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DATE

Tuesday, May 12, 2026 at 9 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Daniel Carestio
  • Chief Financial Officer — Karen Burton
  • Vice President, Investor Relations — Julie Winter

TAKEAWAYS

  • Total Revenue Growth -- 7% as reported, with 5% constant currency organic growth, driven by volumes and 230 basis points of price realization.
  • Gross Margin -- 44%, down 30 basis points due to inflation and tariff impacts, despite positive pricing.
  • EBIT Margin -- 24.2%, a fiscal year high but 60 basis points below last year, mainly from inflation and tariffs.
  • Tariff Impact -- Approximately $10 million impact in the fourth quarter and $46 million incremental for the year, contributing to an 80 basis point annual margin reduction.
  • Adjusted Effective Tax Rate -- 25.4% in the quarter, up from 23.5% due to geographic mix shifts and unfavorable discrete items.
  • Adjusted Net Income -- $278.3 million from continuing operations.
  • Earnings Per Diluted Share -- $2.83, representing 3% year-over-year growth, limited by margin and tax headwinds.
  • Free Cash Flow -- $982.9 million for the year, surpassing the prior period primarily from earnings growth despite weaker working capital contributions.
  • Balance Sheet -- $1.9 billion in total debt, resulting in gross debt to EBITDA of approximately 1.2 times, well below the company's 2 times-2.5 times target range.
  • Segment Revenue Milestones -- Healthcare exceeded $4 billion in revenue and $1 billion in operating income; AST crossed $1 billion in revenue and $500 million in operating profit; Life Sciences surpassed $250 million in operating profit.
  • Healthcare Segment Growth -- 9% as reported and 8% constant currency organic revenue, led by 12% service and 7% consumables growth, with capital equipment up 6%.
  • AST Segment Growth -- 10% as reported and 7% constant currency organic, with 11% service and lower-than-expected Q4 due to snowstorms reducing service volume.
  • Life Sciences Growth -- 9% as reported and 7% constant currency organic, primarily from 15% capital equipment growth, 8% consumables, and 5% services.
  • Dividend Increase -- Quarterly dividend raised by $0.06 to $0.63, marking the 20th consecutive year of dividend growth.
  • Acquisitions -- Two acquisitions in the Healthcare segment expected to add roughly $45 million revenue in the next fiscal year.
  • New Share Repurchase Authorization -- $1 billion buyback approved, with planned annual repurchases of $200 million to $300 million.
  • Fiscal 2027 Outlook -- As-reported revenue growth forecasted at 7%-8%; constant currency organic growth at 6%-7% for the company, driven by approximately 200 basis points of price.
  • Segment Guidance -- Healthcare and Life Sciences expected to grow 6%-7% constant currency organic; AST anticipated to grow 7%-8%, with a cautious early outlook due to persistent inventory management by customers and difficult first-half comparisons.
  • EBIT Margin Expansion -- 50 basis points improvement anticipated, with expectations of flat tariff spending and benefits from the company’s incentive compensation program.
  • Fiscal 2027 Adjusted EPS Guidance -- $11.10 to $11.30, representing 9%-11% year-over-year growth.
  • CapEx and Free Cash Flow Guidance -- Capital expenditures forecasted at $375 million; free cash flow projected at $850 million.
  • Working Capital Expectation -- Management expects net working capital to grow in line with volume, moving away from the sharp inventory reductions seen previously.
  • New Facility Investment -- $60 million over two years will be invested in a new sterility assurance manufacturing plant, set to consolidate existing U.S. production and operational by end of calendar 2027.
  • Incentive Compensation Payments -- Approximately $50 million in additional payments due in June, along with the completion of EO settlement payments over the coming year.
  • Tariff and Energy Cost Assumptions -- Fiscal 2027 guidance factors in flat total tariff spend ($60 million-$65 million), freight cost recovery through pricing, and oil-driven cost exposure comprising about 20% of cost of goods sold.
  • Supply Chain Commentary -- STERIS (STE +4.46%) reported strengthened supply chain resilience and less exposure to component shortages, stating, "we’re much more resilient today than we were when we had the exposures a few years back".

