Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”), we explain the general financial condition and the results of operations for STERIS including:

• what factors affect our business;

• what our earnings and costs were in each period presented;

• why those earnings and costs were different from prior periods;

• where our earnings came from;

• how this affects our overall financial condition;

• what our expenditures for capital projects were; and

• 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 contained herein, which present the results of our operations for the first quarter of fiscal 2024 and fiscal 2023. It may also be helpful to refer to our Annual Report on Form 10-K for the year ended March 31, 2023, which was filed with the Securities and Exchange Commission ("SEC") on May 26, 2023, including information in Item 1, "Business," Part I, Item 1A, "Risk Factors," and Note 10 of our consolidated financial statements titled, "Commitments and Contingencies," and Part II, Item 1A, "Risk Factors" 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. This information, discussion, and analysis may be important to you in making decisions about your investments in STERIS.

Financial Measures

In the following sections of the MD&A, we may, at times, refer to financial measures that are not required to be presented in the consolidated financial statements under U.S. GAAP. We sometimes use the following financial measures in the context of this report: backlog; debt-to-total capital; and days sales outstanding. We define these financial measures as follows:

• Backlog – We define backlog as the amount of unfilled capital equipment purchase orders at a point in time. We use this figure as a measure to assist in the projection of short-term financial results and inventory requirements.

• Debt-to-total capital – We define debt-to-total capital as total debt divided by the sum of total debt and shareholders’ equity. We use this figure as a financial liquidity measure to gauge our ability to borrow and fund growth.

• Days sales outstanding (“DSO”) – We define DSO as the average collection period for accounts receivable. It is calculated as net accounts receivable divided by the trailing four quarters’ revenues, multiplied by 365 days. We use this figure to help gauge the quality of accounts receivable and expected time to collect.

We, at times, may also refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We have presented these financial measures because we believe that meaningful analysis of our financial performance is enhanced by an understanding of certain additional factors underlying that performance. These financial measures should not be considered an alternative to measures required by accounting principles generally accepted in the United States. Our calculations of these measures may differ from calculations of similar measures used by other companies and you should be careful when comparing these financial measures to those of other companies. Additional information regarding these financial measures, including reconciliations of each non-GAAP financial measure, is available in the subsection of MD&A titled, "Non-GAAP Financial Measures."

Revenues – Defined

As required by Regulation S-X, we separately present revenues generated as either product revenues or service revenues on our Consolidated Statements of Income for each period presented. When we discuss revenues, we may, at times, refer to revenues summarized differently than the Regulation S-X requirements. The terminology, definitions, and applications of terms that we use to describe revenues may be different from terms used by other companies. We use the following terms to describe revenues:

• Revenues – Our revenues are presented net of sales returns and allowances.

• Product Revenues – We define product revenues as revenues generated from sales of consumable and capital equipment products.

• 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, instrument and scope repairs, as well as revenues generated from contract sterilization and laboratory services offered through our Applied Sterilization Technologies ("AST") 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 operating room ("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.

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

General Company Overview and Executive Summary

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. We offer our Customers a unique mix of innovative consumable products, such as detergents, endoscopy accessories, barrier products, and other products and services, including: 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 OR integration.

We operate and report our financial information in four reportable business segments: Healthcare, AST, Life Sciences and Dental. Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income. We describe our business segments in Note 9 to our consolidated financial statements titled, "Business Segment Information."

The bulk of our revenues are derived from the healthcare and pharmaceutical industries. Much of the growth in these industries is driven by the aging of the population throughout the world, as an increasing number of individuals are entering their prime healthcare consumption years, and is dependent upon advancement in healthcare delivery, acceptance of new technologies, government policies, and general economic conditions. The pharmaceutical industry has been impacted by increased regulatory scrutiny of cleaning and validation processes, mandating that manufacturers improve their processes. Within healthcare, there is increased concern regarding the level of hospital acquired infections around the world; increased demand for medical procedures, including preventive screenings such as endoscopies and colonoscopies; and a desire by our Customers to operate more efficiently, all of which are driving increased demand for many of our products and services.

