Sotera Health Company (SHC) Earnings

Management highlights

Good morning and welcome to the Sotera Health first quarter 2026 earnings call. Today's press release and supplemental slides are available on the investor section of our website. Joining are Chairman and Chief Executive Officer Michael Petras and Chief Financial Officer John Lyons. Announced strong start to the year with 6.5% constant currency revenue growth and 6.9% constant currency adjusted EBITDA growth. Sterigenics delivered 6.1% constant currency revenue growth, Norion grew 25.8% constant currency revenue. Reaffirming 2026 outlook with total company revenue expected to increase to a range of $1.23 billion to $1.25 billion, adjusted EBITDA to grow to a range of $632 million to $641 million. Highlighted board of directors changes, private equity shareholders secondary sale, and positive legal developments in Georgia. Covered first quarter consolidated financials with revenues up 10% to $280 million, net income $27 million, adjusted EBITDA up 10.5% to $135 million.

Guidance

Reaffirming 2026 outlook: total company revenue to increase to range of $1.233 billion to $1.251 billion, constant currency growth 5%-6.5%; adjusted EBITDA to grow to range of $632 million to $641 million, constant currency growth 5.5%-7%. Sterigenics expected mid to high single digits constant currency revenue growth, Nordion low to mid-single digits constant currency revenue growth, Nelson Labs low single digits constant currency revenue growth with margin improvement. Interest expense expected $135 million - $145 million, effective tax rate 27%-29%, adjusted EPS $0.93 - $1.01, capital expenditures $175 million - $225 million.

Segment performance

Sterigenics delivered 9.7% revenue growth to $186 million, or 6.1% on a constant currency basis. Favorable pricing of 4.5%, a foreign currency benefit of 3.6%, and improved volume mix of 1.6% drove revenue growth. Localized weather impacts in the U.S. during Q1 resulted in a 1.7% headwind to Sterigenics volumes. Segment income grew 9.6% to $96 million, or 6% on a constant currency basis. Nordion's first quarter revenue increased 29% to $42 million, or 25.8% on a constant currency basis, driven primarily by increased volume mix of 23.7% due to the timing of Cobalt 60 harvest schedules, along with foreign currency tailwinds of 3.2% and a pricing benefit of 2.1%. Nordion segment income increased approximately 36% to $24 million, or 33.1% on a constant currency basis. Nelson Labs revenue declined 0.7% to $52 million, or 3.8% on a constant currency basis. Pricing benefits of 2.8% and a foreign currency benefit of 3.1% were more than offset by the change in volume and mix. Segment income decreased by 11.5% to $15 million, or 15.1% on a constant currency basis.

Risks & headwinds

Developments related to EO, including legal and regulatory risks as discussed in the call, such as the Georgia personal injury cases and proposed regulations impacting Sterigenics operations.

Analyst Q&A

• Q: Hey, good morning. This is Thomas Keller. I'm for Sean. I wanted to start off on Sterigenics and the realignment of the business around higher growth and markets. Where are you all in that strategy? I imagine it takes some time to get the pieces in place internally for that and then to win and onboard new business. Was there any benefit to hear from a volume or mix shift standpoint in the Q1? Or is there anything contemplated in the full year guide?

  A: Yeah, thanks, Thomas. You know, that's something that we're focused on as an organization. As we look at our cross-business unit activity and our strategic selling activity, we're focused on those key segments. You know, in the quarter, Sterigenics, you know, put up 1.6% volume in mixed growth. And then remember, we also had an impact from weather. So, you know, we're happy, you know, the first quarter – The beginning of the quarter started out slow with the weather, which we kind of signaled when we talked last time. But it finished strong, and we're optimistic on the outlook as we go forward here in how March finished out and how we're starting out the second quarter.

• Q: Hey, good morning, everyone. Just a quick question on Sterigenics. 1Q was generally expected to be the lightest quarter for that segment, and you somewhat exceeded expectations there. Do you still see 1Q as being the latest quarter of the year? And then maybe just to tack on a follow-on, can you just speak a little bit to what you're seeing within core med devices and bioprocessing volumes specific to Sterigenics?

