What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-02-09 · 192 added, 285 removed, 230 unchanged (67% of the section changed)

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• what our expenditures for capital projects were;

• where cash will come from to fund future debt principal repayments, growth outside of core operations, repurchases of shares, cash dividends and future working capital needs.

As you read the MD&A, it may be helpful to refer to information in our consolidated financial statements, which present the results of our operations for the third quarter and first nine months of fiscal 2022 and fiscal 2021.

It may also be helpful to read the MD&A in our Annual Report on Form 10-K for the year ended March 31, 2021 dated May 28, 2021.

• where cash will come from to fund future debt principal repayments, growth outside of core operations, repurchases of shares, pay cash dividends and fund future working capital needs.

As you read the MD&A, it may be helpful to refer to information in our consolidated financial statements, which present the results of our operations for the first quarter of fiscal 2023 and fiscal 2022.

It may also be helpful to refer to information in Item 1, "Business", Part I, Item 1A, "Risk Factors" and Note 10 of our consolidated financial statements titled, "Commitments and Contingencies" of our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022, and Part II, Item 1A.

of this quarterly report, for a discussion of some of the matters that can adversely affect our business and results of operations.

In the MD&A, we analyze and explain the period-over-period changes in the specific line items in the Consolidated Statements of Income.

Our analysis may be important to you in making decisions about your investments in STERIS.

This information, discussion, and analysis may be important to you in making decisions about your investments in STERIS.

Financial Measures

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• Service Revenues – We define service revenues as revenues generated from parts and labor associated with the maintenance, repair, and installation of our capital equipment.

Service revenues also include outsourced reprocessing services and instrument and scope repairs, as well as revenues generated from contract sterilization and laboratory services offered through our Applied Sterilization Technologies segment.

Service revenues also include hospital sterilization services, instrument and scope repairs, as well as revenues generated from contract sterilization and laboratory services offered through our Applied Sterilization Technologies segment.

• Capital Equipment Revenues – We define capital equipment revenues as revenues generated from sales of capital equipment, which includes:

steam and gas sterilizers, low temperature liquid chemical sterilant processing systems, pure steam/water systems, surgical lights and tables, and integrated OR.

• Consumable Revenues – We define consumable revenues as revenues generated from sales of the consumable family of products, which includes dedicated consumables including V-PRO, SYSTEM 1 and 1E consumables, gastrointestinal endoscopy accessories, sterility assurance products, barrier protection solutions, cleaning consumables, and surgical instruments.

steam and gas sterilizers, low temperature liquid chemical sterilant processing systems, pure steam/water systems, surgical lights and tables, and integrated operating room ("OR").

• Recurring Revenues – We define recurring revenues as revenues generated from sales of consumable products and service revenues.

General Company Overview and Executive Summary

S TERIS is a leading global provider of products and services that support patient care with an emphasis on infection prevention.

STERIS is a leading global provider of products and services that support patient care with an emphasis on infection prevention.

WE HELP OUR CUSTOMERS CREATE A HEALTHIER AND SAFER WORLD by providing innovative healthcare, life sciences and dental products and services.

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equipment installation and maintenance, microbial reduction of medical devices, dental instruments and tools, instrument and scope repair, laboratory testing services, outsourced reprocessing, and capital equipment products, such as sterilizers and surgical tables, automated endoscope reprocessors, and connectivity solutions such as operating room (“OR”) integrati on.

We operate our business and report our financial information in four reportable business segments:

We operate and report our financial information in four reportable business segments:

Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.

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On June 2, 2021, we acquired all outstanding equity interests in Cantel Medical LLC.

("Cantel") through a U.S.

Cantel, formerly headquartered in Little Falls, New Jersey, with approximately 3,700 employees, is a global provider of infection prevention products and services primarily to endoscopy and dental Customers.

We believe that the acquisition will strengthen STERIS’s leadership in infection prevention by bringing together two complementary businesse s able to offer a broader set of Customers a more diversified selection of infection prevention, endoscopy and sterilization products and services.

Cantel was integrated into our existing Healthcare and Life Sciences segments.

Cantel’s Dental business extends our business into a new Customer segment where there is an increasing focus on infection prevention protocols and processes.

This business is reported as the Dental segment.

Additionally, the acquisition is expected to result in cost savings from optimizing global back-office infrastructure, leveraging best-demonstrated practices across locations and eliminating redundant public company costs.

Cantel’s Dental business extended our business into a new Customer segment where there is an increasing focus on infection prevention protocols and processes.

This business is being reported as the Dental segment.

The rest of Cantel was integrated into our existing Healthcare and Life Sciences segments.

Additionally, the acquisition has and is expected to continue to result in cost savings from optimizing global back-office infrastructure, leveraging best-demonstrated practices across locations and eliminating redundant public company costs.

Fiscal 2023 and 2022 first quarter acquisition and integration expenses totaled $9.8 million and $141.0 million, respectively and were primarily related to the acquisition and integration of Cantel.

Acquisition and integration expenses are reported in the selling, general and administrative expenses line of our Consolidated Statements of Income.

The results of Cantel are only reflected in the results of operations and cash flows from June 2, 2021 forward, which will affect results of comparability to the prior period operations and cash flows.

Divestitures.

In December 2021, we entered into an Asset Purchase Agreement to sell STERIS's Renal Care business to Evoqua Water Technologies Corp., for cash consideration of approximately $196.0 million, subject to certain potential adjustments, including a customary working capital adjustment and contingent consideration of $12.3 million.

We anticipate no material gain (loss) on the sale.

The net assets are not reported as held for sale as they are not material to the balance sheet as of December 31, 2021.

The transaction closed on January 3, 2022.

We acquired the Renal Care business as part of the Cantel transaction, which closed on June 2, 2021, and had been integrated into STERIS's Healthcare segment.

The Renal Care business generated annual revenues of approximately $180.0 million.

The proceeds from the sale received at closing were used to repay outstanding debt.

COVID-19 Pandemic.

We do not believe that the COVID-19 pandemic has had a material impact on our operations, as we have been able to continue to operate our manufacturing facilities and meet the demand for essential products and services of our Customers.

In response to the COVID-19 pandemic, we implemented several measures that we believe helped us protect the health and safety of our employees, preserve liquidity and enhance our financial flexibility.

We allowed employees to work remotely when possible and implemented additional safety measures in compliance with applicable regulations to allow personnel to continue to work in our facilities.

We have successfully managed our liquidity throughout the COVID-19 pandemic and continue to invest in expansion projects as planned.

We obtained addi tional funding in the second half o f fiscal 2021 to continue to advance our growth strategy to supplement organic growth with acquisitions.

As a result, we do not believe that the COVID-19 pandemic or the actions we took in respo nse to the pandemic will negatively impact our long-term ability to generate revenues or meet existing and future financial obligations.For additional information on our risk factors related to the COVID-19 pandemic please refer to our Annual Report on Form 10-K for the year ended March 31, 2021 dated May 28, 2021, and our amended risk factors contained in Item 1A.

of this Quarterly Report.

Revenues increased 49.5%, to $1,209.0 million for the three months ended December 31, 2021, as compared to $808.9 million for the same period in the prior year.

Revenues increased 51.0%, to $3,374.4 million for the nine months ended December 31, 2021, as compared to $2,234.0 million for the same period in the prior year.

These increases reflect added volume from Cantel and other recent acquisitions, organic growth in the Healthcare, Applied Sterilization Technologies and Life Sciences segments, and favorable fluctuations in currencie s in the year-to-date period.

Gross profit percentage for the third quarter of fiscal 2022 was 44.5% compared to the gross profit percentage for the third quarter of fiscal 2021 of 42.8%.

Favorable impacts from our recent acquisitions, productivity, pricing and mix and other adjustments, exceeded unfavorable impacts from material costs, inflation and fluctuations in currencies.

Gross profit percentage for the first nine months of fiscal 2022 was 42.8% compared to the gross profit percentage for the first nine months of fiscal 2021 of 43.1%.

Unfavorable impacts from our recent acquisitions, material costs, inflation and fluctuations in currencies, exceeded favorable impact from productivity, pricing, mix and other adjustments.

