Q4 2025 Sotera Health Co Earnings Call

February 24, 2026

Speaker #1: Good morning and welcome to Sotera Health, fourth quarter and full year 2025 conference call. All participants will be in a listen-only mode. After today's presentation, there'll be an opportunity to ask questions.

Operator: Good morning, welcome to Sotera Health's Q4 and full year 2025 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star, then one one on your touch-tone phone. To withdraw your question, please press star one one again. Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead.

Speaker #1: To ask a question, please press star then 11 on your touchstone phone. To withdraw your question, please press star 11 again. Please note this event is being recorded.

Speaker #1: I would now like to turn the conference over to Vice President, Investor Relations, Jason Peterson. Jason, please go ahead.

Speaker #2: Good morning and thank you. Welcome to Sotera Health's fourth quarter and full year 2025 earnings call. Today's press release and supplemental slides are available on the Investor section of our website at soterahealth.com.

Jason Peterson: Good morning, thank you. Welcome to Sotera Health's Q4 and Full Year 2025 Earnings Call. Today's press release and supplemental slides are available on the investor section of our website at soterahealth.com. This webcast is being recorded, and a replay will also be available on the investor section of the Sotera Health website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael Petras, and Chief Financial Officer, John Lyons. During the call today, 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 Sotera Health's SEC filings in the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties.

Speaker #2: This webcast is being recorded and will be available for replay. We'll also be available on the Investor section of the Sotera Health website shortly after the call.

Speaker #2: Joining me today are Chairman and Chief Executive Officer Michael Petras and Chief Financial Officer John Lyons. During the call today, some of our comments may be considered forward-looking statements.

Speaker #2: 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.

Speaker #2: Please refer to Sotera Health's SEC filings and 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 statements.

Jason Peterson: The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt, and net leverage ratio, as well as constant currency comparisons. A 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 one question and one follow-up. For further questions, feel free to reach out to the investor relations team. With that, I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Speaker #2: Please note that during the discussion today, the company will present both gap and non-gap financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt, and net leverage ratio, as well as constant currency comparisons.

Speaker #2: 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.

Speaker #2: The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up. For further questions, feel free to reach out to the Investor Relations team.

Speaker #2: With that, I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Speaker #3: Good morning, and thank you for joining us. This morning, we announce another strong year of performance, extending our track record of year-over-year revenue growth to 20 consecutive years.

Michael Petras: Good morning. Thank you for joining us. This morning, we announced another strong year of performance, extending our track record of year-over-year revenue growth to 20 consecutive years. In 2025, the total company revenue increased 5.7% to $1.164 billion, or 5.2% growth on a constant currency basis versus 2024. Adjusted EBITDA increased 8.2% or 7.8% on a constant currency basis, with margins expanding to 51%, an increase of nearly 120 basis points. We also delivered adjusted free cash flow of over $200 million in 2025. Our results demonstrate strong execution, growing demand for our mission-critical services, and disciplined financial management. The team's performance in 2025 positions us well for sustained growth ahead. We also had several notable achievements during the year.

Speaker #3: In 2025, the total company revenue increased 5.7% to $1.164 billion, or 5.2% growth on a constant currency basis, versus 2024. Adjusted EBITDA increased 8.2%, or 7.8%, on a constant currency basis, with margins expanding to 51%, an increase of nearly 120 basis points.

Speaker #3: We also delivered adjusted free cash flow of over $200 million in 2025. Our results demonstrate strong execution, growing demand for our mission-critical services, and disciplined financial management.

Speaker #3: The team's performance in 2025 positions this wealth for sustained growth ahead. We also have had several notable achievements during the year. Our customer satisfaction exceeded 80%, underscoring our commitment to delivering excellent service.

Michael Petras: Our customer satisfaction exceeded 80%, underscoring our commitment to delivering excellent service. We advanced our portfolio across several key areas, including our commercial initiatives, continued to build momentum, with revenue from XBU customers expanding 9% year-over-year. Sterigenics delivered approximately 8% constant currency revenue growth versus 2024, driven by improved volume and mix. Significant progress was also made on the EO facility enhancements program, as well as the construction of the new X-ray facility, which is planned to open in 2026. Nordion delivered a strong year, achieving approximately 9% constant currency revenue growth. Also, in the Q4, the team signed a cobalt development agreement with Westinghouse and PSE&G. They secured a 25-year Class 1B license renewal for our Ottawa facility, which is the longest ever issued by the Canadian Nuclear Safety Commission.

Speaker #3: We advanced our portfolio across several key areas, including our commercial initiatives continue to build momentum with revenue from XBU customers expanding 9% year over year.

Speaker #3: Steragenics delivered approximately 8% constant currency revenue growth, versus 2024, driven by improved volume and mix. Significant progress was also made on the EO facility enhancements program, as well as the construction of the new X-ray facility, which is planned to open in 2026.

Speaker #3: Norion delivered a strong year, achieving approximately 9% constant currency revenue growth. Also, in the fourth quarter, the team signed a cobalt development agreement with Westinghouse and PSENG, and they secured a $25-year Class 1B license renewal for our Ottawa facility, which is the longest-ever issued by the Canadian Nuclear Safety Commission.

Speaker #3: Nelson Labs delivered core lab testing growth during the year. They expanded their margins by 312 basis points, and made progress on its clean room investment.

Michael Petras: Nelson Labs delivered core lab testing growth during the year. They expanded their margins by 312 basis points and made progress on its clean room investment. On the capital markets front, we reduced borrowing costs by 75 basis points on our $1.4 billion term loan and paid down $86 million of debt, resulting in $13 million of annual interest savings. We also upsized and extended our revolver, increasing liquidity by $175 million. Sotera Health public float increased to 80% of outstanding shares during 2025. We continue to strengthen our corporate governance with the appointment of a lead independent director. Also, as you may have seen, we welcomed Richard Kyle to the board earlier this month.

Speaker #3: On the capital markets front, we reduced borrowing costs by 75 basis points on our $1.4 billion term loan and paid down 86 million of debt, resulting in 13 million of the annual interest savings.

Speaker #3: We also upsized and extended our revolver, increasing liquidity by 175 million dollars. Sotera Health's public float increased to 80% of our standing shares during 2025.

Speaker #3: We continue to strengthen our corporate governance with the appointment of a lead independent director. Also, as you may have seen, we welcome Richard Kyle to the board earlier this month.

Speaker #3: Richard's leadership experience is a public company CEO and has extensive experience in operations and governance, along with a strong financial acumen, will serve as tremendous assets as we continue to grow.

Michael Petras: Richard's leadership experience as a public company CEO and his extensive experience in operations and governance, along with his strong financial acumen, will serve as tremendous assets as we continue to grow. Finally, we remain actively engaged with our shareholders on many corporate responsibility initiatives. 2025 was a strong first step in executing the 2025 to 2027 long-range plan we presented on our November 2024 Investor Day. We expect this year to represent another meaningful year of progress towards those goals. Earlier today, we issued our 2026 outlook.

Speaker #3: Finally, we remain actively engaged with our shareholders on many corporate responsibility initiatives. 2025 was a strong first step in executing the 2025 to 2027 long-range plan we presented on our November 2024 Investor Day.

Speaker #3: And we expect this year to represent another meaningful year of progress towards those goals. Earlier today, we issued our 2026 outlook. For the full year, we expect total revenue to increase to a range of $1.233 billion, to $1.251 billion, representing constant currency growth of 5% to 6.5%, versus 2025.

Michael Petras: For the full year, we expect total revenue to increase to a range of $1.233 billion to 1.251 billion, representing constant currency growth of 5% to 6.5% versus 2025, and adjusted EBITDA to grow to a range of $632 million to 641 million, or 5.5% to 7% constant currency growth. Before I hand it over to John, I'd like to highlight a management transition. As you may have seen in our press release this morning, effective 1 April of this year, Senior Vice President and General Counsel, Alex Dimitrief, will transition to an outside advisor to the company.

Speaker #3: And adjusted EBITDA to grow to a range of $632 to $641 million, or 5.5% to 7% constant currency growth. Before I hand it over to John, I'd like to highlight a management transition.

Speaker #3: As you may have seen in our press release this morning, effective April 1st of this year, Senior Vice President General Counsel Alex Dimitriev transitioned to an outside advisor to the company.

Speaker #3: I would like to thank Alex for his leadership and service the past three years, and we are grateful that he will continue to support the company going forward as an advisor.

Michael Petras: I would like to thank Alex for his leadership and service the past 3 years, and we are grateful that he'll continue to support the company going forward as an advisor. We are excited to announce that Erika Ostrowski, who has served for the last 2 years as the Vice President, Deputy General Counsel, and Corporate Secretary under Alex's leadership, will be promoted to Senior Vice President and General Counsel for Sotera Health. After demonstrating strong leadership, sound judgment, and a deep understanding of our business, Erika is well positioned for continued success in her new role. Now, John will take us through our Q4 and full year 2025 financials and our 2026 outlook in more depth.

