STERIS plc

Good morning and welcome to the Staris PLC second quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Julie Winter, Investor Relations. Please go ahead.

Thank you, Grant, and good morning, everyone. As usual, speaking on today's call will be Mike Tukich, our Senior Vice President and CFO, as well as Dan Correstio, our President and CEO. I do have a few words of caution before we open for comments. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission, or rebroadcast of this call without the express written consent of Steris is strictly prohibited. Some of the statements made during this review are, or may be considered, forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those risk factors described in Steris's securities filing. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments. Staris' SEC filings are available through the company and on our website. In addition, on today's call, non-GAAP financial measures, including adjusted earnings per diluted share, adjusted operating income, constant currency organic revenue growth, and free cash flow will be used. Additional information regarding these measures including definitions, is available in today's release, as well as reconciliations between GAAP and non-GAAP financial measures. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision making. With those cautions, I will hand the call over to Mike.

Thank you, Julie, and good morning, everyone. It is once again my pleasure to be with you this morning to review the highlights of our second quarter performance. For the quarter, constant currency organic revenue increased 12% with growth across all segments. Growth was driven by organic volume as well as 130 basis points of price. Acquisitions total added $346 million to revenue in the second quarter, which is broken down by segment in the press release tables. To assist you with your modeling, I will share some color on the acquisition revenue contribution within the healthcare segment. Of the approximately $220 million in acquired revenue, about 65% is consumable revenue from both Key and Cantel Medical. About 20% of the balance is capital equipment revenue, with the last 15% being service revenue. We will not be breaking that down any further, as it is already difficult to differentiate some product lines as we are integrating the businesses quickly, and that challenge will only increase with each passing quarter. Gross margin for the quarter increased 120 basis points compared to the prior year to 46.2%, as favorable productivity, pricing, and acquisitions were somewhat offset by higher material and labor costs. Combined, material and labor costs were about $10 million in the quarter, significantly higher than we were expecting. As we look at the second half of the fiscal year, we anticipate that higher material and labor costs will continue to impact gross margin by approximately $20 million or more. EBIT margin for the quarter was 23.3% of revenue, an increase of 80 basis points from the second quarter of last year. As anticipated, we are starting to see some operating expenses, such as travel and sales and marketing costs return, somewhat limiting EBIT margin growth. The adjusted effective tax rate in the quarter was 22%, higher than last year, but in line with our expectations for the full fiscal year. That income in the quarter increased to $200.3 million and earnings per share were $1.99. Our balance sheet continues to be a source of strength for the company. Our leverage ratio at the end of the second quarter is now below 2.8 times. As a reminder, we cash settled all of Cantel's convertible notes during the second quarter. The total cash settlement value was approximately $371.4 million. At the end of the quarter, cash totaled $383.5 million. During the first half, capital expenditures totaled $133.4 million, while depreciation amortization was $201.7 million, reflecting recent acquisitions. Pre-cash flow for the first half was $135.8 million. As anticipated, this is a decline from last year due to costs associated with the acquisition and integration of Cantel Medical and slightly higher capital spending year over year. With that, I will now turn the call over to Dan for his remarks.