Q4 2025 STERIS PLC Earnings Call

Operator: Good morning everyone and welcome to the STERIS plc fourth quarter 2025 conference call. All participants will be in a listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero.

Good morning, everyone and welcome to the Cerus plc fourth quarter 2025 conference call.

All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 on your touch-down phone. To withdraw your questions, you may press star 1. Please also note today's event is being recorded.

After todays presentation, there will be an opportunity to ask questions.

Ask a question you May press Star and then one on your touch downtown. So it's all your questions you May press star two.

Please also note today's event is being recorded.

Julie Winter: At this time, I'd like to turn the floor over to Julie Winter, Vestal Relations. Ma'am, please go ahead. Thank you, Jamie. And good morning, everyone.

Speaker Change: At this time I'd like to turn the floor over to Julie Winter Investor Relations Ma'am. Please go ahead.

Julie Winter: Thank you, Jamie and good morning, everyone.

Julie Winter: As usual, speaking on today's call will be Mike Tokich, our Senior Vice President and CFO, and Dan Carestio, our President and CEO. And I do have a few words of caution before we open. This webcast contains time-sensitive information that is accurate only as of today.

Speaker Change: As usual speaking on today's call will be Mike ticket, our senior Vice President and CFO and Dan <unk>, our president and CEO and I do have a few words of caution before we open for comments.

Speaker Change: This webcast contains time sensitive information that is accurate only as of today any redistribution retransmission or rebroadcast of this call without the expressed written consent of <unk> is strictly prohibited.

Julie Winter: Any redistribution, retransmission, or rebroadcast of this call without the express written consent of STERIS is strictly prohibited. Some of the statements made during this review are, or may be considered, forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those risk factors described in STERIS' Security of Files. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments.

Speaker Change: Some of the statements made during this review are or maybe considered forward looking statements. Many.

Speaker Change: Many important factors could cause actual results to differ materially from those in the forward looking statements, including without limitation.

Speaker Change: Those risk factors described in Sarasota Securities filings.

Speaker Change: The company does not undertake to update or revise any forward looking statements as a result of new information or future events or developments.

Julie Winter: STERIS' SDC filings are available through the company and on our website. In addition, on today's call, non-GAAP financial measures including adjusted earnings per diluted share, adjusted operating income, constant currency organic revenue growth, and free cash flow will be used. Additional information regarding these measures, including definitions, is available in our release, as well as reconciliations between GAP and non-GAP financiers. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operations.

Speaker Change: Their SEC filings are available through the company and on our website.

Speaker Change: In addition on today's call non-GAAP financial measures, including adjusted earnings per diluted share.

Speaker Change: Adjusted operating income constant currency organic revenue growth and free cash flow will be used.

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

Speaker Change: GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the board of directors in their financial analysis and operational decision, making.

Mike Tokich: Discussions, I will hand the call over to Mike. 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 fourth quarter performance from Continuing Operations. For the fourth quarter, total as-reported revenue grew 4%. Constant currency organic revenue grew 6% in the quarter, driven by volume as well as 210 basis points of price. Gross margin for the quarter increased 170 basis points compared with the prior year to 44.3%. Positive price, favorable mix, and productivity outpaced labor inflation. EBIT margin increased 110 basis points to 24.8% of revenue compared with last year.

Speaker Change: But those passions I will hand, the call over to Mike.

Mike: Thank you Julien good morning, everyone. It is once again my pleasure to be with you. This morning to review the highlights of our fourth quarter performance from continuing operations.

Mike: For the fourth quarter total as reported revenue grew 4% constant currency organic revenue grew 6% in the quarter driven by volume as well as 210 basis points of price.

Mike: Gross margin for the quarter increased 170 basis points compared with the prior year to 44, 3%.

Mike: Positive price favorable mix and productivity outpaced labor inflation.

Mike: EBIT margin increased 110 basis points to 24, 8% of revenue compared with last year.

Mike Tokich: The adjusted effective tax rate in the quarter was 23.5 percent. The year-over-year increase was driven by unfavorable discrete item adjustments. Net income from continuing operations in the quarter was $270 million. Adjusted earnings per due to share from continuing operations was $2.74, a 14% increase over the prior year. We are pleased with our ability to grow earnings double digits all year with lower interest expense following the divestiture of the dental segment. Capital expenditures for fiscal 2025 totaled $370 million, while depreciation and amortization totaled $476 million. We continue to pay down debt during the quarter, ending with $2 billion in total debt.

Mike: The adjusted effective tax rate in the quarter was 23, 5% the year over year increase was driven by unfavorable discrete item adjustments.

Mike: Net income from continuing operations in the quarter was $270 million adjusted earnings per diluted share from continuing operations was $2, 74% to 14% increase over the prior year.

Mike: We are pleased with our ability to grow earnings double digits, all year with lower interest expense following the divestiture of the dental segment.

Mike: Capital expenditures for fiscal 2025 totaled $370 million, while depreciation and amortization totaled $476 million.

Mike: We continue to pay down debt during the quarter ending with $2 billion in total debt gross debt to EBITDA at quarter end was approximately one four times.

Mike Tokich: Gross debt to EBITDA at quarter end was approximately 1.4 times.