Operating income for the third quarter of fiscal 2022 was $202.9 million, compared to $147.0 million for third quarter of fiscal 2021 This increase reflects higher gross margin attainment, primarily due to added volumes from Cantel and our other recent acquisitions.

Operating income during the first nine months of fiscal 2022 was $333.8 million, compared to $404.1 million for the first nine months of fiscal 2021.

This decline was primarily due to additional acquisition and integration expenses and incremental amortization expense primarily related to the acquisition of Cantel.

Cash flows from operations were $513.1 million and free cash flow was $300.3 million in the first nine months of fiscal 2022 compared to cash flows from operations of $501.8 million and free cash flow of $337.7 million for first nine months of fiscal 2021 (see the subs ection below titled "Non-GAAP Financial Measures" for additional information and related reconciliation of cash flows from operations to free cash flow).

The fiscal 2022 decrease in free cash flow was primarily due to anticipated costs associated with the acquisition and integration of Cantel and higher capital expenditures in fiscal 2022.

Our debt-to-total capital ratio was 33.3% at December 31, 2021 and 29.8% at March 31, 2021.

During the first nine months of fiscal 2022, we declared and paid cash dividends totaling $1.26 per ordinary share.

Additional information regarding our financial performance during the third quarter and first nine months of fiscal 2022 is included in the subsection below titled “Results of Operations.”

COVID-19 Pandemic and Macroeconomic Environment .

The COVID-19 global pandemic and its direct and indirect impacts have led to disruptions in the market and the global and U.S.

economies that may continue for a prolonged period.

In response to the COVID-19 pandemic, various governmental authorities and private enterprises have implemented numerous containment measures, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

A number of our global suppliers, vendors, and distributors are located in regions that have been adversely affected by restrictive government and private enterprise measures implemented in response to the pandemic, or have otherwise been disrupted by associated prevailing macroeconomic trends.

This has led to product and labor shortages, shipping delays and an increase in raw material and component pricing as well as other inflationary pressures, particularly on our manufacturing costs.

Throughout the pandemic, we have experienced and expect to continue to experience unpredictable fluctuations in demand for certain of our products and services.

To date, we have been able to continue to operate our manufacturing facilities and meet the demand for essential products and services of our Customers.

Nonetheless, in calendar 2022, supply chain disruptions and

delays have limited and may continue to limit our ability to ship certain capital equipment, particularly in our Healthcare and Life Sciences business, negatively impacting capital equipment revenue growth.

Within the Healthcare and Life Sciences businesses, approximately $35 million in capital equipment shipments were delayed in the first quarter of fiscal 2023.

During the quarter we have seen recovery of elective procedures as the impact of the COVID-19 pandemic has subsided in many geographies.

However, diminished staffing a vailability at hospitals appears to be a key variable limiting further recovery of procedure volumes to pre-pandemic levels.

We continue to pursue all available avenues to address supply chain disruptions, including purchases from third parties and brokers, qualifying alternative parts and suppliers, and obtaining prioritization from governmental agencies.

W e do not believe that the COVID-19 pandemic will negatively impact our long-term ability to generate revenues or meet existing and future financial obligations.

For additional information and our risk factors related to the COVID-19 pandemic, please refer to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022, and within Item 1A.

of this 10-Q, Part II.

Revenues for th e first quarter of fiscal 2023 were $1,156.5 million, representing an increase of 19.4% over the first quarter of fiscal 2022 revenues of $968.4 million.

The increase reflects organic growth in all segments and added volume from Cantel, which was partially offset by unfavorable fluctuations in currencies, and the absence of revenue from our Renal care business, which was divested in January 2022.

Gross margin percentage for the first quarter of fiscal 2023 was 44.8%, compared to 44.0% for the first quarter of fiscal 2022.

Favorable impacts from pricing, the Cantel acquisition, fluctuations in currencies, our recent divestitures, and mix and other adjustments, were partially offset by unfavorable impact from inflation and productivity.

Income from operations during the first quarter of fiscal 2023 was $158.4 million, compared to $14.3 million for the first quarter of fiscal 2022.

In the fiscal 2022 period, we incurred $141.0 million in acquisition and integration expenses, which were primarily related to our acquisition of Cantel.

The fiscal 2023 reduction in such expenses was partially offset by an increase in amortization of purchased intangible assets in the fiscal 2023 period.

Cash flows from operations were $231.7 million and free cash flow was $117.1 million in the first three months of fiscal 2023 compared to cash flows from operations of $97.4 million and free cash flow of $41.2 million in the first three months of fiscal 2022 (see the subsection below titled "Non-GAAP Financial Measures" for additional information and related reconciliation of cash flows from operations to free cash flow).

The fiscal 2023 increases in cash flows from operations and free cash flows were primarily due to lower costs associated with the acquisition and integration of Cantel in the fiscal 2023 period, which was partially offset by higher capital expenditures in the fiscal 2023 period.

Our debt-to-total capital ratio was 31.9% at June 30, 2022 and 32.1% at March 31, 2022.

During the first three months of fiscal 2023, we declared and paid a quarterly cash dividend of $0.43 per ordinary share.

Additional information regarding our financial performance during the first quarter of fiscal 2023 is included in the subsection below titled “Results of Operations.”

NON-GAAP FINANCIAL MEASURES

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It is important for the reader to note that the non-GAAP financial measure used may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.

We define free cash flow as net cash provided by operating activities as presented in the Consolidated Statements of Cash Flows less purchases of property, plant, equipment, and intangibles plus proceeds from the sale of property, plant, equipment, and intangibles, which are also presented within investing activities in the Consolidated Statements of Cash Flows.

We define free cash flow as net cash provided by operating activities as presented in the Consolidated Statements of Cash Flows less purchases of property, plant, equipment, and intangibles (capital expenditures) plus proceeds from the sale of property, plant, equipment, and intangibles, which are also presented within investing activities in the Consolidated Statements of Cash Flows.

We use this as a measure to gauge our ability to pay cash dividends, fund growth outside of core operations, fund future debt principal repayments, and repurchase shares.

The following table summarizes the calculation of our free cash flow for the nine months ended December 31, 2021 and 2020:

Nine Months Ended December 31,

The following table summarizes the calculation of our free cash flow for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

(dollars in thousands) 2022 2021

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Results of Operations

In the following subsections, we discuss our earnings and the factors affecting them for the third quarter and first nine months of fiscal 2022 compared with the same fiscal 2021 periods.

In the following subsections, we discuss our earnings and the factors affecting them for the first quarter of fiscal 2023 compared with the same fiscal 2022 period.

We begin with a general overview of our operating results and then separately discuss earnings for our operating segments.

The following tables compare our revenues for the three and nine months ended December 31, 2021 to the revenues for the three and nine months ended December 31, 2020:

Three Months Ended December 31,

(dollars in thousands) 2021 2020 Change Percent Change

Total revenues $ 1,208,971 $ 808,924 $ 400,047 49.5 %

Revenues by type:

Service revenues 511,715 433,610 78,105 18.0 %

Consumable revenues 440,328 198,466 241,862 121.9 %

Capital equipment revenues 256,928 176,848 80,080 45.3 %

Revenues by geography:

Ireland revenues 20,086 20,316 (230) (1.1) %

United States revenues 851,292 572,397 278,895 48.7 %

Other foreign revenues 337,593 216,211 121,382 56.1 %

Revenues increased 49.5%, to $1,209.0 million for the three months ended December 31, 2021, as compared to $808.9 million for the same period in the prior year.

The increase reflects added volume of $332.7 million from Cantel and other recent acquisitions and organic growth in the Healthcare, Applied Sterilization Technologies and Life Science segments.

Service revenues increased 18.0% for the three months ended December 31, 2021, as compared to the same period in the prior year, reflecting growth in the Healthcare, Life Sciences and Applied Sterilization Technologies business segments.

Consumable revenues increased by 121.9% for the three months ended December 31, 2021, as compared to the same period in the prior year, reflecting growth in the Healthcare and Life Sciences segments and added volume from the addition of our new Dental segment.

Capital equipment revenues increased 45.3%, for the three months ended December 31, 2021, as compared to the same period in the prior year, reflecting growth in the Healthcare and Life Sciences segments.

