SHC - Earnings call transcript Q2 2021

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Operator

Good morning. This is Michelle and welcome to the Sotera Health Second Quarter 2021 Results Call.

You may find today’s press release and accompanying supplemental slides in the Investors section of the company’s 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 today are Michael Petras, Chairman and Chief Executive Officer and Scott Leffler, Chief Financial Officer.

of the some considered makes call, statements. forward-looking the the company statements maybe During in are to these risks addressed matters The statements that those or cause from and subject could actual materially results differ projected implemented. uncertainties the to filing Health’s the this a to for statements the of of forward-looking SEC refer slide and Please risks presentation description Sotera at beginning and uncertainties. obligation to statements. forward-looking update such no any assumes company The the EBITDA, company financial note EPS will both Please discussion that ratio. non-GAAP adjusted the GAAP leverage measures, net today, including adjusted during and and present A relevant reconciliation company’s slides. in attached of all non-GAAP supplemental to GAAP the periods the measures for to press the its found release and may be schedules

During I Sotera Health’s question everyone the to the yourself give to today’s follow-up will limit conference opportunity over can please to and ask to Petras. now try Q&A the one Michael turn questions. portion so for Chairman call, one that CEO, and we

Michael Petras

you financial great half call. in quarter strong a serve first out EBITDA the operational position in everyone of critical Thank results a very value reminder another a performance on earnings XXXX are adjusted and double-digit growth XXXX. we thank you. quarter care the first on builds and as Sotera that chain. solid Sotera These sits we This morning, in delivered rounds Health quarter health the reporting of for revenue Good I this joining morning and second us growth. and pleased am Health’s

XXXX of adjusted quarter increase reported was well the approximately our as a which last here total growth We on highlights continues of $X.XX performance as some the navigating to will of revenue capital performance. Scott team of our the for second EPS adjusted year. on $X.XX, XX% the quarter mission, dynamic the detail moment, in still a and into quarter of Importantly, execute changing while segment and growth XX% more but compared structure over go our and are global safeguarding EBITDA second to challenges health, pandemic. second

impacted quarter bear think businesses of line it’s to second I year last important still certainly three our in in while all delivered the growth XXXX. the our top pandemic mind, of

So are that a each been continue its business. are a each Those but Laboratories; Overall, year, say I earlier towards quarter businesses recovery. indicated the out there for assumes our quarter nuances At reflected normalization anticipated, is pre-pandemic impacted to nuances BioScience target in points has by we playing second several including last growth positive a as characterized enhancing reporting years. many This is business strong all reflection consistently double-digit capital driving are our integrating of to excellence infrastructure; on and has compared of performance all baseline businesses; Iotron we quarter year, companies towards while have a across adding M&A growth continued delivered priorities, from for capacity delivering our in weak strategic that to fairly outlook deleveraging of Sterigenics XXXX would this revenue many that and the throughout way including as such our which to initiatives, growth a focus compared deploying some company efficiently volumes our gradual growth our for of strategic and operational levels. further how our and acquisitions, we the towards our are recover levels. the year. volumes XXXX results the the had solid

Sterigenics were near reached fact, utilization watermark pre-pandemic second the high XXXX. levels quarter in and their In volumes in

of the related year-over-year, first to gaining pandemic now year has little volume strong has Nelson as continues our relation would we original So critical up testing that say Labs expected. equipment, expected a quarter second than I faster was the surging. category, but become testing that communicated, last headwind to and of personal revved in XXXX, for to outlook protective when Sterigenics previously a

Labs testing seen As Overall be the expected, testing though, is Sterigenics. going for Nelson categories services for The of in enough cycle would product I a the PPE-related to to non-PPE development, to pace of slower part much recovery us. in the including say non-PPE recovery of does pace at normalization testing. other not compared recovery slower offset we’ve faster volumes, that a to to of decline related testing slightly surprise come activity as in larger new are

the for workers Nordion, the second comparison and team customers, delivered work and their strong for financial creating second quarter. first patients quarter continued the XXXX. entire for meeting unusual The of half shipments Health in they the difficult needs the environment. on given a while achieving had focus still results the double-digit quarter proud of a For growth an concentration Sotera of I’m team of in care health safe

With XXXX provide total the performance, on you increasing we in details year, a are solid remainder more will XXXX. first moment. benefit a and with into our combined momentum line financial bottom going half for outlook of the of Scott more the outlook top our

Moving disciplined on capital we to continue be this area. to deployment, in

investments, Our strategic prioritize as further priorities growth unchanged M&A. capital and remain deleveraging we deployment

the Our leverage quarter. improved net ratio debt once second again in

highlight Now, deployment the business key capital I to three our some growth segments. each of of would investments like for

in Cobalt-XX For X we’ve been for time Nordion, supply discussing long-term some investment Nordion’s projects.

supplier nature base. term these initiatives will in diversify are mentioned, we’ve our As and longer