Mike Tokich: Pre-cash flow for fiscal 2025 was a record $787 million, well above our full year guidance driven by significant working capital improvements, in particular inventory.

Free cash flow for fiscal 2025 was a record $787 million well above our full year guidance driven by significant working capital improvements in particular inventory.

Dan Carestio: With that, I'll turn the call over to Dan for his remarks. Thanks, Mike. And good morning, everyone. Thank you for joining us to hear more about our fiscal 2025 performance, and our outlook for fiscal 2026.

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

Dan: Thanks, Mike and good morning, everyone. Thank you for joining us to hear more about our fiscal 2025 performance and our outlook for fiscal 2026, Mike covered the quarter. So I will touch on our performance for the full year and our outlook for fiscal 2026 from a total company perspective.

Dan Carestio: Mike covered the quarter, so I will touch on our performance for the full year and our outlook for fiscal 2026. From a total company perspective, we ended the year with 6% revenue growth and 12% earnings growth. The diversified nature of our business allowed us to deliver results in line with our original outlook, despite a few obstacles during the year. Looking at our segments, healthcare constant currency organic revenue grew 6% for the year, led by strong recurring revenue streams. Our outperformance in consumables and services continues to be driven by procedure volumes in the U.S., as well as price and market share gains.

Dan: We ended the year with 6% revenue growth and 12% earnings growth the diversified nature of our business allowed us to deliver results in line with our original outlook. Despite a few obstacles during the year.

Dan: Looking at our segments health care constant currency organic revenue grew 6% for the year led by strong recurring revenue streams, our outperformance in consumables and services continues to be driven by procedure volumes in the U S as well as price and market share gains.

Dan Carestio: Health care capital equipment revenue declined 5% for the year against our record year last year. Capital equipment orders grew over 12% for the full year as underlying demand remained strong. Margins improved nicely in health care, hitting the 25% mark for the year, with volume, pricing and positive productivity offsetting labor inflation. Towards the end of the year, we also began to benefit from the restructuring cost savings, capturing approximately $5 million in savings in the fourth quarter of fiscal 2025. Turning to AST, constant currency organic revenue grew 9% for the year with 7% growth in services. MedDevice customers remained stable while bioprocessing was a bit lumpy during the year.

Dan: Healthcare capital equipment revenue declined 5% for the year against a record year last year capital equipment orders grew over 12% for the full year as underlying demand remained strong.

Dan: Margins improved nicely in healthcare hitting the 25% mark for the year with volume pricing and positive productivity offsetting labor inflation.

Dan: Towards the end of the year. We also began to benefit from the restructuring cost savings capturing approximately $5 million in savings in the fourth quarter of fiscal 2025.

Dan: Turning to a S T constant currency organic revenue grew 9% for the year with 7% growth in services med device customers remained stable, while bio processing was a bit lumpy during the year.

Dan Carestio: Capital equipment shipments more than doubled compared to the prior year and exceeded our expectations. EBIT margins for AST were 44.8%, down slightly year over year as we continue to face energy and labor headwinds and had a negative mix shift from capital equipment shifts. Constant currency organic revenue increased 1% for life sciences for the full year. Driven once again by strong growth in consumables and services, offset by decline in capital equipment revenue. margins increased to 42.3%, a 360 basis point improvement, benefiting from favorable mix, pricing and the divestiture of the CECS business.

Dan: Capital equipment shipments more than doubled compared to the prior year and exceeded our expectations.

Dan: EBIT margins for <unk> were 44, 8% down slightly year over year as we continue to face energy and labor headwinds and had a negative mix shift from capital equipment shipments.

Mark: Constant currency organic revenue increased 1% for life Sciences for the full year, driven once again by strong growth in consumables and services offset by a decline in capital equipment revenue Mark.

Mark: Margins increased to 42, 3%, a 360 basis point improvement benefiting from favorable mix pricing and the divestiture of the ECS business.

Dan Carestio: From an earnings perspective, we ended the year strong and exceeded our revised outlook with adjusted EPS of $9.22. The upside to our estimates was driven by lower corporate spending and improved profitability in both healthcare and the life science segment.

Mark: From an earnings perspective, we ended the year strong and exciting exceeded our revised outlook with adjusted EPS of $9 22 sets the upside to our estimates was driven by lower corporate spending and improve profitability in both health care and life science segments.

Dan Carestio: Turning to our outlook for fiscal 2026. As noted in the press release, we anticipate as reported revenue from continuing operations to grow six to 7% in fiscal 2026. We do not have any acquisition or divestiture impacts heading into the new fiscal year, and changes in foreign currency are expected to be neutral to STERIS. As a result, constant currency organic revenue growth is also expected to grow 6-7%. Included in this outlook is approximately 200 basis points of price. Each segment is expected to grow revenue in the range of 6-7% for fiscal 2026. One minor note on AST revenue growth, our outlook reflects high single digit growth in services revenue, which will be somewhat offset by decline in capital equipment to get to the six to seven percent growth total for the year.

Mark: Turning to our outlook for fiscal 2026 as noted in the press release, we anticipate as reported revenue from continuing operations to grow 6% to 7% in fiscal 2026.

