Sotera Health (SHC) 2 May 242024 Q1 Earnings call transcript

Good morning, and welcome to the Sotera Health First Quarter 2024 Conference Call. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Vice President and Treasurer, Jason Peterson. Please go ahead.

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

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

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

comments be may are Q&A During portion of of addressed may to some and income The to in in the company the be our with and the non-GAAP this be such matters that segment discussion income, currency reconciliation of statements will net assisting to margin, will EBITDA Instructions]. all forward-looking a of today, to statements. present from both in relevant leverage these note supplemental debt, adjusted addition adjusted of presentation. for press statements. those the uncertainties company results release Health's slide at non-GAAP obligation measures financial for today. periods EBITDA in uncertainties. the forward-looking and ratio Please Please projected A attached and adjusted constant slides these the including of company's and schedules EPS, actual found the the and The [Operator to net update or to operator call net subject margin comparisons. Sotera adjusted measures, GAAP GAAP materially considered assumes risks The cause this SEC forward-looking that no implied. call, any presentation could to the the beginning during refer description filings and statements differ risks

call, Chairman I any now reach turn over call As questions Michael free team. and Health me the Petras. and please if to always, to will the Investor CEO, Relations have feel you to Sotera out post

business to announced financial Total moment, Today, of both and all few continued EPS and chain the first, adjusted coming X.X%. highlight will XXX% growth revenues quarter of line our of from top adjusted XXXX quarter growth challenges. First Jon results. customers delivered work through XX.X% quarter, same quarter somewhat quarter our compared EBITDA segment, services you reporting within reporting Earnings more business, line joining as increased the delivered provide segment Sterigenics, first and a to line increased to I growth we with Health's top first XXXX. for compared $X.XX Quarter in of Nordion, supply revenue of a Good with XX.X% morning, on another want Sotera the bottom our growth. our thank X everyone, Call. soft XXXX to for first but company sterilization We our year-over-year last items in units. detail other from year. largest period results of delivered Volumes remained the the

are large XXXX of down to extension Core advisory by As by top Labs, second quarter year-over-year, of as expert of for continued business, revenue prior XX.X% year-over-year in the the deadlines consecutive This our of Labs, historically delivery suppliers, testing Nelson performance driven Medical Cobalt-XX testing utilities. the Union Regulations first large lab recall, to lab growth volumes the Nelson business. part harvest services schedules Nordion which expected. services and for in significant you year-over-year may is year. the advisory the light primarily quarter European line growth increase the is driven compared timing from our was our led Device in strong are delivered

call. communicated in outlook our last reaffirming are the we This we earnings morning, that

year Labs. revenue both and the calls for X% XXXX. to the Nelson The in our market be growth the in of driven will X% range EBITDA revenue reminder, a Sterigenics range both XXXX full adjusted recovery largely magnitude versus As our of timing outlook variability by and and within

give Now responsible of confident plaintiff that other Sterigenics EO and to the alleged the the California, compliance what with emissions. our by the raise will outperformed update regulations previously some to Sterigenics filed far, have I for the developments. operate we the With sterilize operated would medical to were We firms not respect complied burden that consistently we like so issues has We in on in believe causing is all of and Based these oxide new circumstances an are facilities recent the know context jurisdictions of basically illnesses. the claims in evidence on lawsuits as ethylene products filed lawsuits new establish facilities and time regulations. this that and particular safely vital with regarding in plaintiffs. its devices safely each and and same

South within background Air local surrounding levels facilities. regulator Quality Management reported communities residential sterilization are Coast nearby without in found As levels consistently the areas in the ethylene District has oxide

to we As long we outcome. as put the are able a full judicial fair and in on confident defense, were

by believe litigation acknowledge have a long-term will the ethylene serious cancer diseases, impact material that challenges presented and the we oxide lawsuits other Although on involving we do company. not

are was Ethylene pertinent Oxide I posted what will We active not our that update in that website, information. provide will filings. of is with Please and periodically FAQs list we have included we and our and recognize litigation, under additional of comprehensive in section FAQs a commentary here stated we available that SEC investor beyond the

