Q4 2022 Sotera Health Co Earnings Call
Good morning, and welcome to the show Tara Health Fourthquarter, Twenty-twenty tooth conference call.
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Good morning, and thank you welcome to sit Tara how fourth quarter of 2022 results call. You can find today's press release and accompanying supplemental slides on the investors section of our website after Tara health Dot com.
This webcast is being recorded in a replay will be available in the investors section of the site Tara Health Web site on the call with me today, our Chief Chairman and Chief Executive Officer of Michael Pietrus, an interim Chief financial officer of microbial during the call. Some of our comments maybe consider forward looking statements that matters addressing these statements are sub.
Extra risks and uncertainties that could cause actual results to differ materially from those projected or implied please.
Please refer to as a terror house S. SEC filings in the foreign looking statements lied at the beginning of this presentation for a description of these risks and uncertainties.
The company assumes no obligation to update any such forward looking statements. Please note that during the discussion today the company will present, both GAAP and non-GAAP financial measures, including adjusted EBITDA adjust ETS net dot net leverage ratio in constant currency comparisons a reconciliation of gaps non-GAAP measures for.
All relevant periods may be found in the schedules attached to the company's press release and in a supplemental slides the operator will be assisting with a Q and a portion of the call today. Please limit yourself to one question and one follow up so that we can try and give everyone an opportunity to ask questions. As always if you have any questions posed to call feel free.
To reach out to me in the industrial relations team I'll now turn the call over to say Tara Health Chairman and C. E O Michael features.
Good morning, everyone and welcome to city Tara helps fourth quarter 2022 earnings call.
This morning, we reported another quarter of year over year top and bottom line growth, we've achieved both top and bottom line growth in each quarter since becoming a public company in November of 2020, which speaks of strength and resiliency of our business model.
Consistent my commentary during our third quarter each call, while we see improving certain areas of the broader macro environment. Some headwind still exist safeguarding global health remains our mission is we execute them delivering growth and profitability for our shareholders.
Michael Bill will provide more detail on trial on the financial results in a moment, but first I want to highlight a few items from our fourth quarter and full year results.
We reported total revenue growth of 4.3 per cent and adjusted EBITDA growth of 4% compared to the fourth quarter of 2021, we.
We delivered adjusted EPS of twenty-five cents for the quarter, which is a two cent increase over the same period last year.
For the full year revenue grew by 7.8% and adjusted EBITDA grew by 5.2% compared to the prior year I'm proud that we have extended our streak of annual revenue growth, which we have achieved since 2005, when we started tracking it.
Let me know shift to cover each of the business shouldn't results.
Stare Jenex, our largest reporting segment delivered 7.6% top line growth for the quarter the segments of solid demand across all modalities for the full year stare Jaenisch delivered 9.6% revenue growth.
Consistent with their stare giant strategy, we are making significant investments and additional capacity across our global network.
Currently stare Jenks is progressing with seven capacity expanses across all major geography modalities.
We're also advancing R E O a mission control enhancements across our North American facilities. These industry, leading enhancements underscore ongoing commitment to ensure best in class operations for our employees customers and the communities in which we operate.
Nordion or other reporting segment within the sterilization services business had a good year at the beginning of 2022, we indicated that a total disruption of cobalt 60 supply from Russia could result in in up to three per cent impact on total sutera health revenues I'm pleased to say that the northern team has done an exceptional job now.
Getting this geopolitical risk in 2022.
And avoided the potential three per cent revenue risk from Russian supplied cobalt 60.
As we consistently message northern <unk> revenues are lumpy do the timing of cobalt 60 harvest supplies schedules.
As expected for the quarter <unk> revenue declined by 71%, which was driven by the timing of cobalt 60 harvest schedules.
However, when viewed on a longer term basis <unk> revenue stream is very consistent for the year Northern revenues were up 9.3%.
2022 was a challenging year for Nelson Labs are lab testing advisory service business fourth quarter of 2022 revenue grew by almost 3% compared with compared with the same period in the prior year, while revenues grew approximately 2% year over year or 4.4% on a constant currency Bay.
Axis I'm pleased with the Nelson team as he navigated through labor and supply chain challenges.
