Good day, and welcome to the STERIS plc First Quarter 2026 Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Julie Winters, Investor Relations. Please go ahead.

Thank you, Allen, and good morning, everyone. Speaking on today's call will be Mike Tokich, our Senior Vice President and CFO; and Dan Carestio, our President and CEO. And I do have a few words of caution before we open for comments from management. 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 first quarter performance from continuing operations. For the first quarter, total as reported revenue grew 9%. Constant currency organic revenue grew 8% in the quarter, driven by volume as well as 230 basis points of price. Gross margin for the quarter increased 20 basis points compared with the prior year to 45.3%. Positive price and productivity outpaced inflation and tariff costs. EBIT margin increased 50 basis points to 22.8% of revenue compared with the first quarter of last year due to the improvement in gross margin and operating expense leverage. The adjusted effective tax rate in the quarter was 23.5%. The year-over-year increase was driven primarily by geographic mix and changes in discrete item adjustments. Net income from continuing operations in the quarter was $231.2 million, adjusted earnings per diluted share from continuing operations was $2.34, a 15% improvement compared to the prior year. Capital expenditures for the first quarter of fiscal 2026 totaled $94 million and depreciation and amortization totaled $119 million. We continued to pay down debt during the quarter, ending with $1.9 billion in total debt. Gross debt to EBITDA at quarter end was 1.2x. Free cash flow for the first quarter of fiscal 2026 was $327 million, a very strong start to the fiscal year, driven by an increase in earnings and improvements in working capital. Last week, we announced our 20th consecutive year of dividend increases with a 10% increase to $0.63 per quarter as we continue to prioritize consistent dividend growth. Before I close, I'm sure that you all read last night's release regarding our CFO transition. I want to take a moment to thank all of you for your continued support over the last 17 years, actually 18 years if you count the time I served as interim CFO. The company has grown significantly during that time in terms of revenue and profitability, and being able to provide not only financial leadership, but also to provide strategic oversight throughout this significant period of growth has been a tremendous honor and accomplishment for me. STERIS is on solid financial footing and has a proven financial team in place, which makes now the right time to transition the CFO position to Karen. Karen and I have worked together for the past 20 years at STERIS, and we have been preparing her for this role. I am confident in not only her financial ability but also her leadership capability to lead this great company into the future. I will be around for a while as a special financial adviser and look forward to supporting a smooth transition. With that, I will now turn the call over to Dan for his remarks.

Thanks, Mike, and good morning, everyone. Thank you for joining us to hear more about the start of fiscal 2026 and our updated outlook. Before we jump into the numbers, I do want to take a moment to recognize Mike for his long and successful career as CFO. Mike's leadership and financial acumen have been essential to our success. Under his leadership as CFO, we have grown meaningfully in all aspects: revenue, earnings, and market cap and have completed over 80 M&A transactions. He has built a strong global team, including Karen, and we are well prepared for this transition. Moving on to our performance. Mike covered the quarter at a high level, so I will add some commentary on our segments. Starting with Healthcare, constant currency organic revenue grew 8% for the first quarter with growth across all categories. Healthcare capital equipment revenue increased 6% for the quarter with underlying order growth of 14% and ending backlog just over $400 million. Service continued its streak of outperformance, growing 13% in the first quarter, and Consumables grew 5% compared with a strong first quarter last year. EBIT Margins for Healthcare in the quarter increased 10 basis points to 24.2%, with volume, pricing, positive productivity, and restructuring program benefits offsetting tariffs and inflation. Turning to AST. Constant currency organic revenue grew 10% for the quarter with 12% growth in Services. Services benefited from currency, bioprocessing demand, and stable medical device volumes. EBIT margins for AST were 48.6%, up 150 basis points from the first quarter of last year as the additional volume and pricing were able to more than offset increases in energy and labor. Constant currency organic revenue increased 4% for the Life Sciences group in the quarter, driven once again by strong growth in Consumables of 8%. Services revenue grew 3%, capital equipment revenue was about flat, with backlog up over 50% to $111 million. Margins increased 260 basis points, benefiting from favorable mix, pricing, and productivity. From an earnings perspective, we grew the bottom line 15% in the quarter to $2.34 per diluted share. Included in that number is approximately $9 million of tariff impact, which primarily impacted our Healthcare segment. Turning to our outlook for fiscal 2026. As noted in the press release, we are updating our outlook for as-reported revenue due to a significant shift in forward currency rates. We now anticipate approximately 8% to 9% revenue growth, which reflects about 200 basis points of favorable currency. Constant currency organic revenue growth is unchanged at 6% to 7%. Each segment is expected to grow constant currency organic revenue in the range of 6% to 7% for fiscal 2026. AST's revenue grew in the first quarter was stronger than anticipated. Despite the strong start, we are maintaining our outlook for the year at this time. Our earnings outlook is also unchanged at $9.90 to $10.15, which now reflects $45 million in tariff costs, an increase of $15 million over last quarter. Fortunately, favorable foreign currency will offset that increase. For your modeling purposes, at the high end of our earnings range, we would expect EBIT margins to be about flat. No changes are anticipated to our effective tax rate of approximately 23.5%. Based on the strong start to the year, we are increasing our outlook for free cash flow by $50 million to $820 million for fiscal 2026. CapEx remains unchanged at $375 million. That concludes our prepared remarks for the call. Julie, would you please give the instructions so we can begin the Q&A.