Speaker #3: We are excited to announce that Erico Straussky, who has served for the last two years, is the Vice President, Deputy General Counsel, and Corporate Secretary under Alex's leadership, will be promoted to the Senior Vice President General Counsel for Sotera Health after demonstrating strong leadership, sound judgment, and a deep understanding of our business.

Speaker #3: Erica's well-positioned to continue success in her new role. Now, John will take us through our fourth quarter and full year 2025 financials and our 2026 outlook in more depth.

Speaker #2: Thank you, Michael. I'll begin with our consolidated fourth quarter and full year 2025 results and close with additional detail on our 2026 outlook. For the quarter, total company revenues increased 4.6% to $303 million, or 2.5% on a constant currency basis, versus Q4 2024.

Jason Peterson: Thank you, Michael. I'll begin with our consolidated Q4 and full year 2025 results, and close with additional detail on our 2026 outlook.

John Lyons: For the quarter, total company revenues increased 4.6% to $303 million, or 2.5% on a constant currency basis versus Q4 of 2024. The year-over-year comparison reflects the expected impact of Cobalt-60 harvest timing at Nordion. Adjusted EBITDA grew 2.7% to $157 million, or 0.5% on a constant currency basis, while adjusted EBITDA margins were 51.8% for the quarter. Interest expense was $35 million in the quarter, a $6 million improvement versus Q4 of 2024. Net income was $35 million, or $0.12 per diluted share. Adjusted EPS increased to $0.26, up $0.05 from the prior year, driven by a lower tax rate, as well as strong operating performance and lower interest expense, partially offset by higher depreciation.

Speaker #2: The year-over-year comparison reflects the expected impact of cobalt 60 harvest timing at Norion. Adjusted EBITDA grew 2.7% to $157 million, or 0.5% on a constant currency basis, while adjusted EBITDA margins were 51.8% for the quarter.

Speaker #2: Interest expense was $35 million in the quarter, a $6 million improvement versus Q4 2024. Net income was $35 million, or 12 cents per diluted share.

Speaker #2: Adjusted EPS increased to $26 cents, up 5 cents from the prior year, driven by a lower tax rate, as well as strong operating performance and lower interest expense, partially offset by higher depreciation.

Speaker #2: Now let's take a closer look at our segment performances for the fourth quarter as compared to the same period last year. Steragenics revenue improved 10.6% to $198 million, or 8% on a constant currency basis.

John Lyons: Now let's take a closer look at our segment performances for Q4 as compared to the same period last year. Sterigenics revenue improved 10.6% to $198 million, or 8% on a constant currency basis. Growth was driven by 4.3% favorable pricing, 3.7% volume and mix, as well as a 2.6% foreign currency benefit. Segment income increased 10.4% to $110 million, or 7.8% on a constant currency basis, reflecting favorable pricing, volume and mix, and foreign currency, partially offset by inflation. As expected, Nordion's revenue decreased 12.3% to $50 million, as the timing of Cobalt-60 harvest schedules drove unfavorable volume and mix of 15%, which was partially offset by 2.4% favorable pricing.

Speaker #2: Growth was driven by 4.3% favorable pricing, 3.7% volume and mix, as well as a 2.6% foreign currency benefit. Segment income increased 10.4% to $110 million, or 7.8% on a constant currency basis, reflecting favorable pricing, volume and mix, and foreign currency partially offset by inflation.

Speaker #2: As expected, Norion's revenue decreased 12.3% to $50 million, as the timing of cobalt 60 harvest schedules drove unfavorable volume and mix of 15%, which was partially offset by 2.4% favorable pricing.

Speaker #2: Norion's segment income decreased by 18.9% to $29 million, and segment income margins decreased 466 basis points to 57.5%, primarily driven by the lower volumes and unfavorable product mix.

John Lyons: Nordion segment income decreased by 18.9% to $29 million. Segment income margins decreased 466 basis points to 57.5%, primarily driven by the lower volumes and unfavorable product mix. Nelson Labs revenue increased 2.3% to $55 million, which was nearly flat on a constant currency basis. Favorable pricing of 3.2%, foreign exchange of 2.5%, and core lab testing growth were partially offset by lower expert advisory services revenue. Segment income rose 1.9% to $18 million, a decline of 1.2% on a constant currency basis. Growth was driven by favorable pricing, growth in core lab testing, and foreign currency, partially offset by lower expert advisory services revenue and higher costs.

Speaker #2: Nelson Labs' revenue increased 2.3% to $55 million, which was nearly flat on a constant currency basis. Favorable pricing of 3.2%, foreign exchange of 2.5%, and core lab testing growth were partially offset by lower expert advisory services revenue.

Speaker #2: Segment income rose 1.9% to $18 million, a decline of 1.2% on a constant currency basis. Growth was driven by favorable pricing, growth in core lab testing, and foreign currency, partially offset by lower expert advisory services revenue and higher costs.

Speaker #2: Now let's turn to the full year 2025 results as compared to the prior year on a consolidated basis. We delivered revenue growth of 5.7% to $1.164 billion, or 5.2% on a constant currency basis.

John Lyons: Now let's turn to the full year 2025 results as compared to the prior year on a consolidated basis. We delivered revenue growth of 5.7% to $1.164 billion, or 5.2% on a constant currency basis. Adjusted EBITDA improved 8.2% to $593.8 million, or 7.8% on a constant currency basis, resulting in Adjusted EBITDA margins of 51%, an improvement of 118 basis points. Interest expense improved $9 million to $156 million, driven by lower interest rates, the favorable repricing of our term loan, and $86 million of debt paydown. Reported net income for 2025 was $78 million, or $0.27 per diluted shares.

Speaker #2: Adjusted EBITDA improved 8.2% to $593.8 million, or 7.8% on a constant currency basis, resulting in adjusted EBITDA margins of 51% and an improvement of 118 basis points.

Speaker #2: Interest expense improved $9 million to $156 million, driven by lower interest rates, the favorable repricing of our term loan, and $86 million of debt paydown.

Speaker #2: Reported net income for 2025 was $78 million, or $27 cents per diluted shares. Adjusted EPS for the year was $86 cents per weighted average diluted share, an increase of 16 cents versus 2024, driven by operational growth, a lower tax rate, and improved interest expense, partially offset by higher depreciation.

John Lyons: adjusted EPS for the year was $0.86 per weighted average diluted share, an increase of $0.16 versus 2024, driven by operational growth, a lower tax rate, and improved interest expense, partially offset by higher depreciation. I will now turn to the balance sheet cash generation and capital deployment for the full year 2025. adjusted free cash flow was $210 million, putting us well on track to achieve the 2025 through 2027 cumulative goal of $500 to $600 million we set at our November 2024 Investor Day. capital expenditures totaled $138 million in 2025. The company continues to maintain a strong liquidity position.

Speaker #2: I will now turn to the balance sheet cash generation and capital deployment for the full year 2025. Adjusted free cash flow was $210 million, putting us well on track to achieve the 2025 through 2027 cumulative goal of $500 to $600 million, we set at our November 2024 investor day.

Speaker #2: Capital expenditures totaled $138 million, and 2025. The company continues to maintain a strong liquidity position. As of December 31st, 2025, we had approximately $940 million of available liquidity, including $345 million of unrestricted cash and nearly $600 million of capacity under our revolving credit facility.

John Lyons: As of 31 December 2025, we had approximately $940 million of available liquidity, including $345 million of unrestricted cash and nearly $600 million of capacity under our revolving credit facility. Net leverage improved to 3.2x at year-end from 3.7x in 2024, as we continued progressing toward our 2x to 3x long-term target. Turning to our 2026 outlook. For the full year, we expect total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit as compared to 2025.

Speaker #2: Net leverage improved to 3.2 times at year-end from 3.7 times in 2024, as we continued progressing toward our 2 to 3 times long-term target.

Speaker #2: Turning to our 2026 outlook for the full year, we expect total company revenue to grow to a range of $1.233 to $1.251 billion. Representing 5 to 6.5% constant currency growth and an estimated $100 basis point foreign currency benefit, as compared to 2025.

Speaker #2: We expect adjusted EBITDA to improve to a range of $632 to $641 million, representing 5.5% to 7% constant currency growth and an estimated $100 basis point impact from foreign currency.

John Lyons: We expect adjusted EBITDA to improve to a range of $632 to $641 million, representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be weighted toward the first half of 2026, with the largest impact expected in Q1. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid to high single digits constant currency revenue growth year-over-year, with Q1 anticipated to grow in the mid-single digits range. We expect Q1 revenue to be the lightest of the year. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026.

Speaker #2: The foreign exchange benefit is expected to be weighted toward the first half of 2026, with the largest impact expected in the first quarter. Total company pricing is expected to be approximately the midpoint of our 3 to 4% long-term range.

