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DATE

Thursday, August 7, 2025, at 9 a.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Dan Carestio
  • Chief Financial Officer — Mike Tokich
  • Executive Vice President, Corporate Communications and Investor Relations — Julie Winter

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TAKEAWAYS

  • Total Revenue Growth-- As-reported revenue grew 9% in Q1 FY2026, with constant currency organic revenue up 8%, driven by volume and 230 basis points of price.
  • Gross Margin-- Increased by 20 basis points to 45.3% gross margin, as price and productivity gains outpaced inflation and tariffs.
  • EBIT Margin-- Rose by 50 basis points to 22.8%, due to enhanced gross margin and operating expense leverage.
  • Adjusted EPS-- Achieved adjusted earnings of $2.34 per diluted share from continuing operations, representing a 15% increase.
  • Net Income-- Reported net income from continuing operations was $231.2 million.
  • Free Cash Flow-- Generated $327 million in free cash flow for fiscal 2026, supported by higher earnings and improved working capital.
  • Debt Position-- Total debt was $1.9 billion as of Q1 FY2026. Gross debt to EBITDA at quarter end was 1.2 times.
  • Dividend-- Increased by 10% to $0.63 per quarter, as announced in the twentieth consecutive year of dividend increases, marking the twentieth consecutive annual rise in the quarterly dividend.
  • Healthcare Segment Revenue-- Constant currency organic revenue grew 8%; capital equipment revenue up 6% with 14% order growth and backlog exceeding $400 million; Service revenue grew 13%. Consumables grew 5%.
  • Healthcare EBIT Margin-- Improved by 10 basis points to 24.2%, as positive drivers offset tariffs and inflation.
  • AST Segment Revenue-- Constant currency organic revenue grew 10%; Constant currency organic services revenue grew 12%, aided by currency, bioprocessing demand, and stable medical device volumes.
  • AST EBIT Margin-- Increased 150 basis points to 48.6%, due to volume and pricing outpacing energy and labor cost increases.
  • Life Sciences Segment Revenue-- Constant currency organic revenue increased 4%; consumables increased 8% on a constant currency organic basis; Services revenue grew 3%; capital equipment revenue was about flat, with backlog up over 50% to $111 million.
  • Life Sciences Margin-- Rose by 260 basis points, reflecting favorable mix, pricing, and productivity.
  • Tariff Impact-- Incurred approximately $9 million in tariff costs, mainly affecting the healthcare segment.
  • 2026 Revenue Guidance-- As-reported revenue growth forecast for FY2026 updated to 8%-9%, reflecting a 200 basis point benefit from currency; constant currency organic revenue guidance steady at 6%-7% for all segments.
  • 2026 EPS Guidance-- Maintained at $9.90 to $10.15, now incorporating $40 million in tariff costs (an increase of $15 million from last quarter) offset by favorable currency.
  • 2026 Free Cash Flow Outlook-- Raised by $50 million to $820 million; capital expenditures outlook unchanged at $375 million.
  • Tax Rate-- Adjusted effective tax rate at 23.5%
  • CFO Transition-- Announcement of Karen [surname not provided] as incoming CFO, with outgoing CFO Mike Tokich remaining as special financial adviser during the transition.
  • Tariff Drivers-- CFO Tokich stated, "additional tariffs that we have seen on metals. Both steel and aluminum went from 25% to 50%. Copper went from zero to 50%. And the EU changed from 10% to 15%."
  • Regulatory Compliance-- CEO Carestio said, "we didn't apply [for NESHAP relief] because we don't feel we need it ... we're confident in where we are and didn't feel it necessary."

SUMMARY

Steris' (STE 0.16%) call introduced updated guidance reflecting a higher as-reported revenue growth range of 8%-9%, enabled by favorable currency effects and consistent segment outlooks. Management increased free cash flow guidance by $50 million, noting improved working capital and strong earnings as primary drivers. Although EPS guidance was unchanged, the company now expects $40 million in tariff costs, a $15 million increase offset by currency tailwinds. Segment details highlighted growth in AST and Life Sciences order backlog, while the Healthcare segment sustained high service and equipment demand. Leadership emphasized strategic continuity during the CFO transition and underscored regulatory readiness regarding NESHAP compliance.