In 2022.
Overall 2022 was a good year for <unk>, considering the uncertainty driven by macro economic pressures in geopolitical events.
As projected we deployed the greatest amount of capital in the company's history, the fund capacity expansions cobalt development.
D O emission control enhancements in various operational excellence projects across each business. This level of investment species, the company's commitment to growth.
Additionally, our balance sheet ended the year in a strong position what net leveraged finishing at $3 two times well within the long term range of two to four types.
S communicated press release last week said Tara health clothes on the issuance of a $500 million term loan b. The proceeds of this incremental debt financing along with cash in hand will be used to fund the $408 million ethylene oxide litigation settlement in Cook County, Illinois pain.
Paying off the existing borrowings under a revolving credit facility to further enhance liquidity and for other general corporate purposes.
We are pleased at this issuance received such very positive interest from the market and puts us in a strong liquidity position moving forward.
Although this new borrowing will initially increase our net leverage ratio slightly above four times, we expect net leverage to settle within our long term target range of two to four times by the end of 2023.
Asked for the Illinois, iOS settlement the plaintiffs Executive Committee reports that the process is on track for participation rates to return to be determined by late April or early may we are scheduled the funded escrow account for a settlement on may 1st and subject to participation by substantially all the eligible claimants.
We expect the settlement to be completed and to settle cases to be dismissed by late July early August .
I also want to take a moment to highlight the progress made our ESG initiatives this past year.
Why reflect on how far we've come in the past year I am proud of our team's accomplishments as part of our IPO. The board establish ese oversight with our dining in corporate governance Committee.
<unk> Stablish, an internal cross functional ESG Committee, which reports into me and pointed to seize and senior executives as co chairs.
Hell believes identification implementation <unk> initiatives consistent with our overall business strategy.
During 2022, we achieved numerous corporate responsibility accomplishments I want to highlight a few of the specific activities.
And the environment area, we established consistent environmental health and safety metrics across our global businesses.
We launched.
New global EHS policy at an incremental EHS leadership engaged a third party software solution to assist in establishing baseline EHS metrics. In addition, we continue our investment in state of the art emission controls our facilities.
With respect to human capital culture in our communities, we completed our annual global employee engagement survey with 84% participation. We launched sutera Health's Women's network leveraging that worked on in Nelson Labs on women's leadership development.
And expanding its impact across the company.
Additionally, we develop a new career website and completed our leading for our future leadership development program, which had the project team focused on ESG activities and.
2022, we also launched a new corporate responsibility website and publish our first corporate responsibility report.
In addition to the operational and financial performance are ESG initiatives combined to make an impressive and very busy year for the team. We look forward to reporting on her ESG progress in future calls.
As we look forward to 2023.
We will continue to focus on our priorities a few of these are investing for organic growth, which includes adding capacity enhancing our infrastructure investing cobalt development programs will continue to invest in upgrades to our north American Eagle emission control systems, we remain committed to our focus on operational excellence, which involves improving customer service occur.
Ross R businesses, we will continue to be disciplined with capital while deleveraging our balance sheet during the course of the year.
Today, we also provide their initial outlook for 2023 for the <unk>.
Full year 2023, we expect total revenues in the range of 1055 to one point O.
Oh, nine $1 billion, which represents.
Girls were approximately 5% to 9%.
Adjusted EBITDA in the range of $530 million to $550 million, resulting in growth of approximately 5% to 9%.
And adjusted EPS in the range of 78 to 86.
Representing a decline of 10% to 19%, which is driven by increased interest expense and expected increase in our adjusted net income tax rate.
Now Michael Bill will take us through the financials in more depth.
Thank you Michael well first cover the fourth quarter of 2022 highlights on a consolidated basis and then provide some details on each of the business segments, along with updates on capital deployment and leverage of conclude with some additional details around the 2023 outlook.
On a consolidated told company basis fourth quarter revenues grew by $4, 3% as compared to the same period last year to $252 million.
This equates to 7.2% growth on a constant currency basis.
Dusted EBITDA grew by 4% from the fourth quarter 2000 $21 million to $130 million.
Adjusted EBITDA margins, where 61.5% represented a slight decline from fourth quarter of 2021 levels.
