STERIS(STE) - 2026 Q1 - Quarterly Report

Part I—Financial Information Financial Statements STERIS reported Q1 FY2026 revenues of $1,391.1 million, an 8.7% increase, with net income of $177.4 million and $420.0 million in operating cash flow Note 1: Nature of Operations and Accounting Policies STERIS operates in Healthcare, AST, and Life Sciences segments; the Dental segment was divested and is now discontinued operations - The company operates in three reportable business segments: Healthcare, Applied Sterilization Technologies (AST), and Life Sciences[23] - The Dental segment was divested and its results are now presented as discontinued operations, with historical information retrospectively adjusted[23][28][32] - As of June 30, 2025, the company had remaining performance obligations of approximately $1,824.0 million, with about 53% expected to be recognized as revenue within one year[36] Note 2: Restructuring STERIS initiated a restructuring plan in May 2024, recording $1.8 million in Q1 FY2026 expenses, down from $28.1 million prior year - A targeted restructuring plan was adopted in May 2024, which included a strategic shift in the European Healthcare surgical business and eliminated approximately 300 positions[39] Restructuring Expenses (Q1 FY2026 vs Q1 FY2025) | Expense Category | Q1 2025 (Millions) | Q1 2024 (Millions) | | :--- | :--- | :--- | | Severance and other compensation | $1.7 M | $21.5 M | | Lease and other contract termination | $0.0 M | $3.0 M | | Product rationalization | $0.0 M | $2.4 M | | Accelerated depreciation | $0.1 M | $1.3 M | | Total Restructuring Expense | $1.8 M | $28.1 M | Note 3: Business Acquisitions and Divestitures STERIS completed a $15.0 million Healthcare acquisition in Q1 FY2026 and divested its Dental segment and Controlled Environment Certification Services business - Completed a tuck-in acquisition in the Healthcare segment for approximately $15.0 million during Q1 FY2026[44] - On May 31, 2024, the company closed the sale of its Dental segment for cash consideration of $787.5 million, plus potential contingent payments. The results are presented as discontinued operations[47][49] - Completed the sale of the Controlled Environment Certification Services business on April 1, 2024, recognizing a pre-tax gain of $18.8 million in Q1 FY2025[47] Note 4: Discontinued Operations The divested Dental segment, now a discontinued operation, generated $63.9 million revenue and $5.6 million net income in Q1 FY2025 Dental Segment Discontinued Operations (Three Months Ended June 30, 2024) | Metric | Amount (Millions) | | :--- | :--- | | Revenues | $63.9 M | | Gross Profit | $28.8 M | | Income from Operations | $15.0 M | | Pre-tax loss on sale | $(7.8) M | | Income from discontinued operations, net of tax | $5.6 M | Note 7: Debt Total debt decreased to $1,903.1 million by June 30, 2025, primarily due to $125.0 million in note repayments Total Debt Composition | Debt Category | June 30, 2025 (Millions) | March 31, 2025 (Millions) | | :--- | :--- | :--- | | Short-term debt | $0.0 M | $125.0 M | | Long-term debt | $1,903.1 M | $1,918.7 M | | Total debt | $1,903.1 M | $2,043.7 M | Note 9: Income Taxes Q1 FY2026 effective tax rate rose to 23.3% from 20.1% due to profit mix and discrete items, with OBBBA impact under assessment - The effective tax rate for Q1 FY2026 was 23.3%, compared to 20.1% for Q1 FY2025, with the increase driven by geographic profit mix and discrete items[65] - The U.S. enacted the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which contains substantial tax policy changes. The company is currently assessing its impact[63] Note 10: Commitments and Contingencies STERIS settled substantially all Illinois Ethylene Oxide litigation claims for up to $48.2 million, with remaining liability in accrued expenses - Entered into settlement agreements to resolve substantially all Illinois EO litigation claims for up to $48.2 million. The remaining liability is recorded in 'Accrued expenses and other'[77][78] Note 11: Business Segment Information All three segments, Healthcare, AST, and Life Sciences, reported revenue growth in Q1 FY2026, with AST leading at 12.6% Segment Revenues (Q1 FY2026 vs Q1 FY2025) | Segment | Q1 2025 Revenues (Millions) | Q1 2024 Revenues (Millions) | YoY Change | | :--- | :--- | :--- | :--- | | Healthcare | $974.7 M | $901.2 M | +8.2% | | AST | $281.2 M | $249.8 M | +12.6% | | Life Sciences | $135.2 M | $128.5 M | +5.2% | | Total | $1,391.1 M | $1,279.5 M | +8.7% | Segment Income from Operations Before Adjustments (Q1 FY2026 vs Q1 FY2025) | Segment | Q1 2025 Income (Millions) | Q1 2024 Income (Millions) | | :--- | :--- | :--- | | Healthcare | $235.5 M | $216.9 M | | AST | $136.7 M | $117.7 M | | Life Sciences | $58.7 M | $52.6 M | Revenues by Type (Q1 FY2026 vs Q1 FY2025) | Revenue Type | Q1 2025 (Millions) | Q1 2024 (Millions) | | :--- | :--- | :--- | | Capital equipment | $255.5 M | $242.2 M | | Consumables | $435.0 M | $414.1 M | | Service | $700.6 M | $623.2 M | | Total Revenues | $1,391.1 M | $1,279.5 M | Note 13: Share Repurchases As of June 30, 2025, $300.0 million remained available under the share repurchase program, with no program repurchases in Q1 FY2026 - As of June 30, 2025, $300.0 million remained available under the Board-authorized share