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RISKS

  • Management cautioned on AST segment outlook, citing "some difficult comparisons in the first half, leaving us cautious."
  • Tariffs and higher effective tax rate continue to put upward pressure on margins, with the adjusted effective tax rate expected to rise to 25% in fiscal 2027 due to withholding taxes and geographic profit mix changes.
  • Weather-related disruptions affected AST volume, with Daniel Carestio stating, "Q4 is easy to understand because we have storms where we were shut down, our customers were shut down for a number of days in the Midwest and even the Southeast and the East Coast, right, which is where a lot of our big plants are."
  • Inflation and energy costs—particularly oil-driven inputs—may result in higher freight, raw material, and production costs, which are incorporated into, but could exceed, current financial projections if pressures persist.

SUMMARY

The leadership team confirmed achievement of new revenue and profit records across all major segments, complemented by prudent capital deployment and new acquisitions. Management described the new $1 billion share repurchase program as a step beyond prior commitments, targeting $200 million to $300 million annually without materially increasing withholding tax burden due to cross-border cash movement. Guidance for fiscal 2027 incorporates expectations of stable tariff spending, continued growth in U.S. procedures supporting Healthcare and AST, and technology-driven investment to advance service workflows. STERIS announced plans to consolidate U.S. sterility assurance manufacturing into a single, highly automated facility, aiming to support capacity expansion and long-term margin improvement. Management asserted that ongoing investments in supply chain resilience and selective capacity projects have left STERIS well-positioned to manage volatility in commodity, freight, and labor costs.

  • Management expects sequential improvement in AST segment performance after a slow start, anticipating easier year-end comparisons as weather and inventory effects dissipate.
  • Acquisitions in Healthcare—including a MEDglas supplier and GI products portfolio—are expected to enhance sales reach and product offering, with direct channel expansion highlighted as a benefit.
  • Life Sciences capital equipment sales surged, supported by post-pandemic recovery and increased investment among large pharmaceutical customers.
  • Karen Burton said, "We have considered also how long this may last, looked at forward rates. But the largest challenge and driver would be freight. We have opportunities to recover most of our freight out to customers through our freight recovery pricing."
  • Tax rate variability stems from cross-border cash movement and is likely to persist as STERIS prioritizes capital return and reinvestment.
  • Product innovation and digital workflow investments—focused on AI-enabled service productivity—are projected to contribute to operational margin upside over the multiyear horizon.

INDUSTRY GLOSSARY

  • AST (Applied Sterilization Technologies): STERIS segment providing contract sterilization and laboratory testing services for device and pharmaceutical manufacturers.
  • EO (Ethylene Oxide): A sterilization agent regulated due to environmental and health concerns; STERIS references EO in the context of regulatory compliance and settlement obligations.
  • MEDglas: A specialized glass material used in operating rooms and sterile processing department facility construction for enhanced visual appeal and cleanability.
  • SPD (Sterile Processing Department): Hospital department responsible for cleaning, sterilizing, and managing surgical instruments; a focus area for STERIS workflow technology solutions.

Full Conference Call Transcript

Karen Burton: Thank you, Julie, and good morning, everyone. It is my pleasure to be with you this morning to review the highlights of our fourth quarter performance from continuing operations. As anticipated, we ended the strong year with a lighter fourth quarter. For the fourth quarter, total as reported revenue grew 7%. Constant currency organic revenue grew 5% in the quarter, driven by volume as well as 230 basis points of price. Gross margin for the quarter was 44%, down 30 basis points versus the prior year. We continue to realize positive pricing, which helped mitigate the impact of higher tariffs and inflation. EBIT margin for the quarter was 24.2% of revenue, a high for fiscal 2026.

This was 60 basis points below the fourth quarter last year mainly driven by inflation and tariffs. Incremental tariffs impacted our fourth quarter by approximately $10 million which was below our expectations due to lower volumes in materials and products sourced from outside the U.S. The adjusted effective tax rate in the quarter was 25.4%, an increase from 23.5% in the fourth quarter last year. The year-over-year increase was driven primarily by changes in geographic mix and unfavorable discrete items. Adjusted net income from continuing operations in the quarter was $278.3 million.

Earnings per diluted share from continuing operations were $2.83, 3% increase over the prior year as the lower margin and higher tax rate limited earnings growth in the quarter. Before I turn to cash flow for the year, I want to dig into the upward pressure on our tax rate for a moment. For the full year fiscal 2026, our adjusted effective tax rate was 24.4%, an increase of 130 basis points from fiscal 2025. Our tax rate varies based on many factors, most notably, geographic profit mix and discrete item adjustments, which include withholding taxes.

