STERIS plc

Good morning everyone and welcome to the Staris plc second quarter 2023 conference call all participants will be in a 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 and then one to withdraw your questions you may press star and two please also note today's event is being recorded At this time, I'd like to turn the conference call over to Julie Winter, Investor Relations. Ma'am, please go ahead.

Thank you, Jamie, and good morning, everyone. As usual, speaking on today's call will be Mike Tookett, our Senior Vice President and CFO, and Dan Crestio, our President and CEO. And I do have a few words of caution before we open for camera. 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 our securities filings. 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 yesterday's release, also including 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. 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 7 percent, driven by volume, as well as 290 basis points of price. As anticipated, the divestiture of the renal care business impacted our comparisons to the prior year by about $45 million, as detailed in the press release tables. Our year-over-year growth rates will be impacted by this divestiture for one more quarter. The integration of Cantel Medical continues to go well. We achieved approximately $15 million of cost synergies in the second quarter, bringing our first half total to about $35 million. We are on track to achieve our stated goal of approximately $50 million in fiscal year 2023. As anticipated, gross margin for the quarter decreased 140 basis points compared with the prior year to 44.8%, as pricing, currency, and the favorable impact from the divestiture of renal care were more than offset by lower productivity and higher material and labor costs. Material labor costs continued to be a headwind and totaled about $30 million in the quarter. Despite the decline in gross margin, EBIT margin increased 50 basis points to 23.8% of revenue, compared with the second quarter of last year, which reflects the benefit of realized cost synergies from the Cantel integration, currency impact, and lower-than-anticipated SG&A expenses driven by disciplined cost management and reduced incentive compensation. The adjusted effective tax rate in the quarter was 22.8%. Net income in the quarter increased to $200 million, and earnings were $1.99 per diluted share. You will notice that we reported a loss on a gap basis in the quarter. At the time of the Cantel acquisition, we determined the fair value of the dental segment based on projected cash flows discounted at rates reflecting market costs of capital and market EBITDA multiples. Macroeconomic conditions, including rising interest rates, inflationary pressures on material labor costs, and uncertainty regarding the impact of such economic strains may have on patient and customer behavior in the short term triggered an interim assessment of goodwill in the quarter. Advised cash flow projections and a current market weighted average cost of capital resulted in an estimated fair value of the dental segment below its carrying value. Therefore, we recorded a $490.6 million non-cash impairment charge related to the goodwill associated with the dental segment. Our long-term outlook for the dental segment is unchanged, and we continue to see significant growth opportunities in the dental space for Steris. Capital expenditures in the first half of the fiscal year totaled $198.7 million in while depreciation and amortization totaled $272.7 million. Year-to-date, our capital expenditures have been higher than anticipated, primarily driven by the timing of investments in the AST segment. We still expect our full-year capital expenditures to be approximately $330 million. Free cash flow for the first half of the year was $138.2 million. Free cash flow was limited by higher than planned capital spending mainly due to timing, and higher than planned levels of inventory. We do not anticipate the same level of spend in the second half of the fiscal year for either, which will contribute to a significant step up in free cash flow. All in, we now anticipate that free cash flow for the full year will be about $600 million, or a reduction of $75 million from our original guidance. I will now turn the call over to Dan for his remarks.