Q1 2024 Sotera Health Company Earnings Call

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Operator: Good morning, and welcome to the Sotera Health first quarter 2024 conference call. All participants will be in listen-only mode.

Good morning, and welcome to D. So Terra health first quarter 'twenty 'twenty four conference call.

All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone telephone. To withdraw from the question queue, please press star, then 2. 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.

Should you need assistance. Please signal a conference specialist by pressing the stocky followed by Seattle.

After todays presentation, there will be an opportunity to ask questions to.

To ask a question you May Press Star then one on your Touchtone telephone.

To withdraw from the question queue. Please press Star then two please.

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

Jason Peterson: Good morning and thank you. Welcome to Sotera Health's first quarter 2024 results call. You can find today's press release and accompanying supplemental slides on the investor section of our website, SoteraHealth.com. This webcast is being recorded, and a replay will be available on the investor section of Sotera Health's website. On the call with me today are Chairman and Chief Executive Officer Michael Petras and Chief Financial Officer John Lyons. During the call, some of our comments may be considered forward-looking statements.

Jason Peterson: Good morning, and thank you welcome to <unk> Health's first quarter 2024 results call you can find today's press release and accompanying supplemental slides on the investors section of our website at <unk> Dot com.

This webcast is being recorded and a replay will be available in the investors section of <unk> website.

Michael: On the call with me today are chairman and Chief Executive Officer, Michael features and Chief Financial Officer, John Lyons during the call. Some of our comments may be considered forward looking statements.

Jason Peterson: The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings in the forward-looking statement slide 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 statement. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted EPS, net debt, adjusted EBITDA margin, segment income margin, and net leverage ratio, in addition to constant currency comparisons.

Jason Peterson: The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied.

Michael: These refer to <unk> SEC filings and the forward looking statements slide at the beginning of this presentation for a description of these risks and uncertainties.

Jason Peterson: The company assumes no obligation to update any such forward looking statements.

Jason Peterson: Please note that during the discussion today the company will present, both GAAP and non-GAAP financial measures, including adjusted net income adjusted EBITDA.

Jason Peterson: Adjusted EPS net debt adjusted EBITDA margin segment income margin and net leverage ratio. In addition to constant currency comparisons.

Jason Peterson: A reconciliation of GAAP to non-GAAP measures for all relevant periods.

Jason Peterson: Have you found in the schedules attached to the Companys press release and in the supplemental slides for this presentation. The operator will be assisting with the Q&A portion of the call today. Please.

Jason Peterson: Please limit yourself to one question and one follow up so that we can give everyone an opportunity to ask questions as always if you have any questions post call. Please.

Jason Peterson: Please feel free to reach out to me in the Investor Relations team I will now turn the call over to <unk>, Chairman and CEO Michael features.

Jason Peterson: A reconciliation of gap to non-gap measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up so that we can give everyone an opportunity to ask questions. As always, if you have any questions after the call, Please feel free to reach out to me and the investor relations team. I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Michael B. Petras: Good morning everyone, and thank you for joining Sotera Health's first quarter 2024 earnings call. Today we announce both top and bottom line growth compared to the first quarter of 2023, with growth coming from all three of our businesses. John will provide more detail on our financial results in a moment, but first, I want to highlight a few items from our first quarter results. Total company revenues increased 12.5%, and adjusted EBITDA increased 13.7% compared to the first quarter of 2023. We delivered adjusted EPS of $0.13 for the quarter, in line with the same period last year.

Michael B. Petras: Good morning, everyone and thank you for joining <unk> first quarter 2024 earnings call today, we announced both top and Bottomline growth compared to the first quarter of 2023 with growth coming from all three of our business units.

Michael B. Petras: John will provide more detail on our financial results in a moment, but first I wanted to highlight a few items from our first quarter results.

Michael B. Petras: Total company revenues increased 12, 5% and adjusted EBITDA increased 13, 7% compared to the first quarter of 2023, we delivered adjusted EPS of <unk> 13 cents for the quarter in line with the same periods last year.

Michael B. Petras: Sterigenics, our largest reporting segment, delivered another quarter of top-line growth of 4.1%, but volumes remain somewhat soft as customers continue to work through supply chain challenges. Nordean, our other reporting segment within the sterilization services business, delivered 181% year-over-year revenue growth. As you may recall, the first quarter of 2023 was historically light for Nordeon, and the large year-over-year increase is driven in a significant part to the timing of Cobalt-60 harvest delivery schedules from our suppliers, which are large utilities.

Michael B. Petras: Stared <unk>, our largest reporting segment delivered another quarter of top line growth of four 1%.

Michael B. Petras: Volumes remains somewhat soft as customers continue to work through supply chain challenges.

Michael B. Petras: Nordion, our other reporting segment within the sterilization services business delivered 181% year over year revenue growth.

Michael B. Petras: As you May recall first quarter 2023 was historically like for Nordion in the large year over year increase is driven in significant part to the timing of cobalt 60 harvests delivery schedules from our suppliers, which are large utilities.

Michael B. Petras: Nelson Labs, our lab testing and advisory services business, delivered top-line growth of 10.8% compared to the prior year. This was the second consecutive quarter of year-over-year revenue growth in Nelson Labs, led by continued strong performance in our expert advisory services business. Core lab testing volumes are down year over year, driven primarily by the extension of the deadlines for the European Union medical device regulations, as expected.

Michael B. Petras: Nelson Labs, our lab testing and advisory service business delivered topline growth of 10, 8% compared to the prior year. This is the second consecutive quarter of year over year revenue growth and Nelson Labs led by continued strong performance in our expert advisory services business.

Michael B. Petras: Core lab testing volumes are down year over year, driven primarily by the extension of the deadlines for the European Union Medical device regulations as expected.

Michael B. Petras: This morning, we are reaffirming the outlook that we communicated in our last earnings call. As a reminder, our 2024 outlook calls for both revenue and adjusted EBITDA growth in the range of 4% to 6% versus 2023. The variability within our full-year revenue range will be largely driven by the timing and magnitude of the market recovery in both Sterigenics and Nelson Labs.

Michael B. Petras: This morning, we are reaffirming the outlook that we communicated in our last earnings call. As a reminder, our 2024 outlook calls for both revenue and adjusted EBITDA growth in the range of 4% to 6% versus 2023.

Michael B. Petras: The variability within our full year revenue range will be largely driven by the timing and magnitude of the market recovery in both <unk> and Nelson labs.

Michael B. Petras: Now, I would like to give an update on some recent ethylene oxide developments. With respect to the lawsuits that were filed in California, we are confident that Sterigenics is not responsible for causing the alleged illnesses. Based on what we know so far, these new lawsuits raise basically the same issues as the EO claims previously filed by plaintiff firms in other jurisdictions, this time in the context of the burden facilities and the particular circumstances of each of the new plaintiffs.

Michael B. Petras: Now I would like to give an update on some recent ethylene oxide developments with respect to the lawsuits that were filed in California. We are confident that <unk> is not responsible for causing the alleged illnesses based on what we know so far these new lawsuits <unk> basically the same issues as EEO claims previously filed.

