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STERIS Announces Financial Results for Fiscal 2019 Third Quarter

(GLOBE NEWSWIRE via COMTEX) --- Third quarter revenue grows 5% as reported and 7% on a constant currency organic basis

- As reported earnings per diluted share of $0.56 reflect restructuring charge of approximately $35 million

- Adjusted earnings per diluted share increase 13% to $1.26

DERBY, U.K.  - (February 11, 2019) - STERIS plc (NYSE: STE) ("STERIS" or the "Company") today announced financial results for its fiscal 2019 third quarter ended December 31, 2018.  Revenue as reported for the quarter increased 5% to $696.2 million compared with $661.9 million in the third quarter of fiscal 2018, with growth across all segments. Constant currency organic revenue (see Non-GAAP Financial Measures) growth was 7% for the third quarter of fiscal 2019.

"We are very pleased with our progress this year, and we continue to see strong demand from the Customers we serve," said Walt Rosebrough, President and Chief Executive Officer of STERIS.  "We look forward to closing another record year in fiscal 2019 with approximately 6% constant currency organic revenue growth and double-digit adjusted EPS improvement."

As reported, net income for the third quarter was $47.9 million, or $0.56 per diluted share, compared with net income of $94.8 million, or $1.11 per diluted share in the third quarter of fiscal 2018.  Third quarter fiscal 2019 earnings were negatively impacted by approximately $35.2 million in restructuring expenses. During the quarter, the Company announced a restructuring plan which included the closure of two manufacturing facilities as well as other actions including product rationalization.  In addition, during the third quarter the Company adopted a branding strategy that included phasing out the usage of a tradename associated with certain products in the Healthcare Products segment, which reduced earnings by approximately $16.2 million.  Adjusted net income (see Non-GAAP Financial Measures) for the third quarter of fiscal 2019 was $107.2 million, or $1.26 per diluted share, compared with adjusted net income for the previous year's third quarter of $96.3 million or $1.12 per diluted share.  

Segment Results

Healthcare Products revenue as reported grew 4% in the quarter to $338.3 million compared with $324.9 million in the third quarter of fiscal 2018, driven by 7% growth in capital equipment revenue and 4% growth in service revenue during the quarter.  Consumable revenue increased 1% in the third quarter, with growth limited by divestitures.  Constant currency organic revenue growth for Healthcare Products was 7% during the quarter.  Healthcare Products operating income was $82.8 million compared with $81.5 million in last year's third quarter.  The increase in profitability was primarily due to the increased volume and favorable currency offset by the timing of operating expenses.

Healthcare Specialty Services as reported revenue grew 9% in the quarter to $127.8 million compared with $117.4 million in the third quarter of fiscal 2018.  Constant currency organic revenue growth was 10%.  Healthcare Specialty Services operating income was $16.0 million compared with $13.7 million in last year's third quarter, as the business leveraged the investments made over the last several quarters, particularly in the United States.

Fiscal 2019 third quarter revenue for Applied Sterilization Technologies increased 6% as reported to $136.8 million compared with $128.7 million in the same period last year.  Constant currency organic revenue increased 8%, primarily driven by increased volume from the segment's core medical device Customers.  Segment operating income increased to $54.8 million in the third quarter of fiscal 2019 compared with operating income of $48.2 million in the same period last year, due primarily to the revenue growth.

Life Sciences third quarter revenue as reported grew 3% to $93.5 million compared with $90.9 million in the third quarter of fiscal 2018, driven by 9% growth in consumables and 5% growth in service revenue.  Capital equipment revenue declined 8% in the third quarter compared with a strong quarter in the prior year.  Constant currency organic revenue grew 4% in the quarter. Operating income was $33.1 million compared with $31.2 million in the prior year's third quarter, driven by volume and favorable mix.  

Cash Flow

Net cash provided by operations for the first nine months of fiscal 2019 was $360.6 million, compared with $327.9 million in the first nine months of fiscal 2018.  Free cash flow (see Non-GAAP Financial Measures) for the first nine months of fiscal 2019 was $252.9 million compared with $216.4 million in the prior year period.  The improvement in free cash flow is primarily due to the improved cash from operations.

Fiscal 2019 Outlook

The Company is maintaining its full year expectations for as reported revenue growth of approximately 5%, even though the impact of currency and divestitures has increased to approximately $35 million, with the impact of divestitures being about $25 million, and about $10 million of negative impact from currency based on the forward rates as of December 31, 2018.  In addition, constant currency organic revenue growth is now expected to be approximately 6% for the full fiscal year 2019 reflecting the strong performance to date and expectations for the fourth quarter.  Adjusted earnings per diluted share continue to be expected in the range of $4.74 - $4.84.  

Free cash flow for fiscal 2019 is now expected to be approximately $330 million, and capital spending is anticipated to be approximately $180 million.

Dividend Announcement

STERIS's Board of Directors has authorized a quarterly interim dividend of $0.34 per share.  The dividend is payable March 21, 2019 to shareholders of record at the close of business on February 27, 2019. 

