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Sotera Health(SHC) - 2025 Q2 - Quarterly Report

FORM 10-Q Registrant Information This report is the quarterly report for Sotera Health Company as of June 30, 2025, with the company incorporated in Delaware and listed on The Nasdaq Stock Market under ticker SHC - Company Name: SOTERA HEALTH COMPANY2 - Place of Incorporation: Delaware5 Securities Registered Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, $0.01 par value per share | SHC | The Nasdaq Stock Market LLC | Filing Status The company has filed all required reports in the past 12 months, complied with filing requirements for the past 90 days, and is designated as a "large accelerated filer" - All required reports filed: Yes3 - All interactive data files submitted: Yes3 - Filer Category: Large Accelerated Filer4 Shares Outstanding As of July 29, 2025, the number of common shares outstanding was 284,046,606 - Common shares outstanding as of July 29, 2025: 284,046,606 shares4 TABLE OF CONTENTS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements involving known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from historical results or forward-looking statements, including risks related to EO and Co-60 supply disruptions, foreign currency fluctuations, environmental health and safety regulations, legal proceedings, regulatory compliance, market competition, inflation, supply chain disruptions, international business, cybersecurity incidents, M&A integration, internal controls, intellectual property, data privacy, profitability, goodwill impairment, unionization, and debt leverage - Forward-looking statements involve known and unknown risks that could cause actual results to differ materially from expectations8 - Key risk factors include EO and Co-60 supply disruptions or price increases, foreign currency fluctuations, changes in environmental health and safety regulations, EO-related legal proceedings and claims, regulatory compliance, market competition, inflation, supply chain disruptions, international business risks, cybersecurity incidents, M&A integration capabilities, internal control effectiveness, intellectual property protection, data privacy regulation compliance, future profitability, goodwill impairment, unionization, and high leverage8 - The company does not undertake any obligation to publicly update forward-looking statements unless required by law9 Part I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents Sotera Health Company's unaudited consolidated financial statements as of June 30, 2025, including the Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Cash Flows, and Consolidated Statements of Equity, along with related notes, detailing the company's financial position, operating results, and cash flows Consolidated Balance Sheets As of June 30, 2025, total assets were $3,216,729 thousand, a 4.7% increase from December 31, 2024, driven by a significant rise in cash and cash equivalents, while total liabilities slightly increased and total equity grew by 26.3% Consolidated Balance Sheets Key Data (thousands of U.S. dollars) | Indicator | June 30, 2025 | December 31, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :------------- | :-------------- | :------------- | :----- | | Assets | | | | | | Cash and cash equivalents | 332,437 | 277,242 | 55,195 | 19.9% | | Total current assets | 608,175 | 526,037 | 82,138 | 15.6% | | Property, plant and equipment, net | 1,080,399 | 1,036,892 | 43,507 | 4.2% | | Goodwill | 1,104,502 | 1,081,073 | 23,429 | 2.2% | | Total assets | 3,216,729 | 3,071,648 | 145,081 | 4.7% | | Liabilities | | | | | | Total current liabilities | 246,320 | 191,002 | 55,318 | 29.0% | | Long-term debt | 2,202,651 | 2,208,100 | (5,449) | (0.2%) | | Total liabilities | 2,705,446 | 2,666,737 | 38,709 | 1.5% | | Equity | | | | | | Total equity | 511,283 | 404,911 | 106,372 | 26.3% | Consolidated Statements of Operations and Comprehensive Income (Loss) For the three months ended June 30, 2025, net revenues increased by 6.4%, but net income decreased by 9.0% year-over-year; for the six months ended June 30, 2025, net revenues grew by 4.6%, but the company reported a net loss of $5.3 million compared to a net income of $15.1 million in the prior year period Consolidated Statements of Operations and Comprehensive Income (Loss) Key Data (thousands of U.S. dollars) | Indicator | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 294,341 | 276,594 | 17,747 | 6.4% | | Selling, general and administrative expenses | 68,893 | 60,575 | 8,318 | 13.7% | | Illinois EO litigation settlements | 34,000 | — | 34,000 | N/A | | Net income (loss) | 7,962 | 8,754 | (792) | (9.0%) | | Basic earnings per share | 0.03 | 0.03 | 0.00 | 0.0% | | Diluted earnings per share | 0.03 | 0.03 | 0.00 | 0.0% | | Indicator | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 548,864 | 524,770 | 24,094 | 4.6% | | Selling, general and administrative expenses | 131,954 | 118,784 | 13,170 | 11.1% | | Illinois EO litigation settlements | 64,943 | — | 64,943 | N/A | | Net income (loss) | (5,298) | 15,077 | (20,375) | (135.1%) | | Basic earnings per share | (0.02) | 0.05 | (0.07) | (140.0%) | | Diluted earnings per share | (0.02) | 0.05 | (0.07) | (140.0%) | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, cash flow from operating activities significantly increased to $112.9 