We make projects. development to in continue progress these

to in the my customers Labs live I quickly, to this new based European progress microbiological to say area. excellence important in continue A testing investments leachables have our build-out we to made and capacity want during lab order significant operations. on milestone. the am of equipment the where area, we I Germany. to is to team staff quarter of this in service achieving second up meet went and extractable be able our to example focused growth great Labs, capabilities and both in that send on Earlier we we’ve of as expanding seen the needs our now congratulations center ramp Nelson technical year, Nelson customers. the demand For this reported qualifying

of Labs creating already in that Labs BioScience acquired revenue Laboratories, part BioScience Having growth Nelson which above integration has is We are the pre-acquisition going business baseline. BioScience’s been March, of well. Labs as pleased Nelson

made substantial progress expansions throughout in results, back enhancements as have quarter. specific will broader operate. facility as briefly the on the a well from capacity the EO our comment Sterigenics we we markets seeing I step on Sterigenics Taking the we Lastly, where are what on

relatively the mentioned I Different seen across the assumptions market earlier manner a As from with earlier, both recovery general fairly year. the the quarter said We to last maintain virus made important of encouraging cautionary think Having out presence variants. and the risks quarter, it’s associated the a of Americas tone. in EMEA. in that, an in I find broad the to playing is the it is second recovery a aware in Everyone we consistent be we’ve continued new with and trend. the

activities the continue market. of to the our will monitor customers and We

have encountered we addition, customers as right now. reminder our and serve challenges some a uncertain environment how In of that macro the is

in For raw our due of have including of experienced issues, variety of a even services. delays example, of to shipments some transportation availability or materials customers shortage or labor

being have two I want public the accelerated Moving new part initiatives we that share a results, financial away as company. of to from

program, important operate. employees and our environment, which and taking ESG the to developing beneficial communities we will have holistic effect on and to the in identifying stakeholders our a us we’re most a First, approach formal to what’s the

me to we goal actual broadening created you a DE&I organization. bit our clear future Diversity, the employees while Inclusion, and and and of calls. council Council. diversity, and towards focus still recently consists equity part has I the inclusion on to and of from That efforts As equity on have a the levels council Equity reports our more these around inclusion, from look The early, to the I and diversity, discuss different council efforts. or world progress, met about forward with company’s with sharing of

second to quarter team. to over I how it more again outlook proud Health of a turn Sotera am and detail, Scott the take I want entire to emphasize in Before to the moment I cover

and the of we Scott. a to reason with our to Our the outlook against our call turn able delivering that now on our results over are strategy, executing I team’s customers serving in will focus part large today. level is excellence update attention to

Scott Leffler

driven second more across revenue On year basis, Health to basis consolidated details basis, business second a also XXXX grew XX%. contracted EBITDA revenue segments, QX in I’ll approximately detail growth with margins to Sotera each million. the updated company of grew $XXX the updates a Nelson quarter the compared Adjusted incremental XX within million. outlook. and delivered mix leverage. first with XXXX associated EBITDA quarter the from provide more of consolidated company On capital XX% of the on Nordion approximately of along a along to the with compared largely Thanks, regarding as costs. Adjusted points for million unfavorable XX% and to last $XXX and by costs $X basis currency public deployment of an quarter of about on I’ll highlights year, the our businesses, by of largely second with last Labs absorbing administrative then constant ramp-up cover Michael. QX end by

share, adjusted Our expense, of per million resulted up $X.XX $XX $X.XX QX strong operating interest in from performance, combined XXXX. EPS of reduction a in with

contribution XXXX higher income of of X% growth quarter Revenue Sterigenics segment a the driven segment of the over XX approximately at acquisition growth to volume growth over and QX Iotron. by XXXX, the income of in take pricing segment and and the QX X%, margins expanded revenue let’s look pricing. growth organic by from X% second approximately XX.X% points, basis included for XX.X% and mix year. QX, last levels Now, second quarter utilization Compared In of performances. delivered of drivers

watermark to have As reached just see quarter Michael mentioned, established we about the volumes in pleased Sterigenics XXXX. the that for high are

We continue to make Sterigenics. in meaningful investments

to to our on America at EO We Sterigenics enhancements track complete North we expansions and are this the year, make on continue facility facility. X progress

as margins many with modest as performance it line was the That to full of higher volumes a be top grew margins unfavorable and had an are was to more which slightly instead just to a Nordion’s was had performance, in Nordion’s pricing, decline in mentioned XX.X% Nordion’s point margin as XXXX half to of their than was even to to previously In same this back margins segment anticipated leverage. last XX.X% lower Michael $XX businesses line the case fell Nordion as lower mix. driven subsequent compared period XX% points, offset to second fixed of year. predominantly stronger that by the bottom X% Overall, of in to by quarters growth year. quarter XXX income as realized by we result largely back you for quarter. margins QX well X.X% of year Nordion expected line by prior had that partly anticipated note with $XX cost shipments increase year. Nordion’s in operating compared top million. driven quarter Moving from rate, to compared sales top with year QX. in year-over-year last FX average for expect of approximately with settle QX the a earlier. this performance to tend Nordion, Like than million volumes. base, last We due by the the originally I’ll better periods quarter, to favorable segment in related the can QX last grew the basis line down some concentration income were a brings year second benefit more revenue

