STERIS plc (NYSE:STE) Q4 2021 Earnings Conference Call May 19, 2021 11:00 AM ET Company Participants Julie Winter - IR Mike Tokich - SVP and CFO Walt Rosebrough - President and CEO Dan Carestio - SVP and COO Conference Call Participants Dave Turkaly - JMP Securities Matthew Mishan - KeyBanc Capital Markets Mike Matson - Needham & Company Chris Cooley - Stephens Inc. Michael Polark - Robert W. Baird Operator Good morning, everyone and welcome to the STERIS plc Fourth Quarter 2021 Conference Call. All partici ...

Cantel Medical Corp. (CMD) Q2 2021 Earnings Conference Call March 9, 2021 8:30 AM ET Company Participants Ryan Lada - VP, Investor Relations George Fotiades - Chief Executive Officer Charles Diker - Chairman Shaun Blakeman - Senior Vice President and Chief Financial Officer Peter Clifford - President and Chief Operating Officer Seth Yellin - Executive Vice President, Strategy and Corporate Development Brian Capone - SVP, Corporate Controller and Chief Accounting Officer Conference Call Participants Matt Mis ...

NYSE:CM N 2nd Quarter FY21 Earnings Call March 09, 2021 Forward Looking Statements 2 This press release contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 and other securities laws. For these statements, we claim the protection of the safe harbor for forwardlooking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on current expectations, es ...

Form 10-Q Information STERIS plc filed a Quarterly Report on Form 10-Q for the period ended December 31, 2020, with its ordinary shares traded on the New York Stock Exchange under symbol **STE**[2](index=2&type=chunk)[3](index=3&type=chunk) | Indicator | Value | | :--- | :--- | | Filing Type | Quarterly Report (10-Q) | | Period Ended | December 31, 2020 | | Commission File Number | 001-38848 | | Trading Symbol | STE | | Exchange | New York Stock Exchange | | Ordinary Shares Outstanding (as of Feb 5, 2021) | 85,352,713 | | Filer Status | Large Accelerated Filer | Part I—Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, cash flows, and shareholders' equity, along with detailed explanatory notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Metric (in thousands) | Dec 31, 2020 (Unaudited) | Mar 31, 2020 | Change (Dec 2020 vs Mar 2020) | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Total current assets | $1,176,075 | $1,208,751 | $(32,676) | | Property, plant, and equipment, net | $1,226,895 | $1,111,855 | $115,040 | | Goodwill | $2,926,551 | $2,356,085 | $570,466 | | Intangibles, net | $1,043,904 | $565,473 | $478,431 | | Total assets | $6,580,780 | $5,425,582 | $1,155,198 | | **Liabilities & Equity** | | | | | Total current liabilities | $505,867 | $503,607 | $2,260 | | Long-term indebtedness | $1,713,199 | $1,150,521 | $562,678 | | Total liabilities | $2,702,588 | $2,018,858 | $683,730 | | Total shareholders' equity | $3,866,990 | $3,393,876 | $473,114 | | Total liabilities and equity | $6,580,780 | $5,425,582 | $1,155,198 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) | Metric (in thousands, except per share) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $808,924 | $774,261 | +4.5% | $2,233,988 | $2,207,904 | +1.2% | | Gross profit | $345,861 | $331,353 | +4.4% | $961,466 | $955,863 | +0.6% | | Income from operations | $147,030 | $142,387 | +3.3% | $402,294 | $379,208 | +6.1% | | Net income attributable to shareholders | $114,501 | $104,930 | +9.1% | $308,549 | $284,289 | +8.5% | | Diluted EPS | $1.33 | $1.23 | +8.1% | $3.59 | $3.32 | +8.1% | | Cash dividends declared per share | $0.40 | $0.37 | +8.1% | $1.17 | $1.08 | +8.3% | [Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) | Metric (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net income attributable to shareholders | $114,501 | $104,930 | +9.1% | $308,549 | $284,289 | +8.5% | | Total other comprehensive income | $128,227 | $76,795 | +67.0% | $233,077 | $10,856 | +2047.0% | | Comprehensive income | $242,728 | $181,725 | +33.6% | $541,626 | $295,145 | +83.5% | - The change in cumulative currency translation adjustment was a gain of **$128.7 million** for the three months and **$234.6 million** for the nine months ended December 31, 2020, significantly impacting other comprehensive income[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Metric (in thousands) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $501,785 | $391,326 | +28.2% | | Net cash used in investing activities | $(1,035,903) | $(259,989) | +298.5% | | Net cash provided by (used in) financing activities | $442,533 | $(153,874) | N/A (swing from use to provide) | | Effect of exchange rate changes on cash | $24,506 | $1,134 | +2069.8% | | Cash and cash equivalents at end of period | $252,502 | $199,230 | +26.7% | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) - Total equity increased from **$3,406.7 million** at March 31, 2020, to **$3,878.2 million** at December 31, 2020, driven by net income and other comprehensive income, partially offset by cash dividends and share repurchases[20](index=20&type=chunk)[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering accounting policies, acquisitions, debt, segment information, and the impact of COVID-19 and subsequent events [Note 1. Nature of Operations and Summary of Significant Accounting Policies](index=9&type=section&id=Note%201.%20Nature%20of%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) - STERIS plc's mission is to create a healthier and safer world by providing innovative healthcare and life science product and service solutions globally[26](index=26&type=chunk)[164](index=164&type=chunk) - In fiscal 2021, the company recognized **$14.6 million** in previously deferred capital equipment revenues and **$7.6 million** in related costs due to changes in selling philosophy and manufacturing processes[31](index=31&type=chunk)[33](index=33&type=chunk) - As of December 31, 2020, the transaction price allocated to remaining performance obligations was approximately **$1.01 billion**, with about **50%** expected within one year and **42%** beyond one year[47](index=47&type=chunk) | Standard | Date of Adoption | Effect on Financial Statements | | :--- | :--- | :--- | | ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" | April 1, 2020 (First Quarter Fiscal 2021) | No material impact | | ASU 2018-13, "Fair Value Measurement (Topic 820) Disclosure Framework Changes to Disclosure Requirements for Fair Value Measurement" | April 1, 2020 (First Quarter Fiscal 2021) | No material impact (disclosure only) | | ASU 2018-14, "Compensation Retirement Benefits - Defined Benefit Plans General Topic (715-20): Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans" | April 1, 2020 (First Quarter Fiscal 2021) | No material impact (disclosure only) | | ASU 2018-15, "Intangibles Goodwill and Other- Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" | April 1, 2020 (First Quarter Fiscal 2021) | No material impact | [Note 2. Business Acquisitions and Divestitures](index=14&type=section&id=Note%202.