Sotera Health Company

Good morning. My name is Howard, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Sotera Health second quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star 1 1 on your telephone. I will now hand the call over to the Vice President of Investor Relations, Joe Vitale.

Good morning and thank you. Welcome to Satara Health's second quarter 2022 results call. You can find today's press release and accompanying supplemental slides in the investor section of our website at satarahealth.com. This webcast is being recorded and a replay will be available in the investor relations section of the Satara Health website. On the call with me today are Michael Petras, Chairman and Chief Executive Officer, and Michael Beale, Interim Chief Financial Officer. During the call, some of the statements the company makes may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Cetera Health's SEC filings and the forward-looking statement slide at the beginning of our presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EPS, and net leverage ratio. A reconciliation of non-GAAP to GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in our supplemental slides. The operator will be assisting with the Q&A portion of the call today. please limit yourself to one question and one follow-up so that we can try to give everyone an opportunity to ask questions. I'll now turn the call over to Cetera Health Chairman and CEO, Michael Petras.

Good morning, everyone, and thank you for joining us on Cetera Health's second quarter 2022 earnings call. I'm very pleased this morning to be reporting another quarter of year-over-year top and bottom line growth, especially when compared to our performance against an exceptionally strong quarter last year. In fact, the second quarter of 2022 represents the highest revenue and earnings quarter in our reporting history. I am especially proud of our team's performance in the face of continuing economic and geopolitical uncertainty, including high inflation, currency fluctuations, labor constraints, and ongoing supply chain challenges. Sotero Health continues to deliver growth and strong financial results despite this backdrop while taking care of our customers and remain committed to our mission, safeguarding global health. I welcome our interim CFO, Michael Beal, to today's call. He will provide more detail about our financial results in a moment, but first I want to highlight a few items from our second quarter results. We reported total revenue growth of 5.8% and adjusted EBITDA growth of 1.2% compared to the second quarter of 2021. On a constant currency basis, revenue grew by approximately 9%. Recall that last year's second quarter benefited from high levels of demand for COVID-related testing at Nelson Labs and significant Cobalt 60 product shipments at Nordion. Adjusted EPS was 27 cents in the second quarter, which is a one cent increase over the same period last year. For the first half of 2022, Cetera Health has total revenue growth of 8.5% and adjusted EBITDA growth of 4.8% versus the first half of 2021 on a constant currency basis first half 2022 revenues grew by approximately 11 overall i am pleased with our first half financial performance and laid the challenges i just referenced we will address our views in the second half of 2022 and the updates of sotero health full year outlook shortly but now i'd like to discuss our three businesses results in some more detail Sterigenics, our largest reporting segment, continues to deliver strong results in 2022 as the business saw good demand across all major modalities of sterilization and is running at high capacity utilization rates. The team is working to offset inflation pressures and optimize operational efficiencies. Sterigenics is working closely with the Saterra Health Expert Advisory Services team to design efficient protocols to meet our customers' needs and regulatory requirements while optimizing capacity utilization for our stereogenics facilities and ultimately better servicing our customers. To that end, I am happy to share that our thought leadership around EO efficiency continues to be acknowledged by the industry. Most recently, our expert advisory services team was recognized at a premier industry conference for their EO cycle optimization work with a large global customer. This work significantly reduced EO usage and cycle times with no compromise to sterility assurance levels. Another great example of how our teams are working to fulfill Cetera Health's mission. Sterigenics continues to make meaningful progress on our capacity expansion programs and facility enhancements. In May 2022, we announced the official opening of our new E-Beam line located in our Sterigenics Indiana facility. We expect to bring additional installed capacity online later in 2022 and over the next 24 months. as we commissioned seven capacity expansion projects and two greenfield investments. As previously communicated, we continue to invest in industry-leading emission control enhancements to our EO processing facilities. We are committed to maintaining best-in-class operations for our customers, employees, and the communities