As the better a this first were with lower the expecting to half but at half time revenue be result, year still what the expected than full revenue year of than we year. Nordion’s is second last year of

as testing in to X.X% X% nuances grew to $XX XXXX of to quarter second volumes. grew headwind. tailwind compared revenue went impacting to QX and QX $XX Earlier, was Labs, testing Nelson Michael to million, by a PPE-related by saw in million. the pandemic the recovery income the XX.X% For how segment Labs recent periods year-over-year Nelson from we mentioned a is What

improvements pandemic Nelson’s strongest non-PPE the testing delivered consecutive On offset grew in decline. volume since to the X This testing that mix. growth began services, X% volume testing quarter which non-PPE services for quarters. was organic delivered sequential these non-PPE have hand, and enough growth in other volume Nelson’s

as Favorable PPE incremental addition, segment higher-margin prior of pre-acquisition margins to XXXX Labs X% of around revenue. BioScience quarter testing demand points of QX the contributed their In XXX basis also over by during resulted delivered the contracted over over contributing services an the X%. softening baseline, the year quarter. mix unfavorable in pricing testing growth for

leverage. some Next, and deployment highlights to capital I’ll cover relating

$XX with tracking is spend in with full CapEx year our Our first of total spend and $XX the guidance, million. half million in to quarter our second line occurring bringing

for continue of we to capital XXXX. a million full to million $XXX As expenditure year $XXX project reminder,

Our enhancements and near- spending cobalt facility continues Nordion supply on EO be and to growth longer-term focused initiatives, projects.

June remains $X XX, facility. Nelson investments. buy $XXX XX million on $XX this and a needs increase partner generation cash Labs about level. million We availability we QX in were revolver after able X As $XX stakes position With strong facilities a our million, million remain of the minority in liquidity fund in We million cash, our combined to million and Fairfield even revolving acquisition, buyout the for $XXX at China. and out in company our of credit to cash our over operational the BioScience undrawn had Labs approximately owner for funding deliver to minority $XX December

expense stated by leverage our pay-down the leverage quarter XX, and ratio our made XXXX XXXX. loan, June X.Xx and already top of goal delivering on repricing of compared of X.Xx in XX XXXX. interest commitment, to $XX QX declined term of end net of achieving net excellent versus We’ve the with on combination leverage as million our deleveraging Our Through long-term December improve, of debt a to progress second between Xx. Xx continues

XXXX, are For and With expense over we lien declined $XX deployment the of will our debt redeem our our $X expense. half other million. notes save interest during million meaningful per of million company build interest XXXX. the redemption highest-cost in the and $XXX cash the capital notes fully the will after structure, first first by incremental third capital of priorities, funding year an These quarter has currently

March to to outlook be As initial pleased for Michael our call. a increase in outlook X provided very position on we’ve mentioned, we full that are ranges the the year our from

range of adjusted now range $XXX adjusted to are XXXX, expect the From as XXXX; For to approximately growth XX% of full $X.XX follows. XX% to million, to our XXXX; a full $XXX total to year compared representing qualitative the EPS $XXX of standpoint, representing compared million of we to XX% of million for range year million, $XXX in XXXX growth in to XX% revenues approximately in the $X.XX. assumptions and EBITDA

as We in first we’ve the and expect services already the our in the continued the demand experienced of through products half for improvement of XXXX. end year,

of half of half expect on of this by mentioned deliver revenue first Based year, in I As Nordion outperformance line to means earlier, continue year to in half that the year. momentum top the of performance the lower out are second and year. both and expected the half the second margins margin we Nordion’s first than the the be half Sterigenics the the growth coming to of solid first

as provide on testing. up continues continue prioritize standpoint, acquisitions exchange on the will identified continue non-PPE Labs repayment in we be interplay based decrease From to impacted to strategic Nelson the effect guidance. deployment quickly of of be year. by initiatives, our PPE-related ramps While of testing we we back in to rates how guidance With remainder to the currency, the to will compared foreign and updates debt the a capital growth throughout that that time respect

Before team. of how the to back up, his are earlier the wrap I I we wanted turn Michael about to proud call comments entire echo things to

evident position results first our to XXXX. us in is half work Our back hard solid has you. Michael, helped and to team’s QX a and for

Michael Petras

Thank you, Scott.

want facility. Teresa on developments to sterilization comment Sterigenics relating I conclude, we Before recent the to Santa

General ordered order on facility uncontrolled aware, monitoring Mexico prohibits the are XX court was and the June many work there New that Sterigenics As from emissions Attorney with protocol. on of you the a which

Relations reason the to compliance While we monitoring the facility, to a Attorney about have the essential that lifesaving the yet sterilizing post devices requested we everyday. the General anyway the court in that, often want facility’s determine on Sterigenics Having outcome and monitor I that no reached monitoring to hearing process so steps not has also that Teresa can remind appropriate affect the periodically that each said the has Special protocol. has that Santa denies allegations million ethylene Sterigenics updates matters an believe of how ensure, Sterigenics updates facilities. taken respect section and Notices on and medical judge with with will document with X.X to Investor may everyone the with they order. site agreement Sterigenics an and investors, be to including to of of mission oxide relevant hamper and our may

additional execution Mexico permit pleased our New the us the constructive referenced and our example As of again second at enhancements and pandemic. for next most an clearing from by in results solid year, the Sotera very performance, financial way of the is of like Back Department, Sterigenics’ received up considering posed the year. the in environmental a the call Sterigenics this challenges recent especially recently point, website, their this setting quarter our we this operator, pleased overall, answers. step open state. to the with a relationship Environmental continuing you At to for regulators with the great to thus control up for That for were on we team questions Health the implementation posting Thank nicely permit for facility. the and emission half Santa operating global Sterigenics’ far are Teresa results in we’d good that

