Good morning, everyone, and welcome to the STERIS plc Fourth Quarter 2025 Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the floor 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 Tokich, our Senior Vice President and CFO; and Dan Carestio, 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 expressed 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' 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. STERIS' 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 our 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 fourth quarter performance from continuing operations. For the fourth quarter, total as reported revenue grew 4%, constant currency organic revenue grew 6% in the quarter, driven by volume as well as 210 basis points of price. Gross margin for the quarter increased 170 basis points compared with the prior year to 44.3%. Positive price, favorable mix and productivity outpaced labor inflation. EBIT margin increased 110 basis points to 24.8% of revenue compared with last year. The adjusted effective tax rate in the quarter was 23.5%. The year-over-year increase was driven by unfavorable discrete item adjustments. Net income from continuing operations in the quarter was $270 million, adjusted earnings per diluted share from continuing operations was $2.74, a 40% increase over the prior year. We are pleased with our ability to grow earnings double digits all year with lower interest expense following the divestiture of the Dental segment. Capital expenditures for fiscal 2025 totaled $370 million, while depreciation and amortization totaled $476 million. We continue to pay down debt during the quarter, ending with $2 billion in total debt. Gross debt to EBITDA at quarter end was approximately 1.4x. Free cash flow for fiscal 2025 was a record $787 million, well above our full year guidance, driven by significant working capital improvements, in particular, inventory. With that, I'll turn the call over to Dan for his remarks.

Thanks, Mike, and good morning, everyone. Thank you for joining us to hear more about our fiscal 2025 performance and our outlook for fiscal 2026. Mike covered the quarter, so I will touch on our performance for the full year and our outlook for fiscal 2026. From a total company perspective, we ended the year with 6% revenue growth and 12% earnings growth. The diversified nature of our business allowed us to deliver results in line with our original outlook despite a few obstacles during the year. Looking at our segments, Healthcare constant currency organic revenue grew 6% for the year, led by strong recurring revenue streams. Our outperformance in consumables and services continues to be driven by procedure volumes in the U.S. as well as price and market share gains. Healthcare capital equipment revenue declined 5% for the year against our record year last year. Capital equipment orders grew over 12% for the full year as underlying demand remained strong. Margins improved nicely in Healthcare, hitting the 25% mark for the year, with volume, pricing and positive productivity offsetting labor inflation. Towards the end of the year, we also began to benefit from the restructuring cost savings, capturing approximately $5 million in savings in the fourth quarter of fiscal 2025. Turning to AST. Constant currency organic revenue grew 9% for the year with 7% growth in services. Med device customers remained stable, while bioprocessing was a bit lumpy during the year. Capital equipment shipments more than doubled compared to the prior year and exceeded our expectations. EBIT margins for AST were 44.8%, down slightly year-over-year as we continue to face energy and labor headwinds and had a negative mix shift from capital equipment shipments. Constant currency organic revenue increased 1% for Life Sciences for the full year, driven once again by strong growth in consumables and services, offset by a decline in capital equipment revenue. Margins increased to 42.3%, a 360 basis point improvement, benefiting from favorable mix, pricing and the divestiture of the CECS business. From an earnings perspective, we ended the year strong and exceeded our revised outlook with adjusted EPS of $9.22. The upside to our estimates was driven by lower corporate spending and improved profitability in both Healthcare and the Life Science segments. Turning to our outlook for fiscal 2026. As noted in the press release, we anticipate as reported revenue from continuing operations to grow 6% to 7% in fiscal 2026. We do not have any acquisition or divestiture impacts heading into the new fiscal year, and changes in foreign currency are expected to be neutral to STERIS. As a result, constant currency organic revenue growth is also expected to grow 6% to 7%. Included in this outlook is approximately 200 basis points of price. Each segment is expected to grow revenue in the range of 6% to 7% for fiscal 2026. One minor note on AST revenue growth, our outlook reflects high single-digit growth in services revenue, which will be somewhat offset by a decline in capital equipment to get to the 6% to 7% growth total for the year. As you saw in the press release, we have estimated the impact for tariffs for fiscal 2026, which are reflected in our outlook. We manufacture a significant number of products in North America for use in the U.S., with about 85% of the products sold in the U.S. coming from North American manufacturing. This significantly reduces our tariff exposure compared to many others, but we are not immune to the impact of tariffs. Our fiscal 2026 outlook of $9.90 to $10.15 includes $30 million of tariff costs. The EPS range implies 7% to 10% growth in earnings, including tariffs, which is impressive performance. I want to take a moment to thank our supply chain and commercial teams for all their efforts on this front. The anticipated tariff impact is a net number. We do expect to leverage the strength of STERIS to mitigate some of our exposure. The $30 million estimate is based on global tariffs currently in effect, including the 10% global tariff and the recently announced 90-day trade deal with China. For your modeling purposes, at the high end of our earnings range, we would expect EBIT margins to increase approximately 20 basis points, reflecting our ability to offset tariffs. The effective tax rate is planned at approximately 23.5%. As we enter into the new fiscal year, we are well positioned to deliver both top and bottom line growth in 2026. That concludes our prepared remarks for the call. Julie, would you please give the instructions so that we can begin the Q&A.

