Welcome to the STERIS Fiscal 2017 Second Quarter Conference Call. All lines will remain in listen-only until the question-and-answer session. At that time, instructions will be given should you wish to participate. At the request of STERIS, today's call will be recorded for instant replay. I'd like to introduce today's host, Julie Winter, Director of Investor Relations. Ma'am, you may begin.

Thank you, Amber, and good morning, everyone. Joining me on today's call, as usual, we have Walt Rosebrough, our President and CEO, and Mike Tokich, our Senior Vice President, CFO and Treasurer. I do have a few words of caution before we open for comments from management. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission or rebroadcast of this call without the express written consent of STERIS is strictly prohibited. Some of the statements made during this review are or may be considered forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, those risk factors described in STERIS Plc's, STERIS Corporation's and Synergy's previous securities filings. Many of these important factors are outside of STERIS' control. No assurances can be provided as to any results or the timing of any outcome regarding matters described in this webcast or otherwise. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments. STERIS Plc and STERIS Corporation's SEC filings are available through the company and on our website. Adjusted earnings per diluted share, segment operating income, constant currency, organic growth and free cash flow are non-GAAP measures that may be used from time to time during this call and should not be considered replacements for GAAP results. Non-GAAP financial measures are presented during this call 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. STERIS' adjusted earnings per diluted share and segment operating income exclude the amortization of intangible assets acquired in business combinations, acquisition-related transaction costs, integration costs related to acquisitions, and certain other unusual or non-recurring items. We define free cash flow as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net capital expenditures, plus proceeds from the sale of plant, property, equipment and intangibles. Additional information regarding adjusted earnings per diluted share, segment operating income, and free cash flow is available in today's release. With those cautions, I will hand the call over to Walt.

Thanks, Julie, and good morning to all of you. Before Mike reviews the quarter, I thought I would provide some high level commentary on our first half and outlook, as well as an update on our strategies. We said last quarter that we have had a very busy start to the year, and that continued into the second quarter. We have executed on our strategies of divesting non-core assets and acquiring tuck-in businesses. I'd like to spend some time on our actions this fiscal year to help put the total impact of our efforts in perspective. We completed the divestiture of our skin care product line at the end of August, which had annual revenues of less than $50 million. Also at the end of August, we divested two small lab businesses that were a part of legacy Synergy AST. Total annual revenue from the lab businesses was less than $15 million. On the acquisition front, early in the quarter we purchased Medisafe, which we discussed in detail on our August call. Since then, we have also purchased three businesses in the instrument repair space, two of which are in the UK. The repair businesses are less than $10 million in total revenue. The businesses we divested were outside our current strategic interest and generally lower in growth rate and lower return on invested capital in our hands. The businesses we are acquiring are in our strategic window and provide the opportunity for higher growth and higher ROIC. We remain committed to our capital allocation priorities, maintaining our dividend relative to our growth, investing for organic growth in our current businesses, targeting acquisitions in adjacent product and market areas, reducing our total company leverage and, finally, share repurchases to offset dilutions. We've used the inflow of cash from our robust…

Thank you, Walt, and good morning, everyone. It is once again my pleasure to be with you this morning to review our adjusted financial results. Before I get into the numbers, let me remind all of you that prior year comparisons are to legacy STERIS unless otherwise noted. Our second quarter total revenue grew 32%. Growth was driven by acquisitions plus 3% constant currency organic revenue growth. Organic revenue growth was almost entirely driven by volume as price was favorable by 20 basis points and currency was unfavorable by 60 basis points. Gross margin as a percentage of revenue for the quarter decreased 410 basis points to 38.6%. As expected, Synergy negatively impacted year-over-year gross margin by approximately 430 basis points in the second quarter. Gross margin was favorably impacted by 40 basis points coming from the suspension of the medical device excise tax, 30 basis points due to foreign currency and 20 basis points improvement from pricing and divestitures. Product mix negatively impacted gross margin by 70 basis points. SG&A expense as a percentage of revenue in the quarter declined 440 basis points to 19.1% of revenue, more than offsetting the change in gross margin as a percentage of revenue due to the way we account for the operations of Synergy. EBIT margin at 17.2% of revenue represents a 90-basis-point improvement as compared to the prior year. We are very pleased with our ability to continue to leverage revenue growth to expand margins. EBIT margin benefited from the impact of the positive contributors to gross margin as well as lower SG&A expenses as a percentage of revenue. Foreign currency was about neutral to EBIT in the quarter. The effective tax rate in the quarter was 24.1%, down slightly due primarily to favorable discrete item adjustments. Adjusted net income in…

Thank you, Walt and Mike, for your comments. Amber, would you please give the instructions and we'll open the lines for Q&A.