Operator

you. Miksic line of first from Instructions] Suisse. with Matt Our Credit the Thank [Operator question comes

go Please ahead. open. is line Your

Matt Miksic

A strong congrats of much questions. and so solid, good and on morning Thanks couple a really quarter.

competitors your And end markets week some talk of that I about had in in bit That’s a and from devices you’re earlier demand sterilization. then follow-up. of seeing. one the of trends one demand I rising If sort maybe could talked think your about you – little the

Michael Petras

Yes, is Matt, the demand, for obviously, watching And on we surgeries. us. the the where have Michael. pretty volumes been this we’re on situation and COVID from stable the impact Good morning, elective are,

optimistic as the year cautiously We’re progresses.

We’re to of assuming will see year. a catastrophic situation. we second continue We half the growth in think the

Matt Miksic

in the sort the Nelson which you talk the Can front, appreciate on businesses. here the then the a with or Okay. trends extent color margins the back Sterigenics bit back of quarter I of about a margins cross-currents And role and half from in other half? little margin here year to on the played the in the Sterigenics the in in

Michael Petras

address expansion had add in. Scott it margin year-over-year. can and Obviously, I’ll we first,

was I get Sterigenics. points as basis you such for with or model think cost, XX so about these operating coming leverage. fixed is it facilities the The that good across operating get you volume

next And so would quarter see volumes fourth third, come rates to expect and margin as year, back versus we expansion. improvements

Scott Leffler

Yes. I underlying in absolutely operating Sterigenics robustness and jump for that continued in model comments add just persists. that Michael’s with the I’ll agree

of in alone, a there company, public $X And are cost we’re so QX. reporting the mentioned is on half expect a see And QX trend basis. of that here of these absorbing, million thing One in year-to-date the that reported in Sterigenics year with favorable would public administrative that, would continuation company. and with being in I a the $X emphasize the XX it we costs basis that new was in obviously, expansion costs we million QX as a second to first headwind points also earlier our year here we’re of margin associated new these

we translated that total of XXX QX so company overcame. basis about to as that And margin headwind a in headwind cost points

– profile three that should the And some think across the it look the margin around all for and Sterigenics give and health comfort margin core and for robust when still at underlying so you really performance of consider the I businesses business. that

Matt Miksic

play structure general are in could I you across you inflation. little a some that that I would should a or of wage squeeze that your into can here, way one inflation That more you how just your about cost of to you – economy, if around bit input time? bit a know facilities, unique the becoming across that say, And like you’re expect or the over in how margins contracts factor some wage seeing if your talk that inflation kind concern should your and see plants into little we

Michael Petras

we the labor cover it this Michael. some Being feel clearly inflation, service be side. focused with customers. with way overall. the other is a predominantly able the economy you’re primarily well be and we contracting will our on the U.S. one manageable balance are, deliver price to the say we side, inflation and seeing Matt, our it’s a Yes. in labor are businesses I business would We But seeing in on that across it’s but here as as aware, any labor on would like just in number, United the we’re in States, overall, we that well impact

Matt Miksic

Thank you.

Michael Petras

Matt. Thanks,

Operator

Thank Sean comes with you. Dodge question [Operator Markets. Capital Instructions] RBC of the Our next from line

open. Your Please ahead. line go is

Thomas Kelliher

where, through is on quarter. like from for July Hi, guess Do you area. and or was on strategic focal that and in just previously to run starting the Thomas some taking side, now anything think, Thanks a we’re strategic that? Labs interesting direction planning had August, is the congrats for to that This you mention I of good for guess have window changes takeaways are I what pharma, a Nelson meetings? any questions those great Sean. I specifically morning. on did going key Kelliher each the business a you unit off,

Michael Petras

Obviously, an to as completed is past, elements in for just and But just to going thanks Sotera the question. it the get that. cycle, details. of of strategic not yes, into that a key system across lot to forward-looking stated a planning we X-year one Thomas kind of that close We Health, Yes. I’m planning. we the have operating and of went bring

has part our health. yes, as as is a global been forward point where planning up pharma taking optimistic really X-year to sit you, strategy strategic that safeguarding as about I of we this tell would it through the session that But a Board a going next well. plan. with them and week and fulfilling mission actually company And We’re of going to have we’re

Thomas Kelliher

year have so. or the new thanks. number there. capacity notable think coming no or is next the guess contribution about expansions or There track should from year? said anything. everything you maybe new year still And capacity next or over I this of we you guys how accelerations online on And Okay, a delays

Michael Petras

planning would coming year. we’ve tell just Yes. this you, I live six on we’re got yes, that expansions

in We Wiesbaden are we expansion, remarks that the project Germany. has that up under of in Excellence, our Nelson proud of also referenced team fact Center of the the opened one

So that’s good.

are believe to service by We’re talked not into we expansion. about and or sure about investors, with going process get making our demands additional customers, need we some in past in of you anchor the if to will, we put facility, really a in the but ground we’ve how shovels specifics of start the that putting diligent we And have capacity to the as think in before in place on customers. we lot the our capacity

Thomas Kelliher

Okay. all Great, thanks. for That’s me.

