Mac Etoch

Dan described global localization of pharmaceutical manufacturing, creating demand for duplicate aseptic manufacturing footprints requiring sterilizers, washers, and cleaning chemistries; he called it evolutionary rather than a revolution.

Dan said STERIS has seen no slowdown in procedure volumes, with strong growth in the ASC and endoscopy markets, and expressed confidence in customer resiliency despite payment-environment challenges.

Dan explained organic volume was below expectations in last 2 quarters. Procedure volumes growing mid-single digits supports underlying demand, but med tech customers are pulling back inventory.

Dan explained sequential backlog decline is normal Q4 pattern from heavy shipments. Orders remain solid and STERIS is well-positioned helping healthcare systems increase procedure volumes.

Karen described a wide range of mitigation: product movement shifts, supplier negotiations, alternative suppliers, cost reductions, and productivity improvements. Expressed optimism about full absorption going forward. Julie noted metals tariffs are the primary driver, tied to capital equipment mix.

Dan cited specific state-level commitments for aseptic manufacturing (STERIS's sweet spot). Despite pharma pricing pressures and regulatory uncertainty, pharma spending posture is much improved versus 18 months ago.

Dan noted bioprocessing volumes have been consistent for 4-5 months at a normal trajectory off the reset base, with fits and starts now behind them.

Dan explained the 16-month pharma capital downcycle has completed, with strong order intake resuming as customer layoffs and plant relocations stabilized.

Dan cited conservative bioprocessing recovery assumptions and customer manufacturing relocation uncertainty as reasons for the AST outlook.

Dan noted no concrete changes in customer behavior from macro or policy uncertainty.

Kim described 3% customer growth including churn as some early programs rotated out and new ones entered. Growth driven by pipeline progression from Phase I to II to III rather than new customer acquisition alone. ProPak form factor supporting cost-effective scaling.

Kim outlined M&A focus areas: novel antibodies, broadening cell therapy portfolio, and proteomic analysis capabilities. Wilson Wolf acquisition on track to close by end of calendar 2027, grew 20% with 70%+ EBITDA margins.

Kim described organoids as a $1.4 billion market growing mid-teens with Bio-Techne at approximately $50 million run rate. Recently launched Culturex Synthetic Hydrogel for animal-free organoid growth. Opportunity spans reagents, spatial, and proteomic analysis instruments.

Kim explained that despite depressed biotech funding, later-stage cell therapy companies continue investing, driving 20% growth. Noted the franchise could perform even better in a healthier funding environment.

Kim declined to quantify cell therapy instrument revenue share but noted a clear tilt in customer interest toward cell therapy applications. Jim added Simple Western and Maurice strength is from both large pharma and smaller biotech in downstream/later-stage applications.

Bob said rising oil and commodity costs are being partly passed to customers, with price expected to be a bigger contributor in the second half.

Eric highlighted CZ and admin systems performing well. SmartDose improving profitability quarter-over-quarter with automation validation on track for early 2026. Bob confirmed sequential economics improvement as expected.

Eric explained projects take 2-4+ quarters through validation. Regulations implemented mid-to-end 2023, ramp-up through 2024-2025 with this being a multiyear process across multiple customers and projects.

Eric confirmed year progressing as anticipated except for the HVP constraint and lighter pricing, with biologics HVP expected to accelerate in the second half.