STERIS plc

In the following subsections, we discuss our performance and the factors affecting it. We begin with a general overview of our operating results and then separately discuss earnings for our operating segments. As a result of the agreement to divest our Dental segment, Dental is presented as discontinued operations. Historical information has been retrospectively adjusted to reflect these changes for comparability, as required. Therefore, the discussion within this Results of Operations section excludes discontinued operations and relates solely to our continuing operations.

The discussion of and factors affecting our performance for the year ended March 31, 2023 compared to the fiscal year ended March 31, 2022 is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the year ended March 31, 2023.

FISCAL 2024 AS COMPARED TO FISCAL 2023

Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2024 to the year ended March 31, 2023:

(1) Allocation of revenue by geography is based on the location of delivery or distribution of products or location where services are performed.

Revenues increased $602.4 million, or 13.3%, to $5,138.7 million for the year ended March 31, 2024, as compared to $4,536.3 million for the year ended March 31, 2023. These increases reflect higher volume, including the added volume from the acquisition of assets from BD in the Healthcare segment, and pricing.

Service revenues for fiscal 2024 increased $202.2 million, or 9.3% over fiscal 2023, reflecting growth in the Healthcare, AST, and Life Sciences segments. Consumable revenues for fiscal 2024 increased $209.1 million, or 16.2%, over fiscal 2023, reflecting growth in the Healthcare and Life Sciences segments. Capital equipment revenues for fiscal 2024 increased by $191.1 million, or 17.9%, over fiscal 2023, reflecting growth in the Healthcare and Life Sciences segments, which were partially offset by a decline in the AST segment.

Ireland revenues for fiscal 2024 were $82.7 million, representing an increase of $8.4 million, or 11.3%, over fiscal 2023 revenues of $74.3 million, reflecting growth in service and consumable revenues, which were partially offset by a decline in capital equipment revenues.

United States revenues for fiscal 2024 were $3,751.4 million, representing an increase of $497.1 million, or 15.3%, over fiscal 2023 revenues of $3,254.4 million, reflecting growth in service, consumable, and capital equipment revenues.

Revenues from other foreign locations for fiscal 2024 were $1,304.6 million, representing an increase of $97.0 million, or 8.0% over the fiscal 2023 revenues of $1,207.6 million. The increase reflects growth within the Europe, Middle East & Africa, Canada, Asia Pacific and Latin American regions driven by increases in service, consumable, and capital equipment revenues.

Gross Profit. The following table compares our gross profit for the year ended March 31, 2024 to the year ended March 31, 2023:

Our gross profit is affected by the volume, pricing and mix of sales of our products and services, as well as the costs associated with the products and services that are sold. Our gross profit percentage decreased to 43.2% for fiscal 2024 as compared to 43.7% for fiscal 2023. Unfavorable impacts from inflation and material costs (120 basis points), restructuring charges (40 basis points), adjustments and other charges (40 basis points), productivity (30 basis points), and fluctuations in currency (10 basis points) were partially offset by favorable impacts from pricing (150 basis points), mix (30 basis points), and acquisitions (10 basis points).

Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2024 to the year ended March 31, 2023:

NM - Not meaningful

Selling, General, and Administrative Expenses. Significant components of total selling, general, and administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment expenses, facility costs, gains or losses from divestitures, and other general and administrative expenses. SG&A increased 14.8% in fiscal 2024 over fiscal 2023. The fiscal 2024 increase is primarily attributable to increased compensation, including incentive compensation and benefit costs, as well as increase in dealer incentives and professional fees.

Research and Development. Research and development expenses increased $5.2 million in fiscal 2024 over fiscal 2023. Research and development expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations. During fiscal 2024, our investments in research and development have continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.

Restructuring Expenses. We adopted and announced a targeted restructuring plan (the "Restructuring Plan"). This plan includes a strategic shift in our approach to the Healthcare surgical business in Europe, as well as other actions including the impairment of an internally developed X-ray accelerator, product rationalizations and facility consolidations. Less than 300 positions are being eliminated. These restructuring actions are designed to enhance profitability and improve efficiency, and we expect to be substantially complete with the actions by the end of fiscal 2025. We are anticipating improvements in income from operations of approximately $25.0 million per year, with the majority of the benefit being in fiscal 2026 and beyond due to timing of actions.