Since we generate the majority of our profit in the United States, it is common that we need to move cash across borders to deploy capital. This movement may trigger U.S. withholding taxes. Our fiscal 2027 guidance assumes that in accordance with our capital allocation priorities, we will increase the dividend, reinvest in our business, invest to grow through M&A and return excess cash to shareholders through our share buyback program. To fund some of these priorities, we expect to incur additional withholding tax putting further upward pressure on our effective tax rate. This is reflected in our estimate of 25% in fiscal 2027. Capital expenditures for fiscal 2026 totaled $369 million, and depreciation and amortization totaled $486.5 million.

We ended the year with a strong balance sheet, reflecting $1.9 billion in total debt. Gross debt to EBITDA at year-end was approximately 1.2x, well below our target of 2 to 2.5x. Free cash flow for fiscal 2026 was exceptional at $982.9 million with year-over-year improvement driven primarily by an increase in earnings, which more than offset the significantly lower contribution from working capital in fiscal 2026 compared with fiscal 2025. To provide some context, recall that the working capital improvement that we generated in fiscal 2025 was primarily the result of targeted inventory reductions as we recovered from supply chain challenges. Going forward, we would expect our working capital will grow in line with volume.

Once again, we are heading into a new fiscal year in a strong financial position with continued commitment to our capital allocation priorities. With that, I will now turn the call over to Dan for his remarks.

Daniel Carestio: Thanks, Karen, and good morning, everyone. Thank you for joining us to hear more about our fiscal 2026 performance and our outlook for fiscal 2027. Karen covered the quarter at a high level, so I will add some commentary on the year and then comment on our outlook. Fiscal 2026 was another record year for STERIS, with 9% revenue growth, 7% on a constant currency organic basis. We are pleased to have translated this into 10% adjusted earnings per share growth despite the 80 basis points of impact from tariffs on margins. Our businesses all hit new milestones this year, contributing to total company revenue of approximately $6 billion in adjusted net income topping $1 billion.

This is an exciting time to be at STERIS and we expect to continue to grow the business mid- to high single digits organically over time and leverage that to deliver double-digit bottom line growth. Supporting our growth, U.S. procedure volume continues to grow mid-single digits, a level we expect to be consistent in fiscal 2027. Procedure volume outside of the U.S. do continue to lag a bit. which impacts our AST segment a little bit more than Healthcare. From a segment perspective, Healthcare reported another strong year, growing 9% as reported and 8% from a constant currency organic perspective.

This growth was driven by another remarkable year for service, growing 12% and as well as 7% growth in consumables as we continue to pick up share, thanks to the breadth of our portfolio and the performance of our commercial teams. Capital equipment also grew nicely, up 6% for the year, stabilizing after the last several years of lumpiness. Capital equipment backlog ended just under $400 million with orders up 2% in the fourth quarter. This year, we reached new milestones in Healthcare business, generating $4 billion in revenue and $1 billion in operating income.

We continue to be excited about what is yet to come as we expand our offering through organic and inorganic growth to deliver products and services that address the most pressing operational needs of our customers. AST grew 10% as reported and 7% constant currency organic. This was a bit lighter than what we had anticipated with softness in the second half of the year. In particular, a slower fourth quarter for services due to the severe snowstorms in the U.S. early in the calendar year. For the year, our services business grew 11% as reported or about 8% constant currency organic which aligns with our expectations for the business going forward.

With over $1 billion in revenue, AST crossed a new milestone of its own exceeding $500 million in operating profit. Life Sciences grew 9% as reported and 7% constant currency organic, driven by 15% growth in capital equipment as our customers return to capital investment again following last year's downturn. Consumables continued their steady path of growth at 8% and services improved 5% despite some more quarterly volatility than we usually see. Capital equipment backlog ended solid at just under $100 million. Life Science posted its own record year, exceeding $250 million in operating profit for the first time, reflecting strong operating margins.