know, NESHAP. you updated national EPA referred of many the As emission finalized air hazardous March, the for to standards commonly in pollutants,

closure the these to not care final lives to material meet the health the our positioned and very treatment seriously, Sterigenics be do by regulations. Global oxide cancer finalized health time help of that day and facilities required significant method brain believe sterilization be the Although across the total controls millions our the example other forget our role our in We comply our updated the updated around in team and of is not Despite and EPA our U.S. we us living of the which We and tool for is role to within beyond with technology in investments mission emission a frame have care Safeguarding take world. this the permanent proactive CapEx to earnings safety current of in referenced commitment We specified is protect our mission: plans in let out will challenges, day ethylene industry our deck. Health. One meet in ensure plays challenging to out. standards steadfast our will for of state-of-the-art the additional to be rule. requirements believe able amount the

through take more Now us in Jon will financials detail. the

some company Thank higher details I compared Michael. tailwind business the highlights million. each we you, basis consolidated on then with details our XXXX equates Adjusted constant company EBITDA revenues by year, covering EBITDA compared consolidated unusually in to quarter first increase with $XXX the XX.X% will is along experienced segments, basis begin $XXX of . On the explained the currency the XX.X%, Adjusted updates revenue to foreign by XX.X% total revenues last million. a representing year first and same total basis, QX the I capital a then XXXX of basis will light by outlook. additional which increased to Nordion just XX.X% X%. an on on as This to XX XXXX deployment quarter first margins of on leverage. point by from of majority a as under increase first a conclude were versus prior a XXXX. quarter and to provide currency increased the quarter of on period

to of to $X for XXXX interest EPS a quarter income flat versus in XXXX. QX $XXX quarter or quarter as Our for that rates in first compared share share, put diluted expense. which net per basis, million in and in the driven having XXXX. net first of was interest per increased per quarter $XX was full place results expense income of interest offset improved XXXX XXXX. the $XX quarter were of diluted the operating $X higher first was $X.XX a increase share or the term GAAP during million $X.XX million by The QX On $X.XX of by was expense was million Adjusted interest loan million was of

grew offset X%, partially and the drivers for growth a impact at which X.X% of to mix Now segment look X.X%. nearly take unfavorable delivered in unfavorable Revenue and from favorable our driven pricing quarter favorable X.X% as favorable exchange closer rates, well income Sterigenics changes as quarter, X.X% million. In included first of foreign Segment million, performance. pricing mix $XX and let's the inflation. to volume $XXX growth a currency offset and by revenue partially was by foreign of by volume

to XXX% last increased million while same year, million. $XX revenue quarter income segment first Nordion's $XX the to increased compared period to

pricing. revenue a versus XXXX expert driven favorable as by shift as volume well As X.X% of by million an slightly mix due Nordion's versus as revenue and first in abnormally low mix XXXX to a Nordion and driven favorable in volume as strong to and income first we quarter mix Segment the million, in prices. services. volume as had QX schedules. margin Labs' reminder, to timing segment well by by mix Increases Segment growth increased also in experienced XXXX $XX of favorable declined driven income rates first were harvest reactor related increased Nelson quarter to XX.X% by advisory $XX quarter XXXX.

position net Now The capital deployment. leverage liquidity I'll remain continues on provide company's details and strong. liquidity, to

than over settlement. $XXX our million included We of available in primarily of of cash operating XXXX, the payout unrestricted had As quarter, $XXX credit. than we to lower due which it delivered capacity liquidity, the $XXX of although of million cash was the flow of and revolving QX Georgia line available million positive more normal, under

Capital million. totaled quarter expenditures for first the XXXX $XX

critical X well programs, of As Nordion's expansions priorities incremental for our focused Outside expansions EO programs, development of are have enhancements current are expansion material Sterigenics. growth cobalt long-term Sterigenics' near Sterigenics on previously, the U.S. do we facility the expenditure as and term capital in to we the the not company. capacity which as communicated capacity expect

cash ratio range within slightly We with negative was previously flow in finished cash the the year. leverage of positive cash flow the quarter free target quarter performance do Xx. to I operating our the for flow net given lower We X.Xx, of Xx to a expect generate Free mentioned.