%20Business%20Acquisitions%20and%20Divestitures) - On November 18, 2020, STERIS acquired **Key Surgical, LLC** for **$849.7 million** (net of cash acquired), integrating it into the Healthcare segment[57](index=57&type=chunk) - In Q3 fiscal 2021, STERIS completed two tuck-in acquisitions for approximately **$20.9 million**, expanding Healthcare segment offerings[59](index=59&type=chunk) - During the first nine months of fiscal 2020, STERIS completed several tuck-in acquisitions for approximately **$117.3 million**, expanding Healthcare and Applied Sterilization Technologies segments[61](index=61&type=chunk) - In Q1 fiscal 2020, STERIS sold its China hospital sterilization services business for **$0.4 million**, recognizing a pre-tax loss of **$2.3 million**[64](index=64&type=chunk) [Note 3. Inventories, Net](index=15&type=section&id=Note%203.%20Inventories,%20Net) | Inventory Category (in thousands) | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | Raw materials | $102,212 | $94,321 | | Work in process | $42,109 | $35,643 | | Finished goods | $185,762 | $151,381 | | LIFO reserve | $(18,753) | $(16,937) | | Reserve for excess and obsolete inventory | $(17,198) | $(16,149) | | **Inventories, net** | **$294,132** | **$248,259** | [Note 4. Property, Plant and Equipment](index=15&type=section&id=Note%204.%20Property,%20Plant%20and%20Equipment) | Asset Category (in thousands) | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | Land and land improvements | $69,591 | $65,994 | | Buildings and leasehold improvements | $567,113 | $531,267 | | Machinery and equipment | $753,851 | $682,488 | | Information systems | $186,421 | $181,112 | | Radioisotope | $567,353 | $508,593 | | Construction in progress | $211,183 | $159,731 | | Total property, plant, and equipment | $2,355,512 | $2,129,185 | | Less: accumulated depreciation and depletion | $(1,128,617) | $(1,017,330) | | **Property, plant, and equipment, net** | **$1,226,895** | **$1,111,855** | [Note 5. Debt](index=16&type=section&id=Note%205.%20Debt) | Indebtedness (in thousands) | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | Credit Agreement | $304,618 | $275,449 | | Term Loan | $550,000 | $0 | | Private Placement | $864,425 | $878,409 | | Deferred financing costs | $(5,844) | $(3,337) | | **Total long term debt** | **$1,713,199** | **$1,150,521** | - On November 18, 2020, STERIS entered into a **$550.0 million** Term Loan Agreement to fund a portion of the Key Surgical acquisition, maturing on November 20, 2023[68](index=68&type=chunk)[69](index=69&type=chunk) [Note 6. Additional Consolidated Balance Sheet Information](index=17&type=section&id=Note%206.%20Additional%20Consolidated%20Balance%20Sheet%20Information) | Category (in thousands) | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | **Accrued payroll and other related liabilities:** | | | | Compensation and related items | $67,883 | $42,205 | | Accrued bonuses | $51,100 | $53,041 | | **Total accrued payroll and other related liabilities** | **$152,331** | **$128,261** | | **Accrued expenses and other:** | | | | Deferred revenues | $44,308 | $53,299 | | Service liabilities | $38,948 | $47,505 | | **Total accrued expenses and other** | **$184,633** | **$192,183** | | **Other liabilities:** | | | | Asset retirement obligation-long-term portion | $12,379 | $9,843 | | **Total other liabilities** | **$89,264** | **$90,346** | [Note 7. Income Tax Expense](index=17&type=section&id=Note%207.%20Income%20Tax%20Expense) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Effective income tax rate | **17.8%** | **21.9%** | 18.8% | 18.8% | - The decrease in the effective tax rate for the three months ended December 31, 2020, was primarily due to an increase in **favorable discrete items**[77](index=77&type=chunk) - STERIS is contesting IRS proposed tax adjustments of approximately **$40.0 million** for fiscal years 2016-2018, with no reserves established as a material impact is not expected[82](index=82&type=chunk) [Note 8. Commitments and Contingencies](index=18&type=section&id=Note%208.%20Commitments%20and%20Contingencies) - STERIS is involved in various legal proceedings and claims, including personal injury, product liability, and commercial disputes, arising in the ordinary course of business[83](index=83&type=chunk) - The company believes it has adequately reserved for probable and estimable litigation and claims, expecting no material adverse effect on its financial position or results of operations[84](index=84&type=chunk) [Note 9. Business Segment Information](index=18&type=section&id=Note%209.%20Business%20Segment%20Information) - STERIS operates in three reportable business segments: Healthcare, Applied Sterilization Technologies (AST), and Life Sciences, with Healthcare combining previous product and service segments[91](index=91&type=chunk)[92](index=92&type=chunk) | Segment (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Revenues:** | | | | | | Healthcare | $521,662 | $509,222 | $1,392,247 | $1,440,237 | | Applied Sterilization Technologies | $176,462 | $156,266 | $498,371 | $463,459 | | Life Sciences | $110,800 | $108,773 | $343,370 | $304,208 | | **Operating income (loss):** | | | | | | Healthcare | $115,412 | $105,227 | $302,565 | $298,777 | | Applied Sterilization Technologies | $81,626 | $65,468 | $222,416 | $198,889 | | Life Sciences | $41,541 | $37,731 | $136,435 | $103,085 | | Revenue Type (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Healthcare:** | | | | | | Capital equipment | $147,855 | $155,408 | $407,610 | $428,894 | | Consumables | $148,839 | $130,255 | $355,390 | $362,370 | | Service | $224,968 | $223,559 | $629,247 | $648,973 | | **Life Sciences:** | | | | | | Capital equipment | $28,993 | $31,762 | $88,664 | $84,993 | | Consumables | $49,627 | $46,370 | $164,262 | $132,939 | | Service | $32,180 | $30,641 | $90,444 | $86,276 | | Geographic Revenue (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Ireland | $20,316 | $16,126 | $51,779 | $46,405 | | United States | $572,397 | $562,502 | $1,613,554 | $1,611,755 | | Other locations | $216,211 | $195,633 | $568,655 | $549,744 | [Note 10. Shares and Preferred Shares](index=21&type=section&id=Note%2010.%20Shares%20and%20Preferred%20Shares) | Denominator (shares in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Weighted average shares outstanding—basic | 85,330 | 84,788 | 85,153 | 84,740 | | Dilutive effect of share equivalents | 702 | 840 | 698 | 890 | | Weighted average shares outstanding and share equivalents—diluted | 86,032 | 85,628 | 85,851 | 85,630 | - Options to purchase **278 thousand shares** (Q3 2020) and **370 thousand shares** (9M 2020) were excluded from diluted EPS calculation due to their anti-dilutive nature[106](index=106&type=chunk) [Note 11. Repurchases of Ordinary Shares](index=22&type=section&id=Note%2011.%20Repurchases%20of%20Ordinary%20Shares) - As of December 31, 2020, approximately **$333.9 million** remained available under the Board-authorized share repurchase program[108](index=108&type=chunk) - Share repurchases were suspended on April 9, 2020, due to uncertainty surrounding the **COVID-19 pandemic**[109](index=109&type=chunk) - From the start of fiscal 2021 through April 9, 2020, STERIS repurchased **35,000 ordinary shares** for **$5.0 million**[110](index=110&type=chunk) [Note 12. Share-Based Compensation](index=23&type=section&id=Note%2012.