Sotera Health Company

On October 17th, the trial court excluded all three of the plaintiff's causation experts and dismissed all three cases for failure to present reliable and admissible evidence of specific causation. The court also dismissed the plaintiff's claims for nuisance, noting that the plaintiffs had not presented any evidence that the Atlanta facility had violated EPA, Georgia EPD, or Cobb County requirements. Although the phase two orders apply only to three bellwether cases, we believe the substantive grounds for rulings apply with equal force to the remaining personal injury claims. This will be decided in due course by the Cobb County Court, and if necessary, the Georgia Appellate Courts. We will continue to put the science front and center as we defend stereogenic safe and essential operations. This statement, the trial court's phase one and phase two orders, and a decision of the Georgia Court of Appeals are all available on our website. At this point, operator, I'd like to open it up for questions and answers. Thank you.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then 2. At this time, we will pause momentarily to assemble our roster. And your first question today will come from Patrick Donnelly with Citi. Please go ahead.

Hey, great. Thanks for the question. Maybe just one on the volume recovery. Nice to see that continue. Are there certain areas you guys are seeing kind of outsized recovery? I think last quarter you talked a little bit about MedTech and bioproductions. maybe what you see in there and what the expectations on the volume trajectory are from here.

Hey, Patrick. Good morning. This is Michael. We're seeing pretty consistent performance across sterogenics and across multiple, almost all categories, bioprocessing, medtech broadly. Overall, we're seeing good recovery in volumes, and we expect that to continue going forward.

Okay, great. And then just a quick one, you know, helpful on the litigation update there. I guess maybe a quick one just in terms of where some of the other cases are. Again, it sounds like we can continue to see some of these updates, but we'd love to just hear the latest on the broad mitigation side and how you're feeling on that front.

Yeah, Patrick, Illinois is wrapping up. We've got the April 2025 settlement that we did that's been completed and closed out. The July 25th one is progressing well. That'll leave us with only one remaining case in Illinois. In Georgia, I just gave you a lengthy update there. On New Mexico, right now, there's no personal injury claims currently, and there's only the one suit brought by the AG for public nuisance that's set for trial in July of 2026. And then in California, we've recently been informed that the first trials are expected in January and April of 2027.

All right, perfect. Thanks, Michael. Thank you.

Your next question today will come from Casey Woodring with J.P. Morgan. Please go ahead.

Hi, this is Jaden on for Casey. Thank you so much for taking my question. Just first on stereogenics. I was just wondering, are you factoring any expectation of a budget flush in 4Q? And given you've reaffirmed your revenue outlook for the year after your 3Q beat, can you touch on how conservative your guidance is for 25 and the puts and takes behind that? Thank you.

I'm sorry. Can you repeat the question on stereogenics? I wasn't sure I understood that first question.

I was just wondering if you're factoring in any expectation of a budget flush in 4Q.

A budget flush, are you talking about the government shutdown? Is that what you're referencing when you say budget flush?

No, I'm talking from the MedTech customers, from MedTech or bioprocessing.

We're not expecting a budget flush. No. And when I look forward, you know, we feel confident of our guidance and outlook that we're giving you here for the rest of the year. I wouldn't say it's aggressive. I wouldn't say it's conservative. We just feel confident where it is with one core to go.

Okay, got it. And then just to follow up, just on that government shutdown, since you mentioned it, are you seeing any impact from that in your RCA business or anywhere across your portfolio?

When we look at it, remember, we have no direct government sales in the business. There's some indirect impact, but it's pretty minimal. It's not a material impact. We do feel a little bit of it in the expert advisory services with some of the delays going on and activity there. But overall, we don't see a material impact to the company, and we do not have direct sales to the government.

All right, got it. Thank you. Your next question today will come from Luke Sirgot with Barclays. Please go ahead.

Great. Thanks for the question. Just two from me. It's about the one on the expert advisory business. It seems to have gotten worse here. Is that just related to the lack of FDA funding, lack of inspections, and kind of the government shutdown? And then the second one is, is on the implied 4-Q EBITDA margin step down. Just want to know what's going on there. And I assume it's probably just not the Nordion volumes, but just wanted to see if anything else going on.

Good morning, Luke. Yeah, I would say, you know, expert advisory services in that RCA business is feeling some of the impact from the FDA lack of activity. So that's clearly impacting. It was worse than we expected, but overall, You know, it's had a material impact on the top line for the company. It's about 10 points of impact. John, is it roughly about 10 points of impact on the top line? But overall, you know, the core lab testing is improving, which is what we had hoped for and we're continuing to see. John, you want to address the margin question that Luke has as well?