  A: Yeah. You know, we saw a nice quarter out of Sterigenics. We'd like to see a little bit better, but obviously we can't control the weather. You know, last year we had a significant second quarter, as we've talked about in the past. We'll see a good quarter here in the second quarter, consistent with the guide that we've just provided you. You know, we're expecting similar growth to the first quarter in constant currency. And MedDevice had a good, solid quarter. When you look across all the end markets, we served MedDevice, had a good solid quarter, and bioprocessing was up significant year over year again. But remember, it's a small portion of our total business, but it was significant growth over prior year.

• Q: Hey, guys. Thanks for the question. Michael, congrats. You're turning me into an Italian. All right. Go ahead, Patrick. Yeah, it's a first. Congrats on the move, the transition. And I guess maybe one on Sterigenics. Can you just talk about what you saw as the quarter progressed on the volume side, just the visibility there? It feels like you're in a pretty good spot. But just maybe talk through the different markets and what you saw as the quarter progressed and the expectations here going forward.

  A: Yeah, Patrick, you know, January and February were a little softer, as I mentioned, particularly, you know, weather-related. But as the quarter progressed, March, you know, March was the best quarter on volume we've had in the last three or four years in March. So, you know, one month doesn't make a year, but we're optimistic about that. And April started off strong. So we feel very comfortable in the guide that we've given here, and we're seeing nice growth. And we expect that to continue as the year progresses with some of the things. You know, we've got that x-ray facility coming out. We'll see some growth out of that. We've got a customer conversion that we've talked about previously that will start to impact late in the year. And then overall, just the level of engagement with our customers and some of the commitments that we see coming forth from them. We feel good about how Sterigenics is positioned coming out of the first quarter.

• Q: Hi, good morning, guys, and thanks for taking our questions. I'm going to try to hit on the Sterigenics question another way here. I think, you know, excluding the weather impact, you did about 8% constant currency in 1Q. You said you expect, you know, similar constant currency growth in 2Q, even though, you know, April's off to a strong start and you don't have that weather piece. Is that slowdown relative to, you know, the 8% X weather? Does that just accomplish you? Is it just conservatism? Or are there some other factors in there we should be thinking about for Sterigenics in the second quarter? Thank you.

  A: Yeah, thanks, Max. You know, the big thing, and I alluded to it in my script, you know, Q2 of last year was our strongest quarter of growth. So it's really a comp issue versus anything else.

• Q: Hey, everyone, and congrats on the announcement, Michael. I'm just going to attack Sterigenics from a slightly different lens here. Growth and margins in 1Q were obviously impressive, even in spite of the weather-related headwinds. But as we look at the broader inflationary backdrop, Could you just help us think about the durability of Sterigenics margins through the year and whether sustained cost inflation actually creates an opportunity for the team to take incremental price throughout the year? Yeah.

  A: Thanks, Joseph. We're not seeing significant inflation in that business. We continue to manage that well. Our key inputs are really around labor and then gas and cobalt. We're in a good spot there. We've set pricing in such a way that we make sure our value gap is positive. You know, in the quarter, Sterigenics had about 4.5% price, which is slightly above the 4% that, you know, we've guided towards. But we continue to see that business in a good spot in being rewarded for the value it brings our customers. And we're not concerned about anything materially on the inflation side as we sit here today.

• Q: This is Salemon for Luke. Thanks for taking the question. Michael, congrats on the 10 years of the company. It's been a pleasure working with you and best of luck as the executive chair. I wanted to talk a little bit about the Trump administration and their announcement to potentially permanently scale back some of the ethylene oxide emissions regulations. Could you talk about, like, the different scenarios that might come out of that and what the implications might be from, like, a top-line perspective? I know that has been kind of talked about as a potential opportunity with, like, higher regulations on some of the smaller players in the industry. And, you know, too, like, how that might affect CapEx spend, both, like, in the near term and the long term. Thanks, Sam, for your comments and questions.