Michael B. Petras: By plaintiff firms and others jurisdictions. This time in the context of the burden facilities and in particular circumstances of each of the new plaintiffs.

Michael B. Petras: We believe the evidence will establish that Sterigenics has operated its facilities and burns facilities safely and in compliance with all applicable regulations. We operate safely to sterilize vital medical products and devices and have consistently complied with and outperformed applicable regulations regarding our missions. As the local regulator, South Coast Air Quality Management District has consistently reported ethylene oxide levels in the surrounding residential communities are within background levels found in areas without nearby sterilization facilities.

Michael B. Petras: We believe the evidence will establish that stair Genesis operated facilities and burn safely and in compliance with all applicable regulations.

Michael B. Petras: We operate safely to sterilize vital medical products and devices have consistently complied with and outperform.

Michael B. Petras: Nicole regulations regarding our missions as the local regulator.

Michael B. Petras: South Coast Air quality Management District has consistently reported ethylene oxide levels in the surrounding residential communities are within background levels found in areas without nearby sterilization facilities.

Michael B. Petras: As long as we are able to put on a full and fair defense, we are confident in the judicial outcome. Although we acknowledge the challenges presented by lawsuits involving cancer and other serious diseases, we do not believe that ethylene oxide litigation will have a long-term material impact on the company. We've posted a comprehensive list of FAQs that is available under the ethylene oxide section of our investor website, and we will update that periodically with pertinent information.

Michael B. Petras: As long as we're able to put on a full and fair defense. We are confident in the judicial outcome.

Michael B. Petras: Although we acknowledge the challenges presented by lawsuits involving cancer and other serious diseases, we do not believe that ethylene oxide litigation, while a long term material impact on the company.

Michael B. Petras: We have posted a comprehensive list of <unk> that is available under the ethylene oxide section of our Investor website, and we will update that periodically with pertinent information.

Michael B. Petras: Please recognize that we are in active litigation. We will not provide additional commentary beyond what I have stated here and what is included in our FAQs and SEC filings. As many of you know, in March, the EPA finalized the updated National Emission Standards for Hazardous Air Pollutants, commonly referred to as NESHAP. Although the updated requirements will be very challenging for the sterilization industry to meet, we believe that our significant and proactive investments across our U.S. ethylene oxide facilities in EPA Method 204 Permanent Total Enclosure Technology and other state-of-the-art emission controls have positioned St We do not believe a material amount of additional capital expenditure beyond our current plans will be required to meet the finalized regulations.

Michael B. Petras: Please recognize that we are in active litigation, we will not provide additional commentary beyond what I stated here. It was included in our <unk> and SEC filings.

Michael B. Petras: As many of you know in March the EPA finalized the updated national emission standards for hazardous air pollutants, commonly referred to as Nisha.

Michael B. Petras: Although the updated requirements would be very challenging for the sterilization industry to meet we believe that our significant and proactive investments across our U S. Ethylene oxide facilities in EPA method tool for permanent total closure technology and other state of the art emission controls have positioned <unk> to be able to comply with the updates.

Michael B. Petras: Standards within the timeframe specified by the final rule we.

Michael B. Petras: We do not believe a material amount of additional capex beyond our current plans, we will be required to meet the finalized regulations.

Michael B. Petras: Despite these challenges, let us not forget our mission of safeguarding global health. We help to ensure the safety of health care and protect the lives of millions around the world. One example of this is the role that Noriam plays in the treatment of brain cancer, which is referenced in our earnings deck. We take our role in health care seriously, and our team is steadfast in our commitment to living out our mission day in and day out. Now, John will take us through the financials in more detail.

Michael B. Petras: Despite these challenges let us not forget our mission safeguarding global health, we help to ensure the safety of healthcare and protect the lives of millions around the World. One example of this is the role that Nordion plays in the treatment of brain cancer, which as referenced in our earnings deck, we take our role in health care seriously and our team is.

John: Steadfast in our commitment to living out our mission day in day out now.

Michael B. Petras: Now John will take us through the financials in more detail.

Jonathan M. Lyons: Thank you, Michael. I will begin by covering the first quarter 2024 highlights on a consolidated basis and then provide some details on each of the business segments along with updates on capital deployment and leverage. I will then conclude with additional details on our 2024 outlook. On a consolidated total company basis, first quarter revenues increased by 12.5% as compared to the same period last year to $248 million. This equates to an 11.8% increase on a constant currency basis as we experience a total company foreign currency tailwind of just under 1%.

John: Thank you Michael I will begin by covering the first quarter 2020 for highlights on a consolidated basis and then provide some details on each of the business segments, along with updates on capital deployment and leverage I will then conclude with additional details on our 2020 for outlook.

Jonathan M. Lyons: On a consolidated total company basis first quarter revenues increased by 12, 5% as compared to the same period last year to $248 million.

Jonathan M. Lyons: This equates to an 11, 8% increase on a constant currency basis as we experienced the total company foreign currency tailwind of just under 1%.

Jonathan M. Lyons: Adjusted EBITDA increased by 13.7% compared to the first quarter of 2023 to $112 million. Adjusted EBITDA margins were 45.1%, representing a 50 basis point increase from the first quarter of the prior year. The majority of which is explained by higher Nordean revenues versus unusually light revenue in Q1 2023. Our interest expense for the quarter was $42 million versus $29 million in Q1 2023. The increase in interest expense was driven by higher interest rates and having a full quarter of the $500 million term loan that was put in place during Q1 of 2022.

Jonathan M. Lyons: Adjusted EBITDA increased by 13, 7% compared to the first quarter of 2000 $23 million to $112 million.

Jonathan M. Lyons: Adjusted EBITDA margins were 45, 1%, representing a 50 basis point increase from the first quarter of the prior year. The majority of which is explained by higher <unk> revenues versus unusually light revenue in Q1 2023.

Jonathan M. Lyons: Our interest expense for the quarter was $42 million versus $29 million in Q1 of 2023.

Jonathan M. Lyons: The increase in interest expense was driven by higher interest rates and having a full quarter of the $500 million term loan that was put in place during Q1 of 2023.

Jonathan M. Lyons: Adjusted EPS was $0.13 per share, which was flat to the first quarter of 2023 as improved operating results were offset by increased interest. On a gap basis, net income for the first quarter of 2024 was $6 million, or two cents per diluted share compared to net income of $3 million, or one cent per diluted share in the first quarter of 2023. Now, let's take a closer look at our segment performance.

Jonathan M. Lyons: Adjusted EPS was <unk> 13 per share, which was flat to the first quarter of 2023 as improved operating results were offset by increased interest expense.

Jonathan M. Lyons: On a GAAP basis net income for the first quarter of 2024 with $6 million or <unk> <unk> per diluted share compared to net income of $3 million or <unk> <unk> per diluted share and first quarter 2023.

Jonathan M. Lyons: Now, let's take a closer look at our segment performance.

Jonathan M. Lyons: In the first quarter, Sterigenics delivered 4.1% revenue growth to $166 million. Revenue growth drivers for the quarter included favorable pricing of 4.9% and a favorable impact from foreign currency of nearly 1%, which was partially offset by unfavorable volume in NICs of 1.6%. Segment income grew 3.6% to $86 million, driven by favorable pricing and changes in foreign exchange rates, partially offset by unfavorable volume and mix, as well as inflation. Nordeon's first quarter revenue increased 181% to $24 million, compared to the same period last year, while segment income increased to $11 million. As a reminder, Nordion had an abnormally low first quarter in 2020.

