All right. We're going to get started here. First of all, welcome to Dan from STERIS. Thanks again for joining us. We're excited to unpack parts of the story. Before we get into it, there is a disclaimer on the morganstanley.com website, so I suggest everybody go check that out. Dan, I just learned that it was Dan's 29th anniversary year at STERIS, but importantly, also five years as CEO, so congratulations on that. Maybe to start us off, you can reflect a bit about what you learned in the last five years about STERIS and as CEO that you didn't appreciate when you first took the role on, and maybe what you think investors still underappreciate about the story. Yeah. Thank you, and thank you for having me. I think the one thing that I would really point to is how resilient and how durable the demand is for our products and services, in particular in the healthcare space. In a time where our customers are definitely under some financial crunch, STERIS has emerged as really a provider that will work with them to help enable them to have better outcomes. What do I mean by that? I mean, as hospitals need to generate more revenue, they need to turn surgeries. They can't ever have an OR shut down because of lack of sterile product. Running a sterile processing department in the basement of the hospital is not very sexy, but it is absolutely essential, and it enables the hospital to turn those procedures. It enables them to have compliant, safe outcomes, and ensure that everything operates as intended. We've had different conversations over the last year with the C-suite level of major healthcare systems. While it's tightened, I guess, on capital spending from time to time, we just haven't seen an impact because of the value we're delivering. Great. I do think that your role and relationship within the hospital is actually a very unique one compared to some of the other medical devices out there. As we saw in the last earnings quarter, there was a lot of questions around hospital utilization rates and procedure volumes and quite a variance in views. Given your role and STERIS' role, can you share perspectives on what you're seeing from your customers and what you can kind of glean on the volumes? What I can do is provide a lot of data that we have or some anecdotal data, then let people draw their own conclusions of what's going on in the market. As point of reference, we touch the space in many different ways. First, on the industrial side, we're a major supplier of industrial sterilization across the globe, largest industrial sterilization company in the world. So we see roughly a third of the world's single-use medical devices come through one of our plants. What we have seen over the last, I don't know, year or so has been destocking in terms of volume, which is counter to what we're seeing in terms of procedure volume. So we'll just put that data aside for a second. If we talk about the data that we have on the hospital side of things, we run in-house and outsource sterile processing departments for many large healthcare systems, as well as we have embedded data in the equipment in the sterile processing departments that track consumption of instruments and trays. So we see that across a broad network, in particular here in the U.S. Generally speaking, I've always said that in a good year, a really good year, we tend to see procedure growth at the high end of the range at 4%. In a not so good year, it tends to be at the lower end of the range. I'd say we're definitely at the lower end of the range. Okay. But growth nonetheless. There are some bright pockets though, and not that that's not good because it is growth, but there are some bright pockets. In particular, we see it in endoscopy. Okay Where we have a lot of exposure because we have a sterilization system that's specifically geared to reprocessing of endoscopes, and also a large repair operation and a device business. But endoscopy, just as a market in terms of procedures, is up somewhere between 7% and 8.5%. Yeah. Due to some factors with screening age coming down and also the unfortunate, what seems like an increased occurrence of colon cancer in much younger people than previously seen. Anyway, but to the procedure rates, we have all this data that suggests that we are seeing growth in the North American market and broadly around the world as well. Okay. That's very helpful as a framework. Just focusing on the P&L for you all, consistently you've talked about mid to high single digit organic top line growth, leveraging that to have double digit bottom line growth. What gives you confidence in the sustainability of this algorithm over near- term, midterm, long term? Yeah. Let me start by saying, 10, 12 years ago, STERIS was approximately 80% of our revenue was from capital equipment, 20% was from reoccurring revenue streams. Today, it is inverted, so 80% of our business is reoccurring revenue, which comes out of our chemistries franchise that goes through all of our washers and some of the low temp sterilization machines within healthcare, as well as our life sciences products that go into aseptic cleaning and aseptic environments that are disposable or chemistries. Then a huge portion of that is now services. So when you have 80% of your revenue that is largely procedure driven, a nd in a necessary environment, it is pretty easy to have that outlook because you have data of past months and years of trend analysis. So as long as we are headed in the right direction, we tend to stay that way. The only thing that can fluctuate a little bit from time to time is some of the capital purchases, in particular on the life science side. Sure. Generally speaking, healthcare has been very consistent for us over the long term. Okay, great. I do want to go a level deeper on that top-line growth, and maybe if you could just