STERIS (STE) 10 Nov 222023 Q2 Earnings call transcript

Good morning, everyone, and welcome to the STERIS plc Second Quarter 2023 Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I’d like to turn the conference call over to Julie Winter, Investor Relations. Ma'am, please go ahead.

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

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

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

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

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

well as price. points organic revenue increased For driven the volume of X%, currency basis quarter, as by XXX constant

release business the year the million, about anticipated, as detailed divestiture by care press impacted comparisons our to the prior As the of $XX in tables. renal

of will $XX to of Medical million year-over-year be million. more achieved synergies The quarter, bringing half divestiture to quarter. by total in about integration first one our approximately second continues go Cantel $XX We cost the impacted growth this well. for rates Our

We are in stated year our approximately on XXXX. $XX goal track of to achieve million fiscal

XXX lower As basis impact divestiture pricing, prior anticipated, currency were to year from decreased XX.X% by million labor continue favorable costs. cost disciplined quarter year, the gross tax and quarter driven the the points Care the income Renal benefit a decline basis last with compared quarter. from headwind costs about reduced than of quarter be more of points margin to for as revenue with and material The compensation. the quarter increased totaled expenses XX the Material, of the higher cost per and $X.XX labor compared and productivity in EBIT margin, in and offset the and XX.X% Net $XX Despite increased lower-than-anticipated which $XXX diluted effective SG&A the share. the incentive were by and impact currency management adjusted rate was million to the to earnings in in XX.X%. integration, gross second realized synergies reflects of Cantel

on the projected the based that reported projections $XXX. we value recorded in noncash determined of the a notice basis quarter. loss GAAP resulted weighted a Dental segment acquisition, X market goodwill At term cash carrying on in related will in goodwill the You Dental with we Dental its the flow an patient EBITDA value. estimated the the the regarding fair to conditions, at and value costs may impairment impact Therefore, charge of million associated below segment. current in market Macroeconomic interest costs flows a market material including discounted cash average capital short cost and of capital rates of quarter. the Revised on assessment triggered behavior strains interim an pressures and have customer inflationary economic and reflecting such of the of time fair a we Cantel uncertainty rates, rising labor the segment on multiples. of

first in, totaled for expenditures Our the now flow. $XXX. the the $XXX will the amortization the we $XX Capital flow the remarks. timing by now long-term that for cash our about will year limited a Year-to-date, to spend fiscal first free either the higher cash dental his approximately have reduction full anticipate investments while step We our depreciation cash mainly anticipated, X $XXX.X full we or anticipate for in million. half same segment than the Free primarily for $XXX.X space expect opportunities capital and segment. to timing Dan of of by contribute not inventory. the was from up million in year the to growth see million of and million. half been a expenditures do AST year cash free for capital levels million. STERIS. unchanged. driven expenditures level the in over is Dental to in spending, All second $XXX outlook for to still turn was be flow our in will half original I the due higher-than-planned the million of continue of of significant significant We flow which Free higher-than-planned fiscal capital And totaled of year year guidance. call be

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

the We performance. and Mike, for constant challenges. I the quarter. continue we my demand quarter. the in with was And planned currency review operational our a company currency commentary of segment a highlights despite our to impactful our the perspective, previously but growth quarter heard will revenue had was then From products are organic outlook. we foreign currency Healthcare as-reported services. as you've ongoing grew revenue and on in pleased see more X% shift than revenue, our strong macroeconomic Once solid organic constant quarter from to again, X% the Total

in and quarter. that supply received We in anticipated we we better to components, key up able challenges several discussed by step to would improved chain and component As last visibility quarter, we our shipments we start an September. had August, that we're the deliveries on see

in capital second we on of or Reflecting see shipments receive. We backlog, levels continue have that based to to inventory the expect scenario, components will continue the capital key constant demand basis. organic continue to of half significant service to growth see quarter solid and Consumables as currency a remained equipment our in about good the on we customers. from that were flat our

a growth consumable Our of a limited on due growth basis. is lack to procedure year-over-year