Speaker #2: For 2026, we expect Steragenics to deliver mid to high single digits constant currency revenue growth year over year, with the first quarter anticipated to grow in the mid single digits range.

Speaker #2: We expect the first quarter revenue to be the lightest of the year. We expect Norion to grow constant currency revenue in the low to mid single digits in 2026.

Speaker #2: Norion's first-half 2026 revenue is expected to represent approximately 40% to 45% of full-year revenue, with Q2 2026 revenue expected to be heavier than Q1 2026.

John Lyons: Nordion's first half 2026 revenue is expected to represent approximately 40% to 45% of full-year revenue, with Q2 2026 revenue expected to be heavier than Q1 2026. For Nelson Labs, we expect full-year 2026 constant currency revenue growth to be in the low single digits, with Q1 growth expected to decline low to mid-single digits versus Q1 2025. Additionally, Q1 2026 revenue is expected to be the lightest quarter of the year. For 2026, we expect interest expense between $135 to $145 million based on the current forward rate curve. We are projecting an effective tax rate applicable to Adjusted Net Income in the range of 27% to 29%.

Speaker #2: For Nelson Labs, we expect full-year 2026 constant currency revenue growth to be in the low single digits, with Q1 growth expected to decline low to mid-single digits versus Q1 2025.

Speaker #2: Additionally, Q1 2026 revenue is expected to be the lightest quarter of the year. For 2026, we expect interest expense between $135 to $145 million, based on the current forward rate curve.

Speaker #2: We are projecting an effective tax rate applicable to adjusted net income in the range of $27 to $29%. Adjusted EPS is expected to be in the range of $93 cents to $1.01, driven by operational growth as well as improved interest expense.

John Lyons: Adjusted EPS is expected to be in the range of $0.93 to 1.01, driven by operational growth as well as improved interest expense. We expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. We expect a fully diluted share count in the range of 289 million to 291 million shares on a weighted average basis. Capital expenditures are expected to be in the range of $175 million to 225 million in 2026. We expect to make continued progress in reducing our net leverage ratio again in 2026. Finally, as usual, our guidance does not assume any M&A activity. I will now turn the call back over to Michael for closing remarks.

Speaker #2: We expect depreciation to increase in 2026 consistent with the step-up we experienced in 2025. We expect a fully diluted share count in the range of $289 million to $291 million shares on a weighted average basis.

Speaker #2: Capital expenditures are expected to be in the range of $175 million, to $225 million, in 2026. We expect to make continued progress in reducing our net leverage ratio again in 2026.

Speaker #2: Finally, as usual, our guidance does not assume any M&A activity. I will now turn the call back over to Michael for closing remarks.

Speaker #1: Thank you, John. As we move into 2026, we are encouraged by our momentum strengthened balance sheet, and we are confident in our ability to drive long-term growth, strong cash flow, and shareholder value.

Michael Petras: Thank you, John. As we move into 2026, we are encouraged by our momentum, strengthened balance sheet, and we are confident in our ability to drive long-term growth, strong cash flow, and shareholder value. We are on track to meet the commitments we made in our November 2024 Investor Day, and I am confident in our team's ability to execute and deliver for our customers and investors. We remain focused on executing on the priorities we've laid out previously, which are excellence in serving our customers with end-to-end solutions, winning growth markets, driving operational excellence to enhance free cash flow, and disciplined capital deployment. At this point, operator, let's open the call up for questions and answers.

Speaker #1: We are on track to meet the commitments we made in our November 2024 investor day, and I am confident in our team's ability to execute and deliver for our customers and investors.

Speaker #1: We remain focused on executing on the priorities we've laid out previously, which are excellence in serving our customers with end-to-end solutions, winning in growth markets, driving operational excellence to enhance free cash flow, and disciplined capital deployment.

Speaker #1: At this point, Operator, let's open the call up for questions and answers.

Operator: 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 speakerphone, please pick up a handset before pressing any keys. To withdraw your question from the queue, please press Star, then 1 again. At this time, we will pause momentarily to assemble our roster. All right, 1 moment before our first question. Our first question comes from Sean Dodge with BMO Capital Markets. Your line is open.

Speaker #3: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 11 on your touchstone phone.

Speaker #3: If you are using a speakerphone, please pick up a handset before pressing any keys. To withdraw your question from the queue, please press star, then 11 again.

Speaker #3: At this time, we will pause momentarily to assemble our roster. All right. One moment before our first question. Our first question comes from Sean Dodge with BMO Capital Markets.

Speaker #3: Your line is open.

Speaker #1: Yeah, thanks. Good morning. Maybe just starting on the guidance and the EBITDA margins—at the midpoint, it implies about 20 basis points of expansion. That's on top of a pretty significant improvement you drove.

Sean Dodge: Yeah, thanks. Good morning. Maybe just starting on the guidance and the EBITDA margins, at the midpoint implies about 20 basis points of expansion. That's on top of a, you know, pretty significant improvement you drove in 2025. What you're targeting this year, is that all just operating leverage, or is there any other dynamics kind of happening there worth calling out? Are you taking costs out, adding costs in anywhere, or are there any unusual mix impacts or anything else like that? I guess it looks like Nelson will be a little bit of a, kind of a slower grower, so you get a little bit of a mixed benefit from that, but anything else worth highlighting?

Speaker #1: And in 2025, what you're targeting this year, is that all just operating leverage, or is there any other dynamics kind of happening there worth, worth calling out?

Speaker #1: Are you taking costs out, adding costs in anywhere? Are there any unusual mix impacts or anything else like that? I guess it looks like Nelson will be a little bit of a, a kind of a slower grower, so you get a little bit of a, a mixed benefit from that.

Speaker #1: But, but anything else, worth highlighting?

Speaker #4: Hey, Sean. Thanks for the question. No, you're spot on with the midpoint of the guide and what it implies. And no, it's nothing abnormal going on—just normal operating leverage and running the business.

John Lyons: Hey, Sean, thanks for the question. No, you're spot on with the midpoint of the guide and what it implies. No, it's nothing abnormal going on, just normal operating leverage and running the business.

Speaker #1: Okay, great. And then, on Sterigenics, you'd mentioned recently you had one, or at least one, client that had been insourcing sterilization that's now chosen to outsource to you all.

Sean Dodge: Okay, great. Then on Sterigenics, you've mentioned recently you had one or at least one client that had been insourcing sterilization, that's now chosen to outsource to you all. Is there any more background you can share on and their decision? Was that all because of NESHAP, or were there some other factors driving that decision to finally outsource? Then maybe anything on, like, the magnitude timing of that shift. I know you're not building these into numbers, but are we starting to see kind of ice break now and the backdrop being set for more of these decisions to happen?

Speaker #1: Is there any more background you can share on, and their decision? Was that all because of Nishap, or were there some other factors driving that decision to, to finally outsource?

Speaker #1: and then maybe anything on, like, the, the magnitude, timing of that shift, and I, I know you're not building these into numbers, but are we starting to see kind of ice break now in, in the backdrop being set for more of these decisions to happen?

Speaker #4: Yeah. Sean, this is Michael. Good morning. I would say we don't we don't see I, I think your words were ice breaking or we're not seeing significant shifts in that in that arena at this point in time.

Michael Petras: Yeah, Sean, this is Michael. Good morning. I would say we don't see. I think your words are ice breaking, or we're not seeing significant shifts in that, in that arena at this point in time. You know, the compliance period is out for 2 more years. The one customer you're referencing that we've talked about in the past, we'll start to bring some volume in late this year, and it'll roll in through 2027 and 2028. You know, there's lots of factors that go into the decisions. You know, that's ultimately the customer's choice. I'm sure the requirements of the new regulations was a factor. I can't speak on behalf of the customer and all the details, and also I've got to respect some confidentiality we have in place with them.

Speaker #4: You know, the compliance period's out for two more years. The one customer you're referencing, that we've talked about in the past, we'll start to bring some volume in late this year, and it'll roll in through '27 and '28.

Speaker #4: You know, there's lots of factors that go into the decisions. You know, that's ultimately the customer's choice. I'm sure the requirements of the, the new regulations was a factor.

Speaker #4: I can't speak on behalf of the customer and all the details and also I've got to respect some confidentiality we have in place with them.

Speaker #4: But overall, you know, we're progressing as we told you previously, that customer would be transitioning over to us with their sterilization volume.

Michael Petras: Overall, you know, we're progressing, as we told you previously, that that customer would be transitioning over to us with their sterilization volume.

Speaker #1: Okay. great. Thanks again.

Sean Dodge: Okay, great. Thanks again.

Speaker #4: Thanks, Sean.

Michael Petras: Thanks, Sean.

Speaker #3: One moment for our next question. Our next question comes from Patrick Donnelly with City. Your line is open.

Operator: One moment for our next question. Our next question comes from Patrick Donnelly with Citi. Your line is open.

Speaker #5: Hey, guys. Thank you for taking the questions. Michael, maybe one for you on, on Steragenics. Can you just talk about how you're thinking about '26, both on the volume and pricing side?