Yeah, Luke, as we look at the margins in Q4, we anticipate that Nelson will step back a bit. from where they are at this peak in Q3. Q3 had the benefit of some pretty low expenses inside of that. And then, you know, we've been running really well in STERI. We could see a little bit of a step back in that, but, you know, nothing alarming there. Still stable margins for the year, maybe even slight growth for the year for Sterigenics.

Okay, great. Thanks.

Your next question today will come from Dave Windley with Jefferies. Please go ahead.

Hi, good morning. Thanks for taking my questions. Maybe follow up on Nelson and ask the other side of the coin, Michael, the core lab testing and the pickup there. So just kind of thinking about the balance if expert advisory is feeling this headwind and that's kind of prisoner to what the government does on on funding an FDA, what does the rest of the business look like and what's the demand quotient there?

Yeah, thanks David. I'd say overall core lab testing is doing pretty well. We'd like to continue to see more growth. The routine volumes or some of the flow volumes are picking up like we see in the sterilization volumes. Validation has been a little bit choppy, but we got some pockets, particularly with some of the new regulations. You know, some of the requirements of extractable, leachable testing and bioprocessing components and things of that nature are all doing well. So, overall, we're seeing some nice growth in the lab testing core. We'd like to see it better. But, overall, it's going the right direction. And, you know, fundamentally, we're seeing the embed labs growth continue. The linkage with the stereogenics piece and the volumes there are clearly having an impact in a positive way.

Got it. And then maybe... zooming out a little bit and just thinking more broadly to the question on kind of the fourth quarter sequential progression. I think, as Luke highlighted, there's a little bit of margin pullback. John, you addressed that. The revenue growth indicated by your guidance also steps back a little bit, and so I wondered if you could just comment on cadence timing, you know, things that for the year were, you know, reflected in 3Q that you maybe thought were going to land in 4Q, that kind of thing relative to, you know, kind of trajectory. What's the smooth trajectory that fits through what is a higher 3Q and a lower 4Q? Thanks.

Yeah. Thanks, David. I would just say, you know, we talked about the Nelson comments and the things that we're seeing on expert advisory service. The other big factor that we talked about last quarter and we're reentering today is the Nordion. The Nordion lumpiness, you know, we said it was going to be down significantly versus last year, fourth quarter, and that's what you're referencing. That's the piece. So we had a portion of it, as we referenced in our comments here, that pulled into the third quarter from customer's request. But overall, you know, we still expect it to be down significant from last year, all due to timing. But overall, when you look at the total year for Nordion, it will be actually above our expectations, as we also commented on here today. So I think that's the other piece. Okay. Great.

Thanks.

Next question will come from Brett Fishbin with KeyBank. Please go ahead.

Hey, guys. Good morning. Thank you so much for taking the questions. Just had a quick one on Nordian. You know, notice the very strong revenue growth in the quarter in excess of 22%. But I think you noted that there was some margin pressure from the mix. And we're just curious kind of like what type of mix shift with Nordian was causing some margin compression? And does that persist moving forward?

Hey, Brett, it's Michael here. So when you look at the business, it's tough to talk about margin pressure in the Nordium business when you see the margins that we put up in that business. What we're referencing there is product sales, in particular production of radiators, equipment sales. That's a lower margin, and we saw some growth in that in the quarter. We'll see that sporadically here and there, but we don't see that as a material impact long term. The margin rates continue to be very strong in that business, as you know.

That is a very fair point. And then just on Sterigenics, it was really great to see a second quarter of, you know, really improved trends for the segment. I was just curious, you know, how you think about overall sustainability of call it mid to high single digit or high single digit type of growth as we look ahead into 2026. And, you know, maybe short of giving guidance, if there's any key moving pieces that you would call out for next year other than potentially more challenging comparisons Thanks again.

Yeah, great. You know, listen, we're proud of what the Stereogenics team is. They're executing very well. You know, we set our long-range guide. There would be mid-single digits to high-single digits. We're reiterating that. And I would just say, you know, overall, you know, we'll give guidance when we give, you know, guidance at the beginning of next year. But overall, when we look at our long-range commitments we made in the investor day last November, we still feel pretty confident around that. So we're well situated.

