STE 10-Q

STERIS plc (STE)

10-Q 2023-08-08 For: 2023-06-30

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Added on April 04, 2026

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Title of each class	Trading symbol(s)	Name of Exchange on Which Registered
Ordinary Shares, $0.001 par value	STE	New York Stock Exchange
2.700% Senior Notes due 2031	STE/31	New York Stock Exchange
3.750% Senior Notes due 2051	STE/51	New York Stock Exchange


		Page
Part I—Financial Information
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39

Part II—Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	Signature	43


	June 30, 2023		March 31, 2023
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	208,614	$	208,357
Accounts receivable (net of allowances of $24,367 and $23,427 respectively)	887,756		928,315
Inventories, net	768,835		695,493
Prepaid expenses and other current assets	166,050		179,277
Total current assets	2,031,255		2,011,442
Property, plant, and equipment, net	1,726,091		1,705,512
Lease right-of-use assets, net	195,292		191,741
Goodwill	3,886,599		3,879,219
Intangibles, net	2,865,107		2,955,780
Other assets	80,036		78,145
Total assets	$	10,784,380	$	10,821,839
Liabilities and equity
Current liabilities:
Accounts payable	$	260,687	$	279,620
Accrued income taxes	63,501		43,804
Accrued payroll and other related liabilities	132,112		125,642
Short-term lease obligations	34,413		34,961
Short-term indebtedness	63,438		60,000
Accrued expenses and other	332,760		317,817
Total current liabilities	886,911		861,844
Long-term indebtedness	2,860,116		3,018,655
Deferred income taxes, net	617,633		617,538
Long-term lease obligations	164,744		160,493
Other liabilities	76,604		76,137
Total liabilities	$	4,606,008	$	4,734,667
Commitments and contingencies (see Note 8)
Ordinary shares, with $0.001 par value; 500,000 shares authorized; 98,781 and 98,629 ordinary shares issued and outstanding, respectively	4,498,212		4,486,375
Retained earnings	1,980,933		1,911,533
Accumulated other comprehensive loss	(310,859)		(320,710)
Total shareholders’ equity	6,168,286		6,077,198
Noncontrolling interests	10,086		9,974
Total equity	6,178,372		6,087,172
Total liabilities and equity	$	10,784,380	$	10,821,839


	Three Months Ended June 30,
	2023		2022
Revenues:
Product	$	713,858	$	637,076
Service	570,684		519,415
Total revenues	1,284,542		1,156,491
Cost of revenues:
Product	377,178		332,855
Service	333,903		305,838
Total cost of revenues	711,081		638,693
Gross profit	573,461		517,798
Operating expenses:
Selling, general, and administrative	359,058		334,626

Research and development	25,502		24,751
Restructuring expenses	19		26
Total operating expenses	384,579		359,403
Income from operations	188,882		158,395
Non-operating expenses, net:
Interest expense	32,361		22,674

Interest and miscellaneous (income) expense	(1,393)		770
Total non-operating expenses, net	30,968		23,444
Income before income tax expense	157,914		134,951
Income tax expense	34,124		24,196
Net income	123,790		110,755
Less: Net income (loss) attributable to noncontrolling interests	236		(507)
Net income attributable to shareholders	$	123,554	$	111,262

Net income per share attributed to shareholders
Basic	$	1.25	$	1.11
Diluted	$	1.25	$	1.10
Cash dividends declared per share ordinary outstanding	$	0.47	$	0.43


	Three Months Ended June 30,
	2023		2022

Net income	$	123,790	$	110,755
Less: Net income (loss) attributable to noncontrolling interests	236		(507)
Net income attributable to shareholders	123,554		111,262

Other comprehensive income (loss)
Amortization of pension and postretirement benefit plan costs, (net of taxes of $(17), and $(6), respectively)	58		29
Change in cumulative currency translation adjustment	9,793		(178,594)
Total other comprehensive income (loss)	9,851		(178,565)
Comprehensive income (loss)	$	133,405	$	(67,303)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______


	Ordinary Shares			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Number	Amount
Balance at March 31, 2023	98,629	$	4,486,375	$	1,911,533	$	(320,710)	$	9,974	$	6,087,172
Comprehensive income:
Net income	—	—		123,554		—		236		123,790
Other comprehensive income	—	—		—		9,851		—		9,851
Repurchases of ordinary shares	(52)	(997)		(7,727)		—		—		(8,724)
Equity compensation programs and other	204	12,834		—		—		—		12,834
Cash dividends - $0.47 per ordinary share	—	—		(46,427)		—		—		(46,427)

Other changes in noncontrolling interest	—	—		—		—		(124)		(124)
Balance at June 30, 2023	98,781	$	4,498,212	$	1,980,933	$	(310,859)	$	10,086	$	6,178,372


