Earnings call transcript: Sotera Health beats Q2 2025 forecasts, shares surge

Sotera Health (NASDAQ:SHC), with a market capitalization of $3.18 billion, reported strong financial results for Q2 2025, surpassing analyst expectations with an adjusted EPS of $0.20 against a forecast of $0.17, a 17.65% surprise. Revenue reached $294.34 million, exceeding the predicted $275.89 million. Following the announcement, Sotera Health’s stock surged 18.89% in pre-market trading, reflecting positive investor sentiment. According to InvestingPro analysis, the company’s stock is currently trading near its Fair Value, with 8 analysts recently revising their earnings expectations downward for the upcoming period.

Key Takeaways

• Sotera Health’s Q2 2025 EPS of $0.20 beat forecasts by 17.65%.
• Revenue grew 6.4% year-over-year to $294 million.
• Stock price increased by 18.89% in pre-market trading.
• Strong performance in Sterigenics and bioprocessing segments drove growth.
• Raised 2025 revenue and adjusted EBITDA growth outlook.

Company Performance

Sotera Health demonstrated robust performance in Q2 2025, with significant contributions from its Sterigenics and bioprocessing segments. The company reported a 6.4% increase in revenue to $294 million, reflecting its strategic investments in facility enhancements and capacity expansion. This growth aligns with industry trends, particularly in the medical device and bioprocessing markets, which are experiencing stability and expansion, respectively.

Financial Highlights

• Revenue: $294 million, up 6.4% year-over-year.
• Adjusted EPS: $0.20, an increase from $0.19 in Q2 2024.
• Adjusted EBITDA: $151 million, a 9.8% increase.
• Adjusted EBITDA margins: 51.2%, up 156 basis points.
• Net leverage ratio improved to 3.5x from 3.7x in 2024.

Earnings vs. Forecast

Sotera Health’s Q2 2025 results exceeded expectations, with an EPS of $0.20 compared to the forecasted $0.17. This represents a 17.65% positive surprise. The revenue of $294.34 million also surpassed the anticipated $275.89 million, marking a 6.69% surprise. This performance highlights the company’s ability to capitalize on market opportunities and optimize its operations.

Market Reaction

Following the earnings announcement, Sotera Health’s stock price surged by 18.89% in pre-market trading, reaching $12.79. This significant increase reflects investor confidence in the company’s strong performance and positive outlook. The stock’s movement is notable given its position within its 52-week range, with a high of $17.08 and a low of $9.53.

Outlook & Guidance

Sotera Health has raised its revenue growth outlook for 2025 to 4.5-6% and adjusted EBITDA growth to 6-7.5%. The company anticipates continued growth in the Sterigenics segment, projecting mid to high single-digit increases, while Nelson Labs expects a low single-digit revenue decline. Adjusted EPS guidance has been revised upwards to $0.75-$0.82.

Executive Commentary

CEO Michael Petrus highlighted the alignment of end market volumes with demand, stating, "We’re seeing volumes starting to match up a little closer with the volumes you’re seeing in the end markets." He also praised the company’s efforts in margin recovery and responsiveness to customer needs, emphasizing, "We feel good about the work this team has done on getting the margins in line and recovering the lab business."

Risks and Challenges

• Potential supply chain disruptions could impact product delivery.
• Market saturation in the sterilization industry may limit growth.
• Macroeconomic pressures, such as inflation, could affect operating costs.
• Regulatory changes in the healthcare sector may pose compliance challenges.
• Competition in the sterilization market remains intense.

Q&A

During the earnings call, analysts inquired about the company’s strategy for optimizing customer supply chains and the potential impact of tariff-related dynamics. Sotera Health executives reiterated their focus on disciplined investments and capacity expansion, aiming to enhance operational efficiency and customer satisfaction.

Full transcript - Sotera Health Co (SHC) Q2 2025:

Conference Operator: Good morning and welcome to the Sotera Health Second Quarter twenty twenty five Conference Call. All participants will be in listen only mode. 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.

Jason Peterson, Vice President and Treasurer, Sotera Health: Good morning and thank you. Welcome to the Soterra Health second quarter twenty twenty five earnings call. You can find today’s press release and accompanying supplemental slides on the Investors section of our website at soterahealth.com. This webcast is being recorded and a replay will be available in the Investors section of the Sotera Health website. On the call with me today are Chairman and Chief Executive Officer, Michael Petrus 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 Ceterra Health’s SEC filings and the forward looking statements slide at the beginning of this 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 EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, net debt and net leverage ratio as well as 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 and 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

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: questions. If you have any questions after the call, please feel free to reach out to me and the Investor Relations team. I will now turn the call over to Saterra Health Chairman and CEO, Michael Petrus. Good morning, everyone, and thank you for joining our quarterly earnings call. We’re excited to share that Saterra Health delivered a strong second quarter, building off our solid performance last quarter marked by growing momentum across our core businesses.