We have incurred pre-tax expenses totaling $44.4 million related to these restructurings in fiscal 2024, of which $26.1 million was recorded as restructuring expenses and $18.3 million was recorded in Cost of revenues. A total of $19.0 million and $25.4 million was recorded to the Healthcare and AST segments, respectively, while a total of $40.0 thousand was related to Corporate. We expect to incur additional restructuring expenses related to this plan of approximately $55.3 million, which includes $51.3 million related to Healthcare, $3.0 million related to AST, $0.8 million related to Life Sciences, and $0.2 million related to Corporate. The $55.3 million is comprised of $36.2 million related to severance and other compensation related costs, $15.3 million related to lease and other contract termination and other costs, and $3.8 million related to accelerated depreciation and amortization.

The following table summarizes our total pre-tax restructuring expenses recorded in fiscal 2024 related to the Restructuring Plan:

(1)Recorded in Cost of revenues on the Consolidated Statements of Income.

Non-Operating Expenses, Net. Non-operating expenses, net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, short-term investment balances, and other miscellaneous (income) expense. The following table compares our net non-operating expenses, net for the year ended March 31, 2024 to the year ended March 31, 2023:

Interest expense increased $36.4 million during fiscal 2024 over fiscal 2023, primarily due to higher interest rates and principal amount of outstanding floating rate debt. For more information, refer to Note 8 to our consolidated financial statements titled, "Debt."

The fluctuation in interest and miscellaneous (income) expense during fiscal 2024, as compared to fiscal 2023, totaled $13.9 million and is primarily attributable to gains recognized as a result of mark to market adjustments which were realized upon the sale of an equity investment as well as interest income accrued on an income tax refund. Additional information regarding the mark to market adjustments of our equity investments is included in Note 19 to our consolidated financial statements titled, "Fair Value Measurements."

Income Tax Expense. The following table compares our tax expense and effective income tax rates for the years ended March 31, 2024 and March 31, 2023:

The effective income tax rates from continuing operations for fiscal 2024 was 21.3% compared to 18.2% for fiscal 2023. The fiscal 2024 effective tax rate from continuing operations increased when compared to 2023, primarily due to non-recurring favorable discrete items recognized in fiscal 2023. Additional information regarding our income tax expense and effective income tax rate, is included in Note 10 to our consolidated financial statements titled, "Income Taxes."

Business Segment Results of Operations.

We operate and report our financial information in three reportable business segments: Healthcare, AST, and Life Sciences. Previously, we had four reportable business segments; however, as a result of the agreement to divest our Dental segment, Dental is presented as discontinued operations. Historical information has been retrospectively adjusted to reflect these changes for comparability, as required.

Our Healthcare segment provides a comprehensive offering for healthcare providers worldwide, focused on sterile processing departments and procedural centers, such as operating rooms and endoscopy suites. Our products and services range from infection prevention consumables and capital equipment, as well as services to maintain that equipment; to the repair of re-usable procedural instruments; to outsourced instrument reprocessing services. In addition, our procedural solutions also include endoscopy accessories, instruments, and capital equipment infrastructure used primarily in operating rooms, ambulatory surgery centers, endoscopy suites, and other procedural areas.

Our AST segment supports medical device and pharmaceutical manufacturers through a global network of contract sterilization and laboratory testing facilities, and integrated sterilization equipment and control systems. Our technology-neutral offering supports Customers every step of the way, from testing through sterilization.

Our Life Sciences segment provides a comprehensive offering of products and services designed to support biopharmaceutical and medical device research and manufacturing facilities, in particular those focused on aseptic manufacturing. Our portfolio includes a full suite of consumable products, equipment maintenance, specialty services, and capital equipment.

We disclose a measure of segment income that is consistent with the way management operates and views the business. The accounting policies for reportable segments are the same as those for the consolidated Company.