Total company EBIT margins expanded by 10 basis points to 23.3% for fiscal 2026 despite incremental tariff costs of approximately $46 million, which trimmed our margin by 80 basis points. Lower interest contributed to our double-digit growth in adjusted earnings at $10.17 per diluted share. We also stayed true to our capital deployment priorities this year. We increased the quarterly dividend $0.06 to $0.63, our 20th year of dividend growth. We invested in ourselves, in particular, in AST expansions projects for x-ray globally. In addition, we completed 2 tuck-in acquisitions that add to our health care portfolio globally. And last but not least, we used $225 million for share buybacks.

As you saw in our press release, the Board has approved a new $1 billion buyback authorization. Going forward, we expect to utilize excess cash to consistently buy back shares in the range of $200 million to $300 million per year. Turning to our outlook for fiscal 2027. As noted in the press release, we anticipate as-reported revenue to grow 7% to 8% in fiscal 2027. Changes in foreign currency are expected to be slightly favorable to STERIS. Tuck-in acquisitions in Healthcare are contributing inorganic revenue to our as-reported outlook for the segment and total company. There are 2 acquisitions driving this contribution.

In the fourth quarter, we vertically integrated our supplier for MEDglas walls, extending our reach from the U.S. to global. In addition, early in the first quarter, we acquired a family of GI products that expanded our offering and improved our channel. These 2 acquisitions are expected to contribute combined revenues of approximately $45 million to fiscal 2027. As a result, constant currency organic revenue growth is expected to be 6% to 7% for the total company. This outlook assumes approximately 200 basis points of price. From a segment perspective, we anticipate Healthcare and Life Sciences to grow 6% to 7% constant currency organic and AST to grow 7% to 8%.

We are taking a more conservative approach on our outlook to AST to start the year. Our med tech customers continue to manage inventory levels carefully and we are heading into the new year with some difficult comparisons in the first half, leaving us cautious. For fiscal 2027, EBIT margins are anticipated to expand approximately 50 basis points, at the high end of our outlook. This assumes tariff spending is flat year-over-year and the benefit of a tailwind from our incentive compensation program.

We will be making select investments in FY '27 driving incremental operating expenses, including kicking off a multiyear project to support our service workflows with upgraded technologies utilizing AI to improve quality, increase productivity and enhance the customer experience within both the Healthcare and Life Science segments. Our fiscal 2027 earnings per share outlook is $11.10 to $11.30, growth of 9% to 11% over fiscal 2026. In fiscal 2027, free cash flow is expected to be $850 million and CapEx of $375 million. Underlying our free cash flow expectations, we expect that net working capital will grow in line with volumes.

We will also use about $50 million for additional incentive compensation payments due in June and the remainder of our EO settlement payments over the year. From a capital perspective, our capital spending priorities are shifting a bit as we are nearly done with our multiyear X-ray expansion in AST. In fiscal 2027, we will build a new sterility assurance manufacturing plant in Mentor, Ohio, which will ultimately allow us to consolidate existing U.S. production into one new state-of-the-art manufacturing center of excellence to serve our Healthcare and Life Science customers. We will invest about $60 million over 2 years and expect that plant to be operational by the end of calendar 2027.

Fiscal 2026 was a banner year in many ways for STERIS. Looking back at the last 5 years, our performance has really been remarkable. We delivered average constant currency organic revenue growth of 9%, and our compounded annual growth rate for adjusted earnings was 11% during what was one of the more tumultuous 5 years in our history here. Equally important, our Healthcare organization has transformed from a products and services focused to a valued partner to Healthcare customers to help enable them to solve some of their most pressing operational challenges that they are facing.

We are committed to partnering with our customers to enable them to meet their procedural growth needs, improve the delivery of the quality outcomes and improve standardization and optimization as they manage critical inventory from the OR to the SPD and back. Thank you to all of our associates for continuing to do what you do best, focus on our customers and strive to do better every single day. That concludes our prepared remarks for the call. Operator, would you please give the instructions so we can begin the Q&A.

Operator: [Operator Instructions] And the first question will be from Brett Fishbin from KeyBanc.

Brett Fishbin: I just wanted to start off with one on the FY '27 earnings guidance. I think you mentioned that you're thinking about operating margin expansion of approximately 50 bps at the high end of the range. I was just curious if you could walk through like some of the moving pieces. I think there are some questions around the impact of inflation and energy prices and then also what you're thinking around tariffs as compared to FY '26 as well as just the contribution from underlying performance.

