Q3 2025 Sotera Health Co Earnings Call

Good morning and welcome to the sotera health. Third quarter 2025 conference call.

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I would now like to turn the conference over to vice president of investor relations. Jason Peterson Jason, please go ahead.

Good morning, and thank you. Welcome to sutera Health's third quarter, 2025 earnings call. You can find today's press release in the company's supplemental. Slides on the investor section of our website at solterra health.com.

This webcast is being recorded and a replay will be available in the investor section of the Sitara Health Website on the call. With me today, our chairman and chief executive officer, Michael Petrus, and Chief Financial Officer. John Lyons during the call, some of our comments may be considered forward-looking statements 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 SATA Health's SEC. Filings in the forward-looking statements slide. At the beginning of the 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 EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted income, adjusted VPS, net debt, and net leverage ratio, in addition to constant currency comparisons.

Our reconciliation of gaap to non-gaap 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 1 question and 1 follow-up so that we can give everyone an opportunity to ask questions.

If you have any questions after the call, please feel free to reach out to me in the investor relations team. I'll Now call to turn the call over to Sarah Health, chairman and CEO, Michael Petrus.

Good morning, and thank you for joining us today. I'm pleased to report another excellent quarter for Sotera Health, marked by strong topline growth, double-digit adjusted EBITDA growth, margin expansion of approximately 150 basis points, and a 9-cent adjusted EPS increase compared to the third quarter of 2024.

Total company revenues increased 9.1% for the quarter while adjusted ebita increased 12.2%.

Sterigenics delivered, another strong quarter achieving 9.8%, Topline growth compared to the third quarter of 2024 driven, by consistent performance across our core medical device customers.

Originally scheduled for the fourth quarter, were fulfilled in the third quarter.

While Nelson Labs delivered, third quarter Revenue. That was mostly below our expectations. Our growth in core lab testing and operational improvements. Drove, segment, income, growth and margin expansion. This marks the fifth consecutive quarter of year-over-year. Margin expansion, Nelson Labs, highlighting our focus on execution.

In addition to our strong performance, during the quarter, we strengthen our balance sheet through paying down, 75 million a day in lowered our interest expense by approximately 13 million annually.

John will elaborate more on this shortly.

Given our strong, year-to-date results. And visibility in the remainder of the year, we are reaffirming our 2025 Revenue off of Outlook and our raising, our adjusted Eva Outlook.

Each quarter, I've emphasized Sitara Health's vital role in global Healthcare. I'm pleased to share that Nordy on recently secured a 25-year renewal of its class 1B operating license. The longest class 1B license ever granted by the Canadian nuclear safety Commission.

This Milestone reflects our deep trusted partnership with the cnsc in their conference, in Northern Safety culture and operational excellence.

With this renewed, license noram will continue to secure the global supply of Cobalt 60 supporting critical. Sterilization processes, including those performed by sterigenics and enabling life-saving radio. Therapeutic treatments for brain tumors and early stage breast cancer.

This achievement reinforces our mission of safeguarding global Health by ensuring a reliable supply of critical Cobalt 60 for our customers, the healthcare system and patients for decades to come now I'll turn over to John will walk us through the financials.

Thank you, Michael. I'll start with the review of our consolidated third quarter 2025 results, followed by a breakdown of performance across each business segment.

Uh, consolidated basis, third quarter revenues increased 9.1% to 311 million or 8% on a constant currency basis as compared to the third quarter of 2024.

Adjusted e to De increased by 12.2% to 164 million or 11.2% on a constant currency basis versus the third quarter of 2024.

Adjusted EBIT down margins reached 52.7%, an increase of 147 basis points over the prior year, driven by improved margins in both Sterigenics and Nelson Labs.

Interest expense for the third quarter was 39 million and Improvement of approximately 2.4 million versus the same period last year.

Net income for Q3 2025 was 48 million or 17 cents per diluted share compared to net income of 17 million or 6 cents per diluted share in Q3 2024.

