The paragraph introduces a conference call for STERIS plc's Third Quarter 2025 results, hosted by Julie Winter. Participants will initially be in listen-only mode, with the opportunity to ask questions later. The call, involving Mike Tokich and Dan Carestio, will include forward-looking statements subject to risks described in STERIS' filings, and non-GAAP financial measures will be discussed. Redistribution of the call without consent is prohibited, and the information shared is time-sensitive.

In the third quarter, the company reported a 6% increase in total revenue and constant currency organic revenue, driven by volume and price. Gross margins rose by 90 basis points to 44.6% despite labor inflation, while EBIT margins slightly decreased by 10 basis points to 23.3% of revenue due to litigation expenses and increased healthcare benefit costs. The adjusted effective tax rate was 24.5%. Net income from continuing operations was $229 million, and adjusted earnings per diluted share grew by 11% to $2.32. The company managed costs effectively, benefiting from lower interest expenses due to the divestiture of the dental segment. Capital expenditures for the first nine months totaled $299 million, largely due to timing, and depreciation and amortization amounted to $354 million.

During the quarter, the company continued to reduce its debt, ending with $2.2 billion in total debt and achieving a debt to EBITDA ratio of 1.5 times gross leverage. Free cash flow for the first nine months of fiscal 2025 was $588 million, aligning with their full-year guidance of approximately $700 million. Healthcare segment revenues increased by 7% in constant currency, driven by strong recurring revenue streams and performance in consumables and services. However, healthcare capital equipment revenue declined by 5% due to the timing of shipments, despite a 10% increase in orders. In AST, constant currency organic revenue grew by 10%, with services leading the growth, though capital equipment shipments saw a slight decline. EBIT margins were flat year over year but improved sequentially, despite challenges from higher labor and energy costs. The Life Sciences Group saw a 1% decline in constant currency organic revenue, with gains in consumables and services offset by declines in capital equipment revenue.

The divestiture of the CECS business on April 1st affected the company's reported revenue, though margins improved by 390 basis points due to favorable pricing and the divestiture itself. The 2025 outlook has been adjusted due to unfavorable currency rate changes and unmet revenue expectations in the Healthcare Capital Equipment sector, with as-reported and constant currency organic revenue growth projected at 6%. Adjusted earnings per diluted share are anticipated to be between $9.05 and $9.15, while free cash flow expectations remain at $700 million. Dan Carestio addressed the mistrial of the first ethylene oxide case against Isometix, expressing confidence that evidence of Isometix's compliance with safety standards and legal requirements will ultimately refute the claims against them.

The paragraph discusses a legal case involving Isometix, where a mistrial was declared despite a majority of jurors initially favoring the company. The case is set for retrial in May. The company defends itself vigorously and continues to invest in facilities to meet regulatory standards. The article then transitions to a conference call, where audience members can ask questions. Jacob Johnson from Stephens inquires about healthcare capital equipment order timing, noting strong order growth but questioning potential customer hesitancy. Dan Carestio clarifies that spending remains strong but acknowledges customer-induced delays in order readiness.

The paragraph discusses recent market trends and expectations related to bioprocessing, as detailed by Dan Carestio. He notes that while there have been fluctuations in orders recently, the bioprocessing segment has exceeded expectations, similar to trends in recent reports. Carestio mentions that last year's Q2 and Q3 experienced low demand, partly due to inventory positioning in the supply chain. However, there is now optimism based on recent earnings reports and a positive trend in order intake. He believes the industry has moved past inventory challenges and anticipates more normalized growth in the bioprocessing sector going forward. Jacob Johnson and Brett Fishbin participate in the discussion by asking questions about these insights.

In the paragraph, Mike Tokich addresses a question from Brett Fishbin about the potential reintroduction of tariffs in regions like Canada and Mexico for FY26. He explains that the company is taking a cautious "wait-and-see" approach while analyzing the situation and potential impacts, noting their facilities in Quebec and Monterrey contribute less than 10% of the cost of goods sold. Fishbin also asks about elevated legal expenses contributing to increased operating expenses this quarter. Tokich clarifies these are included in corporate expenses, not segment expenses, noting a $6 million year-over-year increase and a total of over $10 million year-to-date, with a projection of an additional $5 million as a headwind in the fourth quarter forecast.