Patrick Donnelly: Hey, guys. Thank you for taking the questions. Michael, maybe one for you on Sterigenics. Can you just talk about how you're thinking about 2026, both on the volume and pricing side? We'd love just a little color on areas like bioprocessing, medtech, how you're thinking about just those categories improving throughout 2026 and what you're seeing on the demand front.

Speaker #5: Would love just a little color on areas like bioprocessing, med tech, how you're thinking about just those categories improving throughout '26 and, and what you're seeing on the on the demand front.

Speaker #1: Yeah. thanks, Patrick. I would say, you know, we've, we've gotten out a long-range guide for the company at 3 to 4 percent price. Steragenics, you know, came in in '25 on the high end of that range, which is what we call for.

Michael Petras: Yeah. Thanks, Patrick. I would say, you know, we've given out a long-range guide for the company of 3% to 4% price. Sterigenics, you know, came in in 2025 on the high end of that range, which is what we called for. We'd expect the same thing to happen in 2026. In med tech volumes, you know, we saw growth in volume and mix as the year progressed, and we expect that to continue into 2026 as well. We're seeing across multiple categories as we referenced on our last call, and I'd say we're seeing the consistency there as well.

Speaker #1: We'd expect the same thing to happen in 2026. bioprocessing, you know, we have a very small base, but we had significant growth that we experienced last year.

Speaker #1: We'd expect that to continue as we move into 2026. And med tech volumes, you know, we saw growth in volume and mix as the year progressed, and we expect that to continue into '26 as well.

Speaker #1: And we're seeing across multiple categories as we've referenced in our last call, and I'd say we're seeing the consistency there as well. We've got a and I the one the other thing I'd call out, Patrick, as I think about is, you know, the commercial segment has been a little bit more challenging some of the volumes there.

Michael Petras: We've got. I, the only other thing I'd call out, Patrick, as I think about is, you know, the commercial segment has been a little bit more challenging. Some of the volumes there, you know, we wrapped up 25, looking into 26. Overall, the core volumes, which are really the foundation for the business, is med tech, and those are in a pretty good spot.

Speaker #1: You know, as we wrapped up '25 looking into '26. But overall, the core volumes, which are really the foundation for the business, is med tech, and those are in a pretty good spot.

Speaker #5: Okay. That's helpful. And then maybe just Nelson Lab. I know you guys have the EAS headwinds. Those are going to ease. It sounds like one, two, maybe down a little bit.

Brett Fishbin: Okay, that's helpful. Then just Nelson Labs, I know you guys have the EAS headwinds. Those are going to ease, sounds like one, two, maybe down a little bit. How do you think about the progression through the year there as that headwind eases, and then maybe for John on the Nelson margins? I know that's a big driver for margin expansion. Is 2026 getting back to that low to mid 30%? Just would love some color there. Thank you, guys.

Speaker #5: How do you think about the progression through the year there? And, and as that headwind eases, and then maybe for John on the Nelson margins, you know, I know that's a big driver, for margin expansion.

Speaker #5: Is '26 getting back to that low to mid 30%? Just, just would love some color there. Thank you, guys.

Speaker #1: Yeah. I'll, I'll start with the, the second part of your question there, Patrick, on the margin side. You know, we, we see Nelson s-solidly staying in the low to mid 30s.

John Lyons: Yes, I'll start with the second part of your question there, Patrick, on the margin side. You know, we see Nelson solidly staying in the low to mid thirties again, this year. Q1 could, you know, being the lightest quarter, I expect on the lower side of the margin rate. You know, then the first part of your question, could you repeat again, was about Nelson progression throughout the year on the revenue side?

Speaker #1: again, this year, Q1 could, you know, is go being the lightest quarter. I expect on the lower side of, the margin rate. you know, and then the first part of your question, could you repeat it again?

Speaker #1: Was it about Nelson progression throughout the year? On the revenue side?

Speaker #5: Yes. Yeah. Just with the EAS headwinds, how you're thinking about it.

Brett Fishbin: Yes. Yeah, just with the EAS headwinds, how you're thinking about it?

Speaker #1: Yeah. I would say the, the biggest headwind we, we have, the expert advisory comp actually has a little bit trailing into Q1 comp challenge.

John Lyons: Yeah, I would say that the biggest headwind we have, the expert advisory comp actually has a little bit trailing into Q1 comp challenge. We should improve from here, and this should be the last quarter where we face that kind of headwind. It's a lower headwind than it's been, but still meaningful to the quarter.

Speaker #1: so we should improve from, from here as, and this should be the last quarter where we, face that kind of, headwind. It's a lower headwind than it's been, but it's still, still meaningful to the quarter.

Speaker #4: And, and remember, you know, as John stated, first quarter's typically our softest quarter in that business. Every year, it's like that. So margins and volumes will be softer in the first quarter.

Michael Petras: Remember, you know, as John stated, Q1 is typically our softest quarter in that business. Every year, it's like that, so margins and volumes will be softer in Q1.

Speaker #5: Yeah. Got it. Thanks, Michael.

Brett Fishbin: Yeah, got it. Thanks, Michael.

Speaker #3: One moment for our next question. Our next question comes from Luke Sargott with Barclays. Your line is open.

Operator: One moment for our next question. Our next question comes from Luke Sergott with Barclays. Your line is open.

Speaker #6: This is Salem on for Luke. Thanks for taking our question. maybe just piggybacking off of Patrick's question. On 1Q Guide, Steragenics ramping a little bit, throughout the year.

Salman: This is Salman for Luke. Thanks for taking our question. Maybe just piggybacking off of Patrick's question on Q1 guide, Sterigenics ramping a little bit throughout the year. I think you talked a little bit about how volumes are kind of accelerating out of the year. If you could just talk about any dynamics at play there with the slightly slower start to the year for Sterigenics. Thanks.

Salman Khan: This is Salman for Luke. Thanks for taking our question. Maybe just piggybacking off of Patrick's question on Q1 guide, Sterigenics ramping a little bit throughout the year. I think you talked a little bit about how volumes are kind of accelerating out of the year. If you could just talk about any dynamics at play there with the slightly slower start to the year for Sterigenics. Thanks.

Speaker #6: I think you talked a little bit about how, how volumes are kind of accelerating out of the year. But if you could just talk about any dynamics at play there, with the slightly slower start to the year for Sterigenics.

Speaker #6: Thanks.

Speaker #4: Yeah. Thanks, Sam. you know, Steragenics, like Nelson, typically the first quarter is the softest quarter. we, we also kind of where we sit today, we're seeing a soft start to the year.

Michael Petras: Yeah. Thanks, Sam. You know, Sterigenics, like Nelson, typically Q1 is the softest quarter. We also kind of where we sit today, we're seeing a soft start to the year. Some of that's shutdown related, some of it also, there is some weather impact that we felt as well. We're guiding towards mid-single digits as we kind of look at Q1 for Sterigenics.

Speaker #4: some of that's shutdown related. Some of it also we there is some weather impact that we felt as well. But we're, we're guiding towards mid-single digits as we kind of look at the, the first quarter for Steragenics.

Speaker #6: Got it. That's, that's helpful. and then if you could talk a little bit about the X-ray facility, and when exactly it opens in '26, maybe, any tailwinds associated with the facility opening.

Salman: Got it. That's helpful. If you could talk a little bit about the X-ray facility, and when exactly it opens in 2026, maybe any tailwinds associated with the facility opening. Maybe just talk about a little bit on the strategy behind opening the X-ray facility and how bringing in that capability helps to serve customers and create new opportunities.

Salman Khan: Got it. That's helpful. If you could talk a little bit about the X-ray facility, and when exactly it opens in 2026, maybe any tailwinds associated with the facility opening. Maybe just talk about a little bit on the strategy behind opening the X-ray facility and how bringing in that capability helps to serve customers and create new opportunities.

Speaker #6: and maybe just talk about a little bit, on the strategy behind opening the X-ray facility and how bringing in that capability helps to serve customers and create new opportunities.

Speaker #1: Yeah. Sam, we, you know, we're, we're full supplier across sterilization in all the modalities. You know, we made the strategic decision, over three years ago when, you know, we go through a three-year strap plan every year with our board.

Michael Petras: Yeah, Sam, we, you know, we're a full supplier across sterilization, all the modalities. You know, we made the strategic decision over 3 years ago when, you know, we go through a 3-year strap plan every year with our board. In that, in the process of that, you know, Mike and the team laid out a strategic plan that built some more X-ray capability beyond the capability we already have today. We expect that to open up in the second half of this year. We're in a qualification with our customers. You know, just like any other facility, that'll have a ramp period over time. There'll be a little impact in 2026, and then we'll start to see that, you know, accelerated in 27 and 28 and beyond. This was a long-term strategic investment.

Speaker #1: And in that in the process of that, you know, Mike and the team laid out a strategic plan to build some more X-ray capability beyond the capability we already have today.