Jonathan M. Lyons: In the first quarter <unk> delivered four 1% revenue growth to $166 million.

Jonathan M. Lyons: Revenue growth drivers for the quarter included favorable pricing of four 9% and a favorable impact from foreign currency of nearly 1%, which was partially offset by unfavorable volume and mix of one 6%.

Jonathan M. Lyons: Segment income grew three 6% to $86 million driven by favorable pricing and changes in foreign exchange rates, partially offset by unfavorable volume and mix as well as inflation.

Jonathan M. Lyons: <unk> first quarter revenue increased 181% to $24 million compared to the same period last year, while segment income increased to $11 million as a reminder, nordion had an abnormally low first quarter in 2023.

Jonathan M. Lyons: Increases in Nordeon's revenue and segment income versus first quarter 2023 were driven by payroll volume and mix related to the timing of the reactor harvest schedule. Nelson Lab's first quarter 2024 revenue increased by 10.8% to $58 million, driven by favorable volume and mix, as well as pricing. Segment income increased by 8.8% to $15 million, also driven by favorable value mix, as well as pricing. Segment margin rates declined slightly versus Q1 of 2023 due to a shift in mix as we experienced strong growth in expert advisory services. Now, I'll provide details on liquidity, net leverage, and capital deployment. The company's liquidity position continues to remain strong.

Jonathan M. Lyons: Increases in <unk> revenue in segment income versus first quarter of 2023 were driven by favorable volume and mix related to the timing of reactor harvest schedules.

Jonathan M. Lyons: Nelson Labs first quarter 2024 revenue increased by 10, 8% to $58 million driven by favorable volume and mix as well as pricing.

Jonathan M. Lyons: Segment income increased by eight 8% to $15 million also driven by favorable volume mix as well as pricing.

Jonathan M. Lyons: Segment margin rates declined slightly versus Q1 of 2023 due to a shift in mix as we experienced strong growth and expert advisory services.

Jonathan M. Lyons: Now I'll provide details on liquidity net leverage and capital deployment.

Jonathan M. Lyons: The company's liquidity position continues to remain strong as of Q1 2024, we had over $660 million of available liquidity, which included more than $260 million of unrestricted cash and $400 million of available capacity under our revolving line of credit.

Jonathan M. Lyons: As of Q1 2024, we had over $660 million of available liquidity, which included more than $260 million of unrestricted cash and $400 million of available capacity under a revolving line of credit. We delivered positive operating cash flow in the quarter, although it was lower than normal, primarily due to the payout of the Georgia settlement. Capital expenditures for the first quarter of 2024 totaled $35 million. As we have communicated previously, our capital expenditure priorities are focused on stereogenic capacity expansions and U.S. EO facility enhancement, as well as Nordeon's Cobalt Development Programs, which are critical to the long-term growth of the company. Outside of the three current Sterigenics expansion programs, we do not expect material incremental capacity expansions in the near term for Sterigenics.

Jonathan M. Lyons: We delivered positive operating cash flow in the quarter, although it was lower than normal primarily due to the payout of the Georgia settlement.

Jonathan M. Lyons: Capital expenditures for the first quarter 2024 totaled $35 million as we have communicated previously our capital expenditure priorities are focused on <unk> capacity expansions and U S. Eo facility enhancements as well as Nordion cobalt development programs, which are critical to the long term growth of the company.

Jonathan M. Lyons: Outside of the three current <unk> expansion programs, we do not expect material incremental capacity expansions in the near term for <unk>.

Jonathan M. Lyons: Free cash flow was slightly negative in the quarter, but given the lower operating cash flow performance I previously mentioned, we do expect to generate positive free cash flow for the year. We finished the quarter with a net leverage ratio of 3.8 times, within our target range of two to four times. As Michael mentioned, based on the first quarter and what we see for the remainder of this year, we are reaffirming the outlook we provided in February 2024.

Jonathan M. Lyons: Free cash flow was slightly negative in the quarter given the lower operating cash flow performance I previously mentioned, we do expect to generate positive free cash flow for the year.

Jonathan M. Lyons: We finished the quarter with a net leverage ratio of three eight times within our target range of two to four times.

Jonathan M. Lyons: Sure.

Jonathan M. Lyons: As Michael mentioned based on the first quarter and what we see for the remainder of this year. We are reaffirming the outlook we provided in February 2024.

Jonathan M. Lyons: To recap, for the full year 2024, we expect total revenues and adjusted EBITDA to grow in the range of 4 to 6 percent. As stated during our Q4 2023 earnings call, we expect to be at the lower end of our long-term stated price range of $3.50 to $5.00. Full year 2024 adjusted EBITDA margin rates are assumed to be similar to last year. In Q2, we expect year-over-year margin rates to be down modestly as a result of a decline in Nelson Lab's margin rates due to the change in mix I mentioned earlier.

Jonathan M. Lyons: To recap for the full year 2024, we expect total revenues and adjusted EBITDA to grow in the range of 4% to 6%.

Jonathan M. Lyons: As stated during our Q4 2023 earnings call, we expect to be at the lower end of our long term stated price range of three 5% to 5%.

Jonathan M. Lyons: Full year 2024, adjusted EBITDA margin rates are assumed to be similar to last year.

Jonathan M. Lyons: In Q2, we expect year over year margin rates to be down modestly as a result of a decline in Nelson labs margin rates due to the change in mix I mentioned earlier.

Jonathan M. Lyons: We do expect Nelson's segment income margin rates to improve sequentially throughout the year, with full-year margin rates approaching 30 percent. From a cadence perspective, we expect slightly less than 45% of full-year total company-adjusted EBITDA to occur in the first half of the year. In Sterigenics, we still anticipate slight volume and mixed recovery beginning in the second half of 2024.

Jonathan M. Lyons: We do expect Nelson segment income margin rates to improve sequentially throughout the year with full year margin rates approaching 30%.

Jonathan M. Lyons: From a cadence perspective, we expect slightly less than 45% of full year total company adjusted EBITDA to occur in the first half of the year.

Jonathan M. Lyons: In <unk>, we still anticipate slight volume and mix recovery beginning in the second half of 2024.

Michael B. Petras: At Nordeon, we continue to expect the year to be more balanced than last year, with approximately 35% of revenues to occur in the first half of the year. Also, we now see the Russian cobalt supply risk to be between 0% and 1.5% of total company full-year revenue. For Nelson Labs, we expect volume and mix to be relatively flat on a year-over-year basis for the remainder of the year. We expect core testing volumes to improve, while we lose some large project and expert advisory services, which supports our expectation for sequential margin improvement.

Jonathan M. Lyons: At <unk>, we continue to expect the year to be more balanced than last year with approximately 35% of revenues to occur in the first half of the year.

Michael B. Petras: Also we now see Russian cobalt supply risks to be between zero and one 5% of total company full year revenue.