	June 30, 2023		March 31, 2023

Raw materials	$	267,300	$	239,081
Work in process	117,589		97,756
Finished goods	433,185		404,238
Reserve for excess and obsolete inventory	(49,239)		(45,582)
Inventories, net	$	768,835	$	695,493


	June 30, 2023		March 31, 2023
Land and land improvements (1)	$	84,170	$	84,313
Buildings and leasehold improvements	728,597		691,933
Machinery and equipment	1,028,237		994,188
Information systems	255,127		247,873
Radioisotope	641,381		637,920
Construction in progress (1)	464,408		478,316
Total property, plant, and equipment	3,201,920		3,134,543
Less: accumulated depreciation and depletion	(1,475,829)		(1,429,031)
Property, plant, and equipment, net	$	1,726,091	$	1,705,512


	June 30, 2023		March 31, 2023

Short-term debt
Term Loan, current portion	$	30,938	$	27,500
Delayed Draw Term Loan, current portion	32,500		32,500

Total short-term debt	$	63,438	$	60,000


Long-term debt
Private Placement Senior Notes	$	752,505	$	750,302
Revolving Credit Facility	158,164		301,672
Deferred financing costs	(20,241)		(21,444)
Term Loan	34,688		45,000
Delayed Draw Term Loan	585,000		593,125
Senior Public Notes	1,350,000		1,350,000
Total long-term debt	$	2,860,116	$	3,018,655
Total debt	$	2,923,554	$	3,078,655


	Three Months Ended June 30,
Denominator (shares in thousands):	2023	2022
Weighted average shares outstanding—basic	98,708	100,082
Dilutive effect of share equivalents	531	640
Weighted average shares outstanding and share equivalents—diluted	99,239	100,722


	Three Months Ended June 30,
(shares in thousands)	2023	2022
Number of share options	668	291


	Fiscal 2023		Fiscal 2022
Risk-free interest rate	3.57	%	2.41	%
Expected life of options	5.9 years		5.8 years
Expected dividend yield of stock	1.08	%	0.80	%
Expected volatility of stock	27.98	%	24.45	%


	Number of Options	Weighted Average Exercise Price Per Share		Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at March 31, 2023	1,749,729	$	154.60
Granted	241,456	219.97
Exercised	(31,342)	57.18
Forfeited	(2,128)	200.46

Outstanding at June 30, 2023	1,957,715	$	164.17	6.5 years	$	124,831
Exercisable at June 30, 2023	1,336,601	$	136.78	5.5 years	$	119,338


	June 30, 2023		March 31, 2023
Accrued payroll and other related liabilities:
Compensation and related items	$	68,706	$	48,565
Accrued vacation/paid time off	16,079		11,080
Accrued bonuses	26,727		33,605
Accrued employee commissions	17,418		29,257

Other postretirement benefit obligations-current portion	1,121		1,121
Other employee benefit plans obligations-current portion	2,061		2,014
Total accrued payroll and other related liabilities	$	132,112	$	125,642
Accrued expenses and other:
Deferred revenues	$	91,661	$	92,283
Service liabilities	75,095		72,033
Self-insured risk reserves-current portion	11,704		11,325
Accrued dealer commissions	34,003		31,096
Accrued warranty	13,845		13,683
Asset retirement obligation-current portion	516		543
Accrued interest	18,109		9,243
Other	87,827		87,611
Total accrued expenses and other	$	332,760	$	317,817
Other liabilities:
Self-insured risk reserves-long-term portion	$	22,171	$	22,171
Other postretirement benefit obligations-long-term portion	5,952		6,070
Defined benefit pension plans obligations-long-term portion	2,978		2,876
Other employee benefit plans obligations-long-term portion	1,129		1,153
Accrued long-term income taxes	10,097		10,082
Asset retirement obligation-long-term portion	21,469		12,588
Other	12,808		21,197
Total other liabilities	$	76,604	$	76,137


	Three Months Ended June 30,
	2023		2022
Revenues:
Healthcare	$	818,874	$	698,526
AST	233,099		220,911
Life Sciences	131,413		132,207
Dental	101,156		104,847
Total revenues	$	1,284,542	$	1,156,491
Operating income (loss):
Healthcare	$	198,182	$	156,497
AST	109,590		109,315
Life Sciences	49,841		55,305
Dental	22,039		19,596
Corporate	(92,265)		(75,943)
Total operating income	$	287,387	$	264,770
Less: Adjustments
Amortization of acquired intangible assets (1)	$	93,925	$	93,929
Acquisition and integration related charges (2)	2,709		9,832
Tax restructuring costs (3)	9		173
Gain on fair value adjustment of acquisition related contingent consideration (1)	—		(3,100)
Net loss on divestiture of businesses (1)	—		3,878
Amortization of inventory and property "step up" to fair value (1)	1,843		1,637
Restructuring charges (4)	19		26

