Sotera Health Q1 2025 Earnings Report

Sotera Health EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.12
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.13

Sotera Health Revenue Results

• Actual Revenue: $254.52 million
• Expected Revenue: $245.56 million
• Beat/Miss: Beat by +$8.96 million
• YoY Revenue Growth: +2.60%

Sotera Health Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 9:00AM ET

Sotera Health (NASDAQ:SHC) Company engages in the provision of sterilization, lab testing, and advisory services in the United States and internationally. The company operates through three segments: Sterigenics, Nordion, and Nelson Labs. It provides mission-critical end-to-end sterilization services, including gamma and electron beam irradiation, and ethylene oxide processing, as well as designs, installs, and maintains gamma irradiation systems. The company also provides microbiological and analytical chemistry testing, as well as technical assistance, regulatory consulting, and advisory services. It serves medical devices, pharmaceuticals, food safety, agricultural products, cancer treatment, and high-performance materials industries, as well as commercial, advanced, and specialty application industries. The company was formerly known as Sotera Health Topco, Inc. and changed its name to Sotera Health Company in October 2020. Sotera Health Company was incorporated in 2015 and is headquartered in Broadview Heights, Ohio.

Sotera Health Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1, Sotera Health reported revenues of $255 million, up 2.6% (4.4% constant currency), and adjusted EBITDA of $122 million, up 8.8% (11.2% constant currency), delivering adjusted EPS of $0.14, a $0.01 year-over-year improvement.
• Sterigenics grew mid-single digits on a constant currency basis with ~30 bps margin expansion, Nordion beat Q1 expectations due to timing of cobalt-60 shipments (with full-year outlook unchanged), and Nelson Labs delivered its third consecutive quarter of margin expansion (+480 bps) toward a low-to-mid-30% target.
• The company reaffirmed its 2025 guidance of 4%–6% revenue growth and 4.5%–6.5% adjusted EBITDA growth on a constant currency basis, noting an improved FX headwind (now ~1.25% on revenue) and minimal expected tariff impact.
• Sotera closed a $31 million settlement of ethylene oxide claims in Illinois, maintains that its operations are safe and compliant, and will continue to vigorously defend against remaining litigation across various jurisdictions.
• Strong liquidity of $715 million (including $300 million cash), net leverage improved to 3.6x, Q1 free cash flow was $56 million, and the company targets $500–600 million of free cash flow over the next three years while prioritizing organic growth and disciplined capital deployment.

Presentation

[Operator]

Please also note that this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations and Treasurer, Jason Peterson.

[Operator]

Jason, I turn the call over to you.

[Jason Peterson, VP & Treasurer at Sotera Health Company]

Good morning and thank you. Welcome to Sotera Health's first quarter twenty twenty five earnings call. You can find today's press release and accompanying supplemental slides on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will be available in the Investors section of the Sotera Health website. On the call with me today are Chairman and Chief Executive Officer, Michael Petrus and Chief Financial Officer, John Lyons.

[Jason Peterson, VP & Treasurer at Sotera Health Company]

During the call, some of our comments may be considered forward looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Soterra Health's SEC filings in the forward looking statements slide at the beginning of this presentation for a description of these risks and uncertainties. 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, net debt, net leverage ratio and free cash flow as well as constant currency comparisons.

[Jason Peterson, VP & Treasurer at Sotera Health Company]