Acquisitions. On June 20, 2023, we entered into a definitive agreement to purchase the surgical instrumentation, laparoscopic instrumentation and sterilization container assets from Becton, Dickinson and Company (NYSE: BDX) ("BD"). The acquired assets from BD will be integrated into our Healthcare segment. The transaction was completed on August 2, 2023.

The purchase price is $540,000. We anticipate that the acquisition will qualify for a tax benefit related to tax deductible goodwill, with a present value of approximately $60,000. We are not assuming any pre-existing debt and funded the entire purchase with additional debt.

Highlights. Revenues increased 11.1% to $1,284.5 million for the three months ended June 30, 2023, as compared to $1,156.5 million for the same period in the prior year. The increase is primarily due to the benefits of higher volume and pricing, particularly in the Healthcare segment.

Gross profit percentage for the first quarter of fiscal 2024 was 44.6% compared to the gross profit percentage for the first quarter of fiscal 2023 of 44.8%. The decrease in gross profit percentage reflects unfavorable impacts from inflationary cost increases for materials and labor which exceeded the benefits from pricing for the first quarter of fiscal 2024.

Operating income for the first quarter of fiscal 2024 was $188.9 million, compared to operating income of $158.4 million for first quarter of fiscal 2023. The increase is primarily due to the benefit of higher volume and pricing which exceeded negative impacts from inflationary cost increases for materials and labor for the first quarter of fiscal 2024. In addition, acquisition and integration related charges decreased to $2.7 million in the first quarter of fiscal 2024 compared to $9.8 million in the first quarter of fiscal 2023. Acquisition and integration expenses are reported in the Selling, general and administrative expenses line in our Consolidated Statements of Income.

Cash flows from operations were $281.1 million and free cash flow was $214.5 million for the first three months of fiscal 2024 compared to cash flows from operations of $231.7 million and free cash flow of $117.1 million for the first three months of fiscal 2023 (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 first quarter of fiscal 2024 increase in cash flows from operations and free cash flows was primarily due to a decline in cash used for compensation related payments offset by continued investment in inventory as we continue to focus on reducing lead times and meeting Customer demand, as well as timing of capital spending.

Our debt-to-total capital ratio was 32.2% at June 30, 2023 and 33.6% at March 31, 2023. During the first three months of fiscal 2024, we declared and paid cash dividends totaling $0.47 per ordinary share.

Additional information regarding our financial performance during the first quarter of fiscal 2024 is included in the subsection below titled “Results of Operations.”

NON-GAAP FINANCIAL MEASURES

We, at times, refer to financial measures which are considered to be “non-GAAP financial measures” under SEC rules. We, at times, also refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not indicative of future results, in order to provide meaningful comparisons between the periods presented.

These non-GAAP financial measures are not intended to be, and should not be, considered separately from or as an alternative to the most directly comparable GAAP financial measures.

These non-GAAP financial measures are presented with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making. These amounts are disclosed so that the reader has the same financial data that management uses with the belief that it will assist investors and other readers in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented.

We believe that the presentation of these non-GAAP financial measures, when considered along with our GAAP financial measures and the reconciliation to the corresponding GAAP financial measures, provides the reader with a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. It is important for the reader to note that the non-GAAP financial measures used may be calculated differently from, and therefore may not be comparable to, similarly titled measures 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 (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 three months ended June 30, 2023 and 2022:

						Three Months Ended June 30,
(dollars in thousands)						2023						2022
Net cash provided by operating activities						$	281,129					$	231,746
Purchases of property, plant, equipment, and intangibles, net						(66,601)						(115,933)
Proceeds from the sale of property, plant, equipment, and intangibles						5						1,288
Free cash flow						$	214,533					$	117,101

Results of Operations

In the following subsections, we discuss our earnings and the factors affecting them for the first quarter of fiscal 2024 compared to the same fiscal 2023 period. We begin with a general overview of our operating results and then separately discuss earnings for our operating segments.