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

Michael B. Petras: We expect core testing volumes to improve while we lapped some large project and expert advisory services, which supports our expectation for sequential margin improvement.

Michael B. Petras: We continue to expect interest expense between $170 million and $180 million, and an effective tax rate on adjusted net income in the range of 31.5% to 34.5%. Adjusted EPS is expected to be in the range of 67 cents to 75 cents, and a fully diluted share count is in the range of 283 to 285 million shares on a weighted average basis. Capital expenditures in the range of $205 million to $225 million. As previously communicated, we expect CapEx to step down in 2025 and 2026, resulting in an acceleration of free cash flow generation. This is a high priority for the company. Our guidance does not assume any M&A, and we still anticipate net leverage to improve during the year. I'll now turn the call back over to Michael.

Michael B. Petras: We continue to expect interest expense between $170 million and $180 million.

Michael: And effective tax rate, our adjusted net income in the range of 31, 5% to 34, 5%.

Michael B. Petras: Adjusted EPS is expected to be in the range of 67 to <unk> 75.

Michael: Our fully diluted share count in the range of 283 to 285 million shares on a weighted average basis.

Michael B. Petras: Capital expenditures in the range of $205 million to $225 million.

Michael: As previously communicated we expect capex to step down in 'twenty, five and 26, resulting in an acceleration of free cash flow generation. This is a high priority for the company.

Michael: Our guidance does not assume.

Michael: Any M&A and we still anticipate net leverage to improve during the year.

Michael B. Petras: I'll now turn the call back over to Michael.

Michael B. Petras: As we wrap up our prepared remarks, I want to reemphasize that Sotera Health remains well positioned for growth throughout 2024. Our global network of 63 facilities provides our customers with excellent service day in and day out. And this team is proud of the critical role the company plays in the healthcare community. At this point, we'll open the call up for questions and answers.

Michael: Thank you John.

Michael: As we wrap up our prepared remarks, I want to reemphasize that <unk> remains well positioned for growth throughout 2024, our global network of 63 facilities provides our customers with excellent service day in and day out and this team is proud of the critical role of the company and place in the healthcare community.

Michael B. Petras: At this point, let's open the call up for questions and answers.

Michael B. Petras: Yeah.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then 2. At this time, we will pause momentarily to assemble our roaster. The first question is from Patrick Donnelly with Citi. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone telephone.

Patrick Bernard Donnelly: If you are using a.

Patrick Bernard Donnelly: Speakerphone, please pick up your handset before pressing the keys.

Patrick Bernard Donnelly: To withdraw from the question queue. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Operator: The first question is from Patrick Donnelly with Citi. Please go ahead.

Michael B. Petras: Michael, maybe just on the kind of overall backdrop here, can you talk about what you're seeing on the volume side? You know, I know that the volume headwinds have been lingering a little bit in the past few quarters. It seems like Nelson Labs, maybe you saw a little bit of an improvement. Sterigenics, maybe it's lingering a little bit. Can you just talk through what you're seeing and then the expectations and what you're hearing kind of in real-time as we work our way into 2Q and 3Q here?

Patrick Bernard Donnelly: Taking the questions.

Michael B. Petras: Michael maybe just on the kind of overall backdrop here can you talk about what youre seeing on the volume side and I know that the volume headwinds have been lingering a little bit in the past few quarters. It seems like Nelson lab, maybe you saw a little bit of an improvement <unk>, maybe it's lingering a little bit can you just talk through what Youre seeing and then the expectation and what <unk>.

Michael B. Petras: You're hearing kind of real time, as we work our way into <unk> and <unk> here.

Michael B. Petras: Good morning, Patrick. As we look at the business, pretty much consistent with what we stated on our last call, we expect slight improvement as the year progresses. We are not seeing things get worse in either Nelson or Sterigenics. On the Nelson side, as we have called out, we continue to do very well in the expert advisory services business. One of our business units, RCA, continues to perform very well, which has a negative mix. And really, they're helping quite a few customers that are having challenges with regulars.

Michael: Good morning, Patrick as we look at the business pretty much consistent what we stated on our last call. We expect slight improvement as the year progresses, we are not seeing things get worse and neither Nelson <unk> and then Nelson size, we called out we continue to do very well and expert advisory services business one of our.

Michael B. Petras: Business <unk> continues to perform very well, which is negative mix and really they are helping quite a bit customers that are having challenges with regulars thats, where they're brought in and theyre doing a really good job of executing on that we're seeing stabilization in the Nelson volumes and we expect that to improve over time with some of the RCA projects starting to slow.

Michael B. Petras: That's where they were brought in, and they're doing a really good job of executing on that. We're seeing stabilization on the Nelson volumes, and we expect that to, you know, improve over time with some of the RCA projects starting to slow down because of their non-repeat nature. And that's one of the things we called on in our prepared remarks.

Michael B. Petras: Down because of non repeat nature and Thats one of the things we called out in our prepared remarks on the <unk> side, it's been relatively stable with some slight improvements and we will continue to monitor we feel confident in our guide for the rest of the year and the outlook, but it's not get materially worse, there's some categories sequentially bio processing.

Michael B. Petras: On the Sterigenics side, it's been relatively stable with some slight improvements, and we'll continue to monitor that. We feel confident in our guide for the rest of the year and the outlook. But it's not getting materially worse. You know, there are some categories.

Michael B. Petras: Sequentially, bioprocessing, labware, those things have gotten better sequentially, but they're still significantly down over the prior year. General hospital has been, you know, the kits area. We've seen an improvement in that. Their inventory has started to stabilize, and our customers' burnout rate, its burn down rate, if you will, is kind of stabilizing as well. So overall, we feel good about where we put the guide out for the rest of the year, with slight improvement as the year progresses.

Michael B. Petras: Lab, where those things have gotten better sequentially, but there is still significantly down over prior year General hospital has been the.

Michael B. Petras: The kids area is we've seen an improvement in that as inventory is starting to stabilize and our customers' burn outrageous burned down right. If you will.

Michael B. Petras: <unk> is kind of stabilizing as well. So overall, we feel good about where we put the guide out the rest of the year with slight improvement as the year progresses.

Michael B. Petras: Okay, that's helpful. And then maybe just on the kind of litigation side, obviously, a California piece picked up a month ago or so. Can you just talk about, you know, generally how you're thinking about that? I'm just trying to put some fence posts around expectations. I'm sure, you know, timing is uncertain. And these things take a long time, as we all know, but yeah, any way to just frame this piece up so we can think about it a little bit cleaner? Thank you.

Speaker Change: Okay. That's helpful.

Michael B. Petras: And then maybe just on the on the litigation side, obviously, the California piece picked up.

Michael B. Petras: A month ago or so can you just talk about generally how youre thinking about that.

Michael B. Petras: To put some transco surround the expectations I'm sure timing is uncertain and these things take a long time as we all know but.

Michael B. Petras: Any way to just frame this piece up so we can we can think about it a little cleaner. Thank you.

Michael B. Petras: Yeah, Patrick, you know, as we stated in the prepared remarks, we've got FAQs out there. There's a lot of information trying to be responsive to the questions that come in. It's very early in the game.

Michael B. Petras: Patrick.

