Earnings call transcript: Sotera Health beats expectations in Q1 2025
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Despite strong financial performance in adjusted EBITDA and revenue growth, the net loss and lack of clear guidance on legal issues and EPA regulations introduce uncertainty. The company's resilience in economic challenges and improved liquidity are positives, but the lack of a dividend program and unclear management responses temper optimism. Given the market cap, the stock is likely to remain stable, thus a neutral prediction is appropriate.
Key Financial Performance
Total Revenues $255,000,000, an increase of 2.6% year-over-year (4.4% on a constant currency basis). The increase was impacted by a foreign currency headwind of 180 basis points and one less selling day compared to Q1 2024.
Adjusted EBITDA $122,000,000, an increase of 8.8% year-over-year (11.2% on a constant currency basis). All three business segments expanded margins, resulting in a total company adjusted EBITDA margin of 47.9%, a 276 basis point increase from Q1 2024.
Interest Expense $41,000,000, improved from $42,000,000 in Q1 2024.
Net Loss (GAAP) $13,000,000 or $0.05 per diluted share, compared to a net income of $6,000,000 or $0.02 per diluted share in Q1 2024, which included a $31,000,000 settlement of EO claims.
Adjusted EPS $0.14, a $0.01 improvement versus Q1 2024.
Sterigenics Revenue $170,000,000, a 1.9% increase year-over-year (3.9% on a constant currency basis), driven by favorable pricing of 4.1%, partially offset by unfavorable foreign currency exchange rates of approximately 2%.
Nordion Revenue $33,000,000, a 36% increase year-over-year (40.6% on a constant currency basis), due to higher than expected revenue from Cobalt 60 shipments that shifted from Q2 to Q1.
Nelson Labs Revenue $52,000,000, a decline of 9.3% year-over-year, impacted by a decline in expert advisory services revenue and unfavorable foreign currency exchange rates of approximately 80 basis points.
Nelson Labs Segment Income Increased by 7% to $60,000,000, driven by favorable volume and mix from improved core lab testing, pricing, and lab optimization.
Available Liquidity $715,000,000, including more than $300,000,000 of unrestricted cash and $410,000,000 of available capacity under the revolving line of credit.
Operating Cash Flow Approximately $56,000,000 for the quarter.
Capital Expenditures Totaled $20,000,000 for the first quarter.
Net Leverage Ratio 3.6 times, an improvement from 3.7 times at the end of 2024.
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Operating Highlights
New Product Development: Sotera Health's teams at Nelson Labs and Sterigenics played a critical role in securing FDA clearance for the first-ever bionic pancreas, showcasing their integrated expertise in science and regulatory navigation.
Market Positioning: Sterigenics operates in a $4.5 billion sterilization service addressable market, with positive trends driven by aging population, healthcare spending, product innovation, and stringent regulatory requirements.
Market Expansion: Nordion's revenue increased by 36% to $33 million, driven by higher-than-expected Cobalt 60 shipments.
Operational Efficiency: Nelson Labs achieved a 479 basis point margin expansion, marking the third consecutive quarter of year-over-year margin improvement.
Financial Performance: Total company revenues increased by 2.6% to $255 million, with adjusted EBITDA rising by 8.8% to $122 million.
Strategic Shifts: Sotera Health reaffirmed its 2025 outlook, expecting revenue growth of 4% to 6% and adjusted EBITDA growth of 4.5% to 6.5% on a constant currency basis.
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Risk or Challenges
Regulatory Risks: The company is closely monitoring the evolving regulatory environment, particularly regarding ethylene oxide regulations, which could impact operations. There is uncertainty about potential changes from the new EPA administration.
Litigation Risks: Ongoing litigation related to ethylene oxide emissions poses a risk, with potential lawsuits in various states, including California, North Carolina, and Texas. The company is confident in its defense strategy but acknowledges the risks associated with legal proceedings.
Supply Chain Risks: There is a risk associated with the supply of cobalt from Russia, which could impact 0-2% of total company revenue for 2025. However, the company has not experienced any disruptions in supply as of now.
Tariff Risks: Current tariff policies are not expected to have a material impact on the business, particularly as 85% of revenue is service-based and Nordion's Cobalt 60 shipments are exempt from tariffs under USMCA.
Foreign Exchange Risks: Foreign currency exchange rates presented a headwind of 180 basis points in Q1, particularly affecting the Canadian-based Nordion business. The company has revised its foreign exchange outlook for the year, indicating a slight improvement.
Economic Factors: The company operates in a challenging economic environment, but it has demonstrated resilience through various market conditions, including past recessions and the COVID-19 pandemic.
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Guidance & Outlook
Revenue Growth: For full year 2025, revenue growth is expected in the range of 4% to 6% on a constant currency basis.
Adjusted EBITDA Growth: Adjusted EBITDA growth is projected in the range of 4.5% to 6.5% on a constant currency basis for 2025.
Capital Expenditures: Capital expenditures are expected to be in the range of $190 million to $210 million in 2025.
Free Cash Flow: The company aims to generate between $500 million to $600 million of free cash flow over the next three years.
Tariff Impact: Current tariff policies are not expected to have a material impact on the business.
