Sotera Health Company (SHC) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Revenue Second quarter revenues increased by 6.4% to $294 million, or 6% on a constant currency basis compared to Q2 2024. Foreign currency was a tailwind of approximately 40 basis points for the quarter.
Adjusted EBITDA Adjusted EBITDA increased by 9.8% to $151 million or 9.5% growth on a constant currency basis. Adjusted EBITDA margins were 51.2%, representing a 156 basis point increase from Q2 2024, driven by a 514 basis point increase in Nelson Labs segment margin.
Net Income (GAAP) Net income on a GAAP basis for Q2 2025 was $8 million or $0.03 per diluted share inclusive of the pending and previously disclosed $34 million settlement of EO claims in Illinois. That compares to net income of $9 million or $0.03 per diluted share in Q2 of 2024.
Adjusted EPS Adjusted EPS was $0.20 for the second quarter of 2025, an improvement of $0.01 from Q2 2024.
Sterigenics Revenue Sterigenics delivered strong second quarter 2025 revenue growth of 10.5% to $195 million or 10% on a constant currency basis as compared to Q2 2024. Revenue growth for the quarter was driven by a favorable volume and mix contribution of 6%, pricing of 4% and a benefit from foreign currency exchange of approximately 50 basis points.
Sterigenics Segment Income Segment income increased 11.3% to $108 million with segment income margins expanding 42 basis points versus Q2 2024. Segment income and margin growth were driven by strong top line growth, partially offset by inflation.
Nordion Revenue Nordion's Q2 2025 revenue increased by 2.9% to $42 million or 3.4% on a constant currency basis compared to the same period in the prior year. Nordion's revenue increase was driven by favorable volume mix of 1.1% as well as a 2.3% pricing benefit, partially offset by unfavorable foreign currency exchange of 50 basis points.
Nordion Segment Income Nordion's segment income was $23 million for the quarter, while segment income margin decreased 145 basis points to 55.3% compared to Q2 2024 driven by the timing of supplier mix.
Nelson Labs Revenue Revenue for the quarter was $57 million, a decline of 3.3% compared to Q2 2024 as favorable contributions from core lab testing, pricing gains of 2.8% and a foreign exchange benefit of 110 basis points were offset by the anticipated volume impact of expert advisory services.
Nelson Labs Segment Income Segment income increased 13.9% to $20 million, while segment income margins expanded by 514 basis points. Increases in Q2 segment income and segment income margin were driven by favorable volume and mix improvements, benefits from optimization, and favorable pricing.
Operating Cash Flow Positive operating cash flow of approximately $57 million in the quarter.
Capital Expenditures Capital expenditures totaled approximately $31 million in the quarter.
Liquidity Position At the end of Q2, the company had $918 million of available liquidity, which included $332 million of unrestricted cash and $586 million of available capacity on the revolving line of credit.
Net Leverage Ratio Finished the quarter with a net leverage ratio of 3.5x, an improvement from net leverage of 3.7x at the end of 2024.
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Operating Highlights
New infusion set for advanced Parkinson's therapy: Sterigenics and Nelson Labs contributed to the launch of this innovative drug delivery device, which helps improve quality of life by managing tremors and rigid body movements.
Sterigenics revenue growth: Achieved 10.5% year-over-year revenue growth driven by increased customer demand, core med device customers, and bioprocessing momentum supported by facility expansion.
Nordion revenue growth: Reported 2.9% year-over-year revenue growth, driven by favorable volume mix and pricing benefits.
Nelson Labs margin improvement: Achieved a 514 basis point increase in segment income margin due to core lab testing improvements and optimization actions.
Leverage reduction: Net leverage ratio improved to 3.5x from 3.7x at the end of 2024, progressing towards the long-term goal of 2x to 3x.
2025 revenue and adjusted EBITDA outlook raised: Revenue growth outlook increased to 4.5%-6% and adjusted EBITDA growth outlook to 6%-7.5%, reflecting improved performance expectations.
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Risk or Challenges
Pending EO Claims Settlement: The company disclosed a $34 million settlement of EO claims in Illinois, which could impact net income and financial stability.
Inflation Impact: Inflation partially offset segment income and margin growth in the Sterigenics segment, posing a challenge to profitability.
Decline in Expert Advisory Services: Nelson Labs experienced a decline in revenue due to the anticipated volume impact from expert advisory services, affecting overall segment performance.
Revenue Risk from Russian-Supplied Cobalt-60: Although reduced to less than 0.5% of total company revenue, there remains a revenue risk associated with Russian-supplied Cobalt-60.
Timing of Cobalt-60 Shipments: Nordion's Q4 2025 revenue is expected to decline mid-teens compared to Q4 2024 due to shipment timing, impacting revenue consistency.
Foreign Currency Exchange: Unfavorable foreign currency exchange impacted Nordion's revenue growth, though the overall effect was limited.
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Guidance & Outlook
2025 Revenue Growth Outlook: The company has raised its 2025 constant currency revenue growth outlook to a range of 4.5% to 6% compared to the prior range of 4% to 6%.
2025 Adjusted EBITDA Growth Outlook: The adjusted EBITDA growth outlook has been increased to 6% to 7.5%, up from the previous range of 4.5% to 6.5%.
Foreign Currency Impact: The company now expects foreign currency impact to be neutral on full-year revenue and adjusted EBITDA versus 2024, compared to the prior assumption of a 1.25% to 1.5% headwind.
