STERIS - Earnings Call - Q4 2021

Transcript

Operator (participant)

Good morning, everyone, and welcome to the STERIS PLC Fourth Quarter 2021 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please contact a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded, and at this time, I'd like to turn the conference call over to Julie Winter, Investor Relations. Ma'am, please go ahead.

Julie Winter (Head of Investor Relations)

Jamie, and good morning, everyone. Speaking on today's call, we have Michael Tokich, our Senior Vice President and CFO, Walter Rosebrough, our President and CEO, and Daniel Carestio, our Chief Operating Officer. I do have a few words of caution before we open for comment. 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's securities filing. 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' SEC filings are available through the company and on our website. In addition, on today's call, Non-GAAP financial measures, including adjusted earnings per diluted share, adjusted operating income, constant currency organic revenue, and free cash flow, will be used. Additional information regarding these measures, including definitions, is available in today's release. This also includes reconciliations between GAAP and Non-GAAP financial measures. 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. With those cautions, I will hand the call over to Mike.

Mike Tokich (SVP, CFO, and Treasurer)

Thank you, Julie, and good morning, everyone. It's once again my pleasure to be with you this morning to review the highlights of our fourth quarter performance. For the quarter, constant currency organic revenue increased 0.3% as favorable pricing was somewhat offset by organic volume, which was slightly lower than last year's strong pre-COVID performance. Key Surgical added $32 million to revenue in the quarter, which is somewhat lower than we originally anticipated due to continued disruption from COVID-19. You will notice that we have a small acquisition called out within AST. In January, we completed the acquisition of one of our suppliers. While this is a vertical integration, we do expect revenue generation of approximately $25 million annually. Gross margin for the quarter was flat, with the prior year at 44.3%, as favorable pricing and cost management were offset by mix and currency.

EBIT margin for the quarter was 22.3% of revenue, an increase of 60 basis points from last year. The adjusted effective tax rate in the quarter was 25% and 20.7% for the full fiscal year, higher than last year and higher than our expectations due to income mix from higher tax rate countries and discrete item adjustments, including stock compensation. As we noted in the release this morning, we have discontinued the use of LIFO. We believe that the FIFO method of accounting is preferable because it more closely resembles the physical flow of our inventory, aligns how we manage the business, and improves comparability to other companies. Net income in the quarter was flat at $140.3 million, and earnings per share were $1.63. Our balance sheet is a continued source of strength for the company.

Our leverage ratio at the end of the fourth quarter is below 1.9 times as we continue to pay down debt post the Key Surgical acquisition. Considering our cash position of $220 million, access to available credit lines, and a low leverage ratio, we are well-positioned from a liquidity standpoint. Following the close of Cantel Medical, we expect our leverage ratio to be about three times as we take advantage of the financing arrangements already put in place, including our first-ever public debt offering. During the fourth quarter, capital expenditures totaled $74.8 million, while depreciation and amortization was $59 million. Free cash flow for fiscal 2021 was strong at $450.9 million, an increase of approximately $70 million over last year, primarily due to working capital improvements, somewhat offset by higher capital expenditures. With that, I'll turn the call over to Walt for his remarks.

Walter Rosebrough (Former CEO)

Thanks, Mike. Good morning, everyone, and thank you for joining us today. Mike has already discussed the quarter, so I will focus on the full year and then turn the call to Dan to discuss our outlook for fiscal 2022. Looking back on FY 2021, STERIS fared better than our most positive expectations at the beginning of this unprecedented time in our history. The commitment of our people and the resilience of our businesses allowed us to weather this storm in a positive manner. Remarkably, our revenue was up somewhat in fiscal 2021 as our existing business was stable in total while we completed acquisitions that added to our growth for the year. Our net income and free cash flow both improved double digits as we managed costs and working capital across the business.

From a segment perspective, our life science business had another very strong year, growing constant currency organic revenue 11% as our biopharma customers used our consumables and ordered a record amount of capital equipment. Our AST segment also had a very good year, ending up 7% on a constant currency organic revenue basis despite a slow start due to the global decline in healthcare procedure volumes. While global procedures are not yet back to pre-COVID levels, AST was able to grow as the year progressed because our previous capacity expansions allowed us to process single-use products related to COVID treatment, testing, and vaccine production. As procedure volumes began to recover in the second half and core medical device customers increased manufacturing, AST has returned to more historic growth rates.

