Sotera Health(SHC) - 2022 Q4 - Annual Report

Supply Chain and Production - The vertical integration of Nordion and Sterigenics has enabled significant long-term investments to expand Co-60 supply for the medical sterilization industry, with approximately 9% of nuclear reactors globally capable of producing commercial quantities of Co-60[48]. - Co-60 has an annual natural decay rate of approximately 12%, creating stable, recurring demand as customers must purchase incremental supply to meet ongoing needs[50]. - Nordion serves around 40 customers, including medical device manufacturers and gamma sterilization service providers, with multi-year supply agreements governing customer relationships[50]. - The company has established a collaboration with Westinghouse Electric Company to develop technology for producing Co-60 in Pressurized Water Reactors, potentially diversifying supply with reliable U.S. domestic partners[48]. Customer Relationships and Market Demand - Nelson Labs served over 3,000 customers in 2022, benefiting from minimal customer concentration and stable relationships, which are essential for ongoing quality control processes[64]. - Recent global regulatory changes, including the European Union Medical Device Regulation and FDA modernization, have increased testing requirements for medical devices, benefiting Nelson Labs' services[63]. Acquisitions and Enhancements - The company acquired BioScience Laboratories in March 2021, enhancing its capabilities in antimicrobial and virology testing[68]. - The acquisition of Regulatory Compliance Associates in November 2021 further strengthens Nelson Labs' technical consulting and expert advisory services[69]. Financial Performance and Capital Expenditures - As of December 31, 2022, the company had $200.0 million outstanding borrowings on the Revolving Credit Facility[334]. - Capital expenditures for the year ended December 31, 2022, amounted to $182.4 million, an increase from $102.2 million in 2021[336]. - For 2023, the company expects capital expenditures to be in the range of approximately $185.0 million to $215.0 million, including $33.2 million for environmental facility enhancements and $31.6 million for cobalt development projects[338]. - The weighted average interest rate on borrowings under the Term Loan for the year ended December 31, 2022, was 4.63%, compared to 3.44% in 2021[339]. - The total borrowing capacity under the Revolving Credit Facility is $347.5 million[339]. Environmental and Safety Compliance - The company has a proactive environmental health and safety program and employs a Senior Vice President of Environmental, Health and Safety[77]. - The company expects to continue to invest in facility expansions and ongoing maintenance for existing facilities in 2023[337]. - The company has experienced instances of emissions exceeding applicable standards, but none were deemed material[80]. Cash Flow and Financial Obligations - For the year ended December 31, 2022, net cash provided by operating activities was $277.96 million, a decrease of $3.6 million compared to $281.54 million in 2021[353]. - Cash used in investing activities increased to $181.90 million in 2022, up $22.10 million from $159.83 million in 2021, primarily due to an increase in capital expenditures[354]. - Net cash provided by financing activities was $197.76 million in 2022, compared to net cash used of $117.29 million in 2021, with a primary source being a $200.0 million borrowing on the Revolving Credit Facility[355]. - The Company had total contractual obligations of $4.66 billion as of December 31, 2022, with $2.44 billion in long-term debt and $1.59 billion in supply and service obligations[356]. Asset Management and Valuation - As of December 31, 2022, goodwill and intangible assets totaled $1,593.0 million, representing 51.1% of total assets[375]. - Goodwill assigned to segments as of December 31, 2022: Sterigenics $657.5 million, Nordion $271.0 million, Nelson Labs $173.3 million, totaling $1,101.8 million[376]. - A valuation allowance of $90.2 million was established against excess interest expense on long-term debt in the U.S. as of December 31, 2022[377]. - The company assesses long-lived assets for impairment whenever events indicate that the carrying amount may be impaired[370]. Revenue Recognition - The Sterigenics segment provides outsourced terminal sterilization and irradiation services, typically under multi-year contracts with significant customers[364]. - The Nordion segment's revenue from Co-60 radiation sources is recognized upon delivery and installation, while gamma irradiation systems revenue is recognized over time, which is immaterial to overall business[365]. - Nelson Labs segment offers microbiological and analytical chemistry testing services, with revenue recognized over time based on project progress[366]. - Revenue from the sale of gamma irradiation systems is recognized over time using an input measure of costs incurred[365]. - The company does not capitalize sales commissions as most programs have an amortization period of one year or less[367].