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 and A portion of the call today. Limit yourself to question and one follow-up, so that we can give everyone an opportunity to ask questions. If you have any questions after the call, please feel free to reach out to me and the Investor Relations team. I will now turn the call over to Sutter Health Chairman and CEO, Michael Petros.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Good morning, everyone, and thank you for joining Sutterra Health's first quarter twenty twenty five earnings call. Today, we announced a solid start to the year as we met or exceeded our expectations across each of our lines of business to deliver mid single digit top line growth and double digit bottom line growth on a constant currency basis compared to the first quarter of twenty twenty four. Total company revenues increased 2.6% or 4.4% on a constant currency basis and adjusted EBITDA increased 8.8% or 11.2% on a constant currency basis compared to the first quarter of twenty twenty four. We delivered adjusted EPS of $0.14 for the quarter, a $01 improvement versus the same period last year. Sterigenics, our largest reporting segment, delivered top line growth in line with what we communicated during our fourth quarter twenty twenty four earnings call with margin expansion of approximately 30 basis points versus the first quarter of twenty twenty four.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Sterigenics has a leading position in a $4,500,000,000 sterilization service addressable market with positive underlying trends driven by aging population, healthcare spending, product innovation and stringent regulatory requirements. The Sterigenics team excels at delivering on these requirements, which is a critical source of advantage in capturing and retaining customer volume. We are in a strong position and are optimistic as today's sterilization volumes continue to improve. Nordion delivered higher revenue for the first quarter than anticipated as some Cobalt sixty shipments originally scheduled for the second quarter this year shifted in the first quarter at the request of our customers. This shift in timing will impact second quarter revenues, but the full year outlook for Nordion remains unchanged.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Nelson Labs outperformed expectations for the first quarter that we outlined during our fourth quarter twenty twenty four earnings call. Improved first quarter core lab test volumes partially offset the revenue headwind from Expert Advisory Services. The Nelson team continues to do a great job of lab optimization and price performance, which resulted in four seventy nine basis point margin expansion versus the first quarter of twenty twenty four. This marks the third consecutive quarter of year over year Nelson Labs margin expansion and demonstrates continued progress towards our low to mid-30s margin target. This morning, we are reaffirming our outlook from our February earnings call.

[Michael Petras, Chairman & CEO at Sotera Health Company]

As a reminder, our 2025 outlook calls for revenue growth in the range of 4% to 6% and adjusted EBITDA growth in the range of 4.5% to 6.5% on a constant currency basis versus 2024. John will update you on FX, which is improving versus our prior outlook. I want to take a moment to touch on the topic of tariffs. We do not expect the current tariff policies to have a material impact on our business at this time. Approximately 85% of total company revenue is service revenue, and we believe the strategic service based structure positions the company well to navigate the current tariff environment.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Nordion, our one product business, sells Cobalt 60 from Canada into The United States. Currently, Cobalt 60 is exempt from tariffs under the USMCA. Before I hand it over to John, I'd like to share a recent example that touched the lives of so many and demonstrates the important value we deliver to our customers across our businesses. Together, our teams across Nelson Labs and Sterigenics recently played a critical role in securing FDA clearance for the first ever bionic pancreas. At Nelson Labs, our scientists performed the biocompatibility testing while regulatory experts helped our customers navigate the numerous requirements to get the product to market.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Our team at Sterigenics then provided the mandated product sterilization, which is crucial for device use and patient safety. Our integrated expertise in science, quality and navigating the regulatory environment provides our customers with the peace of mind that their products will be safe. For insulin dependent diabetic patients, this means 100% of their insulin doses can be fully automated and this innovative device can connect to numerous continuous glucose monitors. This is a great example how we get involved early in the development phase for new products to serve our customers and grow our business, ultimately shifting product mix to higher growth and higher value segments. Our mission of safeguarding global health comes with great responsibility and every day I'm proud to see our teams living our mission.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Now John will take us through the financials in more detail.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Thank you, Michael. I will begin by covering the first quarter twenty twenty five highlights on a consolidated basis and then provide some details on each of the business segments along with updates on capital deployment and leverage. I will then finish with additional details on our 2025 outlook. On a consolidated total company basis, first quarter revenues increased by 2.6% to $255,000,000 or 4.4% on a constant currency basis compared to Q1 twenty twenty four. Foreign currency presented a headwind of 180 basis points for the quarter, which was most pronounced in our Canadian based Nordian business.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Also, a reminder, there was one less selling day in

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

the quarter versus Q1 twenty twenty four.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Adjusted EBITDA increased by 8.8% to 122,000,000 which equates to an 11.2% growth rate on a constant currency basis. All three businesses expanded margins, translating to a total company adjusted EBITDA margin of 47.9%, which is a two seventy six basis point increase from first quarter of twenty twenty four. Interest expense for Q1 twenty twenty five improved to $41,000,000 versus $42,000,000 in Q1 twenty twenty four. Net loss on a GAAP basis for Q1 twenty twenty five was $13,000,000 or $05 per diluted share, inclusive