Our healthcare business was clearly the most impacted by the pandemic and the related decline in procedure volumes, with constant currency organic revenue down 4% for the year. By the end of the fiscal year, our consumables were trending up nicely in line with procedures, and capital equipment orders were very strong, leading to a record year-end backlog of over $200 million. Our R&D teams have done a great job updating our offerings across our healthcare business the past year or so. With the addition of Key Surgical and Cantel products and services, along with STERIS's portfolio, we will be better positioned than ever to meet the needs of our customers going forward.

The strength of our balance sheet allowed us to operate almost normally last year, increasing our dividend, investing in R&D, and capital spending opportunities in all our current businesses, not laying off any of our people for COVID-related volume reductions, completing the acquisition of Key Surgical in November, and executing the merger agreement with Cantel Medical. We believe these long-term oriented actions will propel future revenue and profitability growth across our business. In support of the Cantel transaction, our people achieved another significant milestone when we completed our first public debt offering. This was after securing investment-grade ratings on our maiden voyage with all three rating agencies. Once the Cantel deal closes and that debt is on our books, we are committed to reducing our leverage to continue to justify those strong ratings. We expect the strength of our balance sheet to remain a hallmark of our company going forward.

All in all, considering the additional issues required by the pandemic, a tremendous set of achievements for STERIS this past year. As you might expect, this is my final STERIS earnings call. As I shift to my new role as an advisor to management and the board, I am very pleased to hand the reins to Daniel Carestio, who will succeed me as President and CEO. Dan is a veteran senior executive of our company, having spent more than two decades at STERIS with increasingly responsible leadership roles. He knows the business. He's fortunate to be supported by an outstanding senior management team, most of whom have also been with our company for a decade or more of success. I am confident that our company is in very good hands with Dan and this STERIS leadership team. I want to take a moment also to recognize our analysts.

Several of you have been with us for many years: Chris for 12, Larry for nine, Dave and Matt, seven years each. Mike and Mike have picked up coverage fairly recently, and we certainly value their addition. We appreciate all of your efforts on behalf of your clients and our long-term shareholders. It has been my absolute pleasure to work with each of you this past decade or so. In closing, I would like to thank the people of STERIS for making our company what it is today, and better yet, what it will be tomorrow. The 13,000 people working every day in pursuit of our mission, soon to be over 16,000, are what make the company tick. I also greatly appreciate our board members of the last 14 years.

I've been blessed to work with and for a talented and diverse board and two wonderful chairmen in Jack Wareham and now Mohsen Sohi. This board's guidance will continue to help Dan and the team move ever forward. And I'm tremendously grateful to all of our long-term shareholders who have believed in the value our company provides to our customers, our people, and our shareholders. It's been my honor and pleasure to serve as CEO of this great company for nearly 14 years, and I look forward to its continued successes. I am absolutely confident that the best is yet to come, as you will hear next from Dan while reviewing our outlook. Mr. Carestio.

Daniel Carestio (CEO)

Thanks, Walt. I want to echo Walt and Mike's welcome to all of you. We really appreciate you taking the time to join us today. As Walt discussed, STERIS had a great year in fiscal 2021, all things considered, and we remain very excited about what is yet to come. Not only do we expect a nice rebound in our base business in fiscal 2022, but we look forward to bringing together three great companies: STERIS, Key Surgical, and soon Cantel. That does, however, make modeling of STERIS a bit more difficult for all of you, so I will focus my comments today on our overall outlook and then walk you through our expectations for the new fiscal year. Including acquisitions, we expect total revenue of approximately $4.5 billion.

That assumes 10 months of inorganic revenue from Cantel, the remaining 7 months of Key Surgical before anniversaries, along with smaller AST supplier as inorganic contributors. It also assumes about $15 million favorability from foreign currency. Underlying that growth will be constant currency organic revenue growth of 8%-9% for legacy STERIS. That growth rate will be driven by significant rebound in our healthcare segment, the ongoing success of AST, and lower than normal growth versus comparisons to fiscal 2021's very strong performance for the life sciences segment. Before moving on to profitability, I wanted to take a moment to discuss the upcoming changes to our segments following the completion of the Cantel acquisition. Today, Cantel has four major businesses: medical, dental, life sciences, and dialysis. Medical and dialysis will become part of STERIS's healthcare segment.