Michael Petras

Thank you.

Operator

Patrick Thank Citi. with from the our of you. question next line And Donnelly comes

Please open. go is line ahead. Your

Patrick Donnelly

some say, ortho of players gotten some just half, through, to Maybe there? Thanks just pacing elective for way kind let’s just XQ and question. another terms uncertainty thinking what any taking recovery for of then versus of in level, pace XQ talk mixed also on signals high the back in you’re you procedure, the guidance, of the one again, guys. think about with Scott, Hi, the the can the about from we’ve terms of of

Scott Leffler

as throughout March, a issued the if contemplated in back go of of terms recovery, year. the guidance had we pace back – our gradual you so normalization Well originally in of to volumes Sure.

few out as said so ago, we more in had anticipated. minutes And basically, Michael has the the or played year a manner less that

has the already here key call slightly originally probably about we in than our changes in from ramp-up we talked that had faster One Sterigenics the area of a that on is guidance. their contemplated benefited

And the high so the think our continuation the year-over-year changes expect going hit and line, to we’ve where is I what year. bottom that still see top be continued QX, a the contemplate of don’t we for we robust of see meaningfully We saw there growth, opportunity in for watermark. we second both half line to what business. And

any worst not delivered that even as a year to in recall revenue the basis. new how are elective last in headwind revenue yet growth. any robust constant in may of far currency on We the kind procedures QX, our company from pandemic thing volume. as impact X% seeing year terms to flow of is through One even of a delivered QX growth activity, the of And during shutdown our Sterigenics last variant

the has so so periods that revenue-generating comfort strong that gives from the us fact year. the And a sight line performance of been have half robust the business during we of to our worst the some even pandemic, standpoint, for second of

Patrick Donnelly

what some a out for That’s Obviously, should what Michael, was of next update outcome to is litigation good the looking the quarters happened. just New just just mean front, about talked you as about. could the of full takeaways avoid talk kind on to on it scenario little from be a read-through a maybe helpful. few worst-case here? And bit eventual of quick And the then I litigation, of from there ruling perspective be the any talked Mexico. you your for guys’ then from preliminary what rest Maybe the shutdown, the we maybe here. your over about timing the

Michael Petras

Yes.

So that particularly just you’re sites, the on Illinois? the the last broadly across talking litigation, question part of other more

Patrick Donnelly

yes. Yes. Correct,

Michael Petras

there because been line go head. off me of let that my have So top

Illinois, of the XXXX, XXXX September litigation of dates have for the July is of been XXXX. trial XXXX July – The have dates this three So been set. – November first the and – trial

Illinois So trial that’s three dates. the Those are the cases. first

they’ll schedule. everything else. They and could hopefully, move to have stick set. that on been around, So pandemic those And depending

facility. Mexico, New as As far we’re to continuing the operate

We we for the have put continue like facility last improvements several years. to in that

for think the point in, my the know, I one quite improvements putting We’ve that that state, made department, now. us in think some really them their people Mexico, in remarks in the been to that New in important for I June that actually they time working for that us we’re facility. people XX regulate permit with I gave it’s a

forward we’re going we’re that to get to of process. on and got now. permit right it’s step, move construction So throes the We’ve that the to done, the next continue in

AG As piece and court uncontrolled far on as view has the a emissions, the it.

We have things to is the of it. I operation. a practicality relative proposed we of on view some the do what being the difference big think today in just running And

just of couple have So was party put last need a know Don’t weeks. and courts just we in discussion. the intervene exactly motion – in third to that that the

hearing It could the when So I’m months. exactly on it be judge to be could have weeks, this. sure be going not is to days, a want it could

We’re continue in safe operate a service have and we X.X going the that we critical facility all to that million of which critical healthcare. devices is a that along facility, at the sterilize provide manner to to day

Patrick Donnelly

Michael. Thanks, Great.

Michael Petras

Thank you.

Operator

our you. line question And Mishan Matthew of with comes from KeyBanc. the Thank next

Please Your go open. line is ahead.

Matthew Mishan

guys. morning good Hi,

Just at point? I first is pharma one was testing at the moving that on pace. Nelson, slower device What slower or imagine a much. this I too think a slower pace recovering said at you isn’t changing and development

Michael Petras

release routine well. is that of is development would I Michael. slower. say we’re those testing up product little activity seeing back a lot doing fairly ramping just testing, some that of this new in The Matt, around a

the just that in But the really PPE comments, we fact the our Scott analytical to keep all our a may development we’re also We’re it’s in in slower headwind areas outgrew got chemistry doing other to that really we But – new in as remarks, testing. continue mentioned That capital was little we validation leachable, and a area quarter, mentioned eye those in be doing the of of the proud against an that in deploy extractable on. as expected. as is bit product we some well. volumes

Matthew Mishan

And you Sterigenics your through between help bridge Okay. – like it’s tough between seems particular, mean of peer, walk and gap some to ask, seemed your closest was I it differences a the but this question just – a theirs? gap. in then there can like quarter AST, business and just it your the numbers and larger

Michael Petras

ours business you when their that? of at aspect say What you are versus looking

Matthew Mishan

The organic growth.