Mark: We do not have any acquisition or divestiture impacts heading into the new fiscal year and changes in foreign currency are expected to be neutral to stairs. As a result constant currency organic revenue growth is also expected to grow 6% to 7%.

Mark: Included in this outlook is approximately 200 basis points of price.

Mark: Each segment is expected to grow revenue in the range of 6% to 7% for fiscal 2026.

Mark: One minor note on a S. D revenue growth our outlook reflects high single digit growth in services revenue, which will be somewhat offset by a decline in capital equipment to get to the 6% to 7% growth total for the year.

Dan Carestio: As you saw in the press release, we have estimated the impact for tariffs for fiscal 2026, which are reflected in our outlook. We manufacture a significant number of products in North America for use in the U.S. with about 85% of the products sold in the U.S. coming from North American manufacturing. This significantly reduces our tariff exposure compared to many others. But we are not immune to the impact of tariffs. Our fiscal 2026 outlook of $9.90 to $10.15 includes 30 million of tariff costs. The EPS range implies 7-10% growth in earnings, including tariffs, which is impressive performance.

Mark: As you saw on the press release, we have estimated the impact for tariffs for fiscal 2026, which are reflected in our outlook. We manufacture a significant number of products in North America for use in the U S with about 85% of the products sold in the U S coming from North American manufacturing.

Mark: This significantly reduces our tariff exposure compared to many others, but we are not immune to the impact of tariffs our fiscal 2026 outlook of $9 90 to $10 15.

Mark: Includes 30 million of tariff costs.

Mark: The EPS range implies 7% to 10% growth in earnings, including tariffs, which is impressive performance I want to take a moment to thank our supply chain and commercial teams for all their efforts on this front.

Dan Carestio: I want to take a moment to thank our supply chain and commercial teams for all their efforts on this front. The anticipated tariff impact is a net number. We do expect to leverage the strength of STERIS to mitigate some of our exposure. The $30 million dollar estimate is based on global tariffs currently in effect, including the 10% global tariff and the recently announced 90-day trade deal with China. For your modeling purposes, at the high end of our earnings range, we would expect EBIT margins to increase approximately 20 basis points, reflecting our ability to offset tariffs.

Mark: The anticipated tariff impact is a net number we do expect to leverage the strength of stairs to mitigate some of our exposure.

Mark: The $30 million estimate is based on global tariffs currently in effect, including the 10% global tariff and our recently announced 90 day trade deal with China.

Mark: For your modeling purposes at the high end of our earnings range, We would expect EBIT margins to increase approximately 20 basis points, reflecting our ability to offset tariffs.

Dan Carestio: The effective tax rate is planned at approximately $23.5 percent.

Mark: The effective tax rate is planned at approximately 23, 5%.

Dan Carestio: As we enter into the new fiscal year, we are well positioned to deliver both top and bottom line growth in 2026.

Mark: As we enter into the new fiscal year, we are well positioned to deliver both top and bottom line growth in 2026.

Dan Carestio: That concludes our prepared marks for the call.

Mark: That concludes our prepared remarks for the call Julia would you. Please give the instructions so that we can begin the Q&A. Thank you, Mike and Dan for your comments, Jamie can you. Please give the instructions for Q&A and we'll get started.

Julie Winter: Julie, would you please give the instructions so that we can begin the Q&A. Thank you, Mike and Dan, for your comments.

Julie Winter: Jamie, can you please give the instructions for Q&A and we'll get started.

Operator: Ladies and gentlemen, at this time, we'll begin that question and answer session. To ask a question, you may press star and then one on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and. Again, that is star and then one to join the question.

Mark: Ladies and gentlemen at this time, we'll begin the question and answer session.

Speaker Change: To ask a question you May press Star and then one on your touched on phones. If you are using a speaker phone. We do ask that you. Please pick up your handset prior to pressing the keys to ensure the best sound quality.

Mark: Draw your questions you May press star two.

Speaker Change: Again that is star and then one to join the question queue.

Dave Turkaly: And our first question today comes from Dave Turkaly from Citizens.

Speaker Change: And our first question today comes from David Kelley from citizens. Please go ahead with your question.

Dan Carestio: Please go ahead with your question. Hey, good morning and congrats on a quarter in the year. I guess we're looking at the segment, you know, the biggest implied delta is and then that lifecye and I was just curious to get some color on your comfort in that kind of bouncing back to that six to 7% range. Yeah, we've, we've did extremely well this year in our recurring revenues, especially our chemistries and consumables business, and we would expect that to continue. Where we were down significantly was obviously capital equipment with a lot of uncertainty in pharma, the orders just dried up in the first half of the year.

David Kelley: Hey, good morning, and congrats on the quarter in the year.

Speaker Change: I guess when you're looking at the segments.

Speaker Change: No the biggest implied delta isn't in that lifecycle and I was just curious to get some color on your comfort in that kind of bouncing back to that 6% to 7% range.

Speaker Change: Yeah.

Speaker Change: Did extremely well this year and our recurring revenues, especially our chemistries and consumables business and we would expect that to continue where we were down significantly. It was obviously a capital equipment with a lot of uncertainty in pharma. The orders just dried up in the first half of the year. However, we saw a really strong rebound late in the year and we are coming into fiscal 2026.