Thank you. Our first question will be from Larry Keusch of Raymond James. Your line is open. You may proceed. Lawrence Keusch - Raymond James & Associates, Inc.: Okay. Thank you. Good morning, everyone.

Good morning.

Good morning, Larry. Lawrence Keusch - Raymond James & Associates, Inc.: So, Walt, maybe starting with you, I have two questions. I guess, coming back to the Healthcare Products capital equipment and the trends that you've seen thus far in the year, maybe you could expand a little bit on why you've sort of seen this flattish sales profile in the business, in terms of the revenue recognition? And then what gives you really the confidence that this second half will accelerate? Because I assume that's important in terms of taking you from the roughly 5% organic growth in the legacy business that you've seen in the first half to achieving that 6% for the year.

Sure, Larry. I would say there's a couple things. First, as we've mentioned, our project business, which tends to be slower turn business from the time it is ordered till the time it is shipped, that project business has grown as a percent of our total order book, if you will, or backlog and order book. And as a result, you would expect the backlog to expand some as that occurred and, in fact, it has. Secondly, there were some – in the second quarter, as is often the case in the capital equipment business – there were a few orders that we would have thought we might have gotten out in the quarter and they just slipped into the next quarter. So there's always a little bit of temporal movement and we had a bit of temporal movement this quarter. But the bulk of it, I would say, is the growing amount of project business versus the other. Now, typically, the projects, although we know about them for a year-and-a-half to two years ahead of time, typically project orders ship in the six- to nine-month window. So we see that window – we started growing here. You remember, we started talking about this maybe a couple of quarters ago. So we're starting to see those project ships [shipments], and we will accelerate those project shipments over the next six months. So we have pretty good visibility to that going forward the next six months. We're also – and that's largely the North American side of the business, which is what we generally talk about because it's the bulk of our business, dominated by the U.S., of course. But I would also add that our international business seems to be picking up. Although, again, we're not seeing the shipment side of it, we're beginning to see, I think, the bottoming out in much of Latin America, particularly Brazil. Our Asian business has picked up in terms of orders, and we're seeing pipeline in those spaces. Outside of the Middle East, actually, everything seems to be picking up some. We're not sure if that will hit this year, but it puts reinforcement that we're not shrinking in addition. And as a result, we feel even more confident about the total shipments. Lawrence Keusch - Raymond James & Associates, Inc.: Okay. Perfect. And then, second question, just on the topic of IMS. It sounded like it was, again, a bit softer than you had anticipated for the 2Q here. So maybe talk a little bit about what you're seeing there? How you're thinking about some of those contracts that you indicated were delayed? Have you lost any business? And then, if you could weave in there, I couldn't help but be interested in the comment about the acquisitions in the UK of an instrument reprocessing type business and how that bolts on to the outsourced business for Synergy because that would seem like a big opportunity over time.

Yeah. I'll separate the two questions. First, on IMS, as you know, we missed the first quarter significantly compared to what we thought we would see. The second quarter improved. So we missed it a little bit. And so we are improving. We are seeing both sequential growth and year-over-year growth, although we were hoping for high single digits by now. From our original forecast, we were expecting high single digits; we're now seeing mid-single digits. So we're a bit behind where our original expectation was, but they are moving toward their expectation. And their current view, as the run rate going out, will be not unlike what they originally anticipated. So at a high level that's the IMS story. The second question you asked about, Instrument Repair. We do believe Instrument Repair is a significant strategic piece of our business, which is why we have invested in it and continue to invest in it. We do believe it will be nicely profitable in the mid- to long-term. And there's, clearly, in our view, a fit between that and the Synergy outsourcing business. So in many respects one is a stepping stone to the other, depending on where you are. For Synergy, this is a stepping stone into insourcing. For us, we have the insource parts and it will help us step to the Synergy business. So we definitely do consider this a part of the puzzle. Lawrence Keusch - Raymond James & Associates, Inc.: Okay. Terrific. Thank you very much.