Ireland revenues decreased 1.1% to $20.1 million for the three months ended December 31, 2021, as compared to $20.3 million for the same period in the prior year, reflecting a decline in capital equipment revenues, which was partially offset by growth in service and consumable revenues.

United States revenues increased 48.7%, to $851.3 million for the three months ended December 31, 2021, as compared to $572.4 million for the same period in the prior year, reflecting growth in service, consumable, and capital equipment revenues.

These increases represent both organic growth and the impact of Cantel and our other recent acquisitions.

Revenues from other foreign locations, increased 56.1%, to $337.6 million for the three months ended December 31, 2021, as compared to $216.2 million for the same period in the prior year.

The increase reflects growth within Canada and the Europe, Middle East & Africa ("EMEA"), Asia Pacific, and Latin American regions.

These increases represent both organic growth and the impact of Cantel and our other recent acquisitions.

Nine Months Ended December 31,

The following tables compare our revenues for the three months ended June 30, 2022 to the revenues for the three months ended June 30, 2021:

Three Months Ended June 30,

(dollars in thousands) 2022 2021 Change Percent Change

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Other foreign revenues 304,214 267,227 36,987 13.8 %

Revenues increased 51.0%, to $3,374.4 million for the nine months ended December 31, 2021, as compared to $2,234.0 million for the same period in the prior year.

The increase reflects added volume of $820.2 million from Cantel and other recent acquisitions, organic growth in the Healthcare, Applied Sterilization Technologies and Life Science segments and favorable fluctuations in currencies.

Service revenues increased 23.4% for the nine months ended December 31, 2021, as compared to the same period in the prior year, reflecting growth in the Healthcare, Applied Sterilization, and Life Science segments.

Consumable revenues increased by 128.4% for the nine months ended December 31, 2021, as compared to the same period in the prior year, reflecting growth in the Healthcare and Life Sciences segments and added volume from the addition of our new Dental segment.

Capital equipment revenues increased 38.0% for the nine months ended December 31, 2021, reflecting growth in the Healthcare and Life Sciences segments.

Ireland revenues increased 19.9% to $62.1 million for the nine months ended December 31, 2021, as compared to $51.8 million, reflecting growth in service and consumable revenues, which were partially offset by a decline in capital equipment revenues.

United States revenues increased 47.7%, to $2,383.0 million for the nine months ended December 31, 2021, as compared to $1,613.6 million for the same period in the prior year, reflecting growth in service, consumable, and capital equipment revenues.

These increases represent both organic growth and the impact of Cantel and our other recent acquisitions.

Revenues from other foreign locations increased 63.4%, to $929.3 million for the nine months ended December 31, 2021, as compared to $568.7 million for the same period in the prior year.

The increase is due to growth within Canada and the Europe, Middle East & Africa ("EMEA"), Asia Pacific, and Latin American regions.

These increases represent both organic growth and the impact of Cantel and our other recent acquisitions.

Gross Profit.

The following table compares our gross profit for the three and nine months ended December 31, 2021 to the three and nine months ended December 31, 2020:

Three Months Ended December 31, Change Percent

(dollars in thousands) 2021 2020

Revenues increased 19.4% to $1,156.5 million for the three months ended June 30, 2022, as compared to $968.4 million for the same period in the fiscal 2022, with growth in all segments.

The increase reflects organic growth in all segments and added volume of $166.2 million from Cantel, which was partially offset by unfavorable fluctuations in currencies and the absence of revenue from our Renal care business, which was divested in January 2022.

Service revenues increased 8.4% for the first three months of fiscal 2023, as compared to the same period in fiscal 2022, reflecting organic growth in the Healthcare and the Applied Sterilization Technologies segments, as well as added volume from Cantel, which was partially offset by a slight decline in Life Sciences.

Consumable revenues increased by 39.5% for the first three months of fiscal 2023, as compared to the same period in fiscal 2022, reflecting the added volume from Cantel and organic growth in the Life Sciences segment.

Capital equipment revenues increased 15.7%, for the first three months of fiscal 2023, as compared to the same period in fiscal 2022, reflecting organic growth in the Healthcare and Life Sciences segments and added volume from Cantel.

Ireland revenues decreased 17.2% to $18.2 million for the three months ended June 30, 2022, as compared to $21.9 million for the same period in the prior year, reflecting declines in service, consumable and capital equipment revenues.

United States revenues increased 22.8% to $834.1 million for the three months ended June 30, 2022, as compared to $679.3 million for the same period in the prior year, reflecting growth in service, consumable and capital equipment revenues, primarily due to strong organic growth and the addition of Cantel.

Revenues from other foreign locations increased 13.8% to $304.2 million for the three months ended June 30, 2022, as compared to $267.2 million for the same period in the prior year, reflecting growth in Canada and in the Europe, Middle East & Africa ("EMEA"), Latin America and Asia Pacific regions.

Gross Profit.

(*as adjusted)

Product $ 323,463 $ 172,433 $ 151,030 87.6 %

Service 214,651 173,428 41,223 23.8 %

Total gross profit $ 538,114 $ 345,861 $ 192,253 55.6 %

Gross profit percentage:

Product 46.4 % 45.9 %

Service 41.9 % 40.0 %

Total gross profit percentage 44.5 % 42.8 %

Nine Months Ended December 31, Change Percent

The following table compares our gross profit for the three months ended June 30, 2022 to the three months ended June 30, 2021:

Three Months Ended June 30, Change Percent

(dollars in thousands) 2022 2021

Gross profit:

(*as adjusted)

Product $ 304,221 $ 217,873 $ 86,348 39.6 %

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Total gross profit percentage 44.8 % 44.0 %

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual report on Form 10-K filed with the SEC on May 28, 2021.

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.

Gross profit percentage for the third quarter of fiscal 2022 was 44.5% compared to the gross profit percentage for the third quarter of fiscal 2021 of 42.8%.

Favorable impacts from our recent acquisitions (110 basis points), productivity (140 basis points), pricing (60 basis points) and mix and other adjustments (30 basis points), exceeded unfavorable impacts from material costs (90 basis points), inflation (70 basis points) and fluctuations in currencies (10 basis points).

Gross profit percentage for the first nine months of fiscal 2022 was 42.8% compared to the gross profit percentage for the first nine months of fiscal 2021 of 43.1%.

Unfavorable impacts from our recent acquisitions (170 basis points), material costs (50 basis points), inflation (50 basis points) and fluctuations in currencies (20 basis points), exceeded favorable impact from productivity (190 basis points), pricing (60 basis points), mix and other adjustments (10 basis points).

Operating Expenses.

The following table compares our operating expenses for the three and nine months ended December 31, 2021 to the three and nine months ended December 31, 2020:

Three Months Ended December 31, Change Percent

(dollars in thousands) 2021 2020

Gross profit percentage for the first three months of fiscal 2023 was 44.8% compared to the gross profit percentage for the first three months of fiscal 2022 of 44.0%.

Favorable impacts from pricing (130 basis points), the Cantel acquisition (50 basis points), fluctuations in currencies (30 basis points), our recent divestitures (20 basis points), and mix and other adjustments (320 basis points), were partially offset by unfavorable impact from inflation (420 basis points), and productivity (50 basis points).

Operating Expenses.

Selling, general, and administrative $ 310,564 $ 182,373 $ 128,191 70.3 %

Research and development 24,824 16,438 8,386 51.0 %

Restructuring expenses (207) 20 (227) NM

Total operating expenses $ 335,181 $ 198,831 $ 136,350 68.6 %

Nine Months Ended December 31, Change Percent

The following table compares our operating expenses for the three months ended June 30, 2022 to the three months ended June 30, 2021:

Three Months Ended June 30, Change Percent

(dollars in thousands) 2022 2021

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Significant components of total selling, general, and administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment, facilities costs, and other general and administrative expenses.

SG&A increased 70.3% and 105.6% in the third quarter and first nine months of fiscal 2022, respectively over the same prior year periods.

During the fiscal 2022 periods we had significant increases in acquisition related costs, which included amortization of acquired intangible assets, "step-up" of plant, property and equipment to fair value, and acquisition and integration expenses, which were primarily related to the acquisition of Cantel.