As we have said previously, we anticipate that dental will be its own segment. To more closely align with STERIS's customers, we will split Cantel's life sciences business with their renal business, about 85% of their revenue going to our healthcare segment and the balance going to our life science segment. From a total revenue split perspective, the net impact of all these moves will leave us with the following segment breakdown: healthcare 63% of revenue, AST 17% of revenue, life sciences 11% of revenue, and dental 9% of revenue. Operating margins are expected to improve, but they will be tempered a bit as we expect operating expenses such as travel and sales and marketing to come back closer to normal, in particular in the second half of the year.

We continue to believe that the cost synergies of $110 million are achievable for Cantel, with about 50% of that total recognized in the first 24 months. Our fiscal 2022 outlook includes approximately $25 million of these cost synergies. Adjusted earnings per diluted share are anticipated to be in the range of $7.40 to $7.65, which assumes an adjusted effective tax rate of 21 to 22% and a share count of approximately 99 million diluted shares. This share count assumes that Cantel's convertible notes are converted and settled in cash. We would expect stronger revenue in the second half of our fiscal year with earnings in line with our traditional 45/55 split. From a balance sheet perspective, as Mike discussed, our leverage will initially be a bit higher than normal for STERIS following the close of Cantel.

We have committed to debt repayment as a priority over the next couple of years and would expect to be back closer to our normal sweet spot in the mid-2s within that timeframe. As STERIS continues to invest in AST facility expansions and outsourced reprocessing centers and assuming about $50 million of CapEx for Cantel, our total capital spending is anticipated to be approximately $320 million in fiscal 2022. Free cash flow will be impacted by the integration and deal-related costs of approximately $200 million and in total is anticipated to be approximately $380 million. You will recall that we do not adjust free cash flow for deal integration costs. Other than focusing on repaying debt, our capital spending priorities will be the same: dividends, investing in our current businesses, tuck-in M&A, and share buybacks.

We are confident we have the cash generation capacity to invest appropriately in our growth priorities and reduce our debt in the coming years. I would be remiss if I did not take this opportunity to thank Walt today. Walt has been a mentor to me and the rest of the STERIS leadership team for many years, and I would not be prepared to step into the CEO role without his support and counsel over these past years. Thank you, Walt, for everything you have done to get STERIS where we are today: a great company, consistently improving to meet the needs that are evolving for our customers, staffed by associates who have safe and rewarding work, and generating above-market returns for our investors, as they have come to expect. With that, I will turn the call back over to Julie to open up for Q&A. Julie?

Julie Winter (Head of Investor Relations)

Thanks, everyone, for your comments. Jamie, if you could just give the instructions, we can get into Q&A.

Operator (participant)

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, please press star and then one using a touch-tone telephone. If you are using a speakerphone, we ask that you please pick up the handset before pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. If you do need to remove yourself from the queue, you may press star and two. Our first question today comes from David Turkaly from JMP Securities. Please go ahead with your question.

David Turkaly (Medical Devices Research Analyst)

Great. Thanks. And, Walt, we'll certainly miss you. Time does fly. It's been a great run, though. Maybe I could just start with the guidance, the assumption. I know when you bought Cantel, you gave us a backwards look at EBIT contribution, but obviously, that was kind of a year that had some special impact. So I was wondering if you might just talk a little bit about what that contribution you think that will be now. Obviously, the guide looks like there's some accretion in there from Cantel, and I'm just curious if you might want to share some of the details around specifically that contribution.

Mike Tokich (SVP, CFO, and Treasurer)

Yeah. This is Mike. So obviously, if you look at our guidance, including Cantel, from an EBIT contribution standpoint, they'll have similar EBIT margins that legacy STERIS has, and that EBIT margin dollars will be right around $230-$240 million contribution for the 10 months of fiscal year 2022.