Michael B. Petras: As we stated in the prepared remarks, we've got <unk> out there is a lot of information trying to be responsive to the questions that come in it's very early in the game there has been too.

Michael B. Petras: There have been two suits filed, about 18 claims in total, similar in nature to what we've seen in other jurisdictions, but these ones are specifically related to Vernon. And I just called your attention to some remarks that we've made that, you know, our regulators have been monitoring for the last several years the mission levels and their background levels, which means they're equivalent to what other areas that do not have sterilization facilities around them.

Michael B. Petras: <unk> filed about 18 claims in total similar nature to what we've seen in other jurisdictions, but these ones are specifically related to Vernon and I would just call your attention to some remarks that we've made that the regulators had been monitoring for the last several years.

Michael B. Petras: The emission levels and their background levels, which means their equivalent to what other areas that do not have sterilization <unk> around it.

Michael B. Petras: We continue to perform very well in that facility. We play a critical role. You know, we sterilize, I think it's in excess of 40 million products, 45 million products a year. It's a really critical role in health care, and we continue to focus on that. Our lawyers will work through the litigation aspect of it, but that's all we know at this point in time. It's very early in that discussion. We feel confident that when we're able to put it in our defense, as we showed in our second trial in Illinois, we'll be victorious.

Michael B. Petras: We continue to perform very well in that facility, we play a critical role we sterilized.

Michael B. Petras: It's in excess of $40 million products 45 million prior year.

Michael B. Petras: Thats really critical role in health care, and we continue to focus on that our lawyers will work through the litigation aspect of it but that's all we know at this point in time, it's very early in that discussion we feel confident when we're able to put on our defenses. We showed in our second trial in Illinois will be victorious.

Michael B. Petras: All right, we'll stay tuned for that. Thanks, Michael.

Speaker Change: Alright, so stay tuned for that thanks, Michael Thank you.

Operator: The next question is from Sean Dodge with RBC Capital. Please go ahead.

Michael B. Petras: The next question is from Sean.

Operator: Great.

Sean Wilfred Dodge: VC capital. Please go ahead.

Michael B. Petras: Thanks, good morning. Maybe just on the final NESHAP requirements, I guess with the final rules out now, were there any meaningful changes in the final versus what was originally proposed? And then, could you just kind of give us an update on how far along you are in completing those facility enhancements, how much time's left there, and how much you have left to spend to complete all that?

Sean Wilfred Dodge: Yes, thanks, good morning.

Michael B. Petras: Maybe just on the final nisha requirements.

Michael B. Petras: So the final rules out now or are there any any meaningful changes in the final versus what was proposed.

Michael B. Petras: Initially and then.

Michael B. Petras: If you could just kind of give us an update on how far along you all are in completing those facility enhancements.

Michael B. Petras: Timed left there and how many how much Jim.

Michael B. Petras: Spend.

Michael B. Petras: To complete all of that.

Michael B. Petras: Thanks, Sean, for the question. We stated this year we would expect to spend close to $40 million this year on facility enhancements.

Michael B. Petras: Yes.

Michael B. Petras: Thanks, Sean for the question as we stated at this year, we would expect to spend close to $40 million this year on.

Speaker Change: Facility enhancements there'll be a tail into 2025 that will come down in 2025, but we should be finishing up next year.

Michael B. Petras: There will be a tail in 2025. That will come down in 2025, but we should be finishing up next year. I'm really pleased with what the team has done in this area. Our leadership here has clearly been demonstrated, and you'll see that play out over the next several months and the next couple of years. These are very challenging rules. I don't want to understate that.

Michael B. Petras: Really pleased with what the team has done in this area. Our leadership here is clearly been demonstrated youll see that play out over the next several months in the next couple of years. These are very challenging rules I don't want to understate that the industry is going to have some big challenges, but I feel really good and the team does matter of fact, John and I just had a deep dive with the team earlier in the week and the progress we.

Michael B. Petras: The industry is going to have some big challenges, but I feel really good, and the team does, too. As a matter of fact, John and I just had a deep dive with the team earlier in the week on the progress we're making with most of the facilities in the US have either been completed, or they've got a significant portion of it in process already. Some of them, Sean, as I've stated on previous calls, remember, we like to go fast, but some regulators, this is just not a priority for them, and they're holding up on and following up on permits and things of that nature, just because it's not the highest priority for them in their jurisdictions, but we feel good about where we're at.

Michael B. Petras: We're making through most of the facilities in the U S have had either completed or they've got a significant portion of it a bit in process already some of them as Sean as I have stated in previous calls remember we'd like to go fast, but some regulators. This is just not a priority for them and theyre holding up on following up on permits and things of that nature, just because it's not the highest priority.

Michael B. Petras: For them in their jurisdictions, but we feel good about where we're at.

Michael B. Petras: The rules are challenging, though. I want to make that really clear, but we feel good about our leadership position here. One of the things I've called out multiple times to this group is the permanent total enclosure method 204. That's something that we thought might be in the rule, and it is in the rule. We're pretty far along on that. There will be challenges with ongoing monitoring that we're going to have to work with the regulators around and understand exactly how to interpret the rules, but overall, this company is going to be in this business and will continue to perform and take care of our customers and make sure we play a critical role in healthcare.

Michael B. Petras: The rules the rules are challenging, though I want to make that really clear, but we feel good about our leadership position.

Michael B. Petras: Position here one of the things I called out multiple times to this group as a permanent total closure method tool for Thats something that we thought may be the rule and it is in the rule, we're pretty far along on that.

Michael B. Petras: There will be challenges on ongoing monitoring that we're going to have to work with the regulators around and understand exactly how to interpret the rules, but overall this company is going to be in this business and we will continue to perform and take care of our customers and making sure. We play a critical role in health care.

Jonathan M. Lyons: Okay, great. There may be a modeling one on SG&A. That was up a lot both year on year and sequentially in the quarter. Is there anything notable to call out there, and how should we be thinking about the kind of SG&A run rate over the remainder of the year?

Michael B. Petras: Okay.

Jonathan M. Lyons: Great and then maybe a modeling one on SG&A.

Jonathan M. Lyons: Was up a lot both both year on year and sequentially in the quarter.

Jonathan M. Lyons: Is there anything notable to call out there and how should we be thinking about kind of SG&A run rate over the remainder of the year.

Jonathan M. Lyons: Yeah, I think Sean, there's probably some modeling that we need to look at offline. I'm having a little trouble tracking all your numbers. There's nothing really concerning for us. We've got normal merit coming in. We've got some variable comp coming in. But nothing, you know, huge that I would call out for you.

Speaker Change: Yes, I think Sean Theres, probably some modeling that we need to look at offline.

Jonathan M. Lyons: A little trouble tracking all your numbers, there's nothing really concerning in here for US We've got normal merit coming in we've got some variable comp.

Jonathan M. Lyons: Coming in.

Jonathan M. Lyons: But nothing huge that we'd call out for you.

Jonathan M. Lyons: Okay, great. Thanks again.

Speaker Change: Okay, great. Thanks again.

Operator: The next question is from Casey Woodring with J.P. Morgan. Please go ahead.

Jonathan M. Lyons: The next question is from Casey <unk> with J P. Morgan. Please go ahead.