  • CEO Carestio described bioprocessing volumes as now "fairly predictable" following recent market stabilization but cautioned on inventory visibility at customer facilities.
  • Healthcare capital equipment backlog exceeded $400 million, and Life Sciences backlog rose over 50% to $111 million, indicating ongoing demand momentum.
  • Management indicated no observed slowdown in hospital procedure volumes or capital order rates despite competitor commentary and policy uncertainties.
  • CFO Tokich confirmed, "we are pretty much naturally hedged" on foreign exchange, with currency gains projected to offset increased tariff exposure in results.
  • The company affirmed continued commitment to M&A activity while forecasting a near-term build of cash, given limited debt prepayment opportunities before 2027.
  • Higher employee healthcare benefit costs were attributed to increased utilization, with premium increases described as "low single digits," as discussed by management during the earnings call.
  • CEO Carestio noted that growth in aseptic therapy demand and pharma facility relocation could maintain capital equipment sales in Life Sciences despite vaccine revenue declines.

INDUSTRY GLOSSARY

  • AST: Applied Sterilization Technologies, STERIS's segment providing contract sterilization and laboratory services to medical device and pharmaceutical manufacturers.
  • NESHAP: National Emission Standards for Hazardous Air Pollutants, U.S. EPA regulations limiting hazardous emissions from industrial facilities, relevant to ethylene oxide sterilization operations.
  • EBIT Margin: Earnings before interest and taxes as a percentage of revenue, a key measure of operating profitability.
  • Backlog: The value of orders remaining to be fulfilled, indicating future revenue potential for particular segments.
  • EO: Ethylene oxide, a gas used for sterilizing medical equipment, subject to stringent regulatory requirements.

Full Conference Call Transcript

Mike Tokich: Thank you, Julie, and good morning, everyone. It is once again my pleasure to be with you this morning to review the highlights of our first quarter performance from continuing operations. For the first quarter, total as-reported revenue grew 9%. Constant currency organic revenue grew 8% in the quarter, driven by volume as well as 230 basis points of price. Gross margin for the quarter increased 20 basis points compared with the prior year to 45.3%. Positive price and productivity outpaced inflation and tariff costs. EBIT margin increased 50 basis points to 22.8% of revenue compared with the first quarter of last year due to the improvement in gross margin and operating expense leverage.

The adjusted effective tax rate in the quarter was 23.5%. The year-over-year increase was driven primarily by geographic mix and changes in discrete item adjustments. Net income from continuing operations in the quarter was $231.2 million. Adjusted earnings per diluted share from continuing operations was $2.34, a 15% improvement compared to the prior year. Capital expenditures for 2026 totaled $94 million, and depreciation and amortization totaled $119 million. We continued to pay down debt during the quarter, ending with $1.9 billion total debt. Gross debt to EBITDA at quarter end was 1.2 times. Free cash flow for 2026 was $327 million, a very strong start to the fiscal year driven by an increase in earnings and improvements in working capital.

Last week, we announced our twentieth consecutive year of dividend increase with a 10% increase to $0.63 per quarter, as we continue to prioritize consistent dividend growth. Before I close, I'm sure that you have all read last night's release regarding our CFO transition. I want to take a moment to thank all of you for your continued support over the last seventeen years, actually eighteen years if you count the time I served as interim CFO. The company has grown significantly during that time in terms of revenue and profitability. Being able to provide not only financial leadership but also to provide strategic oversight throughout this significant period of growth has been a tremendous honor and accomplishment for me.

STERIS is on solid financial footing and has a proven financial team in place, which makes now the right time to transition the CFO position to Karen. Karen and I have worked together for the past twenty years at STERIS, and we have been working behind the scenes for many years preparing her for this role. I am confident in not only her financial ability but also her leadership capability to lead this great company into the future. I will be around for a while as a special financial adviser and look forward to supporting a smooth transition. With that, I will now turn the call over to Dan for his remarks.