Ireland Redomiciliation

As previously disclosed, the Company intends to redomicile from the United Kingdom to Ireland prior to the end of March 2019.  The redomiciliation is subject to shareholder and U.K. Court approval.  As described in the Joint Definitive Proxy Statement and Prospectus filed on January 31, 2019, a Court Meeting and a General Meeting of the shareholders of STERIS plc will be held on February 28, 2019.  STERIS's Board of Directors has determined that all proposals to be voted upon at the shareholder meetings are in the best interests of the Company and its shareholders and unanimously recommends that shareholders vote "for" approval of the Scheme and other proposals at the shareholder meetings.

All shareholder votes on the proposals are important. Whether or not shareholders plan to attend the Court Meeting and the General Meeting of shareholders, please vote as promptly as possible. Details of how and when votes must be submitted are described in the joint definitive proxy statement and prospectus filed with the SEC on January 31, 2019.

Conference Call

As previously announced, STERIS management will host a conference call tomorrow, February 12, 2019 at 10:00 a.m. Eastern time.  The conference call can be heard live over the Internet at www.steris-ir.com or via phone by dialing 1-833-535-2199 in the United States or 1-412-902-6776 internationally, then asking to join the conference call for STERIS plc.

For those unable to listen to the conference call live, a replay will be available beginning at 12:00 p.m. Eastern Time on February 12, 2019, either over the Internet at www.steris-ir.com or via phone.  To access the replay of the call, please use the access code 10127887 and dial 1-877-344-7529 in the United States or 1-412-317-0088 internationally.

About STERIS

STERIS's mission is to help our Customers create a healthier and safer world by providing innovative healthcare and life science product and service solutions around the globe. For more information, visit www.steris.com.

Investor Contact:

Julie Winter, Senior Director, Investor Relations and Corporate Communications

Julie_Winter@steris.com

+1 440 392 7245

Media Contact:

Stephen Norton, Senior Director, Corporate Communications

Stephen_Norton@steris.com

+1 440 392 7482

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

No Offer or Solicitation

This document is provided for informational purposes only and does not constitute an offer to sell, or an invitation to subscribe for, purchase or exchange, any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance, exchange or transfer of the securities referred to in this document in any jurisdiction in contravention of applicable law.

Non-GAAP Financial Measures

Adjusted net income, free cash flow and constant currency organic revenue are non-GAAP measures that may be used from time to time and should not be considered replacements for GAAP results.  Non-GAAP financial measures are presented in this release with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision making. These amounts are disclosed so that the reader has the same financial data that management uses with the belief that it will assist investors and other readers in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented.  The Company believes that the presentation of these non-GAAP financial measures, when considered along with our GAAP financial measures, provides a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure.

Adjusted net income excludes the amortization of intangible assets acquired in business combinations, acquisition-related transaction costs, integration costs related to acquisitions, the re-measurement of deferred taxes and taxation of prior unremitted earnings impacts of the TCJA, and certain other unusual or non-recurring items.  STERIS believes this measure is useful because it excludes items that may not be indicative of or are unrelated to our core operating results and provides a baseline for analyzing trends in our underlying businesses.

The Company defines free cash flow as cash flows from operating activities less purchases of property, plant, equipment and intangibles, plus proceeds from the sale of property, plant, equipment, and intangibles.  STERIS believes that free cash flow is a useful measure of the Company's ability to fund future principal debt repayments and growth outside of core operations, pay cash dividends, and repurchase ordinary shares.

To measure the percentage organic revenue growth, the Company removes the impact of significant acquisitions and divestitures that affect the comparability and trends in revenue. To measure the percentage constant currency organic revenue growth, the impact of changes in currency exchange rates and acquisitions and divestitures that affect the comparability and trends in revenue are removed.  The impact of changes in currency exchange rates is calculated by translating current year results at prior year average currency exchange rates.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales, gross profit, operating income, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of the Company's operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of the business. The Company strongly encourage investors and shareholders to review its financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Forward-Looking Statements