Dan Carestio: However, we saw a really strong rebound late in the year and we are coming into fiscal 2026 with a pretty good backlog and a pretty good rate of order. So we're confident we'll be able to deliver the bulk of those in the fiscal 2026 and continue on with the growth that we've seen historically within our consumables. One quick follow-up, it seems like the tariff impact might be, I don't know, 24 cents or something like that on the EPS line. Yet you're still getting into a double-digit range at the high end.

Speaker Change: Good backlog in a pretty good rate order. So we're confident we'll be able to deliver the bulk of those in the in the.

Speaker Change: Fiscal 2026 and continue on with the growth that we've seen historically within our consumables business.

Speaker Change: Okay, Great one quick follow up it seems.

Speaker Change: It seems like the tariff impact might be.

Speaker Change: I don't know 2024 cents or something like that on the EPS mine.

Speaker Change: Yet you're still getting into double digit range at the high end.

Mike Tokich: I guess if you could just talk about some of the puts and take, maybe even on the interest expense. I know you've de-levered a bunch, but, you know, to get to that, even despite the tariffs, just maybe some color there.

Speaker Change: I guess, if you could just talk about some of the puts and takes maybe even on the interest expense I know you've de Levered a bunch, but.

Speaker Change: To that even despite the tariffs just maybe some color there.

Mike Tokich: Yeah, Dave, this is Mike. So as normal, there, there's quite a bit of headwinds or tailwinds or puts and takes. First and foremost, we, we are going to benefit from about $20 million of restructuring cost savings that will be in FY 26. So that's a good guy. In addition to that, we do not anticipate spending 20 plus million dollars in ETO litigation, we anticipate spending about five. So there's $15 million to the good also. But offsetting that is incentive comp, getting back to 100% bonus, that is a negative $15 million. Obviously, the tariffs are another negative $15 million.

Speaker Change: Yes, Dave this is Mike so as normal there theres quite a bit of headwinds or towers or puts and takes are first and foremost. We are we are going to benefit from about $20 million of restructuring cost savings that will be in FY 'twenty six so that's a good guy in addition to that we do not anticipate spending.

Speaker Change: Plus $1 billion in E. T O litigation, we anticipate spending about five so there's $15 million to the good also but offsetting that is instead.

Speaker Change: Incentive comp getting back to 100% bonus that isn't negative $15 million. Obviously, the tariffs are another negative $15 million and then if you look at our lower interest expense is really going to offset our higher tax rate. So that's just a reconciliation for FY 'twenty six of the puts and takes.

Mike Tokich: And then if you look at our lower interest expense is really going to offset our higher tax rates. So that's just the reconciliation for FY 26 of the puts and takes. Thank you.

Speaker Change: Thank you.

Operator: You're welcome.

Speaker Change: Youre welcome.

Speaker Change: Yeah.

Michael Matson: Our next question comes from Mike Matson from Needham & Company. Please go ahead with your question. Yeah, thanks. So just your cash flow guidance is a little bit down from 25. I know you called out the working capital improvement. You saw 25. I mean, it's not the mean. kind of differential between the two years.

Speaker Change: Our next question comes from Mike Matson from Needham and company. Please go ahead with your question.

Speaker Change: Yeah. Thanks, So just yes.

Speaker Change: Your cash flow guidance is a little bit down from 25, I know you called out working capital improvement you saw 25, I mean does that mean.

Speaker Change: Kind of differential between between the two years.

Mike Tokich: The big thing, Mike, is we anticipate paying a $40 million legal settlement for ETO, which is an FY26, so that's going to negatively impact cash by $40 million. And, of course, we are not anticipating to overachieve or reduce inventory as dramatically as we had in FY25. But the big difference is the ETO legal fees, plus the impact of tariffs will negatively impact free cash flow also. Okay, got it. And then just, you know, your leverage ratio is down quite a bit.

Speaker Change: The Big thing, Mike is we anticipate paying $40 million legal settlement for Eto, which is in FY 'twenty six so that's going to negatively impact cash by $40 million and of course, we are not anticipating to overachieve.

Speaker Change: Overachieve or reduce inventory as dramatically as we had in FY 'twenty five but the big difference is the eto legal fees plus the impact of tariffs will negatively impact free cash flow also.

Speaker Change: Okay got it.

Speaker Change: And then just your leverage ratios down quite a bit. So I'm, just maybe you could give us update on M&A.

Mike Matson: So, you know, just maybe can give us an update on M&A. You know, I'd expect you'd probably be looking to do some more deals if you can find things, but...

Speaker Change: I had expected.

Speaker Change: Probably be looking to do some more deals if he can find things but.

Dan Carestio: Yeah, I mean, this is Dan. What I would say, Mike, is that we have the capacity, both from a financial perspective and from an intellectual perspective at this point, having not done any meaningful M&A now for a few years. So, if the right opportunity presents itself, you know, we'll be involved.

Speaker Change: Yeah. This is Dan what I would say Mike is that we have the capacity both from a financial perspective and from an intellectual perspective at this point, having not done any meaningful M&A now for a few years. So if the right opportunity presents itself.

Speaker Change: Involved.

Operator: Okay, thank you.