David Turkaly (Medical Devices Research Analyst)

Got it. And maybe just as a quick follow-up, you mentioned the debt. Congrats on the offering. Could you just tell us sort of, I guess, the interest assumptions, maybe either for the year? I imagine you may pay some down as you go along, but maybe sort of the aggregate amount of debt and sort of the interest expense you expect to incur. Thanks a lot.

Mike Tokich (SVP, CFO, and Treasurer)

Yeah. Certainly. So we did, as Walt and I both mentioned, we did do our first public debt offering for $1.35 billion. We did two tranches, a 10-year and a 30-year, split equally, so about $675 million each. That debt combined is about 3.225%. And then, obviously, the rest of the debt that we have will be between our private placements, term loans, and whatever we draw on our revolving credit facility. So what we are projecting is all in, from a rate standpoint, about 2.5% for the year and just under $4 billion when we start with Cantel and we close Cantel. And then, obviously, we anticipate paying some of that down throughout the remainder of this fiscal year. And as Dan and I both mentioned, we have the mindset to get back into the low to mid-2s sometime within the next few years.

David Turkaly (Medical Devices Research Analyst)

Thank you.

Operator (participant)

Our next question comes from Matthew Mishan from KeyBanc. Please go ahead with your question.

Matthew Mishan (Equity Research Analyst)

Great. Thank you for taking the questions. Walt, we will definitely miss you and always appreciated your candor and insight. Thank you very much. Just to follow up on the modeling questions, are you still planning to bucket healthcare and life sciences with capital equipment, consumables, and service? And then, as far as interest expense, tax and share count, could you kind of break out the 1Q21 or the first quarter contribution versus the full year given the mid-quarter close?

Mike Tokich (SVP, CFO, and Treasurer)

Yeah. So first of all, to answer your question about the segments, Matt, we are going to continue to report capital consumables and services or service for both healthcare and life sciences and, obviously, services for just AST, as we typically have done. The one factor that we are looking at is dental, is how to break that out. We know it's going to be a separate segment. We've got a little bit of work to do in order to figure out what particular breakout we want to go down there. They do have a lot of instruments, especially around the Hu-Friedy standpoint. So more to come on that. And then, Matt, I don't think we're going to get into that level of detail on the quarterly breakouts. We're about 99 million shares for the year. Obviously, Cantel is adding almost 15 million of those when we close.

So that's about as much detail as I think we're going to give at this point.

Matthew Mishan (Equity Research Analyst)

Okay. And then just a question around Key Surgical. I think you had previously thought that the pluses and the minuses can even themselves out in that business from the disruption from COVID-19. Has anything kind of changed there? And for next year, does that grow in line with the company on an organic basis for Key Surgical?

Mike Tokich (SVP, CFO, and Treasurer)

Yeah. This is Dan, Matt. So what I would say is the long-term view of Key is still incredibly positive, and they are highly procedurally driven. And if you recall, we've spoken before, they have much more opportunity in Europe, but they also, complementary, have much more exposure in terms of COVID. And COVID had a much more significant effect in the winter months in Europe than what we had initially anticipated. Now, as we continue to see recovery both in the U.S. or North American market and the European markets, we're seeing the positive trends of Key, and we're confident it'll come back to track with STERIS as normal procedure rate-driven type businesses.

Matthew Mishan (Equity Research Analyst)

And then big picture, you've seen a couple of your competitors across your businesses go public in previously more under-the-radar areas. Does that change the competitive landscape for you, or is it validation of the opportunity in those areas?

Mike Tokich (SVP, CFO, and Treasurer)

It doesn't change anything in terms of competitive landscape, I would say.

Matthew Mishan (Equity Research Analyst)

Okay. Thank you very much.

Operator (participant)

Our next question comes from Michael Matson from Needham & Company. Please go ahead with your question.

Michael Matson (Senior Equity Research Analyst)

Hi. Thanks for taking my questions and, Walt, congrats on the retirement. I know I've only covered the company about a year or so, but enjoyed interacting with you over that time and learning about the company, so thanks. I guess first, I've tried to back into kind of what the guidance is implying for Cantel revenue on an annualized basis. It seems like it's around $1.1 billion. Again, that's for the full year. I know you're not going to have it in your numbers for the full year, but that's a little bit below. I think we're modeling around $1.2 billion. So it also sort of implies this flat growth from the prior sort of 12-month period. Is that right? And why aren't you assuming kind of better growth there if it is right?