Michael B. Petras: Great, thank you for taking my questions. The first one's just on Nelson.

Casey Rene Woodring: Great. Thank you for taking my questions first one is just on Nelson can you quantify what the RCA dilution looks like and just if your target of mid 30% margin for that business over the longer term still stands.

Michael B. Petras: Can you quantify what the RCA dilution looks like? And just, you know, if your target of mid-30% margin for that business over the longer term still stands? And, you know, maybe how should we think about that margin trajectory off of the, you know, 30% that you're going to do this year in Nelson? Yeah.

Michael B. Petras: And then maybe how should we think about that margin trajectory off of the.

Michael B. Petras: 30% that you are going to do this year Nelson.

Michael B. Petras: Yeah, Casey, this is Michael. You know, we won't get into details about RCA. It's been a drag on MIX, but that business margin rate is improving. They continue to get operating leverage, and they continue to grow the top line in that business. We, as we said this morning, feel that the margins for Nelson, as you look at the rest of the year based on the MIX profile, seem to be slightly less than or approaching 30%, if you will. We still believe that this business is in the mid-30s over the long term. And we will see sequential growth as the year progresses as well. That's the other thing. I want to make sure you're clear.

Michael B. Petras: Yeah Casey this is Michael.

Michael B. Petras: We won't get into details on RCA.

Michael B. Petras: It's been a drag on mix, but that business margin rate is improving.

Michael B. Petras: Continue to get operating leverage and they continue to grow the top line in that business. We as we said this morning, we feel that the margins for Nelson as you look at the rest of the year based on the mixed profile, we should be slightly less than approaching 30%. If you will we still believe that this business is in the mid <unk> long term.

Michael B. Petras: And we've got sleep hopeful we will see sequential growth as the year progresses as well as the other thing I.

Michael B. Petras: I want make sure Youre clear okay.

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

Speaker Change: Got it got it.

Michael B. Petras: And then maybe for my follow up just can you give us a sense of the magnitude of margin step up in <unk> next year between the first and second half given the volume recovery assumed and then what should we assume for pricing in sorry in the back half.

Michael B. Petras: Would that be a good jump off point for next year on the pricing side. Thank you.

Michael B. Petras: Thank you. Yeah, thanks. Thanks, Sean. We will see, you know.

Michael B. Petras: Yeah, thanks. Thanks, Sean.

Speaker Change: Thanks, Sean we will see as this business gets more volume, you'll see operating leverage fall through to P&L.

Michael B. Petras: We will see, you know, as this business gets more volume, you'll see operating leverage fall through to P&L. But we continue to get value in that business because of the criticality of our services and the high value we bring to our customers. We said across the company, we're three and a half to 5% price per year. We said in 2024, we're gonna be on the lower end of that range because of some timing and nerdiness on contracts. We feel Sterigenics will be normally where they typically are, which is in the middle of that range. And that's what we expect for 2024.

Michael B. Petras: We continue to get price in that business because of the criticality of our services and the high value we bring to our customers. We sit across the company were three 5% to 5% price per year. We said 2024, we're going to be at a lower than that range because of some timing of minority on contracts. We feel <unk> will be normally where they typically are which is in the middle of that range and thats, what we expect for 2000.

Michael B. Petras: 24.

Speaker Change: Thanks Casey.

Speaker Change: Thank you.

Operator: The next question is from Luke Sergott with Barclays. Please go ahead.

Michael B. Petras: The next question is from Luke.

Luke England Sergott: With Barclays. Please go ahead.

Michael B. Petras: This is Salem on for Luke. Thanks for the questions. So first off on the NESHAP regulations, I just wanted to touch on kind of the expectations versus what actually happened in terms of timing of implementation and kind of the severity of the regulations. You mentioned that they are challenging, and I'm wondering if you're aware of how competitors will kind of react to that. Will they have issues complying, and does that kind of present an opportunity for Sterogenics to take share or lead to more outsourcing among customers?

Luke England Sergott: This is the same one for Luke thanks for the questions. So first off on niche up regulation just wanted to touch on.

Michael B. Petras: Kind of the expectations.

Michael B. Petras: Versus what actually happened in terms of.

Michael B. Petras: The timing of implementation and kind of the severity of the regulation you mentioned that.

Michael B. Petras: They are challenging and I'm wondering if.

Michael B. Petras: Youre aware of how competitors will react to that.

Michael B. Petras: They have issues complying.

Michael B. Petras: And does that kind of.

Michael B. Petras: Presented an opportunity for <unk> to take share or lead to more outsourcing among customers.

Speaker Change: Yes. Thank you I think some of the monitoring protocols and the timely to surround those are little more challenging than the proposed rule that ultimately became the final rule I think that would be one thing to call out and we're working with the regulators to make sure the industry in total understands the expectation around that I would say that would be the one area we call out we knew.

Michael B. Petras: are a little more challenging than the proposed rule that ultimately became the final rule. I think that would be one thing to call out, and we're working with the regulators to make sure the industry in total understands the expectation around that. I would say that would be the one area we'd call out. You know, we knew about – we suspected the PT would come out. We've talked about that before.

Michael B. Petras: We suspected the PT would come out we've talked about that for some of the destruction efficiencies are challenging for overall, but we again, we feel confident in where we're at that doesn't mean, it's easy for us either but we feel confident about our ability to meet those timelines that are put out in the rule as far as the broader industry lots of discussions going on it will be faster to.

Michael B. Petras: Some of the destruction efficiencies are challenging overall, but we – again, we feel confident in where we are. That doesn't mean it's easy for us either, but we feel confident about our ability to meet those timelines that are put out in the rule. As far as the broader industry is concerned, lots of discussion is going on. It'll be fascinating to watch this play out over the next six months to the next year. There are several smaller players that are questioning, you know, whether they are going to make this level of investment.

Michael B. Petras: Watch this play out over the next six months to the next year. There are several smaller players that are questioning are they going to make this level of investment we're hearing through customer engagements. We also have several customers coming to us, saying, hey, listen we're not exactly sure where we are in this and we don't know if we should be doing business with the smaller guys or just maybe to stay with the bigger players.

Michael B. Petras: We hear through customer engagements. We also have several customers coming to us saying, hey, listen, we're not exactly sure where we are in this, and we don't know if we should be doing business with these smaller guys or just maybe stay with the bigger players that have more investment and more capabilities around this area. So I think there is a wide range of outcomes still today because it's still fresh and early, and I'm not sure everybody even understands it exactly.

Michael B. Petras: That have more investment and more capabilities around this area. So I think it's a wide range of outcomes still today because it is still fresh in early and I'm not sure everybody even understands exactly they may not be as close to it as a company like ours that really understands these rules intimately and how challenging ABB I think that'll play out over the next several months, but again I want to.

Michael B. Petras: They may not be as close to it as a company like ours that really understands these rules intimately and how challenging they may be. I think that'll play out over the next several months, but again, I want to reiterate, we feel confident where we are. That doesn't mean it's going to be simple, but we feel confident where we are in the investments we've made, and we do not see a material increase in incremental CapEx to comply with these final rules that have been published.