Adjusted EPS was 26 Cents, an increase of 9 cents from the third quarter of 2024 nearly 4 cents of this benefit came from adjusted ebit. Dog growth less than 1 cent came from lower interest expense while the remainder relates to A reduced tax rate.

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

There are Genex continued, its strong performance in the third quarter, delivering 9.8% Revenue growth to 193 million, or 8.4% on a constant currency basis, compared to Q3 2024.

The revenue growth was driven by favorable volume mix of approximately 4.6%.

Increased pricing of 3.8%, and 140 basis points benefit from foreign currency exchange.

Segment income, increased 11.6%, 207 million or 10.2% on a constant currency basis.

with margins, improving, 90 basis points, year-over-year to 55.6%

Driven by strong Topline growth, partially offset by inflation.

Nordon's revenue increase was driven by a vitamin mix benefit of 18.9% and favorable pricing of 4.7%, partially offset by an unfavorable impact of 120 basis points from changes in foreign currency exchange rates.

Nordion segment income increased 19.9% to approximately 38 million or 21.2% on a constant currency basis versus Q3 of 2024.

Segment, income growth was driven by increased volume and mix, as well as customer pricing.

Approximately 130 basis points, driven by product mix.

On a year-to-date basis, Nordion segment income margins have increased more than 70 basis points.

Nelson Labs reported third quarter, 2025 revenue of 56 million, a 5% decline compared to the same period last year.

Favorable contributions from pricing of 2.7%.

Foreign exchange of 1.4% and core lab. Testing growth were offset by the decline in expert advisory services.

Nelson Labs third quarter, 2025 segment income Rose 1.9% to 19 million.

or flat on a constant currency basis with margins expanding 229 basis points year over year the 34.1%

Segment income and margin Improvement were driven by Vine and mix improvements lab optimization and favorable pricing.

What's now turned to our balance sheet cash generation and capital deployment, activities year to date, we have generated 184 million in positive, operating cash flow while Capital expenditures totaled, 87 million.

The company continues to be in a very strong liquidity position as of the end of the third quarter. We had over 890 million of available liquidity which included almost million dollars in unrestricted cash and nearly millions of available capacity on a revolving line of credit.

We continue making progress toward our long-term. Net leverage target range of 2 to 3 times.

Our net leverage ratio.

Improved to 3.3 times, at quarter end down from 3. 7 4 3.

As Michael mentioned, we took strategic actions this quarter to strengthen our balance sheet and lower interest expense.

First continue to adjusted even dog growth and cash. Generation helped us achieve a contractual net leverage Target. Treating our 25 basis point reduction in our Term Loan interest rate.

Then in September, we repriced the term loan for an additional 50 basis, point reduction, and repaid, 75 million of the facility.

These steps are expected to generate approximately 13 million dollars in annual interest savings.

Now, I'd like to turn to our 2025 full year outlook.

We are maintaining our full year, constant currency Revenue, growth Outlook range of 4.5, to 6% and anticipate Revenue growth will land near the midpoint of this range.

With continued benefits from Vine growth and operational improvements. We are raising our constant currency, adjusted ebit dog growth out. Growth Outlook to 6.75% to 7.75% up from the prior range of 6 to 7 and a half percent.

Foreign currency is expected to contribute approximately. 25 basis points to revenue and adjusted even dog growth versus the prior Outlook of no impact.

Total company price for 2025 is still expected to be near the midpoint of our long-term state of range.

of 3%, to 4%

For sterigenics, we continue to expect 2025 constant, currency Revenue, growth of mid to high single digits.

For nordion, we've raised our full year 2025 constant, currency Revenue, growth Outlook and now expect mid to high single-digit growth.

Additionally, I'm pleased to report that for 2025. There is no longer, any Revenue risk associated with Russian supplied Cobalt, 60?

For Nelson Labs. We now expect full year, 2025 constant currency revenues to decline mid single digits as the impact from expert. Advisory Services. More than offsets the continued growth in core lab testing and improved pricing

We expect the segment income margin to finish in the low to mid-30s percent range for the full year.

According to other guidance items.