Revenues. The following tables compare our revenues for the three months ended June 30, 2023 to the revenues for the three months ended June 30, 2022:

						Three Months Ended June 30,
(dollars in thousands)						2023						2022						Change						Percent Change
Total revenues						$	1,284,542					$	1,156,491					$	128,051					11.1		%
Revenues by type:
Service revenues						570,684						519,415						51,269						9.9		%
Consumable revenues						443,894						416,825						27,069						6.5		%
Capital equipment revenues						269,964						220,251						49,713						22.6		%
Revenues by geography:
Ireland revenues						20,085						18,176						1,909						10.5		%
United States revenues						930,542						834,101						96,441						11.6		%
Other foreign revenues						333,915						304,214						29,701						9.8		%

Revenues increased 11.1% to $1,284.5 million for the three months ended June 30, 2023, as compared to $1,156.5 million for the same period in the prior year. The increase is primarily due to the benefits of higher volume and pricing, particularly in our Healthcare segment.

Service revenues increased 9.9% for the three months ended June 30, 2023, as compared to the same period in the prior year, reflecting growth in the Healthcare, Life Sciences and AST segments. Consumable revenues increased by 6.5% for the three months ended June 30, 2023, as compared to the same period in the prior year, reflecting growth in the Healthcare and Life Sciences segments which exceeded the decrease in the Dental segment. Capital equipment revenues increased 22.6% for the three months ended June 30, 2023, as compared to the same period in the prior year, reflecting growth in the Healthcare segment which exceeded the decrease in the Life Sciences segment.

Ireland revenues increased 10.5% to $20.1 million for the three months ended June 30, 2023, as compared to $18.2 million for the same period in the prior year, reflecting growth in service, consumable, and capital equipment revenues.

United States revenues increased 11.6% to $930.5 million for the three months ended June 30, 2023, as compared to $834.1 million for the same period in the prior year, reflecting growth in service, consumable and capital equipment revenues.

Revenues from other foreign locations increased 9.8% to $333.9 million for the three months ended June 30, 2023, as compared to $304.2 million for the same period in the prior year, reflecting growth in the Europe, Middle East & Africa ("EMEA"), Canada, Asia Pacific, and Latin American Regions.

Gross Profit. The following tables compare our gross profit for the three months ended June 30, 2023 to the three months ended June 30, 2022:

						Three Months Ended June 30,												Change						Percent Change
(dollars in thousands)						2023						2022
Gross profit:
Product						$	336,680					$	304,221					$	32,459					10.7		%
Service						236,781						213,577						23,204						10.9		%
Total gross profit						$	573,461					$	517,798					$	55,663					10.7		%
Gross profit percentage:
Product						47.2		%				47.8		%
Service						41.5		%				41.1		%
Total gross profit percentage						44.6		%				44.8		%

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 first quarter of fiscal 2024 was 44.6% compared to the gross profit percentage for the first quarter of fiscal 2023 of 44.8%. Gross profit percentage decreased as pricing (150 basis points) was more than offset by unfavorable material and labor inflation (170 basis points). The net impact from other factors including productivity, mix, adjustments and other charges was not significant.

Operating Expenses. The following table compares our operating expenses for the three months ended June 30, 2023 to the three months ended June 30, 2022:

						Three Months Ended June 30,												Change						Percent Change
(dollars in thousands)						2023						2022
Operating expenses:
Selling, general, and administrative						$	359,058					$	334,626					$	24,432					7.3		%
Research and development						25,502						24,751						751						3.0		%
Restructuring expenses						19						26						(7)						(26.9)		%
Total operating expenses						$	384,579					$	359,403					$	25,176					7.0		%

Selling, General, and Administrative Expenses. Significant components of total selling, general, and administrative expenses (“SG&A”) are compensation and benefit costs, fees for professional services, travel and entertainment expenses, facilities costs, and other general and administrative expenses. SG&A increased 7.3% in the first quarter of fiscal 2024, compared to the same period in fiscal 2023. The fiscal 2024 increase is primarily attributable to increased compensation, including incentive compensation, and benefit costs, as well as an increase in marketing related expenses.

Research and Development. Research and development expenses increased 3.0% in the first quarter of fiscal 2024, compared to the same period in fiscal 2023. Research and development expenses are influenced by the number and timing of in-process projects and labor hours and other costs associated with these projects. Our research and development initiatives continue to emphasize new product development, product improvements, and the development of new technological platform innovations. During fiscal 2024, our investments in research and development have continued to be focused on, but were not limited to, enhancing capabilities of sterile processing combination technologies, procedural products and accessories, and devices and support accessories used in gastrointestinal endoscopy procedures.