%20Share-Based%20Compensation) - As of December 31, 2020, **3,592,261 ordinary shares** remained available for grant under the long-term incentive plan[115](index=115&type=chunk) - The weighted average grant date fair value of stock option grants was **$27.66** for the first nine months of fiscal 2021, an increase from **$23.52** in fiscal 2020[121](index=121&type=chunk) - As of December 31, 2020, **$51.6 million** in unrecognized compensation cost related to non-vested share-based compensation is expected to be recognized over a weighted average period of **2.1 years**[123](index=123&type=chunk) [Note 13. Financial and Other Guarantees](index=24&type=section&id=Note%2013.%20Financial%20and%20Other%20Guarantees) | Warranty Liability (in thousands) | Amount | | :--- | :--- | | Balance, March 31, 2020 | $7,381 | | Warranties issued during the period | $7,411 | | Settlements made during the period | $(7,996) | | **Balance, December 31, 2020** | **$6,796** | [Note 14. Derivatives and Hedging](index=24&type=section&id=Note%2014.%20Derivatives%20and%20Hedging) - STERIS uses forward and commodity swap contracts to hedge foreign currency and nickel price changes, with fair value changes recognized immediately in income as they are not designated hedging instruments[126](index=126&type=chunk)[128](index=128&type=chunk) - At December 31, 2020, STERIS held foreign currency forward contracts to buy **30.5 million British pounds**, **35.0 million Mexican pesos**, and **2.2 million Canadian dollars**, and to sell **4.0 million euros**, alongside commodity swap contracts to buy **946.8 thousand pounds of nickel**[129](index=129&type=chunk) | Impact on Income (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Foreign currency forward contracts (SG&A) | $661 (gain) | $741 (gain) | $79 (gain) | $784 (gain) | | Commodity swap contracts (Cost of revenues) | $904 (gain) | $153 (gain) | $(398) (loss) | $271 (gain) | [Note 15. Fair Value Measurements](index=26&type=section&id=Note%2015.%20Fair%20Value%20Measurements) | Financial Instrument (in thousands) | Carrying Value (Dec 31, 2020) | Fair Value (Dec 31, 2020) | Fair Value (Mar 31, 2020) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $252,502 | $252,502 (Level 1) | $319,581 (Level 1) | | Forward and swap contracts (Asset) | $1,377 | $1,377 (Level 2) | $124 (Level 2) | | Equity investments | $10,484 | $10,484 (Level 1) | $9,624 (Level 1) | | Forward and swap contracts (Liability) | $659 | $659 (Level 2) | $912 (Level 2) | | Long term debt | $1,713,199 | $1,781,304 (Level 2) | $1,143,978 (Level 2) | | Contingent consideration obligations | $17,931 | $17,931 (Level 3) | $15,988 (Level 3) | | Contingent Consideration (Level 3, in thousands) | Amount | | :--- | :--- | | Balance at March 31, 2020 | $15,988 | | Additions | $334 | | Assumed in acquisition of Key Surgical | $2,940 | | Payments | $(917) | | Reversal | $(500) | | Currency translation adjustments | $86 | | **Balance at December 31, 2020** | **$17,931** | [Note 16. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)](index=28&type=section&id=Note%2016.%20Reclassifications%20Out%20of%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) | Metric (in thousands) | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Beginning Balance (Total AOCI) | $(130,613) | $(235,463) | | Net current-period Other Comprehensive Income | $128,227 | $233,077 | | **Balance at December 31, 2020 (Total AOCI)** | **$(2,386)** | **$(2,386)** | - The change in cumulative currency translation adjustment was a gain of **$128.7 million** for the three months and **$234.6 million** for the nine months ended December 31, 2020, significantly impacting other comprehensive income[15](index=15&type=chunk) [Note 17. Restructuring](index=29&type=section&id=Note%2017.%20Restructuring) - Since the inception of the Fiscal 2019 Restructuring Plan, STERIS has incurred **$44.0 million** in pre-tax expenses, with **$31.7 million** as restructuring expenses and **$12.3 million** in cost of revenues[140](index=140&type=chunk) - The restructuring plan included the closure of two manufacturing facilities and product rationalization, resulting in fewer than **200 positions eliminated**[139](index=139&type=chunk) [Note 18. Loans Receivable](index=29&type=section&id=Note%2018.%20Loans%20Receivable) - STERIS provided a credit facility of up to **$11.6 million** for an equity investment, with **$10.3 million** outstanding at December 31, 2020, which was capitalized in January 2021[142](index=142&type=chunk)[150](index=150&type=chunk) - A loan agreement related to a fiscal 2017 divestiture had an outstanding principal of **$9.0 million** (or **€7.3 million**) at December 31, 2020, with repayments scheduled to begin in October 2022[143](index=143&type=chunk) [Note 19. COVID-19 Pandemic](index=29&type=section&id=Note%2019.%20COVID-19%20Pandemic) - The **COVID-19 pandemic** caused unpredictable demand fluctuations, with reduced deferrable surgical procedures impacting some products/services, while increasing demand from pharma customers[145](index=145&type=chunk)[165](index=165&type=chunk)[171](index=171&type=chunk) - STERIS implemented measures including remote work, enhanced safety protocols, travel suspension, a hiring freeze, and deferred capital expenditures to protect employees and preserve liquidity[145](index=145&type=chunk)[169](index=169&type=chunk) - Despite the impact, STERIS believes the pandemic has not significantly affected its operations, as manufacturing facilities continue to operate and meet demand for essential products and services[145](index=145&type=chunk)[169](index=169&type=chunk) [Note 20. Subsequent Events](index=30&type=section&id=Note%2020.%20Subsequent%20Events) - On January 12, 2021, STERIS agreed to acquire **Cantel Medical Corp.** for approximately **$3.6 billion** in equity value (**$4.6 billion** enterprise value) via a cash and stock transaction[148](index=148&type=chunk)[167](index=167&type=chunk) - The Cantel acquisition is expected to be funded with approximately **$2.0 billion** of new debt to cover the cash portion and repay existing Cantel debt[149](index=149&type=chunk)[167](index=167&type=chunk) - On January 4, 2021, STERIS purchased the remaining outstanding shares of an equity investment for approximately **$44.3 million**, capitalizing an outstanding credit facility of **$10.5 million**[150](index=150&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes STERIS's financial condition and operating results, covering revenue, gross profit, expenses, segment performance, liquidity, and the impact of acquisitions and the COVID-19 pandemic [Introduction](index=32&type=section&id=Introduction) - The MD&A explains STERIS's financial condition and results of operations, including factors affecting the business, earnings, costs, capital expenditures, and future cash funding[157](index=157&type=chunk)[160](index=160&type=chunk) [Financial Measures](index=32&type=section&id=Financial%20Measures) - STERIS uses non-GAAP financial measures such as backlog, debt-to-total capital, and days sales outstanding (DSO) to enhance financial performance analysis and provide transparency[158](index=158&type=chunk)[161](index=161&type=chunk) - Backlog is defined as unfilled capital equipment