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

of

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

the pending and previously disclosed $31,000,000 settlement of EO claims in Illinois. That compares to a net income of $6,000,000 or $02 per diluted share in first quarter twenty twenty four. Adjusted EPS increased to $0.14 per share, which is a $01 improvement versus Q1 twenty twenty four. Now let's take a closer look at our segment performance. In the first quarter, Sterigenics delivered 1.9% revenue growth to $170,000,000 or 3.9% on a constant currency basis, which was consistent with the expectations we communicated during our Q4 twenty twenty four earnings call.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Revenue growth for the quarter was primarily driven by favorable pricing of 4.1%, which was partially offset by unfavorable foreign currency exchange rates of approximately 2%. Segment income grew 2.5 to $88,000,000 driven by favorable pricing, partially offset by inflation and changes in foreign exchange rates. Nordion's first quarter revenue increased 36% to $33,000,000 compared to the same period last year, or 40.6% on a constant currency basis. As Michael previously mentioned, revenue came in higher than expected as some Cobalt 60 shipments originally scheduled for Q2 twenty twenty five occurred in Q1. Total volume and mix improved 39.3% in the quarter.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Partially offsetting this increase was an approximate 500 basis point headwind from a stronger U. S. Dollar versus the same period last year. Nordion segment income increased approximately 62% to $17,400,000 versus Q1 of twenty twenty four, and segment income margin expanded nearly eight sixty basis points, primarily driven by volume and mix growth. Nelson Labs first quarter twenty twenty five Core Lab testing volume and mix modestly exceeded our expectations, which were tempered by the expected decline of expert advisory services revenue.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Nelson Labs revenue of $52,000,000 declined by 9.3% as favorable pricing of 2.7% and improvement in core lab testing was offset by the expert advisory services impact and unfavorable changes in foreign currency exchange rates of approximately 80 basis points. Segment income increased by 7% to $60,000,000 while segment income margins expanded nearly four eighty basis points. These increases were driven by favorable volume and mix from improved Core Lab testing, pricing and lab optimization, partially offset by the expected decline in expert advisory services. Now we'll touch on the balance sheet, cash generation and capital deployment. The company's liquidity position remains strong.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

As of the end of Q1 twenty twenty five, we had $715,000,000 of available liquidity, which included more than $300,000,000 of unrestricted cash and $410,000,000 of available capacity under our revolving line of credit. As you may have seen in our press release this morning, I'm pleased to announce that we have successfully closed an amendment to our revolving credit facility. The amendment added approximately $175,000,000 in liquidity while extending the maturity to February. We'd like to thank our bank group for their continued support of the company. We delivered positive operating cash flow in the quarter of approximately $56,000,000 Capital expenditures for the first quarter of twenty twenty five totaled $20,000,000 Finally, we finished the quarter with a net leverage ratio of 3.6 times, an improvement from net leverage of 3.7 times at the end of twenty twenty four.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

As Michael mentioned, based on the first quarter and what we see for the remainder of this year, we are reaffirming all outlook items we provided in February with the exception of our foreign currency assumption, which has improved. To recap, for full year 2025, we expect total revenues to grow in the range of 4% to 6% on a constant currency basis. We expect to generate operating leverage resulting in margin expansion and adjusted EBITDA growth in the range of 4.5% to 6.5% on a constant currency basis. In February, we indicated an approximate foreign exchange headwind of 2.25% on revenue and 2.5% on adjusted EBITDA, with the first three quarters of the year having the most pronounced impact. Based on average March exchange rates, we now expect a foreign exchange headwind of approximately 1.25% on revenue and 1.5% on adjusted EBITDA, with the first three quarters of this year still having the most pronounced impact.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

We do not anticipate the current tariff policies to have a material impact on our business at this time. We continue to expect total company price to be near the midpoint of our long term stated range of 3% to 4%. We expect Sterigenics volumes to improve throughout the year with full year constant currency revenue growth in the mid single digits versus 2024. For Nordion, we still expect revenues for the first and second half of twenty five to be similar to 2024 with constant currency full year revenue growth in the mid single digits. I also want to provide an update to the revenue risk associated with Russian supplied cobalt.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