Our operating performance drove adjusted EPS of 25 and.
An increase of <unk> from the fourth quarter of 2021.
Fourth quarter of 2022.
That loss of $320 million or $1 14 per diluted share, which includes a 408 million dollar legal reserve recorded in the quarter compared to net income of $36 million or $1.13 per diluted share in the fourth quarter of 2021.
This legal reserve is related to the binding terms fees to settle the ethylene oxide claims in Cook County, Illinois.
Ah reported interest expense of $32 million is burdened by a mark to market loss uncertain outstanding interest rate hedges for.
For which we did not elect hedge accounting.
Remove the effect of that loss and are adjusted earnings per share.
Excluding this loss fourthquarter interest expense was approximately $25 million.
Let's take a closer look at our segment performances.
And the fourth quarter Stare Jenex delivered another strong quarter with approximately 8% revenue growth.
$162 million and 7% segment income growth to $89 million as.
As compared to the fourth quarter of last year.
On a constant currency basis.
<unk> grew revenues over 10% compared to the fourth quarter of last year.
Revenue growth drivers for the fourth quarter included favorable pricing of five 6%.
[noise] favorable volume and mix of almost 5%.
Partially offset by unfavorable changes in foreign currency exchange rates of 2.6%.
Compared to the fourth quarter of 2021.
Segment income Margaret margins contracted by 20 basis points to $55, 1%.
Driven by the timing of pricing actions versus realized inflation.
Sequentially margins did improve in each quarter of 2022.
<unk> fourth quarter revenue declined by approximately 7% to $34 million.
Compared to the fourth quarter of 2021, which is driven by the timing of cobalt 60 supply schedules.
You're already on segment income declined by more than 5% to $20 million compared to the same period last year.
On a constant currency basis, Nordea as fourth quarter revenue declined by 3% versus the same period last year.
<unk> revenue change versus the fourth quarter of 2021 was driven by volume decline of nearly 14%.
Headwinds associated with changes in foreign currency exchange rates of over 4% offside offset by favorable pricing 11%.
<unk> <unk> 59, 5%.
Hundred 30 basis point improvement from fourth quarter of 2021 margin levels, which is driven by pricing contributions partially offset by mix.
Pronouncement labs, the fourth quarter of 2022 revenue improved 2.7% to $56 million compared to the fourth quarter of 2021.
Segment income of $20 million was less than 1% favorable versus fourth quarter 2021.
On a constant currency basis, Nelson labs grew revenues five 3% compared to the fourth quarter of last year.
Revenue growth for the fourth quarter of 2022 is impacted by a 5.5% benefit from pricing, partially offset by headwinds associated with changes in foreign currency exchange rates of 2.6%.
Fourth quarter, 2022 margins, where Nelson labs <unk>.
Contracted to 36, 3% or.
Where approximately 90 basis points versus the fourth quarter of 2021 margin levels.
This decline was driven by inflation increased staffing in anticipation of incremental volume parks.
Partially offset by pricing improvements.
Even though there was a margin declined versus the same quarter last year fourth quarter of 2022 was the highest margin rate for the year is margin expanded 180 basis points compared to the third quarter.
Tried to provide and highlights related to capital deployment net leverage that will like to touch base on cash generation.
Due to the critical nature of the services, we offer and the strength of our business model, we generated $278 million of operating cash flow during 2022.
This robust cashflow allows us to fund operating needs to invest for future growth.
As of December 31, 2000, 2002, we had $396 million in cash and over $475 million of available liquidity and our net leverage fell to three two times of adjusted EBITDA.
November we borrowed $200 million on a revolving line of credit to enhance liquidity in connection with litigation needs, which was held as cash on the balance sheet at year end.
This revolt, we're borrowing was paid off during the first quarter of 2023 with cash on hand, and proceeds from the recent $500 million term loan financing, which we are borrowing primarily to fund the Illinois Yo litigation settlement.
Our capex for fourth quarter, and full year, 2022 was $72 million and $182 million respectively.
Both capex and facility enhancements drove the increase investment levels for 2022.
Inflationary impacts as well as some opportunistic spin.