The paragraph is a part of a conference call where analyst Michael Polark from Wolfe Research asks Dan Carestio about AST's service growth acceleration to 10% and the status of MedTech customer revenue, questioning if "stable" means flat revenue. Dan clarifies that "stable" refers to a return to normalized growth in the low single digits. Michael also inquires about the sustainability of AST's 10% growth rate. Dan expresses cautious optimism, noting the positive trend but also the potential variability due to customer manufacturing pulls. Michael asks a follow-up about the timing of Healthcare Capital's large shipment and project delays, acknowledging the explanation provided.

In this paragraph, Dan Carestio and Mike Tokich from STERIS discuss the company's current performance and future outlook. Carestio states that it's too early to provide specific forecasts for fiscal 2026, as they are still in their planning process for the next fiscal year. The focus is currently on delivering for the customers in the fourth quarter, with more updates expected in the next earnings call. Michael Polark acknowledges the strong margin performance in the healthcare and life sciences sectors, with the healthcare margins reaching a record high. Mike Tokich attributes this success to favorable volume, mix, and price, as well as productivity improvements in healthcare. However, Tokich cautions that maintaining this performance might be challenging due to potential mix shifts in the future, especially for life sciences.

The paragraph discusses a conversation between Jason Bednar and Dan Carestio regarding the postponement and retrial of a court case. The retrial was scheduled for May after a mistrial, causing the second case group to be pushed back to later in the summer. Dan confirms that there are no additional cases beyond what was previously disclosed. Patrick Wood from Morgan Stanley then asks about potential changes in legislative intensity surrounding EO under a new political environment and how the new administration might affect EO's use. Dan responds that the rules are already established.

The paragraph is part of a conversation involving Patrick Wood, Dan Carestio, and Mike Tokich about a company's compliance with an EPA rule, endoscopy products, and the reprocessing side of the business. The company is doing well in reprocessing, with significant capital and chemistry flow, but growth in endoscopy products is only at market level. The total endoscopy business is valued at about a billion dollars by STERIS. The paragraph ends with Mike Matson from Needham and Company ready to ask a question regarding customer interactions in hospitals and life sciences.

In the paragraph, Dan Carestio discusses the current state of orders and business amid potential policy changes with a new administration, noting that they haven't observed any significant impact so far. Both healthcare and life sciences sectors have experienced a strong orders quarter, with a notable rebound in life sciences after a tough year. Despite concerns about reimbursement and payment uncertainties in the healthcare sector, the business remains unaffected since their primary product offerings are utility and procedure-driven rather than reliant on government reimbursements. Mike Tokich adds that the healthcare segment has grown by 14% year over year, with a much higher backlog than expected. Mike Matson then inquires about inventory surgery centers as potential growth drivers, to which Carestio confirms their ongoing potential.

The paragraph discusses trends and strategies within a healthcare services business. It highlights a shift from large acute care facilities to smaller satellite facilities, supported by investments in surgical and sterile processing equipment. The speaker expresses confidence in their positioning due to dedicated channels and R&D investment. In response to a question about sustainable growth, it is noted that growth in healthcare services is driven by a high contract rate for equipment maintenance after warranties expire, strong partnerships with biomeds, and a robust repair business for medical scopes. Future growth may increase if capital purchases for scopes are delayed, necessitating more repairs.

In the paragraph, there is a discussion about the trends in pricing and growth in the services business as inflation decreases, which might lead to reduced ability to adjust prices to cover costs. Michael Polark inquires about the prospects for organic growth in the life sciences sector. Dan Carestio responds that while the life sciences sector has been unimpressive this year due to a capital slowdown, consumables are experiencing significant growth, contrasting with bioprocessing customers who are dealing with destocking. Carestio remains optimistic about growth trends, particularly in the pharmaceutical aseptic manufacturing space. The conversation shifts as Dave Turkaly asks Simon about order growth and backlog in healthcare, questioning if the shift towards higher single-digit growth is the new normal. Mike Tokich does not provide a comment on this.

The paragraph contains a discussion where a company representative expresses satisfaction with their current healthcare operations but notes some delays in shipments. Despite these delays, there is confidence that orders will be fulfilled as cancellation rates are very low. They plan to address shipment timing issues in the next quarter. The discussion ends with closing remarks from Julie Winter, who mentions that the company will participate in various conferences in the coming months and looks forward to further engagement.

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