Total income from operations	$	188,882	$	158,395


	Three Months Ended June 30,
	2023		2022
Healthcare:
Capital equipment	$	238,099	$	179,134
Consumables	280,281		252,032
Service	300,494		267,360
Total Healthcare Revenues	$	818,874	$	698,526
AST:
Capital equipment	$	874	$	619
Service	232,225		220,292
Total AST Revenues	$	233,099	$	220,911
Life Sciences:
Capital equipment	$	30,991	$	40,499
Consumables	61,698		59,557
Service	38,724		32,151
Total Life Sciences Revenues	$	131,413	$	132,207
Dental Revenues	$	101,156	$	104,847
Total Revenues	$	1,284,542	1,156,491


	Number of Restricted Shares	Number of Restricted Share Units	Weighted Average Grant Date Fair Value
Non-vested at March 31, 2023	450,793	28,542	$	186.60
Granted	166,999	10,431	199.92
Vested	(120,107)	(4,868)	156.00
Forfeited	(7,923)	(98)	190.57
Non-vested at June 30, 2023	489,762	34,007	$	198.34


	Warranties
Balance at March 31, 2023	$	13,683
Warranties issued during the period	3,796
Settlements made during the period	(3,634)
Balance at June 30, 2023	$	13,845


	Asset Derivatives				Liability Derivatives
	Fair Value at		Fair Value at		Fair Value at		Fair Value at
Balance sheet location	June 30, 2023		March 31, 2023		June 30, 2023		March 31, 2023
Prepaid & other	$	1,297	$	378	$	—	$	—
Accrued expenses and other	$	—	$	—	$	2,514	$	2,054


	Location of gain (loss) recognized in income	Amount of gain (loss) recognized in income
		Three Months Ended June 30,
		2023		2022
Foreign currency forward contracts	Selling, general and administrative	$	1,458	$	2,349
Commodity swap contracts	Cost of revenues	$	(1,034)	$	(2,824)


					Fair Value Measurements
	Carrying Value				Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
					Level 1				Level 2				Level 3
	June 30,		March 31,		June 30,		March 31,		June 30,		March 31,		June 30,		March 31,
Assets:
Cash and cash equivalents	$	208,614	$	208,357	$	208,614	$	208,357	$	—	$	—	$	—	$	—
Forward and swap contracts (1)	1,297		378		—		—		1,297		378		—		—
Equity investments(2)	7,143		7,069		7,143		7,069		—		—		—		—
Other investments	2,069		2,066		2,069		2,066		—		—		—		—

Liabilities:
Forward and swap contracts (1)	$	2,514	$	2,054	$	—	$	—	$	2,514	$	2,054	$	—	$	—
Deferred compensation plans (2)	998		1,022		998		1,022		—		—		—		—
Debt (3)	2,923,554		3,078,655		—		—		2,596,812		2,754,218		—		—
Contingent consideration obligations (4)	16,199		15,678		—		—		—		—		16,199		15,678


	Contingent Consideration
Balance at March 31, 2023	$	15,678
Additions	572
Payments	(20)

Currency translation adjustments	(31)

Balance at June 30, 2023	$	16,199


	Defined Benefit Plans (1)		Currency Translation (2)			Total Accumulated Other Comprehensive Income (Loss)

Balance at March 31, 2023	$	12		$	(320,722)		$	(320,710)
Other Comprehensive Income before reclassifications	418			9,793			10,211
Amounts reclassified from Accumulated Other Comprehensive Loss	(360)			—			(360)
Net current-period Other Comprehensive Income	58			9,793			9,851
Balance at June 30, 2023	$	70		$	(310,929)		$	(310,859)


	Three Months Ended June 30,
(dollars in thousands)	2023		2022
Net cash provided by operating activities	$	281,129	$	231,746
Purchases of property, plant, equipment, and intangibles, net	(66,601)		(115,933)
Proceeds from the sale of property, plant, equipment, and intangibles	5		1,288
Free cash flow	$	214,533	$	117,101


	Three Months Ended June 30,						Change		Percent Change
(dollars in thousands)	2023			2022
Gross profit:
Product	$	336,680		$	304,221		$	32,459	10.7	%
Service	236,781			213,577			23,204		10.9	%
Total gross profit	$	573,461		$	517,798		$	55,663	10.7	%
Gross profit percentage:
Product	47.2		%	47.8		%
Service	41.5		%	41.1		%
Total gross profit percentage	44.6		%	44.8		%