Dan Carestio: Thanks, Mike, and good morning, everyone. Thank you for joining us to hear more about the start to fiscal 2026 and our updated outlook. Before we jump into the numbers, I do want to take a moment to recognize Mike for his long and successful career as CFO. Mike's leadership and financial acumen have been essential to our success. Under his leadership as CFO, we have grown meaningfully in all aspects: revenue, earnings, and market cap, and have completed over 80 M&A transactions. He has built a strong global team, including Karen, and we are well prepared for this transition.

Moving on to our performance, Mike covered the quarter at a high level, so I will add some commentary on our segments. Starting with healthcare, constant currency organic revenue grew 8% for the first quarter with growth across all categories. Healthcare capital equipment revenue increased 6% for the quarter with underlying order growth of 14% and ending backlog just over $400 million. Service continued its streak of outperformance, growing 13% in the first quarter, and consumables grew 5% compared with a strong first quarter last year. EBIT margins for Healthcare in the quarter increased 10 basis points to 24.2% with volume, pricing, positive productivity, and restructuring program benefits offsetting tariffs and inflation.

Turning to AST, constant currency organic revenue grew 10% for the quarter, with 12% growth in services. Services benefited from currency, bioprocessing demand, and stable medical device volumes. EBIT margins for AST were 48.6%, up 150 basis points from the first quarter of last year as the additional volume and pricing were able to more than offset increases in energy and labor. Constant currency organic revenue increased 4% for the Life Sciences group in the quarter, driven once again by strong growth in consumables of 8%. Services revenue grew 3%. Capital equipment revenue was about flat, with backlog up over 50% to $111 million. Margins increased 260 basis points benefiting from favorable mix, pricing, and productivity.

From an earnings perspective, we grew the bottom line 15% in the quarter to $2.34 per diluted share. Included in that number is approximately $9 million of tariff impact, which primarily impacted our healthcare segment. Turning to our outlook for fiscal 2026, as noted in the press release, we are updating our outlook for as-reported revenue due to a significant shift in forward currency rates. We now anticipate approximately 8% to 9% revenue growth, which reflects about 200 basis points of favorable currency. Constant currency organic revenue growth is unchanged at 6% to 7%. Each segment is expected to grow constant currency organic revenue in the range of 6% to 7% for fiscal 2026.

AST's revenue growth in the first quarter was stronger than anticipated. Despite the strong start, we are maintaining our outlook for the year at this time. Our own earnings outlook is also unchanged at $9.90 to $10.15, which now reflects $40 million in tariff costs, an increase of $15 million over last quarter. Fortunately, favorable foreign currency will offset that increase. For your modeling purposes, at the high end of our earnings range, we would expect EBIT margins to be about flat. No change is anticipated to our effective tax rate of approximately 23.5%. Based on the strong start to the year, we are increasing our outlook for free cash flow by $50 million to $820 million for fiscal 2026.

CapEx remains unchanged at $375 million. That concludes our prepared remarks for the call. Julie, would you please give the instructions so we can begin the Q&A?

Julie Winter: Thank you, Dan, for your comments. Alan, can you please give the instructions for Q&A and we'll get started?

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Brett Fishbin of KeyBanc. Please go ahead.

Brett Fishbin: Hey, guys. Thank you very much for taking the questions, and good morning. Congrats on the announcement, Mike. I just wanted to ask first on the revised tariff estimate. If you could just give a little bit more detail on specifically what drove the increased expectation, whether it was a change in policy or, you know, something you were seeing as you know, continue to do more of the analysis. Thank you very much.

Mike Tokich: Yeah. Brett, this is Mike. A couple of things drove the increase. First is the additional tariffs that we have seen on metals. Both steel and aluminum went from 25% to 50%. Copper went from zero to 50%. And the EU changed from 10% to 15%. Remember, when we guided in mid-May, we had more clarity than most. So these are changes since then, and that's why we are increasing and not decreasing our tariff exposure.

Brett Fishbin: No. Certainly makes sense there. And then just wanted to ask one more follow-up on AST. Sounded like you're generally maintaining the 6% to 7% organic expectation despite a double-digit start. So I was curious if that's more leans toward just conservatism after just one quarter of the year. Or if you're seeing anything, you know, changing that would make you expect, you know, certain quarters to maybe be below that range? Thank you very much again.

