Sotera Health (SHC) 5 Aug 242024 Q2 Earnings call transcript

Good morning, and welcome to the Sotera Health Second Quarter 2024 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.

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

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

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

X questions. be to with opportunity to Q&A yourself portion an the margin EBITDA, income EBITDA in the call schedules we and to assumes measures company's statements. Please these projected risks materially presentation. The be A found call, company uncertainties attached of the considered comments measures will Please presentation financial can the a press release of forward-looking non-GAAP the so and financial that statement adjusted statements some limit in slide the these adjusted beginning are assisting comparable Sotera note matters The from Please forward-looking leverage discussion at the adjusted for the to update directly net cause subject everyone this During currency today, GAAP could margin, and most GAAP operator EPS, may to of the both supplemental may addressing description and differ X reconciliation for certain that in measures, segment relevant all the SEC any actual such comparisons. periods to obligation ask or of including that no slides adjusted constant in statements. net will to to The filings ratio during Health's give refer forward-looking our of today. follow-up results income, risks non-GAAP implied. and addition the and company present of and the uncertainties. be question those

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

large you Earnings Sotera thank compared the adjusted XXXX, and quarter driven slightly and X.X%. adjusted is second the a Compared increased delivered business top of of for XXXX, delivering the total we everyone, quarter higher down XXXX constant EBITDA for growth company for EBITDA in X.X% EPS several in morning, $X.XX driven by basis of announced Second to Quarter second or time growth the Health's X volume We the the each Today, XXXX, X.X% joining the period on of to volume line Good grew positive segments. quarter, second quarter in currency reporting versus segment our prior by both expense. Sterigenics, our versus revenue by first quarters. adjusted increased interest year, growth which and the revenues Call. X.X% of same

schedules XXXX. increased resulted growth. Nelson We services mix the half top of of the XX% of reporting revenues reactor , consecutive lab growth favorable for driver increase of and second volume line testing quarter was and as service third quarter delivered the the Labs, mix quarter primary its the compared business which advisory revenue to second our continue X% The in second to expect quarter sterilization increased segment versus growth the harvest business and the XXXX. second other by in XXXX. Nordion, versus of within slight our volume timing and XXXX

We versus lot routine while validation soft testing are within remains XXXX. release core our area, to core see quarter testing of improvement pleased second volume

the in business its strong Expert continued quarter. Our Advisory performance Services

completed, half reaffirming first of With XXXX year full the we our the are outlook. year

in the to range As adjusted X% a both reminder, and our XXXX. X% versus XXXX outlook revenue for growth calls of EBITDA

in safeguarding Sotera our more highlight how an Health first, But crucial minutes. health. like I'd in through go detail example global outlook role in few of will Jon to XXXX plays a a

presentation at the growth, Nelson be is is to customer with disease our Sotera role child reduce to business to the Valve, at valve how intended expected critical the patients. plays These Health. use. performed surgery Labs number to lab and another in valve role biocompatibility devices critical health in last the website. Children safety for child's second its evaluations This expandable expands of pediatric were pediatric worked for safe at device safeguarding the use body the and Labs during play team the needed posted critical innovative highlighted example quarter and Investors of is into to patients to of the heart in systems Labs first-ever we clinical tests of heart childhood. Nelson This approval least help Recently, young with earnings of with into which for medical testing is interaction their and the the experience step Autus a ensure valve valve global these FDA section X on perform throughout and testing Xx duration surgeries great Our both and replacement which pulmonary the the a devices trial. can medical Nelson in between their the ensure lives. of a implanted evaluations just a heart testing the

the will financials. through Jon Now walk us

QX margin. $X.XX decline for equates foreign second exchange from of the provide driven expense. was highlights quarter by the of $XXX by then Adjusted XXXX $X.XX $X.XX basis share of a our quarter last outlook. On second will refinancing $XXX reduction each total higher income a quarter. debt Net decline XXXX will capital EBITDA quarter Adjusted constant company XX.X% basis, representing on of net same as XXXX, then X.X% or increased Thank finish compared currency up some million. customary segment a the by a some you, to to was was leverage. basis diluted compared compared by additional on of along year million million. Adjusted structure. driven segments, quarter basis by begin on the second income income increased diluted to of $X.XX decrease quarter on consolidated X.X% interest in to X.X% as point Michael. and second by margins on were EPS second second I $X a revenues period covering million increase share This net Labs with an headwind XXXX XXXX of with the related in XXXX. The the of per XXXX, the or successful XXXX, business Nelson per recent a in deployment of details details was quarter to the $XX to updates EBITDA driven for QX of and charges consolidated to XX I from a in our