Non-Operating Expenses, Net. The following tables compare our net non-operating expenses for the three months ended June 30, 2023 and 2022:

						Three Months Ended June 30,
(dollars in thousands)						2023						2022						Change
Non-operating expenses, net:
Interest expense						$	32,361					$	22,674					$	9,687
Interest and miscellaneous (income) expense						(1,393)						770						(2,163)
Non-operating expenses, net						$	30,968					$	23,444					$	7,524

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.

Interest expense increased $9.7 million during the first quarter of fiscal 2024, as compared to the same prior year period in fiscal 2023, primarily due to higher interest rates on floating rate debt. For more information, refer to Note 5 to our consolidated financial statements titled, "Debt."

The fluctuation in interest and miscellaneous (income) expense during the first quarter of fiscal 2024, as compared to the same prior year period in fiscal 2023, is primarily attributable to the negative impact of losses on our equity investments recognized during the first quarter of fiscal 2023. For more information, refer to Note 15 to our consolidated financial statements titled, "Fair Value Measurements."

Income Tax Expense. The following tables compare our tax expense and effective income tax rates for the three months ended June 30, 2023 and June 30, 2022:

						Three Months Ended June 30,												Change						Percent Change
(dollars in thousands)						2023						2022
Income tax expense						$	34,124					$	24,196					$	9,928					41.0%
Effective income tax rate						21.6		%				17.9		%

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 period ended June 30, 2023 and 2022 were 21.6% and 17.9%, respectively. The higher fiscal 2024 effective tax rate is the result of changes in geographic mix of projected profits and a decrease in favorable discrete items when compared to the first quarter of fiscal 2023.

Business Segment Results of Operations.

We operate and report our financial information in four reportable business segments: Healthcare, AST, Life Sciences and Dental. Non-allocated operating costs that support the entire Company and items not indicative of operating trends are excluded from segment operating income.

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

Our AST segment is a third-party service provider for contract sterilization, as well as testing services needed to validate sterility services for medical device and pharmaceutical manufacturers. Our technology-neutral offering supports Customers every step of the way, from testing through sterilization.

Our Life Sciences segment provides a comprehensive offering of products and services that support pharmaceutical manufacturing, primarily for vaccine and other biopharma Customers focused on aseptic manufacturing. These solutions include a full suite of consumable products, equipment maintenance and specialty services, and capital equipment.

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 and views the business. The accounting policies for reportable segments are the same as those for the consolidated Company.

For the three months ended June 30, 2023 and 2022, revenues from a single Customer did not represent ten percent or more of the Healthcare, AST 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 approximately 42.2% and 38.6% of our Dental segments revenues for the three months ended June 30, 2023 and 2022, respectively.

Additional information regarding our segments is included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2023, which was filed with the SEC on May 26, 2023.

The following table compares business segment revenues as well as impacts from acquisitions, divestitures, and foreign currency movements for the three months ended June 30, 2023 and 2022.

						Three Months Ended June 30, (unaudited)
						As reported, GAAP												Impact of Acquisitions						Impact of Divestitures						Impact of Foreign Currency Movements						GAAP Growth						Organic Growth						Constant Currency Organic Growth
						2023						2022						2023						2022						2023						2023						2023						2023
Segment revenues:
Healthcare						$	818,874					$	698,526					$	—					$	—					$	(1,574)					17.2		%				17.2		%				17.5		%
AST						233,099						220,911						—						—						830						5.5		%				5.5		%				5.1		%
Life Sciences						131,413						132,207						—						—						23						(0.6)		%				(0.6)		%				(0.6)		%
Dental						101,156						104,847						—						—						138						(3.5)		%				(3.5)		%				(3.7)		%
Total						$	1,284,542					$	1,156,491					$	—					$	—					$	(583)					11.1		%				11.1		%				11.1		%

Healthcare revenues increased 17.2% to $818.9 million for the three months ended June 30, 2023, as compared to $698.5 million for the same prior year period. This increase reflects growth in capital equipment, service, and consumable revenues of 32.9%, 12.4%, and 11.2%, respectively, representing the benefits of higher volume and pricing. The Healthcare segment's backlog at June 30, 2023 was $491.7 million. The Healthcare segment's backlog at June 30, 2022 was $521.7 million. The decrease is due to strong shipments in the first quarter, which were due to shortened lead times and easing of supply chain constraints.