Driven by our balance sheet initiatives discussed earlier. We are improving our interest expense range to 154 million to 158 million

from our previous Outlook of 155 million to 165 million.

Our effective tax rate on our adjusted. Net income is expected to be in the range of 29% to 31% in improving from the prior range of 31.5 to 33 and 1.5%.

The lower tax rate on adjusted net income, reflects, the adoption of recent accounting. Guidance related to the US tax law changes enacted in July.

We now expect that just the DPS to be in the range of 81 to 86 cents and increase in the previous range of 75 to 82 cents.

The 5-cent improvement from the midpoint of the prior EPS range. Reflects 2 cents driven by incremental EV generation and reduced interest expense with the balance driven by the favorable tax rate change.

We expect the fully diluted share count to remain in the range of 286 million to 287 million shares.

We now expect Capital expenditures to be in the range of 125 million to 135 million below our prior Outlook of 170 to 180 million driven by project timing and incremental cost savings.

While spending Cadence has shifted our expectation for cumulative, Capital expenditures from 2025, through 2027 remains unchanged and we are on track to achieve our 500 to 600 million cumulative. Free cash flow, commitments. Provided our 2024 investor day

We continue to expect year-end 2025 net, leverage ratio to improve compared to 2024.

Finally, as usual, our Outlook does not assume any m&a activity.

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

Thank you, John. We're very pleased with the quarters performance.

I would now like to give it update regarding the ethylene. Oxide, EO personal injury claims in Cobb County Georgia,

Although this is a lengthy and detailed update. The key point is while the cases pending in Cobb County.

Still have a ways to go. We believe the recent Phase 1 in Phase 2 rulings aligned with our long-standing position that when scientists considered fully fairly improperly the evidence refutes, the plan's claims in these matters.

As a reminder, the cop County court ordered phase proceedings in 8. Bell weather cases selected by the plaintiffs council.

Phase 1 was devoted to General causation.

The court required the plaintiffs to prove that EO emissions from our Atlantic facility are capable of causing the diseases. Alleged, by the plaintiffs.

In November 2024, the court excluded, 2 of the plaintiffs 3. General causation experts, but allowed the third expert under a quote. New standard end quote created by the court for these cases. That did not require the plaintiffs to establish the exposure levels at which EO becomes harmful to humans.

Both sides appealed.

On Friday October 31st, the Georgia court of appeals rejected the trial courts.

Quote, new standard and the quote and vacated the trial Court's Phase 1 orders.

Consistent with our position. The court of appeals directed, the trial court to apply the correct standard. That requires causation, experts to reliably identify the levels at which exposure to EO becomes harmful.

the court of appeals, also instructed the trial court to consider whether plaintiffs can prove General causation using epidemiologic evidence and background risk of the diseases at issue, which all occur in the general population without

exposure to EO emissions.

While the phase 1 appeals were pending 3 of the bellweather cases proceeded to phase 2, which was devoted to specific causation.

Plaintiffs were required to present, admissible expert testimony. That the plans were exposed to doses of EO from the Atlantic facility that caused their diseases.

October 17th to trial court excluded. All 3 of the plaintiff's causation experts and dismissed all 3 cases for failure to present reliable and admissible, evidence of specific causation.

The court also dismissed the plaintiff's claims for nuisance noting that the plaintiffs had not presented any evidence that the Atlantic facility had violated EPA, Georgia, epd, or Cobb County requirements?

Although the phase 2 orders, apply only the 3 Bell weather cases. We believe the substantive grounds for the ruling Supply with equal force to the remaining personal injury claims. This will be decided in due course, by the cop County court. And if necessary, the Georgia apella courts,

We'll continue to put the science front and center as we defend, stereogenic safe and essential operations.

This statement, the trial, Court's Phase 1 and Phase 2 orders. And a decision with the Georgia quarter court of appeals are all available on our website.

At this point, uh operator, I'd like to open it up for questions and answers.

Thank you.

We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone,

If you are using a speaker-phone, 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 roster.