Michael B. Petras: Reiterate we feel confident where we're at that doesn't mean, it's going to be simple, but we feel confident we're at and the investments we've made and we do not see a material increase in incremental capex to comply with these final rules have been published.

Michael B. Petras: Awesome. Thanks for the color there.

Speaker Change: Awesome. Thanks for the color there and then on Nelson Lab core.

Michael B. Petras: Core testing you've mentioned that you expect an improvement throughout the year.

Michael B. Petras: And then you've also mentioned before about kind of the three main headwinds.

Michael B. Petras: Shifting compliance deadlines in EU.

Michael B. Petras: And then on Nelson Labs' core testing, you've mentioned that you expect an improvement throughout the year. And then you've also mentioned before about, you know, kind of the three main headwinds, you know, the shifting compliance headlines in the EU, the macro pressures on smaller customers, and then sterilization volumes. Just wondering if any of those are, you know, a reversal of those headwinds expected. That's, that's leading to those improvements and then maybe sizing those headwinds as well. Thanks.

Michael B. Petras: The macro pressures on on smaller customers and then sterilization volumes just wondering if any of those are.

Michael B. Petras: A reversal of those headwinds are expected.

Michael B. Petras: That's leading to those improvements and then maybe sizing those headwinds as well.

Michael B. Petras: Yeah, you know, as sterilization volumes increase, we expect that to fall through routine testing, which we're seeing some of that within the Nelson business. On the EU, I think we mentioned last quarter that it'll be through the second quarter; we'll have that headwind on the EU medical device regulation, and we'll get through that headwind at the end of the second quarter.

Michael B. Petras: Thanks.

Michael B. Petras: Yes.

Michael B. Petras: Sterilization volumes.

Michael B. Petras: Increase we expect that to fall through routine testing, which we're seeing some of that within the Nelson business in the EU I think we mentioned last quarter that it will be through the second quarter, we will have that headwind on the EU medical device regulation, we'll get through that headwind at the end of the second quarter and then on the macro VC funding, we're seeing a little bit of improvement in that area.

Michael B. Petras: And then on macro VC funding, we're seeing a little bit of improvement in that area. But again, we feel that we will see improvement in Nelson Labs core testing as the year progresses. I just spent several days with that team last week.

Michael B. Petras: Again, we feel that we will see improvement in the Nelson labs core testing as the year progresses.

Michael B. Petras: Just spent several days with that team last week.

Michael B. Petras: And the other thing I'm really proud of what that team did as a service site in the quality reports. As you know, there were a lot of FDA audits going on, and the team did a great job. And our facilities and our processes play out very well there, but the quality and services really continue to perform. So, really proud of what Joe and the team are doing out there. And, and, you know, just looking at our customer SAT scores, we just looked at those; they went up again in Nelson last year.

Michael B. Petras: The other thing I'm really proud of what the team has done is to service site and the quality reports.

Michael B. Petras: You know theres been a lot of FDA audits going on and the team has done a great job.

Michael B. Petras: Our facilities and our processes play out very well there, but the quality and services is really continues to perform so really proud of what Joe and the team are doing out there and just looking at our customer sat scores. We just looked at those they went up again and Nelson last year.

Michael B. Petras: And looking at the monthly NPS is good, so I feel good about what the team's doing. They're getting the costs in line there to drive some of the productivity. And we're hopeful that we will continue to see slight improvements in volume as the year progresses.

Michael B. Petras: Looking at the monthly NPS is good so I feel good about what the team is doing there getting the costs in line there to drive some of the productivity.

Michael B. Petras: And we are hopeful that we continue to see slight improvements in volume as the years progressed.

Michael B. Petras: Awesome. I appreciate it. Thanks, guys.

Michael B. Petras: Our progresses.

Speaker Change: Awesome I appreciate it thanks guys. Thank.

Speaker Change: Thank you.

Operator: The next question is from Brett Fishburn with Key Bank. Please go ahead.

Michael B. Petras: The next question is from Brett Fishman with Keybanc. Please go ahead.

Brett Fishburn: Hey, guys. Thank you so much for taking my questions.

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

Brett Fishburn: Wanted to start off on one.

Michael B. Petras: Can you just provide some updated thoughts on the level of industry capacity, that's available in the outsourced sterilization industry across different modalities, maybe touching on and gamma.

Michael B. Petras: And that question in the context, I know theres, some inventory headwinds that are weighing on near term trends.

Michael B. Petras: You have three capacity expansions that are coming online, but it did stand out to me that you noted on the call that after those three projects were completed that you didn't plan on making incremental capacity expansion in the near term.

Michael B. Petras: Yeah, I'll take that on the capacity side. I would tell you EO capacity is very tight in the United States as well as in Europe. Very tight. It continues to be, you know, as much as you hear the noise around ethylene oxide, let's not forget that 50 plus percent of medical devices, according to the FDA, are sterilized with EO, and we are seeing demand needs from our customers, and we anticipate that continuing.

Speaker Change: Yes, Hey, Brian.

Michael B. Petras: Take that on the capacity side I would tell you Eo capacity is very tight in the United States.

Michael B. Petras: As well as in Europe very tight.

Michael B. Petras: Team use to be.

Michael B. Petras: Much issue here the noise around ethylene oxide, let's not forget that 50 plus percent of medical devices. According the FTE are sterilized with Eo and we are seeing demand need.

Michael B. Petras: Needs by our customers and we anticipate that continuing so.

Michael B. Petras: So, you know, it'll be interesting to see how that plays out north and south of the border because we do have customers that are interested in going south of the border and getting outside the US for some of this sterilization. But overall, I would just tell you capacity is still very tight on the EO side. On gamma E-beam, I'd say there is a little more capacity available on a global basis, but it is still generally a tight supply marketplace.

Michael B. Petras: <unk> see how that plays out north and south of the border because we do have customers that are going south of the border and getting outside the U S for some sterilization, but overall I would just tell you capacity is still very tight on the yield side.

Michael B. Petras: <unk> E beam I'd say, its a little a little.

Michael B. Petras: More capacity available on a global basis, but still generally a tight supply marketplace and we'll continue to monitor that as we go forward for us.

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

Michael B. Petras: We've got some investments in place that I'd mentioned that will continue and John mentioned that we will carry out throughout this year and into next year and the team is really doing a lot of work.

Michael B. Petras: Mike and his team and Ed and the team over there.

Michael B. Petras: <unk> are doing a lot of work on how to drive more capacity out of their existing footprint. So there's a lot of work there and operational excellence, we haven't talked a lot about that because the volumes have been down but I don't want you to lose sight of the fact that the team continues to focus on operational excellence and how to drive more either existing asset base.

Michael B. Petras: So there's a lot of work there on operational excellence. We haven't talked a lot about that because the volumes have been down, but I don't want you to lose sight of the fact that the team continues to focus on operational excellence and how to drive more out of their existing asset base.

Michael B. Petras: All right, thank you so much. And then just one quick follow up. I think the biggest topic around sterogenics and some of the trends has really been around the inventory normalization that's occurred with some customers, both in the US and in Europe. So you touched on that really briefly, but maybe just a little bit more color on if you're starting to see some light at the end of that tunnel, in terms of actual, you know, demand starting to be more reflective of underlying volumes, and how you see that progressing Thanks so much. Thanks, Fred.