For 2023 drove our investments above the 170 million dollar upper end of our 2022 guidance range.
Finally wanted to provide additional color around our 2023 outlook.
I'll start with a quantitative summary, and finished with our assumptions.
For full year 2023, we expect total revenues will be in the range of 1055 to one point O nine O $1 billion represented an annual growth rate of 5% to 9%.
Dusted EBITDA will be in a range of $530 million to $550 million also represented an annual growth rate of 5% to 9%.
Effective tax rate applicable to adjusted net income in the range of 30% to 33%. So I want to provide some color on due to the increase compared to the prior year right.
As many as you may recall 2017 U S tax reform provided for limitations on deductibility of interest.
He was tax reform provided for a change in 2022, whereby deductibility with you further limited.
This combined with higher interest expense due to increasing interest rates along with the large carryforwards of non-deductible interest from prior years as.
Has resulted in a larger valuation allowance and a higher effective tax rates for 2000 2003.
Dusted East P. S is expected to be in the range of 78.
86%.
This represents a decline of 10% to 19%, which is primarily driven by increased interest expense.
As well as the increase tax rate.
Fully diluted share count the range of 283 to 285 million shares on a weighted average basis.
Capital expenditures to be in the range of $185 million to $215 million, representing continued elevated investments for growth as we continue to fund capacity expansions of both stare at Yandex, and Nelson labs, as well as invest in eel emission enhancements in North America.
And cobalt development projects at Nordea.
But the closing of the $500 million term loan B R leverage will increase slightly above our long term stated target range of two to four times a.
A year and 2023, we expect to be back within this range.
From a qualitative standpoint or assumptions are as follows.
We are anticipating labor market and inflationary pressures to continue into 2023.
As well as some continued indirect impact from supply chain disruptions.
Expect that Russia will continue to face more sanctions.
As the war in Ukraine heads into its second year.
But we believe Nordion will continue to be able to navigate the challenges.
<unk> around the world understand the importance of cobalt 60 produced in Russia to the global healthcare system.
Michael will touch on the risk associated with the <unk> of cobalt 60 supply from Russia in a minute.
As we look at the cadence of quarterly reporting a comment briefly on each business unit.
We expect our largest and most consistent business there <unk> to have lower volumes and margins in the first quarter is typical and will realized increased volumes and margin expansion through the rest of the year.
Keeping with a typical cadence the phasing of northern <unk> financial performance is driven in large part by harvests and shipping schedules for cobalt 60.
2023 will be particularly lumpy is almost all of the first half of 2023 revenues and segment income will occur in the second quarter.
While approximately 75% of Naughty on revenues and 80% of segment income more we realized in the back half of the year.
Returning to a pre pandemic quarterly cadence.
Alcid labs expected to have lower margins in the first quarter of 2023 <unk>.
Expected to expand margins through the year.
We expect margins climbed back to normal run rate levels in the mid to high thirties in the back half of the year.
From a foreign currency standpoint, our guidance assumes that year and 2022 rates.
Main relatively constant for the year.
From a capital deployment standpoint, we continued to prioritize growth initiatives deleveraging, our balance sheet and long term strategic acquisitions we.
We do not assume any acquisitions and our guidance.
I will now turn the call back over to you Michael.
Thanks, Michael prior to transition the question and answer session I would like to address the topic of nerdy on sourcing of cobalt 60 from Russia, which had been previously discussed.
<unk> has always had an outreach program to ensure the government and regulators around the globe understand understand the importance of cobalt 60 produced in Russia to the health care community is approximately 30% of the global medical devices are sterilize using gamma radiation.
We continue to engage in regular dialogue with these officials and are carefully monitoring the geopolitical situation to protect the supply of cobalt 60 at the present time, we continue to receive supply of cobalt 60 from Russia and believe that will be able to continue to procure cobalt 60 from Russia.
R 2000 twenty-three guidance is based on our current understanding of previously announced sanctions by the United States, The United Kingdom, Canada, and the European Union that said there is no way to predict with certainty how Vincent sanctions and cast against Russia long fold into short mid or long term.
If there was a full disruption of cobalt 60 supply from Russia, We would expect an impact of between zero and 3% of total Sutera Health 2023 revenue. This is identical to the guidance originally provided in 2022 and for which we experienced no impact.