Dan Carestio: Yeah. Brett, this is Dan. I would say it's general conservatism. There's, you know, there's some moving parts going on in med tech with reflect as some changing positions of manufacturing from our customers. And at this point, we feel very confident in the numbers that we're putting forward. And if things pull out a little better, maybe we do a little better.

Operator: Our next question comes from Mac Etoch of Stephens. Please go ahead.

Mac Etoch: Hey. Good morning. Thank you for taking my questions, and congrats, Mike. I think just first, love to get your take on what you're seeing within the bioprocessing market. Just I think last year, you commented on some a slower start to FY '26, so I just want to get an update there.

Dan Carestio: Yeah. Sure. Hi. This is Dan. You know, I would say that you know, for the last year or so, we've sort of seen some fits and starts. You know, in terms of volumes coming through the facilities. It's been pretty consistent now for I would say, the last four or five months and back to what we would see as a normal trajectory off of a reset base. So we believe at this point, it's fairly predictable. You know, that's the assumption there is that we don't have customers overbuilding inventory, which is hard to fully understand. But nonetheless, it's been much more consistent in recent periods.

Mac Etoch: Appreciate that. And then also, I noticed the life science segment saw pretty strong increase in the segment's backlog sequentially. So I was just kind of curious to get your sense of what's driving the increase there, what your expectations are for the rest of the year.

Dan Carestio: Yeah. You know, a year ago, in you know, life sciences and pharma kinda runs on these sixteen-month cycles when things go down a bit in terms of capital. During that time, we continue to do really well in our consumables business. But as those orders dried up because of customer layoffs and some plant relocations and sort of extreme slowdown in vaccines and a number of other things. The capital orders dried up. What we've seen is that cycle is pretty much completed at this point. We've seen a very good strong order intake for quite some time now. And feel pretty good about catching up on that space.

Operator: Appreciate it, Cody. The next question comes from Michael Polark of Wolfe. Please go ahead.

Michael Polark: Hey. Good morning. Mike Tokich. It's been a pleasure. First question, I'm interested in your perspective. The comments recently from one of your competitors on low temp sterilization. Six or so weeks ago, kind of an alarm bell sounded on procedure soft purchasing delays in capital related to kind of regulatory and policy shift concerns at hospitals. Obviously, in these numbers from USC, I see none of that. And so what did you make of all that? Is this you're taking share? Any perspective would be welcome.

Dan Carestio: Hi, Mike. It's Dan. Yeah. I mean, it's hard to say. I mean, we have a lot of data points from a number of the centers that we run for hospitals. In terms of volume. The volume we're seeing going through AST and what we've seen you know, over time and in the recent quarter in terms of our backlog growth and order intake. So we feel like, I'm not sure where they came to that conclusion, but we feel pretty good about our position. And haven't seen any slowdown.

Michael Polark: Can I ask a real boring one in the updated guidance? It was FX benefit offset by incremental tariffs and then you called out in the press release higher employee health care benefit costs. We all see what's happening with managed care. I can attest, Wolfe, internally, has been struggling with higher premiums, for the coming year. Is that what this is? And kind of a I'm interested in any fresh perspective because you're obviously on the front end of your fiscal year. And as I think we roll into calendar 2026, I suspect we'll hear this from a lot of other companies. So what are you seeing on that front? Thank you.

Mike Tokich: Mike, it's actually utilization of our employee health care benefits. Is where we're seeing that. We did increase premiums as we typically do, low single digits, but at the same point in time, we are seeing just utilization causing that increase in cost.

Michael Polark: Okay. Thank you.

Operator: Our next question comes from Jason Bednar of Piper Sandler. Please go ahead.

Jason Bednar: Hey. Good morning. Thanks for taking the questions. And, Mike, congrats on a great career at STERIS. A pleasure working with you, and pretty impressive cash flow figure for you to go out on here. For my questions, I'll turn an order growth also really impressive in the quarter for both healthcare and life sciences. I know this stuff can be lumpy sometimes, but those are really strong results for a first quarter. Can you talk about the capital demand environment you're seeing out there and how this order book and backlog contributes to the confidence you have on the full-year revenue guide?