And your first question today will come from Patrick Donnelly with City. Please go ahead.

Question. Um, maybe just 1 on the volume recovery, nice to see that. Continue are there certain areas you guys are seeing kind of outside recovery? I think last quarter, we talked a little bit about Medtech and bio production. Um, maybe what you see in there and what the expectations on the volume trajectory are from here.

Hey, hey Patrick, good morning. This is Michael, uh, we're seeing pretty consistent performance across, uh, sterigenics and across multiple, almost all categories bioprocessing. Medtech, broadly, overall, you know, we're seeing uh, good recovery environments, and we expect that to continue going forward.

Okay, great. And then just a quick 1, you know, helpful on the litigation update there, I guess maybe a quick 1 that is, in terms of where some of the other cases are. Uh, again it's that sounds like we can um continue to see some of these updates. So we would love to just hear the latest on, on the broad uh the broad mitigation side and and how you're feeling on those on that phone.

Yeah, uh Patrick you know, Illinois is uh, you know, wrapping up we've got the April 2025 uh, settlement that we did, that's been completed and closed out. Uh, the July 25th 1 is uh, progressing. Uh, well, that'll leave us with only 1 remaining case in Illinois. Uh, in Georgia I just gave you a lengthy update their on uh, New Mexico. Uh, right now there's there's no personal injury claims uh, currently in. There's only

1 suit brought by the AG for public nuisance that's set for trial in July 2026.

And then in California, uh, We've recently been informed that the the first trials are expected in January and April of 2027.

All right, perfect. Thank you.

Thank you.

Your next question today, will come from Casey Woodring with JP Morgan. Please go ahead.

Hi. This is Jaden on for Casey. Thank you so much for taking my question. Uh just first on steroid genetics. I was just wondering, are you factoring any expectation of of budget flushing for Q and giving you reaffirmed your Revenue outlook for the year after year 3? QB. Can you touch on how conservative your guidance is for 25? And the puts and takes behind that. Thank you. I'm sorry. Can you repeat the question and steroid Genex? I wasn't sure. I understood that first question.

I was just wondering if you're a factoring in any expectation of a budget flush in 42.

Uh, a budget flush. Are you talking about the government shutdown? Is that what you're referencing when you say "budget flush?"

No, I'm talking from the MedTech customers. From MedTech or bioprocessing. We're not expecting a budget flush.

We feel confident of our uh, our guidance and Outlook that we're giving you here for the rest of the year. I wouldn't say it's aggressive. I wouldn't say it's conservative. We just feel confident where it is with 1 core to go.

Okay, got it. And then just to follow up, just on the government shutdown. Since you mentioned it, are you seeing any impact from that in your RCA business or anywhere across your portfolio? Um, you know, when we look at remember, we have no direct government sales, uh, in the business. There's some indirect impact, but it's pretty minimal. It's not a material impact. We do feel a little bit of it in the expert advisory services, with some of the delays going on and and activity there. Uh, but overall, we don't see material impact to the company. We do not have direct sales to the government.

All right, got it. Thank you.

And your next question today, will come from Luke sergot with Barclays. Please go ahead.

Great, thanks for the question. Uh, just 2 2 for me, is about the 1 of the expert advisory business. Um, it seems we've gotten worse here, is that just related to, you know, the the lack of FDA funding, uh, lack of inspections and kind of the government shutdown and then the second 1 is on the implied 4q. Eva margin step down just want to know what's going on there. And and it's and I assume it's probably just not the, the Nordy on volumes, but just wanted to see if anything.

The benefits, some pretty low expenses, um, inside of that. And then, you know, we've been running really well in steady, we could see a little bit of uh, step back in, in in that. But uh, you know, nothing alarming there still stable margins for the year, maybe even slight growth for the year for for sterigenics.

Okay, great. Thanks.

And your next question today will come from Dave windley with Jeffrey's. Please go ahead.