Michael Petras

function timing and of that’s organic growth, what’s think a I The of capacity available.

to our going told at significant excess not customers. utilize or We’ve capital capacity. business and will becoming of that we’re to It’s continue just throw given of we a process capacity. sure available volume we We’ve that’s our don’t digits, to that we making give XX%, feel continue during XX% excess a around said, have XX%, out we We capacity capacity all deployment we’re will for you of and time. don’t our high growth. business along expensive single grow pretty kind As a perform this disciplined kind got capacity to confident growth. volume very in We that have public,

Matthew Mishan

at, capacity operating the you plants? What with this guys at are point new

Michael Petras

in low neighborhood would the – I XXs, of little XX a We’re say.

Scott Leffler

had And earlier, represents run to pandemic. to as Michael mentioned prior that utilization back about at just we levels typically that the peak getting the

more. routine And a us terms year for in later us things do that so, this And little which of we coming high obviously, and new our to operating capacity projects up that that’s pretty for subsequent as level. these have opens online are well,

Michael Petras

pretty with that. align Matt, what plans a versus closely, demands around really to their and process have capacity work our our capital, We disciplined is because this trying customers are expensive and we Yes. just

Matthew Mishan

Okay, very you much. thank

Operator

Thank Tycho you. And the line from our of JPMorgan. next with comes question Peterson

is ahead. open. line Please Your go

Tycho Peterson

discussion about margins pass supply to for you kind how you’re the cost want then pressures Nordion reverse? I the talked about you chain? Do is about back those Sterigenics. how the you on the margin half Hi, to go in of how the it can two mix year? to thinking Nelson, that talked wage I but the about expect easy businesses along? of headwinds to that you And And inflation, know margins about just talk back thanks. down, But earlier. saw and

Scott Leffler

Sure.

your first. about question answer will I So, talk I margin will –

reported and had with of the year. very extraordinary margins to a redundant, quarter and XX.X% risk So, being extraordinary Nordion Nordion really at respect last just They by comp any measure. the so for very,

that’s slight mix expect were something my their when the a year as selling they coming we on look I top timing I year-over-year so settle supply versus from their to overall, was is a basis, of margins. margin full to you in while just last earlier And customer line they nuances from. at who But this with profile year, their to such and comments year. in as But the be happened last mentioned that to Nordion in decline who really down profile were shipments the far that of line think margin some that grew representative for and there quarter

testing. it’s For non-PPE of going really decline Nelson to plays mix ramp-up Labs, to by testing compared be the how this the determined terms in out in related PPE of

testing, that decline be happens the a profitability in to high that and testing. was PPE headwind, we very X% As mentioned,

we speed profile. nuance Nelson’s which exactly still the And that will some on comes down. dependent so be how year-over-year margin it out, depending on may in again, see But that decline plays with

Michael Petras

margin And We Sterigenics, continues to addressed second the decline as there. of the year see in volume Tycho, half earlier. expansion I

Tycho Peterson

then cost on? on be chain, any could And pressures passed supply that Okay.

Michael Petras

of we earlier structure business So being Other it. really the have. the that, one are was I the we our in mentioned service That’s people, reference where than cost is wages. most that seeing in

We it’s that enough have for issue do don’t it, it’s labor either. the we recover but on side us do to got a in couple of other an think we nor items, being material significant able

Tycho Peterson

on Okay. side, a And step-up. then the XX% decent capacity is

historically, have you think kind been Sterigenics, XX%. at XX%, of I

supply think get to then on Nordion you additional the well? you you the And talked expansion, talk agreements as Cobalt-XX range back low-XXs which also, projects of are degree should does how you side just the So, that six capacity? can kind capacity the about the of or to we about, expanding

Michael Petras

Yes.

about. we is XX% our we And XX%, to which the – reference have calls So to last kind of on would have operate. XX% talked of point closer range Tycho, gone back that’s in been that to probably where couple the

fall that below As will we additional the XX%. put on, capacity

give how volume but as at context, So, customers, about It’s capacity of large again, our portion. we committed. that large you are these a have just to all with to we that’s a the look of not some kind it committed volume, those portion try thinking expansions. we And

What around sorry, I Your question, specifically? am cobalt? was additional

Tycho Peterson

think XX supply those is online? There cobalt Yes. we three about projects coming for Nordion. How should

Michael Petras

Yes.

So, long-term projects. those are supply

are – start plan long-term ‘XX, and is – we ‘XX, about be this going to We and see to we in that ‘XX, are around going the out-years. with are the in utilities ‘XX that We ‘XX. programs it or worried ‘XX in are we supply are cobalt something ‘XX, working working cobalt beyond. isn’t about These ‘XX, This you world.

Tycho Peterson

Okay.

Michael Petras

But more with we will have continue be shared just them to you, years, Tycho, before. the specific several against for what we deploy next over capital to consistent

Tycho Peterson

Okay. Thank much. you very

Michael Petras

you. Thank Okay.

Operator

Sachs. the with Amit of And from our Thank next line Hazan question you. Goldman comes

ahead. is Please go line Your open.