purchase orders, debt-to-total capital as total debt divided by total debt plus shareholders' equity, and DSO as net accounts receivable divided by trailing four quarters' revenues multiplied by 365 days[161](index=161&type=chunk) [Revenues – Defined](index=32&type=section&id=Revenues%20%E2%80%93%20Defined) - STERIS categorizes revenues into Product Revenues (consumable and capital equipment sales) and Service Revenues (various maintenance, repair, and sterilization services), with recurring revenues combining consumables and services[162](index=162&type=chunk)[168](index=168&type=chunk) [General Company Overview and Executive Summary](index=33&type=section&id=General%20Company%20Overview%20and%20Executive%20Summary) - STERIS plc is a leading global provider of infection prevention and procedural products and services for healthcare and pharmaceutical industries, driven by an aging population and increased concern over hospital-acquired infections[164](index=164&type=chunk)[165](index=165&type=chunk) - The company operates in three segments: Healthcare, Applied Sterilization Technologies, and Life Sciences[165](index=165&type=chunk) - STERIS acquired **Key Surgical** for **$849.7 million** in November 2020 and announced the acquisition of **Cantel Medical Corp.** for approximately **$3.6 billion** in January 2021, significantly expanding its offerings[166](index=166&type=chunk)[167](index=167&type=chunk) [COVID-19 Pandemic](index=34&type=section&id=COVID-19%20Pandemic) - The **COVID-19 pandemic** caused unpredictable demand fluctuations, with reduced deferrable surgical procedures impacting some products/services, while increasing demand from pharma customers[169](index=169&type=chunk)[171](index=171&type=chunk) - STERIS implemented measures including remote work, enhanced safety, travel suspension, a hiring freeze, and deferred capital expenditures to protect employees and preserve liquidity[169](index=169&type=chunk) [Highlights](index=34&type=section&id=Highlights) | Metric (in millions) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $808.9 | $774.3 | +4.5% | $2,234.0 | $2,207.9 | +1.2% | | Gross Profit Percentage | 42.8% | 42.8% | 0 bps | 43.0% | 43.3% | -30 bps | | Operating Income | $147.0 | $142.4 | +3.2% | $402.3 | $379.2 | +6.1% | - Cash flows from operations increased to **$501.8 million** (9M FY21) from **$391.3 million** (9M FY20), and free cash flow rose to **$337.7 million** from **$238.1 million**, driven by higher net income, working capital improvements, and deferred tax payments[174](index=174&type=chunk) - The debt-to-total capital ratio increased to **30.7%** at December 31, 2020, from **25.3%** at March 31, 2020[175](index=175&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=35&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) - STERIS uses non-GAAP financial measures, such as free cash flow, to provide greater transparency and assist investors in understanding underlying operational performance, not as replacements for GAAP measures[177](index=177&type=chunk)[178](index=178&type=chunk) - Free cash flow is defined as net cash provided by operating activities less net purchases of property, plant, equipment, and intangibles, plus proceeds from sales of property, plant, equipment, and intangibles[179](index=179&type=chunk) | Metric (in thousands) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $501,785 | $391,326 | | Purchases of property, plant, equipment and intangibles, net | $(164,497) | $(153,649) | | Proceeds from the sale of property, plant, equipment and intangibles | $417 | $387 | | **Free cash flow** | **$337,705** | **$238,064** | [Results of Operations](index=35&type=section&id=Results%20of%20Operations) [Revenues](index=36&type=section&id=Revenues) | Revenue (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $808,924 | $774,261 | +4.5% | $2,233,988 | $2,207,904 | +1.2% | | Service revenues | $433,610 | $410,466 | +5.6% | $1,218,062 | $1,198,708 | +1.6% | | Consumable revenues | $198,466 | $176,625 | +12.4% | $519,652 | $495,309 | +4.9% | | Capital equipment revenues | $176,848 | $187,170 | -5.5% | $496,274 | $513,887 | -3.4% | - For the three months ended December 31, 2020, revenue growth was driven by recent acquisitions in Healthcare, volume in Applied Sterilization Technologies, and increased demand from pharma customers in Life Sciences[183](index=183&type=chunk) - For the nine months ended December 31, 2020, revenue growth was primarily organic in Applied Sterilization Technologies and Life Sciences, partially offset by a decline in Healthcare due to reduced deferrable surgical procedures and capital spending from **COVID-19**[188](index=188&type=chunk) - Capital equipment revenues declined **5.5%** (Q3) and **3.4%** (9M) due to reduced capital spending in Healthcare from **COVID-19** uncertainty and timing of shipments in Life Sciences[184](index=184&type=chunk)[189](index=189&type=chunk) [Gross Profit](index=38&type=section&id=Gross%20Profit) | Gross Profit (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total gross profit | $345,861 | $331,353 | +4.4% | $961,466 | $955,863 | +0.6% | | Total gross profit percentage | **42.8%** | **42.8%** | 0 bps | **43.0%** | **43.3%** | -30 bps | - Q3 fiscal 2021 gross profit percentage remained flat at **42.8%**, with improved productivity and favorable pricing/acquisitions offset by **COVID-19** incremental costs and other factors[194](index=194&type=chunk) - 9M fiscal 2021 gross profit percentage decreased to **43.0%** from **43.3%**, as **COVID-19** incremental costs and other factors outweighed favorable pricing and improved productivity[195](index=195&type=chunk) [Operating Expenses](index=38&type=section&id=Operating%20Expenses) | Operating Expense (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Selling, general, and administrative | $182,373 | $172,927 | +5.5% | $510,250 | $527,667 | -3.3% | | Research and development | $16,438 | $16,487 | -0.3% | $48,812 | $48,321 | +1.0% | | Restructuring expenses | $20 | $(448) | N/A | $110 | $667 | -83.5% | | **Total operating expenses** | **$198,831** | **$188,966** | **+5.2%** | **$559,172** | **$576,655** | **-3.0%** | - SG&A expenses increased **5.5%** in Q3 fiscal 2021 due to recent acquisitions but decreased **3.3%** in 9M fiscal 2021 due to reduced employee compensation, travel, and meeting costs from the **COVID-19 pandemic**[198](index=198&type=chunk) - Research and development expenses remained relatively stable, with a slight decrease of **0.3%** in Q3 and an increase of **1.0%** in 9M fiscal 2021, focusing on new product development and technological innovations[199](index=199&type=chunk) [Non-Operating Expenses, Net](index=39&type=section&id=Non-Operating%20Expenses,%20Net) | Non-Operating Expense (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Interest expense | $8,899 | $9,813 | -9.4% | $27,056 | $30,702 | -11.9% | | Interest income and miscellaneous expense | $(1,299) | $(1,378) | +5.7% | $(4,776) | $(2,163) | +120.8% | | **Non-operating expenses, net** | **$7,600** | **$8,435** | **-9.9%** | **$22,280** | **$28,539** | **-21.9%** | - Interest expense decreased due to lower interest rates on floating rate debt and increased