share a little bit of how do we break that down, the sources of that top-line growth. Between procedure growth, market share gain, pricing, new products, any sense of relative contribution and which one of the four you think has the most runway in the near term? Well, it's pretty simple math for us. Start with price. It's not exciting, but it is important. We get a couple hundred basis points of price, so that's two, right? Then you layer in procedure volume, which is material in terms of all of our recurring revenue businesses in healthcare, as well as AST, our industrial sterilization business, and then somewhat related to our customers in pharma that are manufacturing the aseptic drugs. If you go back to what I was saying earlier, somewhere between 2% and 4%. You stack that up, right? You are at somewhere between 4% and 6%, and then you look at a little share gain. Yep. Then maybe we do a little small bolt-on M&A here and there, or something like that gets us up to a number that looks like mid to higher single digits. Then through that revenue scale, through our own internal initiatives on continuous improvement and cost savings and things like that, we are generally able to get meaningful margin out of that 7%. Okay. We spent a little bit of time on the healthcare segment specifically because it is now at $4 billion of annual revenue. By law of large numbers and math, as the business gets larger, that growth rate, delivering that mid to high single digit growth rate becomes harder and harder. How do you think about delivering that top-line growth versus converging to the procedure growth that we just talked about? There's still a lot of market share out there to be had. Okay. Both in North America and especially in Europe, where we have a much smaller presence in healthcare. So I'm confident long-term that our commercial teams have shown their ability to consistently win share. I think the model that we've developed in the U.S. market and Canadian market in particular, as we deploy that to Europe, we're going to be very successful there. It gives us a lot of room for growth. And there's also still a number of things that we can bring into the portfolio over the long term through our own R&D initiatives and things like that. We have a very good channel, we have very good technologies, and it's a matter of just expanding that for our customers. Okay. If we pivot towards healthcare services, that has been a phenomenal growth driver and one of your strongest growth categories. What's structurally been driving that outperformance and, again, what does that outlook look like in the mid to long term? Yeah, so you can really break that down into a couple businesses. One is about half of our revenue is our traditional maintenance business, repair business on our equipment. So the wrench-turning business. That continues to do very well because we deliver a lot of value in terms of uptime for our customers in sterile processing in particular. Also, we are able to get a little bit of price there. But it's really the trust that they put in us to keep those machines running because they're critical. We've also placed a lot of capital equipment over the last couple years. That is helping drive the growth there as well as those service warranties turn into contracts. In terms of the rest of our healthcare services business, that is largely third-party repair of a lot of it is endoscopes or rigid scopes or some power tools used in orthopedic surgery. We create value for the customer by extending the life of those devices through basically replacing glasses or sensors or things like that. A high-end scope can be $60,000-$80,000. If we can repair that and keep it running for another five years, i t is really super value as our customers are looking to sweat some of the assets, as long as they can keep them delivered. Yeah. Okay. Makes sense. I think one of the crown jewels of the portfolio is the AST business, right? It is quite a differentiated asset. I am sure you get a ton of questions from investors around it. What do you think are the biggest structural drivers of growth for that AST business over the mid to long term? That one gets clearly to procedure volume. Yeah. And then also some to the mix of the product that we have. And that is, as some devices get generally more sophisticated, more expensive, they require a more specialized approach to sterilization. Which often allows us to price things at a much higher price based on the unique abilities of our plants to develop and design, and deliver a very tight dose or a very specific cycle. I think that the long term, our global footprint, with well over 60 plants, I think it's touching 70 now, in Asia, Europe, and North America, Costa Rica, Dominican Republic, it just puts us in a place where customers who need resilient supply chains who need to have flexibility. We're just in a great position to service that. That's great. I do think, post-COVID, there's been an increasing focus around ship supply chain maturity, and how do you make sure that inventory is being managed appropriately. If you could talk a little about within AST, how much visibility do you have on the underlying end market demand versus some of those short-term bursts that are more inventory movements within med tech customers? Do you have what indicators tell you about destocking or inventory management being normalized now? Well, we start with the conversation with our customers. Right? Generally speaking, that gives us a guide. Now, there's some bias in it sometimes because they want to say they're going to utilize as much capacity so that there's never an issue of us having not enough capacity for them. We try to temper that, right? Beyond that, because we see a lot of the competitive landscape for a certain product offering, we're able to sort of put it all