This progress resulted in top line growth of 6.4%, adjusted EBITDA growth of 9.8% and an improvement in adjusted EPS compared to the second quarter twenty twenty four. We continue to invest in our businesses to support organic growth and made further progress on reducing leverage, reinforcing our commitment to disciplined financial management and long term value creation. Moving on to the performance in our businesses. Sterigenics increased customer demand drove strong volume and mix performance in the quarter resulting in 10.5% year over year revenue growth compared to the second quarter twenty twenty four. Stronger volumes were driven by our core med device customers along with continued momentum of bioprocessing, which was supported by our most recent facility expansion.

Nordan delivered stronger than expected second quarter revenue versus the second quarter twenty twenty four driven by the timing of Cobalt 60 shipments. As request for our customers, certain deliveries originally scheduled for the third quarter were fulfilled in the second quarter. Nelson Labs delivered second quarter revenue in line with expectations outlined during our first quarter earnings call. Improvements in core lab testing helped offset the anticipated impact from Expert Advisory Services. The increased core lab testing volume and mix along with our disciplined optimization actions resulted in segment income margin expansion of more than 500 basis points.

This marks the fourth consecutive quarter of year over year margin improvement in Nelson Labs. Given the strong momentum to the first half of the year, we are raising our outlook for 2025 revenue adjusted EBITDA. For revenue, we are raising our growth outlook to 4.5% to 6% versus 2024. We’re also raising our adjusted EBITDA growth outlook to 6% to 7.5%. These updates reflect improved performance expectations and I assume no impact from foreign currency for the full year.

John will go through our 2025 outlook update in more detail in a few minutes, but first I would like to highlight an example of how Solterra Health plays an essential role in safeguarding global health. Together, Sterigenics and Nelson Labs play critical role in patient safety and supporting FDA approval groundbreaking treatments. From validation testing such as biocompatibility and packaging to routine sterilization, our teams contribute to the launch of this new infusion sets for advanced Parkinson’s therapy. This innovative drug delivery device helps improve quality of life by managing tremors and rigid body movements. Our expertise helps customers commercialize new products and is a great example of how we play an essential role in safeguarding global health.

Now John will walk us through the financials.

John Lyons, Chief Financial Officer, Sotera Health: Thank you, Michael. I’ll begin by covering the second quarter twenty twenty five highlights on a consolidated basis and then provide some details on each of the business segments along with updates on capital deployment and leverage. I will finish with additional details on our updated 2025 outlook. On a consolidated total company basis, second quarter revenues increased by 6.4% to $294,000,000 or 6% on a constant currency basis compared to Q2 twenty twenty four. Foreign currency was a tailwind of approximately 40 basis points for the quarter.

Adjusted EBITDA increased by 9.8% to $151,000,000 or 9.5% growth on a constant currency basis. Adjusted EBITDA margins were 51.2% representing 156 basis point increase from Q2 twenty twenty four driven by a five fourteen basis point increase in Nelson Labs segment margin. Interest expense of $41,000,000 for the 2025 was consistent with the prior year period. Net income on a GAAP basis for Q2 twenty twenty five was $8,000,000 or $03 per diluted share inclusive of the pending and previously disclosed $34,000,000 settlement of EO claims in Illinois. That compares to net income of $9,000,000 or $03 per diluted share in 2024.

Adjusted EPS was $0.20 for the 2025, an improvement of $01 from Q2 twenty twenty four. Now let’s take a closer look at the segment details. Theragenyx delivered strong second quarter twenty twenty five revenue growth of 10.5% to $195,000,000 or 10% on a constant currency basis as compared to Q2 twenty twenty four. Revenue growth for the quarter was driven by a favorable volume and mix contribution of 6%, pricing of 4% and a benefit from foreign currency exchange of approximately 50 basis points. Segment income increased 11.3 to $108,000,000 with segment income margins expanding 42 basis points versus Q2 twenty twenty four.

Segment income and margin growth were driven by strong top line growth partially offset by inflation. Nordion’s Q2 twenty twenty five revenue increased by 2.9% to $42,000,000 or 3.4% on a constant currency basis compared to the same period in the prior year. Nordion’s revenue increase was driven by favorable volume mix of 1.1% as well as a 2.3% pricing benefit partially offset by unfavorable foreign currency exchange of 50 basis points. Nordion segment income was $23,000,000 for the quarter while segment income margin decreased 145 basis points to 55.3% compared to Q2 twenty twenty four driven by the timing of supplier mix. Nordion year to date margins versus 2024 are up over 200 basis points.