Dan Carestio: Yes. The orders have remained strong in both sectors. We haven't seen a slowdown in particular in the healthcare sector. We feel like we really have got a great portfolio and a very strong offering that is positioned STERIS very positively with our large customers who are looking to do more with partnership-type vendors and STERIS fills that requirement. So we feel pretty good and having a lot of backlog does bode well, obviously, for the future in terms of our ability to schedule and predict the timing of those shipments as they go out to customers over the fiscal year and then the next.

Jason Bednar: Alright. Great. And then as a follow-up and dovetailing off that cash comment I made on to Mike, is that balance here the cash balance here is, I think, the highest it's been in a few years. You paid down a little bit of debt in the quarter. You bought back a small amount of stock. What do you do from here? Stock's cheap by historical standards. There's obviously a long M&A history at STERIS. M&A still that preferred use of cash? I think that I think it is, but can you talk about what you're seeing out there in that environment, what those discussions look like? Any preference you're leaning towards in terms of allocating that cash?

Mike Tokich: Yeah. I think we still have time to think about it. But what I would say is we have been historically active on the M&A front. We continue to be. We had done some small transactions over the past couple of quarters. We continue to have those opportunities going forward. And as always, we're always looking for larger opportunities and those come in time and when they do, they do. It's hard to predict. Jason, you will see over the next couple quarters without M&A activity. We will continue to build a cash position because we have almost no prepayable debt remaining.

Everything that we will have on our balance sheet are either private placement notes which I think the next tranche is due not till 2027. And then we have the public bonds. And I up top ahead, the first tranche there was a ten-year tranche, and I think that's 2032 or 2033. So don't be surprised if cash does continue to build in the short run. Alright. And then, obviously, we will continue to do buybacks as we typically do to offset dilution mainly. We were as you can imagine, blacked out this quarter because of the buy announcement. Unfortunately, we weren't able to take advantage of that.

But we should get back to at least offsetting dilution in the short run. Alright. Helpful color.

Jason Bednar: Thank you, and congrats again.

Operator: Thanks, Jason. Once again, if you have a question, please press star then 1. Our next question comes from Mike Matson of Needham and Company. Please go ahead.

Mike Matson: Yeah. Thanks. So a couple on the life sciences business. Know, we've seen, you know, with regard to what's happening in DC. So, you know, there's been some cuts since vaccine spending. You know, kind of reduced recommendations there. And then, you know, broadly, we're seeing kind of a pullback in pharma company spending. But then at the same time, there's this talk about, you know, trying to push more drug manufacturing into the US or incentivize that. So how do you think all those things sort of shake out for that business?

Dan Carestio: It's a complicated landscape is what I would say at this point. You know, anytime there's relocation to manufacturing, that tends to drive some benefit for our capital business because obviously the new equipment to manage those aseptic environments. You know, we've already seen the fall off in vaccines from where it was three, four years ago, so I don't think that's really a headwind for us going forward necessarily. And given the growth that we've seen in other biological drugs and cell and gene therapies that require those aseptic environments, we feel pretty confident that despite whatever macro changes there may be in terms of location or specific type of drug, the demand's gonna remain fairly high.

Mike Matson: Okay. Got it. Thanks. And then just one on the free cash flow guidance increase. I since your kind of earnings guidance is unchanged, I'd assume that's mainly driven by working capital. Is that right? And then is that inventory or receivables or something else? Thanks.

Mike Tokich: Mike, it is working capital, and it's both inventory and receivables that we believe we will get increased cash flow from. And it's about $50 million in total. And since we did overachieve this first quarter, we are carrying that through for the year.

Mike Matson: Got it. Thank you.

Operator: Our next question comes from Justin Wang of Morgan Stanley. Please go ahead.

Justin Wang: Hey, everyone. I'm filling in for Patrick. Thanks so much for the questions. So last month, I think President Trump granted 39 ethylene oxide sterilization facilities a two-year regulatory relief from NESHAP compliance. However, I didn't see any of STERIS' EO sites included in that list. Could you clarify whether this is because your facilities didn't need the extension to be compliant, or was this relief something that STERIS pursued but didn't receive? And more broadly, how do you see this regulatory development affecting the competitive landscape as well as your positioning in EO near term? Thank you so much.