Mike Tokich (SVP, CFO, and Treasurer)

It is right. That's what we're modeling now. Cantel was a beneficiary of a lot of PPE sales, especially in the late summer, early fall months of this year, and those were obviously pandemic-driven and likely not to stick around, so we've appropriately removed any assumptions on high or continued sustained levels of PPE in the go-forward model.

Relative to STERIS, they are even more heavily procedurally driven and particularly elective procedures. Dental is largely an elective procedure space. As a result, probably a little slower to come back in our thinking. Again, as Dan's mentioned on Key, we don't see any difference in the long term of that. It's very much like our modeling that we put in place when we did the deal.

Michael Matson (Senior Equity Research Analyst)

Okay. Thanks. And then just on the transition from LIFO to FIFO, is there any kind of financial impact from that to EPS or cash flow or anything?

Mike Tokich (SVP, CFO, and Treasurer)

Yeah. There is, but it's not material at all. And going forward, LIFO has become a very small percentage of our inventory pool. So we did restate the quarters looking back. We will do the same thing and give more detail in the 10-K when we file it at the end of this month. But nothing material that I would say is going to change directionally the company or the outlook for the company.

I think Mike mentioned it was $0.03 this past year. That gives you an order of magnitude. It's not a big deal.

Michael Matson (Senior Equity Research Analyst)

Okay. Got it. Sorry, I missed that. Thanks, guys.

Operator (participant)

Our next question comes from Christopher Cooley from Stephens Inc. Please go ahead.

Christopher Cooley (Equity Research Analyst)

It's been a true pleasure to get to.

Can you hear me now?

Mike Tokich (SVP, CFO, and Treasurer)

Yep.

Christopher Cooley (Equity Research Analyst)

I'm sorry.

Yes. Good morning. Thanks for taking the questions. And, Walt, I just want to say it's been a true pleasure to work with you these last 12 years. Your accomplishments here have been tremendous, and I wish you all the best going forward. Julie and Mike and Daniel are stuck with me. Let's go for 13.

All right.

Yeah. My questions here this morning, if I may, I want to first start on the cash flow guide for the full year. It's impressive. When we look at the $380 million, obviously inclusive of $200 million in charges, if we kind of make that adjustment, you're looking at roughly 13% of the reported revenue guide. But when I think about that, help me kind of unpack what the underlying assumptions are when we think about the margin structure. Because in this most recent quarter on the core STERIS side, obviously, you had a record operating margin contribution from AST. Life science tapered a little bit with the consumables coming down. Just want to try and make sure I'm understanding kind of what the underlying assumptions are there on getting to that $380 million for the full year. Then I have a quick follow-up. Thank you.

Mike Tokich (SVP, CFO, and Treasurer)

Yeah. Yeah. Certainly. Obviously, the deal-related and the integration costs, the $200 million we're anticipating off of free cash flow. We are, once again, increasing our CapEx pretty substantially, both not only on the STERIS side, in particular for AST facility expansions, but also continued operating room or OR expansions, reprocessing expansions within, particularly, North America. And then we do have about $50 million of CapEx identified specifically for Cantel Medical. But one of the things that we continue to see, and Dan talked about it a little bit, is on an income standpoint, we are anticipating that both travel, sales, and marketing will be up significantly year over year. In addition, R&D, continued R&D spend will also increase. So that's definitely going to have an impact not only on the net income side, but also on the free cash flow standpoint.

And then the other thing we've done a really nice job on this year is improving and driving improvements in working capital. And we continue to think that we can do that. And then, obviously, I think there's some opportunity longer term with Cantel on a standalone basis to drive that. But that's going to take us a little bit of time as we integrate the companies to get those benefits, Chris.

Walter Rosebrough (Former CEO)

Yeah. You know, Mike, one other comment too on that is we built an awful lot of inventory this year just for our fears around supply chain assurance and things like that. And we're still sitting on an awful lot of that inventory. And as we are optimistic that supply chains will get better in the next six months, we'll probably go back to our more leaner mindset in terms of inventory management, but in an abundance of caution not to stock out for our customers. We've been running a little heavier than normal.