Sterigenics Revenue Growth: Full-year 2025 constant currency revenue growth is expected to be in the mid- to high-single digits.
Nordion Revenue Growth: Full-year 2025 constant currency revenue growth is expected to be in the mid-single digits, with nearly 60% of revenue occurring in the second half of the year. Q4 2025 revenue is expected to decline mid-teens versus Q4 2024 due to the timing of Cobalt-60 shipments.
Nelson Labs Revenue and Margin Outlook: Full-year 2025 constant currency revenues are expected to decline in the low single digits due to the impact from expert advisory services. However, the company expects to return to growth in Q4 2025 and anticipates strong margin improvement for the year.
Interest Expense: Interest expense for 2025 is projected to be in the range of $155 million to $165 million.
Effective Tax Rate: The effective tax rate applicable to adjusted net income is projected to be in the range of 31.5% to 33.5%, reflecting a favorable U.S. tax law change.
Adjusted EPS: The adjusted EPS for 2025 is now expected to be in the range of $0.75 to $0.82, an increase from the previous range of $0.70 to $0.76.
Capital Expenditures: 2025 capital expenditures are expected to be in the range of $170 million to $180 million, down from the prior outlook of $190 million to $210 million. The reduction reflects cost savings and timing of large projects.
Net Leverage Ratio: The company expects the year-end 2025 net leverage ratio to improve compared to 2024, working towards a long-term goal of 2x to 3x net leverage.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Did Sterigenics experience any pull-forward dynamics due to tariff noise?
A:Michael Petras stated that there were no material tariff pull-ins, though there was a little bit here and there. The team saw volume progression as expected earlier in the year.
Q:What is the performance of MedTech and bioprocessing in the recovery?
A:Michael Petras mentioned that volume and mix were up 6% in the quarter, and price was up 4% in Sterigenics. Bioprocessing, though a smaller portion of the business, saw significant growth due to capacity expansion. MedTech volumes were steady with growth in focused end markets.
Q:What drove the year-over-year improvement in Nelson Labs margins?
A:Michael Petras explained that the improvement was due to labor productivity optimization, favorable mix shift from expert advisory services to core lab testing, and a 3% price increase. This marked the fourth consecutive quarter of margin expansion.
Q:What are the implications of the extension to the updated EtO regulations?
A:Michael Petras stated that the extension allows for optimal installation and validation of emissions controls. It also provides an opportunity to negotiate better pricing with vendors. The company remains well-positioned and continues to invest in compliance.
Q:What is the outlook for Nelson Labs margins and runway for improvement?
A:Michael Petras indicated that Nelson Labs margins are expected to remain in the low to mid-30s, consistent with projections. He noted that margins are unlikely to reach the 40s seen during COVID due to favorable mix and large volumes at that time.
Q:Is there increased demand for gamma and X-ray sterilization technologies?
A:Michael Petras noted that Sterigenics experienced 10.5% growth in the quarter, with ethylene oxide and e-beam performing well. Gamma was slightly weaker, and the company has a new X-ray facility coming online by year-end. He did not comment on competitors' performance.
Q:What is the source of growth in Sterigenics?
A:Michael Petras mentioned healthy same-store sales and incremental volumes from capacity expansion in Europe. He noted that while MedTech companies are optimizing supply chains, there was no material impact on Sterigenics volumes.
Q:Does the company feel well-positioned in the market given supply chain adjustments?
A:Michael Petras expressed confidence in the company's market position and capacity in the U.S. He mentioned ongoing investments in incremental capacity and a new program to support customer needs, expected to come online in late 2027.
Q:What is the expected volume and mix growth for Sterigenics in the second half?
A:Jonathan Lyons stated that mid- to high single-digit growth is expected, with some impact from maintenance-related downtime. The trajectory remains positive, but growth may be slightly muted compared to Q2.
Q:What is the outlook for Nelson Labs in 2026?
A:Michael Petras declined to provide detailed guidance for 2026 but noted that the RCA business is not expected to see significant long-term expansion. The focus will remain on core lab volume growth.
Q:What is the status of the $110 million CapEx target for 2027?
A:Michael Petras confirmed that the $110 million CapEx target remains valid. Key drivers include reduced cobalt development and GFE spend, as well as growth investments in Sterigenics. A new project was always included in the forecast.
Q:What is driving margin expansion for Nelson Labs?
A:Michael Petras clarified that there were no incremental actions in Q2. The margin expansion is the result of ongoing efforts to optimize labor and productivity, consistent with previous quarters.
Q:What is the expected tax rate for 2026 and beyond?
A:Jonathan Lyons stated that the midpoint of the 2025 tax rate range is appropriate for this year. Future tax rates will depend on growth and other moving pieces.
Q:Review of Unclear Management Responses
A:Management avoided providing detailed guidance for Nelson Labs in 2026, stating that it was too early to discuss specifics. Additionally, they did not comment on competitors' performance in gamma and X-ray sterilization technologies, suggesting that inquiries should be directed to those companies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Adam Fishbin
Bank PLC
Barclays Bank
Bernard Donnelly
Co Research
Cobalt shipment
Conference
Global Health
Health role
Inc Research
Investors section
LLC
Nordion currency
Petras
Research Division
VP
benefit currency
business progress
change tax
contribution
currency outlook
delivery
exchange basis
expectation
interest expense
lab testing
margin improvement
momentum
optimization
outlook update
point Segment
point increase
pricing benefit
role Global
term goal
timing Cobalt
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.
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