increase interest a from XXXX last interest of $XX Our rate the income reduced expense same $XX period hedges favorable million, by almost was quarter The the an million versus that benefit interest increase matured. and was year. for second reduced driven

closer let's take at Now segment the performances. a look

Nordion's mix, compared segment from and period second same the by partially well favorable X.X% Segment driven XXX mix foreign year. of of volume million, the favorable QX $XX as For segment increased inflation. Nordion growth foreign benefit. the of of were were remained currency These income segment income we improvement compared to income driven income The income quarter, expected. income based by volume and increase the $XX rates in XXXX. XX.X% partially currency points Sterigenics by by Revenue harvest points. as was partially to increased an delivered as and pricing. income basis pricing to the last changes million cobalt-XX X.X% exchange margin to a timing and benefit favorable offset driven primarily X.X% to XX.X% of X.X%. revenue as on unfavorable as pricing and favorable QX rates revenue compared revenue prior XX.X% offset increase second XX.X% million, impact was flat well by pricing XXX driven segment increased margins $XXX well impact Segment the mix compared volume well favorable points. Nordion's revenue of million the growth of X.X% quarter growth was schedules XX in as from volume quarter to exchange of XX% as mix to by XXXX. by by offset negative basis Segment as $XX while margin as as year a of was to to and increased while of basis

a points volume Labs, pricing the $XX of as Nelson of The benefit improved the basis and to the quarter. currency foreign X.X%. quarter by income million generation quarter out decreased now points. Nelson basis of balance by but favorable sequentially, and partially segment to by These by the quarter second This offset Labs as will and by we by the XXXX. X% XX compared income to first mix higher costs, revenue our mix second second of well cash quarter offset $XX million to which earnings volume by For XX% to quarter were XXXX was XXXX as decline by points margins X% compared labor second XXXX of with revenue favorable to during driven was growth as prior well XXX expectations in pricing. Segment to increased XXXX. basis is XXX XX% compared the headwinds laid capital turn driven consistent call. I year contracted of sheet, impact partially deployment.

completing billion maturities $X.X this our strengthened by total we we company's to have expected quarter, expense sheet reduced balance structure. closed the refinancing our interest transaction, $X from During XXXX by XXXX. debt By a XXXX of million and approximately on extending

market reception our of to strength pleased We speaks with this the we the are financing, businesses. believe which very strong for

healthy. Sotera Health's remains liquidity position

was our EO leverage which million on cash a the to free generate As year. Sterigenics flow of net of we half revolving totaled is X.Xx, $XX as of development as full on flow U.S. as of well Nordion's available range the $XXX capacity facility to cobalt expect expansions, capacity cash of which XXXX, quarter we X the of available positive $XXX million line previously, expenditures continue for million as X target enhancements $XXX we focus we've for programs. Free of liquidity, the first in of end of and unrestricted Xx. million ratio the year finished of our quarter. completing had Capital our the within positive QX credit. stated included cash We long-term And the with to

our to XXXX, EBITDA reaffirming year are adjusted X%. mentioned, in the To expect recap, range of full we for to we and grow outlook. XXXX total Michael revenues As X%

with We margins year. XX%. In versus remainder for Sterigenics, year approaching the throughout volume slight company of the sequentially year margins improve anticipate growth EBITDA to mix XXXX total expect the adjusted full we

XX% year-over-year single-digit revenue year upper Nordion, the growth expect half second to with the For full the quarter. occur more in revenue in slightly year we of than third of

half. expect For first we second Nelson to Labs, to be revenue similar half the

versus improve this year in large second to Expert margins income projects segment the quarter Services. expect complete also some We Advisory as we of

We full continue to expect XX%. year rates approach to margin

$XXX after communicated debt million. $XXX interest we expense we our between million refinancing, As and expect

tax effective continues to our $X.XX net to income in continues to be to range on the rate EPS range the be $X.XX. in Adjusted adjusted of XX.X%. of Our XX.X%

range count million million diluted capital basis. to weighted of range. a share shares fully in expect We $XXX expenditures XXX the the to a now expect on finish of end at $XXX average million million XXX We to lower the