Daniel Carestio: All right. Thanks, Brett. We appreciate the question. I'll add a little bit of light on this, and then Karen is going to pepper in a little bit more of a response on some of the details around tariffs and et cetera. I think there's a few things that we're going to work on really hard to maximize that 50 bps, and that's really going to be some operational improvements. as well as a continued sell-through of our higher-margin consumables products that we'll see over the next fiscal year. The sort of upside in that is if we deliver a little better on the AST business, just given the margin profile there.

And Karen, I'll hand it over to you to handle some of the tariff-related questions.

Karen Burton: Great. Thank you. Yes. So the good news is in terms of tariffs, the recent changes are favorable to us. and served to offset the volume increase for next year. So in an odd twist, tariffs are an okay thing for us looking at '27. In terms of other opportunities, challenges. The bonus tailwind is about $2 million. And as we look at and have incorporated energy and particularly oil-driven costs, we have incorporated those. We have considered also how long this may last, looked at forward rates. But the largest challenge and driver would be freight. We have opportunities to recover most of our freight out to customers through our freight recovery pricing.

The day-to-day fuel associated with our fleet of service techs in the field is not significant. It's low single digits exposure. And when you look at our raw materials, we do have raw materials that are impacted by oil. That represents only about 20% of our COGS. And generally, energy has certainly been meaningful, particularly to AST, but it is a small percentage of COGS in AST as well. So hopefully, that helps you.

Brett Fishbin: Yes. No, that's helpful. And then also just a question on guidance. I think you had some comments about the difficult comps in AST service to begin the year. So I just wanted to maybe ask more broadly how you're thinking about overall phasing for organic growth, whether you're calling for like a softer 1Q overall? Or if it was more specific to AST service, given the comps?

Daniel Carestio: Yes, really more specific to the AST comps. We started the year last year, first couple of quarters in double-digit growth in that business. and then saw a bit of a slowdown in Q3 where we saw some inventory flow back from our customers. And then this past quarter got a little weird just with the snowstorms. We probably lost time 150 to 200 basis points of growth there. So if you sort of stack all that up, I think one would expect a slower start in the first half and then significantly improving in Q3 and then pretty easy comps in Q4.

Operator: And the next question will come from Mike Matson from Needham & Company.

Michael Matson: I guess just following up on the tariff question. What is your expectation for the USMCA renegotiation this year? And what have you assumed in your guidance with regard to that? .

Karen Burton: Yes, this is Karen. I will answer that. In terms of the USMCA review, a joint review is -- have a July 1 deadline. All 3 governments have emphasized the importance of continuity and avoiding disruption. But no real movement in those discussions yet. So we have not included any assumption for USMCA. We're assuming stagnant and that it will likely move into annual continual review phase at least in the short term.

Michael Matson: Okay. Understand. And then with the rollback or potential rollback of the ethylene oxide regulations under the new administration, what does that mean for STERIS? If anything, is there any sort of positive financial implications there?

Daniel Carestio: Not really. I mean we're pretty much fully spent on upgrading our facilities, Maybe there's some timing on compliance that's not as in the forefront in terms of something we have to do tomorrow versus something we can get done in the next 6 months. But there's no significant capital impact on us given where we are already with our facilities.

Operator: And the next question is from Dave Turkaly from Citizens.

David Turkaly: You called out some tuck-in M&A in Healthcare and then obviously, $1 billion buyback. I was just wondering should we be reading into that at all in terms of sizable transactions and/or maybe valuation in the sector?

Daniel Carestio: Thanks, Dave. I would say no. I mean, our M&A is erratic at times because it's when opportunities present themselves that have been working on for a long period of time. We typically do small tuck-in M&A throughout the year. We're just calling these 2 out because they do have a material impact on the fiscal performance as we look next year of close to 100 basis points for Healthcare. So in terms of buyback, Karen shed some light on the tax that we pay as a result of moving money for doing distributions on dividends, but also for doing buybacks. That's been something that's been holding us back for a number of years, I would say.

But the reality is that we understand going forward that doing some level of consistent buyback is important for the health of our company.

David Turkaly: Got it. And you called out service in AST and the weather. I was wondering -- I know it's not a big component, but the capital component. I was wondering if you could just give us any color as to what was going on there in the fourth quarter.

Daniel Carestio: On the AST side?

David Turkaly: Yes.