million, primarily due to the Georgia EO litigation settlement payment in the prior year, while cash outflows from investing and financing activities also substantially decreased, resulting in a net increase of $55.4 million in cash and cash equivalents Consolidated Statements of Cash Flows Key Data (thousands of U.S. dollars) | Indicator | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | | :------------------------------------------ | :--------------------- | :--------------------- | :------------- | | Net cash provided by (used in) operating activities | 112,937 | 70,994 | 41,943 | | Net cash used in investing activities | (51,110) | (76,774) | 25,664 | | Net cash used in financing activities | (15,020) | (41,362) | 26,342 | | Effect of exchange rate changes on cash and cash equivalents | 8,600 | (6,754) | 15,354 | | Net increase (decrease) in cash and cash equivalents | 55,407 | (53,896) | 109,303 | | Cash and cash equivalents at end of period (including restricted cash) | 334,272 | 247,758 | 86,514 | - The increase in cash flow from operating activities was primarily due to the $35.0 million Georgia EO litigation settlement payment made in January 2024239 - The decrease in cash outflow from investing activities was mainly due to a $25.7 million reduction in capital expenditures240 - The decrease in cash outflow from financing activities was primarily due to a $27.9 million reduction in debt issuance costs, partially offset by a $6.3 million increase in term loan principal repayments241 Consolidated Statements of Equity As of June 30, 2025, total equity was $511.3 million, an increase of $106.4 million from December 31, 2024, primarily driven by significant foreign currency translation gains in accumulated other comprehensive income (loss) Consolidated Statements of Equity Key Data (thousands of U.S. dollars) | Indicator | June 30, 2025 | December 31, 2024 | Change (thousands of U.S. dollars) | | :-------------------------- | :------------- | :-------------- | :------------- | | Common stock | 2,860 | 2,860 | 0 | | Treasury stock | (19,038) | (23,434) | 4,396 | | Additional paid-in capital | 1,251,089 | 1,243,778 | 7,311 | | Retained deficit | (615,340) | (610,042) | (5,298) | | Accumulated other comprehensive income (loss) | (108,288) | (208,251) | 99,963 | | Total equity | 511,283 | 404,911 | 106,372 | - For the six months ended June 30, 2025, foreign currency translation gains of $101.8 million significantly impacted accumulated other comprehensive income23 Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering key areas such as accounting policies, recent accounting standards, revenue recognition, inventories, prepaid expenses, goodwill and intangible assets, accrued liabilities, long-term debt, income taxes, employee benefits, other comprehensive income, share-based compensation, earnings per share, commitments and contingencies, financial instruments and financial risk, and segment information 1. Basis of Presentation Sotera Health Company is a global leader in sterilization solutions, laboratory testing, and consulting services for the healthcare industry, operating primarily in the Americas, Europe, and Asia, with financial statements prepared under U.S. GAAP involving management estimates and assumptions across its Sterigenics, Nordion, and Nelson Labs segments - The company is a global leader in sterilization solutions, laboratory testing, and consulting services for the healthcare industry28 - The company operates and reports through three segments: Sterigenics, Nordion, and Nelson Labs29 - Financial statements are prepared in accordance with U.S. GAAP and involve management's estimates and assumptions3031 2. Recent Accounting Standards The company adopted ASU 2023-07 (Segment Reporting) in fiscal year 2024 with no material impact, while ASU 2023-09 (Income Taxes) effective in fiscal year 2025 will increase tax disclosures without affecting income tax expense, and ASU 2024-03 (Income Statement—Reporting Comprehensive Income—Disaggregation of Expenses) effective in fiscal year 2026 is expected to increase disclosures - ASU 2023-07 (Segment Reporting) has been adopted with no material impact on the consolidated financial statements and disclosures32 - ASU 2023-09 (Income Taxes) will be effective for annual periods beginning after December 15, 2024, increasing tax disclosures without affecting reported income tax expense or related tax assets and liabilities33 - The effective date for ASU 2024-03 (Income Statement—Reporting Comprehensive Income—Disaggregation of Expenses) has been revised to annual reporting periods beginning after December 15, 2026, and is expected to increase disclosures34 3. Revenue Recognition The company disclosed net revenues by timing of recognition and segment; for the three months ended June 30, 2025, total net revenues were $294.3 million, with $236.2 million recognized at a point in time and $58.1 million over time, while for the six months, total net revenues were $548.9 million, with $438.2 million recognized at a point in time and $110.7 million over time, and deferred revenue decreased to $11.5 million from $15.1 million at December 31, 2024 Net Revenues by Timing of Recognition and Segment (thousands of U.S. dollars) | (thousands of U.S. dollars) | Sterigenics | Nordion | Nelson Labs | Consolidated | | :-------------------------- | :---------- | :------ | :---------- | :----------- | | Three Months Ended June 30, 2025 | | | | | | Point in time | 194,839 | 41,371 | — | 236,210 | | Over time | — | 1,060 | 57,071 | 58,131 | | Total | 194,839 | 42,431 | 57,071 | 294,341 | | Six Months Ended June 30, 2025 | | | | | | Point in time | 364,523 | 73,671 | — | 438,194 | | Over time | — | 1,317 | 109,353 | 110,670 | | Total | 364,523 | 74,988 | 109,353 | 548,864 | - Deferred revenue decreased from $15.1 million as of December 31, 2024, to $11.5 million as of June 30, 202536 4. Inventories As of June 30, 2025, the company's net inventories were $59.9 million, a 21.9% increase from $49.2 million at December 31, 2024, primarily driven by increases in raw materials and work-in-process Inventories Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Raw materials and supplies | 48,911 | 42,408 | 6,503 | 15.3% | | Work-in-process | 3,209 | 929 | 2,280 | 245.4% | | Finished goods | 8,058 | 6,039 | 2,019 | 33.4% | | Reserve for excess and obsolete inventory | (229) | (218) | (11) | 5.0% | | Inventories, net | 59,949 | 49,158 | 10,791 | 21.9% | 5. Prepaid Expenses and Other Current Assets As of June 30, 2025, total prepaid expenses and other current assets were $66.0 million, a 29.4% increase from $51.0 million at December 31, 2024, primarily influenced by significant increases in customer contract assets and prepaid rent Prepaid Expenses and Other Current Assets Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Prepaid taxes | 4,690 | 4,993 | (303) | (6.1%) | | Prepaid business insurance | 3,602 | 6,993 | (3,391) | (48.5%) | | Prepaid rent | 5,599 | 1,223 | 4,376 | 357.8% | | Customer contract assets | 28,570 | 15,213 | 13,357 | 87.8% | | Embedded derivatives | 1,339 | 2,689 | (1,350) | (50.2%) | | Prepaid expenses and other current assets | 66,024 | 51,031 | 14,993 | 29.4% | 6. Goodwill and Other Intangible Assets As of June 30, 2025, total goodwill was $1,104.5 million, an increase of $23.4 million from December 31, 2024, primarily due to foreign currency exchange rate changes, while amortization expense for finite-lived intangible assets decreased in both the second quarter and first half of 2025, mainly because some intangible assets were fully amortized in May 2025 Goodwill Changes (thousands of U.S. dollars) | (thousands of U.S. dollars) | Sterigenics | Nordion | Nelson Labs | Total | | :-------------------------- | :---------- | :------ | :---------- | :------ | | Goodwill at December 31, 2024 | 653,222 | 255,485 | 172,366 | 1,081,073 | | Changes due to foreign currency exchange rates | 5,884 | 13,361 | 4,184 | 23,429 | | Goodwill at June 30, 2025 | 659,106 | 268,846 | 176,550 | 1,104,502 | Amortization Expense for Finite-Lived Intangible Assets (thousands of U.S. dollars) | Period | 2025 | 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :----- | :----- | :------------- | :----- | | Three Months Ended June 30 | 11,900 | 19,800 | (7,900) | (39.9%) | | Six Months Ended June 30 | 30,600 | 39,900 | (9,300) | (23.3%) | - The decrease in amortization expense was primarily due to certain intangible assets being fully amortized in May 202545 7. Accrued Liabilities As of June 30, 2025, total accrued liabilities were $143.5 million, a 58.7% increase from $90.5 million at December 31, 2024, primarily due to the establishment of a reserve for Illinois EO litigation settlements and an increase in professional fees Accrued Liabilities Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Accrued employee compensation | 33,305 | 37,018 | (3,713) | (10.0%) | | Reserve for Illinois EO litigation settlements | 64,943 | — | 64,943 | N/A | | Accrued interest expense | 5,363 | 25,321 | (19,958) | (78.8%) | | Embedded derivatives | 905 | 4,098 | (3,193) | (77.9%) | | Professional fees | 27,147 | 12,572 | 14,575 | 115.9% | | Accrued liabilities | 143,542 | 90,463 | 53,079 | 58.7% | 8. Long-Term Debt As of June 30, 2025, the company's net long-term debt was $2,202.7 million, a slight decrease from December 31, 2024; the company amended its revolving credit facility on April 30, 2025, increasing total borrowing capacity to $600.0 million and extending the maturity to April 30, 2030, and refinanced its capital structure on May 30, 2024, through a refinanced term loan and 7.375% Senior Secured Notes due 2031, while remaining in compliance with all debt covenants as of June 30, 2025 Long-Term Debt Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Secured notes due 2031 | 746,582 | 746,293 | 289 | 0.0% | | Term loan due 2031 | 1,470,889 | 1,476,610 | (5,721) | (0.4%) | | Long-term debt (net) | 2,202,651 | 2,208,100 | (5,449) | (0.2%) | - On April 30, 2025, the company amended its revolving credit facility, increasing total borrowing capacity to $600.0 million and extending the maturity date to April 30, 203055243 - On May 30, 2024, the company refinanced its capital structure through a $1,509.4 million refinanced term loan and $750.0 million of 7.375% Senior Secured Notes due 2031565761245 - As of June 30, 2025, the company was in compliance with all covenants in its senior secured credit agreement and indentures63 9. Income Taxes The company estimates quarterly income tax expense based on the annual effective income tax rate; for the three and six months ended June 30, 2025, the difference between income tax expense and the statutory rate was primarily due to valuation allowances for interest expense deductibility limitations, foreign rate differences, and current period permanent tax differences, partially offset by state income tax benefits - Income tax expense is estimated based on the annual effective income tax rate69 - The difference between income tax expense and the statutory rate is primarily influenced by valuation allowances for interest expense deductibility limitations, foreign rate differences, and current period permanent tax differences, partially offset by state income tax benefits70 10. Employee Benefits The company offers various post-retirement benefit plans in certain non-U.S. countries, including Nordion's defined benefit and defined contribution pension plans, retirement compensation arrangements, and extended healthcare plans for retirees; for the three and six months ended June 30, 2025, net periodic benefits for defined benefit pension plans were negative, primarily due to expected returns on plan assets, while other benefit plans had lower net periodic benefit costs - The company provides defined benefit and defined contribution pension plans, along with other post-retirement benefit plans, in certain non-U.S. countries, primarily Nordion71 Net Periodic Benefit for Defined Benefit Pension Plans (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Service cost | 125 | 142 | 245 | 287 | | Interest cost | 2,393 | 2,612 | 4,701 | 5,263 | | Expected return on plan assets | (3,996) | (3,961) | (7,848) | (7,980) | | Net periodic benefit | (1,478) | (1,207) | (2,902) | (2,430) | - The Nordion pension plan currently has no funding requirements as it has an ongoing solvency surplus under Canadian federal regulations74 11. Other Comprehensive Income (Loss) As of June 30, 2025, the accumulated other comprehensive income (loss) balance was ($108.3) million, a significant improvement from ($208.3) million at December 31, 2024, primarily benefiting from $101.8 million in foreign currency translation gains, partially offset by losses on interest rate derivatives Changes in Accumulated Other Comprehensive Income (Loss) (thousands of U.S. dollars) | (thousands of U.S. dollars) | Defined Benefit Plans | Foreign Currency Translation | Interest Rate Derivatives | Total | | :-------------------------- | :-------------------- | :--------------------------- | :------------------------ | :------ | | Beginning balance – January 1, 2025 | 1,165 | (209,666) | 250 | (208,251) | | Net current-period other comprehensive income (loss) | 81 | 101,777 | (1,895) | 99,963 | | Ending balance – June 30, 2025 | 1,246 | (107,889) | (1,645) | (108,288) | - Foreign currency translation generated a net gain of $101.8 million in the first half of 2025, which was the primary driver for the improvement in accumulated other comprehensive income (loss)78 12. Share-Based Compensation The company provides share-based compensation to employees and directors through pre-IPO awards and the 2020 Omnibus Incentive Plan; for the three months ended June 30, 2025, share-based compensation expense was $8.0 million, and for six months, it was $14.9 million, a decrease from the prior year, with stock options, restricted stock units (RSUs), and performance stock units (PSUs) being the primary forms of incentive Share-Based Compensation Expense (thousands of U.S. dollars) | Period | 2025 | 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :----- | :----- | :------------- | :----- | | Three Months Ended June 30 | 8,000 | 9,800 | (1,800) | (18.4%) | | Six Months Ended June 30 | 14,900 | 18,100 | (3,200) | (17.7%) | - As of June 30, 2025, unvested pre-IPO Class B-1 restricted shares totaled 1,895 shares85 - As of June 30, 2025, 8,278,249 stock options were outstanding, with 6.9 million vested and exercisable88 - As of June 30, 2025, unvested RSUs totaled 2,933,436 and unvested PSUs totaled 865,2568991 13. Earnings (Loss) Per Share For the three months ended June 30, 2025, basic and diluted earnings per share were both $0.03, consistent with the prior year; however, for the six months ended June 30, 2025, the company reported a basic and diluted loss per share of $0.02, compared to earnings per share of $0.05 in the prior year, primarily due to the current period's net loss Earnings (Loss) Per Share Data | (in thousands of U.S. dollars and share amounts (except per share amounts)) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income (loss) | 7,962 | 8,754 | (5,298) | 15,077 | | Net income (loss) attributable to Sotera Health Company common shareholders | 7,961 | 8,747 | (5,298) | 15,044 | | Weighted-average common shares outstanding - basic | 283,933 | 282,894 | 283,747 | 282,403 | | Weighted-average common shares outstanding - diluted | 285,756 | 284,541 | 283,747 | 284,264 | | Net income (loss) per common share attributable to Sotera Health Company common shareholders - basic | 0.03 | 0.03 | (0.02) | 0.05 | | Net income (loss) per common share attributable to Sotera Health Company common shareholders - diluted | 0.03 | 0.03 | (0.02) | 0.05 | - Due to the company's net loss for the six months ended June 30, 2025, the dilutive effect of potential common shares was excluded from diluted earnings per share calculations as they were anti-dilutive97 14. Commitments and Contingencies The company faces multiple legal proceedings and contingencies, primarily involving ethylene oxide (EO) tort litigation, environmental liability insurance coverage, and securities litigation; the company has reached two settlement agreements for Illinois EO litigation totaling $64.9 million, while EO litigation in Georgia and New Mexico remains ongoing, and the company is actively seeking additional insurance coverage and vigorously defending securities litigation - The company faces multiple EO tort litigations involving facilities in California, Georgia, Illinois, and New Mexico101102104108113 - The company has reached two settlement agreements for EO litigation related to its Willowbrook, Illinois facility: an agreement on April 3, 2025, to pay $30.9 million to resolve 97 claims, and an agreement on July 23, 2025, to pay $34.0 million to resolve 129 claims109110112 - EO litigation in Georgia and New Mexico remains ongoing, and the company believes it is unlikely to incur losses through trial and any necessary appeals in the remaining or future EO cases105107113114 - The company is seeking additional insurance coverage for legal fees and settlement amounts related to EO tort litigation, but the outcome is uncertain117119120 - The company faces securities litigation and shareholder derivative lawsuits, but the Ohio District Court has dismissed the securities class action, and the company plans to vigorously defend all related litigation121122123 15. Financial Instruments and Financial Risk The company uses interest rate derivatives to manage interest rate risk on floating-rate debt and forward foreign currency contracts to manage foreign currency exchange rate risk; as of June 30, 2025, interest rate swaps had a notional amount of $800.0 million, and foreign currency forward contracts had a notional amount of $42.5 million, while the company also faces customer credit risk and regularly assesses the collectibility of accounts receivable, with fair values of financial assets and liabilities primarily determined through observable market inputs (Level 2) - The company uses interest rate derivatives, such as interest rate swaps, to manage interest rate risk on floating-rate debt and forward foreign currency contracts to manage foreign currency exchange rate risk127131 Notional Amounts and Fair Values of Derivative Instruments (thousands of U.S. dollars) | (in U.S. Dollars; notional in millions, fair value in thousands) | Notional Amount | Fair Value Derivative Assets | Fair Value Derivative Liabilities | | :------------------------------------------------------------- | :-------------- | :--------------------------- | :------------------------------ | | As of June 30, 2025 | | | | | Interest rate swaps | 800.0 | 200 | 2,289 | | Foreign currency forward contracts | 42.5 | 595 | — | | Embedded derivatives | 211.7 | 1,339 | 905 | | Total | 1,054.2 | 2,134 | 3,194 | - The company faces customer credit risk, with net accounts receivable of $136.6 million and an allowance for doubtful accounts of $2.3 million as of June 30, 202515138 - The fair values of financial instruments are primarily determined using Level 2 observable market inputs, such as interest rate and yield curves and foreign currency forward curves143146 16. Segment Information The company has three reportable segments: Sterigenics (sterilization services), Nordion (cobalt-60 supply), and Nelson Labs (laboratory testing and consulting services); for the three months ended June 30, 2025, Sterigenics net revenues grew by 10.5%, Nordion by 2.9%, and Nelson Labs decreased by 3.3%, while for the six months, Sterigenics net revenues grew by 6.3%, Nordion by 14.9%, and Nelson Labs decreased by 6.3%, with all segment revenues and income influenced by pricing, volume/mix, and foreign currency exchange rate changes - The company has three reportable segments: Sterigenics, which provides terminal sterilization and irradiation services; Nordion, which supplies cobalt-60 and gamma irradiation systems; and Nelson Labs, which offers microbiology and analytical chemistry testing and consulting services148149150 Segment Net Revenues (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 194,839 | 176,354 | 18,485 | 10.5% | | Nordion | 42,431 | 41,244 | 1,187 | 2.9% | | Nelson Labs | 57,071 | 58,996 | (1,925) | (3.3%) | | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 364,523 | 342,851 | 21,672 | 6.3% | | Nordion | 74,988 | 65,251 | 9,737 | 14.9% | | Nelson Labs | 109,353 | 116,668 | (7,315) | (6.3%) | Segment Income (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 107,745 | 96,778 | 10,967 | 11.3% | | Nordion | 23,477 | 23,420 | 57 | 0.2% | | Nelson Labs | 19,513 | 17,137 | 2,376 | 13.9% | | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 195,749 | 182,596 | 13,153 | 7.2% | | Nordion | 40,899 | 34,205 | 6,694 | 19.6% | | Nelson Labs | 35,926 | 32,478 | 3,448 | 10.6% | Segment Capital Expenditures (thousands of U.S. dollars) | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 36,501 | 53,798 | (17,297) | (32.2%) | | Nordion | 10,058 | 19,463 | (9,405) | (48.3%) | | Nelson Labs | 4,588 | 3,550 | 1,038 | 29.2% | | Total capital expenditures | 51,147 | 76,811 | (25,664) | (33.4%) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's detailed discussion and analysis of the company's financial condition and operating results, covering consolidated performance, non-GAAP financial measures, segment results, and liquidity and capital resources for the three and six months ended June 30, 2025; overall net revenues increased, but net income (net loss for six months) was impacted by factors such as Illinois EO litigation settlements, with the company emphasizing its leadership in healthcare sterilization and laboratory services OVERVIEW Sotera Health Company is a global leader in healthcare sterilization solutions, laboratory testing, and consulting services, committed to "Safeguarding Global Health," providing end-to-end sterilization and microbiology and analytical laboratory testing services to ensure the safety of medical, pharmaceutical, and food products, operating through its Sterigenics, Nordion, and Nelson Labs segments, with the combination of Sterigenics and Nordion making it the only vertically integrated global gamma sterilization provider - The company is a global leader in healthcare sterilization solutions, laboratory testing, and consulting services, with a mission to "Safeguard Global Health"164 - The company provides end-to-end sterilization and microbiology and analytical laboratory testing services to ensure the safety of medical, pharmaceutical, and food products164 - The combination of Sterigenics and Nordion makes the company the only vertically integrated global gamma sterilization provider164 CONSOLIDATED RESULTS OF OPERATIONS This section provides a detailed analysis of the company's consolidated operating results for the three and six months ended June 30, 2025; for the three months, total net revenues increased by 6.4%, but net income decreased by 9.0%, while for the six months, total net revenues increased by 4.6%, but the company reported a net loss, primarily impacted by Illinois EO litigation settlements and foreign exchange losses Three Months Ended June 30, 2025 as compared to Three Months Ended June 30, 2024 For the three months ended June 30, 2025, total net revenues increased by 6.4% to $294.3 million, with service revenues up 8.2% and product revenues down 4.5%; total cost of revenues increased by 3.2%, and selling, general and administrative expenses rose by 13.7%, mainly due to increased professional service fees related to EO litigation, resulting in a 9.0% decrease in net income to $8.0 million, though Adjusted Net Income and Adjusted EBITDA both increased Consolidated Results of Operations Summary (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 294,341 | 276,594 | 17,747 | 6.4% | | Total cost of revenues | 127,720 | 123,803 | 3,917 | 3.2% | | Net income | 7,962 | 8,754 | (792) | (9.0%) | | Adjusted Net Income | 56,062 | 55,187 | 875 | 1.6% | | Adjusted EBITDA | 150,735 | 137,335 | 13,400 | 9.8% | - Service revenues increased by 8.2% to $257.2 million, primarily driven by improved volume/mix at Sterigenics and Nordion, and volume/mix in Nelson Labs' core laboratory testing services170 - Product revenues decreased by 4.5% to $37.1 million, primarily due to lower cobalt-60 revenues in the Nordion segment, impacted by reactor harvest schedules171 - Selling, general and administrative expenses increased by 13.7%, primarily due to a $6.2 million increase in litigation and other professional service fees related to EO sterilization facilities176 - Amortization expense for intangible assets decreased by 39.7%, primarily because certain intangible assets were fully amortized in May 2025177 - Illinois EO litigation settlement expenses amounted to $34.0 million178 Six Months Ended June 30, 2025 as compared to Six Months Ended June 30, 2024 For the six months ended June 30, 2025, total net revenues increased by 4.6% to $548.9 million, with service revenues up 3.7% and product revenues up 11.8%; total cost of revenues increased by 0.8%, and selling, general and administrative expenses rose by 11.1%, mainly due to increased professional service fees related to EO litigation, resulting in a net loss of $5.3 million compared to a net income of $15.1 million in the prior year, primarily due to $64.9 million in Illinois EO litigation settlements Consolidated Results of Operations Summary (thousands of U.S. dollars) | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 548,864 | 524,770 | 24,094 | 4.6% | | Total cost of revenues | 246,811 | 244,864 | 1,947 | 0.8% | | Net (loss) income | (5,298) | 15,077 | (20,375) | (135.1%) | | Adjusted Net Income | 95,106 | 90,816 | 4,290 | 4.7% | | Adjusted EBITDA | 272,574 | 249,279 | 23,295 | 9.3% | - Service revenues increased by 3.7% to $481.2 million, primarily driven by favorable pricing at Sterigenics and Nelson Labs, favorable volume/mix at Sterigenics and Nordion, and volume/mix in Nelson Labs' core laboratory testing services191 - Product revenues increased by 11.8% to $67.7 million, primarily driven by favorable volume/mix and pricing in the Nordion segment194 - Selling, general and administrative expenses increased by 11.1%, primarily due to a $14.3 million increase in litigation and other professional service fees related to EO sterilization facilities199 - Illinois EO litigation settlement expenses totaled $64.9 million, comprising $30.9 million from the April 3 agreement and $34.0 million from the July 23 agreement201202 NON-GAAP FINANCIAL MEASURES The company uses Adjusted Net Income and Adjusted EBITDA as primary non-GAAP financial measures to assess operating performance, excluding non-cash and non-recurring items such as amortization, share-based compensation, loss on debt refinancing, foreign currency fluctuations, business optimization expenses, EO litigation-related expenses, asset retirement obligation accretion, and income tax impacts, to better evaluate core operational performance; for the three months ended June 30, 2025, Adjusted Net Income was $56.1 million and Adjusted EBITDA was $150.7 million, while for the six months, Adjusted Net Income was $95.1 million and Adjusted EBITDA was $272.6 million - Adjusted Net Income is defined as net income excluding amortization and certain other adjustments211 - Adjusted EBITDA is defined as Adjusted Net Income excluding interest expense, depreciation, and the income tax provision applicable to Adjusted Net Income211 - These non-GAAP measures are used to evaluate operating performance by excluding non-cash and non-recurring items, providing a more complete understanding of the business212 Reconciliation of Non-GAAP Financial Measures to GAAP Net Income (Loss) (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income (loss) | 7,962 | 8,754 | (5,298) | 15,077 | | Amortization of intangible assets | 11,924 | 19,755 | 30,598 | 39,879 | | Share-based compensation | 8,149 | 10,206 | 15,418 | 18,863 | | Loss on refinancing of debt | 80 | 23,400 | 80 | 24,090 | | Illinois EO litigation settlements | 34,000 | — | 64,943 | — | | Adjusted Net Income | 56,062 | 55,187 | 95,106 | 90,816 | | Interest expense, net | 40,651 | 40,388 | 81,527 | 82,159 | | Depreciation | 23,024 | 20,075 | 45,084 | 40,381 | | Income tax provision applicable to Adjusted Net Income | 30,998 | 21,685 | 50,857 | 35,923 | | Adjusted EBITDA | 150,735 | 137,335 | 272,574 | 249,279 | SEGMENT RESULTS OF OPERATIONS This section details the operating results of the company's three reportable segments (Sterigenics, Nordion, and Nelson Labs); for the three months ended June 30, 2025, Sterigenics achieved double-digit growth in both net revenues and segment income, and Nelson Labs also saw significant segment income growth, while for the six months, Nordion showed the most significant growth in net revenues and segment income, with Sterigenics and Nelson Labs also growing, though Nelson Labs' net revenues decreased Our Segments The company operates through three segments: Sterigenics, providing terminal sterilization and irradiation services; Nordion, supplying cobalt-60 and gamma irradiation systems; and Nelson Labs, offering microbiology and analytical chemistry testing and consulting services, with Nordion's sales model potentially fluctuating quarterly due to regulatory and logistical requirements and cobalt-60 harvest schedules - Sterigenics provides terminal sterilization and irradiation services, including gamma irradiation, EO processing, and E-beam irradiation217 - Nordion is a global leading supplier of cobalt-60 and gamma irradiation systems, with its sales model potentially experiencing quarterly fluctuations due to regulatory, logistical, and cobalt-60 harvest schedules218219 - Nelson Labs provides microbiology and analytical chemistry testing and consulting services220 Segment Results for the Three Months Ended June 30, 2025 and 2024 For the three months ended June 30, 2025, Sterigenics net revenues increased by 10.5% to $194.8 million, and segment income grew by 11.3% to $107.7 million, primarily driven by volume/mix and pricing; Nordion net revenues increased by 2.9% to $42.4 million, and segment income grew by 0.2% to $23.5 million; Nelson Labs net revenues decreased by 3.3% to $57.1 million, but segment income increased by 13.9% to $19.5 million, mainly due to improved volume/mix, laboratory optimization, and favorable pricing Segment Net Revenues and Segment Income (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Net Revenues | | | | | | Sterigenics | 194,839 | 176,354 | 18,485 | 10.5% | | Nordion | 42,431 | 41,244 | 1,187 | 2.9% | | Nelson Labs | 57,071 | 58,996 | (1,925) | (3.3%) | | Segment Income | | | | | | Sterigenics | 107,745 | 96,778 | 10,967 | 11.3% | | Nordion | 23,477 | 23,420 | 57 | 0.2% | | Nelson Labs | 19,513 | 17,137 | 2,376 | 13.9% | - Sterigenics' revenue growth reflects a 6.0% improvement in volume and mix, along with favorable impacts from pricing and foreign currency exchange rates222 - Nelson Labs' net revenue decrease was due to lower expert advisory services revenue, partially offset by growth in core laboratory testing services, favorable pricing, and foreign currency exchange rate changes224 Segment Results for the Six Months Ended June 30, 2025 and 2024 For the six months ended June 30, 2025, Sterigenics net revenues increased by 6.3% to $364.5 million, and segment income grew by 7.2% to $195.7 million; Nordion net revenues increased by 14.9% to $75.0 million, and segment income grew by 19.6% to $40.9 million, primarily driven by cobalt-60 volume/mix and pricing; Nelson Labs net revenues decreased by 6.3% to $109.4 million, but segment income increased by 10.6% to $35.9 million, mainly due to improved volume/mix, laboratory optimization, and favorable pricing Segment Net Revenues and Segment Income (thousands of U.S. dollars) | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Net Revenues | | | | | | Sterigenics | 364,523 | 342,851 | 21,672 | 6.3% | | Nordion | 74,988 | 65,251 | 9,737 | 14.9% | | Nelson Labs | 109,353 | 116,668 | (7,315) | (6.3%) | | Segment Income | | | | | | Sterigenics | 195,749 | 182,596 | 13,153 | 7.2% | | Nordion | 40,899 | 34,205 | 6,694 | 19.6% | | Nelson Labs | 35,926 | 32,478 | 3,448 | 10.6% | - Nordion's revenue growth was primarily driven by a 15.0% increase in volume and mix, and a 1.8% favorable impact from pricing230 - Nelson Labs' net revenue decrease was due to lower expert advisory services revenue, partially offset by growth in core laboratory testing services and favorable pricing231 LIQUIDITY AND CAPITAL RESOURCES The company primarily obtains liquidity through cash flow from operating activities and credit financing; as of June 30, 2025, cash and cash equivalents were $332.4 million, an increase of $55.2 million from year-end 2024, and the company expects existing liquidity to be sufficient to meet operations, debt service, capital expenditures, and litigation costs for the next 12 months, with no outstanding borrowings under the revolving credit facility and $585.8 million available as of June 30, 2025, while capital expenditures decreased in the first half of 2025 - The company's primary sources of liquidity are cash flow from operating activities and credit financing235 - As of June 30, 2025, cash and cash equivalents were $332.4 million, an increase of $55.2 million from December 31, 2024235 - The company expects existing liquidity to be sufficient to meet operations, debt service, capital expenditures, and litigation costs for the next 12 months236 - As of June 30, 2025, there were no outstanding borrowings under the revolving credit facility, with $585.8 million available247 Capital Expenditures (thousands of U.S. dollars) | Period | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :--- | :--------------------- | :--------------------- | :------------- | :----- | | Capital expenditures | 51,100 | 76,800 | (25,700) | (33.5%) | CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of consolidated financial statements requires management to make judgments, estimates, and assumptions; there have been no material changes in critical accounting policies, management estimates, or accounting policies since the year ended December 31, 2024 - The preparation of consolidated financial statements involves management's judgments, estimates, and assumptions about future uncertainties248 - There have been no material changes in critical accounting policies, management estimates, or accounting policies since the year ended December 31, 2024249 NEW ACCOUNTING PRONOUNCEMENTS This section refers to the description of recent accounting standards applicable to the company's business as detailed in Note 2 to the consolidated financial statements - For detailed information on new accounting pronouncements, please refer to Note 2 to the consolidated financial statements250 Item 3. Quantitative and Qualitative Disclosures About Market Risk For the three and six months ended June 30, 2025, there have been no material changes in the market risks faced by the company compared to those described in the 2024 Form 10-K - As of June 30, 2025, for the three and six months then ended, there have been no material changes in market risks251 Item 4. Controls and Procedures The company's management assessed the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2025, with no material changes in internal control during the quarter Evaluation of Disclosure Controls and Procedures The company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2025 - As of June 30, 2025, the company's disclosure controls and procedures were effective, providing reasonable assurance that required information is recorded, processed, summarized, and reported on a timely basis252 Changes in Internal Control For the three months ended June 30, 2025, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control - For the three months ended June 30, 2025, there were no material changes in internal control253 Part II—OTHER INFORMATION Item 1. Legal Proceedings The company faces various legal proceedings, including ethylene oxide (EO) related tort litigation, environmental liability insurance coverage, and securities litigation, with detailed information disclosed and incorporated by reference in Note 14 to the consolidated financial statements - The legal proceedings faced by the company include ethylene oxide tort litigation (California, Georgia, Illinois, and New Mexico), environmental liability insurance coverage, and Sotera Health Company securities litigation and related matters256260 - Detailed information on these legal proceedings is disclosed in Note 14 to the consolidated financial statements256 Item 1A. Risk Factors There have been no material changes in the risk factors described in the 2024 Form 10-K - There have been no material changes in the risk factors described in the 2024 Form 10-K258 Item 5. Other Information For the three months ended June 30, 2025, no trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were adopted or terminated by the company's directors or officers - For the three months ended June 30, 2025, no Rule 10b5-1 trading plans were adopted or terminated by the company's directors or officers259 Item 6. Exhibits This report lists the exhibits filed, furnished, or incorporated by reference as part of the quarterly report, including credit agreement amendments, executive certifications, and XBRL files - Exhibits include credit agreement amendments, CEO and CFO certifications, and Inline XBRL files262 SIGNATURES