mentioned, reaffirming Michael the the what XXXX. to February revenues X%. range year to the based provided and this we grow remainder year, recap, we To adjusted As in we X% full for outlook of expect EBITDA of we total quarter the the first see in on for and XXXX, are

assumed are call, of rates long-term stated year our expect be as the X%. to our to lower of In be sequentially approaching to year-over-year Nelson adjusted during due stated EBITDA expect decline margin down range expect with QX in change margin rates we margin Full throughout We earnings price end to margin to we earlier. As to XXXX mix the QX, modestly of at XX%. be X.X% year mentioned a similar in year. to Nelson do last a improve full year income I rates margin rates the segment rates Labs' result XXXX

year of occur recovery we From year full see in expect second to total between company and to of cobalt first than beginning still be risk year. of of balanced volume of the we slight cadence year. revenue. expect In we more Also, in company the last XX% we be a the half now supply Russian and At the full to occur to X% year EBITDA with of X.X% continue half perspective, revenues half Nordion, mix the XXXX. year first Sterigenics the adjusted approximately slightly to than XX% in less total anticipate

year-over-year For of Nelson to remainder volume flat and a year. the on mix expect the basis we for Labs, relatively be

large core We our services, projects we to while testing advisory expert volumes which margin for expectation improve sequential supports some improvement. lap expect in

the tax to is to And expect and interest to Capital basis. rate, in to in to expenditures EPS to range XXX continue of be weighted in fully average XX.X% XX.X%. XXX expected the $XXX million adjusted million. million. of $XXX diluted of We between $XXX income our $XXX million million Adjusted expense A range effective count the shares a $X.XX range of the range on million net in share $X.XX.

in 'XX, As This of an a is step communicated, down expect 'XX company. in to acceleration for and the flow priority cash high resulting we previously generation. free CapEx

net M&A, now not leverage year. during Our guidance does call any turn anticipate back assume still the the improve we to over and Michael. to I'll

Thank you, Jon.

XXXX. well up growth throughout Sotera As our want we prepared wrap reemphasize I remarks, to Health that positioned for remains

day service care let's of proud answers. and this point, for network customers with provides critical in health role global company is call XX in up of open our the the community. At Our the team plays excellent day facilities and this out, and questions the

The first question Citi. with from is Patrick Donnelly

talk the of Sterigenics, an few and to on that just lingering you're just little a past then bit. the XQ real talk here, overall saw maybe the we and it's a backdrop here? you're maybe been a like and time XQ Can little the Labs, kind about side? way of you on Michael, I maybe bit into volume Nelson seeing seems headwinds little as volume can what improvement. the kind what you're hearing of seeing bit know what work our you expectations It lingering quarters. you have in

on stated we our call. as consistent business, the what last we much look Patrick, at pretty with

a We progresses. as slight year expect the improvement

in or worse Nelson get things neither seeing not are Sterigenics. We

out, On do we the called continue Services in very business. side, well to Advisory we Nelson Expert

business RCA to helping well, to a having a the stabilization of because they're Nelson prepared that One has they're out expect nature. And continues in, in with to starting some and we good they're the really RCA perform called things executing of mix on very time negative seeing on challenges with we one That's and units, that's doing our We're over where brought projects bit job of are And down our in improve really customers quite which that. slow volumes. nonrepeat in remarks. the of regulators. that

in bioprocessing, continue those we'll that. outlook. it's the monitor better they're customers' -- the but of kind getting feel for started still our been We gotten some year materially is But side, Sterigenics in improvement rest categories area, the over confident has inventory to of have if slight and our as the stabilizing been sequentially, and that guide seen stable things an burnout improvements, we've prior as Hospital significantly to lab down There's relatively will, has with On burndown General worse. rate, the stabilize well. and sequentially, it's you rate ware, not some year.