Daniel Carestio: Yes. Thanks, Dave. It's just lumpiness of that business. We sell $20 million, $30 million a year, and sometimes that can be 4 orders. And if you ship 2 of them in 1 quarter, 1 in another -- the way it spreads out, you can have a quarter with very little equipment sales, but just equipment service parts and things like that. And then you get out of the next quarter, you could ship 2 machines and we're a hero, right? So you kind of have to look at in the year in aggregate, I guess.

Operator: And the next question is from Mac Etoch from Stephens.

Steven Etoch: Maybe just to follow up on some AST questions. You called out some med tech customers continuing to manage inventory levels carefully. So can you just speak to what you saw in AST as the quarter progressed and particularly on the volume side?

Daniel Carestio: Yes. So I mean, the organic volume was less than what we would anticipate in the last 2 quarters. And like I said, Q4 is easy to understand because we have storms where we were shut down, our customers were shut down. for a number of days in the Midwest and even the Southeast and the East Coast, right, which is where a lot of our big plants are. So that is what it is. They will recover over time, the volume will come back, et cetera.

But what we have seen and maybe it's post-tariff confidence in supply chains, maybe it's whatever, but we've seen some inventory reduction across the broader customer segment, right, in terms of med tech and what we know is this. What we know is procedure rates are still consistently growing. So from a patient and provider perspective, the demand is still there. What we know is that when we see the revenue reports of our large public customers, that supports that growth as well. So we're seeing good top line sales from a lot of the large med tech companies that showed good growth over the last couple of quarters.

So if you sort of align those things with what we're running in terms of volumes, it points to a bit of an inventory pullback, which is a situation that we've seen over the last couple of quarters.

Steven Etoch: Appreciate it. And then secondly, Healthcare and Life Sciences, both had a pretty decent quarter from a capital equipment perspective. Backlog did decline sequentially. So I just kind of wanted to get your sense of how we should think about the progression for capital equipment revenue and backlog as it progresses through 2027.

Daniel Carestio: I think a little bit on '26, we tend to ship a lot in Q4, and we tend to build a lot of capital, and then we tend to push as much as we can just -- and it just seems to be the normal cyclical nature of the business. It's a lot better than it used to be. We used to have an extreme hockey stick here at STERIS, but it's somewhat mitigated now. So that's not abnormal for us to have a little bit of a drain on our backlog with a high shipment in Q4. It's sort of norm for us here at STERIS. In terms of the go forward, our orders have remained solid.

We're in a different position with the pressure that's being exerted on the health care systems and that we help enable them to get procedure volumes up and to run better quality and things that are important to them as they're looking for opportunities to generate more revenue and also save cost. So it's not -- I think we're in a pretty good position as we go forward with our large customers.

Operator: The next question is from Dave Windley from Jefferies.

David Windley: I wanted to ask about the sterility assurance facility. I think you're suggesting that you're consolidating the number of facilities. I wondered how many or what operating efficiency you might expect to pick up when that is operational and kind of essentially the motivations for taking the step and consolidating into one facility.

Daniel Carestio: Yes. Thank you, Dave. This is Dan. First off, we've got 3 different facilities, 2 of them happen to be here locally and it just makes sense to consolidate. But the real driving issue here is this has been a really high-growth and high-margin business for us at STERIS and one that we've been really successful in picking up share in our Healthcare organization, in particular, as most every system now is at least dual source to STERIS. So we're pleased with the performance of the business.

In terms of the need to build the new facility, a, it's capacity driven, and b, there's a significant opportunity to put in what is a nearly fully automated manufacturing facility, really a center of excellence. So with that, over time, there will be some cost benefit on the savings. But more important than that, it's really supporting the long-term growth of a high-growth, high-margin business.

David Windley: Got it. And then switching gears, I think I wanted to go back to your description on AST and the cadence that you were expecting for '27. I think you quantified for fourth quarter maybe STERIS lost 150 to 200 basis points because of weather. Are you expecting that to come back and is that coming back early in the year or more spread during the year? I was kind of juxtaposing the benefit of getting that push out volume into first quarter, but you talked about the comps being tough and how we should think about the balance of those 2 things?

Daniel Carestio: Yes, we thought about this a lot. It's really tough to quantify, to be honest with you, because it's not just the volume through our plants, but there's also a considerable amount of surgical procedures that were canceled or deferred. And I think some of the large public health care systems commented on that in their earnings release. So I think over time, provided that those procedures are still required, which they should be, our customers, meaning the Healthcare facilities will provide those procedures. And hopefully, that drives the demand upstream into the med tech sector, where they'll be producing the products for set procedures.