We have not experienced any disruption in the supply and as of today, there is an approximate risk of between zero to 2% of total company 2025 revenue. We expect Nelson Labs Q2 twenty twenty five revenue to decline in the low to mid single digits versus Q2 twenty twenty four. This is an improvement over the decline we saw in Q1. We continue to expect full year 2025 constant currency revenue growth digits and margin improvement at Nelson Labs. Interest expense is expected to be between $155,000,000 and $165,000,000 based on the current forward rate curve.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

We are projecting an effective tax rate applicable to adjusted net income in the range of 33% to 35%. Adjusted EPS is expected to be in the range of 70 to 6¢. And we expect a fully diluted share count in the range of $2.86 to $287,000,000 shares on a weighted average basis. From a capital deployment standpoint, we will continue to prioritize organic growth and deleveraging as well as opportunistic M and A. We continue to expect capital expenditures to be in the range of $190,000,000 to $210,000,000 in 2025.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

As we have previously stated, we expect capital expenditures to decrease over the next few years to approximately $110,000,000 in 2027. We expect this decrease in CapEx along with revenue growth will help us achieve our goal of generating between 500,000,000 to $600,000,000 of free cash flow over the next three years. Our guidance does not assume any M and A activity. Finally, we anticipate continued slight improvement in net leverage ratio in 2025. I'll now turn the call back over to you, Michael.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Thank you, John. We've consistently demonstrated the ability to sustain growth and navigate challenges through varying market conditions, and we expect to do so again in 2025. In this quarter's earnings presentation posted to our website, ceterahealth.com, we included a slide for reference illustrating Ceterahealth's nineteen consecutive years of revenue growth going back to 02/2005, which is as far back as our audited financials go. This includes growth during the great recession of two thousand and eight and 02/2009, as well as the COVID pandemic, which all demonstrates the resiliency of our business model and diversity of our customer base. We continue to focus on the priorities we highlighted during our November twenty twenty four Investor Day.

[Michael Petras, Chairman & CEO at Sotera Health Company]

These priorities again are: one, excellence in serving our customers with end to end solutions two, winning in growth markets three, driving operational excellence to enhance free cash flow and fourth, disciplined capital deployment. At this point, Joe, let's open the call up for Q and A. Thank you.

[Operator]

We will now begin the question and answer session. And our first question here will come from Patrick Donnelly with Citi. Please go ahead.

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

Hey, guys. Thanks for taking the questions. Michael, maybe one for you on the tariff side. It seems like you guys are navigating that pretty well. Can you just talk through it sounds like very minimal, if any, impact.

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

It sounds like Nordion is exempt. Just the confidence level, all of that is the case. Are there any small impacts that you guys are offsetting, price, anything like that? Just want to talk through the backdrop and again, it sounds like you guys are navigating pretty well here.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. Good morning, Patrick. Yes, I would say at this point, we're pretty confident based on the current regulations that are out there and policies, we're confident we'll not have a material impact on the company. The largest component that we are following was cobalt from Canada to U. S.

[Michael Petras, Chairman & CEO at Sotera Health Company]

As I referenced and that falls under USMCA. We have some smaller direct and indirect, but we don't see it as a material item for the company.

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

Okay. That's good news. And then maybe one on kind of the backdrop here, Sterigenics, the recovery continues, which is nice to see. Any changes to how you're thinking about it? I know it's the expectation has been pretty gradual, essentially what we're seeing on the volume side, but would love to just pull the curtain back a little bit on what you're seeing on that front, how you're thinking about volumes both for Sterigenics and Nelson, and where we are in the recovery path there?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. I would say, we're more optimistic on the volumes. As we've signaled here, we'll see continued improvement throughout the year. We did see improvement throughout the quarter. And we're optimistic based on what we're seeing here, beginning early stages of second quarter.