together in our minds and look at growth, make some assumptions. Another thing that we see is that we do a lot of the precursor materials for orthopedics that have to be cross-linked through an irradiation process. A lot of times we'll see that as maybe a precursor to what is going to be either an increase or slowdown in our orthopedics demand, because it typically takes a couple of months for that to work its way through the manufacturing process. There's a number of different variables. It's hard to say there's any one thing in particular. What I can say, though, is that we saw a lot of med tech get fat on inventory post-pandemic. We had the supply chain crisis, the golden screw, all that kind of stuff. I mean, STERIS itself, I think a year and a half ago, we've taken out $100 million of inventory of our own, because everybody was keeping inventory for just in case, not just in time. So it's been about a year now. We've seen this pull down amongst our large customer segment, which has caused a little bit of slowdown in the growth rate at AST. We fully expect that corrects itself in Q3, and our Q3 starts October, just to confuse everybody. That's when we get past an anniversary of 10% growth for two quarters in the prior period. We think we'll finally worked it out, and we'll see normalized inventory levels resume. Okay. That's very helpful. I mean, life sciences, just to pivot to the last business. Life sciences has returned to stronger growth as customer capital spend has recovered. Can you give a little flavor for how we should think about the normalized growth rate for that business? Yeah. The most important part of that business and the biggest part is our consumables business around aseptic manufacturing. Excuse me. These are chemistries that are used in critical environments for maintaining surface cleanliness and sterilization. It could be something as literally a 2-ounce sachet of a disinfectant that's double bagged and sterilized. Yes, we sterilize disinfectants because pharma, that's what they have to have so they can do a pass-through into a clean room. That's the most important part of that franchise. It's very high profit, and that has always consistently grown mid to high single digits, at times even gone over double digits. Okay. It's just when we get into the capital business, t here is some lumpiness there because they are large, long-term orders. We saw a real slowdown two years ago when pharma kind of got sideways. Right. They paused, then we had a bunch of equipment orders, and we have been shipping a lot of product now, and we are in really good shape. The crown jewel of that business is the chemistry and the sterile barrier systems that we sell into the aseptic environments. Got it. Right. I do want to talk about a major investment that you guys announced at your last earnings call. You are spending $600 million to build a new sterility assurance center of excellence in North Carolina. Talk a little about the decision to make such a substantial organic investment and how you expect that to help accelerate both the healthcare business and the life sciences business. Yes. Let me start by saying, yes, it is a huge investment. It is our biggest manufacturing investment STERIS has ever made. I would also say it is the most low-risk investment you can make is sort of on yourself versus M&A or something like that. When we acquired Cantel in 2021, 2022, I can't remember, it seems like 10 years ago. But they had a large chemistry manufacturing operation up in Plymouth, Minnesota, and STERIS had a large chem operation in St. Louis, Missouri. Both of the operations were aging and nearing capacity at this time. Okay. There's no way to take one down to upgrade it. Even if we did, it wouldn't buy us the capacity we need. We made a decision we were going to need to greenfield a site, and when we started looking at it, the place that made the most sense from a distribution logistics and also access to STEM and engineering talent and manufacturing talent was south of Raleigh, North Carolina. So that's how we landed there. Now, why it's a good bet? It supports our chemistries business and life sciences and healthcare. These are both high single-digit growers, and they are both some of the highest margin profile in the company. Today, they represent over $700 million in revenue, approaching $800 million probably this year. We have a decade of trend line that looks like this, that says there's no way this is going to change. Right. Based on the amount of equipment that we place that has these proprietary chemistries built into it's a trend that we see continuing to increase. Other big opportunities to upgrade our manufacturing through automation. We're going to go from over 500 positions down to 350, give or take because of the automation we're going to deliver in the plant. It is a really exciting time, and we should get some pretty good leverage out of it. Okay, great. I mean, yeah, exactly. We are going to go talk about margins next. Where do you see the greatest opportunity for margin expansion over the next several years? Obviously, this investment is one of them, but volume leverage, productivity, mix pricing, supply chain normalization, give us a little flavor for the drivers. It is a lot of things. Yeah. I think we have developed some permanent muscle as it relates to being able to pass through reasonable price increases with our customers this year. We expect to get a couple hundred basis points. I think that if things got sideways from a cost standpoint, we would be able to flex that up if we needed to. Yep. Volume coming back, particularly in the AST business, is a very high drop-through event, because it's such a high fixed cost business. As that returns, that will clearly help. Then, the continued migration towards recurring revenues, and not at the