repurchase program[99] - No shares were repurchased under the program during the first three months of fiscal 2026. However, 0.1 million shares were obtained for $10.6 million in connection with share-based compensation programs[101][102] Consolidated Statement of Income Highlights (Q1 FY2026 vs Q1 FY2025) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,391.1 M | $1,279.5 M | +8.7% | | Gross Profit | $628.0 M | $572.4 M | +9.7% | | Income from Operations | $246.0 M | $185.5 M | +32.6% | | Net Income Attributable to Shareholders | $177.4 M | $145.4 M | +22.0% | | Diluted EPS (Total) | $1.79 | $1.46 | +22.6% | | Cash Dividends per Share | $0.57 | $0.52 | +9.6% | Consolidated Balance Sheet Highlights (as of June 30, 2025) | Metric | June 30, 2025 (Millions) | March 31, 2025 (Millions) | | :--- | :--- | :--- | | Total Assets | $10,405.0 M | $10,146.8 M | | Cash and cash equivalents | $279.7 M | $171.7 M | | Goodwill | $4,223.1 M | $4,095.7 M | | Total Liabilities | $3,435.1 M | $3,531.0 M | | Total Debt (Short & Long-term) | $1,903.1 M | $2,043.7 M | | Total Equity | $6,969.9 M | $6,615.8 M | Consolidated Cash Flow Highlights (Q1 FY2026 vs Q1 FY2025) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $420.0 M | $303.7 M | | Net cash (used in) provided by investing activities | $(108.5) M | $687.8 M | | Net cash used in financing activities | $(213.1) M | $(998.9) M | | Increase (decrease) in cash | $108.0 M | $(8.7) M | Management's Discussion and Analysis (MD&A) Q1 FY2026 revenue grew 8.7% due to volume and pricing, gross profit margin improved to 45.1%, and free cash flow increased to $326.5 million Results of Operations Q1 FY2026 total revenues increased 8.7% to $1,391.1 million, with gross profit margin expanding to 45.1% and operating income rising 32.6% Revenue Growth by Type and Geography (Q1 FY2026) | Category | YoY Change | | :--- | :--- | | By Type | | | Service revenues | +12.4% | | Consumable revenues | +5.0% | | Capital equipment revenues | +5.5% | | By Geography | | | United States | +8.3% | | Other foreign | +10.5% | - Gross profit margin increased to 45.1% from 44.7% due to favorable pricing (+130 bps) and productivity (+70 bps), partially offset by inflation (-80 bps) and tariff costs (-70 bps)[165] - Total operating expenses decreased by 1.3%, mainly because restructuring expenses fell to $1.8 million from $25.7 million in the prior-year quarter[166] - Interest expense decreased by $14.5 million YoY due to lower outstanding debt principal[171][172] Business Segment Results All segments reported revenue growth in Q1 FY2026, with AST leading at 12.6% and achieving the highest operating margin of 48.6% Segment Performance (Q1 FY2026) | Segment | Revenue Growth (As Reported) | Constant Currency Organic Growth | Operating Margin | | :--- | :--- | :--- | :--- | | Healthcare | 8.2% | 7.6% | 24.2% | | AST | 12.6% | 10.2% | 48.6% | | Life Sciences | 5.2% | 4.2% | 43.5% | - The Healthcare segment's backlog increased to $403.5 million from $362.0 million a year ago[186] - The Life Sciences segment's backlog grew significantly to $111.0 million from $72.2 million a year ago[189] Liquidity and Capital Resources Q1 FY2026 operating cash flow increased to $420.0 million, free cash flow rose to $326.5 million, and the debt-to-total capital ratio improved to 21.5% Key Liquidity Metrics | Metric | Q1 FY2026 (Millions) | Q1 FY2025 (Millions) | | :--- | :--- | :--- | | Net cash from operating activities | $420.0 M | $303.7 M | | Free cash flow | $326.5 M | $195.7 M | | Debt-to-total capital ratio (end of period) | 21.5% | 26.7% | - Financing activities included a $125.0 million repayment of Private Placement Senior Notes and $56.2 million in cash dividends paid to shareholders[196][203] Market Risk Disclosures Market risk exposures, including interest rate, currency, and commodity risks, remained materially unchanged since March 31, 2025 - Exposures to market risks have not changed materially since the fiscal year-end (March 31, 2025)[217] - As of June 30, 2025, the company held foreign currency forward contracts to manage currency risk and commodity swap contracts to hedge the price of 0.4 million pounds of nickel[219][220] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[221] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[222] Part II—Other Information Legal Proceedings Legal proceedings information, including the Illinois Ethylene Oxide litigation settlement, is detailed in Note 10 of the financial statements - Information on legal proceedings is provided in Note 10 to the consolidated financial statements, titled "Commitments and Contingencies"[225] Risk Factors No material changes to risk factors were reported since the Annual Report on Form 10-K for the fiscal year ended March 31, 2025 - The company's risk factors are detailed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2025[226] Issuer Purchases of Equity Securities As of June 30, 2025, $300.0 million remained for share repurchases, with no program repurchases in Q1 FY2026, though shares were obtained for compensation - The company's share repurchase program, authorized on May 3, 2023, has $300.0 million remaining as of June 30, 2025[227] - No shares were repurchased under the publicly announced plan during the first quarter of fiscal 2026[228][229]