Operator: And our next question is from Michael Polark from Wolfe Research.

Michael Polark: A follow-up on the margin guidance for fiscal '27. Two-parter. On tariffs, Karen or Dan, can you just remind us, in fiscal '26, what was the total tariff headwind and what's considered in '27? And does '27 embed any contribution from refunds? That's first part. And the second part is the bonus tailwind that was spiked out. I guess I don't understand why that's being modeled where was there overachievement in fiscal '26 and your modeling normalization in fiscal '27?

Karen Burton: Thanks, Mike. This is Karen. I can help you with these. In terms of tariffs, our incremental tariffs in '26 was $46 million, which puts us at a total tariff spend between $60 million and $65 million, and that's what we're modeling for '27. We are not including any refunds in our '27 guidance. We have not recorded anything. When it comes, we will recognize it. And we've taken that position because it's difficult to know how quickly this will actually happen. . On the bonus, you are correct. We did have overachievement in fiscal '26 and we are modeling 100% achievement in fiscal '27 as we usually do. So that's the differential of $20 million that I mentioned.

Michael Polark: Helpful and very clear. A follow-up, different topic. Dan, your quote in the press release, deliver quality outcomes and drive compliance with standardization and optimization. It just feels like something that I haven't heard you say before, and I'm just trying to understand particularly around the compliance and the compliance comments. What are you telling us there?

Daniel Carestio: Yes. So we've been working for a long time to really put our system together in the sterile processing department, where we're helping our customers drive compliance, making it easier for them to have access to IFUs at the sync, making it harder to move process -- products down the line in the SPD without confirmation that you're in compliance, doing things that hopefully eliminate unnecessary steps for our customers. And then in addition to that, overlaying on top of that, SPM, which is basically our ERP for the sterile processing department to allow our customers to track and trace compliance and inventory through the sterile processing departments.

Operator: [Operator Instructions] The next question is from Jason Bednar from Piper Sandler.

Jason Bednar: I wanted to start here, everyone, just maybe first in the larger buyback authorization. Definitely seems like a commitment -- a greater commitment than anything you've done historically. That authorization is twice the size I think of your last one, I think your comment here, $200 million to $300 million is more than what you normally commit to. . Just how should we think about executing against that authorization, considering how pressured your stock has been here of late? Would you be open to moving above that upper bound of $300 million if the stock remains under pressure, just maybe the flexibility versus like hard commitment to the ranges you provided here?

Karen Burton: Thanks, Jason. This is Karen. Yes, we are looking at and planning for a use of excess cash. And that's where the $200 million to $300 million is. You are correct. Historically, we would typically offset dilution. So about $100 million, maybe do a little more depending on cash position and opportunity and stock price. Because of the withholding tax, we believe a measured approach is the right answer. We have this incremental hurdle when we do buybacks to overcome. So when we model the withholding tax, the lost interest, potentially having to borrow to go bigger, it starts to not make sense. So that is our plan.

And what we see when we do that is that we take the hit for that withholding tax in the period, and we start to see the accretion as we execute consistently and don't continue to grow that withholding tax cost incrementally year-over-year.

Jason Bednar: Okay. That makes sense. Maybe one other one here just on -- Dan, it's probably for you. Just given what we're seeing across the supply chain landscape and inflationary pressure on certain categories. I'm just reminded of what STERIS went through a few years ago. And sourcing what I think you've termed the golden screw. There's a lot of discussion out there from other equipment players on things like chips. Can you talk about what you're seeing on that front? Do you have supply visibility on chips and other critical components? And if you could, maybe, Karen, layer on what's assumed in your guide here with respect to supply and COGS inflation?

Daniel Carestio: Yes. Thanks, Jason. What I would say is we're a vastly different organization today than we were a few years ago when we went through the Golden strew diaries or whatever we want to call it, it was a miserable time for all of us. For one thing, we've significantly invested in our supply chain resources here at STERIS. We've also done a lot of work to mitigate single-source supply. We've identified basically any critical parts where we strategically hold excess inventory, which Karen doesn't love, I can assure you, but we do that where we need to. And so I think we're in a pretty good position not to say something can't possibly trip us up.