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

assumes quarter remain for the rates the at of end the second year. of Our remainder exchange constant guidance the foreign

year-over-year be to pronounced basis. continue be to a third headwind FX expect This quarter. a headwind the to on more is we in such, expected As

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

Board our moment that XXXX. say would Overall, to to in quarter, with take Thank operator, in of and stakeholders we Sotera we answers. Corporation the Directors. very medical and we're a call well. At of half experience to Chief which performance Prior Executive device the and point, to to looking us will let's Officer industry, second questions and commercial like open our Q&A, serve Chris for excited Simon, the are you, to strategic Haemonetics Health and Jon. of welcome believe we're Christopher moving extensive pleased forward second this the brings President I to

from Dave comes The Instructions] question first Jefferies. with Windley [Operator

expecting the it commented volume through you seemed the and supports could you you're year. the on perhaps amounts noticed Sterigenics, markets on and And continue modest like to how volume in we that Michael, continued of growth. you're in that what seeing elaborate to return sounds growth that end

thanks David, question. Yes. your for Yes.

call, first had improving in noted, that with they've it half volume positive year. And of the and the second for of Sterigenics came half stabilization improvement with it's our quarter as As see had we'll improvement a customers overall, see it's we you to we flat, -- continue we and volumes mentioned with we to in expectations expectations, although mix with categories nice to that in had volume base, seeing levels with see and the our the continue slightly customer last all in the of straight the continue in the Sterigenics. was first -- our in several not inventory our line quarters quarter be line in that we're consistent which encouraged all year,

in we're So the the quarter. performance happy with

Could versus difference hospital bio sciences observed life trends the in between, of you general market on add or kind ops market? say,

see if -- seeing Overall, good that we've did little mentioned as continues in marketplace of recovery sequential we although to with would their the a stabilize. a big they're I the customer feel category Bioprocessing, of as expectations is outlier for follow exception an improvement past, the bit I large in comments, the Yes. categories. well. you hospital, going we slower us, in some one forward generally those about not general the say it think But

you out for last more Okay. question just -- little on of inflation I on an if as stability on -- a the labor then and you offset. the environment costs force? give your called color us And labor wondered my could

called increases. the and out just else -- we side, Nelson add merit particular, anything Steri In Yes. on... the -- of predominantly to increases merit Jon that's

great the in get workforce work it's place and.. think doing to pretty the right stable. I They're No,

job. the Yes. done Jon team and nice has a a

employee The you Nelson score continue promoter is stabilizing, been another The force we growth. had quarter labor top actually turnover Net As line saw good. good are significantly. there. is yet, and results has and stabilizing ideal see isn't of but strong mix improvement to survey down

Nelson on we're and encouraged So the continues. that we're We're seeing side validation by seeing what hopefully volume.

forward. We continue to move

great. that's So

KeyBanc. question Brett The with Fishbin from comes next

to Nelson staying Labs at wanted top Just here. follow on up on

third You the encouraging mentioned to consecutive of was which growth, quarter see.

you're most what areas So upside like curious perspective? seeing really volume a just the from

Yes, Brett, thanks.

As calls, growth couple we on the having the optimistic do a business Where is of to these mentioned, slowing the of nice more some year-over-year we'll a as testing activity the as sluggish, are slow it's the growth, improvements had Advisory testing. we've on we that towards the throughout progresses they Services you the growth expect because well, although continues mentioned big basis validation, Routine complex year Expert end back down that a last go times into has the year. of nice there. we as seeing in year little been but we're see half

felt Maybe just generally broadly a one for bit intact. board, the of step right. then All follow-up. guidance And left across at it was expectations us, was a ahead taking least back QX really of like but little

you of outlook of left unchanged into and baked with reasons why there's of if level some primary just conservatism full just So rest the the that's a on framing, whether that the year? touch you maybe the could year

just Yes. see as that X% would our was Brett, line in half that the the to the guidance volumes top in well X% which say growth. improvements still expectations. with reaffirming in And quarter second I hopeful back gradual line we're of we'll year, is of our the

Donnelly comes Citi. next with Patrick The question from

Jon. you, for one maybe Just

about of right we Can trending talk It is the labor businesses? things the like direction backdrop half moving just in feels the sounds side. are as there. in margin pieces the the second It showing think environment the signs on reasonable a about in and margin the Just like here of the you terms the ramp early volumes different recovery.