For more information regarding our segments please refer to Note 13 to our consolidated financial statements titled, "Business Segment Information," and Item 1, "Business."

The following table compares business segment revenues as well as impacts from acquisitions, divestitures, and foreign currency movements for the year ended March 31, 2024 to the year ended March 31, 2023.

Note: Organic revenue growth and constant currency organic revenue growth are non-GAAP financial measures of revenue performance. Organic revenue growth is calculated by removing the impact of acquisitions and divestitures for one year following the respective transaction from the GAAP revenue growth. Constant currency organic revenue growth is subject to a further adjustment to eliminate the impact of foreign currency movements.

Healthcare revenues increased 17.1% in fiscal 2024, as compared to fiscal 2023, reflecting growth in capital equipment, consumable, and service revenues of 21.7%, 18.9%, 11.8%, respectively. The constant currency organic growth of 12.8% is primarily due to increased volume, impacting revenues by a low double digit percentage, as well as increased pricing.

The Healthcare segment’s backlog at March 31, 2024 amounted to $353.8 million. The Healthcare segment's backlog at March 31, 2023 was $494.7 million. The decrease is due to increased shipments during fiscal 2024 as compared to fiscal 2023, resulting from shortened lead times and easing of supply chain constraints.

AST revenues increased 4.3% in fiscal 2024, as compared to fiscal 2023. The constant currency organic growth of 3.2% is primarily due to increased pricing, impacting revenues by a mid-single digit percentage, partially offset by lower volume. Revenue was negatively impacted by medical device Customer inventory management and the continued reduction in demand from bioprocessing Customers.

Life Sciences revenues increased 6.5% in fiscal 2024, as compared to fiscal 2023 reflecting growth in service, capital equipment, and consumable revenues of 11.1%, 5.5%, 4.3% respectively. The constant currency organic growth of 5.8% is primarily due to increased pricing, impacting revenues by a mid-single digit percentage, as well as higher volume.

The Life Sciences backlog at March 31, 2024 and 2023 amounted to $71.4 million and $104.9 million, respectively. The decrease is primarily due to the timing of shipments and a decrease in orders as compared to the same period in the prior year.

The following table compares business segment and Corporate operating income for the year ended March 31, 2024 to the year ended March 31, 2023

(1)For more information regarding our recent acquisitions and divestitures, refer to Note 3 to our consolidated financial statements titled, "Business Acquisitions and Divestitures."

(2) Acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions.

(3) Costs incurred in connection with the Redomiciliation and subsequent tax restructuring.

(4)For more information regarding our restructurings, refer to Note 2 to our consolidated financial statements titled, "Restructuring."

The Healthcare segment’s operating income increased $165.3 million to $871.4 million in fiscal year 2024, as compared to $706.0 million in fiscal year 2023. The segment's operating margins were 24.1% for fiscal year 2024 and 22.9% for fiscal year 2023. The increase in operating income and margin for the year is primarily due to the benefits of higher volume, including added volume from the acquisition of assets from BD, and pricing, which were partially offset by increased compensation, mostly due to commissions, and increased costs caused by inflation.

The AST segment’s operating income increased $10.7 million to $439.7 million in fiscal year 2024, as compared to $429.0 million in fiscal year 2023. The increase in operating income is primarily due to favorable pricing. The AST segment's operating margins were 46.1% for fiscal year 2024 and 46.9% for fiscal year 2023. The decrease in operating margin is primarily due to higher labor costs and decreased productivity, which exceeded the benefits of favorable pricing.

The Life Sciences business segment’s operating income increased $11.1 million to $221.3 million in fiscal year 2024, as compared to $210.2 million in fiscal year 2023. The increase in operating income was primarily due to favorable pricing and volume, which were partially offset by increased costs caused by inflation. The segment’s operating margins were 38.7% for fiscal year 2024 and 39.2% for fiscal year 2023. The decrease in operating margin was primarily due to increased costs due to inflation, which exceeded the benefits of favorable pricing.