Thank you. Thank you, Dan, for your comment. Allen, can you please give the instructions for Q&A, and we'll have started?

Our first question today comes from Brett Fishbin of KeyBanc.

Congrats on the announcement, Mike. I just wanted to ask first on the revised tariff estimate if you could just give a little bit more detail on specifically what drove the increased expectation, whether it was a change in policy or something you were seeing as you continue to do more of the analysis.

Yes. Brett, this is Mike. A couple of things drove the increase. First is the additional tariffs that we have seen on metals. Both steel and aluminum went from 25% to 50%, copper went from 0 to 50%, and the EU changed from 10% to 15%. Remember, when we guided in mid-May, we had more clarity than most, so these are changes since then, and that's why we are increasing and not decreasing our tariff exposure.

No, certainly makes sense there. And then I just wanted to ask one more follow-up on AST. Sounded like you're generally maintaining the 6% to 7% organic expectation, despite a double-digit start. So I was curious if that's more leans towards just conservatism after just one quarter of the year or if you're seeing anything changing that would make you expect certain quarters to maybe be below that range.

Yes. Brett, this is Dan. I would say it's general conservatism. There's some moving parts going on in MedTech which reflect some changing positions of manufacturing from our customers. And at this point, we feel very confident in the numbers that we're putting forward. And if things flow out a little better, maybe we do a little better.

Our next question comes from Mac Etoch of Stephens.

Congrats, Mike. I'd love to hear your thoughts on what you're observing in the bioprocessing market. Last year, you mentioned a slower start to fiscal year 26, so I'm looking for an update on that.

Yes, sure. This is Dan. Over the past year, we've experienced some fluctuations in volumes at our facilities. However, it has been fairly consistent for the last four to five months, returning to what we consider a normal trajectory from a reset base. At this point, we believe it's quite predictable, assuming our customers are not overbuilding inventory, which can be difficult to gauge. Nevertheless, we have seen much more consistency in recent periods.

Appreciate that. And then also, I noticed the Life Science segment saw a pretty strong increase in the segment's backlog sequentially. So I was just kind of curious to get your sense of what's driving the increase there, what your expectations are for the rest of the year.

Yes. A year ago, Life Sciences and Pharma kind of run on these 16-month cycles when things go down a bit in terms of capital. During that time, we continue to do really well in our Consumables business. But as those orders dried up because of customer layoffs and some plant relocations and sort of extreme slowdown in vaccines and a number of other things, the capital orders dried up. And what we've seen is that cycle is pretty much completed at this point. We've seen a very good strong order intake for quite some time now, and I feel pretty good about catching up in that space.

The next question comes from Michael Polark of Wolfe.