The increases also reflect the addition of expenses associated with the operations of Cantel and our other recent acquisitions.

SG&A decreased $59.1 million in the first three months of fiscal 2023, over the same period in fiscal 2022.

In the fiscal 2022 period, we incurred $141.0 million in acquisition and integration expenses, which were primarily related to our acquisition of Cantel.

The fiscal 2023 reduction in such expenses was partially offset by an increase in amortization of purchased intangible assets in the fiscal 2023 period.

Research and Development.

Resea rch and development expenses increased 51.0% and 26.7% in the third quarter and first nine months of fiscal 2022, respectively over the same prior year periods, primarily due to the addition of Cantel and our other recent acquisitions.

For the three month period ended June 30, 2022, research and development expenses increased $6.6 million over the same period in fiscal 2022, largely due to the addition of Cantel.

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 2022, our investments in research and development 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 .

Amounts related to restructuring expenses were not material for the three and nine month periods ending December 31, 2021 or 2020, respectively.

For information on our restructuring efforts, refer to our Annual Report on Form 10-K filed with the SEC on May 28, 2021.

Non-Operating Expenses, Net.

Non-operating expenses, net consists of interest expense on debt, offset by interest earned on cash, cash equivalents, and short-term investment balances, and other miscellaneous income.

The following table compares our net non-operating expenses for the three and nine months ended December 31, 2021 and 2020:

Three Months Ended December 31,

(dollars in thousands) 2021 2020 Change

Non-operating expenses, net:

Interest expense $ 22,971 $ 8,899 $ 14,072

Interest income and miscellaneous expense (2,447) (1,299) (1,148)

During the first quarter of fiscal 2023, our investments in research and development 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.

Non-Operating Expenses, Net.

Nine Months Ended December 31,

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.

The following table compares our net non-operating expenses for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

(dollars in thousands) 2022 2021 Change

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Non-operating expenses, net $ 23,444 $ 43,301 $ (19,857)

Interest expense increased $14.1 million and $40.8 million during the third quarter and first nine months of fiscal 2022, respectively over the same prior year periods , primarily due to debt incurred for acquisition financing including term loans and Senior Public Notes.

For more information refer to Not e 5 of our Consolidated Financial Statements titled "Debt." Interest (income) and miscellaneous expense is not material.

During the first nine months of fiscal 2022, we recorded fair value adjustments of $27.8 million, based on appreciation in our share price related to premium liability associated with the convertible debt assumed in the acquisition of Cantel.

For more information on the Cantel convertible debt refer to N ote 5 of our Consolidated Financial Statements titled, "Debt."

Income Tax Expense.

The following table compares our income tax expense and effective income tax rates for the three and nine months ended December 31, 2021 and December 31, 2020:

Three Months Ended December 31, Change Percent

(dollars in thousands) 2021 2020

(*as adjusted)

Interest expense increased by $0.9 million during the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022, primarily due to higher interest rates on floating rate debt partially offset by lower principal amount of debt outstanding.

During the first quarter of fiscal 2022, we recorded a fair value adjustment of $22.9 million related to the convertible debt assumed in the acquisition of Cantel.

For more information on the Cantel convertible debt refer to our Annual Report filed on Form 10-K, which was filed with the Securities and Exchange Commission on May 31, 2022.

Interest (income) and miscellaneous expense changed by $2.2 million during the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022, primarily due to losses on our equity investments.

For more information refer to note 15 of our consolidated financial statements, titled "Fair Value Measurements".

Income Tax Expense.

Effective income tax rate 21.6 % 17.8 %

Nine Months Ended December 31, Change Percent

T he following table compares our income tax expense and effective income tax rates for the three months ended June 30, 2022 and June 30, 2021:

Three Months Ended June 30, Change Percent

(dollars in thousands) 2022 2021

(*as adjusted)

Income tax expense $ 52,222 $ 71,703 $ (19,481) (27.2)%

Income tax (credit) expense $ 24,196 $ (7,075) $ 31,271 NM

Effective income tax rate 17.9 % 24.4 %

We record income tax expense during interim periods based on our estimate of the annual effective income tax rate,

adjusted each quarter for discrete items.

We analyze various factors to determine the estimated annual effective income tax rate, including projections of our annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives.

The effective income tax rates for the three month periods ended December 31, 2021 and 2020 were 21.6% and 17.8%, respective ly.

The effective income tax rates for the nine month periods ended December 31, 2021 and 2020 were 21.5% and 18.8%, respectively.

The fiscal 2022 effective tax rates increased when compared to the same fiscal 2021 periods, primarily due to Cantel and our other recent acquisitions, which historically have had higher effective tax rates than STERIS.

The fiscal 2022 effective tax rates are also impacted by certain one-time, non-deductible acquisition related costs.

NM - Not meaningful.

We record income tax expense during interim periods based on our estimate of the annual effective income tax rate, adjusted each quarter for discrete items.

The effective income tax rates for the three month periods ended June 30, 2022 and 2021 were 17.9% and 24.4%, respectively.

The fiscal 2023 effective tax rate decreased when compared to fiscal 2022, primarily due to nonrecurring unfavorable items reported in the prior fiscal year.

Business Segment Results of Operations.

As a result of the acquisition of Cantel, we have rea ssessed the organization of our business and have added a new segment called Dental.

We now operate and report our financial information in four reportable business segments:

Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.

We report our financial information in four reportable business segments:

Healthcare, Applied Sterilization Technologies, Life Sc iences and Dental.

Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income.

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Our Dental segment provides a comprehensive offering for dental practitioners and dental schools, offering instruments, infection prevention consumables and instrument management systems.

We disclose a measure of segment income that is consistent with the way management operates an d views the business.

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 the three and nine months ended December 31, 2021, revenues from a single Customer did not represent ten percent or more of the Healthcare, Applied Sterilization Technologies or Life Sciences segment’s revenues.

Three Customers collectively consistently account for more than 40.0% of our Dental segment revenue.

Certain prior period costs were reallocated from the Healthcare segment to corporate to conform with current year presentation.

The prior period segment operating income measure has been recast for comparability.

For the three months e nded June 30, 2022, revenues from a single Customer did not represent ten percent or more of the Healthcare, Applied Sterilization Technologies or Life Sciences segment revenues.

Three Customers collectively and consistently account for approximately 40.0% of our Dental segment revenue.

The percentage associated with these three Customers collectively in any one period may vary due to the buying patterns of these three Customers as well as other Dental Customers.

These three Customers collectively accounted for appr oximately 55.8% and 46.1% of our Dental segment revenues for the three months and nine months ended December 31, 2021, respectively.

Additional informatio n regarding certain of our segments is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

The following table compares business segment revenues, segment operating income and total operating income for the three and nine months ended December 31, 2021 and 2020:

These three Customers collectively accounted for appr oxi mately 38.6% and 35.8% o f our Dental segment revenues for the three months ended June 30, 2022 and 2021, respectively.

Additional information regarding our segments is included in our consolidated financial statements included our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

Financial information for each of our segments is presented in the following table:

Three Months Ended December 31, Nine Months Ended December 31,

Three Months Ended June 30,

(dollars in thousands) 2022 2021

(*as adjusted) (*as adjusted)

Healthcare $ 698,526 $ 602,817

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Total revenues $ 1,156,491 $ 968,422

Operating income (loss):

Segment operating income (loss):

Healthcare $ 156,497 $ 138,373

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Corporate (75,943) (77,273)

Total operating income before adjustments $ 289,889 $ 190,638 $ 790,661 $ 504,768

Total segment operating income $ 264,770 $ 222,234

Amortization of acquired intangible assets (1)

2 unchanged sentences

9,832 140,996

Redomiciliation and tax restructuring costs (3)

118 296 228 850

Tax restructuring costs (3)

(Gain) on fair value adjustment of acquisition related contingent consideration (1)

— (500) — (500)

Net loss on divestiture of businesses (1)

Amortization of inventory and property "step up" to fair value (1)

2,237 1,784 96,513 3,101

COVID-19 incremental costs (4)

— 7,251 — 20,460

Restructuring charges (4)

(207) 20 17 110

Total operating income $ 202,933 $ 147,030 $ 333,760 $ 404,110

*Certain amounts have been adjusted to reflect the change in inventory accounting method, as described in our Annual report on Form 10-K filed with the SEC on May 28, 2021.