Before transitioning into the Q&A session I want to reemphasize the sitar health remains in a strong position for both growth on the top and bottom line in 2023 overall, we feel very good about the company's current and future prospects at this point.
Operator, let's open the call for Q&A.
We will now begin the question and answer session.
To ask a question you May press start and why your telephone keypad.
Using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question please press star them too.
At this time, we will pause momentarily to some bar roster.
My first question will come from Sean Dodge with RBC capital markets. He may not go ahead.
Yeah.
Hi, good morning, all.
On the guidance.
Michael you've made the point he does unusually second second have waited. It can you just walk through a little more on the visibility of having to that I I guess I get with Nordea and you had the harvesting schedule sent out pretty specifically.
When that will come through but on.
Cirrhogenic Nelson the expected rant, there purely from ramping volumes or is there some pricing actions that you've taken that will lag that will that will flow through more in the back half or is it also new capacity that's opening during the year.
And just give him one on what's driving the heavy second equity, but yeah. Okay. Great just our comments on second half Sean on the 75% of revenue in 80% of segment income was relative to northern yawn.
You will see a steady strong and consistent business for <unk> throughout the year volumes.
<unk> will increase margins could you know as.
As I stated my remarks margins.
Margins, a little software first court typically but that will continue to progress throughout the year on the Nelson lab side.
You'll see you'll see growth as a year progresses in.
Getting from first decided the first quarter's always typically a little lighter, but second third and fourth quarter will be will be good good quarters and good volumes.
Yes to answer your question on pricing.
As we have stated in the past some of our contracts renewed different points. During the course of the year and those will start to roll out a roll through as the year progresses as well, but overall, our largest business stare Janet cause I just Wanna make sure you understand we'll have steady growth and year over year throughout the year.
Okay, Great and then within Nordion, you said again as a whole revenue pretty concentrated in the second half of the year. The portion that is expected to come from Russia. When in the year is is that expected to happen and.
It's based on the visibility having a harvesting scheduled.
Russia contribute pretty evenly over the course of the year or is there a particular quarter or two where where that portion of the supply is particularly concentrated yeah.
Yeah.
I don't recall exactly by quarter, the canes on that but I can tell you that's not the big driver of what's going on in the second half that we referenced if that's your question that's more about some other supply harvest schedule timing.
It's not a Russian.
Yeah.
Okay.
Thank you again.
Thank you Sean.
Our next question will come from Patrick Donnelly with city.
May not go ahead.
Thank you for taking the questions Michael maybe just one on the litigation side, you know nice to see kind of the settlement in Illinois can you just talk about I guess the process. There in terms of the options just in terms of trying to trying to figure out the timeline and then beyond that.
Maybe just a quick update on how we should think about.
The rest of the litigation just want to make sure. We have we have all kinds of the catalysts set in our minds beyond this one and if this changes your view of some of the other other outstanding.
Litigation.
So Patrick Illinois in the settlement is for $408 million the plane as representatives have committed that they would.
At 98.6% participation rate. So if you do the math.
12 people have the ability to opt out so the process high level of how it works is they recently appointed a claims administrator, we have nothing to do with that process. That's they hire claims administrator the claims administrator allocates.
The money to the plaintiffs and then they come back to US probably late April early may.
And then we have 30 days after I'm sorry, after the initial numbers and go out to the plans to planes have 30 days to evaluated it will come to us in late April early may we'll be able to.
Evaluated we think that this gets closed out sometime late July early August we have to fund the $408 million into escrow count on may 1st sort of high level. That's how it works the for what they are calling a trial plaintiffs commuter computer <unk>.
<unk> and <unk> have already signed and committed.
And their numbers.
So that's Illinois.
On the other on the other litigation.
Just to be clear on new Mexico. There is no personal injury cases in new Mexico, and and Georgia.
There's one personal injury case that will come up in 2023 and.
And the rest of them I have a pretty extended timeline, because georgia is going to be a different approach than what you saw in Illinois.
GA. The first thing they have to do is go through a phase one to prove general causation and then after that it goes to the phase two for specific causation, a very different approach that was taken in Illinois.