Thank you. Our next question will be from Jason Rodgers of Great Lakes Review. Your line is open. You may proceed.

Yes. Just a follow-up on the IMS. I'm wondering if you're planning any further divestitures in that business, and if you could quantify the investments there currently being made in IMS?

Jason, we don't anticipate any divestitures on that side. Obviously, the investments that we are making, we did two acquisitions, relatively small acquisitions, spending about 20-ish million dollars in total for those acquisitions. But, I think, what we're alluding to is the investments in the people and the service techs that we are making, as we continue to expand this business, especially throughout the U.S. and, obviously, with the acquisition in the UK, we have definitely – see an opportunity longer term over in that area. So that's what we're talking about.

And I would add, we don't discuss forward acquisitions or divestitures in general. And as a result, we would not get into any specifics on any acquisitions or divestitures in the business.

And looking at Life Science, I mean, had decent operating income growth year-over-year, up 9%. Why was it not higher given consumables were up in the high single digits organically?

Yeah. Jason, we had some – in our capital equipment, we had some unfavorable margin mix that put some pressure on the bottom line. Although the top line did well, that lower-margin capital equipment kept the margins a little bit slightly lower than they were year-over-year. In addition to that, we had some – last year, we saw some stronger parts volume for the Life Sciences capital equipment, and that was a bit weaker this year, which, again, put a little bit of pressure on margins. But all in all, consumable is doing very well. Service, still doing well. And, I would say, the segment in general is doing very well.

Yeah. I would add, we have mixed up a little bit in service, too, and service doesn't carry quite the margins that the consumables side of the business does. It's kind of a blend between the capital side and the consumables side, so it sits more in the middle.

Okay. And then finally, I wonder if you could walk us through the timeline of the upcoming IT system implementations for Synergy?

Yeah. So, Jason, I think as we've talked about, the first step in that, changing the platform for Synergy and combining to one global system was for us to get off of the Oracle 11i platform for the legacy STERIS side and go on to the Oracle R12 platform, which from the legacy STERIS side we have successfully completed in this second quarter. So we've taken the first step. Now, what we have to do is go out and work with the acquisition, specifically Synergy, to map out how we're going to take them from their current IFS financial system onto the new Oracle R12 system. We still believe that it's probably about an 18-month project from start to finish, and we are just starting to embark on that project.

Thank you.

You're welcome.

Thank you. Our next question will be from David Turkaly of JMP Securities. Your line is open.

Thanks. On the AST side, obviously, and I think you mentioned you had sold two small labs, but it's still very profitable. I was wondering if you might just talk about where you see the margin of that business going for you ahead?

First of all, AST has been a real positive, and I would say the legacy Synergy portion, even more positive on balance, so we feel very good about that business. The lab businesses we sold were consumer lab businesses that had come with previous acquisitions, and although they were nice little businesses in their own right, they didn't fit anything that we do in any part of our business, so it just made sense to exit those. The margins – we concentrate a lot more on growing profit dollars and ROIC than we do on margins. Margin is a path to get there without question. And we do have high margin in that business, but we have a lot of capital invested in that business, too, so the ROIC, although is now quite attractive, it is not over the top. So we do think we have some margin expansion capability as we bring on more products – more clients, I should say, which gives us greater capacity and as the full integration of the AST businesses comes to fruition. So we do have some opportunities there. I always caution people, when we save money, we often take some to the bottom line and we often pass some on to our customers in the forms of better pricing, so we maintain or grow our market share, so I would not take everything to the bottom line, but we do think that there's opportunity there.

And then just quickly over to the repo side. Can you just remind us what you still have authorized and if you have it, sort of what the price was in the quarter for this stock you bought back? Thank you.

Yeah. So, for the quarter, we spent about $58 million of our $300 million authorization, which the board and the shareholders granted to us back in the July timeframe. That was about 819,000 shares for that $58 million in repurchase or about $71 per share on average.

