Sotera Health Company

Good morning and welcome to the Cetera Health second quarter 2023 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Vice President and Treasurer, Jason Peterson. Please go ahead.

Good morning, and thank you. Welcome to Cetera Health's second quarter 2023 results call. You can find today's press release and accompanying supplemental slides on the investor section of our website at ceterahealth.com. This webcast is being recorded, and a replay will be available in the investor section of the Cetera Health website. On the call with me today are Chairman and Chief Executive Officer Michael Petras and Chief Financial Officer John Lyons. During the call, some of our comments 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 Sotero Health SEC filings in the forward-looking statement slide at the beginning of the presentation for 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 net income, adjusted EBITDA, adjusted EPS, net debt, adjusted EBITDA margin, segment income margin, and net leverage ratio, in addition to constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides to this presentation. 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 give everyone an opportunity to ask questions. As always, if you have any questions after the call, please feel free to reach out to me and the investor relations team. I'll now turn the call over to Sotero Health Chairman and CEO, Michael Petras.

Good morning, everyone, and thank you for joining Sotero Health's second quarter 2023 earnings call. I would like to take a moment to introduce our newly appointed Chief Financial Officer, John Lyons. John comes to us from Owens Corning, a $10 billion global building and construction materials leader where he served in various executive roles. Prior to John's time with Owens Corning, He served in several senior leadership positions at Cardinal Health after beginning his career in public accounting. John brings a wealth of financial acumen as well as healthcare industry experience to Cetera Health, and we're excited to have him on board. I would also like to take a moment to thank Michael Beal for his contributions as the interim CFO for Cetera Health. Michael, thank you for your commitment and support over the past year in leading the company's finance organization. As previously communicated, on June 30th, the settlement funds of approximately $408 million related to the Illinois ethylene oxide claims were released from escrow, and on July 6th, the claims against Sterigenics of the 879 claimants who opted into the settlement were dismissed with prejudice. Although we continue to believe these claims were without merit, we are pleased this settlement is finalized one month ahead of schedule, thanks to the efforts of our legal team and with a 99.7% participation rate. In a moment, John will review our second quarter 2023 results in more detail. But first, I would like to review a few items from the quarter. Total company revenues declined 4.3% and adjusted EBITDA declined 5.6% compared to the second quarter of 2022, driven primarily by the expected timing of Norion's Cobalt 60 harvest schedules. We delivered adjusted EPS of 21 cents for the quarter, which is a 6-cent increase decrease from the same period last year. Sterigenics, our largest reporting segment, delivered 5.6% top-line growth for the second quarter of 2023. Sterigenics continues to service our customers, even though the global economic outlook is challenging, with lingering customer inventory and supply chain challenges and inflation. Although Sterigenics volumes are lighter than planned, the Sterigenics team is prudently managing costs, which has contributed to a $310 basis point segment income margin improvement compared to the first quarter of this year. During the quarter, the team completed two expansion projects, and they continue to make progress on our EO facility enhancements in North America. These industry-leading enhancements demonstrate our commitment to ensure best-in-class emission controls for our employees, customers, and the communities in which we operate. Nordian, our other reporting segment within the sterilization services business, experienced a 37% year-over-year revenue decline due to the timing of Cobalt 60 harvest schedules. We have good visibility into the timing of Nordian's revenue as it's tied to the harvest schedules from our Cobalt 60 suppliers. As previously conveyed, Nordian's 2023 revenue will be particularly lumpy as approximately 75% of the revenue is expected to occur in the second half of the year. with approximately 50% of the year's revenue occurring in the fourth quarter. Nordion does continue to source a portion of its Cobalt-60 supply from Russia. At the start of the year, we stated that a total supply disruption from Russia could potentially result in a 0% to 3% impact on total 2023 Cetera Health revenues. At this juncture in the year, we are confident that there is zero risk to Russian supply impacting total Sotero Health full-year 2023 revenues. The Cobalt-60 supply chain is a complex one, and I'm proud of the continued efforts by our neuriting team to ensure availability. Cobalt-60 is used to sterilize approximately 30% of the world's single-use medical devices and is critical to the global healthcare community. This is a great example of how we play a critical role in safeguarding global health. Nelson Labs, our lab testing and advisory service business, experienced sequential growth and expanded margins of approximately 680 basis points over the first quarter of this year. Revenues in the second quarter of 2023 were 2.8% below the prior year quarter, which had experienced record revenues. However, volumes continue to be challenging in our lab business. In light of the softer than expected volumes, the Nelson Labs team is actively managing costs while keeping focus on quality and customer satisfaction. Due to the volume softness at Sterigenics and Nelson Labs that we expect to continue, we're adjusting our full year 2023 outlook. We now expect full year net revenue growth to be in the range of approximately 3% to 5%, and full year adjusted EBITDA growth to be in the range of approximately 3% to 6%. We are confident that we've taken into account weaker volumes and other market dynamics reflected in this adjusted range. We will continue to concentrate on executing our strategy to best serve our customers around the globe. Prior to John walking us through the financials in more detail, I'd like to take a minute to underscore our mission, safeguarding global health, which is at the heart of our work. We've performed government-mandated sterilization and validation testing for medical, and pharmaceutical products used each and every day. We supply Cobalt-60 for radiation oncology professionals to help treat brain cancer. In addition, we provide critical technical and regulatory expertise to solve our customers' product development and sterility needs. Our indispensable services help to protect millions of patients and healthcare providers around the world. One such example of how we safeguard global health is via our team at Nelson Labs Europe, which performed extractable and leachable studies for a single-use nasal spray used in life-saving rescue treatment of patients experiencing an opioid overdose. In the spring of 2023, the product received FDA approval for the US market. The societal impact of this FDA approval is significant as overdoses caused by the use of synthetic opioid drugs, including fentanyl, unfortunately remain a major and chronic problem in our society. Another example of our team fulfilling our mission is highlighted through a video link located on the Safeguarding Global Health slide in our second quarter 2023 earnings presentation released this morning and available on our investor relations website. I encourage you to watch this video to learn about how Sterigenics and Nelson Labs work in conjunction to ensure critical sterilization and validation testing are performed for the successful delivery of vaccines around the world. Now, John will walk us through the financials.