Understood Okay, Thanks and.
And then maybe just a quick one on the margin side, you know Nelson obviously been tracking those margins here last couple of quarters sounds like.
Get back to the normal run right in the second half can you just talk about that ramp is it just kind of a staffing pressures volumes normalizing what gets you there and then just a quick one.
Interest expense I didn't get the exact number for 23 I might've missed that so if you have that that'd be great.
Okay I'll take the margin questions and then microbial could address questions on interest so on the on the Nelson margin side, if you look at it.
The last three quarters of kind of honed in on that mid thirties, right 36, 35 kind of range.
We had a good improvement fourthquarter over third quarter sequentially always the first quarter ends up being the lowest margin just because of volumes and how they fall and there's a little bit of a seasonality impact, but we're feeling pretty good about what the Nelson teams done remember one of the things we mentioned in our last quarterly call is that we went ahead in <unk>.
<unk> stopped anticipating a little bit more volume, but we didn't reduce the staffing because one of our key priorities is to make sure we take care service rates.
And turnaround times and I'm really pleased with the progress on our net promoter score there.
As well as our just overall turnaround time, Ironically I was just looking over the past week, we've got our customer satisfaction scores back our annual survey for both stare Janice and Nelson and then both of them were very strong performance. So I'm confident what we're doing there were sheets of nice pockets of growth, but from a margin perspective.
We see that first quarters real lighter, but we see this business in the mid to high thirties as I referenced earlier.
Alright, the interest expense.
For 2000.
23, we expect to be in the $160 million to $167 million range on a cash basis.
To answer your question.
It does thank you guys.
Hey, Patrick.
Our next question will come from Matthew Meshach with Keybanc. He may now go ahead.
Hi, Good morning, just a follow up question on Nelson Labs, I believe when we when.
When you first came public and we're going through the process you actually thought Nelson labs is gonna be a double digit growth business and then.
A driver for you got where are you at now from like a longer term like outwork on kind of where you think north in labs Nelson labs will be from from a growth perspective for Ya.
Yeah, we think over the long range Matthew we think this business would be high single digits low double digits. If you remember we talked about our company total gets about 3.5% to 5% price across the whole company, depending on the business Nelson's typically on the lower end of that three and a half to four and then on top of that you could buy me makes it gives you a high single.
[noise] digits low double digits, we still feel confident about the long range.
Projections of that business.
And then when do you think you'd get back to that and what's and what's holding it back.
At this point it seems like some of your customers would would be more normal lives from.
From from a pushing.
<unk> through my F D. A at this point.
Yeah, we.
You know throughout 2022, we had.
Kind of reflect on it you had the P. P. D that was a very significant growth driver in 21, 18 to 22, which was very good mix high margin and.
And the volumes and then we had to reallocate our staffing to accommodate the customer needs is that kind of played out we saw other testing slowing down the validation area. We've started to see that rebound a little bit and move in the right direction. So I would see the validation volume has been the big one in the Labour challenges that I think most labs are having challenges with but I feel.
Good about with you on the team are doing there and the cost and price management the service side.
It really shows with what our customers are telling us on the customer sat work. So overall.
Directionally and we've got some pockets that are doing really outstanding. So overall I think it's got a lot of momentum and just to the work that we're doing with <unk> on validation coordination in helping improve customer.
Turnaround times in really <unk> really sure. It has been very helpful for both businesses.
Alright, thank you.
Our next question will come from Luke circa with Barclays.
You may not go ahead.
Alright, thanks for the questions here just on the couple on the guide can you give me a sense did you guys include the zero to three per cent potential hit from the cobalt 60 is that baked in your guide.
No it is not.
Okay Alright.
That's fine and then so on the Atlanta.
<unk> on the personal injury. So when this starts it's fair to assume that this will be a longer duration of the proceedings and then, especially given the different phases of the proof of causation just trying to get a sense of timing here with this one that starts in 2023, and then how how the others kind of role in.
24, yeah.
Yeah I would look the one case is 2023 October 20th joined three is a current schedule timing. The future cases are going to be an extended period of time issue reference those are in a different county, and there'll be two different phases. As I mentioned the first one is general causation and the second one is specific causation. So that's going to take a little bit more time to.