(1) For more information regarding our recent acquisitions and divestitures refer to Note 2 titled, "Business Acquisitions and Divestitures" and to our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

Total income from operations $ 158,395 $ 14,324

(1) For more information regarding our recent acquisitions and divestitures refer to note 2 titled, "Business Acquisitions and Divestitures" of our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

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

(3) Costs incurred in tax restructuring.

(4) COVID-19 incremental costs includes the additional costs attributable to COVID-19 such as enhanced cleaning protocols, personal protective equipment for our employees, event cancellation fees, and payroll costs associated with our response to COVID-19, net of any government subsidies available.

(5) For more information regarding our restructuring efforts refer to our Annual R eport on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

Healthcare revenues increased 45.6% to $759.7 million for the three months ended December 31, 2021, as compared to $521.7 million in the same prior year period.

This increase reflects growth in consumables, capital equipment, and service revenues of 83.9%, 46.9% and 19.4%, respectively and reflects the impact of Cantel and our other recent acquisitions and organic growth.

Healthcare revenues increased 51.3% to $2,106.6 million for the nine months ended December 31, 2021, as compared to $1,392.2 million in the same prior year period.

This increase reflects growth in consumables, capital equipment, and service revenues and of 111.2%, 40.0% and 24.9%, respectively and reflects the impact of Cantel and our other recent acquisitions, organic growth and favorable fluctuations in foreign currencies.

Excluding Cantel, the Healthcare segment’s backlog at December 31, 2021, amounted to $381.6 million, representing an increase of 77.0%, as compared to the backlog of $215.5 million at December 31, 2020.

The increase is primarily due to Customer demand but also reflects some delays in shipments due to supply chain disruptions.

Applied Sterilization Technologies segment revenues increased 22.6% to $216.3 million for the three months ended December 31, 2021, as compared to $176.5 million for the same prior year period.

Applied Sterilization Technologies segment revenues increased 26.4% to $630.1 million for the nine months ended December 31, 2021, as compared to $498.4 million for the same prior year period.

The fiscal 2022 increases are primarily due to organic growth and favorable fluctuations in currencie s in the year-to-date period.

The impact of a fiscal 2021 acquisition also contributed to the increases.

Life Sciences revenues increased 15.4% to $127.9 million for the three months ended December 31, 2021, as compared to $110.8 million for the same prior year period.

This increase reflects growth in consumables, service and capital equipment revenues and of 23.1%, 13.1% and 4.9%, respectively and reflects the impact of the Cantel acquisition and organic growth.

Life Sciences revenues increased 11.2% to $381.7 million for the nine months ended December 31, 2021, as compared to $343.4 million for the same prior year period.

This increase reflects growth in service, capital equipment and consumables revenues and of 16.1%, 9.8% and 9.2%, respectively and reflects the impact of the Cantel acquisition, organic growth and favorable fluctuations in foreign currencies.

Excluding Cantel, the Life Sciences segme nt’s backlog at December 31, 2021 amounted to $117.2 million, representing an increase of 43.0%, as compared to the backlog of $82.0 million at December 31, 2020.

The increase is primarily due to Customer demand but also reflects some delays in shipments due to supply chain disruptions.

Dental segment revenues for the three months ended December 31, 2021 were $105.1 million.

Dental segment revenues from the Cantel acquisition date of June 2, 2021 through December 31, 2021 were $256.0 million.

The Healthcare segment’s operating income increased 46.7% to $169.3 million for the three months ended December 31, 2021, as compared to $115.4 million in the same prior year period.

The segment's operating margins were 22.3% and 22.1% for the third quarter of fiscal 2022 and 2021, respectively .

The Healthcare segment’s operating income incre ased 53.0% to $465.8 million for the nine months ended December 31, 2021, as compared to $304.4 million in the same prior year period, primarily due to increased volume and our recent acquisitions.

The segment's operating margins were 22.1% and 21.9% for the first nine months of fiscal 2022 and 2021, respectively.

The segment's operating income and margin improvements were primarily due to higher volumes.

The Applied Sterilization Technologies segment's operating income increased 24.2% to $101.3 million for the three months ended December 31, 2021, as compared to $81.6 million during the same prior year period.

The Applied Sterilization Technologies segment's operating income increased 36.3% to $303.1 million for the nine months ended December 31, 2021, as compared to $222.4 million during the same prior year period.

The segment's operating margins were 46.9% and 46.3% for the third quarter of fiscal 2022 and 2021 , respectively.

The segment's operating margins were 48.1% and 44.6% for the first nine months of fiscal 2022 and 2021, respectively.

The segment's operating income and operating margin improvements were primarily due to to higher volumes.

The Life Sciences segment’s operating income increased 25.3% to $52.0 million for the three months ended December 31, 2021, as compared to $41.5 million in the same prior year period.

The Life Sciences segment’s operating income increased 16.3% to $158.6 million for the nine months ended December 31, 2021, as compared to $136.4 million in the same prior year period.

The segment's operating margins were 40.7% and 37.5% for the third quarter of fiscal 2022 and 2021, respectively.

The segment's operating margins were 41.6% and 39.7% for the first nine months of fiscal 2022 and 2021, respectively.

The segment's operating income and operating margin improvements were primarily due to to higher volumes.

The Dental segment's operating income and operating margin were $23.1 million and 22.0%, respectively, for the three months ended December 31, 2021.

The Dental segment's operating income and operating margin were $65.6 million and 25.6%, respectively, for the nine months ended December 31, 2021.

(4) For more information regarding our restructuring efforts refer to our Annual R eport on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

Healthcare revenues increased 15.9% to $698.5 million for the three months ended June 30, 2022, as compared to $602.8 million for the same prior year period.

This increase reflects growth in consumable, capital equipment and service revenues of 21.9%, 18.7% and 9.0%, respectively.

The increase is attributable to organic growth and the addition of Cantel, which were partially offset by unfavorable fluctuations in foreign currencies and the fiscal 2022 divestiture of our Renal care business.

The Healthcare segment’s backlog was $521.7 million at June 30, 2022.

Excluding Cantel, the Healthcare segment's backlog was $254.3 million at June 30, 2021.

In addition to the added volume from Cantel, the increase is primarily due to built up demand and supply chain disruptions as a result of the COVID-19 pandemic.

Applied Sterilization Technologies segment reve nues increased 5.7% to $220.9 million for the quarter ended June 30, 2022, as compared to $208.9 million for the same prior year period.

The increase reflects organic growth, which was partially offset by unfavorable fluctuations in currencie s.

Life Sciences segment revenues increased 8.8% to $132.2 million for the first three months ended June 30, 2022, as compared to $121.5 million for the same prior year period.

This increase reflects growth in capital equipment and consumable revenues of 23.7% and 5.3% respectively.

Service revenues remained essentially flat between the fiscal 2023 and 2022 periods.

The increase also reflects organic growth and the impact of Cantel, which were partially offset by unfavorable fluctuations in foreign currencies.

The Life Sciences segme nt’s backlog amounted to $92.7 million at June 30, 2022 and $92.1 million at June 30, 2021.

The increase is primarily due to built up demand and supply chain disruptions as a result of the COVID-19 pandemic.

Dental segment revenues for first three months of fiscal 2023 were $104.8 million.

Dental segment revenues for the month of June 2021 were $35.2 million.

Revenue was somewhat limited by supply chain challenges in the fiscal 2023 first quarter.

The Healthcare segment operating income increased $18.1 million to $156.5 million for the first three months of fiscal 2023, as compared to $138.4 million for the same prior year period.

The increase was primarily due to increased volume.

The segment's operating margins were 22.4% and 23.0% for the first three months of fiscal 2023 and 2022, respectively.

The decline is primarily due to increased supply chain and inflationary costs, and higher research and development, meeting and travel expenses in fiscal 2023.

The Applied Sterilization Technologies segment operating income increased $7.4 million to $109.3 million for the first three months of fiscal 2023, as compared to $101.9 million for the same prior year period.

