Sotera Health (SHC) 1 Nov 232023 Q3 Earnings call transcript

Good morning, and welcome to the Sotera Health Third Quarter 2023 Conference Call.

[Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Vice President and Treasurer, Jason Peterson. Please go ahead.

you. thank and morning, Good Welcome to Earnings Quarter Health's Third XXXX Call. Sotera

webcast and find our slides This Investors and section today's website. in can Sotera be accompanying replay website being will a press soterahealth.com. of of You the section release supplemental available recorded, Investors on at Health the is the

On the Petras; are Chief Officer, Financial today and Chief and call Chairman with Jon me Michael Executive Lyons. Officer,

statements materially our of matters risks the may subject presentation considered forward-looking SEC and some statement the a The that and Please results these projected of filings During statements. cause addressed in the forward-looking Health's for description implied. slide uncertainties be comments are to risks from to actual call, the Sotera at or these of and refer could to uncertainties. those differ beginning

company's the assumes to Please attached and statements. of EBITDA EBITDA, company non-GAAP income The income, adjusted such to today, note margin, present net that obligation financial both this company periods currency any the debt, ratio, the in adjusted GAAP leverage EPS, be in constant net and release press relevant the to in net supplemental addition all slides discussion found non-GAAP including comparisons. GAAP will A the update measures forward-looking segment no measures, adjusted during margin to and presentation. for may reconciliation schedules of adjusted

portion today. to of will opportunity can follow-up call everyone limit we Q&A operator to with questions. and the give the ask X X that The so be assisting yourself Please question an

reach out questions post-call, Investor any feel to Relations if to the you free always, have As me and team. please

to call the Sotera Petras. CEO, Chairman turn Michael Health now will and over I

job Sotera macro a bottom-line you team at plus Earnings as margin we with challenges. Consistent Health. rates, our Good for still Quarter and we such execute and commentary, exist morning, offsetting chain on improvement. environment Health's morning, done XXXX everyone, our Global growth reported year-over-year on as customer headwinds top- headwinds and Third inflation has thank This past Safeguarding supply delivering good Call. The rising interest of these mission joining

to XXXX, $X.XX third revenues from while X.X%. same third company results. decrease our increased the few of quarter, adjusted the EPS a quarter year, by driven Compared interest the year-to-date We highlight want from to total EBITDA of I X.X%, expense. quarter adjusted a which delivered $X.XX for period last items is increased increased and

XXXX to segment, largest growth the third quarter growth been The a delivered of customer business Sterigenics, has some inventory business. and chain market quarter supply the topline our despite for Sterigenics as softness. consistent and third is XXXX X.X% and ongoing compared reporting of challenges

XX% we the $XXX XXXX Revenue income XX And growth This customers is significant to Sterigenics our when of team period. became over and has our critical segment million the grown job even months. are business, since more million company a nature at same $XXX that's $XX the to challenges. in macroeconomic been consistent by approximately grown has great by our through done fighting the from a than during public last testament million

XX% their Sterigenics multiyear business across comes role XX customers XX government-mandated facilities strong X,XXX a revenue providing sterilization More to countries. services on customers plays is from critical a in over than in sterilization that contracts. of services

and play in we the customers commercialization the ultimately, care role getting their patients. very are We important products safe products to in of health to our

product is customer the quarter, validation facility for completed another the project the which underway. phase team During expansion

our and best-in-class we our controls in commitment to continue emission operate. States. We on enhancements the for to customers employees, progress which good in also our EO These industry-leading facility United make enhancements the ensure demonstrate communities

third the delivered other a the increase within quarter versus Nordion, segment business, services sterilization year-over-year year. reporting last our in XX% revenue

to The communicated. communicated is unique patterns on which significant results a the quarter-to-quarter to As schedules year planned in of our experience in basis. suppliers, harvest full the the complex in revenue Cobalt-XX remains portion a irregular and revenue Nordion's has previously, team supply as Nordion Cobalt-XX revenue tied of chain, fourth team quarter its on and deliver the track previously navigating