Mike Tokich, it's been a pleasure. First question, I'm interested, Dan, in your perspective, the comments recently from one of your competitors in low-type sterilization. Six or so weeks ago, kind of an alarm bell sounded on procedure softness, purchasing delays in capital related to kind of regulatory and policy shift concerns at hospitals. Obviously, in these numbers from you, I see none of that. And so what did make of all that? Is this you're taking share? Any perspective would be welcome.

Mike, it's Dan. It's difficult to determine. We have numerous data points from several offsite centers we operate for hospitals regarding volume, the volume passing through AST, and what we've observed over time, particularly in the recent quarter concerning our backlog growth and order intake. We believe we're in a solid position and have not noticed any slowdown.

Can I ask a straightforward question about the updated guidance? It was mentioned that foreign exchange benefits were offset by additional tariffs, and you also noted in the press release higher employee health care benefit costs. We are all aware of the current situation in managed care. I can confirm that internally, Wolfe has been facing higher premiums for the upcoming year. Is that the case? I would appreciate any new insights since you are at the beginning of your fiscal year. As we approach calendar 2026, I suspect we will hear similar concerns from other companies. What are you observing in this regard?

Mike, it's actually utilization of our employee health care benefits is where we're seeing that. We did increase premiums as we typically do, low single digits. But at the same point in time, we are seeing just utilization causing that increase in cost.

Our next question comes from Jason Bednar of Piper Sandler.

And Mike, congrats on a great career at STERIS. It's been a pleasure working with you, and pretty impressive cash flow figure for you to go out on here. For my questions, I'll start on order growth, also really impressive in the quarter for both Healthcare and LifeSci. I know this stuff can be lumpy sometimes, but those are really strong results, especially for a first quarter. Can you talk about the capital demand environment you're seeing out there and how this order book and backlog contributes to the confidence you have on the full year revenue guide?

Yes, the orders have remained robust in both sectors. We haven't experienced any slowdown, particularly in the healthcare sector, where we believe we have a strong portfolio and a compelling offering that positions STERIS favorably with our large customers who are seeking partnership-type vendors. STERIS meets that need. We feel optimistic, and having a substantial backlog certainly suggests positive prospects for the future in terms of our ability to schedule and accurately forecast the timing of shipments as we engage with customers throughout the fiscal year and beyond.

The cash balance is currently at its highest point in several years. During the last quarter, you paid down some debt and bought back a small amount of stock. What are your next steps? The stock is undervalued based on historical metrics. STERIS has a long history of mergers and acquisitions. Is M&A still your preferred way to utilize cash? I believe it is, but could you elaborate on what you're observing in that area and the nature of those discussions? Do you have a particular preference for how to allocate that cash?

Yes. I think we still have time to think about it. But what I would say is we have been historically active on the M&A front. We continue to be. We have done some small transactions over the past couple of quarters. We continue to have those opportunities going forward. And as always, we're always looking for larger opportunities, and those come in time. And when they do, they do. It's hard to predict.

And Jason, you will notice in the next few quarters, without any M&A activity, that we will keep building our cash position since we have very little prepayable debt left. Our balance sheet will primarily consist of private placement notes, with the next tranche not maturing until 2027, and public bonds, the first of which is a 10-year tranche maturing around 2030 or 2031. So, don't be surprised if our cash continues to increase in the short term.

We will keep doing buybacks as we usually do to counteract dilution. Unfortunately, we were unable to take advantage of that this quarter because of the blackout period, but we aim to resume offsetting dilution in the short term.

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

Yes. So a couple on the Life Sciences business. We've seen with regard to what's happening in D.C. So there's been some cuts in vaccine spending, kind of reduced recommendations there. And then, broadly, we're seeing a kind of pullback in pharma company spending. But then at the same time, there's talk about trying to push more drug manufacturing into the U.S. or incentivize that. So how do you think all those things sort of shake out for that business?

It's a complicated landscape is what I would say at this point. Any time there's relocation of manufacturing, that tends to drive some benefit for our capital business because obviously, new equipment is needed to manage those aseptic environments. We've already seen the falloff in vaccines from where it was 3 or 4 years ago. So I don't think that's really a headwind for us going forward necessarily. And given the growth that we've seen in other biological drugs and cell and gene therapies that require those aseptic environments, we feel pretty confident that despite whatever macro changes there may be in terms of location or specific type of drug, the demand is going to remain fairly high.

