STERIS CORP 
By Revenue growth of 7% driven by solid organic performance
Strong revenue growth of 12% in the U.S.
International results and investments in the U.S. impact profits in the quarter
Mentor, Ohio (February 5, 2014) - STERIS Corporation (NYSE: STE) today announced financial results for its fiscal 2014 third quarter ended December 31, 2013. Fiscal 2014 third quarter revenue increased 7% to $405.6 million compared with $380.4 million in the third quarter of fiscal 2013. As reported, net income was $28.5 million, or $0.48 per diluted share, compared with net income of $48.1 million, or $0.82 per diluted share in the third quarter of fiscal 2013. Included in the financial results for the third quarter of fiscal 2013 was a favorable $15.8 million pre-tax adjustment attributable to the SYSTEM 1 class action settlement liability and an $8.1 million tax benefit associated with our prior European restructuring effort, as well as certain other items.
Adjusted net income for the third quarter of fiscal 2014 was $34.9 million, or $0.59 per diluted share compared with adjusted net income of $34.3 million, or $0.58 per diluted share in the prior year period. Please refer to the attached schedules for additional information, including reconciliations of adjusted "non-GAAP financial measures" to reported results.
"The third quarter was another good quarter for us with solid organic revenue growth, and record backlog in the Healthcare segment," said Walt Rosebrough, President and Chief Executive Officer of STERIS Corporation. "Our strong performance in the U.S. was somewhat offset by a decline in international revenue and profitability. We continue to anticipate a very strong fourth quarter and a record year, but are trimming our earnings outlook for the full year to reflect our third quarter results."
Segment Results
Healthcare revenue in the quarter increased 8% to $291.8 million compared with $271.1 million in the same period last year. Healthcare revenue grew across the business, with 4% growth in capital equipment, 6% increase in consumables and 15% growth in service revenues.
As reported, Healthcare segment operating income was $31.2 million compared with $45.5 million in last year's third quarter. Included in the financial results for the third quarter of fiscal 2013 was the favorable impact of the SYSTEM 1 class action settlement liability described above. Adjusted segment operating income was $37.5 million in the third quarter of fiscal 2014 compared with adjusted segment operating income of $35.7 million in the same period last year.
Life Sciences third quarter revenue declined slightly to $64.1 million compared with $65.0 million in the third quarter of fiscal 2013. Consumable revenue grew 8% and service revenue increased 2%. Capital equipment revenue, which tends to vary by quarter, declined 10%. Life Sciences operating income was $12.1 million compared with $12.8 million in the same period last year, reflecting the decline in volume.
Fiscal 2014 third quarter revenue for Isomedix Services was $49.2 million compared with $43.4 million in the same period last year, an increase of 13%. Expanded capacity contributed to revenue growth in the quarter. In addition, the prior year includes the business disruption from hurricane Sandy, making the comparison versus the prior year somewhat easier. Operating income in the quarter increased to $14.1 million compared with $11.1 million last year, reflecting the increase in volume.
Cash Flow
Net cash provided by operations for the first nine months of fiscal 2014 was $142.2 million, compared with $180.9 million last year. Free cash flow (see note 1) for the first nine months of fiscal 2014 was $82.1 million, compared with $117.1 million in the prior year. The decline in free cash flow is primarily due to payments for the Company's annual incentive compensation program which did not occur in fiscal 2013, as well as the impact of strong working capital improvements in the prior year.
Dividend Announcement
The Company also announced today that STERIS's Board of Directors has authorized a quarterly dividend of $0.21 per common share. The dividend is payable March 26, 2014 to shareholders of record at the close of business on February 26, 2014.
Outlook
Based upon current trends and performance year-to-date, the Company anticipates full year revenue growth, within its prior range, of approximately 9% for fiscal 2014. Earnings per diluted share are now anticipated to be in the range of $2.42 to $2.49, compared with the previously provided range of $2.47 to $2.60 for the full fiscal year. The change in outlook for earnings per share reflects the Company's third quarter performance; in particular a higher effective tax rate, a decline in international results and investments in the U.S. This outlook reflects other key assumptions, some of which are listed below:
Healthcare segment revenue is expected to grow low-double digits.
Life Sciences segment revenue is expected to grow low-single digits.
Isomedix segment revenue is expected to grow high-single digits.
The Company has assumed the average forward exchange rates for the U.S. dollar and key international currencies as of December 31, 2013.
Adjusted EBIT as a percent of revenue is anticipated to be approximately 15%.
The adjusted effective tax rate is anticipated to be approximately 36%.
For the full fiscal year 2014, the Company's expectations for free cash flow (see note 1) are unchanged at approximately $130 million, which include capital expenditures of approximately $90 million.
Conference Call
In conjunction with this release, STERIS Corporation management will host a conference call today 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- 800-369-8428 in the United States and Canada, and 1-773-799-3378 internationally, then referencing the password "STERIS".
For those unable to listen to the conference call live, a replay will be available beginning at 12:00 p.m. Eastern time today, either over the Internet at www.steris-ir.com or via phone by calling 1-888-296-6941 in the United States and Canada, or 1-203-369-3026 internationally.
About STERIS
The mission of STERIS Corporation 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. The Company is listed on the New York Stock Exchange under the symbol STE. For more information, visit www.steris.com.
(1) Free cash flow is a non-GAAP number used by the Company as a measure to gauge its ability to fund future principal debt repayments and growth outside of core operations, repurchase common shares, and pay cash dividends. STERIS defines free cash flow as net 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's calculation of free cash flow may vary from other companies. Please see the attached financial tables for a complete reconciliation of these non-GAAP numbers to the nearest GAAP information.
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This press release and the referenced conference call may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to the Company 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 of this press release and the referenced conference call, 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," "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 herein and in the Company's Form 10-K and other securities filings. Many of these important factors are outside STERIS's control. No assurances can be provided as to any result or the timing of any outcome regarding matters described in this press release, the referenced conference call or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, consent decree, rebate program, transition, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products, the consent decree, the transition or rebate program, or the class action settlement, are summaries only and should not be considered the specific terms of the decree, settlement, program or product clearance or literature. Unless legally required, the Company 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 potential for increased pressure on pricing or costs that leads to erosion of profit margins, (b) the possibility that market demand will not develop for new technologies, products or applications or business initiatives will take longer, cost more or produce lower benefits than anticipated, (c) 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 Company performance, results, prospects or value, (d) the potential of international unrest, economic downturn or effects of currencies, tax assessments, adjustments, or anticipated rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (e) the possibility of reduced demand, or reductions in the rate of growth in demand, for the Company's products and services, (f) 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 our business, industry or initiatives including, without limitation, the consent decree, the transition from the SYSTEM 1 processing system and adjustments to related reserves, or those matters described in our Form 10-K for the year ended March 31, 2013 and other securities filings, may adversely impact Company performance, results, prospects or value, (g) the possibility that anticipated financial results or benefits of recent acquisitions will not be realized or will be other than anticipated, (h) the effect of the contraction in credit availability, as well as the ability of our Customers and suppliers to adequately access the credit markets when needed, and (i) those risks described in our securities filings including our Annual Report on Form 10-K for the year ended March 31, 2013, and other securities filings.
Contact: Julie Winter, Director, Investor Relations at 440-392-7245.
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