Amit Hazan

Hey, can COVID the good you start morning. Nelson kind Maybe and Thanks. us on benefit. side with see just remind PPE if of the

get to kind seen might this help year that from help move the And have Just so first us, quantify we next be can of would half just year. quantify helpful. year this if we fully what hopefully, us a far or be the environment, normal headwind of last of you then sense what can, so benefit a you impact, maybe as

Scott Leffler

Yes.

we – of little that the testing from the PPE a unwinding a So, represents here this we us testing. total that or for And X% half mentioned had quarter. benefit say that over PPE-related about from in headwind COVID would I seen was

we come, than headwind saw more And this so modest it’s but some to what quarter. incremental there is

Amit Hazan

is the to And and the still regulatory device What as seeing you do question you Mexico, to in much. arena relates relates sure it one call or see that? facing in same scrutiny And facilities? make make risk follow-up the want states I increase Georgia, Georgia it to other actions? Do disclose if EO at disclosures and states, asked or the similar that EO to are kind game of more of wanting their relatedly, kind actions so of they on you EO players, players and kind regulatory had on you the then then Okay. think in and to we seen have think any changing as states – just you other to Have of Thanks device least EO New environment, out where impact have hearing type on other those about medical them thing. is you as be from Illinois. medical there. beyond EO copycat in you the stance would of requirements BD

Michael Petras

Yes.

Michael. As – far Amit, as this is

but you the new are provide restrictions continue predict with if regulators regs. for I on and as past. and in We Obviously, put those can other what what we the we activity something we an we the is about on not continue operate tell compliance that. I in mean in that in else I work ongoing tell And chain. country, you supply regs by we have far new to As that’s states. And showing happened multiple our forward, irrational seeing the are around facilities the with service, facilities the basis, of facilities. to up. customers being the some critical all I can’t and the means will, in to you permits can’t

here all been the United quite for our and and States, time. facilities As up they – far in are some have running as

a in-sourcing many make in That’s combination have in like in of Not the of BD for something outsourcing sterilization instance. would they disclosures is that doing been has look I comment. BD, all Regarding and years. just a sterilization. of Georgia BD that that been somebody customers

that we sure until sterilizers. a going that that to when Did are new in that means wouldn’t NESHAP, there. again, of late which for very regulations we government because which it’s with know all But questions, they topic out to facilities rules improvements are anything answered public comfortable they let is is XXXX the of exceed sterilization, I a people others, I trend it’s that The appropriately. our your comment, Amit. for it able the question the be going putting to would regulations of I answer I be want as this requirements. new might doing the our Amit, probably seeing are current now, out to administration imagine not see probably spot I the expectations in-sourcing didn’t I be we large your get important and and your year will large you EO. an to make of feel one on XXXX take The ask, to the it other are event. has you mind, Right belief a We alone it’s but signaled

Amit Hazan

I it. No, appreciate Yes.

think device medical given have are to states continued that topic? outsourcing whether piece just in is you the companies to this change various noise in behavior in-sourcing just from it any I the are desire of in-sourcing, last in on folks that seen move their

Michael Petras

Yes.

some their us outsourced I to my a capacity. additional we own capacity in “Hey, you we it’s looking us.” told referenced I okay. And that’s suspicion, customer think scale relationship with us like teams I As customer of They expansion that’s guys trend. that, programs a are strong that not to and we volumes to point them come a expansions. with would would as to our have was we one got a have said, us. are call a they it some expand are situation point, their in over six this referenced. up one provider commenting is And factor we and opinion here not personal they an I have us I previous that put it our of that calls, us today, where and moving asked call in-house a data the But have of our would at because in a to of regulation, capacity for But this our have part of

Amit Hazan

Okay. Thanks so much.

Michael Petras

you. Thank

Operator

with And you. Windley line from question Dave Jefferies. of comes next the our Thank

ahead. Your open. line is Please go

Dave Windley

end question. Thanks substantial. to in an addressable you taking pretty your ask, an pharma market, IPO around as for Michael, morning. that quantified Good Wanted Hi. my materials had was market

And in to in you do you a little further in are elaborate if I You think I extractables initiatives penetrate of could leans have growth extractables other seeing direction. what call particularly have and that mentioned the in a and then you couple this leachables. leachables, bit place that on wondered pharma? times which that

Michael Petras

Yes, for thanks question. David, the

billion those about our Sotera in across fact also billion is numbers lab. Part services our that and attack pharma, the strategic we And pharma walked to our refine about have business how our $X is And of in total have On it process $XX are to of we $XX to the we continue then we TAM. the number TAM. talked yes, the lab. Health, outsourced larger down have then talked billion the planning going kind for we that strategy and

elements We of growth not strategic only device. leachables. But that med extractable/leachables one also I but the be clear, is want in of pharma, and for significant extractable also are seeing to

As by Europe see med in to particular, regulators, in requirements the and pharma, new we also MDR come the regs, space. in not the market extractable/leachables only some device other but in

areas the earlier overall, with of segments Labs. in are you, continue Nelson well, would are some growth volume about really asked And new see I are pursuing. but was being both now we and the volumes product tell that of both some we point little also development optimistic. a pharma have we on services that slower extractable/leachables, to we to seeing But pharma on right the services we we other So, areas, in of then have additional also side seen that – extractable/leachables do

as still strategic pharma it. big of plan a part has Our

Dave Windley

we of of and your I two-part of normal named, kind on or go that on year? environment PPE largely next assumption last more a are I those the things to in things kind headwinds kind the for today, leak into done be end over new I about the be of you Is comments unwinding. with a a types year guess these your talked they could are by suppose. slower back guidance, development year If this about around overall clarification going Scott that next now into tailwinds could year have and recovery, that from think things, ask PPE. the you half question, of your like it’s benefit of that, COVID-related headwinds should guidance – your step in or

Scott Leffler

Sure.