This release and the referenced conference call may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the protections afforded "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date the statement is made and may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "targets," "forecasts," "outlook," "impact," "potential," "confidence," "improve," "optimistic," "deliver," "orders," "backlog," "comfortable," "trend", and "seeks," or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations, labeling or product approvals or the application or interpretation thereof. Other risk factors are described in STERIS's securities filings, including Item 1A of STERIS's Annual Report on Form 10-K for the year ended March 31, 2018. Many of these important factors are outside of STERIS's control. No assurances can be provided as to any result or the timing of any outcome regarding matters described in STERIS's securities filings or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products are summaries only and should not be considered the specific terms of the product clearance or literature. Unless legally required, STERIS does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the receipt of approval of STERIS's shareholders of the redomiciliation transaction, (b) any regulatory or court approvals required for the redomiciliation transaction not being obtained on the terms expected or on the anticipated schedule, (c) the parties' ability to meet expectations regarding the timing, completion and accounting and tax treatments of the redomiciliation transaction, (d) operating costs, Customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, Customers, clients or suppliers) being greater than expected following the redomiciliation transaction, (e) STERIS's ability to meet expectations regarding the accounting and tax treatment of the Tax Cuts and Jobs Act ("TCJA") or the possibility that anticipated benefits resulting from the TCJA will be less than estimated, (f) changes in tax laws or interpretations that could increase our consolidated tax liabilities, including, if the redomiciliation transaction is consummated, changes in tax laws that would result in STERIS Ireland being treated as a domestic corporation for United States federal tax purposes, (g) the potential for increased pressure on pricing or costs that leads to erosion of profit margins, (h) the possibility that market demand will not develop for new technologies, products or applications or services, or business initiatives will take longer, cost more or produce lower benefits than anticipated, (i) the possibility that application of or compliance with laws, court rulings, certifications, regulations, regulatory actions, including without limitation those relating to FDA warning notices or letters, government investigations, the outcome of any pending FDA requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product introductions, affect the production and marketing of existing products or services or otherwise affect STERIS's performance, results, prospects or value, (j) the potential of international unrest, economic downturn or effects of currencies, tax assessments, tariffs and/or other trade barriers, adjustments or anticipated rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (k) the possibility of reduced demand, or reductions in the rate of growth in demand, for STERIS's products and services, (l) the possibility of delays in receipt of orders, order cancellations, or delays in the manufacture or shipment of ordered products or in the provision of services, (m) the possibility that anticipated growth, cost savings, new product acceptance, performance or approvals, or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with STERIS's businesses, industry or initiatives including, without limitation, those matters described in STERIS's 10-K for the year ended March 31, 2018 and other securities filings, may adversely impact STERIS's performance, results, prospects or value, (n) the impact on STERIS and its operations, or tax liabilities, of Brexit or the exit of other member countries from the EU, and the Company's ability to respond to such impacts, (o) the impact on STERIS and its operations of any legislation, regulations or orders, including but not limited to any new trade or tax legislation, regulations or orders, that may be implemented by the U.S. administration or Congress, or of any responses thereto, (p) the possibility that anticipated financial results or benefits of recent acquisitions, or of STERIS's restructuring efforts, or of recent divestitures, or of the targeted restructuring plan will not be realized or will be other than anticipated, and (q) the effects of contractions in credit availability, as well as the ability of STERIS's Customers and suppliers to adequately access the credit markets when needed.

Additional Information and Where to Find It

In connection with the issuance of ordinary shares of STERIS Ireland to STERIS shareholders pursuant to the redomiciliation transaction, both companies have filed and will file relevant materials with the SEC, including a Registration Statement on Form S-4 that contains a prospectus of STERIS Ireland as well as a proxy statement of STERIS relating to the scheme of arrangement that forms a part of the redomiciliation transaction, which we refer to together as the Joint Proxy and Registration Statement on Form S-4.

INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY AND REGISTRATION STATEMENT ON FORM S-4 AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE REDOMICILIATION TRANSACTION CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE REDOMICILIATION TRANSACTION, THE PARTIES TO THE REDOMICILIATION TRANSACTION AND THE RISKS ASSOCIATED WITH THE REDOMICILIATION TRANSACTION. Those documents, if and when filed, as well as STERIS's and STERIS Ireland's other public filings with the SEC may be obtained without charge at the SEC's website at www.sec.gov, at STERIS's website at www.steris-ir.com or by contacting STERIS Investor Relations at 440-392-7245. 

Participants in the Solicitation

STERIS, its directors and certain of its executive officers may be considered participants in the solicitation of proxies in connection with the transactions contemplated by the Joint Proxy and Registration Statement on Form S-4. Information about the directors and executive officers of STERIS is set forth in its Annual Report on Form 10-K for the year ended March 31, 2018, which was filed with the SEC on May 30, 2018, and its proxy statement for its 2018 annual meeting of shareholders, which was filed with the SEC on June 5, 2018. Other information regarding potential participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the Joint Proxy and Registration Statement on Form S-4.

STERIS is organized under the laws of England and Wales. STERIS Ireland will be organized under the laws of Ireland. Some of the officers and directors of STERIS and STERIS IRELAND are or will be residents of countries other than the United States. As a result, it may not be possible to sue STERIS, STERIS Ireland or such persons in a non-US court for violations of U.S. securities laws. It may be difficult to compel STERIS, STERIS IRELAND and their respective affiliates to subject themselves to the jurisdiction and judgment of a U.S. court or for investors to enforce against them the judgments of U.S. courts.

This announcement is distributed by West Corporation on behalf of West Corporation clients.

The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: Steris Corporation via Globenewswire

STERIS 3Q19 Financial Tables - http://hugin.info/149217/R/2234466/879305.pdf