Speaker Change: Okay. Thank you.

Patrick Wood: Our next question comes from Patrick Wood from Morgan Stanley. Please go ahead with your question. Awesome. Thanks, Sigma. Just two quick ones. It's probably too early to say but you know, how the conversations with customers been around potentially like onshoring back to the US? I'm trying to think of you know, I know some of the outsource contract manufacturers have seen like, you know, a big pickup and people trying to pull production back. I'm just curious, is that something that you think is actually going to happen? Or is it more just a nice bullet point on a McKinsey slide?

Speaker Change: Our next question comes from Patrick Wood from Morgan Stanley. Please go ahead with your question.

Patrick Wood: Thanks for taking but just two quick ones.

Patrick Wood: It's probably too early to say, but you know how the conversations with customers been around potentially like on shrink box. The U S. I'm trying to think of you know I know some of the outsourced contract manufacturers have seen like a big pick up in people trying to pull production back I'm. Just curious is that something that you think is actually going to happen or is it more.

Patrick Wood: Just a nice bullet point on a mckinsey slide.

Dan Carestio: It's probably the latter. I do think there is some opportunities, I assume you're talking about medtech in particular, but I do think there are some opportunities. Many of those large companies have manufacturing for local regions, and to the extent that they may be manufacturing in Europe for the U.S. and they have U.S.-based manufacturing for similar products, you may see some shift of volumes going east or west, depending on the benefit that they can do in terms of tariff and how easy it is to do it. Keep in mind, highly regulated industry, it's not easy to move production volumes if they don't have all the regulatory permits and things like that, so it takes time, but there will be some fluidity to it, I'm sure.

Patrick Wood: It's probably the latter.

Patrick Wood: I do think there is some opportunities I assume you are talking about med tech in particular, but.

Patrick Wood: I do think there are some opportunities many of those large companies have manufacturing for local regions and to the extent that they may be manufacturing in Europe for the U S and they have U S based manufacturing for similar products you may see some shift of volumes going.

Patrick Wood: Eastern West depending on the benefit that they can do in terms of tariff and how easy it is to do it keep in mind highly regulated industry. You know, it's not easy to move production volumes.

Patrick Wood: If they don't have all the regulatory permits and things like that so it takes time, but there there'll be some fluidity to it I'm sure.

Dan Carestio: That's awesome. And then just like quickly around the kind of that M&A angle again, you know, what have you been hearing from some of the smaller players, you know, niche app compliance costs, all those sorts of things? Is there a situation where, you know, I know, EO capacity is tight, but is there a situation where they end up having to force sell themselves essentially to you guys or your peers? Like, how do you think about industry consolidation on the back of the kind of one-off costs there? I mean, in a general sense, I do think there'll be some industry consolidation, but, you know, we'd be in a much better position greenfielding than we would be buying assets that are 30 plus years old.

Patrick Wood: That's awesome and then just quickly around the economy.

Patrick Wood: Colorado M&A angle again.

Patrick Wood: What have you been hearing from some of the smaller players.

Patrick Wood: When you shop compliance costs, all those sorts of things is there a situation where capacity.

Patrick Wood: Capacity is tightened is there a situation where they end up having to force sell themselves. Essentially you guys are you or your peers like how do you think about industry consolidation on the back of the the kind of one off costs.

Patrick Wood: I mean in a general sense I do think there'll be some industry consolidation, but you know we'd be in a much better position Greenfield and then we would be buying assets that are 30 plus years old.

Dan Carestio: I mean, I'm 40, so I take offense at that, but thanks, guys. Well, you've been compliant your whole life. That's definitely not true.

Speaker Change: I'm 40, so I take offense to that thanks, guys.

Speaker Change: [laughter] well you've been compliant your whole life.

Speaker Change: That's definitely not true [laughter].

Matt Etoch: Our next question comes from Matt Etoch from Stevens Inc. Please go ahead with your question. Hey, good morning. I'll add my congrats in the quarter and the year as well.

Matthew You: Our next question comes from Matthew You talk from Stephens, Inc. Please go ahead with your question.

Matthew You: Hey, good morning, I'll add my congrats on the quarter and the year as well maybe.

Dan Carestio: Maybe just touching on the outlook for FY26. It's to be collared on AST kind of coming in line with 6 to 7% growth for the year, low single digits for capital equipment, high single digits for services, but can you flush out what you're seeing within the respective customer bases there? I think there's a little bit of a delta between what maybe I and the street were expecting versus your internal expectations. So if you could just provide a little color there, that'd be great. Yeah, you know, I think what we're doing here is we've seen a lot of just movement, month to month, quarter to quarter in terms of volume.

Matthew You: Maybe just touching on the outlook for FY 'twenty, six it'd be Colorado, a S T a.

Matthew You: Kind of coming in line, 67% growth for the year low.

Speaker Change: Low single digits for capital equipment high single digits for services, but can you flush out what you're seeing within the respective customer bases. There I think there's a little bit of a delta between what maybe I and the street were expecting versus your internal expectations. So if you could just provides a little color there that'd be great.

Speaker Change: Yeah, you know I think what we're doing here is we've seen a lot of just movement.

Speaker Change: A month or quarter to quarter in terms of volume.