in which we operate. Norian, our other reporting segment within the sterilization business, also had a very strong quarter. driven by the timing of Cobalt 60 product shipments. The second quarter 2022 revenue exceeded Norian's second quarter 2021 revenue, which also benefited from very strong Cobalt shipments. We've talked in the past that Norian revenue is influenced by nuclear reactor site schedules, so quarterly revenues are nonlinear. We continue to see this impact our quarterly results, including our strong second quarter performance and our second half 2022 expectations. The Nordion team executed extremely well this quarter, transporting a significant amount of Cobalt-60 while navigating a very challenging geopolitical environment and an increasingly diverse global supply chain. Recall that this business procures Cobalt-60 globally, then uses the material to produce a finished product at our Ottawa, Canada facility, and then ships the products in compliance with stringent regulations to our global customers. I want to note that today there are no sanctions that prohibit Nordion from accessing Cobalt-60 from Russia. We operate in full compliance with all regulations. At this point in the year, we now estimate the risk of potential disruption in Russia's supply at 1% or less of Sentara Health's total 2022 revenues. Nelson Labs, our third reporting segment, also recorded a strong second quarter, improving upon some operating headwinds that exist in the first quarter of 2022. In fact, the second quarter of 2022 was Nelson Labs' highest revenue quarter in its history. The Nelson Labs team continues to extend its leadership position in testing and advisory services for medical device and pharma markets, helping customers deliver their products to the market safely in a compliant manner. Demand for the quarter was stable and productivity meaningfully improved as Nelson Labs rebounded from labor constraints and Omnicron-related absenteeism that were headwinds early in the year. You may recall that Nelson Labs benefited from strong pandemic-related testing, which was near its peak in early 2021 and has normalized. Despite the continued headwind, the Nelson Lab team continues to grow revenue in other parts of the business, including other high-value testing areas. As I said in my opening comments, we are pleased with the solid start to 2022 delivered by our three businesses. The macroeconomic environment has been challenging, but we expect to maintain good momentum in the second half of 2022. With the benefit of a half a year behind us, we are now narrowing our full year outlook for 2022, taking into consideration the foreign exchange headwinds we are experiencing as well as other macroeconomic pressures that are likely to persist this year. We are confident in our pricing actions to be able to offset inflation, although, as we have stated, there could be some lag effect depending on customer contract renewal timing. Regarding our outlook, our full year net revenue growth outlook is 7% to 10%, while our full year adjusted EBITDA is expected to grow 7% to 9%. Both are consistent with our long-term growth objectives. We do not see any changes to our capital expenditures outlook of $140 million to $170 million in 2022. Before I turn the call over to Michael Beale, I want to highlight some recent examples of how we deliver on our mission, safeguarding global health. At Nelson Labs, we're working with the customer to bring to market a new gene therapy drug that can reduce dosing protocols for patients with severe hemophilia from over 100 doses per year to one dose per year, greatly improving the quality of life for many patients. It's this type of solution that directly impacts many patient lives It makes us very proud to play a role in delivery of innovative healthcare products. At Nelson Labs, we're actively testing the effectiveness of surface disinfectants against the monkeypox virus. This is another example of how our teams work with clients to address potential global health risks in real time. At Sterigenics, we're working closely with a customer to establish a sterilization process for innovative heart valve catheters which provides a less invasive alternative treatment to open-heart surgery. At Nordian, we are commissioning an additional production cell to focus on Cobalt-60 recovery, enabling Nordian to fully utilize certain products that are approaching end-of-life and alternative applications. This investment reduces waste and, as a result, has a positive environmental impact. We are proud to share these examples of how our Cetera Health team is working to ensure healthcare is consistently reliably and safely delivered every day. Finally, I'd like to comment briefly on our recent organizational change. I want to formally introduce Michael Beal, our interim CFO, who has joined the leadership team at Cetera Health and will lead the finance organization while we conduct our national search for permanent CFO. Michael brings a wealth of public company leadership and financial expertise to us, and we are happy to be working with Michael. Now, Michael Beal will take us through the financials in more depth.