Thank you.

And I would add that that's consistent with our view of stock buybacks to offset dilution and very consistent in that format.

Thank you. Our next question will be from Chris Cooley of Stephens. Your line is open.

Good morning. Thank you for taking the questions. Walt, if we can maybe just start bigger picture? You've obviously had a good first half. You've anniversaried the acquisition of Synergy. And you alluded in your prepared comments that you're a little bit ahead of schedule, both in terms of realization of cost synergies as well as in paying down related debt, turning the portfolio a little bit. Kind of in light of what we're seeing here in this lovely third quarter earnings season in healthcare, could you maybe just talk a little bit more broadly about what you see through the back half of your fiscal year, but kind of into the early part of the calendar year 2017 just in terms of anything from an operating trend standpoint, and then how that basically trues-up to your original expectations when you think about the guidance that you provided here for the type of growth in cash flow that we could see from the business? And then, I have just one quick nuts-and-bolts follow-up for Mike.

Sure. You know, Chris, it is typical of us to have a second half that is stronger than our first half. So we don't see anything radically out of line to our normal, I'll call it, seasonality or pattern. A, when you're growing, the second half should be stronger than the first half; and B, there has been historic seasonality in the way we manage the business, which causes the second half to be in some ways stronger than you might even expect. And we don't see that any different. We do – because of capital, we are a little behind, actually, where we thought we would be. It's all gone into backlog, so we're perfectly happy with that. Orders are staying consistent and our pipeline, in front of us – we look at – pipeline to us is the backlog plus the projects that we are working on, projects and business that we are working on. And we still see a solid pipeline of business. As I mentioned, we're actually seeing, we think, the bottoming out of some places where we had historically been strong. Venezuela is still tough but the rest of Latin America seems to be picking up, and so we're beginning to see some pipeline of orders there. Asia, we're actually up year-over-year and ahead of our expectations, mainly in the southeastern parts of Asia. But China is also picking up as well for us. So we're feeling more comfortable there, looking out beyond the quarter, if you will. And Europe has held for us during this time and, we think, absent the currency issues, we think the European business, both on the capital side as well as, importantly, on the Synergy side, the AST business is strengthening. We're putting capacity on the face of that strengthening. So we are generally seeing positive volumes across our business in most every segment and, as a result, are feeling more and more comfortable. Now, governments change and they change what they do and all those good things, so you never know for sure; but I think that's far enough out into the future that, for the time period you're talking about, we don't see that being a significant issue.

Understood. And then, Mike, if you could just help us a little bit more. I greatly appreciate the color you guys provided when you think about the adds from the divestitures, offset by the acquisitions and cost savings, but could you help us think a little bit more about currency? Now, as we all get more comfortable with the greater exposure of the pound, just in terms of translation, how we should think about that going forward? Just want to make sure that, when we kind of make these adjustments going forward, we get the reported top-line range correct. Could you maybe just help us a little bit more there with the dependencies or, I should say, the reliance on the various currencies?

Yeah. As we have continued to look at and, I think, and Walt addressed, I thought, very nicely, the impact of our currency. So just to review, as a total consolidated company, we like a strong euro and a strong pound. I mean, that definitely helps us in both a revenue and a profit standpoint. We also like a weak peso and a weak Canadian dollar. That also helps us. Again, that's in general. So, just as it so happens, this past quarter, actually even for the first half of the year, we have seen a weakened pound and a stronger peso, which, for us, those currency baskets offset very nicely. And it does hurt our revenue, and for the full year, we are anticipating a $25 million headwind versus our original guidance, so that's the full year impact of revenue. The bulk of that is – as you can imagine – is the pound. But then, on the opposite side, we are anticipating about neutral impact on the bottom line. And the offset of the reduction in income from the pound is being offset, or almost more than offset, by the reduction of the peso from a cost standpoint. So, I think we're very nicely balanced here. And if you look at the forward rates, which we do use, looking at the next six months, I think that will still hold true. I think you're going to see those two currencies move against each other, and help protect us from a bottom line standpoint.

