Sotera Health Company Q2 FY2025 earnings call

• Sotera Health delivered strong second quarter performance with top line growth of 6.4%, adjusted EBITDA growth of 9.8%, and improved adjusted EPS.
• The company raised its 2025 revenue outlook to 4.5% to 6% and adjusted EBITDA outlook to 6% to 7.5%.
• Sterigenics and Nelson Labs play critical roles in patient safety and FDA approvals, such as supporting the launch of an infusion set for advanced Parkinson's therapy.
• Nelson Labs achieved fourth consecutive quarter of margin expansion due to favorable volume and mix in core lab testing, along with optimization efforts.

Sterigenics saw 10.5% year-over-year revenue growth to $195 million, driven by core med device customers and bioprocessing momentum. Nordion had 2.9% year-over-year revenue growth to $42 million, influenced by volume mix and pricing but offset by foreign currency. Nelson Labs had revenue of $57 million, a 3.3% decline from Q2 2024, yet core lab testing improvements and optimization led to segment income margin expansion of over 500 basis points.

• Raised 2025 revenue growth outlook to 4.5% to 6% versus 2024 and adjusted EBITDA growth outlook to 6% to 7.5%.
• Expect neutral foreign currency impact on full-year revenue and adjusted EBITDA.
• Interest expense expected to be in the range of $155 million to $165 million.
• Effective tax rate applicable to adjusted net income projected to be 31.5% to 33.5%.
• Adjusted EPS expected to be in the range of $0.75 to $0.82.
• 2025 capital expenditures expected to be $170 million to $180 million.
• Nelson Labs expected to return to growth in Q4 2025, while Nordion's Q4 2025 revenue is expected to be down mid-teens due to Cobalt-60 shipment timing.

• Revenue risk associated with Russian supplied Cobalt-60 is less than 0.5% of total company 2025 revenue.
• Impact of NESHAP rule changes on investments and competitive implications.

Q: Patrick Donnelly from Citi asked about Sterigenics growth and if there was a pull-forward due to tariffs.

A: Michael Petras stated there's no material pull-forward, with volumes progressing as expected.

Q: Brett Fishbin from KeyBanc inquired about Nelson Labs margin improvement and NESHAP rule.

A: Michael Petras said margin expansion at Nelson Labs was due to productivity, optimization, and favorable mix, and the NESHAP extension allows better installation, with continuing investments.

Q: Luke Sergott from Barclays asked about Nelson Labs margin runway.

A: Michael Petras said margins are in the low to mid-30s, consistent with projections.

Q: Jason Bednar from Piper Sandler asked about Sterigenics growth and supply chain tariffs.

A: Michael Petras mentioned healthy same-store sales, no material pull-forward, and Sotera Health is well-positioned in the U.S. for supply chain optimization.

Q: David Windley from Jefferies asked about CapEx path.

A: Michael Petras and Jon Lyons discussed CapEx targets, project progress, and the impact of the tax rate on CapEx.

Q: Michael Polark from Wolfe Research asked about Sterigenics 2H guidance and tax rate.

A: Jonathan Lyons discussed downtime, CapEx, and the timing impact of the tax rate on future years.