Christopher Cooley (Equity Research Analyst)

Makes sense. And I appreciate all the color there. And then just lastly for me, when I think about just maybe bigger picture looking at the integration going forward, obviously rolling in Key Surgical and about to close here on the Cantel acquisition, when we look at the guide, there seems to be some changes versus the last kind of major acquisition the company did. And I'm thinking back to Synergy when we think about the related contribution from growth and similarly from margin. Help me just think a little bit, though, about kind of how you're approaching this, kind of where you see the kind of key milestones. And also, I think it's maybe getting lost a little bit here this morning, but you did step up the core STERIS organic guide versus kind of what we've historically seen here.

Help us kind of think about, again, what you see there implicit in the guide and what's a little bit different this time when you're doing the integration versus Synergy. I know there are different businesses, but just trying to think a little bit about where the challenges lie and where you have added confidence. Thanks so much, and again, Walt, all the best.

Daniel Carestio (CEO)

Yeah. Chris, what I would say is it's a very different and Synergy was more of a complementary revenue play opportunity with a little bit of cost out because they were largely present in Europe where we had less presence, and there wasn't much overlap between the two. In the case of Cantel, there is significant cost out opportunity. That's why we've identified the $110 million target that we're going after. And a lot of that is in some of the leadership compensation and sort of where we have redundancy amongst executives and folks within the organization. So we're actively working on day one now, if you will, all the messaging, all the mapping of who's reporting to who and getting the structures aligned and working with the Cantel teams to get there. So that's the difference between the two deals in terms of where we are.

And we do believe there's probably going to be some revenue synergies out of the complementary portfolio offering, but clearly, we're focused on the cost out piece early on. In terms of the other question, I think around the margins, we do believe as procedures come back to normal, that will continue to drive growth in our AST business and in our recurring revenue consumables businesses, especially in the healthcare segment, which tend to be higher margin consumable type annuity businesses. And we do think that as we get back to pre-COVID levels in the back half of our fiscal year, we'll see a significant benefit from that in our overall margin structure.

Walter Rosebrough (Former CEO)

Chris, I would add just a comment on the same thing Dan talked about, this being a much more cost out type of a deal. First of all, we're fortunate in that I mean, I use the word fortunate in kind of an odd way. COVID caused both of us to put hiring freezes across much of the company. And so a big piece of those cost synergies are going to be handled by not hiring people that one or both of us would have hired because we have people from the two companies. So a piece of this will go easier than normal. We haven't built that into our model in terms of the cost of synergies. We've included what I'll call a normal cost of synergies. We could get a break on that depending on how that works out.

Unfortunately, people have to be in the right place at the right time in their career and all those things. But I think that's a real opportunity for us. And we're quite good about using people and not laying people off just to hire somebody else. And so I think that's a real positive. And then the second component is if you look at our history, we eventually get our revenue synergies. We always get our cost synergies. And so if I were a betting person on Mr. Tokich being able to get $110 million, I'd take the bet all day long for as big a bet you want to make.

Christopher Cooley (Equity Research Analyst)

Thank you.

Operator (participant)

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Michael Polark from Baird. Please go ahead with your question.

Michael Polark (Senior Equity Research Analyst)

Hey, good morning. Thank you for taking the question. I have a couple. We'll follow the synergy thread there. I'm curious, the $200 million of deal and integration-related expenses this year, can you help frame the potential tail to that into the next fiscal year? And within the 200, what portion of that do you consider truly one-time and deal-related consulting legal transaction expenses? And what portion of that is investment you're making to capture the guided cost synergies?

Mike Tokich (SVP, CFO, and Treasurer)

Yeah, Mike. So I mean, I would say that rough math, they're fairly equal, $100 million and $100 million. $100 million to obtain cost synergies and then $100 million for the cost of the deal-related, obviously, the attorney's fees, the banker's fees, the accountant's fees, the banks themselves going through everything we've done from a financing standpoint. So those are about equal. The bulk of the deal costs should be done, obviously, this fiscal year would be our guess. We'll have a little bit of a tail as we continue to gain some synergies, cost synergies. We'll have to pay for that. Remember, our mindset was when we did the announcement, our assumptions were in order to obtain that $110 million of cost synergies, it was going to cost us about one for one from a cost standpoint to obtain those synergies. So that's what that $200 million represents.