Play out.
Okay.
I mean like 2024, 25, I would think.
Okay, Alright, that's that's actually I was looking for it because then the other ones. It was you know basically a one one case per month in this case, it's probably safer to assume a lot longer than that alright. That's fine. Thanks for asking that question. A recent look as you're talking about two different jurisdictions.
You know different counties and Walter there's only one case in one county and then the other ones are are in Cobb County.
Okay, and one last one for me on the litigation side, so any other upcoming or outstanding court proceedings outside that are similar to the one that you guys. Just got ruled favorably on with the with the Atlanta facility anything else across any of the other facilities. There now so what you're referencing there is just.
Typically of occupancy where the court ruled in our favor there that we can continue to operate that facility. So no.
And all the officially enhancements are there.
We've been we've performed very well and all the yield facilities are up and running we don't have anything else like that pending.
Okay, great. Thanks.
Thanks.
Our next question will come from Casey would ring was J P. Morgan you.
You may not go ahead.
Hi, Thanks for taking my questions.
On Capex increased Capex 80 per cent in 2022, and now guiding to another roughly 10% increase.
In 2023 can you just elaborate on how much of this year's Capex will go to El enhancements versus Catholics kept Patrick expansion in.
Cobalt development and then do you have any sense of Windows <unk> guidelines will come out this year and how we should be thinking about those.
Yep. Thanks, Casey So Ah at a high level, we put out a guy to $185 million to $215 million on Capex approximately 70% of our Capex is directed towards growth Capex.
That's consistent to what we saw last year.
We have significant opportunities with our customers as you know we work with our customers on a large portion of that capacity, making sure. We have commitments for 40, 50% before we put the shovels in the ground shall we continue to move forward with that and the email enhancements it'll be approximately 32 $34 million somewhere in that neighborhood in 2023.
Okay Gotcha, and then one on.
Russia too I think there was some noise over the weekend about several subsidiaries abroad.
Being added to the E. U sanction list just overall have your conversation has been with the Russian suppliers in the U S government around the likelihood of sanctions this year and as a follow up if the worst case plays out and there is a headwind in 2023, just how would that translate to 2024. If you are running off your existing supply this year and kept secure in Russia.
Thank you.
Suitcase and the most current sanctions our team is done.
Primary review of that we do not see any impact on our ability to continue to supply cobalt.
The teams that are phenomenal job working with that with those challenges as well as the regulators around the world.
<unk>, that's what we see that continuing if there was an impact as I stated in my prepared remarks that would be zero to 3% of total sutera health revenue impact in 2023 at this point in time, we're not giving any guidance sitting here February 28th and 23, we're not giving any forward looking guidance on 2000 2004 at this point in time.
Our next question will come from Dave When Lee with Jeffries you May not go ahead.
Hi, Good morning, Thanks for taking my question I noticed Michael and the.
And the deck that there's some mention of of of pushing Nelson labs on the pharma side of the customer base and I'm wondering if you could comment on that around whether that's part of the Capex and is it also a part of the staffing ahead.
Orange the staffing just for for more than normal mix of business that you've seen over prior years.
Yeah.
David I hope, you're doing well, we farmers been a strategic priority for that business as well as the whole company for the last several years.
As you May recall, it's a pretty significant the same that we playing on the on the Nelson site, yes portion of that Capex, a large portion of their capex for Nelson labs is targeted towards pharma, we're seeing a nice growth and several pockets on the farmers sites from a staffing perspective, I would say most of that.
Is med device, but there is some when I look at particularly our lube in business that has the largest.
Farmer presence the head count there is up significantly over the past two to three years.
Supported by the growth of our customer base. So yes, we are.
Continue to make investments and pharma Nelson.
Okay that's interesting.
The other Michael the the tax rate and lack of lack of deductibility of interest expense.
Your description there I appreciate first of all but but it also seemed to include our describe an element of catch up to that maybe you you mentioned I think carryover deductibility or something like that and so.
Wanted to ask the Normalised level of that is there a point at which you get past some kind of anomalies and get to a a different tax rates and what applies to 23.