capitalized interest expense[201](index=201&type=chunk) - Interest income and miscellaneous expense increased significantly for the nine-month period, primarily due to movements in equity investments[201](index=201&type=chunk) [Income Tax Expense](index=40&type=section&id=Income%20Tax%20Expense) | Income Tax Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Income tax expense (in thousands) | $24,842 | $29,285 | -15.2% | $71,294 | $66,083 | +7.9% | | Effective income tax rate | **17.8%** | **21.9%** | -4.1 ppts | 18.8% | 18.8% | 0 ppts | - The effective income tax rate for Q3 fiscal 2021 decreased to **17.8%** from **21.9%** in Q3 fiscal 2020, primarily due to an increase in favorable discrete items[203](index=203&type=chunk) [Business Segment Results of Operations](index=40&type=section&id=Business%20Segment%20Results%20of%20Operations) | Segment (in thousands) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Change (YoY) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues:** | | | | | | | | Healthcare | $521,662 | $509,222 | +2.4% | $1,392,247 | $1,440,237 | -3.3% | | Applied Sterilization Technologies | $176,462 | $156,266 | +12.9% | $498,371 | $463,459 | +7.5% | | Life Sciences | $110,800 | $108,773 | +1.9% | $343,370 | $304,208 | +12.9% | | **Operating income (loss):** | | | | | | | | Healthcare | $115,412 | $105,227 | +9.7% | $302,565 | $298,777 | +1.3% | | Applied Sterilization Technologies | $81,626 | $65,468 | +24.7% | $222,416 | $198,889 | +11.8% | | Life Sciences | $41,541 | $37,731 | +10.1% | $136,435 | $103,085 | +32.4% | - Healthcare segment revenues increased **2.4%** in Q3 fiscal 2021 due to consumables growth and recent acquisitions, but decreased **3.3%** in 9M fiscal 2021 due to reduced deferrable surgical procedures and capital spending from **COVID-19**[210](index=210&type=chunk) - Applied Sterilization Technologies segment revenues increased **12.9%** (Q3) and **7.5%** (9M) due to organic growth and favorable currency fluctuations, with operating income increasing significantly due to higher volumes and reduced expenditures[211](index=211&type=chunk)[214](index=214&type=chunk) - Life Sciences segment revenues increased **1.9%** (Q3) and **12.9%** (9M) due to increased demand from pharma customers focused on vaccines and biologics, with operating income seeing substantial growth due to higher volumes and favorable mix[212](index=212&type=chunk)[215](index=215&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) | Metric (in thousands) | Nine Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $501,785 | $391,326 | | Net cash (used in) investing activities | $(1,035,903) | $(259,989) | | Net cash provided by (used in) financing activities | $442,533 | $(153,874) | | Debt-to-total capital ratio | **30.7%** | 25.2% | | Free cash flow | $337,705 | $238,064 | - Net cash provided by operating activities increased to **$501.8 million** (9M FY21) from **$391.3 million** (9M FY20), driven by higher net income, working capital improvements, and deferred tax payments[217](index=217&type=chunk) - Net cash used in investing activities significantly increased to **$1,035.9 million** (9M FY21) from **$260.0 million** (9M FY20), primarily due to **$869.4 million** for business acquisitions and **$164.5 million** in capital expenditures[218](index=218&type=chunk) - Net cash provided by financing activities was **$442.5 million** (9M FY21), a swing from **$153.9 million** used in 9M FY20, largely due to **$550.0 million** in proceeds from a new Term Loan, partially offset by **$99.7 million** in cash dividends and **$14.6 million** in share repurchases[218](index=218&type=chunk)[219](index=219&type=chunk) - STERIS expects to fund the cash portion of the Cantel acquisition (approx. **$2.0 billion**) and repay Cantel's existing debt with new debt, having fully committed bridge financing[225](index=225&type=chunk) [Critical Accounting Policies, Estimates, and Assumptions](index=44&type=section&id=Critical%20Accounting%20Policies,%20Estimates,%20and%20Assumptions) - STERIS's critical accounting policies, estimates, and assumptions have not materially changed from March 31, 2020, as detailed in its Annual Report on Form 10-K[226](index=226&type=chunk) [Contingencies](index=44&type=section&id=Contingencies) - STERIS is involved in various legal proceedings, government investigations, and claims, with liabilities recorded when probable and estimable, and no material adverse effect on financial position or results of operations is anticipated[227](index=227&type=chunk)[228](index=228&type=chunk) [Off-Balance Sheet Arrangements](index=45&type=section&id=Off-Balance%20Sheet%20Arrangements) - STERIS does not have any off-balance sheet arrangements likely to have a material current or future impact on its financial condition, results of operations, liquidity, or capital[230](index=230&type=chunk) [Forward-Looking Statements](index=45&type=section&id=Forward-Looking%20Statements) - This Form 10-Q contains forward-looking statements subject to uncertainty and changes in circumstances, which STERIS does not undertake to update or revise unless legally required[231](index=231&type=chunk) - Key risks include failure to complete the Cantel acquisition, integration challenges, increased debt, impact of **COVID-19**, changes in tax laws, market demand fluctuations, and regulatory actions[232](index=232&type=chunk)[236](index=236&type=chunk) [Availability of Securities and Exchange Commission Filings](index=46&type=section&id=Availability%20of%20Securities%20and%20Exchange%20Commission%20Filings) - STERIS makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments available free of charge on its investor relations website after filing with the SEC[234](index=234&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) STERIS is exposed to interest rate, currency, and commodity risks, which have not materially changed, and uses forward currency contracts that may cause volatility in reported gains/losses - STERIS is subject to interest rate, currency, and commodity risks, which have not materially changed since March 31, 2020[235](index=235&type=chunk) - During Q3 fiscal 2021, STERIS entered into forward currency contracts to hedge non-U.S. dollar denominated earnings, but did not elect hedge accounting, potentially leading to volatility in reported gains/losses[236](index=236&type=chunk)[237](index=237&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) STERIS's management evaluated the effectiveness of its disclosure controls and procedures as of December 31, 2020, concluding they were effective with no material changes in internal control over financial reporting - As of December 31, 2020, STERIS's disclosure controls and procedures were evaluated and deemed **effective** by management, including the Principal Executive Officer and Principal Financial Officer[238](index=238&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2020[239](index=239&type=chunk) Part II—Other Information [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding STERIS's legal proceedings is cross-referenced to Note 8 of the consolidated financial statements and Item 7 of the Annual Report on Form 10-K - Legal proceedings information is cross-referenced to Note 8 of the consolidated financial statements and Item 7 of the Annual Report on Form 10-K[242](index=242&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) While general risk factors remained unchanged, new risks related to the proposed **Cantel Medical Corp. acquisition** include completion failure, business uncertainties, significant transaction costs, and increased debt - No material changes to general risk factors were noted since March 31, 2020, except for new risks related to the proposed acquisition of **Cantel Medical Corp.