AST revenues increased 5.5% to $233.1 million for the three months ended June 30, 2023, as compared to $220.9 million for the same prior year period. Revenue was impacted by Customer inventory management and the continued reduction in demand from bioprocesing Customers. Revenue was favorably impacted by pricing and fluctuation in currencies.

Life Sciences revenues decreased 0.6% to $131.4 million for the three months ended June 30, 2023, as compared to $132.2 million for the same prior year period. This decrease was primarily due to a decline in capital equipment revenues of 23.5% which exceeded growth in service and consumable revenues of 20.4% and 3.6%, respectively. The Life Sciences backlog at June 30, 2023 was $104.9 million. The Life Sciences backlog at June 30, 2022 was $92.7 million. The increase is primarily due to the timing of shipments.

Dental revenues decreased 3.5% to $101.2 million for the three months ended June 30, 2023, as compared to $104.8 million for the same prior year period. The decline was a result of lower volume, primarily due to Customer inventory destocking, which exceeded the benefit of higher pricing.

The following table compares business segment and Corporate operating income for the three months ended June 30, 2023 and 2022.

						Three Months Ended June 30,
						2023						2022
Segment operating income (loss):
Healthcare						$	198,182					$	156,497
AST						109,590						109,315
Life Sciences						49,841						55,305
Dental						22,039						19,596
Corporate						(92,265)						(75,943)
Total segment operating income						$	287,387					$	264,770
Less: Adjustments
Amortization of acquired intangible assets (1)						$	93,925					$	93,929
Acquisition and integration related charges (2)						2,709						9,832
Tax restructuring costs (3)						9						173
Gain on fair value adjustment of acquisition related contingent consideration (1)						—						(3,100)
Net loss on divestiture of businesses (1)						—						3,878
Amortization of inventory and property "step up" to fair value (1)						1,843						1,637
Restructuring charges (4)						19						26
Total income from operations						$	188,882					$	158,395

(1) For more information regarding our recent acquisitions and divestitures, refer to Note 2 titled, "Business Acquisitions and Divestitures" included in our Annual Report on Form 10-K for the year ended March 31, 2023, which was filed with the SEC on May 26, 2023.

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

(3) Costs incurred in tax restructuring.

(4) For more information regarding our restructuring efforts, refer to our Annual Report on Form 10-K for the year ended March 31, 2023, which was filed with the SEC on May 26, 2023.

The Healthcare segment’s operating income increased 26.6% to $198.2 million for the three months ended June 30, 2023, as compared to $156.5 million in the same prior year period. The segment's operating margins were 24.2% and 22.4% for the first quarter of fiscal 2024 and 2023, respectively. The increase in operating income and margin is primarily due to the benefits of higher volume and pricing which exceeded increased costs caused by inflation.

The AST segment's operating income was $109.6 million for the three months ended June 30, 2023 and $109.3 million during the same prior year period. The segment's operating margin percentages were 47.0% and 49.5% for the first quarter of fiscal 2024 and 2023, respectively. The most significant driver of the decrease in operating margin percentage is labor and energy costs.

The Life Sciences segment’s operating income decreased 9.9% to $49.8 million for the three months ended June 30, 2023, as compared to $55.3 million for the same prior year period. The segment's operating margins were 37.9% and 41.8% for the first quarter of fiscal 2024 and 2023, respectively. The decreases in segment operating income and operating margin were primarily due to a reduction in volume and increased material costs which exceeded the benefits of higher pricing.