Speaker #1: We'd expect that to open up in the second half of this year. We're in the qualification with, with our customers, you know, just like any other facility that'll have a ramp period over time.

Speaker #1: there'll be a little impact in 2026, and then we'll start to see that, you know, accelerate in 2027 and '28 beyond. But this was a long-term strategic investment.

Speaker #1: We got a co-locate with the Gamma facilities. We're working with some customers on, on, on qualifications now. But again, it's, it's more part of our longer strategic plan to make sure we have full service offering across all modalities.

Michael Petras: We got to co-locate with a gamut of facilities. We're working with some customers on qualifications now. Again, it's more part of our longer strategic plan to make sure we have full service offering across all modalities.

Speaker #6: Got it. Appreciate it, Michael.

Salman: Got it. Appreciate it, Michael.

Salman Khan: Got it. Appreciate it, Michael.

Speaker #1: Thank you.

Michael Petras: Thank you.

Speaker #3: One moment for our next question. Our next question comes from Brett Fishman with KeyBank. Your line is open.

Operator: One moment for our next question. Our next question comes from Brett Fishbin with KeyBank. Your line is open.

Speaker #7: Hey, good morning, everyone. Thanks for taking the questions. Just maybe moving past the segment conversation, I think at a high level, you noted that revenue from the cross-selling, or XBU customer base, was up 9% year over year in 2025.

Brett Fishbin: Hey, good morning, everyone. Thanks for taking the questions. Just, maybe moving past the segment conversation. I think at a high level, you noted that revenue from the cross-selling or XBU customer base was up 9% year-over-year in 2025. I was curious if you could maybe dive in a little bit. I'm curious how big that group of customers is as a percentage of total, and then maybe any other color on what you think drove that excess 400 bps of growth within that cohort relative to total company.

Speaker #7: So, I was curious if you could maybe dive in a little bit. I'm curious how big that group of customers is as a percentage of total.

Speaker #7: And then maybe any other caller on what you think drove that excess 400 bips of growth within that cohort relative to total company.

Speaker #4: Yeah. Brett, we've got several activities going on across BU. We've got, you know, several hundreds of customers that are doing business across both platforms.

Michael Petras: Yeah, Brett, we've got several activities going on across BU. We've got, you know, several hundreds of customers that are doing business across both platforms. We also within there, we have strategic pilots of some key segments that we're really looking to accelerate on. We've seen significant growth, as I said, the 9%, but even within those pilots, it's even greater than that. The team's doing a really good job in leveraging the value prop across Sotera Health and being able to bring the capabilities end-to-end. We, you know, we continue to look at our customer satisfaction scores. You know, Sterigenics overall, well, I'd say first of all, the company, they're over 80% overall. Sterigenics numbers were even significantly higher last year, and the XBU customers continue to be above that average.

Speaker #4: And then we also, within there, we have strategic pilots of some key segments that we're really looking to accelerate on. So we've seen significant growth, as I said, the 9%.

Speaker #4: But even within those pilots, it's even greater than that. The team's doing a really good job in leveraging the value prop across Sotera Health and being able to bring the capabilities end to end.

Speaker #4: we're, you know, we continue to look at our customer satisfaction scores, you know, Steragenics overall. well, I'd say, first of all, on the company, they're over 80% overall Steragenics numbers were even significantly higher last year in the XBU customers continue to, to be above that average.

Speaker #4: So, we'll continue to look for opportunities to accelerate that. We've got a lot of commercial work going on with the teams, and we're hopeful to see even more rewards from that in 2026.

Michael Petras: We'll continue to look for opportunities to accelerate that. We've got a lot of commercial work going on with the teams, and we're hopeful to see even more rewards from that in 2026.

Casey Woodring: All right, great. Then for a follow-up, maybe just thought I'd bring up capital allocation. I think, you know, the story continues to get better here, and, you know, net debt and net leverage are continuing to gradually improve. Just wondering if there's, you know, any slight marginal change in how you're thinking about, you know, further activity here in terms of, like, organic investment and debt reduction versus the potential to see maybe a bolt-on acquisition this year. Thank you very much.

Speaker #6: All right. Great. And then for a follow-up, maybe just thought I'd bring up capital allocation. I think, you know, this story continues to get better here and, you know, net debt and net leverage are continuing to gradually improve.

Speaker #6: So just wondering if there's, you know, any slight marginal change in how you're thinking about, you know, further activity here in terms of, like, organic investment and debt reduction versus the potential to see maybe a bolt-on acquisition this year.

Speaker #6: Thank you very much.

Speaker #4: Yeah. Thanks, Brad. You know, our priorities are staying the same as what we told you before. Our first priority is to fund, organic investments and making sure we're getting the appropriate returns on that.

Michael Petras: Yeah. Thanks, Brett. You know, our priorities are staying the same as what we told you before. Our first priority is to fund organic investments and making sure we're getting the appropriate returns on that. We committed to a free cash flow target for the 25 to 27 period. We're still committed to that today, and the guide that we gave you in outlook for CapEx for 2026 fits within that framework. You know, the business will continue to do well and generate cash flow and being prioritized, as we've talked about in the past.

Speaker #4: We committed to a free cash flow target, for the 25 to 27 period. We're still committed to that today. And, the, the guide that we gave you in Outlook for CapEx for 2026 fits within that framework.

Speaker #4: So, you know, the business will continue to, to do well and generate cash flow and being prioritized as we've talked about in the past.

Speaker #6: All right. Great. Thanks again.

Casey Woodring: All right, great. Thanks again.

Speaker #4: Thank you.

Michael Petras: Thank you.

Speaker #3: One moment for our next question. Our next question comes from Max Mock with William Blair. Your line is open.

Operator: One moment for our next question. Our next question comes from Max Smock with William Blair. Your line is open.

Speaker #8: Hi. Good morning. It's Christine Raines on for Max Mock. just hoping to circle back to your, two active Steragenics growth projects. on the, the X-ray facility, knowing the past, you've pointed to a roughly 40% customer utilization target before breaking ground.

Christine Rains: Hi, good morning. It's Christine Rains on for Max Smock. Just hoping to circle back to your 2 active Sterigenics growth projects. On the X-ray facility, knowing the past, you've pointed to a roughly 40% customer utilization target before breaking ground, and instead of the project did not meet the threshold, but obviously, it's strategically important. Curious how much below that 40% typical benchmark you're currently seeing, and if you're assuming any margin dilution for the segment in 2027 until utilization ramps. If you can give us some color around the sterilization modality for the other facility build.

Speaker #8: And have said that the project did not meet the, the threshold. But obviously, strategically important. So curious how much below that 40% typical benchmark, you're currently seeing, and if you're assuming any margin dilution for the segment in 2027 until utilization ramps, and then also if you can give us, some color on the sterilization modality for the, the other facility build.

Speaker #4: Okay. I'm sorry. You've, you've got, like, seven questions within that one. Let me try to break this down. A couple perspectives.

Michael Petras: Okay, I'm sorry. You've got, like, seven questions within that one. Let me try to break this down. A couple perspectives.

Speaker #8: Okay. My apologies. Thank you.

Christine Rains: Okay, my apologies. Thank you.

Speaker #4: Yeah. It's okay. That's okay. Let me just walk through it. We, we've stated in the past we target, 40%, you know, before we put shovels in the ground.

Michael Petras: Okay. That's okay. Let me just walk through it. We've stated in the past, we target 40%, you know, before we put shovels in the ground, 40% utilization, you know, that's what we hope to have committed with our customers. This one's a little bit lighter than that one. We've also said we target 20% IRR on our investments. Obviously, if we're putting cobalt in an existing facility or an EO chamber in an existing facility, that's above the 20%. Greenfields are below that. This one will be below that, obviously, because it's a complete greenfield. Strategically, it's important to us because we think there's some segments of the market that would like X-ray, and we're bringing that service to them. We still think that the other modalities will be, by and large, the largest segments in modalities.

Speaker #4: Forty percent utilization—you know, that's what we hope to have committed with our customers. This one's a little bit lighter than that one. We've also said we target a 20% IRR in our investments.

Speaker #4: Obviously, if we're putting cobalt in an existing facility, or an EO chamber in an existing facility, that's above the 20%. Greenfields are below that. This one will be below that.

Speaker #4: Obviously, because it's a complete greenfield. Strategically, it's important to us because we think there are some segments of the market that would like X-ray, and we're bringing that service to them.

Speaker #4: We still think that the other modalities will be by and large the, the largest, segments, and modalities. we will see this ramping up in the second half of the year.

Michael Petras: We will see this ramping up in the second half of the year. I'm trying to think. I'll throw all your questions. On Sterigenics margin, you know, John mentioned that we'll have slight margins improvements in 2026, and, you know, that'll be driven predominantly by Sterigenics, where we sit today. That encompasses some of the costs that'll come in with low volumes on the X-ray facility, and we'll see that phenomenon continue as we look into 2027 as well. I think I've addressed all of them. I, I don't know if I've missed anything else.