**[243](index=243&type=chunk) - Risks associated with the Cantel acquisition include potential failure or delays in completion, adverse impacts on share price and business, business uncertainties, significant transaction and integration costs, and increased debt limiting financial flexibility[244](index=244&type=chunk)[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) STERIS had approximately **$333.9 million** remaining under its share repurchase program as of December 31, 2020, but suspended repurchases on April 9, 2020, due to **COVID-19** uncertainty - As of December 31, 2020, approximately **$333.9 million** remained available under the Board-authorized share repurchase program, which has no specified expiration date[248](index=248&type=chunk) - Share repurchases were suspended on April 9, 2020, due to the uncertainty surrounding the **COVID-19 pandemic**[249](index=249&type=chunk) - From the start of fiscal 2021 through April 9, 2020, STERIS repurchased **35,000 ordinary shares** for **$5.0 million**[110](index=110&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans at Period End (in thousands) | | :--- | :--- | :--- | :--- | :--- | | October 1-31 | — | $— | — | $333,932 | | November 1-30 | — | $— | — | $333,932 | | December 1-31 | — | $— | — | $333,932 | | **Total** | **—** | **$—** | **—** | **$333,932** | [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including purchase agreements for **Key Surgical** and **Cantel Medical Corp.**, loan agreements, and certifications - Exhibits include the Purchase Agreement for **Key Surgical** (Oct 2, 2020) and the Agreement and Plan of Merger for **Cantel Medical Corp.** (Jan 12, 2021)[253](index=253&type=chunk) - Other exhibits detail the Term Loan Agreement (Nov 18, 2020) and various Guarantor Joinder Agreements related to debt[253](index=253&type=chunk) [Signature](index=53&type=section&id=Signature) The report was signed on behalf of STERIS plc by Karen L. Burton, Vice President, Controller, and Chief Accounting Officer, on February 9, 2021 - The report was signed by **Karen L. Burton**, Vice President, Controller and Chief Accounting Officer, on **February 9, 2021**[256](index=256&type=chunk)

Financial Data and Key Metrics Changes - Constant currency organic revenue increased by 1.4%, driven by 130 basis points of favorable price and 10 basis points of organic volume growth [7] - Gross margin improved by 110 basis points to 44.2%, benefiting from productivity, price, and acquisitions [7] - EBIT margin increased by 250 basis points to 23.6% of revenue, primarily due to higher gross margin and lower operating expenses [7] - Net income grew by 20% to $149.2 million, with earnings per diluted share increasing to $1.73 from $1.45 in the prior year [8] - Free cash flow for the first nine months was strong at $337.7 million, an increase of almost $100 million over the same period last year [8] Business Line Data and Key Metrics Changes - Constant currency organic revenue in the third quarter grew by 1%, driven by double-digit growth in the AST segment, offset by flat to slightly down revenue in life sciences and healthcare [12] - Life sciences revenue was flat, with mid-single-digit growth in consumables and services, but a decline in capital equipment shipments [13] - Healthcare benefited from the addition of Key Surgical, contributing approximately $15 million to healthcare consumable revenue [14] Market Data and Key Metrics Changes - The healthcare capital equipment segment achieved a record order month, resulting in a backlog greater than pre-pandemic levels [11] - Demand for COVID-related single-use products and components used in vaccine manufacturing positively impacted the AST segment [12] Company Strategy and Development Direction - The company is focused on evaluating opportunities to permanently reduce expenses learned during the pandemic [15] - Integration efforts for Key Surgical are ongoing, with high expectations for future performance [14] - The company is preparing for the acquisition of Cantel Medical, with confidence in the integration process [17] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the fourth quarter and the start of the new fiscal year, noting that risks appear to have declined [15] - The company anticipates a return to normalcy in capital equipment shipments, with expectations for sustained high demand for consumables [16] - Management emphasized the importance of capturing additional opportunities and expressed confidence in the company's future [23] Other Important Information - Walter Rosebrough announced plans to step down as CEO at the end of July, with Dan Carestio set to succeed him [18] - The company has a strong balance sheet, with a leverage ratio below 2 times and a cash position of $253 million [8] Q&A Session Summary Question: Timeline for leadership transition and strategic deals - Walter Rosebrough explained that the timing for his transition is optimal as the company is well-positioned for future success [27] Question: Performance of Key Surgical - Walter noted that the integration of Key Surgical is on track, with performance exceeding initial expectations [28] Question: Succession planning and integration of Cantel - Dan Carestio confirmed that he and Mike Tokich have led the diligence efforts for the Cantel acquisition and are confident in the integration process [37] Question: Sustainability of AST margins - Dan Carestio indicated that while there are benefits from COVID-related demand, core medical device customers are still experiencing suppressed demand [41] Question: Free cash flow expectations - Michael Tokich cautioned that while free cash flow has improved, future acquisitions may require significant cash expenditures [53] Question: Impact of accounting changes on backlog - Dan Carestio clarified that an accounting change earlier in the year affected revenue recognition, impacting the backlog comparison [64] Question: Capital orders and pent-up demand - Dan Carestio acknowledged that there is some pent-up demand from deferred projects during the pandemic [73] Question: COVID-19 incremental costs in adjusted EPS - Michael Tokich explained that costs related to furloughed employees and enhanced cleaning protocols are captured as COVID incremental costs [76]

NYSE:CM N 1st Quarter FY21 Earnings Call December 8th, 2020 Forward Looking Statements 2 This press release contains "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 and other securities laws. For these statements, we claim the protection of the safe harbor for forwardlooking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on current expectations ...