Michael Polark (Senior Equity Research Analyst)

Got it. Just scribbling down notes here.

Mike Tokich (SVP, CFO, and Treasurer)

That's fine.

Michael Polark (Senior Equity Research Analyst)

Yeah. Thank you for that, Mike. The comment on ORC as an influence on the CapEx step-up caught my ear. I know it's a small piece of the business. Don't hear a ton about it, but I'd imagine you're not putting dollars into the ground and hoping customers come. So are there wins there to talk about that are driving the CapEx comment for ORCs?

Daniel Carestio (CEO)

This is Dan, Michael. I would say they're not material in terms of the broader picture of STERIS, but it does cost some capital. It's similar to an AST type location in that there is a startup ramp-up period where it may be initially a bit dilutive until the volume grows. But no, we build those not on speculation, but on relationship and contracts with our customers. And we are very confident that when we're putting brick and mortar in the ground, that we're in a market with committed contracts and customers.

Michael Polark (Senior Equity Research Analyst)

Yeah. Three more quick ones, I promise. The AST supplier acquisition supplier of what?

Mike Tokich (SVP, CFO, and Treasurer)

Oh, they make our E-beam and X-ray equipment and conveyance systems and control systems for the non-isotope radiation.

Michael Polark (Senior Equity Research Analyst)

Helpful. What's the latest thinking on the vaccine as a catalyst in life sciences? The equipment number was quite strong in the quarter. I continue to overmodel the consumables piece. And so as we sit here with the U.S. vaccination progress demonstrable mid-May, the world's catching up or ex-US is catching up. What's the vibe there? What's your view on the near-term sequential direction of some of those numbers within life sciences?

Daniel Carestio (CEO)

Yeah. I'll go back to what we've talked about in the past, and we got a lift on COVID in life sciences consumables, but much of it was pre-buying from our customers. It wasn't necessarily attributed to COVID vaccine demand. There was some. I mean, we did get some tailwinds from it, but really, it was the buy ahead on products that weren't necessarily relative to COVID vaccine manufacturing. Now, we do think that it did have some positive impact on our capital equipment business, and we saw a number of units sold into Asia in particular that were specifically for vaccine-type startup facilities that they were putting up quickly. Yeah. Long term, it's not a negative, I can tell you that.

But you're not going to see. I would assume we've hit the plateau off the peak, and we'll modestly grow from there as opposed to continuing to grow off of the trajectory that we expected to see as it relates specifically to COVID vaccines.

Michael Polark (Senior Equity Research Analyst)

Yep.

Mike Tokich (SVP, CFO, and Treasurer)

But Dan's modestly growing, it is our fastest growing business. Modestly growing as it relates to being a life science business that does consumables.

Daniel Carestio (CEO)

That's right. That's right.

Michael Polark (Senior Equity Research Analyst)

Last one, I promise, probably for Mike. So a couple of questions on the debt and interest expense. So appreciate the comments so far. My question is really narrow. For the June quarter, I think you put this debt in place at the very beginning of this quarter. Correct me if I'm wrong on that. Call it April 1, give or take. I was looking through the prior press releases. For the reporting of adjusted EPS, are you going to exclude the interest expense related to the financing until the Cantel deal closes, or would we expect a full quarter of interest expense in this June quarter?

Mike Tokich (SVP, CFO, and Treasurer)

No, Michael, you're right. We did put that financing in place in April so that it is in FY22, and we will not be adjusting any of that out. Obviously, it's a two-month overhang, if you will, for putting that in place. So you should expect a full year of the higher interest expense for the Cantel acquisition.

Michael Polark (Senior Equity Research Analyst)

All right. Thank you very much.

Mike Tokich (SVP, CFO, and Treasurer)

You're welcome.

Operator (participant)

Ladies and gentlemen, in showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks.

Julie Winter (Head of Investor Relations)

Thanks, Jamie. And thanks, everybody, for taking the time to join us. I look forward to catching up with many of you in the coming days.

Operator (participant)

And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.