01—Abstract
Summary
Summary of the 10-K filed May 28, 2021. Cited figures are marked; the original filing is the authoritative source.
STERIS plc (STE) reported fiscal 2021 (year ended March 31, 2021) revenues of $3.11 billiona, up 2.5% from $3.03 billion in fiscal 2020, driven by growth in Applied Sterilization Technologies and Life Sciences, partly offset by a decline in Healthcare tied to the reduction of deferrable surgical procedures during the COVID-19 pandemic.
Operating income rose to $548.4 millionb from $537.0 million, and diluted income per share was $4.63 versus $4.76 in fiscal 2020. Net income attributable to shareholders was $397.4 million, compared with $407.7 million the prior year. Net cash from operations was $689.6 million and free cash flow was $450.9 million, with the increase attributed mainly to working capital improvements.
The debt-to-total capital ratio rose to 29.8% from 25.3%, reflecting new borrowings to fund acquisitions, including Key Surgical for a purchase price of $853.2 millionc. The pending acquisition of Cantel Medical Corp., expected to close June 2, 2021, is the most significant item for investors. The filing describes a total equity value of about $3.6 billion and total enterprise value of about $4.6 billion, funded with approximately $2.1 billion of new debt and roughly 14.3 million STERIS shares to Cantel stockholders.
Management expects approximately $110 milliond in annualized pre-tax cost synergies within the first four fiscal years after completion. The filing also notes that the company paid a quarterly dividend of $0.40 per share, with fiscal 2021 dividends of $1.57 per share, and that the Board authorized share repurchases with about $333.9 million remaining, although repurchases were suspended on April 9, 2020. Key risks highlighted include the COVID-19 impact on procedure volumes, integration and dilution risk from the Cantel transaction, higher leverage after the acquisition (about $1.7 billion of long-term debt at March 31, 2021 before the new financing), ethylene oxide regulation affecting the AST segment, and a pending IRS challenge with a potential cumulative tax liability of approximately $50 million that the company intends to contest.
02—Key points
Key Highlights
- Revenues rose 2.5% to $3,107.5 million, led by Applied Sterilization Technologies (up 9.4% to $685.9 million) and Life Sciences (up 12.1% to $467.6 million), while Healthcare declined 1.6% to $1,954.1 million.
- Operating income increased 2.1% to $548.4 million, and gross profit percentage was 43.2% versus 43.6% in fiscal 2020.
- Net cash provided by operating activities was $689.6 million and free cash flow was $450.9 million, compared with $590.6 million and $380.2 million in fiscal 2020.
- Pending acquisition of Cantel Medical Corp. at a total enterprise value of approximately $4.6 billion, expected to close June 2, 2021, funded with approximately $2.1 billion of new debt and about 14.3 million STERIS shares.
- Debt-to-total capital ratio increased to 29.8% from 25.3%, with long-term indebtedness of $1,650.5 million at March 31, 2021, up from $1,150.5 million; the company paid $1.35 billion of senior notes in April 2021 and a $750 million delayed draw term loan is tied to the Cantel closing.
- Diluted EPS was $4.63 versus $4.76, and the quarterly dividend was increased to $0.40 per share, marking the fifteenth consecutive annual increase.
- Backlog of capital equipment orders reached $286.2 million at March 31, 2021, up from $242.5 million a year earlier.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Steris kept $0.13.
- Revenue$3.11B100.0%
- Cost of revenue−$1.76B56.8%
- Gross profit$1.34B43.2%
- Operating costs−$794.7M25.6%
- Operating income$548.4M17.6%
- Interest, other & tax−$151.0M4.9%
- Net income$397.4M12.8%
Where FY2021 revenue went
$3.11B- Cost of revenue: $1.76B, 57% of revenue
- SG&A: $731.3M, 24% of revenue
- Net income: $397.4M, 13% of revenue
- R&D: $66.3M, 2.1% of revenue
- Interest, other & tax: $151.0M, 4.9% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed May 28, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $3.11B$3.03B | +2.5% |
| Cost of Revenue | $1.76B$1.71B | +3.1% |
| Gross Profit | $1.34B$1.32B | +1.8% |
| R&D Expenses | $66.33M$65.55M | +1.2% |
| SG&A Expenses | $731.32M$716.73M | +2.0% |
| Operating Expenses | $794.73M$782.95M | +1.5% |
| Operating Income | $548.37M$537.05M | +2.1% |
| Interest Expense | $37.18M$40.28M | −7.7% |
| Net Income | $397.40M$407.66M | −2.5% |
| EPS (Basic) | $4.66$4.81 | −3.1% |
| EPS (Diluted) | $4.63$4.76 | −2.7% |
| Shares Outstanding (Basic) | 85.20M84.78M | +0.5% |
| Shares Outstanding (Diluted) | 85.90M85.64M | +0.3% |
05—Questions
Frequently Asked Questions
What drove the change in revenue in fiscal 2021?
Revenues increased $76.6 million, or 2.5%, to $3,107.5 million. The filing attributes the increase to organic growth in Applied Sterilization Technologies and Life Sciences and favorable currency fluctuations, partly offset by a decline in Healthcare due to reduced deferrable surgical procedures and lower capital spending during the COVID-19 pandemic.
How is the Cantel Medical acquisition being financed and what is expected from it?
STERIS expects to fund the cash portion of the transaction and repay or satisfy a significant amount of Cantel's existing debt with approximately $2.1 billion of new debt, including $1.35 billion of senior notes issued April 1, 2021 and a $750 million delayed draw term loan. The company expects approximately $110 million in annualized pre-tax cost synergies within the first four fiscal years after completion, and the transaction is expected to close on June 2, 2021.
How much debt did STERIS carry and how did leverage change?
Long-term indebtedness was $1,650.5 million at March 31, 2021, compared with $1,150.5 million a year earlier, and the debt-to-total capital ratio was 29.8% versus 25.3%. The company was in compliance with all financial covenants at March 31, 2021, and had $992.8 million of unused funding under its Revolving Credit Agreement.
What are the main risks flagged in the filing?
Key risks include continued COVID-19 disruption to procedure volumes and operations, the possibility that the Cantel merger is delayed or not completed, integration difficulties and possible dilution to earnings per share, higher debt after the acquisition, and regulatory pressure on ethylene oxide sterilization used by the AST segment. The filing also notes that the IRS has proposed adjustments with a cumulative tax liability of approximately $50 million, which the company intends to contest.
What is the status of capital returns to shareholders?
Fiscal 2021 cash dividends totaled $133.8 million, or $1.57 per share, and the quarterly dividend was raised to $0.40 per share. Share repurchases were suspended on April 9, 2020 because of COVID-19 uncertainty, and the Board authorization had about $333.9 million remaining at March 31, 2021 with no specified expiration date.
06—Continue