The Dental segment's operating income increased 12.5% to $22.0 million for the three months ended June 30, 2023, as compared to $19.6 million for the same prior year period. The segment's operating margins were 21.8% and 18.7% for the first quarter of fiscal 2024 and 2023, respectively. The increase in operating income and operating margin was primarily due to the benefits of higher pricing and improved operating efficiencies which exceeded the reduction in volume and unfavorable inflationary cost increases.

Liquidity and Capital Resources

The following table summarizes significant components of our cash flows for the three months ended June 30, 2023 and 2022:

						Three Months Ended June 30,
(dollars in thousands)						2023						2022
Net cash provided by operating activities						$	281,129					$	231,746
Net cash used in investing activities						$	(66,596)					$	(109,417)
Net cash used in financing activities						$	(213,637)					$	(141,414)
Debt-to-total capital ratio						32.2		%				31.9		%
Free cash flow						$	214,533					$	117,101

Net Cash Provided by Operating Activities – The net cash provided by our operating activities was $281.1 million for the first three months of fiscal 2024 and $231.7 million for the first three months of fiscal 2023. The fiscal 2024 increase was primarily due to a decline in cash used for compensation related payments offset by continued investment in inventory as we continue to focus on reducing lead times and meeting Customer demand.

Net Cash Used In Investing Activities – The net cash used in investing activities totaled $66.6 million for the first three months of fiscal 2024 and $109.4 million for the first three months of fiscal 2023. The following discussion summarizes the significant changes in our investing cash flows for the first three months of fiscal 2024 and fiscal 2023:

• Purchases of property, plant, equipment, and intangibles, net – Capital expenditures totaled $66.6 million for the first three months of fiscal 2024 and $115.9 million during the same prior year period. The fiscal 2024 reduction is primarily due to the timing of capital spending in our AST segment compared to the first three months in fiscal 2023.

• 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.

Net Cash Used In Fi****nancing Activities – The net cash used in financing activities amounted to $213.6 million for the first three months of fiscal 2024 compared to net cash used in financing activities of $141.4 million for the first three months of fiscal 2023. The following discussion summarizes the significant changes in our financing cash flows for the first three months of fiscal 2024 and fiscal 2023:

• Payments on Term Loans – During the first three months of fiscal 2024, we repaid $15.0 million of our Term Loans. During the first three months of fiscal 2023, we repaid $111.9 million of our Term Loans. For more information on our Term Loans, refer to Note 5 to our consolidated financial statements titled, "Debt" and to our Annual Report on Form 10-K for the year ended March 31, 2023, which was filed with the SEC on May 26, 2023.

• Payments/Proceeds under credit facilities, net – Net payments under credit facilities totaled $144.7 million in the first three months of fiscal 2024, compared to net proceeds under credit facilities of $37.0 million in the first three months of fiscal 2023.

• Acquisition related deferred or contingent consideration – During the first three months of both fiscal 2024 and 2023, we paid approximately $0.1 million in deferred and contingent consideration.

• Repurchases of ordinary shares – During the first three months of fiscal 2024 and 2023, we obtained 51,494 and 57,704, respectively, of our ordinary shares in connection with share-based compensation award programs in the aggregate amount of $8.7 million and $11.7 million, respectively. During the first three months of fiscal 2024, we did not purchase any ordinary shares through our share repurchase program. During the first three months of fiscal 2023, we purchased 61,677 of our shares in the aggregate amount of $12.9 million through our share repurchase program.

• Cash dividends paid to ordinary shareholders – During the first three months of fiscal 2024, we paid total cash dividends of $46.4 million, or $0.47 per outstanding share. During the first three months of fiscal 2023, we paid total cash dividends of $43.0 million, or $0.43 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 three months of fiscal 2024 and fiscal 2023, we received cash proceeds totaling $1.3 million and $1.2 million, respectively, under these programs.

Cash Flow Measures. The net cash provided by our operating activities was $281.1 million for the first three months of fiscal 2024 and $231.7 million for the first three months of fiscal 2023. Free cash flow was $214.5 million in the first three months of fiscal 2024 compared to $117.1 million in the first three months of fiscal 2023 (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 2024 increase in free cash flow was primarily due to the benefits of increased cash flows from operations and a reduction in capital spending.

Our debt-to-total capital ratio was 32.2% at June 30, 2023 and 31.9% at June 30, 2022.

