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 divestiture of 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 factors affecting our performance for the year ended March 31, 2024 compared to the fiscal year ended March 31, 2023 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, 2024.

FISCAL 2025 AS COMPARED TO FISCAL 2024

Revenues. The following table compares our revenues, in total and by type and geography, for the year ended March 31, 2025 to the year ended March 31, 2024:

(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 $320.8 million, or 6.2%, to $5,459.5 million for the year ended March 31, 2025, as compared to $5,138.7 million for the year ended March 31, 2024. These increases reflect higher volume, primarily in our Healthcare segment due to organic growth and the added volume from the acquisition of assets from BD and organic growth in our AST segment, and pricing across all segments.

Service revenues for fiscal 2025 increased $213.2 million, or 9.0% over fiscal 2024, reflecting growth in the Healthcare and AST segments, which was partially offset by a decline in the Life Sciences segment due to the divestiture of the CECS business. Consumable revenues for fiscal 2025 increased $183.5 million, or 12.2%, over fiscal 2024, reflecting growth in the Healthcare and Life Sciences segments. Capital equipment revenues for fiscal 2025 decreased by $75.9 million, or 6.0%, as compared to fiscal 2024, reflecting declines in the Healthcare and Life Sciences segments, partially offset by growth in the AST segment.

Ireland revenues for fiscal 2025 were $107.3 million, representing an increase of $24.6 million, or 29.8%, over fiscal 2024 revenues of $82.7 million, reflecting growth in capital equipment, service, and consumable revenues.

United States revenues for fiscal 2025 were $4,007.6 million, representing an increase of $256.2 million, or 6.8%, over fiscal 2024 revenues of $3,751.4 million, reflecting growth in service and consumable revenues, partially offset by a decline in capital equipment revenues.

Revenues from other foreign locations for fiscal 2025 were $1,344.6 million, representing an increase of $40.0 million, or 3.1% over the fiscal 2024 revenues of $1,304.6 million. The increase reflects growth within the Europe, Middle East, and Africa, Asia Pacific, and Latin American regions, which was partially offset by declines in Canada.

Gross Profit. The following table compares our gross profit for the year ended March 31, 2025 to the year ended March 31, 2024:

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 increased to 44.0% for fiscal 2025 as compared to 43.2% for fiscal 2024. Favorable impacts from pricing (130 basis points), mix (70 basis points), material costs (30 basis points), productivity (20 basis points), and divestitures (20 basis points) were partially offset by unfavorable impacts from inflation (150 basis points) and adjustments and other charges (30 basis points).

Operating Expenses. The following table compares our operating expenses for the year ended March 31, 2025 to the year ended March 31, 2024:

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 6.5% in fiscal 2025 over fiscal 2024. The fiscal 2025 increase is primarily attributable to increased compensation and benefit costs, as well as legal costs associated with our EO litigation. For more information regarding our ongoing litigation, refer to Note 12 to our consolidated financial statements titled, "Commitments and Contingencies."

Research and Development. Research and development expenses increased $4.0 million in fiscal 2025 over fiscal 2024. 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 2025, our investments in research and development have continued to be focused on, but were not limited to, enhancing capabilities of sterile processing technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.

Illinois EO Litigation Settlement. On March 3, 2025, we entered into binding confidential term sheets with plaintiffs’ counsel (the “Term Sheets”), as well as settlement agreements with several plaintiffs related to our Illinois EO litigation. The Term Sheets and settlement agreements are expected to lead to a resolution of substantially all claims for personal injury related to EO that are pending in the Circuit Court of Cook County, Illinois. We recorded an expense of $48.2 million related to this settlement in fiscal 2025. For more information, refer to Note 12 to our consolidated financial statements titled, "Commitments and Contingencies."

Restructuring Expenses. In May 2024, 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. Approximately 300 positions have been eliminated. These restructuring actions are designed to enhance profitability and improve efficiency. We estimate improvements in income from operations of approximately $25.0 million per year, with the majority of the benefit beginning in fiscal 2026 due to timing of actions.

The following table summarizes our total pre-tax restructuring expenses recorded in fiscal 2025 related to the Restructuring Plan:

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

The Restructuring Plan expenses incurred during fiscal 2025 and 2024 primarily related to actions taken in our Healthcare and AST segments. Total pre-tax restructuring expense of $106.7 million has been recorded relating to the Restructuring Plan since inception, of which $34.6 million has been recorded in Cost of revenues. Additional costs with respect to our Restructuring Plan in fiscal 2026 are not expected to be significant.

