Sotera Health(US:SHC)2024-05-02 20:40Part I—FINANCIAL INFORMATION Financial Statements The company's Q1 2024 financial statements present total assets of $3.06 billion, net revenues of $248.2 million, and net income of $6.3 million Consolidated Balance Sheets As of March 31, 2024, total assets were $3.06 billion, total liabilities $2.63 billion, and total equity $429.4 million, reflecting slight decreases from year-end 2023 Consolidated Balance Sheets (in thousands) | Balance Sheet Items | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $261,133 | $296,407 | | Total current assets | $487,179 | $557,244 | | Total assets | $3,059,692 | $3,130,420 | | Liabilities & Equity | | | | Total current liabilities | $152,340 | $230,654 | | Long-term debt, less current portion | $2,224,611 | $2,223,674 | | Total liabilities | $2,630,300 | $2,686,686 | | Total equity | $429,392 | $443,734 | Consolidated Statements of Operations and Comprehensive Income (Loss) For Q1 2024, net revenues increased to $248.2 million, operating income nearly doubled to $53.2 million, and net income more than doubled to $6.3 million year-over-year Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands) | Income Statement Items (in thousands) | Q1 2024 (Unaudited) | Q1 2023 (Unaudited) | | :--- | :--- | :--- | | Total net revenues | $248,176 | $220,590 | | Gross profit | $127,115 | $111,503 | | Operating income | $53,174 | $33,366 | | Interest expense, net | $41,771 | $28,870 | | Net income | $6,323 | $2,842 | | Diluted EPS | $0.02 | $0.01 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased to $9.7 million in Q1 2024, primarily due to a $35.0 million litigation settlement payment Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activities (in thousands) | Q1 2024 (Unaudited) | Q1 2023 (Unaudited) | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,699 | $33,871 | | Net cash used in investing activities | ($34,853) | ($44,968) | | Net cash (used in) provided by financing activities | ($11,941) | $273,916 | | Net (decrease) increase in cash | ($38,834) | $263,886 | - A $35.0 million payment for the Georgia EO litigation settlement was a significant use of cash from operating activities in Q1 202422 Notes to Consolidated Financial Statements The notes provide detailed accounting policies, segment revenue disaggregation, debt structure, and updates on ongoing Ethylene Oxide (EO) litigation - The company operates and reports in three segments: Sterigenics (outsourced sterilization), Nordion (Co-60 supplier), and Nelson Labs (lab testing and advisory services)28139 Revenue by Segment (in thousands) | Revenue by Segment (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Sterigenics | $166,497 | $159,997 | | Nordion | $24,007 | $8,551 | | Nelson Labs | $57,672 | $52,042 | | Total | $248,176 | $220,590 | - Accrued liabilities decreased significantly from $122.5 million at year-end 2023 to $61.8 million at March 31, 2024, primarily due to the payment of the $35.0 million Georgia EO litigation settlement reserve47 - The company is involved in multiple Ethylene Oxide (EO) tort lawsuits in Illinois, Georgia, California, and New Mexico, alleging injuries from EO emissions, and is vigorously defending these cases919495 Management's Discussion and Analysis (MD&A) Management discusses Q1 2024 financial results, highlighting a 12.5% increase in net revenues to $248.2 million and a 13.7% increase in Adjusted EBITDA to $111.9 million Key Financial Metrics (in thousands) | Metric (in thousands) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Total net revenues | $248,176 | $220,590 | 12.5% | | Operating income | $53,174 | $33,366 | 59.4% | | Net income | $6,323 | $2,842 | 122.5% | | Adjusted EBITDA | $111,944 | $98,468 | 13.7% | - Revenue growth was driven by a 5.6% increase in service revenues and a significant 256.8% increase in product revenues, primarily due to favorable Co-60 harvest schedule timing at Nordion163164165 - SG&A expenses decreased by 6.0% to $58.2 million, primarily due to a $7.6 million decline in litigation and professional services expenses related to EO sterilization facilities170 - The company paid a $35.0 million Atlanta EO litigation settlement in January 2024, which was a primary driver for the decrease in cash from operations160200206 Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risks occurred during the three months ended March 31, 2024, compared to the 2023 Form 10-K - Market risks have not materially changed for the three months ended March 31, 2024221 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period222 - No changes in internal control over financial reporting occurred during Q1 2024 that materially affected, or are reasonably likely to materially affect, internal controls223 Part II—OTHER INFORMATION Legal Proceedings The company provides updates on material legal proceedings, including EO tort litigation and ongoing settlement negotiations for Notices of Violation at various facilities - The company references Note 14 for details on material legal proceedings, including EO tort litigation in Illinois, Georgia, California, and New Mexico, as well as securities litigation227 - A Notice of Violation was received for the Queensbury, NY facility following a power outage and scrubber system failure in May 2023, with ongoing settlement negotiations with the NYS DEC229230 - Notices of Violation were issued to the Vernon and Ontario, CA facilities by the SCAQMD related to operational requirements and alleged public nuisance, with the company disputing allegations and in settlement negotiations231 Risk Factors Updated risk factors include the final US EPA NESHAP rules for EO sterilization facilities, requiring new pollution control technologies and CEMS by April 6, 2026 - On March 14, 2024, the US EPA announced final NESHAP rules for EO sterilization facilities, requiring additional air pollution technologies and continuous emissions monitoring systems (CEMS)233 - The compliance deadline for the new NESHAP rule is April 6, 2026, which the company notes will be challenging and may require capital expenditures beyond current anticipation234 Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during Q1 2024 - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during Q1 2024235 Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications, credit agreement amendments, and XBRL data files - The Exhibit Index lists all documents filed or furnished as part of the 10-Q report237 Signatures - The report was signed on May 2, 2024, by Jonathan M. Lyons, Senior Vice President and Chief Financial Officer241