our either at believe from portfolio confidence in of operating support we delayed believe the room expect backlog, directly the million shipments sterile base the core insulation As in of shipments optimistic rising months, $XXX spending capital over for we the strengthening quarter. capital. before, XX% we and pre-pandemic at term, pickup XXX% the at million the essential were in not a procedures our Healthcare us for time. the our approximately in back large we get the our customers' equipment STERIS Hospital in coming in $XX to approximately or this revenue in cost capital second we products processing levels quarter, are to end we some were of the but to have our our significant is the second by said further quarter, do remains robust for totaled in Longer projects. over evidenced uptick surgeries, half. end provides Despite XX% Orders as quarter which department replacement will and

sequentially, revenue core currency and significantly AST second to a the on basis underlying continue our both year-over-year quarter, demand our rate grew the Moving as constant benefit teens. improved AST. in In the we to growth organic on which into second XX% high from quarter from customers. [MevX] pushed

witnessed, already they continue and winter. large profit of the From revenue at segment Sciences, for that be shipments internationally, signs have costs, can business. Similar both equipment not indicate booked are perspective, All with this installed to pieces are tested. until of the this you impacting As these lumpy fully Life as a least are through the are energy AST. U.S. and margins increased in will capital

costs basis to Sciences the compared increases. timing continue on the for of year. in with flat a was ways constant prior recoup allow the We contracts these as organic currency our look Life revenue to

revenue slipped third about timing continues by reminder, a growth Also, and in had our capital both are very the equipment We expectations. business million. $XXX shipments declines quarter service million backlog as versus our to Solid as the capital just strong in shipment around believe of a matter And was QX. $XX into hover offset consumables. a quarter

this We in are optimistic capital about the long-term demand segment. for our equipment

currency inventory management On the the not as revenue underlying the line. customers, concerned remains consumables This aseptic in our primarily barrier production by side, strong. from demand about to products perspective. due business our for trends pharma particular, a flat is in Again, long-term we're very constant about organic

declined currency segment organic constant Dental X% Our perspective. revenue a on

believe single-digit the in current some around XX% hover in for procedure to chain year-over-year is and this Dental have the XX% due on spending costs. low manage decline operating pre-COVID While relief to over We declined Despite conditions. our the experienced procedures continue were as volumes we of margins levels, supply range. revenue, macroeconomic

revenue to of XX% outlook. unchanged. organic Constant Turning currency growth expectations year full our remain

foreign currency on are we revising based as-reported revenue. challenges, However, the ongoing our

due is of foreign now reduction prior currency to As-reported revenue fluctuations. to expected X% continued a from the grow expectations X%,

outlook year, pound. continue and our currency weak $X.XX. and pricing. approximately million to to is primary this $XXX the the EPS by be improved drivers is British in revenue adjusted For of expected now by revenue as-reported The reduce euro Reflected

points for Combined, basis chain the and the inflation. contribute spending will pricing to year. margins offset and additional help year. from are will This for expecting We around now fiscal the foreign higher-than-planned currency XXX disciplined supply operating impacts

chain the our cost prior $X.XX inflation, in fiscal expect now these at year. supply of Factoring we for for $X.XX are year, earnings expectations over the incremental For labor million $XX in elements, an to and unchanged expectations. range million extraordinary increase an full our the $XX

Overall, continues an perform in high well with we additional impact business believe X% that very currency, the foreign likely. this less environment. end our range from However, is of to

come customers deliver segments trends several our continue to and our the the portfolios leveraging offering better meet allows and teams of our and advantage take customers. within together of to industry to breadth to the cross-sell value our to us by significant in of relationships needs Our business

open we facing Q&A, did challenges want for the I industry oxide. is the address Before ethylene to on

as oxide regulatory for operate. seriously our take the crucial ethylene have As the you sterile And alternative throughout oxide for world. currently, the medical the devices the U.S., always the very processing been strict of we long-term there our these demand does STERIS, responsibility an our the and and the to manage to for limited in all technology. industry EO. communities compliance of At essential capacity we quality date, standards very a people, provider safety expectations to medical ethylene facilities committed of single-use growth which is industry's and know, to not in have supply products To services is

We the of are business, is actions. by exemplified I of our long-term believe our stewards success which

have the regularly used our processes possible. deploy to the reflect facilities and adoption We of practices updated technology equipment and within our best new

our sterilization operated in years. that, to we addition, have regulatory per customers we turn these EO made the with AST for in facilities of FDA developing which to will sustainable I the improvements This cycles, Julie I adopt to to cycle. diligence for so worked have With led we contract segment. the to significantly how ease over they way continue the have used the process am within can and reduced confident have and our have And cycles. these U.S. we gas many industry more Q&A. the the begin run it is business we EO run closely with In our amount transition easily consistent the