Well I think in the next.
Couple of years, it's going to be in this range and as as we pay obviously, we pay down interest.
Interest expense goes down that will they'll start to affect the tax rate too because.
There'll be less interest expense that we have to put evaluation on because of the deductibility limit will start to go down.
The Liberal won't go down but in terms of our actual interest expense will go down.
Got it Okay and then.
Michael in terms of I mean, you you have at times.
Made some small bolt on acquisitions.
Capital you you you do list growth.
As your first item in your capital kind of priority strategy.
Is it right to think that that's probably the organic capex investments that you're making and then beyond that you're paying down debt or or or acquisitions still part of the growth capital deployment menu.
Menu currently yep.
So on the Capex, that's projected guide of 185 to 215 and that is all around organic growth. There is no M&A assumed in our guidance on revenue or capital deployment. It is still part of our list as you say, it's probably in the right place that you reference hit the first would be organic growth of settling b deleveraging the third.
Would be strategic M&A I can tell you we continue to build a pipeline around that area and are tracking that market and several opportunities but at this point, we have nothing to report news, but nothing built into the guide for 2023.
That's good for me thank you.
Thank you.
Again, if you have a question. Please press start then one.
Our next question will come from Michael Polack with Wolf Research you May not go ahead.
Hi, Good morning. Thank you for all the detail very short term focused one and then a bigger picture.
Follow up on the first quarter with the moving pieces and already on the the low revenue expected due to harvest timing can you can you just help with an enterprise.
Adjusted EBITDA target for the first quarter to make sure models airlines versus.
Say the prior year of 115 million.
Now flat with that down a little bit up a little bit of any color there would be helpful.
Yeah, I I would just tell you that as we mentioned in the first half most of that already in revenues Gonna fall in the second quarter. So with that you can assume very little.
<unk> revenue in the first quarter. Other net you know, we're not going to give any specific quarterly guidance. We just wanted to make sure you guys had an understanding and appreciation for the dynamics that you've seen with the northern Lumpiness.
In particular, the first quarter, which can be a slow start and as we mentioned 75 two.
Percent of the revenue or 80, 80% approximately of of the operating segment income will be in the second half. We just wanted to make sure that you guys think through this that you don't get surprised on where the first first half of first quarter performance comes and based on that.
[noise] understood. The follow up is on Steri Jenex can you remind us.
You know kind of your position in the bioprocess disposable space that has been I think a tailwind.
Both due to structural in in Covid era reasons over the last few years it seems to be maybe I'm moderating a little bit as we move beyond COVID-19 as a as a world, but you know what is your exposure. There are you seeing a notable kind of change in in volumes and trend in any other color as you look forward and.
Bioprocess as a as a catalyst for for Steri Jenex Yep.
We've stayed in the past, we do participate in that market, but I think our competitors have grown faster than we have over the last couple of years and I think that's a big driver if that was our suspicion.
Because I think there's a better.
Market share position, what bio process and we are now with bioprocessing slowing down a little bit our growth probably isn't as impacted as much right. That's the good side of not having as much market share. There continues to be a strategic area for us we continue to see opportunities for growth. There were just in the lower share position relative to others in the marketplace.
But over time, we see that change, but right now, we're probably getting a little bit benefit of that Mike that isn't necessarily the way I'd like to get it but that's how it's playing out.
Understood. Thank you so much.
Thank you.
It appears there are no further questions. This concludes our question and answer session I'd like to turn the conference back over to Michael features for any closing remarks.
Great. Thank you Andrew Thank you everybody for participating today, we're very proud of what we accomplished in 2022, you know a very solid year lots of dynamics in the marketplace with labor inflation, and just geopolitical, but I'm really proud of what the teams accomplished also our ability due to manage through the litigation.
Situation, we're really optimistic about 2023, and our growth prospects and continue to capitalize on the strong and markets that we plan. The stickiness, we have with our customer base the long term contracts.
In the high customer satisfaction ratings that we're seeing from our customers, which have been consistent for many years. So we're really optimistic about 2023 and we thank you for your continued support have a great day. Thank you bye bye.
The conference has now concluded. Thank you for attending today's presentation you may not disconnect.