The segment’s operating margins we re 49.5% and 48.8% for the first three months of fiscal 2023 and fiscal 2022, respectively.

The increase in segment operating income and operating margin were primarily due to increased volume, which was partially offset by higher energy costs in fiscal 2023.

The Life Sciences segment operating income increased $6.2 million to $55.3 million for the first three months of fiscal 2023, as compared to $49.1 million for the same prior year period.

The segment’s operating margins were 41.8% and 40.4% for the first three months of fiscal 2023 and fiscal 2022, re spectively.

The increase in segment operating income and operating margin were primarily due to increased volume and favorable mix within capital equipment shipments.

The Dental segment operating income and operating margin was $19.6 million and 18.7%, respectively for the first three months of fiscal 2023.

The Dental segment operating income and operating margin was $10.1 million and 28.7%, for the month of June 2021.

Segment operating income and operating margin were somewhat limited by supply chain challenges in the fiscal 2023 first quarter.

Liquidity and Capital Resources

The following table summarizes significant components of our cash flows for the nine months ended December 31, 2021 and 2020:

Nine Months Ended December 31,

The following table summarizes significant components of our cash flows for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

(dollars in thousands) 2022 2021

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Net cash (used in) investing activities $ (109,417) $ (603,532)

Net cash provided by financing activities $ 390,438 $ 442,533

Net cash provided by (used in) financing activities $ (141,414) $ 818,810

Debt-to-total capital ratio 31.9 % 34.3 %

Free cash flow $ 117,101 $ 41,247

Net Cash Provided by Operating Activities – The net cash pr ovided by our operating activities was $513.1 million for the first nine months of fiscal 2022 and $501.8 million for the first nine months of fiscal 2021.

Higher cash provided by operating activities more than offset the acquisition and integration expenditures related to our acquisition of Cantel.

Net Cash Used In Investing Activities – The net cash used in investing activities totaled $760.1 million for the first nine months of fiscal 2022 and $1,035.9 million for the first nine months of fiscal 2021.

The following discussion summarizes the significant changes in our investing cash flows for the first nine months of fiscal 2022 and fiscal 2021:

• Purchases of property, plant, equipment, and intangibles, net – Capital expenditures were $214.5 million for the first nine months of fiscal 2022 and $164.5 million during the same prior year period.

The fiscal 2022 increase was primarily due to additional expenditures from Cantel and in our Applied Sterilization Technologies segment.

• Acquisitions of businesses, net of cash acquired – During the first nine months of fiscal 2022 and 2021, we used $547.4 million and $869.4 million, respectively for the purchases of businesses.

For more information on our acquisitions, refer to our Note 2 to our consolidated financial statements, "Business Acquisitions and Divestitures."

Net Cash Provided By Fi nancing Activities – The net cash provided by financing activities amounted to $390.4 million for the first nine months of fiscal 2022 and $442.5 million for the first nine months of fiscal 2021.

The following discussion summarizes the significant changes in our financing cash flows for the first nine months of fiscal 2022 and fiscal 2021:

• Proceeds from issuance of senior notes – During the first nine months of fiscal 2022, we received $1,350.0 million in proceeds from the issuance of our Senior Public Notes.

For more information on our Senior Public Notes, refer to Note 5 of our Consolidated Financial Statements titled, "Debt."

• Proceeds from term loan – During the first nine months of fiscal 2022, we received proceeds of $650.0 million under our Delayed Draw Term Loan.

During the third quarter of fiscal 2021, we received proceeds of $550.0 million under a prior Term Loan.

Which was subsequently replaced by another Term Loan of like amount.

For more information on our term loans, refer to our annual report on Form 10-K filed with the SEC on May 28, 2021.

• Payments on term loan – During the first nine months of fiscal 2022, we repaid $125.0 million of our Term Loan.

For more information on our Term Loan, refer to our annual report on Form 10-K filed with the SEC on May 28, 2021.

• Payments on long-term obligations – During the first nine months of fiscal 2022, we repaid $721.3 million of Cantel's outstanding debt in connection with the acquisition.

For more information on Cantel's debt refer to Note 2 of our Consolidated Financial Statements titled, "Business Acquisitions and Divestitures." During the first nine months of fiscal 2021, we repaid $35.0 million of principal for private placement notes that matured in Aug ust 2020.

For more information on our debt, refer to our annual report on Form 10-K filed with the SEC on May 28, 2021.

• Payments on convertible debt obligations – During the first nine months of fiscal 2022, we paid $371.4 million to settle obligations associated with Cantel's convertible debt assumed at the time of acquisition.

For more information on Cantel's debt refer to Note 2 of our Consolidated Financial Statements titled, "Business Acquisitions and Divestitures."

• Proceeds (payments) under credit facilities, net – Net payments under credit facilities totaled $203.8 million in the first nine months of fiscal 2022, compared to net proceeds under credit facilities of $23.8 million in the first nine months of fiscal 2021.

• Deferred financing fees and debt issuance costs – During the first nine months of fiscal 2022, we paid $17.2 million for financing fees and debt issuance costs primarily related to our Senior Public Notes and Delayed Draw Term Loan .

During the first nine months of fiscal 2021, we paid $3.1 million for financing fees and debt issuance costs in connection with our Term Loan .

For more information on our debt refer to Note 5 of our Consolidated Financial Statements titled, "Debt."

• Repurchases of ordinary shares – During the first nine months of fiscal 2022, we obtained 225,493 of our ordinary shares in connection with share-based compensation award programs in the aggregate amount of $27.6 million.

From the start of fiscal 2021 through April 9, 2020, we purchased 35,000 of our ordinary shares in the aggregate amount of $5.0 million.

During the first nine months of fiscal 2021, we obtained 85,574 of our ordinary shares in connection with share-based compensation award programs in the aggregate amount of $9.5 million.

Due to the uncertainty surrounding the COVID-19 pandemic, share repurchases were suspended on April 9, 202 0.

The suspension has been lifted effective February 10, 2022, enabling the Company to resume stock repurchases pursuant to the prior authorizations.

• Acqu isition related deferred or contingent consideration – During the first nine months of fiscal 2022, we paid $32.6 million in deferred and contingent consideration, the majority of which was associated with a pre-acquisition arrangement related to an acquisition made by Cantel prior to our purchase of the company.

During the first nine months of fiscal 2021, we paid $3.0 million in deferred and contingent consideration related to our recent acquisitions.

For more information on our acquisitions, refer to our Note 2 to our consolidated financial statements, "Business Acquisitions and Divestitures."

• Cash dividends paid to ordinary shareholders – During the first nine months of fiscal 2022, we paid total cash dividends of $120.1 million, or $1.26 per outstanding share.

During the first nine months of fiscal 2021, we paid total cash dividends of $99.7 million, or $1.17 per outstanding share.

• Transactions with noncontrolling interest holders – During the first nine months of fiscal 2022, we received contributions from noncontrolling interest hold ers of $3.7 million and paid $1.0 million in distributions to noncontrolling interest holders.

During the first nine months of fiscal 2021, we received contributions from noncontrolling interest holders of $2.3 million and paid $0.6 million in distributions to noncontrolling interest holders.

During the first nine months of fiscal 2021, we paid $3.6 million for the acquisition of a subsidiary's interest in a noncontrolling interest.

Net Cash Provided by Operating Activities – The net cash provided by our operating activities was $231.7 million for the first three months of fiscal 2023 and $97.4 million for the first three months of fiscal 2022.

The increase in fiscal 2023 period was primarily due to higher net income attainment, largely due to a decline in costs associated with the acquisition and integration of Cantel in the fiscal 2023 period, as compared to the fiscal 2022 period.

Net Cash (Used In) Investing Activities – The net cash used in investing activities totaled $109.4 million for the first three months of fiscal 2023 and $603.5 million for the first three months of fiscal 2022.

The following discussion summarizes the significant changes in our investing cash flows for the first three months of fiscal 2023 and fiscal 2022:

• Purchases of property, plant, equipment, and intangibles, net – Capital expenditures were $115.9 million for the first three months of fiscal 2023 and $56.4 million during the same prior year period.