Speaker #4: I'm trying to think. I'll throw all your questions. Steragenics margins of, you know, John mentioned it will have slight margins improvements in 2026. And, you know, that'll be driven predominantly by Steragenics where we sit today.

Speaker #4: That encompasses some of the costs that, that'll come in with, low volumes on the X-ray facility. And we'll see that phenomenon continue as we look into 27 as well.

Speaker #4: So I think I've addressed all of them. I, I, I, I don't know if I missed anything else.

Speaker #8: Yeah. No. I think you got the majority of them. I was just wondering if you've, have any color on the, the sterilization modality for the other facility.

Christine Rains: Yeah, no, I think you've got the majority of them. I was just wondering if you have any color on the sterilization modality for the other facility. I think your deck pointed to two growth projects in Sterigenics.

Speaker #8: I think your DAC pointed to two growth projects in Sterigenics.

Speaker #4: Oh, the, the, the second, facility. Now, we have not we have not gone ahead into detail. You know, we're working with our customers on that facility.

Michael Petras: Oh, the second facility. No, we have not gone ahead into detail. You know, we're working with our customers on that facility, and we have not gone ahead and publicly released, you know, what kind of facility or where that's gonna be at this point in time.

Speaker #4: And we have not gone ahead and publicly released, you know, what kind of facility or where that's going to be at this point in time.

Speaker #8: Got it. Thank you for taking our questions.

Christine Rains: Got it. Thank you for taking our questions.

Speaker #3: One moment for our next question. Our next question comes from Casey Woodring with J.P. Morgan. Your line is open.

Operator: One moment for our next question. Our next question comes from Casey Woodring with J.P. Morgan. Your line is open.

Speaker #9: Great. Thank you for taking my questions. maybe the first one. Just any changes on how you're thinking about the competitive positioning in Sterogenics in light of Nishap?

Casey Woodring: Great. Thank you for taking my questions. Maybe the first one, just any changes on how you're thinking about the competitive positioning in Sterigenics in light of NESHAP? I know that that was a focus coming out of the last analyst day, just in terms of opportunity to gain share from smaller players. Then maybe same question on the Nelson side. Maybe just walk us through the latest and greatest on the current competitive landscape there.

Speaker #9: I know that was the focus coming out of the last analyst day, just in terms of the opportunity to gain share from smaller players.

Speaker #9: And then maybe same question on the Nelson side. Maybe just walk us through the latest and greatest on the com current competitive landscape there.

Speaker #4: Thanks, Casey. on, on the Sterogenics competitive scenario, I would say, as I mentioned earlier in my comments, Nishap is got a two-year extension period.

Michael Petras: Thanks, Casey. on the Sterigenics competitive scenario, I would say, as I mentioned earlier in my comments, NESHAP has got a 2-year extension period. We're seeing discussions about insourcing and outsourcing, slowing down. That doesn't mean customers aren't having discussions with us overall on what their strategic plans on their supply chain. Those have always been ongoing. I don't think there's the urgency that people saw when, you know, the April 2026 deadline was in place. That's now been extended. you know, we continue to compete very well. Our customer satisfaction scores were up significantly last year versus the prior year. We'll see how 2026s are when we do the surveys here coming out shortly. Overall, I think Sterigenics is well positioned and, you know, it's the strength of the business model.

Speaker #4: So we're seeing discussions about insourcing and outsourcing, slowing down. That doesn't mean customers aren't having discussions with us overall on what their strategic plans on their supply chain.

Speaker #4: Those have always been ongoing. but I don't think there's the urgency that people saw when, you know, the April 2026 deadline was in place.

Speaker #4: That's now been extended. You know, we continue to compete very well. Our customer satisfaction scores were up significantly last year versus the prior year.

Speaker #4: We'll see how '26s are when we do the surveys here coming out shortly. But overall, I think Sterigenics is well positioned. And, you know, it's the strength of their business model.

Speaker #4: It's the global platform. It's consistency in our quality systems. It's our ability for our customers to contract with us on a global basis and us being a full-service provider, that helps take care of them in all modalities in all geographies.

Michael Petras: It's the global platform, it's consistency in our quality systems, it's our ability for our customers to contract with us on a global basis, and us being a full service provider that helps take care of them in all modalities and all geographies. I would say Sterigenics continues to be very well positioned. On Nelson Labs, you know, Nelson Labs is, you know, a very fragmented market overall, but that business is really good at service and quality, and the reputation is what really matters there with science, and the team continues to do very well. We've got pockets in that business, as you know, the core lab testing has improved over the last year.

Speaker #4: So I would I would say Sterogenics just continues to be very well positioned. On Nelson Labs, you know, Nelson Labs is, you know, very fragmented market overall.

Speaker #4: But that business is really good at servicing quality in, in the reputation is what really matters there with science and the team continues to do very well.

Speaker #4: We've got pockets in that business, as you know. The core lab testing has improved over the last year. The advisory business has been a little bit more choppy because of some of the remediation projects that come and go based on some of the FDA activity.

Michael Petras: The advisory business has been a little bit more choppy because of some of the remediation projects that have come and gone based on some of the FDA activity. Overall, you know, we continue to accelerate in the marketplace. Our customer stat scores are good. Our NPS, we also do a, you know, an NPS, a Net Promoter Score, and that continues to perform very, very well. I'd say, you know, we're very well situated, but it's a different dynamic, Casey, in that market. It's a more fragmented market on a global basis. We do, you know, we do 8,900 tests in that business across our facilities around the world.

Speaker #4: But overall, you know, we continue to, to accelerate in the marketplace. Our customer sat scores are good. Our NPS, we also do a, you know, an NPS, a net promoter score.

Speaker #4: And that continues to perform very, very well. So, I’d say, you know, we’re very well situated, but it’s a different dynamic, Casey, in that market.

Speaker #4: It's a more fragmented market on a on a global basis. But we do, you know, we do 8, 900 tests in that business. Across our facilities around the world.

Speaker #9: Got it. Understood. And then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front?

[Analyst] (J.P. Morgan): Got it. Understood. Then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front? Thank you.

Casey Woodring: Got it. Understood. Then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front? Thank you.

Speaker #9: Thank you.

Speaker #4: No, I mean, there's nothing materially changed on timing. You know, I—I think, when I look at it, there's no trials set for this year other than the public nuisance case in New Mexico in the July time period.

Michael Petras: No. There's nothing materially changed on timing. When I look at it, there's no trial set for this year other than the public nuisance case in New Mexico in the July time period. Other than that, there isn't any material change in timelines.

Speaker #4: But other than that, there isn't any material change in timelines.

Speaker #3: Thank you. One moment for our next question. Our next question comes from Jason Bednar with Piper Sandler. Your line is open.

Operator: Thank you. One moment for our next question. Our next question comes from Jason Bednar with Piper Sandler. Your line is open.

Speaker #10: Hey. Good morning. Thanks for taking our questions. Mike, I wanted to come back to one of the comments you made, just on your response to the first quarter Sterigenics guide.

Jason Bednar: Hey, good morning. Thanks for taking our questions. Mike, I wanted to come back to one of the comments you made just on the, your responding to the Q1 Sterigenics guide. Just unpack the comment, if you could, around the slower start to the year and the weather headwinds on Sterigenics. Were those, were those comments connected, or was that something where you're saying demand was a little bit slower to start the year and weather has been creating some challenges as well? Then for the weather comment, particular, just if you can quantify how large is that headwind, is that something that you've, like, you, that you feel like you can overcome here within the Q1?

Speaker #10: Just to unpack the comment, if you could, around the slower start to the year and the weather headwinds on Sterigenics. Were those comments connected?

Speaker #10: Or was that something where you're saying demand was a little bit slower to start the year and weather has been creating some challenges as well?

Speaker #10: and then for the weather comment in particular, just, if you can quantify how large is that headwind? Is that something that you've, you've like, you've that you feel like you can overcome here within the first quarter?

Speaker #10: Or does it take a couple of quarters to, you know, overcome and catch up on those, you know, that impact or those headwinds?

Jason Bednar: Does it take a couple of quarters to, you know, overcome and catch up on those, you know, that impact of those headwinds?

Speaker #4: Yeah, Jason, good morning. I would say, a couple of comments. My comments were focused around—we have some shutdowns in the quarter, and weather has had some impact.

Michael Petras: Yeah, Jason, good morning. I would say a couple of comments. My comments were focused around, we had some shutdowns in the quarter, and weather has had some impact that we felt. The guide that we gave today, a bit single digits, is consistent with what we feel we can deliver, and also the guide for the year, mid to high single digits, is we're confident in our ability to deliver that as well. I would say that's how you should think about it.

Speaker #4: That we felt. The guide that we gave today—a mid-single digits—is consistent with what we feel we can deliver, and also the guide for the year, mid- to high-single digits, we're confident in our ability to deliver that as well.