Cantel Medical Corp. (CMD) Q1 2021 Earnings Conference Call December 8, 2020 8:30 AM ET Company Participants Matt Micowski - VP, IR and Financial Planning and Analysis George Fotiades - CEO Chuck Diker - Chairman Shaun Blakeman - SVP and CFO Peter Clifford - EVP and COO Seth Yellin - EVP, Strategy and Corporate Development Brian Capone - SVP, Corporate Controller and Chief Accounting Officer Conference Call Participants Matt Mishan - KeyBanc Capital Markets Larry Keusch - Raymond James Mike Matson - Needham ...

Part I—Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for STERIS plc for the three and six months ended September 30, 2020, including balance sheets, income statements, cash flow statements, and detailed notes [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets increased to **$5.49 billion** as of September 30, 2020, with six-month revenues of **$1.425 billion** and net income attributable to shareholders rising to **$194.0 million** Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $1,150,310 | $1,208,751 | | **Total assets** | $5,492,567 | $5,425,582 | | **Total current liabilities** | $435,418 | $503,607 | | **Long-term indebtedness** | $1,020,554 | $1,150,521 | | **Total liabilities** | $1,830,112 | $2,018,858 | | **Total shareholders' equity** | $3,647,145 | $3,393,876 | Consolidated Statement of Income Highlights (in thousands, except per share) | Metric | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Total revenues** | $1,425,064 | $1,433,643 | | **Gross profit** | $615,605 | $624,510 | | **Income from operations** | $255,264 | $236,821 | | **Net income attributable to shareholders** | $194,048 | $179,359 | | **Diluted EPS** | $2.26 | $2.09 | Consolidated Statement of Cash Flows Highlights (in thousands) | Activity | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $296,073 | $260,000 | | **Net cash used in investing activities** | $(112,863) | $(185,458) | | **Net cash used in financing activities** | $(199,319) | $(63,529) | | **Increase (decrease) in cash** | $(7,553) | $4,903 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment information, debt, taxes, and COVID-19 impact, highlighting the **$850 million** Key Surgical acquisition agreement and segment reorganization - The company reorganized its reportable segments, combining the former Healthcare Products and Healthcare Specialty Services segments into a single segment named Healthcare, effective April 1, 2020. Prior period data has been recast for comparability[79](index=79&type=chunk) - On October 2, 2020, STERIS entered into an agreement to acquire Key Surgical, LLC for a purchase price of **$850 million** in cash. The acquisition is expected to be completed before December 31, 2020, and will be funded through a combination of debt and cash on hand[133](index=133&type=chunk)[134](index=134&type=chunk) - The COVID-19 pandemic has caused unpredictable fluctuations in demand, with some products seeing increased demand while others, tied to deferrable medical procedures, have seen reduced demand. The company has implemented measures to protect employees and preserve liquidity, including suspending its stock repurchase program[130](index=130&type=chunk) - Due to changes in selling philosophy and product architecture, the company changed its revenue recognition policy for certain capital equipment contracts, resulting in the recognition of **$14.6 million** in previously deferred revenue in the first quarter of fiscal 2021[31](index=31&type=chunk)[33](index=33&type=chunk) [Management's Discussion and Analysis (MD&A)](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The MD&A provides management's perspective on Q2 and first-half fiscal 2021 financial results, detailing COVID-19 impact, revenue and profit trends, segment performance, and liquidity, with Q2 revenues up **2.6%** to **$756.1 million** and first-half free cash flow increasing to **$185.6 million** [Results of Operations](index=32&type=section&id=Results%20of%20Operations) For Q2 FY2021, revenues increased **2.6%** year-over-year, driven by Applied Sterilization Technologies and Life Sciences, while gross profit margin improved to **43.6%** due to favorable pricing and mix Q2 FY2021 vs Q2 FY2020 Revenue Breakdown (in thousands) | Revenue Type | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | **Total revenues** | $756,132 | $736,840 | 2.6% | | Service revenues | $416,628 | $399,174 | 4.4% | | Consumable revenues | $178,590 | $158,573 | 12.6% | | Capital equipment revenues | $160,914 | $179,093 | (10.2)% | YTD FY2021 vs YTD FY2020 Revenue Breakdown (in thousands) | Revenue Type | YTD 2020 | YTD 2019 | % Change | | :--- | :--- | :--- | :--- | | **Total revenues** | $1,425,064 | $1,433,643 | (0.6)% | | Service revenues | $784,452 | $788,242 | (0.5)% | | Consumable revenues | $321,186 | $318,684 | 0.8% | | Capital equipment revenues | $319,426 | $326,717 | (2.2)% | - The gross profit margin for Q2 FY2021 increased to **43.6%** from **43.2%** in the prior year, driven by favorable pricing, product mix, and productivity, partially offset by incremental costs associated with COVID-19[181](index=181&type=chunk) - Selling, General, and Administrative (SG&A) expenses decreased by **7.6%** in the first half of fiscal 2021 compared to the prior year, primarily due to reduced employee compensation, travel, and meeting costs resulting from the COVID-19 pandemic[182](index=182&type=chunk)[183](index=183&type=chunk) [Business Segment Results of Operations](index=37&type=section&id=Business%20Segment%20Results%20of%20Operations) In Q2 FY2021, Healthcare revenue declined **3.0%**, while Applied Sterilization Technologies (AST) saw **10.9%** growth and Life Sciences achieved exceptional **17.2%** revenue increase with a **40.1%** operating margin Segment Revenue Performance (Q2 FY2021 vs Q2 FY2020, in thousands) | Segment | Q2 2020 Revenue | Q2 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Healthcare | $470,927 | $485,283 | (3.0)% | | Applied Sterilization Technologies | $169,547 | $152,907 | 10.9% | | Life Sciences | $115,658 | $98,650 | 17.2% | Segment Operating Income & Margin (Q2 FY2021 vs Q2 FY2020, in thousands) | Segment | Q2 2020 Op. Income | Q2 2020 Margin | Q2 2019 Op. Income | Q2 2019 Margin | | :--- | :--- | :--- | :--- | :--- | | Healthcare | $104,796 | 22.3% | $103,035 | 21.2% | | Applied Sterilization Technologies | $76,835 | 45.3% | $65,386 | 42.8% | | Life Sciences | $46,433 | 40.1% | $32,315 | 32.8% | [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity, with net cash from operations increasing to **$296.1 million** and free cash flow to **$185.6 million** for the first six months of fiscal 2021, improving the debt-to-total capital ratio to **21.9%** Key Liquidity Metrics (Six Months Ended Sep 30, in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $296,073 | $260,000 | | Free cash flow | $185,602 | $162,038 | | Debt-to-total capital ratio | 21.9% | 26.9% | - The increase in operating cash flow was primarily due to working capital improvements and deferred tax payments under government COVID-19 relief programs[202](index=202&type=chunk) - To fund the acquisition of Key Surgical, the company has obtained a **$550.0 million** term loan commitment[209](index=209&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposures, including interest rate, currency, and commodity risks, have not materially changed since March 31, 2020, though