STERIS(US:STE)2021-08-10 17:28Financial Data and Key Metrics Changes - For Q1 2022, constant currency organic revenue increased by 21%, driven by organic volume and a 130 basis point price increase [7] - Gross margin increased by 220 basis points to 46.6%, influenced by favorable productivity and pricing, although offset by negative foreign currency and inflation [8] - EBIT margin was 22.9%, up 130 basis points from the previous year, with net income rising to $159.9 million and earnings at $1.76 per diluted share [9] Business Line Data and Key Metrics Changes - The Healthcare segment contributed approximately $96 million in acquired revenue, with 70% from consumables, 20% from capital equipment, and 10% from service revenue [7] - The Dental segment is performing in line with expectations, showing about 30% revenue growth year-over-year, while the AST segment is expected to account for approximately 18% of total company revenue [16][28] Market Data and Key Metrics Changes - The company reported a record capital backlog in the Healthcare segment, driven by strong demand in surgical and infection prevention [15] - There is ongoing strong demand for COVID-related products and bioprocess manufacturing disposables, contributing to revenue recovery across business lines [16] Company Strategy and Development Direction - The integration of Cantel Medical is progressing well, with a dedicated sales channel for endoscope reprocessing established and a new dental segment added [13] - The company expects to achieve $25 million in synergies for the fiscal year, with confidence in exceeding the long-term target of $110 million [14] Management's Comments on Operating Environment and Future Outlook - Management noted a faster-than-expected recovery in customer demand, particularly in the Healthcare and AST segments, leading to an upward revision of revenue guidance to $4.6 billion for fiscal 2022 [15] - There is caution regarding ongoing uncertainties related to procedure volumes and inflationary pressures, with expectations of increased operating expenses in the second half of the year [18] Other Important Information - Capital expenditures for the quarter totaled $56.4 million, with free cash flow at $41.2 million, reflecting a decline due to costs associated with the Cantel Medical acquisition [11] - The leverage ratio at the end of the quarter was below 2.9x, with lower debt and higher EBITDA than initially modeled [10] Q&A Session Summary Question: Trends in the AST business - Management indicated that growth in the AST business is driven by a rebound in elective procedures, with confidence in continued growth assuming no significant COVID-related disruptions [20] Question: Corporate cost line and EPS phasing - Corporate costs were noted to be higher than expected, with a potential increase moving forward, while EPS phasing remains largely unchanged [21][22] Question: Long-term growth CAGR for STERIS - Management aims for high single-digit to low double-digit growth consistently, with recent performance benefiting from a faster recovery in procedures [23] Question: Performance of the dental business - The dental segment is performing as expected, with AST currently outperforming due to strong demand [26][28] Question: Gross margin expectations - The current gross margin of 46.6% is considered a high watermark, with expectations of pressure from inflation on material costs [29] Question: Component availability issues - While there are some issues with component availability, they are not constraining the ability to meet customer demand [31]