Speaker #4: So I would say that's how you should think about it.

Speaker #10: Okay. All right. Fair enough. And then, maybe longer-term or, maybe medium-term to long-term, wanted to ask in the context of future CapEx and free cash flow.

Jason Bednar: Okay, fair enough. Maybe longer term or maybe medium term to long term, wanted to ask in the context of future CapEx and free cash flow. You have a couple of capacity expansion plans underway. We've been talking about those here today. I guess, do you still feel comfortable with those long-term targets? I think you do, just you're reiterating them today. Just how do you think about those in the context of medium-term, long-term planning for additional capacity expansion? When do those additional capacity expansions or greenfield opportunities, when do those discussions happen? How are you planning for those today, knowing you're looking out to 28, 29, and 30? Hopefully, that question makes sense.

Speaker #10: You have a couple of capacity expansion plans underway. We've been talking about those here today. do I guess, do you still feel comfortable with, with those long-term targets?

Speaker #10: I think you do. just you reiterating them today. But just ho-how do you think about those in the context of medium-term, long-term planning for additional capacity expansion?

Speaker #10: When do those additional capacity expansions or greenfield opportunities when, when do those discussions happen? How are you planning for those today knowing you're looking out to 28, 29, and 30?

Speaker #10: Hopefully, that question makes sense.

Speaker #4: I, I think I got it, Jason. So as I mentioned multiple times as well as this morning, you know, we do a three-year strap plan, with our leadership team and the board every August.

Michael Petras: I think I got it, Jason. As I mentioned multiple times as well as this morning, you know, we do a three-year strap plan with our leadership team and the board every August, and we kind of lay out the next 3 years of where we see the capital demands. That really was the foundation of the Investor Day presentation we gave for the 2025 to 2027 time period. As we continue to roll forward and look at opportunities beyond that, we continue to make sure that we've got the facility capacity in place to deliver the long-term growth that we need. You know, we will continue to refresh that and provide updates where appropriate on future outlooks.

Speaker #4: And we kind of lay out the next three years of where we see the capital demands. And that really was the foundation of the investor day presentation we gave for the '25 to '27 time periods.

Speaker #4: We continue to roll forward and look at opportunities beyond that. we continue to make sure that we've got the facility and capacity in place to deliver the long-term growth that we need.

Speaker #4: So, you know, we will continue to refresh that and provide updates where appropriate on future outlooks. But for the time periods that we've given guidance around, '25 to '27, you know, we feel confident in our ability to deliver the free cash flow that we've outlined in that time period.

Michael Petras: For the time periods that we've given guidance around, 25 to 27, you know, we feel confident in our ability to deliver the free cash flow that we've outlined in that, in that time period.

Speaker #10: All right. Got it. Makes sense. Thanks so much. Congrats again.

Jason Bednar: All right. Got it. Makes sense. Thanks so much. Congrats again.

Speaker #4: Great. Thank you.

Michael Petras: Great. Thank you.

Speaker #3: One moment for our next question. Our next question comes from Ryan Halstead with RBC Capital Markets. Your line is open.

Operator: One moment for our next question. Our next question comes from Ryan Halsted with RBC Capital Markets. Your line is open.

Speaker #11: Morning. Thanks for taking the questions. Maybe just to ask a question on the Nordion segment—can you maybe provide a little more color on some of the headwinds you saw in the quarter?

Ryan Halsted: Morning. Thanks for taking the questions. Maybe just to ask a question on the Nordion segment. Can you maybe provide a little more color on some of the headwinds you saw in the quarter? Certainly in, especially given that, you know, you were going up against some lighter comps. You obviously talked about the timing of the Cobalt-60 harvest schedule. You know, maybe just any color around, you know, what were the drivers there, including that timing impact?

Speaker #11: certainly, in especially given that, you know, you were going up against maybe some, some lighter comps. You obviously talked about the timing of the, Cobalt 60 harvest schedule.

Speaker #11: You know, maybe just any color around, you know, what were the drivers there, including that timing impact?

Speaker #4: You know, Ryan, I would just—Michael, I would just say it was driven by, it was driven by harvest schedules, right? That's—We called this.

Michael Petras: You know, Ryan, this is Michael. I would just say it was driven by harvest schedules, right? We called this, we expected it to be down. It's really, you know, it's not a demand problem, it's a supply timing situation. Remember how this works. You get cobalt out of nuclear reactors. Their primary purpose in life is to generate electricity for consumers and businesses. We work with utilities on when they're going to do a shutdown, so we could harvest the cobalt out of the facilities, out of the reactors. We have very good visibility. That will shift every now and then, a couple of weeks or months here and there, but we have good visibility. We anticipated this. We projected that to the investment community to make sure they understood it.

Speaker #4: We expected it to be down. It's really, you know, it's not a demand problem. It's a supply timing situation. So remember how this works.

Speaker #4: You get cobalt out of nuclear reactors that primarily exist to generate electricity for consumers and businesses. So we work with utilities.

Speaker #4: And when they're going to do a shutdown so we could harvest the cobalt out of the facilities, out of the reactors. And that's so we have very good visibility.

Speaker #4: That will shift every now and then a couple of weeks or a month here and there. But we have good visibility. So we anticipated this.

Speaker #4: We projected that to the investment committee to make sure they understood it. So we're not concerned at all about the fourth quarter from a volume perspective.

Michael Petras: We're not concerned at all about the Q4 from a volume perspective. We knew that, and we had good visibility, and that's why we also give you visibility on how we think of first half, second half. You could start to circle in and hone in on how those harvests will work in the year to come. All right? There was no surprise about that. Overall, you know, it came in as expected, or it's actually slightly better even.

Speaker #4: We knew that. And we had good visibility. And that's why we also give you visibility on how we think a first half, second half so you could start to circle in and hone in on how those, those harvests will work in the year to come.

Speaker #4: All right? So I there, there was there was no surprise about that. Overall, you know, it came in as expected or it's actually slightly better even.

Speaker #11: Got it. That's helpful. Thank you. And then for my follow-up, just any updated views on the potential impact of onshoring, by your customers, especially, you know, given the dynamic environment with tariffs and, and the government maybe proposing some regulations with incentives, for certain for, for, manufacturers to, you know, try to bring more of that manufacturing onshore?

Ryan Halsted: Got it. That's helpful. Thank you. Then for my follow-up, just any updated views on the potential impact of onshoring, by your customers, especially, you know, given the dynamic environment with tariffs and the government maybe proposing some regulations with incentives, for certain manufacturers to, you know, try to bring more of that manufacturing onshore? Just curious your thoughts on impact to your business.

Speaker #11: Just, curious your thoughts on impact to your business.

Speaker #4: Yeah. Yeah. Great. So, remember, the majority of our business is a service business. We're not really impacted by tariffs. The one place where we have product is the Cobalt product.

Michael Petras: Yeah, great. Remember, the majority of our business is service business. We're not really impacted by tariffs. The one place where we have product is the cobalt product, that's USMCA certified. We don't have any tariffs. I just want to kind of level set that. Now, talking about the bigger macro environment. We have not seen a significant movement at the onshoring. If that were to happen, you know, customers are having discussions with us. We're not seeing a significant investment commitment at this point in time. If it were to happen, we'd be very well situated because we have a very significant position in the marketplace here in the United States, where we anticipate that onshoring, if it were to occur, would happen here.

Speaker #4: That's USM USMCA certified. So we don't have any tariffs. I just I just want to kind of level set that. And now talking about the bigger macro, environment, we, we have not seen a significant move in on the onshoring.

Speaker #4: But if that were to happen in you know, customers are having discussions with us. We're, we're not seeing a significant investment commitment at this point in time.

Speaker #4: But if it were to happen, we'd be very well situated because we have a very significant, position in the marketplace here in the United States where we anticipate that onshoring if it were to occur would, would happen here.

Speaker #11: Great. Thank you. Appreciate all the color.

Operator: Great. Thank you. Appreciate all the color. One moment before our next question. Our next question comes from David Windley with Jefferies. Your line is open.

Speaker #3: One moment for our next question. Our next question comes from David Winley with Jefferies. Your line is open.

Speaker #10: Hi, good morning. Thanks for taking my question. Michael, I was wondering, in regard to the guidance, where are your areas of higher or lower visibility, or, said differently, what could firm up as the year progresses that takes you to the higher end of the range?

David Windley: Hi. Good morning. Thanks for taking my question. Michael, I was wondering, in regard to the guidance, where are your areas of higher or lower visibility? Said differently, what could firm up as the year progresses that takes you to the higher end of the range?

Speaker #4: Yeah. David, it's pretty consistent year in and year out. I'm, I'm it sounds like a broken record, but it's volume. It's the volume in mixed piece that would tend us towards the high end.