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

first our KeyBanc. question comes Matthew from And today Instructions] Mishan [Operator from

in the think the acceleration we half what around about of are should how drivers And first, that? organic second kind Just growth? key

really is, driver segment. achieve as in capital to full XX% constant drives organic Healthcare there us main factor from to currency around particular shipments, to organic that the revenue revenue continue year. about is be in talk growth the currency constant X% going the Matt, growth equipment for to about our our is we That XX%

ship to ability it's in equipment driven all So our Healthcare. capital by

the components confidence do those? the secured you that will you that shipping necessary have Have so you be

Matt, confidence continue There's have we predictable this the a lot shipping as will terms have Dan. is are confidence would supply And those high. off relates finish level guarantees think to I in, we more pretty of do today that aggressively in lot to and suppliers ago. chain. machines. more come we that as fashion in environment than I stock, our is can in of from a shipments it with we X current months now a we no But that's say had

does get then like And XX% it with possible Or down? to remaining flat lastly, that an still the Dental? is require to Dental it you're inflection in going

to when the to or believe elective. got procedures until everything more business is And currently got Dental that that going and think where believe to come We year-to-date, it I that's we are predict tough highly suppressed going with given is inflation stay it these to something We've else, stay good. And modeled that's we back. it's happen, less.

next & Company. from Our Matson Needham Mike comes from question

that side. want medical about consumables getting still of So which believe volume kind in I devices do your in then and AST difference of used in that? a between really I procedures in procedures eventually. since the on levels will maybe strong? to that there's terms in kind the you assume of is consumable And -- the still explain growth of kind ask you business the a pre-COVID growth of is hurt healthcare, the below Healthcare procedures, How Do big the or lot we're AST used but AST are get

Yes. recovery for price, whether I and what some seen terms procedures. say neuro higher there's speaking, we've of difference. any of surgery, I generally products, there's whether in higher share have growth. medical or components recovery mean General in seen end, there's mean there's seen volume those ortho, it's spine that's value would revenue, just whether And then or some right? -- haven't I is, that's we we that's three

pre-COVID a -- of levels those network. back staffing the still hovering function to pre-COVID largely in In fact, that's care it's and health this at not

can of go up other doing side recoup price to in that The we is as everything we're costs business. that

significant And of rates. the long market years, not long a been we've the our And is terms to of There is mind, in component couple And keep and that high is benefiting run portion of that's in Maybe successfully have the at tail of We there's customers. over those history to rate, able level that is of products. a a bit of some share picked from little too, our a medical other being then share. disposables. type that up do we part annualizing with business there and process last on pure continues pretty that. that grow a

think Got on in any Okay. you revealed? terms any what any those you're it you there's terms And are then sense do do putting the make regulations, you going you've have potential of a And you some how your there, that reduce like I have do for the EO timing of place be go done would don't do to beyond it. if mean But -- -- in way I feel processes rigorous I admissions. seems at to know there's where when guess, PO to pretty mean but you then changes? really you with already into to practices? I

in out but for the think Yes. before, viewing. draft sometime I What this I say may mean, that see to we actually time. calendar think first public this, rule would a said I I've I it expect happen is quarter

so first And the public quarter see something out expect in to domain calendar the I of sometime year. do in

locks of the examples back Now in in that emissions. amount all place, would we abatement the in maximum I beyond requirements met any invested be having in to our EO and in until have And enhancements improve prescribed generally out chamber that, we terms of locations including in would and have with is safety U. safety XX a the our the of around open EO that that catalytic be and upgrading systems of If capture of And the ensure capturing potential said U.S. emission using above notable installed few is fugitive found chamber say tied look the Within ways vents say of the regulatory the then improvements this we've where I over been warehouses significant potential door oxidizers and of sterilizers STERIS control there. of allow types people measures outbound our scrubbers and chambers, what history, last consistently out last don't ethylene wet that back to are and we processes. facility. couple thing developing those in any I the have would coming I not the of systems for repeat, to the always, months, maximum into AST, of our a around significant for including also oxide. is is have or in proactively particular, technology our locations years, always the destruction full S. also our abatement invested AST any of our flares decades, had and gas in and those

on mostly And than I It should guess I Okay. it. one higher say other interest. I little a just expense, interest or Got then but -- expense. was it's think

what if So than it because expected. full have give expect I gone guidance the how for you variable debt can And fiscal higher we rates year was interest Is is of a to rate? bit that any us your but know much expense, what don't up? for -- on interest