[Michael Petras, Chairman & CEO at Sotera Health Company]

As we said, these businesses are well positioned positioned with our customers. As a matter of fact, we just got our customer survey results again, which came back very strong. And both Nelson and Sterigenics, we're starting to see volumes improve, which is giving us confidence to reaffirm our guide as we communicated.

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

All right. Good to hear. Thanks, Michael.

[Operator]

And our next question will come from Brett Fishman with KeyBanc. Please go ahead.

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

Hey, guys. Thank you very much for taking the questions. Just wanted to follow-up on some of the Nelson Labs margin trends, notable year over year improvement and better than we were expecting. So definitely understand the favorable mix element at play. But maybe if you could just expand on some of the other factors that you're calling out that have been driving some of the improvement there and how you're thinking about the trajectory from like 1Q levels for the rest of 2025?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. Brett, I'll take that. As we've said multiple times, what drives that business is new regulation, new product spend, sterilization volumes. We're seeing that. We're seeing that in this business.

[Michael Petras, Chairman & CEO at Sotera Health Company]

There's a couple of key regulatory pieces that we've been working on and monitoring with our customers for several quarters, things around reprocessing, testing around some of the bioprocessing products. We're starting to see that volume start to play in, which is what Joe and the team have been calling out all along. And we're getting more and more comfortable as these volumes improve, as we said, we expected to happen throughout the year. So we're seeing routine and validation volumes improving. As far as the margin rates, we've messaged consistently here for the last several quarters that we see this business in the 30s and continue to improve, and we've seen it the last several quarters improvement.

[Michael Petras, Chairman & CEO at Sotera Health Company]

They continue to deliver price. They got the labor piece in place. As you know, over the last several quarters, we've been very stable on the labor side. And we've been able to show the margin improvement as we predicted and said would come through. The team is doing a really nice job with that, all while keeping service at very high levels.

[Michael Petras, Chairman & CEO at Sotera Health Company]

I just saw some Net Promoter Scores yesterday, they were probably some of the highest I've seen in several years. So really, really proud of what that team is doing. And listen, the customers value what we do. We have one customer right now, for example, that we're seeing some volume come in that we expected. They've had some challenges with the regulators.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We've been there to help them solve those challenges and we're seeing that volume play out in the quarters ahead, which great. So the team is doing a really nice job and it's proven out exactly what we said we saw with this business. Regulation helps this business. Customers getting in challenges and need our expertise, routine volumes coming in from sterilization and then also new product spend from VC or wherever it may be. So really proud what the team continues to do there.

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

All right. Thanks for that color. And then just for my follow-up, just wanted to maybe kind of ask a similar question on the Sterigenics volume growth. I think you had just like a comment that you're starting to see like some signs of improvement on the volume front. Are there any particular like end markets as a more med tech or recovery in bioprocessing or like modalities?

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

Like any more like detail in like where you're starting to see like signs of improvement that are expected to drive what you've said is continuous improvement for the rest of 2025? Thanks very much.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. Yes, Brett, the Sterigenics team throughout the quarter saw improvement in volumes. We see that continue, as I mentioned in my comments. Bioprocessing has had significant growth over prior year and sequential growth. But again, it's a small portion of our total business.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We mentioned to you that there were a couple of customers that had some challenges that we are working through with them. But when you take those out, the underlying trends on the core customer base is pretty strong. So we feel pretty good about where we're at in the outlook and the volumes continue to improve throughout the year as communicated.

[Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets]

Thank you very much.

[Operator]

And our next question will come from Matt Sykes with Goldman Sachs. Please go ahead.

[Mathew Sykes, Analyst at Goldman Sachs]

Hi, good morning. Thanks for taking my questions. Maybe just it's great to see the recent settlement on the Illinois cases. Maybe just talk through how your kind of legal strategy has evolved and how do you assess the risk on ongoing cases, if your strategy differs from state to state, just maybe a sort of an update on that process?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes, I would just tell you, I'm not going to get into a ton of details. We have plenty of disclosures out there in our filings that you could see. But listen, we are confident that at this level of admissions from our facilities, we're not causing cancer. Okay? And listen, we have empathy for patients that have cancer.