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, 2023, which was filed with the SEC on May 26, 2023. Our commercial commitments were approximately $110.0 million at June 30, 2023, reflecting a net increase of $1.6 million in surety bonds and other commercial commitments from March 31, 2023. Outstanding borrowings under our Credit Agreement as of June 30, 2023 were $158.2 million. We had $10.5 million of letters of credit outstanding under the Credit Agreement at June 30, 2023.

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 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 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 ("Parent") and its wholly-owned subsidiaries, 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. 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 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:

Guarantees of Senior Notes

• Parent Company Guarantor – STERIS plc

• Subsidiary Issuer – STERIS Irish FinCo Unlimited Company

• Subsidiary Guarantor – STERIS Limited

• Subsidiary Guarantor – STERIS Corporation

The guarantee of a Guarantor will be automatically and unconditionally released and discharged:

• in the case of a Subsidiary Guarantor, upon the sale, transfer or other disposition (including by way of consolidation or merger) 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, 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 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;

• as described in accordance with the terms of the indenture; or

• in the case of the Parent, if the Issuer ceases for any reason to be a subsidiary of the Parent; provided that all guarantees and other obligations of the Parent in respect of all other indebtedness under any Material Credit Facility of the Issuer terminate upon the Issuer ceasing to be a subsidiary of the Parent; and

• upon such Guarantor delivering to the trustee an officer’s certificate and an opinion of counsel, each stating that all conditions precedent provided for in the indenture relating to such transaction or release have been complied with.

The obligations of each Guarantor under its guarantee are expressly limited to the maximum amount that such Guarantor could guarantee without such guarantee constituting a fraudulent conveyance. 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 three months ended June 30, 2023 and summarized balance sheet information at June 30, 2023 and March 31, 2023 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. Transactions with non-issuer and non-guarantor subsidiaries have been presented separately.

Summarized Results of Operations
(in thousands)						Three Months Ended
						June 30,
						2023
Revenues						$	645,643
Gross profit						365,962
Operating costs arising from transactions with non-issuers and non-guarantors, net						162,800
Income from operations						177,713
Non-operating income (expense) arising from transactions with subsidiaries that are non-issuers and non-guarantors, net						83,484
Net income						$	57,082

Summarized Balance Sheet Information
( in thousands)
			June 30,			March 31,
			2023			2023
Receivables due from non-issuers and non-guarantor subsidiaries			$	18,097,564		$	17,797,185
Other current assets			597,697			614,233
Total current assets			$	18,695,261		$	18,411,418
Non-current receivables due from non-issuers and non-guarantor subsidiaries			$	1,918,807		$	1,827,125
Goodwill			96,892			96,892
Other non-current assets			222,414			206,331
Total non-current assets			$	2,238,113		$	2,130,348
Payables due to non-issuers and non-guarantor subsidiaries			$	19,963,893		$	19,347,473
Other current liabilities			198,434			255,746
Total current liabilities			$	20,162,327		$	19,603,219
Non-current payables due to non-issuers and non-guarantor subsidiaries			$	722,680		$	684,985
Other non-current liabilities			2,980,340			3,128,853
Total non-current liabilities			$	3,703,020		$	3,813,838

Intercompany balances and transactions between the obligor group have been eliminated, and amounts due from, amounts due to, and transactions with non-issuer and non-guarantor subsidiaries have been presented separately. Intercompany transactions arise from internal financing and trade activities.

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, 2023, which was filed with the SEC on May 26, 2023. Our critical accounting policies, estimates, and assumptions have not changed materially from March 31, 2023.

Contingencies

We are, and will likely continue to be, involved in a number of legal proceedings, government investigations, and claims, which we believe generally arise in the course of our business, given our size, history, complexity, and the nature of our business, products, Customers, regulatory environment, and industries in which we participate. These legal proceedings, investigations and claims generally involve a variety of legal theories and allegations, including, without limitation, personal injury (e.g., slip and falls, burns, vehicle accidents), product liability or regulation (e.g., based on product operation or claimed malfunction, failure to warn, failure to meet specification, or failure to comply with regulatory requirements), product exposure (e.g., claimed exposure to chemicals, gases, asbestos, contaminants, radiation), property damage (e.g., claimed damage due to leaking equipment, fire, vehicles, chemicals), commercial claims (e.g., breach of contract, economic loss, warranty, misrepresentation), financial (e.g., taxes, reporting), employment (e.g., wrongful termination, discrimination, benefits matters), and other claims for damage and relief.