In Nelson Labs, revenue for the quarter was $57,000,000 a decline of 3.3% compared to Q2 twenty twenty four as favorable contributions from Core Lab testing, pricing gains of 2.8% and a foreign exchange benefit of 110 basis points were offset by the anticipated volume impact of Expert Advisory Services. Segment income increased 13.9% to $20,000,000 while segment income margins expanded by five fourteen basis points. Increases in Q2 segment income and segment income margin were driven by favorable volume and mix improvements, benefits from optimization and favorable pricing. Turning to the balance sheet, cash generation and capital deployment. We delivered positive operating cash flow of approximately $57,000,000 in the quarter and capital expenditures totaled approximately $31,000,000 Our liquidity position remains very strong.

At the end of Q2, we had $918,000,000 of available liquidity, which included three thirty cash and $586,000,000 of available capacity on our revolving line of credit. Finally, we finished the quarter with a net leverage ratio of 3.5 times, an improvement from net leverage of 3.7 times at the 2024 and continued progress towards our long term goal of two to three times. As Michael mentioned previously, we are raising our 2025 constant currency revenue growth outlook versus 2024 to a range of 4.5% to 6% from our prior range of 4% to 6%. We also expect to drive healthy operating leverage and are increasing our constant currency adjusted EBITDA growth outlook to 6% to 7.5% from our prior range of 4.5% to 6.5%. Based on average second quarter twenty twenty five FX rates, we now expect foreign currency impact to be neutral on full year revenue and adjusted EBITDA versus 2024 compared to our prior assumption of a 1.25% and a 1.5% headwind respectively.

Total company price for 2025 is still expected to be near the midpoint of our long term stated range of 3% to 4%. For Sterigenics, we’ve raised our full year 2025 constant currency revenue growth outlook and now expect mid to high single digits growth. For Nordion, we continue to expect full year 2025 constant currency revenue growth in the mid single digits. Nearly 60% of full year revenue is expected to occur in the second half of the year with Q4 twenty twenty five revenue expected to be down mid teens versus Q4 twenty twenty four due to the timing of Cobalt 60 shipments. Also, revenue risk associated with Russian supplied Cobalt 60 has improved to less than one half of 1% of total company 2025 revenue.

For Nelson Labs, while Core Lab testing continues to improve, we now expect full year 2025 constant currency revenues to decline in the low single digits due to the impact from Expert Advisory Services. We expect to return to growth in Q4 twenty twenty five and continue to expect strong margin improvement at Nelson Labs for 2025. Moving on to other guidance items. Based on the current forward rate, we continue to expect interest expense to be in the range of $155,000,000 to $165,000,000 We are projecting an effective tax rate applicable to adjusted net income in the range of 31.5 to 33.5%. The favorable tax rate change reflects the recent U.

S. Tax law change that increased deductible interest expense up to 30% of EBITDA generated in The U. S. With the upward adjustments to our revenue and adjusted EBITDA ranges and the favorable change in the tax rate, we now expect adjusted EPS to be in the range of zero seven five dollars to $0.82 an increase from the previous range of $0.70 to $0.76 We continue to expect a fully diluted share count in the range of $286,000,000 to $287,000,000 shares on a weighted average basis. We now expect twenty twenty five capital expenditures to be in the range of 170,000,000 to $180,000,000 down from our prior outlook of $190,000,000 to $210,000,000 Approximately one quarter of the reduction reflects cost savings while the remainder is due to the timing of large projects.

As outlined at Investor Day, we continue to anticipate CapEx of approximately $110,000,000 in 2027, which supports our goal of delivering $500,000,000 to $600,000,000 of free cash flow over the period 2025 to 2027. We continue to expect year end 2025 net leverage ratio to improve compared to 2024 as we work towards our long term goal of two to three times net leverage. Finally, usual, our guidance does not assume any M and A activity. I’ll now turn the call back over to Michael. Thank you, John.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: We are proud of the strong quarter we delivered which was highlighted by continued momentum and enable us to raise our full year outlook. This performance underscores the resilience of our business and the strength of our teams. We are energized by what lies ahead and remain focused on executing with discipline to drive continued value for our stakeholders. At this point, operator, let’s open the call for question and answers.

Conference Operator: Thank you. We will now begin the question and answer session. And our first question comes from Patrick Donnelly from Citi. Please go ahead.

Patrick Donnelly, Analyst, Citi: Hey guys, thank you for taking the questions. Michael, maybe one just on the overall results, particularly Theragunix. Just given the strength there,

Unidentified Speaker: kind of have to

Patrick Donnelly, Analyst, Citi: ask, did you guys see any sort of pull forward dynamic? Nice to see the full year move up, obviously, but just curious what you were hearing from customers or folks looking to stock up ahead of some of the tariff noise. Anything there to call out?