The fiscal 2023 increase was primarily due to additional expenditures in our Applied Sterilization Technologies segment.

• Proceeds from the sale of business – During the first three months of fiscal 2023, we sold the remaining component of the animal healthcare business for $5.2 million.

• Acquisitions of businesses, net of cash acquired – During the first three months of fiscal 2022, we used $547.4 million for the acquisition of Cantel.

For more information refer to our note 2 of our Consolidated Financial Statements titled, "Business Acquisitions and Divestitures".

Net Cash Provided by (Used In) Financing Activities – The net cash provided by financing activities amounted to $141.4 million for the first three months of fiscal 2023 compared with net cash used in financing activities of $818.8 million for the first three months of fiscal 2022.

The following discussion summarizes the significant changes in our financing cash flows for the first three months of fiscal 2023 and fiscal 2022:

• Proceeds from Issuance of Senior Notes – During the first three months of fiscal 2022, we received $1,350.0 million in proceeds from the issuance of our Senior Public Notes.

For more information on our Senior Public Notes, refer to note 5 titled "Debt" and to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

• Proceeds from Term Loan – During the first three months of fiscal 2022, we borrowed $650.0 million under our Delayed Draw Term Loan.

For more information on our Delayed Draw Term Loan, refer to note 5 titled, "Debt" and to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

• Payments on Term Loan – During the first three months of fiscal 2023, we repaid $111.9 million of our Term Loan.

During the first three months of fiscal 2022, we repaid $125.0 million of our Term Loan.

For more information on our Term Loan, refer to note 5 titled, "Debt" and to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

• Payments on Long-term Obligations, net – During the first three months of fiscal 2022, we repaid $721.3 million of Cantel's outstanding debt in connection with the acquisition .

For more information on Cantel's debt refer to note 2 of our Consolidated Financial Statements titled, "Business Acquisitions and Divestitures" and to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

• Proceeds (payments) under credit facilities, net – Net proceeds under credit facilities totaled $37.0 million in the first three months of fiscal 2023, compared to net payments under credit facilities of $249.4 million in the first three months of fiscal 2022.

For more information on our credit facilities, refer to note 5 titled, "Debt" and to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

• Deferred financing fees and debt issuance costs – During the first three months of fiscal 2022, we paid $17.2 million for financing fees and debt issuance costs primarily related to our Senior Public Notes and Delayed Draw Term Loan .

For more information on our debt, refer to note 5 titled, "Debt" and to our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

• Repurchases of ordinary shares – During the first three months of fiscal 2023, we purchased 61,677 of our ordinary shares in the aggregate amount of $12.9 million.

During the first three months of fiscal 2023, we obtained 57,704 of our ordinary shares in connection with share-based compensation award programs in the aggregate amount of $11.7 million.

During the first three months of fiscal 2022, we obtained 59,648 of our ordinary shares in connection with share-based compensation award programs in the aggregate amount of $10.7 million.

• Acquisition related deferred or contingent consideration – During the first three months of fiscal 2023 and fiscal 2022, we paid approximately $0.1 million and $25.2 million, respectively, in deferred and contingent consideration.

The majority of the fiscal 2022 amount was associated with a pre-acquisition arrangement related to an acquisition made by Cantel prior to our purchase of the company.

• Cash dividends paid to ordinary shareholders – During the first three months of fiscal 2023, we paid total cash dividends of $43.0 million, or $0.43 per outstanding share.

During the first three months of fiscal 2022, we paid total cash dividends of $34.1 million, or $0.40 per outstanding share.

• Stock option and other equity transactions, net – We generally receive cash for issuing shares under our stock option programs.

During the first nine months of fiscal 2022 and fiscal 2021, we received cash proceeds totaling $6.8 million and $26.0 million, respectively, under these programs.

During the first three months of fiscal 2023 and fiscal 2022, we received cash proceeds totaling $1.2 million and $1.7 million, respectively, under these programs.

Cash Flow Measures.

Free cash flow was $300.3 million in the first nine months of fiscal 2022 compared to $337.7 million in the first nine months of fiscal 2021 (see the subsection above titled "Non-GAAP Financial Measures" for additional information and related reconciliation of cash flows from operations to free cash flow).

The fiscal 2022 decrease in free cash flows was primarily due to anticipated costs associated with the acquisition and integration of Cantel and higher capital expenditures in fiscal 2022.

Our debt-to-total capital ratio was 33.3% at December 31, 2021 and 30.6% at December 31, 2020.

Sources of Credit and Contractual and Commercial Commitments.

Information related to our sources of credit and contractual and commercial commitments is included in our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

Our commercial commitments were approximately $100.7 million at December 31, 2021, reflecting a net increase of $21.6 million in surety bonds and other commercial commitments from March 31, 2021.

Outstanding borrowings under our Credit Agreement as of December 31, 2021 were $46.5 million.

We had $15.4 million of letters of credit outstanding under the Credit Agreement at December 31, 2021.

Free cash flow was $117.1 million in the first three months of fiscal 2023 compared to $41.2 million in the first three months of fiscal 2022 (see the subsection above titled "Non-GAAP Financial Measures" for additional information and related reconciliation of cash flows from operations to free cash flo w).

The fiscal 2023 increase in free cash flow was primarily due to lower costs associated with the acquisition and integration of Cantel in the fiscal 2023 period, which was partially offset by higher capital expenditures in the fiscal 2023 period.

Our debt-to-total capital ratio was 31.9% at June 30, 2022 and 34.3% at June 30, 2021.

Material Future Cash Obligations and Commercial Commitments.

Information related to our material future cash obligations and commercial commitments is included in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

Our commercial commitments were approximately $100.9 million at June 30, 2022, reflecting a net increase of $2.2 million in surety bonds and other commercial commitments from March 31, 2022.

Outstanding borrowings under our Credit Agreement as of June 30, 2022 were $92.6 million .

We had $15.0 million of letters of credit outstanding under the Credit Agreement at June 30, 2022.

Cash Requirements.

We intend to use our existing cash and cash equivalent balances and cash generated from operations for short-term and long-term capital expenditures and our other liquidity needs.

Our capital requirements depend on many uncertain factors, including our r ate of sales growth, our Customers’ acceptance of our products and services, the costs of obtaining adequate manufacturing capacities, the timing and extent of our research and development projects, changes in our expenses and other factors.

To th e extent that existing and anticipated sources of cash are not sufficient to fund our future activities, we may need to raise additional funds through additional borrowings or the sale of equity securities.

Our capital requirements depend on many uncertain factors, including our rate of sales growth, our Customers’ acceptance of our products and services, the costs of obtaining adequate manufacturing capacities, the timing and extent of our research and development projects, changes in our operating expenses and other factors.

To the extent that existing and anticipated sources of cash are not sufficient to fund our future activities, we may need to raise additional funds through additional borrowings or the sale of equity securities.

There can be no assurance that our existing financing arrangements will provide us with sufficient funds or that we will be able to obtain any additional funds on terms favorable to us or at all.

Supplemental Guarantor Financial Information

STERIS plc (STERIS) and its wholly-owned subsidiaries, STERIS Limited and STERIS Corporation (collectively Guarantors), each have provided guarantees of the obligations of STERIS Irish FinCo Unlimited Company ("FinCo", "STERIS Irish FinCo"), a wholly-owned subsidiary issuer, under Senior Public Notes issued by STERIS Irish FinCo on April 1, 2021 and of certain other obligations relating to the Senior Public Notes.

STERIS plc ("Parent") and its wholly-owned subsid iaries, STERIS Limited and STERIS Corporation (collectively "Guarantors" and each a "Guarantor"), each have provided guarantees of the obligations of STERIS Irish FinCo Unlimited Company ("FinCo", "STERIS Irish FinCo"), a wholly-owned subsidiary issuer, under Senior Public Notes issued by STERIS Irish FinCo on April 1, 2021 and of certain other obligations relating to the Senior Public Notes.

The Senior Public Notes are guaranteed, jointly and severally, on a senior unsecured basis.

of the Issuer and the Guarantors, respectively, from time to time outstanding, including, as applicable, under the Private Placement Senior Notes and borrowings under the credit facilities.