cost of our capital equipment, but just that's by definition, going to grow faster because of where it is. I think that will help our margin profile. And then last but not least, is just cost, especially on the manufacturing side. We have so much opportunity, and we're pretty good, too, but we have so much opportunity to do much better and leverage the scale of the volume that we have through the existing operations. And I think that that's going to help maintain us, at least keep us to where we're not seeing raising costs on our products over the long term. Yep. I will say the free cash flow generation profile of the business has improved quite a bit over the last two years. In fact, last year, you all generated over $1 billion or nearly $1 billion of free cash flow with leverage and also a very good low spot. How do you feel about the capital allocation policies? Where does M&A stack up versus organic investment and share repo? Yeah. It's fluid, and it's kind of a decision tree if you think about it. I mean, first and foremost, we pay a nice dividend, and that increases every year. We would continue to do that. Secondly, any investments that we want to make on ourselves is the lowest risk investment. Whether that's, AST's winding down a bit in terms of a high investment period of four or five years, and we're shifting to some operational enhancements. We talked about Raleigh, but we also announced in our Q4 that we were building out a new sterility assurance center of excellence in Ohio. Making those bets in terms of capital makes a lot of sense. Thirdly is M&A. I would say that easy sort of smaller tuck-in stuff is what we really like. From time to time, there's bigger deals that come up that fit in our space, but we're very disciplined in terms of what we're going to look at and what we're going to execute on. It has to be in a technology we know, so it has to be sterilization, disinfection, or adjacent to a way that's related to that or something in GI. It has to be either hospitals, caregivers, pharma manufacturing, or med tech. Right. That's our world. It's a very small fairway, but we kind of own it in many respects. Lastly but not least, is share buybacks. To the event that we're not doing M&A, and we're still generating $1 billion of cash and still able to invest significantly in ourselves in terms of our own capital for manufacturing or other things, then we'll buy back shares at a rate that's responsible. We currently have a $1 billion authorization, and we plan to do $200 million-$300 million a year of share buybacks. In a year or two, if we haven't done anything on the M&A side, we may have to rethink the size of that buyback. But for now, that's the plan. On the M&A front, are there pieces of the puzzle that you're missing, you touched on this a little bit, but that you're missing from a strategic direction of where you want to take the business? That could be capabilities, but it could also be geographies that you'd like to further expand into. I think a real focus for us is geographies, either through channel acquisition or in-country opportunities in the space that we're in terms of sterilization, disinfection. Some of those are still out there, and we continue to look at them and things like that. It's hard to say when and if anything will happen, so really the focus is us taking over geographic expansion organically. If something presents itself, great, but we're working our portfolio to make sure we have the right products for the right markets. I feel like we're there now. Great. I think people like to see what is the over the 12-18 month outlook, what are the couple of things that you want people to focus on to give a flavor for where STERIS is heading? If there are some KPIs or key pipeline or things to point folks to, that might be helpful. I think if you're looking at the barometer of STERIS in our healthcare business, look at our consumables business. That's really it, because that tells you a lot about procedure demand that's out there in the healthcare segment. I think we're all going to watch closely the inventory issues at AST and see how that turns in our Q3. So that's something I would watch. Outside of that, the only thing I'll sort of reiterate is that we feel that we're differentiated in the healthcare space as not just a med tech device provider, but actually a company that can work with customers to improve outcomes and improve their financial situation, and make sure we drive patient safety. So I think that acceptance of that in the marketplace, which has been really well-received thus far, is going to be critically important for us. Okay. Well, at the start of it, we talked about you hitting your five-year anniversary as CEO, and I guess to wrap, as you think about the five-year outlook, how would you measure success for STERIS, and what do you think investors should take away as the key metrics and the key drivers of that give them confidence in this continued ability to deliver? Our stated goals are 7% and 11. 7% on top, 11% on the bottom. Maybe there's some tuck-in M&A involved in that, but that's pretty much organic. We believe that we are in a position with the business that we can deliver that, provided that procedure volumes stay somewhere in that 2% to 4% range. We think that bodes well for us and our ability to execute. You can compound that over five years. I think that we'll be a company that's providing the same level of customer benefit in Europe by year five as we are in the U.S., and we've got work to do there, but I'm confident that that'll be the case. And I think we will be in a much better position as a result of that. Okay. Fantastic. Well, look, thank you so much for taking the time. Yeah, thank you. This is fantastic to unpack the story a little bit more, and appreciate you being here. Thanks. Appreciate it