The STERIS plc Third Quarter 2024 Conference Call is about to begin, and the operator introduces the speakers, Julie Winter, Mike Tokich, and Dan Carestio. Julie gives a disclaimer about the accuracy of the information and the use of forward-looking statements. She also mentions that non-GAAP financial measures will be used during the call. She then hands the call over to Mike.

Mike Tokich begins by thanking the audience and introducing the highlights of the company's third quarter performance. He mentions a 10% increase in constant currency organic revenue, driven by volume and price. Gross margin also increased, but EBIT margin decreased due to increased incentive compensation expense and a mix shift in operating income. The adjusted effective tax rate was 22.6% and net income was $220.9 million. Capital expenditures and debt remained relatively stable, while free cash flow increased. Mike then introduces Dan Carestio, who will provide further remarks on the company's performance and outlook.

In the third quarter, the company saw strong performance in their Healthcare segment, with a 12% growth in constant currency organic revenue. This was driven by increased procedure volume in the U.S. and gains in price and market share. However, backlog is still normalizing as production outpaces new orders. In the AST segment, there was 4% growth, below expectations due to softer demand outside the U.S. and a contraction in bioprocessing volumes. Life Sciences saw 20% growth, with strong capital shipments and increases in consumables and service revenue.

In the Dental segment, third quarter revenue declined due to reduced orders from a large customer affected by a cybersecurity incident. Excluding this disruption, revenue would have been flat. The company is optimistic about long-term growth opportunities but acknowledges the uncertainty of short-term demand. The outlook for fiscal 2024 has been updated to reflect strong performance in the Healthcare segment, but EBIT margins will decline slightly and adjusted earnings per share are expected to be in the range of $8.60 to $8.70. The company is being conservative in their outlook due to the ongoing effects of the cybersecurity incident and uncertainty in bioprocessing volumes.

The speakers conclude their prepared remarks for the call and turn the floor over to a moderator for Q&A. A question is asked about the double-digit growth in Healthcare and the speakers discuss the factors contributing to this growth, including patient demand and the number of placements made in the past year. The speakers also mention strong orders growth and a reduction in backlog levels. The questioner praises the efficiency of the earnings call.

The speaker discusses the current state of the bioprocessing and AST markets, noting that demand forecasting is difficult for companies in the bioprocessing industry. However, there is optimism for the future, with a turn in the U.S. market and expected inventory burn down. The speaker also believes that bioprocessing will return to strong growth levels in the long term.

The company's customers are taking a conservative approach in the first half of the year, but expect meaningful growth in the second half. This could lead to increased volumes for their AST business. The speaker, Patrick Wood, is glad to live in the U.S. from a healthcare perspective. In terms of margins, the company faced a $40 million hole to refill for incentive compensation and saw a favorable offset of labor inflation with increased prices. Productivity also improved from negative to flat.

The company's supply chain is improving and backlog is decreasing, leading to more normalized lead times. The company is also adding more X-ray sterilization capacity in various locations. There was a decline in AST margins in the third quarter, which is typical due to the holidays.

The company's billing is affected by customer shutdowns during the Thanksgiving and Christmas holidays, resulting in a decrease in margin. This is a normal trend, but has been exaggerated by lower volumes in European plants and cobalt loadings. The Life Sciences segment had a strong performance due to easy comps, but the company is not ready to raise the flag on long-term demand for aseptic manufacturing.

The speaker discusses the current and future outlook for STERIS, a company that provides sterilization products and services for the healthcare industry. They mention that while there may be some short-term challenges, the long-term prospects are positive due to the high demand for aseptic drugs, injectable drugs, biologics, and other similar products. They also mention that they are in the middle of their planning process for the next fiscal year and will provide guidance in May. The speaker also answers a question about the impact of COVID on STERIS, stating that the recovery of procedures in the US is going well, but there is still some uncertainty in Europe. They clarify that this is due to the recovery of procedures in Europe, not any specific COVID-related products.

Customers have said they are burning down inventory, but it is taking longer in Europe. The company is not too worried about the AST profit level and believes it can return to higher margin levels. In Healthcare, segment margins hit a new high and the strength is coming from both consumables and equipment volumes and assets acquired from BD.

Mike Tokich and Dan Carestio discuss the performance of the AST and Healthcare segments, stating that they do not anticipate any major changes in either segment. They also address the recent cybersecurity attack on the Dental segment and state that while trends have normalized, revenue has been affected and they are still reviewing the future plans for the segment.

The company is waiting to see the outcome of a portfolio review and has not made any decisions yet. They have been focusing on paying down debt and have not repurchased any shares recently. The company has been able to implement price increases, but this may change as costs normalize. The tax rate may be affected by Pillar Two, but it is currently above 15%.

A question is asked about the potential impact of Pillar Two on the company's tax rate, to which the response is that there will be no significant impact. Another question is asked about the radiation sterilization master pilot program, which has been positively received by customers and regulators. There is no immediate impact, but it is expected to benefit the company in the long term. The margin profile of different modes of sterilization is not significantly different. A follow-up question is asked about the management of healthcare capital revenue, and the response is that the company aims to ship products quickly, but there are signs of a potential soft landing in 2025.

The speaker discusses a fear that lead times and conversion rates may decrease, but believes that the company will continue to grow in Healthcare capital revenue in fiscal year 2025. They also mention potential downtime for cobalt 60 loading and the potential for increased speed in the gamma network. The speaker concludes by thanking everyone for joining the call and announcing its conclusion.

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