And launching just way I high the talk helpful. to maybe just it. level to a through think at for right about want then just So a point 'XX, be would

call us the for continue seeing margins Nelson large that has than business Thanks target. we you the The improvement a really those would in the little we're as very is lower biggest I on but Yes. mean sequentially, the happy heard healthy to right mix the now thing Yes. in question. margins, the part. be today

see margins be company, margin with entire normal full we said, other launching we margin As the volume. year in we'd of kind expect to basis XX% approach for for businesses improving Nelson. your see of those a point which on evolution in We And that year. the next would

year, be just Okay. That's continue then of to And the comes could remind we're in would much the see the going on Nice how and end at helpful? flow what helpful. maybe years look the kind the down. Can staying where and just magnitude, maybe CapEx that be just shifting you I to then of leverage financials. out cash this again, come to of the down, down the guess like us with

on flow year we Yes. improvement Thanks, leverage, I out on I here to we're operate leverage modest I and pretty process, sheet got we as the on overall, very expect driving balance disciplined as overall guess this focused performance. continue CapEx finish and sit We've first, overall Patrick. free would the cash on say, here. mean prior and And year. a the versus I we Michael

And end to that number able the the to we're the push lower we're so range. of CapEx pleased

drive positive expect and the that CapEx drive flow the to we and some of come to CapEx -- complete year, accelerate as next free these into we years continue We expect couple lower. of cash as for programs we

around since is XXXX outliers for then facility EO which, NESHAP, on right the now like cycle done we happening Remember, expansions. ]. CapEx have driving Nordion this for or we development, we're again, cobalt really Sterigenics We this -- are that CapEx [ And general something got investment haven't XXXX. big an outsized the Patrick as Remember, the Michael. in the capacity some

'XX just the we as and 'XX, in down see an 'XX 'XX, elevated as mentioned that we've referenced. past we're level, stepping just Jon at in and So

comes question from Next with Woodring Casey JPMorgan.

quarter that I visibility half, guess a XQ be and walk to of between I of a XX%. think the then split the of XQ a Nordion us it's can curious revenue the and rate, Nordion. if And just what first, for bit through you second in the previously now sense XX% maybe on looks the maybe from in expected give you could back growth just segment there? had performance you forward half pull

in do revenue Yes. year come total I We greater relatively is the they came expected. the just second XX% I to just say than Michael. would a as of half. -- say slightly this in would expect

One Russia didn't the out that of a XXXX. point we all that in-house need call we we Cobalt, have for

we at pretty the look side feel with good So about we well as good the Nordion that it, well overall, as we about visibility Casey. see But piece. we when it on feel where

Michael, your part question. may catch have didn't second it. addressed And your of I

Just split full that and back between year the in Nordion. XQ XX% XQ half, of in

referenced that would we Yes. balance we Yes, expect growth single-digit be in upper in in QX, QX the QX. and revenue

it. Got

on Okay. you'll thinking the enter normalized market you're there. of the Do Or how just kind destocking forward environment end and that And outlook the a then year, through of on the fully of just kind by on you there noise the Sterigenics, curious work timing. expect curious in 'XX? about

be that Yes. We it's would hopeful stabilized.

to We in inventory would the unit the be see levels to into continue volumes Casey. situated 'XX, We going perform. markets pretty well end stabilizing continue

me in queue. then one the and back for maybe And just Okay. hop I'll last quickly

California. bit a that little to litigation new now had Just the more in time you've digest

of any like what will sort the there. you line to time resolution of if curious sense Just have look

say count last litigation don't see was would on through number near I California, working with we only there's activity case in would it the in the We're in as consistent activities, the just we anything spoke. of time case California. as I but trial management new front. no, is -- Casey, nothing far term really Yes. just where

Okay?

The next Barclays.. question comes from Luke Sergott with

litigation. ] Sam on L.A. relevant [ Atlanta on just know Any trial you Luke. is I This for on touched updates dates? on the

Georgia, there. I materially just say would the nothing changing On front, there's for litigation

September there X expect phases since of start the little either don't -- Illinois, counts XXXX. with -- any go I XXXX to causation II. early number expect but of in until had significant litigation going stages bit those on that to -- We to and in a Phase remember, the start I of of there's Phase last our of in rulings changes before expect on case materially into of to Phase update. 'XX there's those don't we starting activity, We We've increase

of businesses Got example. or you. some about be early mid you coming from typically kind mentioned asking And some could previously of it to -- how Nelson the SMID recession customers, us of And type there might in ] respond macro you've are this, -- fears just remind increasing that various environment? landing headwinds be pressures but hard for in on [ a