[Michael Petras, Chairman & CEO at Sotera Health Company]

That's very tough on family. We're going to get in the court system and we're going to vigorously defend ourselves. As long as we have the opportunity to put on a case with the science and the facts, which we proved in the Fordy trial, we feel we'll be victorious. And we'll continue to look at that situation. You know, every one of these jurisdictions are slightly different.

[Michael Petras, Chairman & CEO at Sotera Health Company]

The judge, the plaintiff, the circumstance around that, what's allowed in the evidence. And we'll continue to evolve our strategy. There's certain things we look for as we go through this process. And we'll continue to play that out, but we're going to vigorously defend ourselves because this company operates in a safe and compliant manner. And if the science is front and center, we feel very confident of our position.

[Mathew Sykes, Analyst at Goldman Sachs]

Great. Thanks for that. And then just maybe an update on sort of cross selling initiatives between Nelson and Ceragenics. Kind of what have you done in terms of better coordinating those sales touch points and kind of anything that you've kind of done on the incentive side to encourage that cross selling opportunity?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. So we've had incentives in place for the last couple of years. As we've mentioned Investor Day, this is an area we're going to continue to grow at our XBU with some of our key strategic customers around key categories. BJ is leading that effort across the company. He's building out the team around that.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We're making nice progress on the service side of it. Our Embedded Labs within Nelson Labs, it gets a lot of volume from the Sterigenics side continues to grow and deliver significant margin, which has been very good. And I gave you an example on today's call of one product example. We're working end to end with our customers on solutions in a growing segment of the market. And remember, approximately 70% of the Sterigenics and Nelson Labs revenue comes from shared customers.

[Michael Petras, Chairman & CEO at Sotera Health Company]

So we feel good about the continued progress we're making there, and our customers are responding and reacting in a positive manner as well.

[Mathew Sykes, Analyst at Goldman Sachs]

Great. Thanks, Michael.

[Operator]

And our next question will come from Luke Surgut with Barclays. Please go ahead.

[Luke Sergott, Analyst at Barclays Capital]

Great. Thanks, guys. I just wanted to touch first on the kind of the margin here from I understand that you had elevated 1Q from Nordion, but as you pulled that forward, just help us frame what we should be looking at from a 2Q margin perspective?

[Michael Petras, Chairman & CEO at Sotera Health Company]

I would just say just on the Nordion side, recognize that that volume just shifted from second quarter to first quarter. '1 other point, Luke, that I want to make sure we call out is there's last day in the quarter in the first quarter. So I think that's important to note as well. But when we look at overall, we expect the margin improvement throughout the year to really come from the Nelson side, pretty consistent margin rate in the other businesses. That's how I think about it going forward.

[Luke Sergott, Analyst at Barclays Capital]

All right, great. Thanks. And on Steri and the volumes, your guide here implies, I think that you said previously, kind of holding this pricing level flat, that implies that your volume kind of steps up to that low to mid single digit growth by the end of the year. I'm just thinking about in the out years of like how much of this is just due to the comp dynamic? I assume there's some of that in there, but should we expect that with the elevated device utilization that's been going on, you don't have any more de stocking or anything.

[Luke Sergott, Analyst at Barclays Capital]

Is this kind of like a should we be thinking about volumes resetting a little bit higher?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. So think about what we said in the long range guide in the business, Gary, would be mid single digits to high single digits. They'd be in the price rate in the middle, in the price range of that 3% to 4% or on the higher end of that if you actually think about it. So you can kind of plug it from there, but we'd expect volumes to look like over the longer range.

[Luke Sergott, Analyst at Barclays Capital]

Cool. Thank you.

[Operator]

And our next question will come from Dave Windley with Jefferies. Please go ahead.

[David Windley, Managing Director at Jefferies LLC]

Hi, thanks for taking my questions. Good morning. I'm going to try a slightly different twist on the stereo volume questions. I'm wondering if if your expectation of continued improvement is normalization of the two customers, Michael, that you called out. Is it continued rising volumes in the market generally and you ride with that?

