The STERIS plc Fiscal Second Quarter 2024 Conference Call is being recorded and participants will be in listen-only mode. The call will include statements that may be considered forward-looking and non-GAAP financial measures will be used. The company's SEC filings are available for reference.

Mike Tokich thanks Julie and introduces himself to discuss the highlights of the company's second quarter performance. He mentions a constant currency organic revenue increase of 8%, driven by volume and price. Gross margin decreased due to lower productivity and inflation, and EBIT margin also decreased due to higher incentive compensation expense. The adjusted effective tax rate was 23.7%, and net income was $202.2 million. Capital expenditures for the first half of fiscal 2024 were $149.9 million, and the company is adjusting its capital spending outlook to $310 million. Debt increased to $3.4 billion, and free cash flow for the first half of fiscal 2024 was $284.7 million. Inventory remains elevated as the company focuses on reducing lead times. Dan Carestio then takes over for his remarks.

The speaker thanks the audience for joining the presentation and gives an overview of the company's second quarter performance and outlook for the rest of the fiscal year. The Healthcare segment performed well, with double-digit growth in all areas, driven by increased procedure volume, price gains, and market share. The backlog has decreased as orders are being shipped at a faster pace. The AST segment saw a decline in revenue due to timing of shipments and short-term challenges in the Medtech and bioprocessing markets. However, there are positive signs of recovery in the Medtech market, particularly in the U.S.

The company is seeing weakness in the European markets and does not expect bioprocessing to return to year-over-year growth in fiscal 2024. However, they anticipate strong growth in the second half of the fiscal year for their AST segment. Life Sciences revenue grew in the quarter, but short-term demand remains uncertain. Their Dental segment saw a decline in revenue due to customer destocking. Overall, the company is pleased with the first half of the fiscal year, with positive U.S. procedure trends and improved supply chain challenges. However, there are still uncertainties outside of the Healthcare segment.

The company is maintaining its expectations for 6% to 7% organic revenue growth for fiscal 2024, despite facing tough comparisons in the fourth quarter and a $0.05 earnings headwind from currency. The call has concluded and the Q&A session has begun. In terms of the four segments, Healthcare is performing better than expected, while Life Sciences is being impacted by continued destocking in the industry. Other pharmaceutical companies have also announced cost-cutting measures.

The speaker discusses the short-term pullback in the biopharma and aseptic manufacturing industry, but remains optimistic about the long-term outlook. They also mention a positive trend in the U.S. for their AST business, while Europe has been slower to recover due to labor shortages and strikes. They expect inventories to be burned down in the coming months. The speaker also mentions that bioprocessing backlog may improve in the second half and next fiscal year. In terms of backlog, both Healthcare and Life Sciences are down sequentially, with Healthcare potentially being more about execution and catching up on lead times.

Dan Carestio, the CEO of a company, is discussing the increase in demand for their products in the Life Sciences industry. He mentions that there was a delay in the previous quarter, but orders remain strong. They have also been able to increase production and reduce lead times. Another analyst asks about the demand for AST products, and Carestio explains that there has been a strong recovery in the US market, but it is taking longer for the rest of the world. He also mentions that there have been shortages in the EO sterilization process, but not in radiation.

The speaker is asking about the impact of the pilot program on STERIS and the team responds by explaining that it will allow customers to switch between different modes of sterilization without having to do a refile. They also mention that the Mevex segment will contribute less than $15 million in revenue in the second half of the year.

During the earnings call, the speaker discusses the phasing of AST services and the growth rate expected in the second half of the year. They also address the book-to-bill ratio for healthcare equipment and the strength of their backlog. The speaker notes that orders remain strong and there has been an increase in replacement business.

The Dental business has been declining, but the company expects it to remain flat this fiscal year due to economic downturns affecting the entire industry. Long-term, it is expected to be a solid mid-single digit grower, but this will depend on the economy improving.

Michael Matson asked about hospital staffing and the ability to book revenue for the Healthcare business. Dan Carestio responded that there has been more coordination in getting equipment installed, and they have over 1,000 techs ready to help with the process. Michael also asked about the gross margin, which was down 50 basis points due to lower productivity and continued inflation of materials and labor. Julie Winter added that the decline in AST volumes also did not help the margin. Jason Bednar from Piper Sandler asked a question next.

The company is not intentionally delaying projects in the AST segment, but they are naturally slowing down due to installation and permitting processes. This will result in a shift of $65 million in CapEx spend from this fiscal year to the next. Backlog is down $100 million from peak levels, but it is unclear what the baseline is and how much more backlog work down is needed to reach a normal level.

Dan Carestio and Mike Tokich discuss the current state of their company's orders and supply chain issues. They mention that their lead times are longer than they would like them to be. They also talk about the difference in growth rates between their U.S. and European markets and the potential for improvement in Europe as inventory levels decrease. Overall, they believe that the market will eventually improve and return to normal levels.

The speaker believes that in the coming weeks or months, there will be an improvement in the European destocking of Medtech products. This will be aided by easier comparisons in the back half of the year for bioprocessing. The company looks forward to meeting with investors at upcoming conferences.

This summary was generated with AI and may contain some inaccuracies.