Speaker Change: Alright. Thank you so much and then just one quick follow up I think the biggest topic around <unk> and some of the trends has really been around the inventory normalization. That's occurred with some customers both in the U S and in Europe. So you touched on it really briefly but maybe just a little bit more color on if youre starting to see some light at the end of that tunnel.

Michael B. Petras: In terms of like actual.

Michael B. Petras: Demand is starting to be more reflective of underlying volumes and how you see that progressing through the rest of the year. Thanks. So much.

Michael B. Petras: Thanks, Fred. We do see, you know, the bioprocessing lab, sequentially getting better, but still significantly down, double digits over prior years, same time period. You know, we're seeing general hospital, as I mentioned just a few minutes ago, the general hospital category, some of the kits, and that inventory level stabilizing. We expect sterigenics volumes to improve slightly as the year progresses.

Michael B. Petras: We do see

Fred: Thanks, Brett we do see.

Michael B. Petras: Bio processing lab, where sequentially getting better, but still significantly down double digits over prior year same time period.

Michael B. Petras: We're seeing general hospital as I mentioned just minutes ago. The general hospital categories. Some of the kits and that that inventory level stabilizing we expect <unk> volumes to.

Michael B. Petras: Improved slightly as the year progresses.

Operator: The next question is from Michael Polark with World Research. Please go ahead.

Michael B. Petras: The next question is from Michael <unk> with Wolfe Research. Please go ahead.

Michael B. Petras: Good morning. Thank you for taking the question. I want to follow up on that topic. So I have seen it for four quarters now.

Michael K. Polark: Good morning. Thank you for taking the question I want to follow up on.

Michael K. Polark: That topic, so I see for four quarters now.

Michael B. Petras: Sterigenics year-on-year volume mixed disclosure down one to two percent. There is a lot of discussion about the volume. I would like a better appreciation for the mixed piece of this. I guess I don't know or have a sense for precisely what that means. So what within the unit mix has been unfavorable over the last year or so, and kind of where does that dynamic sit as you look out into the rest of the year?

Michael K. Polark: <unk> year on year volume mix disclosure down 1%, 2%.

Michael B. Petras: Lot of discussion on the volume.

Michael B. Petras: I would like a better appreciation for the mix piece of this I guess I don't know or have a sense for precisely what that means so what within the unit mix has been unfavorable over the last year or so in.

Michael B. Petras: And kind of where.

Michael B. Petras: Where does that dynamic said as you look out into the rest of the year.

Michael B. Petras: Mike, we're tracking to the same numbers that you call out, down one to two percent over the last several quarters. You know, the big categories that have been drained for us, as we've stated on these calls, have been really around general hospital kits. In particular, we've called out in some of those areas where inventory levels were pretty high, shortages, and supply chain challenges for some of our customers. We're seeing that stabilized and slightly positive.

Speaker Change: Mike we are tracking to the same numbers that you call out down 1% to 2% over the last several quarters.

Michael B. Petras: The big categories had been drain for us as we've stated on these calls has been really around general hospital kits in particular, we've called out in some of those areas where inventory levels are pretty high shortages and supply chain challenges for some of our customers. We're seeing that stabilize slightly positive lab, where bio processing have been down.

Michael B. Petras: Labware and bioprocessing have been down significantly. I think you could see that industry-wide. We also say that's not a huge category for us, but it's a meaningful category, so we've seen that come down. We've seen other areas like gastroenterology, and urology, and some of those categories continue to perform well. It just all depends on where the customers are and their cycle with inventory and their supply chain challenges, but as I stated in the last call, and we continue to reiterate today, we're not seeing that get worse; we're seeing it stabilize and slightly getting better.

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

Michael B. Petras: Category. So we've seen that come down we've seen other areas like gastro neurology and some of those categories continued to perform well it just all depends on where the customers in their cycle with inventory in their supply chain challenges, but as I stated in our last call. We continue to reiterate today, we're not seeing that get worse, we're seeing stabilized slightly getting better.

Michael B. Petras: OK, I'm going to... Drill down on that again. And when you say mix, is it product category mix? Is it sterilization modality mix? Is it customer mix? I mean, what does mix mean to you when you make that disclosure?

Michael B. Petras: Okay.

Michael B. Petras: Yeah, that we're talking, in this case, about customer mix in a category mix that you're asking specific categories, that's what we're giving to you. But that's generally what we're not seeing shifts in modalities. If that's what your question is, we're not seeing that pressure for that problem.

Michael B. Petras: Sure.

Michael B. Petras: Drill down on that again, when you say when you say mix is it is it product category mix is it sterilization modality mix is it customer.

Michael B. Petras: Mix I mean, what does mix.

Michael B. Petras: To you when you when you make that disclosure.

Michael B. Petras: We're talking in this case, we're talking about customer mix in the category mix that Youre youre asking specific categories. That's what we're giving to you, but that's generally where it is we're not seeing shifts in modalities. If thats. What your question is we're not seeing pressure for that problem.

Michael B. Petras: Okay, and for the follow-up just on the three capacity expansions, can you remind me within Sterigenics kind of where they are relative to go live? What's the time horizon over which they will go live and kind of order of magnitude, how? Because I know there's been a series of these over the last few years, and I just want to understand the three that are left, you know, order of magnitude. How big are these expansions? Thanks so much. Ed.

Michael B. Petras: And for the follow up just on the three capacity expansion can you remind me.

Michael B. Petras: With <unk> kind.

Michael B. Petras: Where are they relative to go live.

Michael B. Petras: What's the.

Michael B. Petras: What's the time horizon over which they will go live in.

Ed: Kind of order of magnitude, how because I know there's been a series of these over the last few years and I just want to understand the three that are left order of magnitude how big are these expansions. Thanks so much.

Michael B. Petras: Thanks for the question. Three left, as you mentioned. One's going live this year, should be coming up in the next, you know, quarter or so, and then we have the two green fields. One will go live late this year, early next, and then the other one, you know, end of end of 25.

Michael B. Petras: Yes.

Speaker Change: For the question three.

Michael B. Petras: <unk> three <unk> as you mentioned one's going live this year should be coming up in the next quarter or so and then we have the two greenfields.

Michael B. Petras: One will come live.

Michael B. Petras: Late this year early next.

Michael B. Petras: And then the other one.

Michael B. Petras: End of 'twenty five.

Michael B. Petras: Thank you.

Speaker Change: Thank you.

Jason Peterson: Peterson, gentlemen, there are no more questions. At this time, the floor is back to you for any closing comments... Okay, well, we thank everybody for taking the time this morning to join our call. We look forward to seeing many of you at our upcoming investor conferences. In the meantime, if you have any questions...

Speaker Change: Gentlemen, there are no more questions registered at this time the floor back to you for any closing remarks.

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

Speaker Change: Well, we thank everybody for taking the time this morning.

Jason Peterson: During our call we look forward to see many of you at our upcoming Investor conferences in the meantime, if you any questions.

Jason Peterson: Feel free to reach out to Jason. Thank you and have a good day bye bye.

Jason Peterson: Okay.

Jason Peterson: Okay.

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