Thank you, Mike and Dan, for your comments. Jamie, can you please give the instructions for Q&A and we'll get started.

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. And our first question today comes from Dave Turkaly from Citizens.

Congrats on the quarter and the year. I guess, when we look at the segments, the biggest implied delta is then at LifeSci. And I was just curious to get some color on your comfort in that kind of bouncing back to that 6% to 7% range.

Yes. We did extremely well this year in our recurring revenues, especially our chemistries and consumables business and we would expect that to continue. Where we were down significantly was obviously capital equipment with a lot of uncertainty in pharma, the orders just dried up in the first half of the year. However, we saw a really strong rebound late in the year, and we are coming into fiscal 2026 with a pretty good backlog at a pretty good rate of orders. So we're confident that we'll be able to deliver the bulk of those in the fiscal 2026 and continue on with the growth that we've seen historically within our consumables business.

Great. One quick follow-up. It seems like the tariff impact might be, I don't know, $0.24 or something like that on the EPS line, yet you're still getting into double-digit range at the high end. I guess if you could just talk about some of the puts and takes, maybe even on the interest expense. I know you delevered a bunch, but to get to that even despite the tariffs, just maybe some color there.

Yes, Dave, this is Mike. So as normal, there's quite a bit of headwinds or tailwinds or puts and takes. First and foremost, we are going to benefit from about $20 million of restructuring cost savings that will be in FY '26. So that's a good guide. In addition to that, we do not anticipate spending $20-plus million in ETO litigation. We anticipate spending about $5 million. So there's $15 million to the good also. But offsetting that is incentive comp getting back to 100% bonus. That is a negative $15 million. Obviously, the tariffs are another negative $15 million. And then if you look at our lower interest expense is really going to offset our higher tax rate. So that's just a reconciliation for FY '26 or the puts and takes.

Our next question comes from Mike Matson from Needham & Company.

Yes. So just your cash flow guidance is a little bit down from '25. I know you called out the working capital improvement you saw in '25. I mean is that the main kind of differential between the two years?

The big thing, Mike, is we anticipate paying $40 million legal settlement for ETO, which is in FY '26. So that's going to negatively impact cash by $40 million. And of course, we are not anticipating to overachieve or reduce inventory as dramatically as we had in FY '25. But the big difference is the ETO legal fees, plus the impact of tariffs will negatively impact free cash flow also.

Okay. Got it. And then just your leverage ratio is down quite a bit. So just maybe you can give us an update on M&A. I'd expected you'd probably be looking to do some more deals if you can find things, but...

Yes, this is Dan. I would say that we have the capacity, both financially and intellectually, to pursue opportunities now that we haven't engaged in any significant mergers and acquisitions for a few years. So if the right opportunity arises, we will be ready to participate.

Our next question comes from Patrick Wood from Morgan Stanley.