Yes, fixed is where X.X% is over floating We're rates our And Mike, to debt, gone will it's higher unfortunately, we about of it's continue all -- XX-XX percentage. $X billion sit projections about rates are definitely we our up. have total, at total have just that versus rise. than which and been. Currently, definitely the in

Jacob from Johnson Our Stephens. comes next from question

is the any growth Can you but that orders, growth market? quarter, timing to related about Life talk looks sounds market? that trends the from some thoughts Sciences down. of decelerated this end this maybe on on demand end It just like Just some flattish backlog volumes it shipping segment, of of like the kind

Dan. this those as -- mean I I'm Yes. is sorry,

tend around orders they business. those confident so can absolutely lumpy, capital the be success long-term hold -- of to I'm pretty million, that can our for outstanding the backlog, that shipments $XXX that if we is high be value. can because can Science Life As

so well into intake And as happy I'm look order as our it we is strong where and the future. is,

just get So the over our out X be I got to we on the think diligently working stuff shipped we'll next months. that of and plants,

on then And impairment. circling just back it. Got Dental the

And you some for I outlook figured talk long-term your performance, to be as real then I that but ask of related comments, Can to suspect I no related you rates. those think rising that might that business, but just near-term some your it’s think dynamics? about to of change interest mentioned I’d well. in about I

that in with is all Yes, the be say use this look costs really rates, certainly. that rising the that to interest driving that that goodwill did factors seeing may really end paragraph addition in at impaired and labor is really to two what’s associated significant the in interest value. rates maybe of continue of the long-term to What’s below in Dental impair is cash outlook estimated material the that impairment, unchanged of at see segment. us And particular, we the that prepared as And inflationary will its segment driving of at we key for have space. model flow segment, fair and pressures discounted value remarks, the we’re on are we any are carrying – the Dental we driving really time I and any that driving that my growth what’s to indicating at have opportunities factors be goodwill – believe

from from comes Piper question Bednar next Sandler. Jason Our

in half this stops quarter. contribute Is And you you the Dan, going pretty year. we can Because, shipping I nice then against capital in growth. of at in in going questions the you real-time? like quarter to step-up to is And whether just imagine a sounds to those that catching confirm suddenly the great component delays the few hear in step-up year. consider referenced, finally, that's to are a say a really pack backlog? here in I'm topic. the on is big second to again, growth this capacity of up there the the that to can't late equipment here your end with I fiscal in source But more progress should aggressive that. those this on want to anything that respect deliver It

is guess, right fiscal of I 'XX momentum well? think to So continuing it into as equipment this

Jason. Thanks, Yes, Okay. sure.

your year machines components is terms without say we is And In whole high, around now a of can't question what because fiscal for I lose the manufacturing this would we've building capacity, the basically. slot. is demand been

at we almost quarter, but have literally, a could the So part not yes. the we customers. ship we're to finished a that number it It's of $X awaiting our literally, before machines of end

slot So components every those out we continue our will. you show as manufacture on that we finish if to docks, and have then up equipment

we're of think flex So considerably we've you shipments. manufacturing than I at But shape. terms pretty look have in to pretty in front bigger we historically half of of -- performance good typically our also capital in historical if back have shown ability STERIS, a terms half

So have do that. doing that, able to and our history are they a teams long of

on think In got for to that's next mean year, right deliver something I customers to what's now. that's not into terms terms the our future happen hard to it's of look STERIS months right discussing and at in X we're of important in and I of critically it's terms in left going we've outlook -- that the going something now, momentum our

a like And reaffirmed coming months? the we're looks we Do just a enough. you out? inventory then increase, then do free how flow, cut, point? going do clarification that see are with higher Yes, Okay. like Just of beyond additional at does cash get be levels here causing fair that -- year-to-date continue playing That's inventory the any guidance over maybe guidance you flow fiscal rate the cash secondly, can levels earnings those on the that confirm continue reversal free that 'XX? points. helpful. just it dealing to Mike, couple And contemplates

fiscal all levels definitely fiscal rest year, Yes, inventory we've on even the projected, year. higher levels, this the hold this last year of to inventory continued

to me off be we once there shift timing, and a to just know to we sit that's will will that the if don't equipment components to inventory predict 'XX time. for to get see happy it's nice the turn this customer. in hard when obviously, for at point we in spigot going do and too We're exactly to capital. or pinpoint benefit just working beyond or the hard I and So