Dan Carestio: That's a loaded question. So there's a lot there. Well, first off, we didn't apply for it because we don't feel we need it. You know, we've been way out ahead of this going back four years now in terms of our facilities and as I've discussed before, because many of the STERIS facilities are newer, generally speaking, in the EO landscape, the engineering modifications that we've had to make to ensure that we meet compliance with NESHAP were not as significant as maybe some other older facilities. So we're confident in where we are and didn't feel it necessary.

You know, in terms of the competitive landscape, I mean, it extends the clock maybe on some facilities that may not elect to ultimately make the high-level investments, you know, in terms of meeting the compliance, NESHAP. But I think in the grand scheme of things, it's really all that material.

Justin Wang: Got it. Thank you so much.

Operator: The next question comes from Dave Turkaly of Jefferies. Please go ahead.

Dave Turkaly: Hi. Good morning. Thanks for taking my questions. My congratulations on a good career. I hope I wasn't the straw that broke the camel's back that just made you think it was time to go. Jokingly.

Mike Tokich: No. Dave, your call, which was fine. Thank you. But when we were together, in June, talked a little bit about outlook hospital outlook on volumes and potential impact of OB3. And I think at the time, you know, hadn't passed. Obviously, maybe hospitals were more tied up in trying to manage supply chain and issues around tariffs. I wondered if with the passage of time, if management's had more conversation with your hospital clients in terms of how they are assessing the potential impact of OB3 and declining coverage in Medicaid exchange, things like that? Thanks.

Dan Carestio: Yeah. I mean, it's we'll see how things play out, I guess, is what I would say. But generally speaking, I think it's gonna be a challenge for our customers, obviously, from a cash from a payment standpoint. It's more of a it's more of how they're gonna figure out how to manage that than it is a demand standpoint in terms of procedure rates ultimately. So and obviously as indicated in, you know, this past quarter's orders that we haven't seen any pullback nor have we seen any pullback in current procedure volumes.

So, you know, I kinda go back to what I said there is we think it's a payment reimbursement issue for our customers and for healthcare system in general in the US that's going to have to get sorted out under the new requirements.

Dave Turkaly: Got it. Thank you. And then a more boring one. If you could remind me on FX, does that largely flow through the are you kind of operationally hedged on the FX, or do you see that have different effects on profitability than on the top line? Thanks.

Mike Tokich: No. We are pretty much hedged. Unfortunately, with the top line increasing by 200 basis points from an FX standpoint, by the time you get to the bottom line of the FX, which is about $14 million or so, $15 million, we're gonna have that offset the increased tariffs. So but in general, we are pretty much naturally hedged.

Dave Turkaly: Got it. Thank you very much.

Operator: And our next question comes once again from Michael Polark of Wolfe. Please go ahead.

Michael Polark: Hey. Thank you. Just one more for me. Dan, I'm curious where you think we are what inning the proverbial inning question on the ASC build-out in the US? And I asked specifically, we know ortho is on its way. As a prime example. But, this summer, Medicare provided a path for, like, cardiac ablation to be done in the ASC now. It's a high-volume EP case. So kinda what's your feel out there? Is this still a megatrend? I'm curious for any fresh anecdotes on you think we are in this cycle. Thank you.

Dan Carestio: Sure. Yeah. I don't think that really affects in terms of volumes going through AST. I think that's more of a, you know, where procedures are going to be done as, you know, some shift continues obviously.

Michael Polark: I was asking with the lens of your capital business in healthcare, AS ambulatory surgery centers, the yeah.

Dan Carestio: Yeah. Okay. That makes much more sense. Yeah. Whenever there's relocation of where procedures occur, you know, from a capital perspective, that's generally beneficial to us. I think there's it also requires us to meet an unmet demand, which is where you're gonna have lower scale, less scale, you know, in terms of labor in those facilities, and we need to make sure that we have the proper training and compliance programs for those customers, ensure they can meet the demands of the patients in terms of providing safe and sterile reusable devices into the ASC market.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Ms. Julie Winter, for any closing remarks.

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

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.