[David Windley, Managing Director at Jefferies LLC]

Is it improving market or wallet share with your customers? I'm just trying to better understand what causes your volume. What's the disconnect essentially between what has been pretty good med device volumes and yours, and how does that narrow or converge? Thanks.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. David, thank you. Pretty much all of those that you all of the above play into it, right? So we've got a couple of customers, some in particular that I referenced in the past that had some challenges. We'll work through that as the year progresses.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We are seeing volumes continue to ramp up in other areas across multiple categories. We haven't talked about inventory resets or anything like that for quite some time, and we feel that that's in a stable environment. And our facilities are running pretty darn well, right? They also David, somebody comes into when you have a shutdown and things of that nature that all play out. But overall, Mike and the team are optimistic with they're seeing, the execution with the customer base and the facilities

[Michael Petras, Chairman & CEO at Sotera Health Company]

So it's kind of a combination of all those. A question was asked earlier about bioprocessing, that's playing into it. But again, it's a small portion for our business, but that's had a good rebound as well. So overall, we feel pretty good about where we finished out in the quarter. It played out as we expected on the Steri side.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We continue to see acceleration, which is what we expect for the rest of the year.

[David Windley, Managing Director at Jefferies LLC]

Got it. You segued to my second question well and acknowledging that you just said that bioprocessing and life science related activity is relatively small in your business. I'm wondering if or how you think about pressure on the broader biopharma kind of R and D product development cycle. How should we think about that filtering through your business and maybe on a longer term basis? I mean, there's just a lot of noise in biopharma right now, particularly on the persistency of their R and D spend.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yeah, you know, we're not, you know, Noreon as you know is the business that has the most visibility for longer term. Sterigenics would be NEST and the least would be Nelson. I'm going to turn that on you a little bit here today because in particular some testing we do on bioprocessing within the Nelson Labs business. That's one of the, if you will, longer cycle relatively longer cycle businesses. Some new regulations come into place, USP six sixty five, and the Nelson Labs team has executed pretty darn well on that.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We're seeing some good visibility from customers around the things that they need to do to get their products to market and make sure they're safe and compliant. So we're seeing testing like that continue to improve. And on the R and D side, we continue to see some validation work come through on the Nelson side overall. So we're not expecting a big step back in bioprocesses as we look forward at this point in time. But again, we don't have super long visibility in these businesses.

[Michael Petras, Chairman & CEO at Sotera Health Company]

But from what we can see today, David, we feel pretty optimistic about it.

[David Windley, Managing Director at Jefferies LLC]

Appreciate that. Thank you.

[Operator]

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

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Hey, good morning. Thanks for taking the questions, guys. Nice start to the year. I'll start in Starry, but asking more maybe more of a pricing question. I think we're looking at maybe seven quarters now where price has been slowly getting back to maybe more of a normal level, but seven quarters sequential step downs.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

I know it was minor here this quarter. So first part of the question, do you think we're at a defensible level now in price? Or do we see a little bit more erosion from here? And then maybe a counterintuitive, secondary parts of the question, but are you seeing growing pushback on pricing in Sterigenics in light of the tariff situation that's out there? And I ask, is nearly every company is looking at mitigation efforts, turning over every couch cushion possible to find savings.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

So are your partners approaching you about the price increases that you have in place on sterilization services?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Yes. Thanks for the question. Our prices on the quarter for SteraGenx was at 4%. That's pretty consistent with what we'd expect for the year, consistent with some of the message we gave with our long range target 3% to four percent and Stera being on the high end of that range. We have ongoing customer conversations.

[Michael Petras, Chairman & CEO at Sotera Health Company]

It's never an easy conversation. Our sales team continue to work that. We got to make sure we run our value prop, and we're doing that. We are redoing contracts. We are continuing to get price.

[Michael Petras, Chairman & CEO at Sotera Health Company]

And the team makes sure that we deliver the value to our customers and the importance where we're at. One of the other things that over time, we'll continue to evaluate, as we talked about and Mike mentioned at the Investor Day is, at some point, we're going to need to have more discussions with our customers around the pricing for knee shaft and some of the incremental costs that we're putting in our facilities. So those conversations will be taking place over the next couple of years as we look to continue to roll that out as well. So that's something we haven't factored into our outlook for 2025 at this point in time or even that long range guidance I've mentioned then. But overall, it's all about the value we bring our customer and the importance and the critical role that we play.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Very helpful, Michael. Thank you. One follow-up on the EO litigation side. I know you've had disclosures in your filings about the potential for additional lawsuits that are possible in several states, including a couple additional ones that we haven't talked about a lot historically, like North Carolina and Texas. Any updates you can share on these states or any callouts for any of the other active situations before we get the 10 Q filed?