And I think Mike was thinking about profit when he said strengthening of the peso. The peso has obviously fallen, which strengthens our profit.

Yeah. Right.

It's not a stronger peso. It's a weaker peso, which leads to stronger profitability.

Got it. And if I may, can I just maybe squeeze one more quick one in here, and I'll get back in queue. When you look at the growth we've seen in, in particular, in the healthcare capital backlog, could you maybe help us just a little bit more – characterize a little bit better? I know you touched on this earlier with Larry's question. But, when you think about the switch that we've seen, really, kind of fundamentally over the last three quarters to project versus replacement capital, help us kind of get a better understanding there of the visibility that you have into that pull-through. And what gives you that added degree of confidence that you'll see that acceleration here in the back half? And congratulations on a good quarter.

Sure, Chris. The orders that are project orders do have more timing risk, almost by definition, because they're putting it into a building project typically, and construction delays and all those things are fairly routine. When we look at our pipe – we've been doing this a long time. And so, we don't presume that they will ship when they think they're going to ship. We know they have a date, but we presume certain lags in those dates, and we have gotten pretty accustomed to different markets having different lag times. So we do have some reasonable amount of visibility, and, clearly, when we're looking at milestones, quarters and years, we are more sensitive to those delays than other times. So we do try to measure that, monitor it, and also to land the plane in the right time for our customers and us. And oftentimes, we have the ability to pull, if Project A gets behind, from a vast amount of our product line. We can substitute this washer from Project A to that washer to Project B or this operating table from Project A to that Project B or do a quick-turn order. So we do have ability to manage somewhat within that. But in the last week or two or three of a quarter, depending on what a hospital says, we don't ship things they don't need or want. So if you pick up and they say (38:05) we can't have some minor disruptions, and that risk is higher in projects. So there's a little more risk for any given month or any given quarter, but that risk is well within our normal limits of handling it.

And Chris, just one added comment there is, as we do look at that, I'll call it the backlog aging comparison, we look at how many quarters, a full year out of quarters. We have, actually, if you look at this year versus last year, we actually have a little bit more favorability in the shipments of that backlog this half, the second half of this year versus the second half of last year, so that also gives us comfort.

So, Chris, what we look at is, of our backlog, how much is supposed to ship in next period. In this case, Michael is talking about the second six months of this year versus a percentage of our backlog that should have shipped in the second percentage (38:59) of last year. And we have a higher percentage sitting there but we don't expect to ship in the following years ...

Correct.

... which is what I'm saying, and that is one of the other measures we gauge.

Understood. Understood. Appreciate the color. Thanks so much.

You're welcome.

Thank you. Our next question will be from Matt Mishan of KeyBanc. Your line is open, sir.

Hey. Good morning, everyone, and thanks for taking my questions.

Hey, Matt.

Hey, Matt.

Hey, I just want to make sure I fully understand your constant currency organic growth guidance and, really, the 2H ramp from the first half. If I'm not mistaken, the organic growth guidance is now going to be including five months of Synergy Health, so it's going to be organic Synergy Health from November through the end of March. Could you just kind of walk through the various moving pieces of why you think you're going to move from, like, a 5% in the first half to 7%?

You know, the biggest impact is the capital equipment in the product space, the Healthcare Product space, where we're flat and we don't expect to be flat for the year. We don't forecast that externally specifically, but we expect solid growth for the full year, so that's the single-biggest impact. When you look at Synergy pieces, at a high-level, we've kind of talked about it. We know that sterile med is not growing; in fact, it's the opposite. We know that some of the linen businesses are not growing; in fact, the opposite. The flipside of that is, when you look at the – in constant currency, which is what we're talking about, when we look at the HSS business in Europe, it's doing nicely in terms of growth and profitability except for the fact that we have this currency issue going on. And when you look at the AST business, it's doing better than nicely, except for the currency issues going on. So when you put that all together – I mean, at a high-level, that's the Synergy story. But, really, the bigger story in terms of the change in percentage, first half to second half, is the Healthcare Products story not the Synergy story.

Okay. Got it. And then Walt, a bigger picture question, can you talk about your sea level conversations on expanding on outsourced central sterile (41:25) processing in the U.S.?