Michael Petras: Yeah, David, it's pretty consistent year in, year out. I sound like a broken record, but it's volume. It's the volume and mix piece that would tend us towards the high end. As you know, Nordion, we have probably the best visibility, Sterigenics, less so. We've got, you know, a quarter or so out, and then in Nelson Labs is more transactional in nature, and some of those validation projects could take a little longer. I'd say in that order, but the biggest thing that could drive us to the higher end of that would be volume and mix in Sterigenics and Nelson Labs.

Speaker #4: And as you know, Nordian, we have probably the best visibility sterogenics, less so. We've got, you know, quarter so out. And then in Nelson Labs is, is more transactional in nature.

Speaker #4: And some of those validation projects could take a little longer. So I say in that order. But the biggest thing that could drive us to the higher end of that would be, volume in mixed and sterogenics and Nelson Labs.

Speaker #10: And if and if I asked you to take that down a level, would you like, between you commented on this a little earlier in the call, but like, med device versus bioprocessing, you know, your kind of end markets, is one of those firming up or accelerating more than the other vis-à-vis visibility?

David Windley: If I asked you to take that down a level, would you, like, between, you commented on this a little earlier in the call, but, like, med device versus bioprocessing, you know, your kind of end markets, is one of those firming up or accelerating more than the other vis-a-vis visibility?

Michael Petras: You know, I got to think about that. You know, we're seeing bioprocessing with nice growth, but we're in a pretty small share position. Maybe our sales guys really think we picked up a little share. I'm not sure we have. We, we're seeing nice growth overall in that area, but it's a small category. I'd say they're both in a pretty good spot right now, David, but just recognize bioprocessing is a much smaller base for us.

Speaker #4: You know, I, I’ve got to think about that. You know, we’re seeing bioprocessing with nice growth, but we’re in a pretty small share position.

Speaker #4: Maybe we picked our, our sales guys really think we picked up a little share. I'm not sure we have. but we, we're seeing nice growth overall in that area.

Speaker #4: But it's a small category. I'd say they're both in a pretty good spot right now, David, but just recognize bioprocessing is a much smaller base for us.

Speaker #10: Yeah. Yeah. Okay. Thank you.

David Windley: Yeah, yeah. Okay. Thank you.

Speaker #3: One moment for our next question. Our next question comes from Michael Pollock with Wolf Research. Your line is open.

Operator: One moment before our next question. Our next question comes from Mike Polark with Wolfe Research. Your line is open.

Speaker #12: Good morning. One of the things I heard on Sterigenics was that the commercial segment volumes are challenged. Michael, can you unpack that? Remind us what product categories are commercial.

Mike Polark: Good morning. one of the things I heard on Sterigenics was, the commercial segment volumes are challenged. Michael, can you unpack that? remind us what product categories are commercials, is food and consumer products, or something else? you know, what those challenges are, why you perceive them to be?

Speaker #12: Is this food and consumer products, or something else? And, you know, what those challenges are—why you perceive them to be.

Speaker #4: Yeah, so Mike, yeah, just reflecting on the comment I made earlier. With commercial, it’s exactly what you talked about—there’s some electronics in there.

Michael Petras: Mike, that's reflecting on the comment I made earlier. Commercial is exactly what you talked about. There's some electronics in there's some food in there's some spice in there's some other categories as well, that it's just been a choppy market. Coming out of COVID, it really hasn't been very stable. It's been moving around quite a bit. We continue to see that going forward here, and we're planning around that. I would say that would be it. Now, again, it's a small portion of the total. I think it's less than 16%. I can't remember what the exact number is. It's a small portion of Sterigenics in context-wise.

Speaker #4: There's some food in there. There's some spice in there. There are some other categories as well. It's just been a choppy market, coming out of COVID.

Speaker #4: It really hasn't been very stable. It's been moving around quite a bit. We continue to see that, going forward here. and we're planning around that.

Speaker #4: But I would say that, that would be—again, it's a small portion of the total. I think it's less than 15%. I can't remember the exact numbers.

Speaker #4: It's, it's a small portion of sterogenics in context-wise.

Speaker #11: Helpful. And just the follow-up to that, and then one other topic, please. when you say challenged, like, g-growing growing but just low growth, or, or shrinking?

Mike Polark: Helpful. Just to follow up to that, and then one other topic, please. When you say challenged, like, growing, but just slow growth or shrinking?

Speaker #4: combination. I'd, I'd say more probably shrinking than growing. I mean, it's been choppy. Some customers have redesigned products and don't have the need. you know, I can think of I'm if I say this, I'm thinking of one customer that had some, you know, a packaging product for the food market, and they've changed their designs coming out of COVID.

Michael Petras: Combination. I'd say more probably shrinking than growing. I mean, it's been choppy. Some customers have redesigned products and don't have the need. You know, I can think of, as I say this, I'm thinking of one customer that had some, you know, a packaging product for the food market, and they've changed their designs coming out of COVID. Again, that's not impacting 2026. That's just I'm looking backwards when I make that comment. It's.

Speaker #4: But again, that's not impacting 2026. That's just I'm looking backwards when I make that comment. so it's, it's just been, you know, that, that, that there's a churn in that customer base.

Mike Polark: Yeah.

Michael Petras: It's just been, you know, that there's a churn in that customer base, and we're seeing it. It's just a little heavier than we've seen in the past, but it's been like this since 2020, 2021.

Speaker #4: And we're seeing it. It's just a little heavier than we've seen in the past. But it's been like this since 2020, 2021.

Speaker #11: Helpful. I appreciate the color. and then the other one also, sterogenics, just as you as you reflect on calendar year '25 and the performance and the, the acceleration in volume growth, the, the topic of tariffs, you know, we've discussed on prior calls.

Mike Polark: Helpful. I appreciate that color. The other one, also Sterigenics. Just as you reflect on calendar year 25 and the performance and the acceleration in volume growth, the topic of tariffs, you know, we've discussed on prior calls. Do you believe the tariff landscape contributed to customers kind of building some inventory ahead of that as part of their mitigation plans? What's the latest perspective on whether that was, you know, good, neutral, in last year? Thank you.

Speaker #11: Do you do you believe the, the tariff landscape contributed to customers kind of building some inventory ahead of that as part of their mitigation plans?

Speaker #11: Any w-what's the latest perspective on whether that was, you know, good, neutral, in, last year? Thank you.

Speaker #4: Yeah. We'd see as we've stated a couple of times, we've not seen a material impact from the tariff side that we've been able to detect.

Michael Petras: Yeah, we'd see, as we've stated a couple of times, we've not seen a material impact from the tariff side that we've been able to detect. I referenced the Q2, there was, you know, a bump up in some stat volume with a, in a particular facility I was in, and I said, Hey, what happened here? They said, Oh, you know, a customer was trying to get some stuff in before tariffs. That's not, you know, that's a facility that's got 50 customers. This was a customer that I happened to notice when I was going through some analytics with the team out there. We're, we're just not seeing material impact from that, Mike. I know people have asked us that question. There's nothing consistently showing up from our customers.

Speaker #4: I referenced the second quarter. There was, you know, a bump up in some stat volume in a particular facility I was in.

Speaker #4: And I said, 'Hey, what happened here?' And they said, 'Oh, you know, the customer's trying to get some stuff in before tariffs.' But that's not, you know, that's a facility that's got 50 customers.

Speaker #4: This was a customer that happened to notice when I was going through some analytics with the team out there. we're, we're just not seeing material impact from that, Mike.

Speaker #4: I know people have asked us that question, and there's nothing consistently showing up from our customers. We're seeing, you know, nice, consistent volumes out of sterogenics side as we wrapped up 2025, which was good.

Michael Petras: We're seeing, you know, nice, consistent volumes out of the Sterigenics side as we wrapped up 2025, which was good.

Speaker #11: Thank you.

Mike Polark: Thank you.

Speaker #3: And I'm not showing any further questions at this time. I'd like to turn the call back to Michael for any further remarks.

Operator: I'm not showing any further questions at this time. I'd like to turn the call back to Michael for any further remarks.

Speaker #4: Great. we thank you for your time this morning. You know, hopefully, you could see we had a nice finish to 2025. We're set up for a very strong 2026.

Michael Petras: Great. We thank you for your time this morning. You know, hopefully, you can see we had a nice finish to 2025. We're set up for a very strong 2026. What I want you to take out of this is, this business is built to perform. We've had 20 consecutive years of growth, strong cash flow generation, strong margins, sticky customer relationships. This business is built to run and perform, and what we're going to try doing is making sure you have transparency of what we expect out of the business, and we're just going to keep executing against it. Thank you for your time today, and wish you all a good week. Bye-bye.

Speaker #4: And what I want you to take out of this is this business is built to perform. We've had 20 consecutive years of growth, strong cash flow generation, strong margins, sticky customer relationships.

Speaker #4: This bill business is built to run and perform. And, what we're going to try doing is making sure you have transparency of what we expect out of the business and, and we're just going to keep executing against it.

Q4 2025 Sotera Health Co Earnings Call

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