We'll talk about 26 when we get there.

Next question will come from Jason Bednar with Piper Sandler. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions and congrats on the quarter here. I wanted to first start on stereogenics pricing. It decelerated ever so slightly. I know we're talking tens of basis points on a sequential basis, but I think you've been trending down 50 to 60 basis points year on year in the last few quarters. I think this is also the smallest pricing tail and we've seen in at least a few years. And look, it's still good. It's better than a lot of other healthcare verticals. But where do you think this pricing contribution stabilizes? Is this the level? Do we need to drift lower? And then maybe the follow-up there would be, I think you've talked in the past about stronger opportunities in pricing and stereogenics in light of the investments you've been making in your facilities. Is that potentially a reversal of sorts as we think about pricing going forward for stereogenics?

Yeah. Hey, thanks, Jason. You know, we said last year, November, we talked about – Price across the company, 3% to 4%. We said Sterigenics would be the high end of that range, and that's basically where they're coming in at. We see that continuing. We don't see any concern around that. If it's 3.8%, 3.94%, it's right in that neighborhood. We see that. We can't call it that closely, but we also look at some of the NESHAP opportunities, and those are things that we would say that could come on top of that over time as we roll out that program and the regulations get set in the marketplace. So that would be above that run rate.

Okay. And maybe just to follow up on that last point, Michael, is that you referenced that opportunity over time. Is that more of a post-26, not asking for 26 guidance, but is that a post-26 comment, knowing that your compliance with NESHAP is still a few quarters out? And then separately, I appreciate everything that you gave us on the litigation update side, especially on all the detail around Georgia and We'll get the details when the queue's filed, but can you update us on the number of cases in California? I don't think we heard that other than just the start of some of those case dates.

Yeah, I'm sorry. I was getting distracted by your second part. What was the first part of the question, Jason, again? Post-26. Oh, post-26 on the NESHAP. I'm sorry. Thank you. I had a little hesitation there. I would just say we're working with our customers on the appropriate way to price in the capital improvements we put in our facilities. That will build out over time. Yes, NESHAP timeline has been pushed out a little bit, so we'll work with our customers to do that. But you'll see a gradual improvement for that incremental price over time. Again, to your point, we don't want to get into 2026. But we'll give you some proper guidance on that for 26 and 27 and 28 as we look at that pricing on NESHAP. As far as California, there's 83 personal injury claims.

All right, perfect. Thanks so much, guys.

Yep, thank you.

And your next question today will come from Michael Polark with Wolf Research. Please go ahead.

Hi, good morning. Nelson, if I'm doing the math for 4Q... maybe in constant currency terms, flattish year on year. Obviously, the comp gets easier as we lap in this advisory services headwind. My question is for 26, and I'm not asking for formal guidance, but with this big advisory headwind now in, is it reasonable to expect, given what you're seeing on routine testing, to expect Nelson to return to growth in 26th?

Yeah, that's a logical conclusion, Mike. We're not getting into 26 guides, but you're thinking about the right way.

My follow-up on Sterigenics, last quarter after your clear acceleration and a good number from your competitor, the discussion was around order patterns ahead of tariffs. And so I'm curious, three to six months later, do you have any better feel for whether in the second or third quarters there was maybe a little bit of extra pull forward of ordering from MedTech customers as they maneuvered supply chains ahead of Trump tariffs?

Yeah, you know, we, you know, we, as I mentioned in the past, we have a pretty rigorous process in doing commercial reviews and buying reviews with the team. And We're seeing very minimal impact from that. I mean, the only reason I'd even tell you any is because, you know, we have a couple of facilities where if we look back on it, there were some stat fees that came in with some last-minute requirements from customers, but nothing material. When you look at the overall scale of the business, doing approximately $300 million of revenue per quarter across the company in total, or, you know, $197 million in stereogenics, there's nothing material there that we're able to see.

Thank you, Michael.

This concludes our question and answer session. I would like to turn the conference back over to Michael Petras for closing remarks.

Great, thank you. You know, we achieved excellent results again this quarter with solid revenue growth, margin expansion, and improved financial strength, right? We're built for resilience and sustainable growth. Our stable, recurring revenue base and expertise enable us to support our customers in highly regulated markets and deliver consistent results through varying economic cycles. We want to thank you to our customers and investors for your continued trust and partnership. We appreciate your support, and we look forward to speaking with you again next quarter. And have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.