So more that. on forecast. to interest come increased we bake yes, And in our in rates did increased continued

So that contemplated. is already

next Research. Our comes from Wolfe question from Michael Polark

I 'XX then want to about the and ask follow-ups. on or equipment. X half X And maybe back then

On the back half, because but March is quarter just provide that. to obviously as the predict we consider the our Any numbers, it's the models, you spreadsheet XX%. pretty difficult quarter-to-quarter. lower it's company total phasing on revenue, than the higher. big and Real and equipment quarter, Healthcare flavor revenue growth year-on-year, for toggle can clearly, some December in

expect think versus helpful how to level next set months it'd the be this to X I you March So just unfold like between December quarters?

collect. cash just In need intended our free equipment to flow, we it, us capital ship looking earlier in obviously, we at to can meet for order Yes. so

that I So growth a say standpoint would be would a this. than modeling higher would if QX from QX we're be little bit

holiday would words, to and the to terms I quarter, season the around of different past the terms your than is accepted with maybe use in say, of the of it things And was it's getting at world end But revenue predict. received today in also difficult in recognition, shortages. Yes. labor a it

to tough is year trying be little extremely the I So and think QX now. right we a believe to from to on going QX deliver precise we're

we higher -- get much currency sorry, in fourth do constant -- organic XX% comps, Mike, have quarter, QX. the Caps

in So the certainly, fourth quarter. issue the as comp well

me talk You versus my initial sequentially. up stab

not equipment the revenue fiscal 'XX. understand in publishing these an have And seems I you in that I I as comp I are look, a at 'XX numbers kind very So significant then And okay, I of to that a consider. will take 'XX but large to reasonable might very on on guess to comment. going Is fiscal be unlock down unreasonable it comment framework. revenue guess, you're 'XX, appreciate of potentially thought? we equipment stab fiscal think total kind just a backlog. fiscal company And

that mind, backlog in into in is fiscal of a out Keep extend periods. could lot large that project future

good is why the we order have incredibly lot to impact do is, if capital. they have mean short well answer healthcare shouldn't and like slow awful thing high other then capital tends we going stay they an business know it's of So is when then rates we there's buoy down, don't that on no that the is -- it on now. will that reason us when mean been, right If continue it. in great, to slows I I capital helps.

that's one game? flavor you would been for like If Sciences mean, management more I I Are happening Life out facilities. could the kind kind add kind just on that Any the production did helpful? consumables, how be we're long of what at of do through you start of called inventory that in inning feel biopharma? in halfway we

been year. couple we'll I reverse the I half of a see Yes, a in trend now and back of the happening for that quarters, it's think think

Dave Instructions] Turkaly [Operator from Our next from comes JMP question Securities.

than the this, It's if you again lot a cover. bps. I've mentioned Maybe around, been hit lot price apologize different the XXX and almost so a we companies jumping I just but somebody of

of So give was like wondering might drivers or I the little sort you us any that's be either think geographies do if products And or from mainly or there? of to where or you it's willing a coming on sustainable? color divisions

wherever can higher and sustainable wherever accept sustained pass that cost have I on, it. the our we sense have that we to as we obligation think can it's an customers in

when on or are components or that steel -- unique continue terms or and to like inflation there this of STERIS So having on I of electricity that's we that more change inflation on impacts rate don't that. meaningful that's we especially something of that think whether things is going assuming this relatively high costs, are to certain in consider electronics

I that need will those So as to. think continue long trends that as they

contracts In have where mean, terms as clearly, than of levels. don't roll systems from then health into breakdown really segments, those is be of hospital pricing that. GPO weigh we'll we contracts. new appropriate we tougher care some incorporating perspective, a price by I But

Dave, I Yes. across segments. our is price one are thing The that getting of say, we can all

to gentlemen, no floor remarks. additional I'd time, like any questions, And to at the Julie and turn I'm ladies closing this showing Winter back for over

Thanks, join time to for everybody, the us. taking

be on of the and over many next you weeks, We road we few the seeing in a look bit to will forward person. quite

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

now disconnect may your You lines.