X% the the of headwind QX was saw the unwind, in in they QX to about PPE-related of just I tailwind talking year. So, to that when in relation already clarify, of amount how relative much last this to was that saw we benefit

will to we comps so in year-over-year some the of terms in see quarters. subsequent continue And headwind

Nelson testing. our Labs QX to time associated back for reported we go even that at a them, PPE fairly reported you tailwind If results when sizable with we

to away headwind some have testing. may you obviously, of ramping unwinding associated with COVID-related so of storyline COVID kind we of in is expect tailwinds sequential to around associated it Labs, meaningful to in categories continue really from, in with only of overall subsequent testing, testing this benefits, which of would the any unwinding not is the other that associated with headwinds the quarters, terms to that up we take And And PPE benefit see unwind. category have this continued the Nelson

Michael Petras

would question in pop-up not do Nelson little question, I add comment clear I get this If to further. your Scott’s, from at understand be PPE embedded to We to want don’t a your to that I trying to we think a may in David, have PPE just of not big a big one I if been that am – was forward. guy just sure. going expect activity. sure for variant Nelson make not – is testing going a that think expect don’t the – variant we ramps increase up, I there Does on. really we are assuming help? testing large

Dave Windley

are right to Again, that say? have on the like of it that, kind ‘XX something what part or broader a probably had step on generally of business thank now. it stand product you normal calendar too does as adding. slower – to year more in hard do things unwinding things are thought some But here to this guess commented development, basis? get for things actually recovery into uncertainties if is wasn’t was those that that about. help, kind you you question your but headwinds new and still to now you like I the I in really normal at right you think Are of It

Michael Petras

will optimistic of But the about there. are We are we some we half. of we super aggressive point second think because see the recoveries cautiously it this out at not how that in on uncertainty

Dave Windley

Yes.

you. Okay. Thank

Michael Petras

you. Thank

Operator

our with question of next Michael from you. Thank Polark And comes line the Baird.

open. Your line go is ahead. Please

Michael Polark

be mix of us can you the of EO, just end the where one a radiation, versus would Good of it. just machine-generated about flavor That’s remind the versus on filling that North going between capacity live the in what’s now year? and expansions are year? then question morning. many will gamma, live the love And is capacity investment America in those I Thank you. active this by Europe, Sterigenics, six Question on how

Michael Petras

Yes, They EO them that of None come to space. and that Michael, not going running. I expansion of are are we there on six all couple and to are – up say projects referenced a would none And of are forward. are couple radiation They existing the is in would I them say the greenfields. facilities. a expansions

Michael Polark

the I in Okay. for the I a contributing correctly, I pricing follow-up this Nordion, pricing was My benefit Perfect. at beyond? that think are have of And is that number question in Nordion is the one-time-y from input X% heard there getting on level is, to may reasonable quarter. years The not, year? or that anything you

Scott Leffler

number QX the reported that price our numbers, to Nordion go see. typically back was we Well, lower bit for little we I think than you if a what

like there for so bit way to a pricing are is in may that. a how better depending a in we which And one have or And little one little bit quarter also, or contractual or of worse, lumpiness Nordion. always is recently there on they higher. lumpiness customers you in a – And this something another and had is for particular about reset some price talk selling

contribution are It’s as over representative basis, look on year-to-date a are look think Nordion to obviously, price tracking they And the X.X%. little bit a from at that you little modest. if so fairly what being it’s going a you I more to. And of, at

of there say per amount will some I earlier, Nordion’s QX. that Whereas benefit the at performance, not I the forward true thing this had had that, organic in forward here which would pulling I that we mentioned of had the in contemplated in of million realizing than $X we as of on performance, respect other or the in year was when time I was QX performance, second that been se, rest The year expecting half and originally better of is half comment about terms looking second XXXX quarter the year. of but to – what say, with pulling this that sales outlook. earlier second would been in their revenue last of were so sales the represented

Michael Polark

much. very you Thank

Operator

over like at for the I back conference this further Instructions] no And remarks. time. am Petras I [Operator questions showing Michael further would to to turn any

Michael Petras

morning’s Michelle, and who to participated you this you, everybody call. in Thank thank

resiliency perform fact of health are We the this It and global proud global during to company the critical well of we the that model role global continues the bring in to healthcare pandemic. our marketplace. safeguarding the demonstrates

support all So, your thanks good and we appreciate for day. morning. a this time your Bye-bye. Have

Operator

conference This Thank concludes participating. you today’s call. for

You great may a day. now all Everyone, disconnect. have

Sotera Health (SHC) 12 Aug 212021 Q2 Earnings call transcript