Liabilities related to restructuring activities are recorded as current liabilities in the accompanying Consolidated Balance Sheets within "Accrued payroll and other related liabilities" and "Accrued expenses and other." The following table summarizes our restructuring liability balances:

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, 2025 to the year ended March 31, 2024:

Interest expense decreased $58.1 million during fiscal 2025 as compared to fiscal 2024, primarily due to the lower principal amount of debt outstanding as well as lower interest rates on floating rate debt. For more information, refer to Note 8 to our consolidated financial statements titled, "Debt."

Interest and miscellaneous income decreased during fiscal 2025, as compared to fiscal 2024, by $2.6 million and is driven by lower interest income.

Gain on sale of businesses and equity investment, net was $7.4 million during fiscal 2025 and primarily relates to the gain recorded from the sale of our CECS business, which was partially offset by a loss recorded on an equity investment. For more information on our equity investments, refer to Note 19 to our consolidated financial statements titled, "Fair Value Measurements." For more information on our divestiture activity, refer to Note 3 to our consolidated financial statements titled, "Business Acquisitions and Divestitures."

Income Tax Expense. The following table compares our tax expense and effective income tax rates for the years ended March 31, 2025 and March 31, 2024:

The effective income tax rates from continuing operations for fiscal 2025 was 23.2% compared to 21.3% for fiscal 2024. The fiscal 2025 effective tax rate from continuing operations increased when compared to 2024, primarily due to changes in discrete items. 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 products 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 manufacturing facilities, in particular those focused on aseptic manufacturing. Our portfolio includes a full suite of capital equipment, consumable products, equipment maintenance and specialty services.

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, 2025 to the year ended March 31, 2024.

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 7.4% in fiscal 2025, as compared to fiscal 2024, reflecting growth in service and consumable revenues of 13.5% and 11.8%, respectively, which was partially offset by declines in capital equipment revenues of 5.0%. The constant currency organic growth of 6.1% is primarily due to increased volume and pricing, impacting revenues by a low-single digit percentage.

The Healthcare segment’s backlog at March 31, 2025 amounted to $369.2 million. The Healthcare segment's backlog at March 31, 2024 was $353.8 million. The increase is due to increased demand from Customers.

AST revenues increased 8.9% in fiscal 2025, as compared to fiscal 2024. The constant currency organic growth of 9.1% is primarily due to increased pricing, impacting revenues by a mid-single digit percentage, as well as increased volume.

Life Sciences revenues decreased 5.1% in fiscal 2025, as compared to fiscal 2024 partially due to the sale of the CECS business, which more than offset other services growth resulting in a decline of 16.1% in service revenues. This decrease also reflects declines in capital equipment revenues of 24.4%, which was partially offset by growth in consumable revenues of 13.9%. The constant currency organic growth of 1.3% is primarily due to increased pricing, impacting revenues by a low single digit percentage.

The Life Sciences backlog at March 31, 2025 and 2024 amounted to $83.7 million and $71.4 million, respectively. The increase is due to increased demand from Customers.

The following table compares business segment and Corporate operating income for the year ended March 31, 2025 to the year ended March 31, 2024:

(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 tax restructuring.

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

(5) For more information regarding the Illinois EO litigation settlement, refer to Note 12 to our consolidating financial statements titled "Commitments and Contingencies."

The Healthcare segment’s operating income increased $100.2 million to $971.5 million in fiscal year 2025, as compared to $871.4 million in fiscal year 2024. The segment's operating margins were 25.0% for fiscal year 2025 and 24.1% for fiscal year 2024. The increase in operating income and margin for the year is primarily due to the benefits of higher volume and pricing, which were partially offset by increased compensation costs.

The AST segment’s operating income increased $25.8 million to $465.6 million in fiscal year 2025, as compared to $439.7 million in fiscal year 2024. The increase in operating income for the year is primarily due to higher pricing and increased volume, which was partially offset by higher labor costs. The AST segment's operating margins were 44.8% for fiscal year 2025 and 46.1% for fiscal year 2024. The decrease in operating margin is primarily due to higher labor costs and unfavorable productivity, which was partially offset by higher pricing.

The Life Sciences segment’s operating income increased $8.1 million to $229.4 million in fiscal year 2025, as compared to $221.3 million in fiscal year 2024. The segment’s operating margins were 42.3% for fiscal year 2025 and 38.7% for fiscal year 2024. The increase in operating income and margin for the year is primarily due to favorable mix and pricing.