I have Yes. every say performed Thanks year. question. for single businesses the would just these

won't XXXX, we've really generation. business had growth by Healthcare. broader of business, cash [ As the -- in single Toronto ability to doesn't weather are talked every through the in since margins, model impacted we our is stability Strong year That a ] about strong flow get unique we confident especially we've but revenue really mean macro, and

cash So create coming side, kind performer, But in the on This Sotera unstable forward demand a of business did the is had great we through -- and flow. great we COVID that that down. is -- activities there. Health to and had continue some that environment see deliver strong growth we will that a remember, up going resignation and look surge expect business and storms strong many We we a to weather continue total. overall, then in at with Nelson

question Bednar Piper Sandler. next comes The Jason from with

on start pricing wanted side. I the to

pricing also something maybe but then today? And your previously picture it, to see. of above have the sorry pricing and would X.X%. referenced historical still of pre-pandemic, continue I good of the your inflation. outlook a were missed lower get which across closer outlook bigger we if quarter think lot at and to moved meaningfully to last Maybe about I the is perspective your just received that to through have ability in still pricing kind expectation We've end to be good I'm well the their business range, but where still And obviously pressures players like inflationary your push to sitting be your for to you're market. back as you seen assumption talk is

call Yes, believe, around the Nelson Nordion get on Michael. would company, just the typically end I that. that, this the past, Nordion's is was in Across the X.X% our that price. end low business. I high is X% say the of of we to on

out in the we year think we last year, price in in lower Nordion. the I the outperformed, up what total called earlier this we year the Overall, is company. the Nordion of to were timing range it for X% end be the because expect quarter, in

continue in to We expect to for X% to the business the year. the X.X% remainder the of traditional form

helpful. wanted and They comps tougher the follow here there. up get to in the on then little Okay. year. a Sterigenics just back And bit half That's margin the of

comment how see more had I know that Sterigenics, in upon on you we seeing half, of will which to second top dependent coming in in improving here line from talked improvement margin in can be quarter? that segment projects that much the that you you Nelson second But about committed being the You some off, good. do saw performance directly you what some are growth

Yes. Thanks for question. the

to us. to call, Sterigenics. back margins the margin be good said earlier on leverage the continue really seen Traditionally, has I in we've the think half, some healthy I that

back some stronger the with stronger half revenues and margins. seen we've So

But revenues, the we a margins margin. today see are stronger healthy. some again, really, could little bit see we Assuming really stronger

would quarter one margin leverage mind, in I say backdrop you just just our numbers, through. the have typically coming for Yes. there where less point And the is in first keep the the quarter lowest year-to-date

this look in business. great look we -- healthy it called So other that's Labs, in have we the strong out seen at overall, businesses, position we marketplace. a when the very but typically Nelson we margins we've in what But at X

margins say stronger half, in the second first clarify, half the versus to Just year-over-year? is when you sequentially that stronger or

First half.

with Research. Michael comes The next question Wolfe from Polark

the of that trends happen I'm that expansion did in capacity in is store volume -- extent in volume was And had filling or I change down as I X% did from capacity of expected? or going I what it that commitment to one you your X%. X curious, Sterigenics. on of one brownfield, capacity? expansions, quarter. versus in to my mix that start in them Sterigenics light do believe, notes start last a was on kind driving X% to First see your the in trend now same-store going Sterigenics, how the quarters, kind X%, new we're guess and expanding up reframed, of second

for Yes. thanks the question. Mike,

So actually that We on second quarter. are not delayed impacted -- has quarter that. the expansion slightly

that by of delay. expect We to up type come -- normal the construction end the year

not the good any guide So we quarter. did have that in from second

the recovery routine If volume testing like Helpful. foreshadow recovery the in follow-up routine testing a volumes it the the in on at Nelson? weak. And in then Nelson, is does sounds at that's still To all? Sterigenics extent what

X strong linked year that are hope the correlation would the We as in those progresses.

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

thank you, and everybody, Good time Okay. for today. morning, your

in our is outlook solid very well going company can you we We're second expected. had positioned. confident the and forward, as see, quarter As a

you and thank questions attention for to morning, want this for a I support and all So your you. continued great and your Bye-bye. day. have Thank

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

disconnect. You now may