01—Abstract
Summary
Summary of the 10-Q filed February 8, 2024. Cited figures are marked; the original filing is the authoritative source.
STERIS plc (STE) filed this Form 10-Q on February 8, 2024 for the third quarter and first nine months of fiscal 2024, ended December 31, 2023.
Revenues rose 14.8% to $1,395.6 milliona for the quarter and 12.6% to $4,022.5 million for the nine months, driven by higher volume (including the BD surgical instrumentation assets acquired August 2, 2023 for $539.8 million) and pricing. Operating income was $216.2 million for the quarter versus $190.8 million a year earlier, and $590.9 million for the nine months versus $42.8 million, the prior-year period having included a one-time $490.6 million goodwill impairment on the Dental segment. Net income attributable to shareholders was $379.6 million for the nine months, compared with a net loss of $80.2 million a year earlier.
Cash flow strengthened: operating cash flow was $718.5 millionb and free cash flow was $457.0 million for the nine months, versus $541.1 million and $262.8 million a year earlier. Total debt rose to $3.31 billion from $3.08 billion at March 31, 2023, and the debt-to-total capital ratio edged up to 34.0% from 33.6%. The company paid $1.51 per share in dividends during the nine months and had no share repurchases under its $500 million authorization during the period.
The filing also notes that Dental segment revenue declined 5.4% in the quarter, partly due to a large customer's cybersecurity-related disruption, and that AST margins fell on higher labor and energy costs. In November 2023 the company received two IRS Notices of Deficiency tied to fiscal 2018 deemed dividend and withholding tax matters, with a cumulative potential liability of approximately $50 millionc, which management is contesting; no reserves have been established and an unfavorable outcome is not expected to be material to financial position but could be material to results for a given period.
02—Key points
Key Highlights
- Quarterly revenue of $1,395.6 million, up 14.8% year over year; nine-month revenue of $4,022.5 million, up 12.6%.
- Quarterly operating income of $216.2 million versus $190.8 million; nine-month operating income of $590.9 million versus $42.8 million, which included a $490.6 million goodwill impairment in the prior year.
- Net income attributable to shareholders of $379.6 million for the nine months, compared with a net loss of $80.2 million in the prior-year period.
- Free cash flow of $457.0 million for the nine months, up from $262.8 million, with operating cash flow of $718.5 million.
- Total debt of $3,309.5 million at December 31, 2023, up from $3,078.7 million at March 31, 2023; debt-to-total capital ratio of 34.0%.
- Healthcare segment revenue up 19.1% in the quarter, with segment operating margin of 24.4%; Dental revenue down 5.4% in the quarter.
- Potential tax exposure of approximately $50 million from two IRS Notices of Deficiency received in November 2023, which the company is contesting in U.S. Tax Court with no reserves established.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Steris kept $0.11.
- Revenue$1.30B100.0%
- Cost of revenue−$737.7M56.8%
- Gross profit$560.0M43.2%
- Operating costs−$333.6M25.7%
- Operating income$226.5M17.5%
- Interest, other & tax−$85.7M6.6%
- Net income$140.7M10.8%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed February 8, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $1.30B$1.11B | +16.7% |
| Cost of Revenue | $737.70M$634.24M | +16.3% |
| Gross Profit | $560.03M$478.19M | +17.1% |
| R&D Expenses | $25.25M$25.51M | −1.0% |
| SG&A Expenses | $308.30M$305.14M | +1.0% |
| Operating Expenses | $333.56M$330.69M | +0.9% |
| Operating Income | $226.47M$190.80M | +18.7% |
| Interest Expense | $38.95M$28.56M | +36.4% |
| Net Income | $140.74M$123.83M | +13.7% |
| EPS (Basic) | $1.42$1.24 | +14.5% |
| EPS (Diluted) | $1.42$1.24 | +14.5% |
| Shares Outstanding (Basic) | 98.80M99.72M | −0.9% |
| Shares Outstanding (Diluted) | 99.35M100.17M | −0.8% |
05—Questions
Frequently Asked Questions
How did STERIS perform compared with the prior year?
Revenue grew 14.8% to $1,395.6 million in the third quarter and 12.6% to $4,022.5 million for the nine months. Operating income increased substantially, mainly because the prior-year period included a $490.6 million goodwill impairment on the Dental segment. Gross profit percentage was 43.2% in the quarter versus 42.9% a year earlier, and 44.0% for the nine months in both years.
What drove the revenue growth?
The filing attributes growth to higher volume, including added volume from the BD surgical instrumentation and sterilization container assets acquired August 2, 2023 for $539.8 million, and to pricing. Capital equipment revenue rose 22.1% in the quarter and consumable revenue rose 16.3%.
Which segments were weaker?
Dental revenue fell 5.4% in the quarter to $97.9 million and 4.6% for the nine months, due to lower volume from customer inventory destocking and a large customer's temporary disruption from a cybersecurity incident. AST operating margin declined to 44.8% from 46.6% in the quarter, reflecting higher labor and energy costs and lower productivity.
What is the status of the IRS matter?
In November 2023 STERIS received two Notices of Deficiency from the IRS related to previously disclosed deemed dividend inclusions and associated withholding tax for fiscal and calendar year 2018. The IRS adjustments would result in a cumulative tax liability of approximately $50 million. The company is contesting the assertions, has filed petitions with the U.S. Tax Court, and has not established reserves. It does not expect a material adverse impact on financial position, but an unfavorable outcome could be material to results of operations and cash flows in a given period.
How is the company funding its acquisitions and shareholder returns?
Net proceeds under credit facilities totaled $265.5 million for the nine months, mainly to fund the BD acquisition. Cash dividends paid were $149.2 million ($1.51 per share). No shares were repurchased under the $500 million program during the first nine months of fiscal 2024; the only share activity was 69,276 shares obtained for $11.4 million in connection with share-based compensation programs.
06—Continue