But I think we're much more resilient today than we were when we had the exposures a few years back, and we feel pretty good about our position.

Karen Burton: And to follow up with your question on inflation, we don't expect anything outsized in terms of labor, pretty routine. And in raw materials, as I mentioned, we have got metals, plastics, electronics, chemicals are our largest inputs in terms of raw materials. But again, they represent less than 20% of COGS. So we have assumed some upward pressure with the ultimate -- the oil impact on those types of materials, and we have assumed some upward pressure because of oil for freight and fuel costs. But I think we've done a measured job, not too aggressive, not too conservative and taken outside views in terms of how long this may last and ultimately what that is.

So it's in there. If this war goes on for a long time, and oil stays high for the whole year, we may be a little short.

Jason Bednar: Okay. And specific to chips or other components, just is there any other inflationary assumptions that you had just assuming what we have here today extends through the year? Or you've built in some upward cushion if prices continue to rise?

Daniel Carestio: Yes. Keep in mind, like chips, in particular, as bad as that was for us a few years ago, our overall spend is irrelevant as it relates to chips. They're just incredibly important to be able to make a machine but it's not like our cost components like we're making an automobile or something like that. There's hundreds of dollars of chips in a steam sterilizer, let's say, not $6,000 of chips.

Operator: And the next question is a follow-up question from Michael Polark from Wolfe Research.

Michael Polark: I'm interested in a vibe check on your Life Science customers. Obviously, you had a kind of recovery year in fiscal '26 from a growth perspective, guiding to something similar in fiscal '27, that constituency seems to be coming out of an extended COVID boom bust cycle. There's enthusiasm around reshoring. Are you feeling that? Is there a world where Life Sciences has kind of, say, better than average growth over the next couple of years?

Daniel Carestio: Yes. Thanks, Mike, it's Dan. I've been doing this a long time and Life Sciences kind of does the cycle in general or pharma does a cycle about every 7 years or so. So this one just happens to be post pandemic related, but it's not new. Yes, we're optimistic. The buying patterns are back on the capital side, clearly we saw that in this year's number. Our service business lagged a little bit this year, but some of that is parts and some of that's a hangover of having a lousy capital year the year before and still having a lot of equipment on warranty.

As that comes off, that should improve with this year's past deliveries, but it takes some time. But the real star in that business is our consumables, growing 8%, high-margin business, really continues to deliver for us. It's critically important for the performance of the sector -- of our segment rather. But generally speaking with the reshoring and some of the builds we're seeing on the East Coast and the Carolinas, there's a lot of good stuff going on in Life Sciences right now. What's not great is it's all big pharma right now that's doing well. What's not great is the lack of investment in some of the smaller stuff.

But that's really not our sweet spot anyways, and we feel like we're in a pretty good position to help those customers that are establishing new operations here as they're reshoring.

Michael Polark: If I can do one more. I appreciate the comments on the small tuck-in deals in Healthcare. Obviously, $45 million, heard it loud and clear. It's small. But on the MEDglas, is that a margin benefit in addition to a revenue opportunity worth calling out? And then on GI consumables, would you be willing to frame like what just for a better sense of what you're adding there?

Daniel Carestio: Yes. Sure, Mike. On the MEDglas, no, it's not really -- it's going to be accretive to margins. It's a relatively low-margin product, but it's really important. And what it is, it's basically a very visually appealing glass that can be used in the walls of ORs as well as sterile processing department that lends itself to easy cleaning and you can even put graphics in there in such a way that it makes dark spaces really bright and it's been very popular as we sell OR rooms and as we build out SPDs. So that's what that is. And keep in mind, that was a vertical deal basically where we bought our supplier that we were distributing for.

In terms of the GI products, these are basic products. A lot of them have crossover with our STERIS Endoscopy. Some, there's some small capital equipment in the portfolio that's beneficial. But really what we got is 20 or 25 sales reps that are established in the U.S. inventory that we can go out and chase more business from a GI products or device product standpoint.

Operator: Ladies and gentlemen, this now concludes our question-and-answer session. I would like to turn the conference back to Julie Winter for any closing remarks.

Julie Winter: Thank you all for taking the time to join us this morning to learn more about our performance in the quarter and our outlook for the year and we look forward to seeing many of you on the road this summer.

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