Customer Volume Improvement: Sterigenics volumes are expected to improve throughout the year, with full year constant currency revenue growth in the mid single digits.
Nordion Revenue Outlook: Nordion is expected to have constant currency full year revenue growth in the mid single digits.
Nelson Labs Revenue Outlook: Nelson Labs is expected to see full year 2025 constant currency revenue growth and margin improvement.
Interest Expense: Interest expense is expected to be between $155 million and $165 million based on the current forward rate curve.
Effective Tax Rate: The effective tax rate applicable to adjusted net income is projected to be in the range of 33% to 35%.
Adjusted EPS: Adjusted EPS is expected to be in the range of $0.70 to $0.76.
Share Count: The fully diluted share count is expected to be in the range of 286 million to 287 million shares on a weighted average basis.
Net Leverage Ratio: A slight improvement in the net leverage ratio is anticipated in 2025.
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Shareholder Return Plan
Shareholder Return Plan: The company reaffirmed its commitment to capital deployment focused on organic growth and deleveraging, with an expectation to generate between $500,000,000 to $600,000,000 of free cash flow over the next three years.
Capital Expenditures: Capital expenditures for 2025 are projected to be in the range of $190,000,000 to $210,000,000.
Liquidity Position: As of the end of Q1 2025, the company had $715,000,000 of available liquidity, including over $300,000,000 of unrestricted cash.
Net Leverage Ratio: The net leverage ratio improved to 3.6 times at the end of Q1 2025.
Adjusted EPS: Adjusted EPS is expected to be in the range of $0.70 to $0.76 for 2025.
Dividend Program: None
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Key Q&A
Q:Can you just talk through the tariff side and the confidence level regarding its impact?
A:We’re pretty confident based on the current regulations that there will not be a material impact on the company. The largest component we are following is cobalt from Canada to the U.S., which falls under USMCA.
Q:Any changes to how you’re thinking about Sterigenics volumes?
A:We’re more optimistic on the volumes and expect continued improvement throughout the year. Customer survey results came back strong, indicating volumes are improving.
Q:Can you expand on the factors driving Nelson Labs margin improvement?
A:The business is driven by new regulation, new product spend, and sterilization volumes. We’re seeing improvements in routine and validation volumes.
Q:What’s the outlook for Sterigenics volume growth?
A:We saw improvement in volumes throughout the quarter, particularly in bioprocessing, and we expect this trend to continue.
Q:Can you provide an update on the legal strategy regarding ongoing cases?
A:We are confident that at this level of admissions from our facilities, we’re not causing cancer. We will vigorously defend ourselves in court.
Q:What’s the status of the ethylene oxide rule review by the new EPA?
A:It’s uncertain at this point what will happen. We’re continuing to monitor the situation and move forward with our facility enhancements.
Q:What’s the real growth in Sterigenics considering the one less selling day?
A:We think about it as a 5% growth on a same-day basis.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the ongoing legal strategy and the potential impacts of the ethylene oxide rule review by the new EPA, indicating uncertainty without elaborating on the implications.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Carolina Texas
Goldman Sachs
Investor Day
North Carolina
Officer Health
Speaker Unspecified
Sterigenics volume
Unidentified Speaker
Unspecified Health
amendment
biopharma
business
challenge volume
conversation
currency digit
customer base
disclosure filing
effort
expectation
importance
place couple
play
policy
product
regulation
sale
science fact
side margin
sign improvement
situation
state
tariff
term Sterigenics
volume Chairman
SHC Transcript
Sotera Health Company (SHC) Presents at 44th Annual J.P. Morgan Healthcare Conference Transcript
Neutral1-12
Sotera Health Company (SHC) Q3 2025 Earnings Call Transcript
Positive11-4
The earnings call reveals strong financial metrics, including raised revenue and EBITDA growth outlooks, improved net leverage ratio, and increased adjusted EPS guidance. Despite some concerns, such as margin compression and Q4 pullback, the overall sentiment is positive, with consistent performance across key areas and confidence in long-term growth. The market cap suggests moderate volatility, leading to a positive stock price prediction (2%-8%) over the next two weeks.
Sotera Health Company (SHC) Q2 2025 Earnings Call Transcript
Positive8-8
The earnings call summary and Q&A indicate stable financial performance, with positive operating cash flow and improved net leverage ratio. Despite limited guidance for 2026, there is optimism in product development and market strategy, particularly with Sterigenics and Nelson Labs. The company's strong liquidity position and ongoing investments in capacity expansion further support a positive outlook. Given the market cap of approximately $3.37 billion, the stock is likely to experience a moderate positive reaction in the range of 2% to 8% over the next two weeks.
Sotera Health Company (SHC) Q1 2025 Earnings Call Transcript
Unknown5-2
The earnings call presents a mixed picture: positive financial performance with strong revenue growth in some segments and improved margins, but also challenges like a net loss and declining revenue in Nelson Labs. The Q&A reveals optimism about future growth and margin improvements, yet there are uncertainties regarding legal risks and regulatory outcomes. The market cap suggests moderate reaction, and the absence of strong catalysts like new partnerships or significant guidance changes leads to a neutral prediction for stock movement.
SHC Slides
SHC Report
Frequently Asked Questions
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