Cobalt-XX care Global to This is play we devices critical the is role sterilize great used community. another is critical global of the of how example medical in Health. Safeguarding and XX% approximately world's single-use a to health

with to X our X.X% the versus on and testing advisory Labs, year first, of lastly, experienced testing for and sterilization in business, the lab routine to Devices decline to deadlines be tied testing lot funding continue service decline the Nelson second, extensions in primary a volume. regulations; start-ups compliance based smaller drivers: Revenue release companies; Medical soft the the as Union volumes prior European quarter for

findings. Nelson is RCA critical A remediate audit business plays bright spot the role Labs customers the for FDA performance. in helping RCA a

Labs consulting margins actively remaining on generally. In of Nelson those the is while dilute volumes, team quality. RCA more softer-than-expected Labs As however, costs Nelson a with business, the focused managing light

times staffing scores improved utilization stabilized, turnaround have solid. levels and levels are Our have satisfaction and customer

finish XXXX the the of the volume range that at outlook the we our second softness at to expect we Due during Sterigenics revenue call. adjusted XXXX earnings Nelson and Labs, outlook. XXXX lower quarter EBITDA to Turning and provided will end

the I oxide oxide sheet brief ethylene update Now Sterigenics term to to resolve in binding million, announced for signed ethylene give Sterigenics October, to a on claims against all plaintiffs. subject like by a XX Georgia. the we participation would $XX that litigation In the

settlement this We expect to complete year-end. by

one to facility of community. posed Atlanta The constitutes driven way any Gwinnett our to hazard no cases liability the the was or about begin state in settlement court circumstances County. of by settlement was the unique safety ever trial surrounding have admissions from of in admission that an The to

opportunity will remaining and apply of fairly claims court based pending to and the the the Cobb continue evidence approximately to on we in XXX the fully are Court defend the itself of injury defend science. rules properly We optimistic vigorously valid personal afford Sterigenics where County, State

order cases by in in implementing a that County cases injury by XX has central Illinois caused and allege Gwinnett did case decided Cobb science present in satisfaction could cases the judge's judges go trial the importance which the exposure cause plaintiffs center from a personal the alleged to to EO judge in plaintiffs the will in jury. to before sufficient to contrast County, causation illnesses the Georgia, proof facility approach fact, allowed will of acknowledged first. County, only the that taken have and, and management EO Atlanta be be to and to The places front the the In already science they that scientific Cook the

in on Sterigenics website. of the XX-Q EO filed detailed evidence confident about This almost oxide refuse a evidence on rules proven year always, Sterigenics when that by are litigation and claims and the can ethylene be verdict Illinois. science harms favor was the of our We facilities about the the returned alleged emissions that will Cook as or in properly, is settlement County, from the Investor today, other the case cause ago complete in litigation. applied EO defense the do information Relations cancer available the are pages that and or foreign More in the related

products Global day is minute financials Prior more in performed the through which year sterilize regulatory to to meet to We that We medical work. pharmaceutical the every to Jon requirements. products for mission, each our a heart Safeguarding each used our over tests are detail, of millions turning to sure take I'd and underscore Health, products of this call walk and millions make the to at patients. like benefit of safe and us

We supply treatment of the gamma enable for Cobalt-XX and sterilization to breast early-stage cancer. globally

our challenges. critical to help regulatory solve provide we customers' addition, and In expertise scientific

services mission-critical providers care of health millions world. help protect Our the around and patients

Global link, you cancer. Nordion of example breast highlighted this the of encourage team's on I XXXX Health mission Relations to in video our and a video how quarter released vital treatment third in in watch An this the slide to earnings a our role Investor presentation our as plays our learn look available website. morning and Safeguarding fulfilling

Now Jon through us walk will financials. the

consolidated business with each you, details Michael. covering begin I on quarter along the deployment some will updates and on leverage. capital the provide on XXXX a basis highlights and Thank of segments, by third then

X.X% equates to This of by total exchange third constant consolidated revenues basis, the a the $XXX million. turned as quarter to compared quarter. X.X% to a EBITDA X.X foreign XXXX. currency on quarter company increased to compared Adjusted same $XXX by increase as tailwind million to increased expected On a the year to third last as for as a basis period

a the higher basis finished decrease than was points versus quarter was margins of increase of EBITDA interest XXXX. an and second $X.XX expense which prior driven at quarter versus more by of the Adjusted Adjusted EPS from year. of $X.XX, the XXXX, XX both third the quarter of third XX%, XXXX