overall, of year So the progresses. rest feel with the the slight improvement put where year about we the out as good we guide

generally take our But timing up about unserved on maybe that? any California up, put you're how helpful. some And so. is around the trying picked That's it expectations. a thinking litigation month time, the you frame just about Okay. this long I'm of piece then talk I kind about as sure to just ago Just way cleaner. a or know. we obviously, guess, things Can so and side, to all these a think piece we little can just

to of game. as trying early in monitoring other in a the And got I the responsive in. to to what which about similar seen very background total, Patrick, around we've related specifically not There's made what stated levels for be to It's we've XX are filed, we've the out sterilization areas been the just prepared nature X the FAQs some we that do several Vernon. jurisdictions, regulators have that in called questions Yes, lot that that information emission in There's the their years levels, remarks, they're in to in suits ones means have equivalent been these remarks other claims there. but facilities it. last come your to attention

well we focus think critical play year. that XX care, XX that. it's in health a on very a perform We products, a to of We in million really million sterilize, continue role. products role I continue to critical facility. excess and That's We in

But in this discussion. second we that through It's a we Illinois be on will to at know confident the in defense put feel point able aspect Our were we of our early trial victorious. time. work all lawyers very We that's in as showed it. litigation will and in

The Sean next RBC from is Dodge question Capital. with

much meaningful final Maybe us up on spend completing is just And changes the in you final then that? requirements. if do along are enhancements. there left in any all could NESHAP how you the time have How how was now, to those guess final give there? kind I rules you an just proposed initially? the facility what complete were with of update versus far to And on all much out

for Sean, question. Thanks, the Yes.

this to what facility next stated this really the tail we we year. on year pleased in would close with spend up has enhancements. to down we year, will will team As finishing million expect should a be this that XXXX be area. the I'm but $XX There done in into come XXXX,

demonstrated. Our here been clearly leadership has

the to several These good really industry see I next rules. feel years. want going You'll big I some are over next challenging play is that. of months very couple challenges, team and The have does. the to that out and understate the but don't

a just the making of I the have portion and through. deep-dive or a As already. either in in they've of on process Jon earlier fact, team they're U.S. got the significant it with had matter facilities we're week completed the had the a Most of in progress

of challenging, Some go and holding they're this good priority calls, things position we're leadership about jurisdictions. but not because want up really previous like their But we them, feel stated for as of though, that at. for on but I that them it's the not to our in we good about some rules remember, nature make following just regulators, permits in to here. highest feel Sean, clear, And we and fast, is up a where I've are them. The priority just

is interpret it challenges going on in There We're is overall, multiple our going around But sure rules. called exactly far how that things this rule regulators to that. to that be monitoring thought company health on the permanent take and and we're care. making understand and will something That's times to role ongoing the business, the with total XXX. method work in along we closure this this and out a pretty in we group continue to be of One play of the and perform I may the be to rule. have to customers care is we'll critical

Great. SG&A. year? of both the of anything quarter. how was kind about the lot, out should the a Is And call we there? there year-on-year Okay. maybe That and to up on in over And rate then thinking sequentially run modeling notable be SG&A one remainder a

Yes.

that trouble your I for think, modeling really normal coming I you. There's in all We've a we variable I'm some tracking to would out got in little call for numbers. merit nothing at probably concerning having coming some off-line. Sean, huge there's look that comp got but nothing need in. here We've us.

The Woodring next from with question JPMorgan. is Casey

Great.

is you margin Nelson? the Nelson. one And And term going think of for First just mid-XX% RCA Can like? to how about you're longer we that XX% looks the business trajectory that year should on your what margin if that do the dilution over this still off targeted quantify maybe just stands? in

for we Casey, that on operating the if want get rest that be It's is approaching in as morning, improving. Michael. as on you're thing. that in we the this believe will sequential We They RCA. business. the at is still details I the growth we you slightly it. make year Yes. mix, We based look and clear margins mid-XXs And to drag the see a mix long into but you continue year as this business That's term. of XX%, been to that leverage see as we We continue less, margin rate the line sure it other profile, this business well. said the progresses -- on will. to to grow get feel on is top Nelson, the won't they

in my maybe just then magnitude for Sterigenics give margin jump-off year recovery the back the a assumed? sense would And the point a of second And of then us next given . Sterigenics pricing side? you what it. half? that on can the step-up half for and here volume between in Got the follow-up, first good for should we pricing assume And be in

Sean. Thanks, Yes.