Dan Carestio: It has, it has started to sort of modulate down. But, you know, our view is let's take a little more conservative approach on how aggressively some of the bioprocessing is going to recover and also, as customers reassess where they're manufacturing and if there is any movement going on and what implications that may have. I'm on total volume. Got it.

Speaker Change: It has it has started to sort of modulate down.

Speaker Change: You know our view is let's take a little more conservative approach on how aggressively some of the bioprocess things going to recover and also as customers reassess where their manufacturing and if there is any movement going on and what implications that may have.

Speaker Change: On total volume.

Speaker Change: Got it and then just in light of like the current macro and everything that's going on with juggle policies there.

Dan Carestio: And then, just in light of like the current macro and everything that's going on with general policy, is there power of conversations for grassroot clients? Have there been any change in behaviors relating to life sciences or the AST segment? Nothing that I would point to, you know, there's a number of discussions, but I can't say there's anything concrete.

Speaker Change: Our conversations progressing with clients have there been any change in behaviors are relating to life sciences or the <unk> segment.

Speaker Change: Nothing that I would point to as you know a number of discussions, but I cant say theres anything concrete.

Matt Etoch: Thank you for taking my questions, I appreciate it.

Speaker Change: Thank you for taking my questions I appreciate it sure thing.

Michael Polark: Our next question comes from Michael Polark from Wolf Research. Please go ahead with your question. Good morning. Maybe two on health care. The first one... The allusion to market share gains driving growth in the fiscal year and quarter. I know we've talked about this before, but is there any service or business line that that really stands out to you there as to STERIS doing way better than market? If so, what is it and and what's going right.

Speaker Change: Our next question comes from Michael Polak from Wolfe Research. Please go ahead with your question.

Michael Polak: Hey, good morning, maybe two on health care the first one.

Michael Polak: The allusion to market share gains are driving growth in the fiscal year and quarter I.

Michael Polak: I know we've talked about this before but is there any service or business line that that really stands out to you. There is the stairs doing way better than market. If so what what is it and.

Michael Polak: And you know what's going right.

Dan Carestio: Honestly, I would say it's just across the entire segment right now. Our teams are just doing a phenomenal job, in particular in the North American markets. We've just built out such a great portfolio and enterprise solution for large systems around sterile processing in particular and all the services that go along with that, that we continue to do really well. And for the fiscal year ahead, six to 7% growth for the healthcare segment. Would you call out any expected variances between how consumables, services, and equipment should grow in 2026? No, we're not going to provide that level of granularity.

Michael Polak: Honestly I would say, it's just across the entire segment right now our teams are just doing a phenomenal job.

Michael Polak: In particular in the North American markets.

Michael Polak: That we're just we've just built out such a great portfolio.

Michael Polak: An enterprise solution for large systems around sterile processing in particular and all the services that go along with that that we continue to do really well.

And for the fiscal year had a 6% to 7% growth for the health care segment.

Michael Polak: Would you call out any expected variances between how consumables services and equipment should grow in 'twenty six.

Michael Polak: We're not going to provide that level of granularity I will hit back on the fact that we had a great order year for that bodes well in terms of backlog for capital going into next year.

Dan Carestio: I will hit back on the fact that we had a great order year that bodes well in terms of backlog for capital going into next year. So we're optimistic about that.

Michael Polak: And so we're we're optimistic about that.

Michael Polak: Thank you.

Jason Bednar: Our next question comes from Jason Bednar from Piper Sandler. Please go ahead with your question. Good morning, everyone. Nice finish to the year here.

Speaker Change: Our next question comes from Jason Bednar from Piper Sandler. Please go ahead with your question.

Jason Bednar: Hey, good morning, everyone nice finish to the year here wanted to see if you could spend just maybe a bit more time on tariffs.

Mike Tokich: Wanted to see if we could spend just maybe a bit more time on tariffs, really topical for all companies here this quarter. Maybe break down, if you could, what that $30 million looks like across your network. I know you had $30 million in the press release, Mike. I think you made some comment at one point, I think pretty early on around $15 million, but just want to confirm it's $30 million net. And then, if possible, break down maybe again how much exposure you have here around like China-related tariffs and how much on the non-China side.

Jason Bednar: Really topical for all companies here this quarter and maybe break down if you could what the what that 30 million looks like across your network. I think you know you had.

Speaker Change: 30 million in the press release Mike.

Speaker Change: I think you made some kind of at one point I think pretty early on around $15 million, but just wanted to confirm its 30 million net and then if you if possible breakdown maybe you can how much exposure you have here around like China related tariffs and then how much of the non China. So I would just be helpful. So we can update our own thinking as we see the next updates on the tariff front.

Dan Carestio: It would just be helpful just so we can update our own thinking as we see the next updates on the tariff front. I mean, just Dan, and I'll let Mike add to this, but at a high level, it's about half China and half sort of the 10% global tariff, and it's about $30 million. No more to add on that. All right, I like it. I think you said that 30 million, again, is a net number.

Speaker Change: This is Dan and I'll, let Mike add to this but at a high level, it's about half, China and have sort of the 10% global tariff and it's about $30 million.

Speaker Change: No more to add on that.