QX or net XXXX. QX of loss share, diluted compared Georgia was share inclusive in settlement, $XX $XX $X.XX diluted to net million the reported XXXX for million million The income or $X.XX per $XX of per

the which $XX period is of year. reported for million, of approximately an last expense Our $XX same XXXX interest third quarter increase million was the versus

$XXX increase million the in driven the that rates QX. in primarily is and term increase The loan interest by closed

take Now a performance. segment look closer let's at our

changes QX and favorable of as growth Sterigenics the quarter, pricing to volume unfavorable included X.X%, foreign currency mix in the X.X%. Revenue favorable by third X.X% year. X.X% million quarter $XXX of to growth compared exchange partially For last revenue of for rates and delivered of drivers XXXX offset

for to points pricing, as and mix prior basis margins by quarter, unfavorable year and well to Compared volume offset the as segment income XX.X%, X.X% driven segment increased $XX inflation. approximately XXXX by million, increased favorable XXX by partially to QX income

Nordion's and Nordion's impact revenue foreign compared unfavorable pricing favorable offset changes QX of exchange of increase to by to of currency by X%. driven mix XXXX. $XX rates X.X% million an favorable and third volume by XX.X% was from increased X.X%, quarter partially revenue in

increased Nordion pricing, favorability Segment last third and and partially in mix XX.X% $XX million, versus margin to to segment and period increased approximately same the and driven segment more margin XX% income XXX than basis volume were XXXX to by changes offset year. points income quarter inflation. compared income by

pricing of third and was $XX benefit by in by currency the third volume mix from Nelson revenue of by offset XXXX X%, approximately declined quarter foreign impacted X.X% For Labs, XXXX. X.X%. a of X.X% approximately changes compared favorable million quarter Revenue to declines partially and to

quarter and segment income third and points XXXX. basis partially This Labs' approximately as to mix well to $XX unfavorable income versus the quarter third by XX.X% margins volume pricing. favorable XXX to due XXXX contracted XX.X% inflation, by decreased offset million, as segment was by Nelson decline

net strong liquidity a to in company liquidity, I and will now leverage position. is deployment. The turn capital

the and cash $XXX XXXX, of of on As available liquidity, million Through XX, credit. September available we approximately capacity $XXX includes third million adjusting cash-generating million for of $XXX line tremendous unrestricted of the is generated million a business. $XXX over we revolving had This which this million quarter, of our to in capability after of cash. $XXX the Illinois settlement, testament operating

an Our oxide was third level year-end net by leverage quarter was was of increase in new end X.Xx with This the term from ethylene X.Xx. and issued driven the at loan Illinois the $XXX settlement. the ratio million connection of the XXXX

Our million capital a the XXXX on for and totaled $XXX quarter third basis. year-to-date $XX of million expenditures

facility development we Over U.S. of the $XX cobalt enhancements, of elevated expenditures past year. strategic to in have amount have and programs period and programs. the XXXX, QX we U.S. been and couple the cobalt the Sterigenics' this additions nearly in capacity due development million a of on EO same totaled operating years, approximately facility spent Spending the enhancements EO capital through

required development the to are Our gamma programs sterilization. long-term growth support cobalt of

approximately was years XX program cobalt significant last ago. Our

largely the the important note continuing. which other X also this Sterigenics programs will begin end is first these spending X, be in greenfields, will the by spending to revenue yield capacity on current It Capital expansion -- of to complete of that decade. are year. will Capital active XXXX. largely late the development has for projects complete be

capital facility a expect cobalt we Sterigenics' our EO be enhancements another year XXXX reduction investments on communicated, in for heightened XXXX. and expect Based programs the growth in U.S. expenditures in current As view, previously of significant development we XXXX will and investment.

to continue and have X will the term. to businesses for grow Health long in Sotera maintain We a and all great company, we to invest

priority. stage of we investment, strong conversion flow, expect to flow substantially cash the is of our we complete which cash the free key operating a increase to As elevated

Now approximately $XXX of growth in be total outlook. our rate the to ongoing X%. representing our XXXX growth $X.XXX I'd revenues of range softness, lower an expect full annual an year X% to rate XXXX is which of market adjusted discuss like range the EBITDA we at to results representing X% million, billion, X%. previous to $X.XXX outlook, to billion on Based approximately annual end $XXX year in the to of Full million of

to As quarter. of mentioned full in earlier, XX% we are year deliver on revenue track the Nordion's approximately fourth

to Nordion, we be full adjusted similar XXXX year XXXX expect For full margins to margins. year EBITDA

we For business, to and the remainder similar expect the QX for top be line. bottom QX of to both

of And finish we expenditures in are expected year to $XXX or $XXX expected Capital net million diluted to Weighted the to is to the be range average Adjusted be to of in to range are XXX million XX% $X.XX Xx. XX%. leverage million. Tax to be rate the million. is range $X.XX. at of expected the in in to below be EPS shares the of XXX expected to range lastly, expect

over to call Now I'll turn Michael. the back

Jon. you, Thank

to our condolences In open had Mishan spend him to from since a the missed. X friends our point time let's question for At been I of Before following answer. work we to like time, call express prior family, colleagues move with passing, minute KeyBanc. the truly we would company to and to fortunate Q&A, Boston. take will and this Matt to in Matt Matt be just are week in XXXX. his

Instructions] [Operator

Dodge The Capital. Sean first question RBC comes with today from

just I the clarification, start quick on Yes. remaining Georgia to with a your Michael, around comments want cases.

caused evidence illness. there. remain require counties, exposure provide that that said the of those type But is who XXX judge going their of to in some So those you

that that and right number to number is could actually hurdle that already proof cleared whittled trial, the some? go -- of is Or the cases, sort that will is in could have that number go So provided that be initial number to down actually trial? XXX their that many that

Good morning, Sean.

Phase pulled works. to specific Phase is is it XX of There's There kind causation. that out through and II. the I how cases has Phase general here's I causation, cases. go So were XXX judge Phase II

the answer your question down. could is, to go So the yes, cases

goes Phase it breast So leukemia I. go through -- -- through it's has it's I, if cancer, if a condition it lymphoma, through comes has Phase through pass to to or

a it go through take Phase If jury, trial given Phase the through that, if and to that So then a case. to has passes case I, goes it to you the screen it goes with it passes judge, II. it whole

something in X cases. is a So first one gets of out there case those scenario where knocked here

jury means Let's and Phase say, for ALL, will could It not not maybe -- to example. not pass I Phase a you II, go trial. which

So yes, reduce sure number want I make to cases. of enough being it's for the Is clear that -- complex. it I'm you. little could a

QX now been ideas that's there? is in then the of regulations, on have rule? maybe see great. could you 'XX. that's And and like That It You guys there in just EO more the changes any looks No, we helps. emissions can share the expected communicating final updates any with EPA, on

No.

regulators We what's to first visibility we, very do, put in late always we But the knee going and but shaft in more expect continue the improvements on the -- are to in final of we the we've quarter is we like rule. first timing exactly engage the have with quarter. on no place confident be again, our

The Patrick next Donnelly with comes Citi. from question

come profile to the still it you still some the and end of lingering. in lot about companies of here? guys think discussed growth we lower headwinds. of Obviously, moved 'XX as of low just organic as relatively go-forward, some growth here. business the should A Is say, have right headwinds out given are these I confident, you are the obviously, Michael, -- high-single-digit

a the your near and things term into if Just differently bit our we be should we as improving visibility 'XX. thinking into work way about curious

you. Yes. Patrick, thank

are ability high We digits confident single in to in the to the grow continue business.

business we of high As you expect look at digits and to long-range, organically. the know, chains their to some this felt and challenges. customers when inventory from at perform challenges mid- our supply the But we single you

helpful. on controls, terms that's just the cost no assume then given the headwinds. of profile. And No, real changes margin the near-term Okay. in I

the margins? we terms for moving of term in should anything pricing the for about just about has be a in you guys tailwind change pieces that on Any algorithm can work way the our you a been long nice as talk we just forward, the pieces? time. But to margin moving thinking near Obviously,

important because that customers. the our to Yes. Obviously, margin so it's volume is because inflation price. customers been we're have offset the We've offsetting our value guided higher to been it. We price them. Yes, and It's higher driving in that been and it's price of towards. the been a do said it higher the pay biggest expect that X.X% price running our because all lever than comes to little we for range. to continue back than has we have over critical we prove little margin create that actions. has a that on future. little able than price will But range with And service We've But long the again, expansion. that. in X% get We've to we inflation been a able

We leverage. give the the where to that. Joe And have team a is managing don't have volume and which the to great there. The challenges through doing but ton side in of been the Sterigenics will that. return continue good they've Nelson managing labor, job through good with done But a to same job on and the expect Mike a around working in also operating us team historically, facilities volumes

about we've model. rates proven our hold COVID, to a we They've there out that some ability our in the But regulation business as the then and and in the good with of job continue through margin crisis our happened lot feel been overall, changes.

with comes from Sergott question Barclays. The Luke next

follow-up about Maybe a for just This outstanding. is Sean's on question Sam the on Luke. cases earlier

time or if exiting there II when getting about about I right or hear some Just for are whether Is curious Phase of the a they're line line cases might there. now time we Phase these stopped?

Yes.

So they I, Phase October 'XX. set surviving XXXX in a ultimately, the we any cases jury start of through trial, to we'll would II go then a And is line yes, September, through Phase that is October up. time be get line causation general time there August current would would expect. XXXX.

kind Got you. budgets. of this about biopharma their hearing really helpful. -- That's tightening And lot then a

the what anything if exposure demand hearing on about there wondering you're there? Just similar that your environment? effects What's you for guys? And are

expected just volumes of in then And on the GLP-X, it's devices, hit to run. kind long

What's kind plan for of or that you're thinking as that about is GLP-X? your some will of curious your And sense that sterilization of pens of of capacity? offset the for by about be used kind well. how Just any

Yes.

on very to probably headwind. the the in Obviously, biopharma to business we'd We scale we side, performed segment. well that that So in a biopharma. aren't been year has this we like have there. But be do

some you they've their and has volume volumes the Sterigenics impacted significant customers in that way. Our had a on and which inventory referenced, meaningful takedown, challenges

on We are that bullish term. long segment

felt opportunities it's also smaller longer at of But that at Labs. testing again, total when impact percent well, segment, strategic of some to you pharma, look us you as the degree, term. the look a When we've although is to that Nelson

how volumes a our Obviously, communication recently performing well will of really GLP-X, there's the term, seeing But companies see they're that the with are longer impacted procedures. you're but it's we mixed too bag. and in business, be the surgical and -- some diabetes some too. it's that benefit the On for there

look creates the that you for long particularly there's across come we and of prefilled that, Health. that term, Sotera to opportunities some opportunities think when at things So start syringe us, from

long these bigger it as and marketplace take actually could positive of a net think on injectables prefilled a portion syringes we be term. So the

next comes with Michael Research. question Wolfe The from Polark

than mid- I unless cycle we're want high-single-digit But appreciating. destock that's I online haul, look go recovery, the growth back more it -- to close, the the capacity impactful about this Star. missing anticipate I the over, look, to as at goal. the mean, being you is Sterigenics I I'm 'XX maybe something, North just question long so appreciate being unless Michael, market to coming

a 'XX It for maybe like just place high looks start single's stretch for now. to

like growth here And so I'll the and are not puts guidance up to we frame sit you're opportunity in giving knowing ask takes today the today, XXXX? question what as again,

we're the we're quarter to We'll we XXXX had an expect mentioned, as high-single-digit you some guidance. Mike, we're with we've stated, the do going that in development to XXXX, Yes. first our that They've and customers. organic the about with impact an working on as as and process Nelson not right our destocked, and both referenced wrap as efforts we position in Mid- up I and earlier, through Sterigenics impact. had a now when through that growth, inventories teams. that long-term, well talk of

today burn As lower we some seeing fact the about challenges that around that But inventory to of side. volumes some starts obviously, of we're return. end to talking the because the off, still range expect of our we're that

where So some go. based don't we the destocking and are it. inventories customers' to going level as they're have happening detail on today and customer challenges. and to we prepared our with communicating the to into of see do to what assumptions want get what's we're But we're base I to not that look inventories because you think into going 'XX, make