timing customers. We're volume, to you'll we're which to our we XXXX because range We criticality continuing this they to will business where per will on gets year. We for the is the Sterigenics bring of through leverage be to price We X% contracts. of of see company, as and said normally end Nordion that -- Casey. fall range, we're said we are, and business XXXX. of price middle get in typically of across X.X% our more feel be operating what to the Thanks, lower going services that because We the of . in see some high P&L. the expect that's value that

The Sergott Luke next question is Barclays. from with

for Sam This on Luke. is

of of regulations, in regulations. versus kind severity I of implementation So the just on touch the and kind wanted first happened what NESHAP to of off on expectations of timing the actually terms

kind You more kind they or if issues are take And are Sterigenics how of aware mentioned I'm have customers? wondering opportunity among share that? to of lead does . challenging. to to present that react of will an complying? you And outsourcing competitors Will that they for

Thank you. Yes.

some the became a than surround that protocols think are rule, and ultimately proposed of the rule. more timing that little I those the final the challenging monitoring

understands But lines would sure meet knew but talked one would would that where efficiencies again, feel confident overall. our feel It for those we about out, we it's of destruction call doesn't be working that. the challenging easy we're ability I We've the rule. time with to out. that to come put are make that for think at. for around mean out suspected either, some are regulators out. in we're the one about the confident industry would in be say total the to -- expectation thing area PT the what and the we call I we We that us

fascinating We're It engagements. to are year. next of hearing X players this through are to customer next on. the As broader the industry, to watch out make of that will investment. as lots over they play this going questioning smaller are far months discussions level There the going several be

this. listen, we just several us have hey, sure around guys are more these smaller exactly coming and investment bigger And with we if more that business with customers should area. capabilities we're not in we stay the know this have to doing where players maybe be saying, don't also We and

think of They understands not sure be. outcome not even I'm because as may exactly. wide ours and to challenging it's like I today rules a it range and everybody that as company So intimately may still And it's be understands still fresh close really these they how early. a

out we're months. where think made, feel have over will confident I again, that it's the that not But the final feel next we're to play CapEx we going several to with in but where see increase and I and a we've be want we investments rules these doesn't been to comply at we That do mean published. incremental confident reiterate, at. simple, material

And macro then testing, headlines EU, then expect shifting the year. headwinds, mentioned of And core on on improvement mentioned before you compliance throughout Labs the and Nelson then in main that the customers sterilization the an you've pressures X kind about volumes. also smaller you've

wondering any maybe those those of as if leading those expected, a that's then And reversal sizing headwinds Just improvements? headwinds to are well. of those are

Yes.

as then the we on some on feel of in As the little that as at But we'll Nelson improvement seeing of VC other that headwind of routine that improvement I have last the side get just core I We'll team the see medical EU, of it year that mentioned business. through the quality bit regulation. second which in that I'm proud reports. that to spent in last we're done macro quarter. funding, we're the the will quarter, Nelson through device team In sterilization progresses. the Labs will And fall what testing the second again, week. headwind be volumes increase, the EU end several we the testing, with within that a we service And quarter area. think really the days seeing through that has that expect we thing

great done facilities just the processes well of and team know, a our continues audits a As to been and really going quality you has on, but service our perform. job there, there's and FDA play lot the and very

what our year. team looking in proud Nelson good. there. we at They those. at monthly customer at SAT are of And really out So doing again went scores, just the and the looking Joe last just And NPS up is looked

some that feel see good the in is volumes drive hopeful there . of improvements year the we getting productivity the the what about and I So as continue we're to in slight team They're costs line to doing. progresses.

The question with next Brett from KeyBanc. is Fishbin

call the modalities. wanted one, there's that to off were those I on sterilization to headwinds expansions trends. of some you on touching the me near-term thoughts some making just online, industry the provide after noted on near in you X out stand updated weighing Just start available outsourced that in EO X you gamma, incremental capacity plan term? projects expansions are that's have question industry on you the the mean just I level capacity can that across capacity didn't asking inventory that different Maybe the on context, completed and coming on know are did that that but in it