No different than what we've talked before. So it's a great question, and we have had a number of places that we are talking to about this potential. This is concept selling, not selling a widget in 5 minutes kind of sale. So we've had a number of conversations. We have some things that we think are quite attractive out in the future. But as I've said from the very beginning, this is a nascent business in the U.S. We're going to see one, and then see another one, and then I think things will pick up. But this is not going to be something that has a material impact this year.

Okay. And then, I'm not sure if I missed it or not. I had a couple of calls this morning. Can you talk about what's driving the weakness at sterile med?

Well, yes, I can. We do not control the revenue cycle of sterile med where, in effect, it's not quite the same thing. We're a reprocessor but you could think of us as a contract manufacturer. So it is just the input we have from J&J, who's the parent of that company or from their sterile med division. They have not had strong growth in this current year so far.

All right. Is that something you expect to change going forward or is that like an ongoing trend that's been impacting you through the last six months, nine months, a year, or is there any change in that?

Yeah. We don't forecast other people's businesses. And so, I would be hesitant to make that forecast, but we're not counting on a significant increase at this point in time in our forecast.

All right. And then, if I could just squeeze one more in. Walt, who is going to win tonight? The Indians or the Cubs?

As long as you don't count it against my forecast of the business, independent of which way but, there is an ever so strong leaning toward the Indians around here. I don't quite understand why that would be. There is an ever so strong leaning towards the Indians. In fact, two of the four people in front of you, if you could see us, not hear us, are wearing Indian shirts as we speak.

Well, good luck, tonight, and go, Tribe.

Thanks, Matt.

Thank you. We have one more question, and that will be from Mitra Ramgopal from Sidoti & Company. Your line is open. Mitra Ramgopal - Sidoti & Co. LLC: Yes. Hi. Good morning. I just wanted to double check, the revised guidance in terms of the revenue, that's not assuming any potential divestitures or acquisitions going forward, at least, for the rest of the year. Is that correct?

Generally speaking, that's correct. Mitra Ramgopal - Sidoti & Co. LLC: Okay.

That is typical of us. We typically would not include acquisitions that we're working on that may not occur. And we typically would not include divestitures we're working on that may not occur. Mitra Ramgopal - Sidoti & Co. LLC: Okay. Thanks. And back on the Life Sciences business, the backlog we're seeing, at least, for the first half of this year versus what we've seen in the last couple of years. Is there something – some of it, I know, could be just timing, but is it more industry issues as you see it?

Yeah, Mitra. I would say it's more timing. If we get into – if we cross the $40 million mark, that actually gives us comfort there, but we'll see that go $5 million to $7 million flip back and forth. But yeah, it's mostly timing. Mitra Ramgopal - Sidoti & Co. LLC: Okay. And on the manufacturing and sourcing initiatives, I don't know if you have an update. Is that pretty much behind you right now or still being implemented?

The items that we discussed with you, historically, are complete or virtually complete, so we have captured the benefit of those. But we are always looking for opportunities to improve our production methods and to improve what we physically control. So I would not expect that – or I will try to say it differently – I would expect us to continue to in-source things in our local production. But when we discussed – and it's a routine piece of work for us, actually, but when we discussed it with you earlier, it was largely because we were spending, I don't remember, $30 million roughly to build the capital, to put the capital in place to be able to do that. Now that capital is not fully utilized just for the things that put we put in place, so it gives us the opportunity to do more in-sourcing as we go forward. But if there's a significant emphasis that's going to be a material piece of the business in a short period of time, we would bring it to your attention just as we did a couple of years ago. But when it's just an ongoing piece of what we do, it's just a part of our capturing efficiencies and qualities. But I fully anticipate we will continue that for the next – for the foreseeable future anyway. Mitra Ramgopal - Sidoti & Co. LLC: Okay. Understood. Again, thanks for taking the questions and good luck tonight.

Thanks, Mitra.

Thank you.

Thank you. I show no other questions at this time. I'll turn the call back to the speakers for any closing remarks.

Thank you, Amber, and thank you, all of you, for joining us. We all will be rooting for the Indians. Hope you will be as well. And we'll talk to you soon.

Thank you for participating. You may now disconnect.