The Senior Public Notes and the related guarantees are senior unsecured obligations of STERIS Irish FinCo and the Guarantors, respectively, and are equal in priority with all other unsecured and unsubordinated indebtedness of the Issuer and the Guarantors, respectively, from time to time outstanding, including, as applicable, under the Private Placement Senior Notes, borrowings under the Revolving Credit Facility, the Term Loan and the Delayed Draw Term Loan.

All of the liabilities of non-guarantor direct and indirect subsidiaries of STERIS, other than STERIS Irish FinCo, STERIS Limited and STERIS Corporation, including any claims of trade creditors, are effectively senior to the Senior Public Notes.

STERIS Irish FinCo’s main objective and source of revenues and cash flows is the provision of short- and long-term financing for the activities of STERIS plc and its subsidiaries.

The ability of our subsidiaries to pay dividends, interest and other fees to the Issuer and ability of the Issuer and Guarantors to service the Senior Notes may be restricted by, among other things, applicable corporate and other laws and regulations as well as agreements to which our subsidiaries are or may become a party.

The ability of our subsidiaries to pay dividends, interest and other fees to the Issuer and ability of the Issuer and Guarantors to service the Senior Public Notes may be restricted by, among other things, applicable corporate and other laws and regulations as well as agreements to which our subsidiaries are or may become a party.

The following is a summary of the Senior Public Notes guarantees:

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• in the case of a Subsidiary Guarantor, upon the sale, transfer or other disposition of all or substantially all the assets of such Subsidiary Guarantor, other than to the Parent or a subsidiary of the Parent and as permitted by the indenture;

• in the case of a Subsidiary Guarantor, at such time as such Subsidiary Guarantor is no longer a borrower under or no longer guarantees any Material Credit Facility (subject to reinstatement in specified circumstances);

• in the case of a Subsidiary Guarantor, at such time as such Subsidiary Guarantor is no longer a borrower under or no longer guarantees any material credit facility (subject to restatement in specified circumstances);

• upon the legal defeasance or covenant defeasance of the Senior Public Notes or the discharge of the Issuer’s obligations under the indenture in accordance with the terms of the indenture;

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Each Guarantor that makes a payment under its guarantee will be entitled upon payment in full of all guaranteed obligations under the indenture to a contribution from each Guarantor in an amount equal to such other Guarantor’s pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.

The following tables present summarized results of operations for the nine months ended December 31, 2021 and summarized balance sheet information at March 31, 2021 for the obligor group of the Senior Notes.

The obligor group consists of the Parent Company Guarantor, Subsidiary Issuer, and Subsidiary Guarantors for the Senior Notes.

The following tables present summarized results of operations for the three months ended June 30, 2022 and summarized balance sheet information at March 31, 2022 for the obligor group of the Senior Public Notes.

The obligor group consists of the Parent Company Guarantor, Subsidiary Issuer, and Subsidiary Guarantors for the Senior Public Notes.

The summarized financial information is presented after elimination of (i) intercompany transactions and balances among the guarantors and issuer and (ii) equity in earnings from and investments in any subsidiary that is a non-guarantor or non-issuer.

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Summarized Results of Operations

(in thousands) Nine Months Ended

(in thousands) Three Months Ended

Revenues $ 511,512

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( in thousands)

December 31, March 31,

June 30, March 31,

Receivables due from non-issuers and non-guarantor subsidiaries $ 16,360,447 $ 16,033,719

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Intercompany transactions arise from internal financing and trade activities.

Critical Accounting Policies, Estimates, and Assumptions

Information related to our critical accounting policies, estimates, and assumptions is included in our Annual Report on Form 10-K for the year ended March 31, 2021, dated May 28, 2021.

Critical Accounting Estimates and Assumptions

Information related to our critical accounting estimates and assumptions is included in our Annual Report on Form 10-K for the year ended March 31, 2022, which was filed with the Securities and Exchange Commission on May 31, 2022.

Our critical accounting policies, estimates, and assumptions have not changed materially from March 31, 2022.

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We record expected recoveries under applicable insurance contracts when we are assured of recovery.

Refer to Note 8 of our consolidated financial statements titled, "Commitments and Contingencies" for additional information and to Item 1A of Part II titled, "Risk factors."

Refer to Note 8 of our consolidated financial statements titled, "Commitments and Contingencies" for additional information.

We are subject to taxation from United States federal, state and local, and non-U.S.

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The IRS routinely conducts audits of our federal income tax returns.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, that have or are reasonably likely to have, a material current or future impact on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital.

Refer to note 7 of our Consolidated Financial Statements titled, "Income Tax Expense" for more information.

Forward-Looking Statements

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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 other securities filings, including Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2021 and subsequently filed Quarterly Reports on Form 10-Q.

Many of these important factors are outside of STERIS’s control.

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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 impact of the COVID-19 pandemic on STERIS’s operations, supply chain, material and labor costs, performance, results, prospects, or value, (b) STERIS's ability to achieve the expected benefits regarding the accounting and tax treatments of the redomiciliation to Ireland (“Redomiciliation”), (c) 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, (d) STERIS’s ability to successfully integrate the businesses of Cantel Medical into our existing businesses, including unknown or inestimable liabilities, or increases in expected integration costs or difficulties in connection with the integration of Cantel Medical (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 changes in tax laws that would result in STERIS 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 any of the same relating to FDA, EPA or other regulatory authorities, government investigations, the outcome of any pending or threatened FDA, EPA or other regulatory warning notices, actions, requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product or service introductions, affect the production, supply and/or 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 our Annual Report on Form 10-K for the year ended March 31, 2021, 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.

growth synergies and other anticipated benefits, will not be realized or will be other than anticipated, (q) the increased level of STERIS’s indebtedness incurred in connection with the acquisition of Cantel Medical limiting financial flexibility or increasing future borrowing costs, (r) rating agency actions or other occurrences that could affect STERIS’s existing debt or future ability to borrow funds at rates favorable to STERIS or at all, (s) the potential impact of the acquisition of Cantel Medical on relationships, including with suppliers, Customers, employees and regulators, and (t) 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.

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 impact of the COVID-19 pandemic or similar public health crises on STERIS’s operations, supply chain, material and labor costs, performance, results, prospects, or value, (b) STERIS's ability to achieve the expected benefits regarding the accounting and tax treatments of the redomiciliation to Ireland (“Redomiciliation”), (c) operating costs, Customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, Customers, clients or suppliers) being greater than expected, (d) STERIS’s ability to successfully integrate the businesses of Cantel Medical into our existing businesses, including unknown or inestimable liabilities, or increases in expected integration costs or difficulties in connection with the integration of Cantel Medical (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 changes in tax laws that would result in STERIS 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 any of the same relating to FDA, EPA or other regulatory authorities, government investigations, the outcome of any pending or threatened FDA, EPA or other regulatory warning notices, actions, requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product or service introductions, affect the production, supply and/or marketing of existing products or services or otherwise affect STERIS’s performance, results, prospects or value, (j) the potential of international unrest, including the Russia-Ukraine military conflict, economic downturn or effects of currencies, tax assessments, tariffs and/or other trade barriers, adjustments or anticipated rates, material and labor 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, due to supply chain issues or otherwise , 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 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, including the acquisition of Cantel Medical and Key Surgical, or of STERIS’s restructuring efforts, or of recent divestitures, including anticipated revenue, productivity improvement, cost savings, growth synergies and other anticipated benefits, will not be realized or will be other than anticipated, (q) the increased level of STERIS’s indebtedness incurred in connection with the acquisition of Cantel Medical limiting financial flexibility or increasing future borrowing costs, (r) rating agency actions or other occurrences that could affect STERIS’s existing debt or future ability to borrow funds at rates favorable to STERIS or at all, (s) the potential impact of the acquisition of Cantel Medical on relationships, including with suppliers, Customers, employees and regulators, and (t) 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.

Availability of Securities and Exchange Commission Filings

We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports as soon as reasonably practicable after we file such material with, or furnish such material to, the Securities Exchange Commission ("SEC").

You may access these documents on the Investor Relations page of our website at http://www.steris-ir.com .

The information on our website and the SEC's website is not incorporated by reference into this report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis