Sotera Health(SHC) - 2025 Q2 - Quarterly Results

Financial Performance Overview Sotera Health reported strong Q2 and H1 2025 revenue and Adjusted EBITDA growth, despite EO settlements, leading to a raised full-year outlook Second-Quarter 2025 Performance Sotera Health reported strong top-line growth in the second quarter of 2025, with net revenues increasing by 6.4% to $294 million, and Adjusted EBITDA growing by 9.8% to $151 million, reflecting margin expansion, though GAAP net income remained flat at $8 million due to a $34 million settlement related to ethylene oxide (EO) claims Q2 2025 Key Financial Metrics (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | Constant Currency Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $294M | $277M | +6.4% | +6.0% | | Net Income | $8M | $9M | -11.1% | N/A | | Diluted EPS | $0.03 | $0.03 | $0.00 | N/A | | Adjusted EBITDA | $151M | $137M (approx) | +9.8% | +9.5% | | Adjusted EPS | $0.20 | $0.19 | +$0.01 | N/A | - Net income for Q2 2025 included a pending and previously disclosed settlement of approximately $34 million related to ethylene oxide ("EO") claims against its Sterigenics business[3] First-Half 2025 Performance For the first six months of 2025, the company saw a 4.6% increase in net revenues to $549 million and Adjusted EBITDA grew 9.3% to $273 million, but a significant GAAP net loss of $5 million was recorded, compared to a $15 million net income in the prior year, primarily due to cumulative EO-related settlements totaling $65 million H1 2025 Key Financial Metrics (vs. H1 2024) | Metric | H1 2025 | H1 2024 | Change | Constant Currency Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $549M | $525M | +4.6% | +5.3% | | Net (Loss) / Income | ($5M) | $15M | N/A | N/A | | Diluted (Loss) / EPS | ($0.02) | $0.05 | N/A | N/A | | Adjusted EBITDA | $273M | $249M (approx) | +9.3% | +10.2% | | Adjusted EPS | $0.33 | $0.32 | +$0.01 | N/A | - The net loss for the first half of 2025 includes settlements of approximately $31 million and $34 million related to EO claims against Sterigenics[4] Management Commentary The Chairman and CEO, Michael B. Petras, Jr., highlighted strong performance, attributing over 6% top-line growth to robust volume at Sterigenics, noting nearly 10% Adjusted EBITDA growth and significant margin expansion at Nelson Labs, and expressing confidence by raising the full-year outlook for revenue, Adjusted EBITDA, and Adjusted EPS - Management credited the strong quarterly results to robust volume performance at the Sterigenics segment[5] - Adjusted EBITDA margin expanded by approximately 160 basis points for the company, driven by an improvement of over 500 basis points at Nelson Labs[5] - Reflecting confidence in continued execution, the company raised its full-year outlook for revenue, Adjusted EBITDA, and Adjusted EPS[7] Business Segment Review Segment review shows Sterigenics and Nordion revenue growth, while Nelson Labs experienced revenue decline but improved segment income Sterigenics The Sterigenics segment delivered strong results, with second-quarter revenues growing 10.5% to $195 million, driven by favorable volume, mix, and pricing, and segment income increasing by 11.3% to $108 million, while for the first half, revenues grew 6.3% and segment income grew 7.2% Sterigenics Performance (Q2 & H1 2025) | Period | Net Revenues | YoY Growth | Constant Currency Growth | Segment Income | YoY Growth | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2025 | $195M | +10.5% | +10.0% | $108M | +11.3% | | H1 2025 | $365M | +6.3% | +7.1% | $196M | +7.2% | - Quarterly growth was primarily driven by favorable volume and mix, pricing, and foreign currency exchange rates, though segment income was partially offset by inflation[8] Nordion Nordion's second-quarter revenues increased by 2.9% to $42 million, with segment income remaining flat at $23 million, while the first half of the year showed stronger performance, with revenues up 14.9% and segment income up 19.6%, driven by favorable pricing, volume, and mix Nordion Performance (Q2 & H1 2025) | Period | Net Revenues | YoY Growth | Constant Currency Growth | Segment Income | YoY Growth | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2025 | $42M | +2.9% | +3.4% | $23M | +0.2% | | H1 2025 | $75M | +14.9% | +16.8% | $41M | +19.6% | - Quarterly revenue growth was driven by favorable pricing, volume, and mix, however, the segment income margin decreased due to supplier mix[10] Nelson Labs Nelson Labs experienced a 3.3% decline in second-quarter revenues to $57 million, attributed to a drop in expert advisory services that offset gains in core lab testing, but despite the revenue dip, segment income grew significantly by 13.9% to $20 million, thanks to volume and mix improvements, lab optimization, and favorable pricing Nelson Labs Performance (Q2 & H1 2025) | Period | Net Revenues | YoY Growth | Constant Currency Growth | Segment Income | YoY Growth | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2025 | $57M | -3.3% | -4.4% | $20M | +13.9% | | H1 2025 | $109M | -6.3% | -6.4% | $36M | +10.6% | - The quarterly revenue decline was driven by a decrease in expert advisory services, which was partially offset by improvements in core lab testing services and favorable pricing[12] - Segment income and margin increased due to volume and mix improvements, lab optimization, and favorable pricing[12] Financial Position and Outlook The company maintained stable debt, improved its Net Leverage Ratio, and updated its full-year 2025 guidance Balance Sheet and Liquidity As of June 30, 2025, Sotera Health maintained a stable total debt level of $2.3 billion while increasing its cash position to $332 million, improving its Net Leverage Ratio to 3.5x from 3.7x at the end of 2024, and having full availability of its $600 million revolving credit facility Key Balance Sheet and Liquidity Metrics | Metric | As of June 30, 2025 | As of Dec 31, 2024 | | :--- | :--- | :--- | | Total Debt | $2.3B | $2.3B | | Unrestricted Cash | $332M | $277M | | Net Leverage Ratio | 3.5x | 3.7x | - The company had no outstanding balance on its $600 million revolving credit facility as of June 30, 2025[13] Updated Full-Year 2025 Outlook The company raised its full-year 2025 guidance across several key metrics, with the outlook for constant currency net revenue growth raised to 4.5%-6.0%, Adjusted EBITDA growth increased to 6.0%-7.5%, and the Adjusted EPS range significantly lifted to $0.75-$0.82, while the capital expenditures forecast was lowered Full-Year 2025 Guidance Update | Metric | New Outlook | Previous Outlook | | :--- | :--- | :--- | | Net Revenues Growth (Constant Currency) | 4.5% - 6.0% | 4.0% - 6.0% | | Adjusted EBITDA Growth (Constant Currency) | 6.0% - 7.5% | 4.5% - 6.5% | | Adjusted EPS | $0.75 - $0.82 | $0.70 - $0.76 | | Interest Expense | $155M - $165M | Unchanged | | Tax Rate (Adjusted) | 31.5% - 33.5% | 33% - 35% | | Capital Expenditures | $170M - $180M | $190M - $210M | Financial Statements Financial statements detail revenue growth, EO settlements impacting net income, increased operating cash flow, and a stable balance sheet Consolidated Statements of Operations The consolidated statement of operations shows a 6.4% revenue increase for Q2 2025 to $294.3 million, with gross profit rising to $166.6 million from $152.8 million year-over-year, however, a $34 million charge for Illinois EO litigation settlements led to a slight decrease in net income to $8.0 million, and for the first half, revenues grew 4.6%, but EO settlements of $64.9 million resulted in a net loss of $5.3 million Selected Income Statement Data (in thousands) | Line Item | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total net revenues | $294,341 | $276,594 | $548,864 | $524,770 | | Gross profit | $166,621 | $152,791 | $302,053 | $279,906 | | Illinois EO litigation settlements | $34,000 | $0 | $64,943 | $0 | | Net income (loss) | $7,962 | $8,754 | $(5,298) | $15,077 | Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2025, reflects total assets of $3.22 billion, an increase from $3.07 billion at year-end 2024, driven by a rise in cash and cash equivalents to $334 million, while total liabilities increased slightly to $2.71 billion, and long-term debt remained stable at $2.2 billion Selected Balance Sheet Data (in thousands) | Line Item | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $334,272 | $278,865 | | Total current assets | $608,175 | $526,037 | | Total assets | $3,216,729 | $3,071,648 | | Long-term debt, less current portion | $2,202,651 | $2,208,100 | | Total liabilities | $2,705,446 | $2,666,737 | Condensed Consolidated Statements of Cash Flows For the first six months of 2025, net cash provided by operating activities significantly increased to $112.9 million from $71.0 million in the prior-year period, driven by favorable changes in operating assets and liabilities, while net cash used in investing activities decreased due to lower purchases of property, plant, and equipment, and the company ended the period with a net increase in cash of $55.4 million Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $112,937 | $70,994 | | Net cash used in investing activities | $(51,110) | $(76,774) | | Net cash used in financing activities | $(15,020) | $(41,362) | | Net increase (decrease) in cash | $55,407 | $(53,896) | Non-GAAP Financial Measures This section reconciles GAAP net income to Adjusted EBITDA and details Net Debt and the improved Net Leverage Ratio Reconciliation of Net Income to Adjusted EBITDA The company's reconciliation from GAAP Net Income to non-GAAP Adjusted EBITDA highlights several significant adjustments, with key add-backs to the $8.0 million net income for Q2 2025 including $34.0 million for EO litigation settlements, $11.9 million in amortization, and $8.1 million in share-based compensation, ultimately resulting in an Adjusted EBITDA of $150.7 million Key Adjustments from Net Income to Adjusted EBITDA - Q2 2025 (in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $7,962 | | Add back: | | | Illinois EO litigation settlements | $34,000 | | Professional services relating to EO | $14,035 | | Amortization of intangible assets | $11,924 | | Share-based compensation | $8,149 | | Adjusted Net Income | $56,062 | | Add back: | | | Interest expense, net | $40,651 | | Depreciation | $23,024 | | Income tax provision (Adjusted) | $30,998 | | Adjusted EBITDA | $150,735 | Net Debt and Net Leverage Ratio The company calculates its Net Leverage Ratio by dividing Net Debt by the trailing twelve months (TTM) Adjusted EBITDA, with total debt of $2.32 billion as of June 30, 2025, resulting in Net Debt of $1.98 billion after deducting cash of $332 million, and an improved Net Leverage Ratio of 3.5x with a TTM Adjusted EBITDA of $571.9 million Net Leverage Ratio Calculation (as of June 30, 2025) | Metric | Amount (in thousands) | | :--- | :--- | | Total Debt | $2,316,128 | | Less: cash and cash equivalents | $(332,437) | | Net Debt | $1,983,691 | | TTM Adjusted EBITDA | $571,869 | | Net Leverage Ratio | 3.5x |