So guidance communicate well. 'XX our that's something for that as we'll be as we focused on

large these Nordion, fourth quarter large just of year. The a the happened? and follow-up that of quarter, guess, level very consistent making into this to step all it'd very for confidence the shipments visibility deliveries you've XQ-heavy have some happen? up? already just year, be and/or they have on sequential been curious you yet month I'm are Or -- A I what into

or very the for and quarter-to-quarter, predict over Nordion hard this lumpy, but XXXX, and in guess predictable lumpy. smoother? of Best lumpy extend the We this is mid-run. a ask know pattern will year maybe just especially like business question -- the little 'XX And was seasonal then lumpiness I to

year at lumpiness consistent in the XX% We're the quarter. clear come quarter, of been look fourth half, and again very we Mike, the there. you that done happen, job morning always that revenue reiterated There's but feel to against and that that executing XX% fourth deliver revenue -- the a all team would we the our We their that to on we we've operational today. when in Riaz's year. things confident, would this that Thanks, expect fourth that second be the to we've have XX% in for call given Nordion of throughout the phenomenal the in Yes. visibility can and team all recommunicating quarter. approximately

As as lumpy again, utilities. far from stated specifics it. I as like. This the you and now really looks you 'XX won't right this as into you're know driven is it's harvest year, in a what I -- as back-end to next It schedules XXXX. get be tell really on times, seeing not want very me was by great many loaded we will

turn we customers as Our doing to get as want can it get it. it what as cobalt that's want we're quickly And as can they and they fast it.

the to So was -- year. Nordion. do that make it the that demand when supply lumpy driven half reactors. of as It's by with one sure This knows the with not year. just back XX% want the for is lumpy there year extremely anticipate all We nuclear in being I is next

JPMorgan. The Woodring next with question Casey from comes

Labs. Nelson one just first around is The

on you earlier, that in anticipated margins sequentially. So dynamic XQ the the line with more or expectations, looks on touch Michael, margins can RCA points something just that, to basis Wondering than assumed be to else expand had Nelson. And like if been Was then seem you but that. mentioned declined there? quarter-over-quarter. for all XXX was in maybe just what's revenues going on It improve

more quarter, that business. like would think I in you last look said XQ XQ

at changed expectation that all? has So

Casey, the it's Lyons. biggest called the Thanks impact. for had question. not it out, sequentially, Really, an you Jon the piece RCA impact

when QX at that's up I couple we think story of we primarily just dollars sequentially. calling, as -- And think, the call, the biggest overall you little And been bit. the margin the and it, business leverage a I revenue that's of dropped in the look volume in at million decline. be yes, there's the that driver loss really really on look a QX, you last had might

As the QX how and we're things to X businesses, across between we how having and of Sterigenics Nelson them. seen that specific as flat for in at total overall gotten might calling look today the shake to be to we've QX transpire out and

Got in. quarter, gave if could -- reduction. driver key the fit or maybe drivers as I year then just some the you around you. one one And more color of the of guidance for full Last bioprocessing being key

is curious the to end that? Just you're guidance guidance talking why factor for softness about the the market full Or contributing there is softness a the continued if today? to low if here pointing referred of generalized the year more range when you than

bag on medical would you, it's a Yes. mixed Casey, also the impact this is I then side. device Michael. Yes, bioprocessing has an really on the And guide. tell

categories of of to chain really tied some some the inventory not, challenges doing others our really customers challenges. have We some and and and it's well supply and

back would question-and-answer Petras like our I session. conference concludes This remarks. for closing any over the to to Michael turn

this operating strong We for X% their and Global customers emphasize cash bottom thank line also generated produced and continued and is. the Thank investors We remain a Health, focused of support the business in to we great on growth Safeguarding you. growth topline quarter, our like mission X% what year. I we living want flow. to our and throughout

have you, and day. good So Bye-bye. thank a

now for The Thank you today's attending conference has presentation. concluded.

You disconnect. now may