	Three Months Ended June 30, (unaudited)
	As reported, GAAP				Impact of Acquisitions		Impact of Divestitures		Impact of Foreign Currency Movements		GAAP Growth		Organic Growth		Constant Currency Organic Growth
	2023		2022		2023		2022		2023		2023		2023		2023
Segment revenues:
Healthcare	$	818,874	$	698,526	$	—	$	—	$	(1,574)	17.2	%	17.2	%	17.5	%
AST	233,099		220,911		—		—		830		5.5	%	5.5	%	5.1	%
Life Sciences	131,413		132,207		—		—		23		(0.6)	%	(0.6)	%	(0.6)	%
Dental	101,156		104,847		—		—		138		(3.5)	%	(3.5)	%	(3.7)	%
Total	$	1,284,542	$	1,156,491	$	—	$	—	$	(583)	11.1	%	11.1	%	11.1	%


Summarized Results of Operations
(in thousands)	Three Months Ended
	June 30,
	2023

Revenues	$	645,643
Gross profit	365,962
Operating costs arising from transactions with non-issuers and non-guarantors, net	162,800
Income from operations	177,713
Non-operating income (expense) arising from transactions with subsidiaries that are non-issuers and non-guarantors, net	83,484
Net income	$	57,082


Summarized Balance Sheet Information
( in thousands)
	June 30,		March 31,
	2023		2023
Receivables due from non-issuers and non-guarantor subsidiaries	$	18,097,564	$	17,797,185
Other current assets	597,697		614,233
Total current assets	$	18,695,261	$	18,411,418

Non-current receivables due from non-issuers and non-guarantor subsidiaries	$	1,918,807	$	1,827,125
Goodwill	96,892		96,892
Other non-current assets	222,414		206,331
Total non-current assets	$	2,238,113	$	2,130,348

Payables due to non-issuers and non-guarantor subsidiaries	$	19,963,893	$	19,347,473
Other current liabilities	198,434		255,746
Total current liabilities	$	20,162,327	$	19,603,219

Non-current payables due to non-issuers and non-guarantor subsidiaries	$	722,680	$	684,985
Other non-current liabilities	2,980,340		3,128,853
Total non-current liabilities	$	3,703,020	$	3,813,838


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans at Period End (in thousands)
April 1-30	—	$	—	—	$	13,932
May 1-31	—	—		—	500,000
June 1-30	—	—		—	500,000
Total	—	$	—	—	$	500,000


Exhibit Number			Exhibit Description

2.1			Amended and Restated Asset Purchase Agreement by and between STERIS Corporation; Becton, Dickinson and Company; and STERIS plc, solely for the purposes set forth in Section 12.21, dated as of August 2, 2023.

3.1			STERIS plc Amended Memorandum and Articles of Association (filed as Exhibit 3.1 to STERIS plc Form 10-K for the fiscal year ended March 31, 2019 (Commission File No. 001-38848), and incorporated herein by reference.)



10.1			Amendment No. 1, dated as of May 3, 2023, to Delayed Draw Term Loan Agreement, dated as of March 19, 2021, among STERIS plc, STERIS Limited, STERIS Corporation, STERIS Irish FinCo Unlimited Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

10.2			Amendment No. 1, dated as of May 3, 2023, to Term Loan Agreement, dated as of March 19, 2021, among STERIS plc, STERIS Limited, STERIS Corporation, STERIS Irish FinCo Unlimited Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

10.3			Amendment No. 2, dated as of May 3, 2023, to Credit Agreement, dated as of March 19, 2021, among STERIS plc, STERIS Limited, STERIS Corporation, STERIS Irish FinCo Unlimited Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

10.4			Form of Restricted Stock Agreement for Employees (filed as Exhibit 10.16 to STERIS plc Form 10-K for the fiscal year ended March 31, 2023 (Commission File No. 001-38848) and incorporated herein by reference).*

10.5			Form of Nonqualified Stock Option Agreement for Employees (filed as Exhibit 10.17 to STERIS plc Form 10-K for the fiscal year ended March 31, 2023 (Commission File No. 001-38848) and incorporated herein by reference).*

15.1			Letter Re: Unaudited Interim Financial Information.

22.1			List of Guarantor Subsidiaries with respect to the 2.700% Notes due 2031 and 3.750% Notes due 2051 issued by STERIS Irish Finco Unlimited Company (filed as Exhibit 22.1 to Form 10-K for the fiscal year ended March 31, 2021 (Commission File No. 001-38848), and incorporated by reference).

31.1			Certification of the Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

31.2			Certification of the Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

32.1			Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH			Inline Schema Document.

101.CAL			Inline Calculation Linkbase Document.

101.DEF			Inline Definition Linkbase Document.

101.LAB			Inline Labels Linkbase Document.

101.PRE			Inline Presentation Linkbase Document.

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*			A management contract or compensatory plan or arrangement required to be filed as an exhibit hereto


STERIS plc

/s/ KAREN L. BURTON
Karen L. Burton
Vice President, Controller and Chief Accounting Officer
August 8, 2023