Speaker Change: Alright, I like it.

Speaker Change: Yeah.

Speaker Change: I think you said that that $30 million again is a net number.

Dan Carestio: Are you assuming any mitigation actions in that 30 million figure? What does the pacing of that activity look like throughout fiscal 26?

Speaker Change: Are you assuming any mitigation actions in that 30 million figure kind of what does that the pacing of bad activity look like throughout fiscal 'twenty six and then I'll just sneak in one extra here it looks like share repo was it was a little lighter in the fourth quarter compared to the prior few quarters, but the stocks been hanging around a similar.

Mike Tokich: And then I'll just sneak in one extra here. It looks like share repo was a little lighter in the fourth quarter compared to the prior few quarters, but the stock's been hanging around a similar level now for some time, well off its highs. Maybe just talk about the decision to pause some of that activity and is there a signal we should draw from that pause? Yeah, I would say that, you know, in general, we had bought about $200 million of shares during FY 25. We had bought those earlier in the year compared to the previous year, I would say there's no signal that we're driving there.

Speaker Change: Level now for some time well off its highs maybe just talk about the decision to pause some of that activity and is there a signal we should draw from that cause.

Speaker Change: Yeah, I would say that in general we have bought about $200 million of shares during FY 'twenty five.

Speaker Change: <unk> bought those earlier in the year compared to the previous year and I would say theres no signal that we're driving there. It is almost double what we've typically bought just offset dilution and obviously with our debt levels.

Mike Tokich: It is almost double that what we've typically bought just offset dilution. And obviously, with our debt levels, and debt ratios being where they are, you know, we would definitely consider doing additional share buybacks beyond our offsetting, just offsetting dilution in the future.

Speaker Change: That ratio is being where they are.

We would definitely consider doing additional share buybacks beyond are offsetting just offsetting dilution in the future.

Dan Carestio: Sorry, on the mitigation activity on tariffs. Yeah, the 30 million is a net number, Jason. So it's significantly higher than that. Obviously, there's a lot to be done to mitigate. Timing is always the question. Obviously, our supply chain guys and girls are working very hard to offset as much as possible. But yeah, it's a net number of 30. And we anticipate that that will hit us about equally throughout the calendar year. I would just add to that, you know, with the 90 day pause or sort of redirect on the China tariffs, it gives us an opportunity to be much more strategic and thoughtful in terms of anything that we're changing as it relates to either vendors or manufacturing location or supply.

Speaker Change: Alright, sorry on the mitigation activity on tariffs.

Jason Bednar: Yes, it's a $30 million is a net number Jason so it's significantly higher than that.

Jason Bednar: Obviously, theres a lot to be done to mitigate timing is always the question, obviously, our supply chain guys and girls are working very hard to offset as much as possible.

Jason Bednar: But yeah. It's it's it's a net number of 30, and we anticipate that that will hit us about equally throughout the calendar year.

Speaker Change: I would just add to that with the 90 day pause or sort of redirect on the China tariffs. It gives us an opportunity to be much more strategic and thoughtful in terms of anything that we're changing as it relates to either vendors or manufacturing location or supply. So.

Dan Carestio: So I would expect more weight on the back end. And also, I don't think we've said there's more weight on healthcare. They're primarily impacting the healthcare segment with a little bit in lifestyle. And very, very little, if any, in ASL.

Jason Bednar: I would expect more weight on the backend.

Jason Bednar: And also I don't think we've said the more weight on health care, primarily impacting the health care segment with a little bit in life Sciences.

Jason Bednar: And very very little if any of the S T.

Operator: All right, very good. Thank you everyone. You're welcome. Once again, if you would like to ask a question, please press star and then 1.

Jason Bednar: Alright, very good thank you everyone.

Jason Bednar: Youre welcome.

Jason Bednar: Okay.

Speaker Change: Once again, if you would like to ask a question. Please press Star and then one our next question comes from Brett <unk> from Keybanc. Please go ahead with your question.

Brett Fishbin: Our next question comes from Brett Fishbin from KeyBank. Please go ahead with your question. Hey, guys, thank you very much for taking the questions. And good morning. Just wanted to ask another question on healthcare capital equipment.

Speaker Change: Hey, guys. Thank you very much for taking the questions and good morning, just wanted to ask another question on healthcare capital equipment. It sounds like you're not trying to give specific guidance on growth, but maybe just talk a little bit more about the capital equipment backdrop.

Dan Carestio: Sounds like you're not trying to give specific guidance on growth, but maybe just talk a little bit more about the capital equipment backdrop. You're exiting the year with some growth in the backlog, but really just curious how some of the recent macro developments have impacted, like either ordering patterns or the hospital's willingness to do implementations versus like any deferrals you may be seeing. You know, we've talked about this a lot in the past. And that is, you know, the capital equipment that we offer is really more of a utility than a luxury item. If you're going to see procedural growth and migration of procedures to different places, You can't accommodate that growth without having sterile processing capacity or surgery.

Speaker Change: You're exiting the year with some growth in the backlog, but really just curious how like some of the recent macro developments have impacted like either ordering patterns or like hospitals willingness to do implementations versus like any deferrals you may be seeing.

Speaker Change: You know we've talked about this a lot in the past and that is the key.