[Michael Petras, Chairman & CEO at Sotera Health Company]

No, I would just tell you as far as we make sure that we have pretty transparent disclosures as risk additional suits in any of the jurisdictions we plan. The two, that you're referencing, I think, are North Carolina and Texas. There's no active litigation, to my knowledge going out in those areas. You will see an uptick in some of the California case counts since we last talked. But overall, again, we feel good if we're able to put on the defense around the science and the facts around the science, we feel good about our ability to succeed.

[Michael Petras, Chairman & CEO at Sotera Health Company]

And we proved that out in one of our previous trials.

[Jason Bednar, Senior Research Analyst at Piper Sandler Companies]

Understood. Thanks so much, guys.

[Operator]

And our next question will come from Michael Polark with Wolfe Research. Please go ahead.

[Mike Polark, Senior Equity Research Analyst at Wolfe Research, LLC]

The Trump administration, the new EPA has announced a review of the ethylene oxide rule and regulations. What do you expect to happen there?

[Michael Petras, Chairman & CEO at Sotera Health Company]

Wow, Mike, good warm up, like good morning, everything. Wow, right at it, Mike, we listen, we're continuing to monitor that situation. We talked to these folks through our regulators as well. It's really uncertain at this point in time what they're going to do. We're continuing to move forward with our NESHAP improvements and our general facility enhancement spend.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Until we get a different direction from the administration, we're going to continue to move forward.

[Mike Polark, Senior Equity Research Analyst at Wolfe Research, LLC]

And then the follow-up is just on

[Mike Polark, Senior Equity Research Analyst at Wolfe Research, LLC]

the growth bridge for Sterigenics in the quarter, hearing the commentary about the one less day. John, is that something you would add back? So 4% constant currency growth in Sterigenics year on year, but one less day. So on a same day, CFX basis, 5% was kind of your view of the real growth in the quarter? For taking the questions.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

No, exactly, Mike. That's exactly how we think about it. As Michael mentioned, we're in a good spot. Sterigenics has saw some volume improvement through the quarter, optimistic based on where we are about the delivery for the year. And that's exactly how we look at quarter.

[Jonathan Lyons, Senior VP & CFO at Sotera Health Company]

Thank you.

[Mike Polark, Senior Equity Research Analyst at Wolfe Research, LLC]

Thank you.

[Operator]

That will conclude today's question and answer session. Like to now turn the call back over to Michael Petrus for any closing remarks.

[Michael Petras, Chairman & CEO at Sotera Health Company]

Great. Thank you, and thank you everybody for your time this morning. This business is pretty resilient. We're a critical role in health care. Our customers know that and value that, which we're very fortunate to be able to talk about.

[Michael Petras, Chairman & CEO at Sotera Health Company]

We've been able to deliver through every cycle, and, we're optimistic of what 2025 looks like, even though it's an uncertain environment broadly. This business will continue to perform. So thank you for your continued support, and we look forward to talk with you in

[Michael Petras, Chairman & CEO at Sotera Health Company]

the future. Have a great day. Bye bye.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Participants

Executives

• Jason Peterson, VP & Treasurer
• Michael Petras, Chairman & CEO
• Jonathan Lyons, Senior VP & CFO

Analysts

• Patrick Donnelly, Managing Director, Equity Research Analyst at Citi
• Brett Fishbin, Vice President & Equity Research Analyst at KeyBanc Capital Markets
• Mathew Sykes, Analyst at Goldman Sachs
• Luke Sergott, Analyst at Barclays Capital
• David Windley, Managing Director at Jefferies LLC
• Jason Bednar, Senior Research Analyst at Piper Sandler Companies
• Mike Polark, Senior Equity Research Analyst at Wolfe Research, LLC