We record a liability for such contingencies to the extent we conclude that their occurrence is both probable and estimable. We consider many factors in making these assessments, including the professional judgment of experienced members of management and our legal counsel. We have made estimates as to the likelihood of unfavorable outcomes and the amounts of such potential losses. In our opinion, the ultimate outcome of these proceedings and claims is not anticipated to have a material adverse affect on our consolidated financial position, results of operations, or cash flows. However, the ultimate outcome of proceedings, government investigations, and claims is unpredictable and actual results could be materially different from our estimates. 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.

We are subject to taxation from United States federal, state and local, and non-U.S. jurisdictions. Tax positions are settled primarily through the completion of audits within each individual tax jurisdiction or the closing of a statute of limitation. Changes in applicable tax law or other events may also require us to revise past estimates. The IRS routinely conducts audits of our federal income tax returns.

Refer to Note 7 of our consolidated financial statements titled, "Income Tax Expense" for more information.

Forward-Looking Statements

This quarterly report may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to STERIS or its industry, products or activities that are intended to qualify for the protections afforded “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date the statement is made and may be identified by the use of forward-looking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “outlook,” “impact,” “potential,” “confidence,” “improve,” “optimistic,” “deliver,” “orders,” “backlog,” “comfortable,” “trend”, and “seeks,” or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations, labeling or product approvals or the application or interpretation thereof. Other risk factors are described in STERIS's other securities filings, including Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2023. Many of these important factors are outside of STERIS’s control. No assurances can be provided as to any result or the timing of any outcome regarding matters described in STERIS’s securities filings or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products are summaries only and should not be considered the specific terms of the product clearance or literature. Unless legally required, STERIS does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the 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, impairments, or increases in expected integration costs or difficulties in connection with the integration of Cantel Medical, (e) uncertainties related to tax treatments under the TCJA and the IRA, (f) the possibility that Pillar Two Model Rules could increase tax uncertainty and adversely impact STERIS's provision for income taxes and effective tax rate and subject STERIS to additional income tax in jurisdictions who adopt Pillar Two Model Rules, (g) STERIS's ability to continue to qualify for benefits under certain income tax treaties in light of ratification of more strict income tax treaty rules (through the MLI) in many jurisdictions where STERIS has

operations, (h) 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, (i) the potential for increased pressure on pricing or costs that leads to erosion of profit margins, including as a result of inflation, (j) 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, (k) the possibility that application of or compliance with laws, court rulings, certifications, regulations, or 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, the outcome of any pending or threatened litigation brought by private parties, 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, result in costs to STERIS that may not be covered by insurance, or otherwise affect STERIS’s performance, results, prospects or value, (l) 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, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (m) the possibility of reduced demand, or reductions in the rate of growth in demand, for STERIS’s products and services, (n) 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, (o) 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, impairments, regulatory, governmental, or other issues or risks associated with STERIS’s businesses, industry or initiatives including, without limitation, those matters described in STERIS's various securities filings, may adversely impact STERIS’s performance, results, prospects or value, (p) 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, (q) the impact on STERIS and its operations of any legislation, regulations or orders, including but not limited to any new trade or tax legislation (including CAMT and excise tax on stock buybacks), regulations or orders, that may be implemented by the U.S. administration or Congress, or of any responses thereto, (r) 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, (s) the increased level of STERIS’s indebtedness incurred in connection with the acquisition of Cantel Medical limiting financial flexibility or increasing future borrowing costs, (t) 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, (u) the effects of changes in credit availability and pricing, as well as the ability of STERIS’s Customers and suppliers to adequately access the credit markets, on favorable terms or at all, when needed, and (v) STERIS's ability to complete any announced transactions, including the fulfillment of related closing conditions.

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 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.