Just a couple of quick questions. Although it might be too soon to tell, how have discussions with customers been regarding the possibility of bringing production back to the U.S.? I know some outsourced contract manufacturers have experienced a significant increase in inquiries about relocating production. I'm curious if you believe this is something likely to occur or if it's just a nice talking point in a McKinsey presentation.

It's probably the latter. But I do think there are some opportunities. I assume you're talking about med tech in particular, but I do think there are some opportunities. Many of those large companies have manufacturing for local regions. And to the extent that they may be manufacturing in Europe for the U.S. and they have U.S.-based manufacturing for similar products, you may see some shift of volumes going east or west depending on the benefit that they can do in terms of tariff and how easy it is to do it. Keep in mind, highly regulated industry, it's not easy to move production volumes if they don't have all the regulatory permits and things like that. So it takes time. But there'll be some fluidity to it, I'm sure.

That's great. Regarding the M&A aspect, what are you hearing from the smaller players about compliance costs and related issues? Is there a scenario where, despite the tight EO capacity, they might have to sell themselves to you or your competitors? How do you view industry consolidation in light of these one-off costs?

I mean, in a general sense, I do think there'll be some industry consolidation, but we'd be in a much better position, greenfielding than we would be buying assets that are 30-plus years old.

I mean I'm 40, so I take offense to that.

Well, you've been compliant your whole life.

That's definitely not true.

Our next question comes from Mac Etoch from Stephens, Inc.

I'll add my congrats on the quarter and the year as well. Maybe just touching on the outlook for FY '26. As you commented on AST kind of coming in line with the 6% to 7% growth for the year, low single digits for capital equipment, high single digits for services. But can you flesh out what you're seeing within the respective customer bases there? I think there's a little bit of a delta between what maybe I and the Street were expecting versus your internal expectations. So if you could just provide us a little color there, that would be great.

Yes. I think what we're doing here is we've seen a lot of just movement month-to-month, quarter-to-quarter in terms of volume. It has started to sort of modulate down. But our view is let's take a little more conservative approach on how aggressively some of the bioprocessing is going to recover and also as customers reassess where they're manufacturing and if there is any movement going on and what implications that may have on total volume.

Got it. Given the current macroeconomic situation and general policies, how are discussions with clients progressing? Have there been any changes in behaviors related to Life Sciences or the AST segment?

Nothing that I would point to. There's a number of discussions, but I can't say there's anything concrete.

Our next question comes from Michael Polark from Wolfe Research.

Maybe two on Healthcare. The first one, the allusion to market share gains driving growth in the fiscal year and quarter. I know we've talked about this before, but is there any service or business line that really stands out to you there as to STERIS doing way better than market? If so, what is it? And what's going right?

Honestly, I would say it's just across the entire segment right now. Our teams are doing a phenomenal job, particularly in the North American markets. We have built an excellent portfolio and enterprise solution for large systems focused on sterile processing and the associated services, which is contributing to our ongoing success.

And for the fiscal year ahead, 6% to 7% growth for the Healthcare segment, would you call out any expected variances between how consumables, services and equipment should grow in '26?

No, we're not going to provide that level of detail. However, I want to emphasize that we had a strong year in terms of orders, which is promising for our backlog as we head into next year. Therefore, we remain optimistic about that.

Our next question comes from Jason Bednar from Piper Sandler.

It was a strong finish to the year. I wanted to take a moment to discuss tariffs, which are a significant topic for all companies this quarter. Could you provide a breakdown of what the $30 million looks like across your network? I recall seeing that figure in the press release. Mike, I believe you mentioned something earlier about $15 million, so I'd like to confirm that it's actually $30 million net. Additionally, could you clarify how much of your exposure is related to China tariffs compared to non-China tariffs? This information would be helpful for us as we consider future updates on tariffs.

I mean, this is Dan. I'll let Mike add to this. But at a high level, it's about half from China and half related to the 10% global tariff, totaling approximately $30 million.

No more to add on that.

I think you mentioned that the $30 million is a net figure. Are you factoring in any mitigation actions in that amount? What does the timing of those actions look like for fiscal '26? Also, I noticed that share repurchases were lower in the fourth quarter compared to earlier quarters, and the stock has remained at a similar level for a while, significantly below its peak. Can you discuss the reasoning behind pausing some of that activity? Should we infer anything from that pause?

Yes. In general, we purchased approximately $200 million of shares during fiscal year '25, and we acquired them earlier in the year compared to the previous year. There’s no indication that we're compelled to do so. This amount is nearly double what we usually buy just to counteract dilution. Given our current debt levels and ratios, we would definitely consider additional share buybacks beyond just addressing dilution in the future.

Sorry, on the mitigation activity on tariffs?

Yes. The $30 million is a net number, Jason. So it's significantly higher than that. Obviously, there's a lot to be done to mitigate. Timing is always the question. Obviously, our supply chain guys and girls are working very hard to offset as much as possible. But yes, it's a net number of $30 million, and we anticipate that, that will hit us about equally throughout the calendar year.

Yes. I would just add to that. With the 90-day pause or sort of redirect on the China tariffs, it gives us an opportunity to be much more strategic and thoughtful in terms of anything that we're changing as it relates to either vendors or manufacturing location or supply. So I would expect more weight on the back end.

And also, I don't think we've said there's more weight on healthcare that primarily will be impacting the Healthcare segment with a little bit in Life Sciences.

And very, very little, if any, in AST.

Our next question comes from Brett Fishbin from KeyBanc.

Just wanted to ask another question on Healthcare capital equipment. It sounds like you're not trying to give specific guidance on growth, but maybe just talk a little bit more about the capital equipment backdrop. You're exiting the year with some growth in the backlog, but really just curious how like some of the recent macro developments have impacted like either ordering patterns or like hospitals' willingness to do implementations versus like any deferrals you may be seeing?

We've talked about this a lot in the past, and that is the capital equipment that we offer is really more of a utility than a luxury item. If you're going to see procedural growth and migration of procedures in different places, you can't accommodate that growth without having sterile processing capacity or surgical suites. So at times when it may impact replacement business, if those things can be deferred, it doesn't really impact the new equipment in terms of going into expansions. So we had a great order year last year, growing orders 12%. We've got our backlog into a very comfortable position. We haven't seen anything at this point that would indicate that, that's slowing for us and in fact, had really good volume in terms of orders going into Q1. So we're excited about the opportunity there.

And then just as a follow-up, I'm going to switch gears a little bit to AST. I think it was a pretty good sequential progression in FY '25 from an AST growth standpoint. Just looking at FY '26, for services, it sounds like high single digits is kind of the starting point. I'm just curious if like demand were to be higher than expected, do you have enough capacity to theoretically return to double-digit growth in AST service? Or is capacity starting to become like a little bit of a limiting factor?

Sure. It's not a governor for us right now. We are well positioned to accommodate the industry's growth.

And our next question is a follow-up from Michael Polark from Wolfe Research.

Just one more also on AST. As you reflect on fiscal '25 in the services line, the December quarter was up 10%, March quarter up 6%. Dan, it sounds like bioprocess is a little lumpy. Is that the gyration or anything else to kind of spike out on the phasing of the last 12 months that makes more sense to you? My one other idea is any evidence that there was kind of front-loading of inventory building ahead of the Trump tariff era in the December quarter? Could that have been an influence in that period? Any other color would be great.

We did not see any front-loading of tariffs, and I believe that may be giving the industry too much credit for anticipating it. We experienced a fantastic December with strong year-over-year comparisons, but then saw a significant drop in customer activity during the first week of January. The restart of plant operations was unusually slow this year, and we had one day less in February for processing. However, we did experience good growth in the latter half of February and throughout March. Overall, those factors affected the quarter, but I don't think there was anything beyond that.

And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Thank you, everybody, for taking the time to join us this morning. We look forward to catching up with many of you in the coming weeks.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.