Speaker Change: Capital equipment that we offer is really more of a utility than a luxury item.

Speaker Change: If if if youre going to see procedural growth and migration of procedures different places you can't accommodate that growth without having sterile processing capacity or surgical suites. So at times when it may impact replacement business, if those things can be deferred it doesn't really impact the new.

Dan Carestio: So at times when it may impact replacement business, if those things can be deferred, it doesn't really impact. equipment in terms of going into expansions. We had a great order year last year, growing orders 12%. We've got our backlog into a very comfortable position. We haven't seen anything at this point that would indicate that that's slowing for us, and in fact had really good volume in terms of orders going into Q1.

Speaker Change: You know equipment in terms of going into expansion so.

Speaker Change: We had a great order a year last year growing orders, 12%, we've got our backlog into a very comfortable position. We haven't seen anything at this point that would indicate that that slowing for us and in fact had really good volume in terms of orders going into.

Dan Carestio: So we're excited about the opportunity.

Speaker Change: Into Q1, so we're excited about the opportunity there.

Dan Carestio: And then I'll just as a follow up, I'm going to switch gears a little bit to AST. I think it was a pretty good sequential progression in FY25 from an AST growth standpoint, just looking at FY26. for services sounds like high single digits is kind of the starting point. I'm just curious if like demand were to be higher than expected. Do you have enough capacity to theoretically, you know, return to double digit growth in AST service? Or is capacity starting to become like a little bit of a limiting factor?

Speaker Change: Alright, and then just as a follow up I'm going to switch gears, a little bit too S. T. I think it was a pretty good sequential progression in FY 'twenty five from an I S. T grew up standpoint.

Speaker Change: Looking at FY 'twenty six.

Speaker Change: For services it sounds like high single digits is kind of the starting point I'm. Just curious if demand were to be higher than expected do you have enough capacity to theoretically.

Speaker Change: Double digit growth in I S T service or its capacity starting to become like a little bit of a limiting factor. Thank you very much.

Dan Carestio: Thank you very much. Sure, it's not a governor for us right now.

Speaker Change: Sure, it's not a governor for US right now, where we are well positioned to accommodate the industry's growth.

Michael Polark: We're we're well positioned to accommodate the industry's And our next question is a follow-up from Michael Polark from Wolf Research.

Speaker Change: And our next question is a follow up from Michael Polack from Wolfe Research. Please go ahead with your follow up.

Michael Polark: Please go ahead with your follow-up. Thank you. Just one more on also on AST. As you reflect on fiscal 25 in the services line, you know, the December quarter was up 10%, March quarter up 6. Dan, it sounds like bioprocessing.

Michael Polak: Hey, Thank you just one more on also on I S. T. As you reflect on fiscal 'twenty five in the services line you know that.

Michael Polak: The December quarter was up 10% March quarter up six Dan it sounds like bioprocess.

Michael Polak: A little lumpy is that.

Dan Carestio: https://www.youtube.com.au Any evidence that there was kind of front loading of inventory building ahead of Trump Tariff Era in the December quarter. Could that have been? in that period. Any other color would be great. Thank you. Sure. Yeah, no, we did not see that in terms of anybody frontloading tariff, but I think you're giving the industry way too much credit to be able to see that coming. What I would say is we had a phenomenal December, an extraordinary December in terms of year over year comps. And then nobody showed up for the first seven days of January.

Michael Polak: Is that the gyration or anything else to kind of spike out on the on the phasing of the last 12 months that it makes more sense to you my one other ideas.

Michael Polak: Evidence that there was kind of frontloading of inventory building ahead of.

Michael Polak: The Trump tariffs era in the December quarter could that had been an influence and in that period any other color would be great. Thank you sure. Yes, no. We did not see that in terms of anybody frontloading tariff, but I think you are getting.

Michael Polak: Industry is way too much credit.

Michael Polak: To be able to see that come in what I would say is we had a phenomenal.

Michael Polak: <unk> and <unk>.

Michael Polak: External or extraordinary December in terms of year over year comps and then nobody showed up for the first seven days of January. So just the plant restarts you know from a customer perspective was very abnormally slow this year.

Dan Carestio: So, you know, just the plant restarts, you know, from a customer perspective was very abnormally slow this year. You know, one day shorter of February in terms of processing days. And then we had a wonderful, you know, second half of February and March in terms of gross. So, but overall, those things impacted the quarter. I don't think it was any more than that.

Michael Polak: You know one day shorter of February in terms of processing days and then we had a wonderful.

Michael Polak: The second half of February and March in terms of growth. So, but overall it is those things impacted the quarter I don't think it was any anything more than that.

Michael Polak: Thank you.

Operator: And ladies and gentlemen, with that, we'll conclude today's question and answer session. I'd like to turn the floor back over to management for any closing remarks. Thanks everybody for taking the time to join us this morning and we look forward to catching up with many of you in the coming weeks.

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

Michael Polak: Thanks, everybody for taking the time to join US. This morning, and we look forward to catching up with many of you in the coming weeks.

Michael Polak: Yeah.

Operator: We'll conclude today's conference call and presentation.

Speaker Change: And with that ladies and gentlemen, we will conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.