new forward currency contracts for hedging non-U.S. dollar earnings may introduce volatility - The company's market risk exposures have not changed materially since the fiscal year-end 2020[218](index=218&type=chunk) - In Q2 FY2021, the company began using forward currency contracts to hedge earnings denominated in euros, Mexican pesos, and Canadian dollars. Hedge accounting was not elected, which could cause earnings volatility due to the timing of recognizing gains/losses[219](index=219&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[221](index=221&type=chunk) - No material changes were made to the internal control over financial reporting during the quarter ended September 30, 2020[222](index=222&type=chunk) Part II—Other Information [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings and claims arising in the ordinary course of business, for which management believes adequate reserves have been established, expecting no material adverse effect on financial position or results - The company is involved in a number of legal proceedings, government investigations, and claims arising in the normal course of business[70](index=70&type=chunk) - Management believes that adequate reserves have been established and that the ultimate outcome of pending litigation will not have a material adverse effect on the company's financial position or results[71](index=71&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive discussion of risk factors included in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020, indicating no material changes to those risks - The report directs readers to the risk factors detailed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2020[226](index=226&type=chunk) [Share Repurchases and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) As of September 30, 2020, approximately **$333.9 million** remained available under the share repurchase program, though repurchases were suspended on April 9, 2020, due to COVID-19 uncertainty, with no shares repurchased in Q2 FY2021 - As of September 30, 2020, approximately **$333.9 million** remained available under the Board-authorized share repurchase program[228](index=228&type=chunk) - Share repurchases were suspended on April 9, 2020, due to uncertainty related to the COVID-19 pandemic[229](index=229&type=chunk) - No shares were repurchased under the publicly announced plan during the three months ended September 30, 2020[231](index=231&type=chunk) [Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the purchase agreement for Key Surgical, officer certifications, and interactive data files (Inline XBRL) - Key exhibits filed include the Purchase Agreement for Key Surgical, LLC, and certifications from the Principal Executive Officer and Principal Financial Officer[233](index=233&type=chunk)

Financial Data and Key Metrics Changes - Net sales decreased by 2.5% year-over-year in Q4 2020, with a negative 2.7% change on a constant currency basis [20] - GAAP operating profit decreased by 51.2% year-over-year to $7.2 million, while non-GAAP operating profit decreased by 31% year-over-year to $26.5 million [23] - GAAP earnings per share decreased by 125.5% year-over-year to negative $0.05, while non-GAAP earnings per share decreased by 62.6% year-over-year to $0.24 [25] - Adjusted EBITDAS was $37.9 million, down 19.6% year-over-year [25] - Cash flow from operations for the quarter was $44 million, an increase of 138.7% year-over-year, ending the year with $277.9 million in cash [26] Business Line Data and Key Metrics Changes - Life Sciences segment grew by 0.7%, while Dialysis segment remained relatively flat during the pandemic [20] - Dental segment grew by 59% on a reported basis due to the acquisition of Hu-Friedy but declined by 20.6% on an organic basis due to COVID-related deferrals [21] - Medical segment decreased by 24.8% on an organic basis, driven by COVID-related procedural declines [21] Market Data and Key Metrics Changes - Procedures in both medical and dental sectors have improved to about 80% to 85% of pre-COVID levels [12] - Hospitals are operating at over 90% of pre-COVID levels, ASCs are close to 85%, and dental practices are around 80% to 85% of baseline [43] Company Strategy and Development Direction - The company is focused on infection prevention and control, which has become increasingly relevant due to COVID [10] - The integration of Hu-Friedy and initiatives related to Cantel 2.0 are ongoing, with a focus on enhancing sales and marketing strategies [11][50] - The company aims to gradually improve EBITDAS margin to over 19% by the end of fiscal year 2021 [14] Management's Comments on Operating Environment and Future Outlook - Management is optimistic about the long-term relevance of Cantel's offerings, despite the near-term impacts of COVID [15] - The company is not providing conventional financial guidance but is focused on managing operating expenses and profitability [13] - There is a commitment to pay down debt and maintain a strong balance sheet while navigating uncertainties in the market [31][109] Other Important Information - The company has invested in expanding mask production capacity, with plans to double capacity by adding eight new machines [48] - The company is targeting to pay down at least $125 million in fiscal year 2021 [31] Q&A Session Summary Question: What does the incremental capacity from new mask manufacturing represent in dollar amounts? - The incremental revenue opportunity from full capacity is estimated to be around $3 million to $4 million per quarter [67] Question: Why did the dental segment perform worse in Q4 compared to Q3? - The overall Q4 was more affected by COVID volume declines, despite April not being included in Q4 [70] Question: How does the company plan to track progress on Cantel 2.0? - The company is looking at revenue comparisons, new setups, and audits as key indicators of progress [84] Question: What is the outlook for free cash flow in the upcoming year? - There will be natural cash outflows due to investments in working capital and sequential expenses returning [91] Question: What are the expectations for restructuring and acquisition-related costs? - Most large acquisition costs are behind, but some restructuring costs will still be seen in Q1 [103] Question: What is the company's approach to M&A in the current environment? - The focus remains on Cantel 2.0 initiatives and debt reduction before pursuing new acquisitions [109]

Financial Performance Highlights - 4Q20 net sales were $233.4 million, a decrease of 2.5% compared to 4Q19[7] - FY20 net sales were $1016.0 million, an increase of 10.7% compared to FY19[11] - 4Q20 GAAP EPS was $(0.05), compared to $0.21 in 4Q19[9] - FY20 GAAP EPS was $0.40, compared to $1.32 in FY19[12] - 4Q20 Non-GAAP EPS was $0.24, compared to $0.63 in 4Q19[9] - FY20 Non-GAAP EPS was $1.65, compared to $2.37 in FY19[12] Segment Performance (FY20) - Medical segment net sales were $468.1 million, a decrease of 10.6%[40] - Life Sciences segment net sales were $195.4 million, an increase of 0.2%[43] - Dental segment net sales were $322.4 million, an increase of 92.3%[46] - Dialysis segment net sales were $30.2 million, a decrease of 5.3%[49] Balance Sheet and Debt - Cash and cash equivalents totaled $277.9 million as of July 31, 2020[28] - Net debt was $835.5 million as of July 31, 2020[35] - Net debt to adjusted EBITDAS was 4.7x[37]