate we think more bit. And slowing been able inflation of a you've do little as of get to here price believe that it. sustainable I periods. you recent a increases then kind down in see pricing

Daniel Carestio

in certain with I putting think would towards extent, increases ability costs to a guess, can trend grab, price customers be I there price through basis I areas, of will market justify And that be has to less Yes, some to as say. some normalize cost. our what

Michael Matson

tax level. rate outlook last finally, then I impact mean expect rate the But above tax sort kind of Pillar to of that with rate? your Two. And XX% your any one do the for on there Okay. is well you

Michael Tokich

if get when Mike, it Two, and material Pillar implemented. nothing does from

Operator

comes Dave question JMP from Turkaly from Securities. next Our

David Turkaly

about on like Bouncing master or we things I sterilization this, talked in may bit, participation moving you've anything forward? you should ask just quickly. have how think of might radiation look could you around assume. of to at update Anything learned terms terms but we wanted in that Any impact anything a that pilot or program,

Daniel Carestio

this very Dan. positively supply regulators different been by switching excited It's and by a of because does modes Dave, we're sort program is customers customers with received FDA the Yes, regulatory barrier also sterilization. and lower the the our agency, changing flexibility about of for chain barrier, it the create more to have when

So offer important this to something with is felt FDA industry that the that approved. get was we to work up to the and

years flexibility there at much was a and exposed ago when that So of couple challenged. a time was everybody more

no I expect we term, think bodes impact well the but a term great for Do -- program longer for material in short us customers. here. and that it's So our

David Turkaly

in profile like if And transferring they the via that different from follow-up, might that, at to? -- you different then EO, modes margin just quickly is look like when as they're AST much the a switch

Daniel Carestio

Not no. really,

Operator

next our follow-up a question from Research. And Polark Wolfe from Michael is

Michael Polark

lead the -- have you customers Goldilocks my levels, kind here and I'm I rates. as know what but There you it it? numbers. guidance a orders kind makings have as of possible? the been as had there, you're But capital of where continue this growth Healthcare landing 'XX. kind at you -- as current revenue again, and soft might scenario for still in the you want manage But revenue sure, quickly a to kind you product so of in fear that numbers Healthcare improve of of don't growing conversion ship 'XX. see for curious capital, down assuming I capital or I Healthcare times I And of out that how waiting think for set decels of review know kind but likely of be You these run theory? fresh see fiscal I

Daniel Carestio

theory, plays that love I and I hope out way. your it

Michael Polark

you're heard in little from XQ we maybe deliveries that terms one I a Cobalt and the I works. calendar full the how other in exceptionally that bit on that XX, plants, comments downtime of gamma calendar network to element follow-up. up some 'XX. there back Nordion speeds of run. at curious Okay. I'm was obviously had weighted now loading, like know Is in short those actually the that just strength

Daniel Carestio

It we volume does, issue. is the but the have have to

we've those them to to in for loaded. of gotten because of many it's plants a But So position over deficit we because year needed some a since cobalt take been last the they have -- doesn't have capacity. effect it we not should we'll a anticipate. because to unless able do, we than be more run it material volume it if And get we more we'll

Operator

remarks. and ladies to And like closing for turn gentlemen, today's management I'd question-and-answer back we'll to session. with any ending be floor that, the over

Julie Winter

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

Operator

conclude with you conference for call gentlemen, presentation. that, joining. and We we'll and today's ladies And thank

now You may lines. your disconnect

STERIS (STE) 8 Feb 242024 Q3 Earnings call transcript