  A: So, We are executing, as you know, we've spent a significant amount of capex and Sterigenics, approximately $200 million over the duration on what we call general facility enhancements for this ethylene oxide activity. The team is doing a very good job executing on that. We should have the vast majority of that completed here in 2026. There's a rule out there today that has got another couple of years before it's required to meet those requirements. but now there's a new proposed rule out there. Listen, we're going as if the rule that's in place is going to be the requirement, and our teams are aligned and engineering teams are executing along those plans. I'm not exactly sure how the administration is going to rule on this. Our job is to make sure we're operating in a safe and compliant manner, and we're taking all actions that we can to put the facility in the best place possible. So we're moving forward with those plans. We will provide comments just like many others in the industry on the new proposed rule. These are still going to be, based on what we saw in the proposed rule, they're going to be tough restrictions. They're a little easier than the rule that was just recently put out, but they're still tough and challenging rules. But we feel very well positioned to be able to meet those requirements. As far as creating opportunities for us, depending on exactly what the final rule is and the timing, that will determine how much opportunity. I would tell you, you know, We've got a couple opportunities. One customer that we just referenced that is converting over to us, and then there's some other smaller ones that we continue to have dialogue and we're seeing some opportunity with. I would say that activity slowed down a little bit over the last several quarters with this uncertainty of the timing of the new rule requirements. But, again, we feel very well positioned for whatever the rule may be, and we're just going to make sure that we operate in a safe and compliant manner for all our stakeholders, employees as well as communities.

• Q: Hi, this is Jaden on for Casey. I just had a quick one on pricing as well, but could you just share or walk us through your pricing assumption for 2026 and highlight if there's anything that's changed? I know you just mentioned Nordian, but anything else would be helpful. Thank you.

  A: Yeah. No, nothing has changed from what we've communicated previously. Price would be the 3% to 4% range. As I mentioned just a minute ago, Nordion would be on the low end of that range. Nelson would be on the low end of that range. And Sterigenics would be on the high end of that range. We don't see anything changing as far as our outlook on that.

• Q: Hey, Tim. This is Kevin on for Ryan. Just two quick ones for us. Was there any extra selling day benefit in 1Q26? And if so, how much did that impact your guys' growth rates? Not that I know. Very minimally. Yep. Okay. Awesome. And then kind of unrelated here, but In 25, you guys talked about your XPU customers kind of growing ahead of total company growth. Can you guys just comment on how XPU is performing through the first half of 26 at this point and any opportunities you guys have to further accelerate that XPU penetration? Yep.

  A: Thanks for the question. We had a good first quarter in that area. We had growth again. And as I mentioned earlier, our customer satisfaction scores were very positive with significant growth on that front as well. So, Overall, the work is going very well in the XPU. And remember, you know, a lot of strength around the embedded labs within the Nelson, within Sterigenics, the Nelson labs that coexist there, you know, we continue to execute in that area as well. So XPU is pretty well situated.

• Q: Good morning. Hey, Michael. Congrats. Good luck. You know, I would have thought if you were making a transition, you would have shed the investor relations hat, so you didn't have to deal with folks like me and my clients. But I was only surprised to see that's still part of your ongoing commitment. Trust me, I was trying to shed the litigation, but the board wouldn't let me. Trust me on that. You know, my other joke that I was noodling on was, I'm sure you can imagine... more fun things than defending multi-state toxic tort cases. So anyways, but yes, congrats. All right, two for me. In the quarter, appreciate the weather call-out for Sterigenics. If I recall, part of the 1Q guidance also considered kind of excess EO maintenance downtime. I didn't hear that spiked out. Would you flag that as a significant item in the quarter on, on Sterigenics volumes? And then John, maybe for the rest of the year, what's kind of a maintenance schedule across the network? Anything unusual you would have us think about 2Q, 3Q, 4Q? Yeah, I'll turn to John to answer just one point, Michael, on that. It's one thing that I mentioned about the customer coming on board. Also the emphasis we're getting from our customers on some of the outlook. as well as the Hall River coming on. The thing I failed to mention was also the number of days out in the second half will be lower. Go ahead, John. I wouldn't add anything other than to reiterate that point. The downtime days are a headwind year over year in the first half and turns to a tailwind in the second half. Helpful. And then the second one, total squint, but Nelson for the second quarter, slight return. or return to slight growth is slight. Is that 1% or is that something better? Thank you.

  A: I would think in the range you're talking or below.