side. would not hear needs tell I sterilized capacity And that medical Europe, in percent EO capacity are customers, the XX-plus we seeing the as are continuing. with that we noise the States well as continues oxide, very EO. according tight. around very to of ethylene our forget is let's It by and that anticipate FDA devices United tight in to be you take -- I'll Brett, the on you, as much Yes. as demand

of of plays going border south some EO tell U.S. for south on you, interesting how So border, the capacity and it because customers north sterilization. tight But that see just are of getting to interested and will very still the would I be in out overall, we outside is the the that do side. have the

more gamma, a available tight forward. supply generally as e-beam, we'll to it's continue a and marketplace, On on capacity still but basis, little go that say a I'd global monitor we

at next year. that that continue mentioned I carry investments really in out this that work their team Mike the doing we'll a and there Jon out drive capacity team And existing team lot and is of over are lot us, work. of more footprint. his to doing Ed we'll and For got and throughout into Sterigenics how a some and we've mentioned place year on the of

lot a work operational there's excellence. in of So there

I about We of down. you operational continues been because haven't base. how more the want talked asset lot of excellence to team sight their don't fact that and volumes focus But the have to lose a on drive to the existing that

follow-up. All right. X then And quick just

topic been some inventory biggest the around the customers, and in really Europe. around think the normalization I both has that's and U.S. Sterigenics the trends occurred some of in with

So briefly, little but a at you it to starting of more see be of rest touched end reflective the you're actual underlying see year? on -- that how color in some of of the maybe light and starting you volumes like progressing more just bit terms to tunnel that on if demand through really the

We Brett. mentioned but a see ago, over is were I Thanks, seeing do inventory still kit category, better, significantly digits year hospital, of just general time sequentially to hospital down level getting the We're the lab that minute stabilizing. period. bioprocessing general same double some prior as that,

as slightly year We expect the to improve progresses. volumes . Sterigenics

Wolfe Research. is The from Michael next with question Polark

on I topic. want to that follow up

A of I sense X quarters I appreciation X%. have for or would see disclosure the for this. better precisely discussion volume. means. on to lot a volume Sterigenics don't for I I down that mix guess mix X% a year-on-year of now, know what So like piece the

the does unit year So over unfavorable the And kind what look into that mix the so? dynamic or has been last you the year? out as sit of rest of where within

kits, in areas of several down same really We're some stated hospital around numbers big you called X% as positive. have bioprocessing particular. where of X% these Mike, in out and been us, and Labware challenges the been calls quarters. chain has we're significantly. to that were The We've that that for shortages last some for supply the over categories high, called those on down slightly our have customers. inventory pretty to stabilize been levels seeing out, tracking general we've

category. for think say that us, see I We've huge a but it's could you not meaningful a industry-wide. category that's also

seen supply well. urology slightly on stated other We're categories some seeing continue cycle last the today, We've depends reiterate to on It just get gastro in stabilize seeing we . where areas customers down. come that seen we've we're getting with as and and like I their of So those their all chain perform continue better. and it that the inventory challenges. to to But worse. call, not and

Okay. modality mix? I'm mix, say is what customer mean on to does you disclosure? again. it it I going drill category to when mix? it down mix mix? you make product you Is Is mean sterilization When that that

this about mix talking in mix. -- we're category case, We're the customer Yes. in talking

We're that asking is. you, categories. generally specific that is. we're . that's not seeing modalities, but That's to what question shifts your in giving not You're that's We're what seeing problem. where if it pressure,

these are remind of there's years, know the X the big on I and expansions, I kind go-live? follow-up, been for capacity over which kind these What's last where the over horizon the of live will of how are relative in that understand And Okay. are the go and me can just order because time how want Sterigenics expansions? you within series of they just magnitude, to to X left a magnitude, of order few they

going then mentioned, the year, question. have this X should coming up this one, will next is Thanks as then X other X quarter X early greenfields, be the late or so. year, And next. of 'XX. come live you for the end we in live And the

is you to closing remarks. questions any and time. are no gentlemen, at back Ladies there registered floor for this more The

Well, call. forward reach Thank to good at feel have upcoming to free Okay. to morning you, investor any have look of taking We many time our you the out and this you the day. conferences. questions, Jason. In to our a we meantime, if everybody thank for seeing join Bye-bye.