Hi, good morning. Thanks for taking my question. Um, maybe follow up on on Nelson and asked the

I guess the other side of the coin, Michael the, the core lab testing, and the pickup there. So, so just kind of thinking about the balance if

If expert advisory is feeling this headwind and you know, that's kind of prisoner to what the government does on on funding the FDA. What is the the rest of the business look like and what's the demand quotient there?

Uh, thanks David. I'd say overall core lab testing is is is doing pretty well. We'd like to continue to see more growth. Uh, the routine volumes are some of the flow volumes are are picking up like we see in the sterilization volumes validation has been a little bit choppy, but we got some Pockets, particularly, with some of the new regulations, uh, you know, some of the requirements of extractable leachable testing and bioprocessing components. And then that thinks of that nature are all doing well. Uh, so overall we're seeing some nice growth in, in, uh, in the

Lab testing core we'd like to see it better. Overall, it's going in the right direction, and you know, fundamentally we're seeing the Embed Labs growth continued. The linkage with the Sterigenics piece in the volumes is clearly having an impact in a positive way.

Got it uh and then maybe zooming out a little bit and and just thinking more broadly to the question on.

On kind of the fourth quarter sequential progression, I think. Um, as Luke highlighted there's a little bit of margin pullback, John, you addressed that? Um, the revenue growth, um, indicated by your guidance also um, steps back a little bit and so I wondered, if you could you could just comment on

On Cadence timing, you know, things that for the year were, you know, reflected in Q3 that you maybe thought were going to land in Q4, that kind of thing relative to.

You know, kind of trajectory what's the smooth trajectory that that fits through? What is a higher 3Q? And a lower 4 q? Thanks.

Yeah, thanks. David. I would just say, you know, we we talked about the Nelson comments and the things that we're seeing in our expertise you. So we see other big factor that we talked about last quarter and we re re re-entering today is the nordion, the nordion lumping is, you know, we said it was going to be down significantly versus uh, last year, fourth quarter. And that's what you're, that's what you're referencing. That's the piece. We so we had a portion of it as we reference in our comments here that pulled into the third quarter from customers requests. Uh, but overall, you know, we still expect it to be down significant from last year.

I think this is all due to timing. But overall, when you look at the total year for Nordion, it'll be actually above our expectations, as we also comment on here today. So I think that's the other piece.

Okay, great. Thanks.

Question will come from Brett Fishman with KeyBank. Please go ahead.

Hey guys. Good morning, thank you so much for taking the questions. Just had a quick 1 on nordion. You know notice the very strong Revenue growth in the quarter um in excess of 22%. But I think you noted that there were some margin pressure from the mix and was just curious kind of like what type of mix shift with nordion um was causing some margin compression and does that persist moving forward?

Hey hey Brett uh it's it's Michael here. So you look at the business. It's it's it's tough to talk about margin pressure in the Dorian business. When you see the margins that we put up in that business. What we're referencing there is product sales, in particular, production of Radiators equipment sales. That's a lower margin in. Uh we saw some growth in that in the quarter and we'll see that sporadically here and there, but we don't see that as a material impact long term, the margin rates continue to be very strong in that business. As, you know,

Um, that is a very fair point. Um, and then just on sterigenics, it was really great to see a second quarter of, you know, really improved trends for the segment. Um, I was just curious, you know, how you think about, overall sustainability of call it mid to high single digit or high single digit type of growth as we look ahead um into 2026.

And, you know, maybe sort of giving guidance, if there's any key moving pieces that you would call out for next year other than potentially, more challenging comparisons. Thanks again.

Your guidance, uh, when we give, uh, you know, guidance at the beginning of next year. But overall, um, when we look at our long-range commitments, we made in the investor day, the last November we still feel pretty confident around that. So we're we're well situated. We'll talk about 26 when we get there.

And the next question will come from Jason Bednar with Piper Sandler. Please go ahead.