Okay. Got it. And then just one on the free cash flow guidance increase since your kind of earnings guidance is unchanged. I assume that's mainly driven by working capital. Is that right? And is that inventory or receivables or something else?

Mike, it is working capital, and it's both inventory and receivables that we believe we will get increased cash flow from. It's about $50 million in total. And since we did overachieve this first quarter, we are carrying that through for the year.

Our next question comes from Justin Wang of Morgan Stanley.

I'm filling in for Patrick. So last month, I think President Trump granted 39 ethylene oxide sterilization facilities a 2-year regulatory relief from NESHAP compliance. However, I didn't see any of STERIS' EO sites included in that list. Could you clarify whether this is because your facilities didn't need the extension to be compliant? Or was this relief something that STERIS pursued but didn't receive? And more broadly, how do you see this regulatory development affecting the competitive landscape as well as your positioning in EO near term?

That's a loaded question. So there's a lot there. Well, first off, we didn't apply for it because we don't feel we need it. We've been way out ahead of this going back 4 years now in terms of our facilities. And as I've discussed before, because many of the STERIS facilities are newer, generally speaking, the engineering modifications that we've had to make to ensure that we meet compliance with NESHAP were not as significant as maybe some other older facilities. So we're confident in where we are and didn't feel it necessary. In terms of the competitive landscape, I mean, it extends the clock maybe on some facilities that may not elect to ultimately make the high-level investments in terms of meeting the compliance, NESHAP, but I don't think in the grand scheme of things, it's really all that material.

The next question comes from Dave Windley of Jefferies.

Mike, congratulations on a good career. I hope I wasn't the straw that broke the camel's back. It just made you think it was time to go, jokingly.

Thank you. You're half of this vine. Thank you.

During our meeting in June, we discussed the outlook for hospital volumes and the potential effects of OB3. At that time, it hadn't been approved, and it seemed like hospitals were focused on managing supply chain challenges and tariff issues. I'm curious if, over time, management has had further discussions with hospital clients regarding their assessment of the potential impact of OB3 as well as the decrease in Medicaid exchange coverage and related matters.

Yes, we will see how things unfold. Generally, I believe it will be a challenge for our customers, particularly in terms of cash flow and payments. The focus will be on how they manage that rather than on the demand for procedures. As indicated in the recent quarter's orders, we haven't observed any pullback in current procedure volumes either. I want to reiterate that we see this primarily as a reimbursement issue for our customers. Healthcare systems in the U.S. will need to resolve this under the new requirements.

Got it. Could you remind me about foreign exchange? Does that mainly flow through the operational hedging on foreign exchange, or do you think it impacts profitability differently than it does the top line?

No, we are mostly hedged. Unfortunately, the top line has increased by 200 basis points due to foreign exchange. By the time we look at the bottom line impact from foreign exchange, which is approximately $14 million to $15 million, that will offset the increased tariffs. Overall, we are largely naturally hedged.

And our next question comes once again from Michael Polark of Wolfe.

Just one more for me. Dan, I'm curious where you think we are ending the proverbial inning question on the ASC build out in the U.S. And I asked specifically, we know orthos on its way as a prime example. But this summer, Medicare provided a path for like cardiac ablation to be done in the ASC now, which is a high-volume EP case. So kind of what's your feel out there? Is this still a mega trend? I'm curious for any fresh anecdotes on where you think we are in the cycle.

Sure. Yes. I don't think that really affects in terms of volumes going through AST. I think that's more of where procedures are going to be done as some shift continues.

Sorry. I was asking with the lens of your capital business in health care, ASCs, ambulatory surgery centers.

That makes much more sense. Yes, whenever there is a relocation of where procedures take place from a capital perspective, that is generally beneficial for us. It also requires us to meet an unmet demand, which means there might be lower scale and less skilled labor in those facilities. We need to ensure that we have the proper training and compliance programs for those customers to meet patient demands by providing safe and sterile reusable devices in the ASC market.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Julie Winter for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.