Sotera Health Company

Good morning, and welcome to the Sotera Health Third Quarter 2023 Conference Call. All participants will be in a 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 a touch-tone phone. To withdraw your question, 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 Sotera Health's third quarter 2023 earnings call. You can find today's press release and accompanying supplemental slides on the investor section of our website at soterahealth.com. This webcast is being recorded and a replay will be available in the investor section of the Sotera 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 Sotera Health's SEC filings in the forward-looking statement slide at the beginning of the 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 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 schedule's 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 post-call, please feel free to reach out to me and the investment relations team. I will now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Good morning, everyone, and thank you for joining Sotero Health's third quarter 2023 earnings call. This morning, we reported year-over-year top and bottom line growth plus margin improvement. Consistent with our past commentary, macro environment headwinds still exist, such as rising interest rates, inflation, and customer supply chain challenges. The team has done a good job at offsetting these headwinds as we execute on delivering on our mission of safeguarding global health. I want to highlight a few items from our third quarter and year-to-date results. Compared to the third quarter of 2022, total company revenues increased 5.8%, while adjusted EBITDA increased 7.3%. We delivered adjusted EPS of 21 cents for the quarter, which is a two-cent decrease from the same period last year driven by increased interest expense. Sterigenics, our largest reporting segment, delivered 6.7% top-line growth for the third quarter of 2023 as compared to the third quarter of 2022, despite ongoing customer inventory and supply chain challenges and some markets off this. The Sterigenics business has been and is a consistent growth business. Revenue has grown more than 30% since we became a public company, from approximately $500 million in 2020 to $657 million over the last 12 months. And segment income has grown by $90 million during this same period. This consistent growth at Sterigenics is a testament to the great job that's been done by our team and the critical nature of our business, even when our customers are fighting through significant macroeconomic challenges. Sterigenics is a strong business that plays a critical role in providing government-mandated sterilization services to over 2,000 customers across 48 facilities in 13 countries. More than 90% of sterilization services revenue comes from customers on their multi-year contracts. We are very important to our customers in the commercialization of their healthcare products and ultimately in the role we play getting safe products to patients. During the quarter, the team completed another facility expansion project for which the customer product validation phase is underway. We also continue to make good progress on our EO facility enhancements in the United States. These industry-leading enhancements demonstrate our commitment to ensure best-in-class emission controls for employees, customers, and the communities in which we operate. Nordian, our other reporting segment within the sterilization services business, delivered a 14% year-over-year revenue increase in the third quarter versus last year. As communicated previously, Norion's revenue is tied to the harvest schedules of our Cobalt 60 suppliers, which results in irregular revenue patterns on a quarter-to-quarter basis. The team has unique experience in navigating the complex Cobalt 60 supply chain, and the Norion team remains on track to deliver a significant portion of its full-year revenue in the fourth quarter as planned and previously communicated. Cobalt-60 is used to sterilize approximately 30% of the world's single-use medical devices, and it's critical to the global healthcare community. This is another great example of how we play a critical role in safeguarding global health. Revenue in Nelson Labs, our lab testing advisory service business, experienced a 2.1% decline versus the prior year quarter as testing volumes continue to be soft based on three primary drivers. First, the extension's of the deadlines for compliance with the European Union medical devices regulations. Second, the decline of funding for startups in smaller companies. And lastly, routine lot release testing tied to sterilization volume. A bright spot for the Nelson Labs business is the RCA performance. RCA plays a critical role in helping customers remediate FDA audit findings. As a consulting business, however, RCA margins dilute those of Nelson Labs more generally. In light of the softer than expected volumes, the Nelson Labs team is actively managing costs while remaining focused on quality. Our staffing levels have stabilized, turn-around times and utilization levels have improved, and customer satisfaction scores are solid. Turning to the 2023 outlook, due to the volume softness at Sterigenics and Nelson Labs, we expect that 2023 revenue and adjusted EBITDA will finish at the lower end of the 2023 outlook range, we provided during our second quarter earnings call. Now, I would like to give a brief update on the ethylene oxide litigation in Georgia. In October, we announced that Sterigenics signed a binding term sheet to resolve 79 ethylene oxide claims against Sterigenics for $35 million, subject to the participation by all the plaintiffs. We expect to complete this settlement by year end. The settlement in no way constitutes an admission of liability or that admissions from our Atlanta facility have ever posed any safety hazard to the surrounding community. The settlement was driven by circumstances unique to one of the cases that was about to begin trial in the State Court of Gwinnett County. We continue to vigorously defend the approximately 240 remaining personal injury claims pending in the State Court of Cobb County. where we are optimistic the court will apply the rules of evidence properly and afford Sterigenics the opportunity to fully and fairly defend itself based on valid science. The judge in Cobb County has already acknowledged the central importance of science to the EO cases by implementing a case management order that places science and causation front and center in the 10 personal injury cases that will be decided first. In contrast to the approach taken by the judges in Cook County, Illinois and Gwinnett County, Georgia, only cases in which the plaintiffs present sufficient scientific proof to the judge's satisfaction that the plaintiffs' alleged exposure to EO from the Atlanta facility could have caused and, in fact, did cause the illness, as they allege, will be allowed to go to trial before a jury. We are confident that When the rules of evidence are applied properly, the science and related evidence about EO refutes claims that emissions from stereogenics facilities can or do cause cancer or the other harms alleged in the EO litigation. This was proven by the complete defense verdict returned in favor of stereogenics almost a year ago in the Fornic case in Cook County, Illinois. More detailed information about the settlement and the EO litigation is available in the 10Q that will be filed today And as always, on the ethylene oxide pages on our investor relations website. Prior to turning this call over to John to walk 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 perform tests for medical and pharmaceutical products used each and every day to make sure the products are safe and meet regulatory requirements. We sterilize millions of products each year that benefit millions of patients. We supply cobalt-60 to enable gamma sterilization globally and for the treatment of early stage breast cancer. In addition, we provide critical scientific and regulatory expertise to help solve our customers' challenges. Our mission critical services help protect millions of patients and healthcare providers around the world. An example of our teams fulfilling our mission is highlighted in a video link located in the Safeguarding Global Health slide in our third quarter 2023 earnings presentation released this morning and available on our investor relations website. I encourage you to watch this video to learn how Norium plays a vital role in the treatment of breast cancer. Now, John will walk us through the financials.