Hey, good morning guys. Thanks for taking the questions and congrats on the quarter here. Um, I wanted to first start on sterigenics pricing. It it

Decelerated ever. So slightly, I know, we're talking tens of basis points on a sequential basis, but I think you've been trending down, you know, 50 to 60 basis points here on year. The last few quarters. I think this is also the smallest pricing tail when we've seen in at least a few years and look, it's still good. It's better than a lot of other Healthcare verticals, but where do you think this this pricing contribution stabilizes? Is this a level do we need need to drift lower. Um, and then, you know, maybe the follow up there would be, is I think you've talked in the past about stronger opportunities and pricing, and stereogenic in light of the Investments. You've been making into your facilities deep is that potentially a reversal of sorts as we think about price and going forward for steroid, Genex

Yeah, he thinks, Jason. You know, we said last year in November we talked about, uh,

Price across the company 3 to 4 percent. We said steroids would be the high end of that range and that's basically where they're coming in at. We see that continuing, we don't, we don't see any concern around that if it's 3.8 3.94. It's right in that neighborhood. We see that we can't call Tech closely. But, uh, we also look at some of the niche app opportunities and those are things that we would say that could come on top of that over time, as we roll out that program and the regulations get set in the marketplace, so that would be above that run rate.

Okay, and maybe just on the to follow up on that last Point. Michael, is that as you reference that opportunity over time is that more of a like a post?

26 not not asking for 26 guidance. But is that a post 26 comment knowing that, you know, you know, your compliance with Niche app is still going to, you know, still a few quarters out and then separately, you know, appreciate everything that you gave us on on the litigation update side. Um, especially on the, the all the detail around, Georgia, I will. We'll get the details when the q's filed. But can you update us on that number of cases in California? I don't think we heard that other than just the, you know, the start of the uh, some of those case dates.

Yeah, I'm I'm sorry. You're I was getting distracted by your second part. What was the first part of the question you seen again? Post 26? Oh post 26 on on the niche, I'm sorry. Thank you. I had a little hesitation there. I would just say, you know, we're we're working with our customers on the appropriate, way to price in the, the Capital Improvements we put in our facilities, uh, that'll build out over time. Yes, Niche at timeline has been pushed out a little bit. So, we're working with our customers to do that but you'll see a gradual Improvement, uh, for that incremental price over time. Again, we to your point. We don't want to get into the 2026. Uh, but we'll, we'll give you some proper guidance on that, for 26 and 27 and 28, as we look at that pricing and Niche app, as far as California, uh, there's 83 personal injury claims

Thank you.

And your next question today will come from Michael polar with wolf research. Please go ahead.

Hi, good morning. Um Nelson. If I'm doing the math for 4 q,

Um, maybe in constant.

Currency terms are flattish year on year. Obviously, the comp gets easier as we lap in this advisory services headwind. My question is for '26, and I'm not asking for formal guidance. But with this big advisory headwind now in, is it reasonable to expect, given what you're seeing on routine testing, to expect Nelson to return to growth in '26?

Yeah yeah that that's that's a logical conclusion. Mike we're not going to get into 26 games but you're thinking about the right way.

um, my follow up on sterigenics, uh, last quarter after your um,

clear acceleration and a good number from your competitor. Um,

the discussion was around uh, order patterns ahead of tariffs and so I'm, I'm curious 3 to 6 months later. Do you have any better feel for whether in the second or third quarter is there was maybe a little bit of

Extra pull forward of ordering from Medtech customers as they maneuvered Supply. Chains ahead of, uh, Trump tariffs.

Stat fees that came in with some last minute requirements from customers, but nothing material. When you look at the overall scale of the business doing approximately 300 million dollars of Revenue per quarter across the company in total or you know, 197 million in sterigenics. There's nothing material there that we're able to to see

Thank you, Michael.

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

Great. Thank you. You know we achieved excellent results. Again, this quarter with solid Revenue, growth margin expansion and improved Financial strength, right? We're built for resilience and growth, our stable reoccurring Revenue base and expertise enable us to support our customers and highly rated markets and deliver consistent results through varying economic Cycles. We want to thank you to our customers and investors for your continued trust and partnership. We appreciate your support and we look forward to speaking with you again, next quarter and have a great day. Thank you.

The conference has now concluded, thank you for attending today's presentation. You may now disconnect