Sotera Health Co. Q3 FY2024 earnings call

• Michael Petras started by noting year-over-year top and bottom line growth with volume and mix improvement in all businesses. Sterigenics had 4.3% revenue growth, completed a facility expansion, and is working on NESHAP compliance. Nordion had 28% revenue growth due to cobalt harvest schedule timing and reached a cobalt development milestone. Nelson Labs saw 7% revenue growth, with core lab testing volumes improving and expert advisory services volume normalizing. The company reaffirmed its full-year 2024 outlook for revenue and adjusted EBITDA growth in the range of 4% to 6%. Sotera Health announced its first Investor Day in New York City on November 20, featuring business, strategic, and financial reviews.

Sterigenics

• Delivered 4.3% revenue growth to $176 million compared to Q3 2023. Revenue growth drivers included favorable pricing of 4.4% and a 50 basis point increase from volume and mix, partially offset by 60 basis points from unfavorable foreign currency exchange rates. Segment income increased 3% to $96 million, with segment income margin declining 70 basis points to 54.7% due to higher employee compensation costs.

Nordion

• Third quarter revenue increased 28% to $51 million due to the timing of cobalt-60 harvest schedules. Volume/mix benefit was 23.2% and favorable pricing was 5.7%, offset by 90 basis points from unfavorable foreign currency exchange rates. Segment income increased 31.9% to approximately $32 million, and segment income margin increased 190 basis points to 61.8%.

Nelson Labs

• Third quarter revenue grew 7% to approximately $59 million. Drivers included 3.7% volume/mix and 3.1% pricing. Segment income increased 9% to $19 million, and segment income margin improved 56 basis points to 31.8%.

• Reaffirmed full-year 2024 outlook for revenue and adjusted EBITDA growth in the range of 4% to 6%. Full-year adjusted EBITDA margins are expected to approach 50%. Sterigenics expects slight volume and mix improvement in Q4. Nordion is expected to have slightly more than 60% of full-year revenue in the second half. Nelson Labs Q4 revenue is anticipated to decline mid-single digits due to expert advisory services, with full-year margins expected to approach 30%. Interest expense is expected in the lower half of the $165 million to $175 million range. Effective tax rate on adjusted net income is expected to be within 31.5% to 34.5%. Fully diluted share count is expected in the upper end of 283 million to 285 million shares. Capital expenditures are expected to fall in the range of $175 million to $185 million, with peak CapEx in 2025 and decreases in 2026 and 2027.

• Regulatory challenges, particularly with NESHAP regulations for Sterigenics. Foreign exchange headwinds impacting revenue. Volatility in Nordion's revenue due to cobalt harvest schedule timing. Uncertainties around expert advisory services volume normalization in Nelson Labs.

Q: Sean Dodge asked about revenue guidance, seasonality, and Nordion/Nelson.

A: Michael Petras responded that Nordion is expected to be up from Q3, Nelson Labs Q4 will decline mid-single digits due to expert advisory services, and Sterigenics volume is expected to improve.

Q: Patrick Donnelly inquired about Sterigenics volume recovery and 2025 outlook.

A: Michael Petras stated Sterigenics volume is stabilizing, with optimism on continued improvement, and mentioned the Investor Day for longer-range guidance.

Q: Salem Salem asked about Sterigenics visibility and litigation.

A: Michael Petras discussed Sterigenics volume improvement, Georgia Phase I hearings in early 2025, and California claimants.

Q: Brett Fishbin questioned Nelson Labs margin and Investor Day.

A: Michael Petras talked about Nelson Labs margin progress and the Investor Day goals, including meeting segment leaders and providing a long-range view.

Q: Casey Woodring asked about Nelson performance breakdown and CapEx cut.

A: Michael Petras addressed Nelson segments, and Jonathan Lyons explained CapEx cut drivers like cobalt program timing and vendor performance.

Q: Jason Bednar asked about Sterigenics pricing and labor costs.

A: Michael Petras said Sterigenics pricing is in line, not concerned about pricing power, and labor costs are not a concern for margins.

Q: Dave Windley inquired about Sterigenics customer and bioprocessing.

A: Michael Petras mentioned an improving customer and sequential improvement in bioprocessing.

Q: Michael Polark asked about Nelson expert advisory and EO/NESHAP.

A: Michael Petras discussed expert advisory services role, EO/NESHAP progress, and NESHAP rule clarifications.