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Hey, good morning Patrick. I would just we’re not seeing any material in tariff pull ins or anything of that nature. I mean there’s a little bit here and there, but there’s nothing material. The team we saw this volume progressing, as we said earlier in the year. We said that we would see volumes progress throughout the year, and we’re seeing the teams executing against that.

So we’re excited about where we sit today with Sterigenics, and the outlook is positive going forward as well.

Patrick Donnelly, Analyst, Citi: Okay. Yes. Maybe to dive a little bit more into the recovery here. Can you just pull back it sounds like both the medtech side and bioprocessing, were doing well for you in the quarter. Can you just maybe parse out the two, what you’re seeing from both, Where we are in this recovery?

It does sound like you guys are maybe a little more confident on the volume side. But maybe talk about both medtech and bioprod volume versus price would be helpful just to talk through how you’re seeing it and the expectations for the rest of the year? Thank Yes. You guys so

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Thanks, Patrick. As we mentioned in our prepared remarks, the volume and mix was up 6% in the quarter over last year. The price was up 4% in Sterigenics. We’re seeing that across the board with our customers. No segment necessarily outperforming the other.

Bioprocessing, again, it’s a small portion of our business, but we saw significant growth there as we expected. We also had capacity put in place with one of our build outs, and we’re seeing the fruits of that expansion and the ability to capture volume based on that performance. And then in addition to that, the medtech volumes were pretty stable. We’re seeing across multiple categories. As we talked about previously with you folks, we’re doing some segmentation of end markets that we’re really focused on.

And the team is seeing nice growth in those end markets that we focused on and are executing against. So overall, bioprocessing was up larger, but it’s a smaller base, but medtech had nice volume in the quarter and we anticipate that going forward to be positive as well.

Patrick Donnelly, Analyst, Citi: Great. Thank you, guys.

Conference Operator: And the next question comes from Brett Fishman from KeyBanc. Please go ahead.

Brett Fishman, Analyst, KeyBanc: Hey, guys. Good morning. Thank you very much for taking the questions. Just want to start off with maybe a similar one from 1Q. Just obviously, a highlight of the quarter was the step up in Nelson Labs margins.

I know you mentioned the benefit of positive mix with Expert Advisory declining more. But curious if you could just parse out some of the different drivers of the year over year improvement, like how much was related to the mix of services versus other factors?

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. I would Brett, this is Michael. I would say this is consistent what we have been messaging for the last several quarters. We said that we would see expansion of margins within the Nelson Lab business. We felt that business probably ends up being low to mid-30s.

We’re approaching those areas. We’re actually right there. The key things that the team has done that we talked about previously with you folks is the labor productivity and matching that up. And the team has done a really nice job of matching that with supply and demand. So we’re getting some optimization there on the productivity side and some of the volumes.

And then overall, a favorable mix, as you referenced, moving from Expert Advisory Services and the core lab testing. And then I’d say the other thing is that business continues to perform on price at 3% price in the quarter. So overall, this is four quarters in a row of margin expansion, which is what we communicated that we expected and the team is delivering against that.

Brett Fishman, Analyst, KeyBanc: All right, perfect. And then shifting gears a little bit, during the quarter, there was an announced extension to the implementation timeframe for the updated ETO regs. It looks like the EPA is still reevaluating the updated NISCHAP role. So I was curious if you had any thoughts on this development, whether this changes your planned investments in any way? And then just how you think about maybe competitive implications of that decision?

Thank you.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. Thanks, Fred. On the NESHEP rule, we’re well positioned. We’re continuing to execute on that. We’re going to continue to invest in that moving forward.

This will give us an opportunity to get a little bit of price out of some vendors that we think we’re speeding a little bit on cost, but we’re continuing to invest in that to finish this up. And for us, the extension just gives us an opportunity to facilitate optimal installation, and validation of some of the emissions controls around the facilities. But we feel good about where we’re sitting there and we also feel good about the competitive environment long term.

Conference Operator: And the next question comes from Luke Sergott from Barclays. Please go ahead.

Luke Sergott, Analyst, Barclays: Great, thanks. I guess on the just pile on on the Nelson improvement for the margin. I know that you’re hitting up against your target here at low to mid-30s for the year. So just trying to think about how much more runway you guys have left in that business and ultimately what you think you can get margins to go to assuming that the volumes come back to your targeted utilization?

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. Luke, I would say where we’re at today is pretty consistent with what we projected, and that’s what you should expect going forward here. We’re in the low 30s, right, low to mid-30s. That’s what you ought to be expecting. I don’t think you’re going to see us approaching the 40s we saw during COVID.

As we explained in the past, that was some favorability we had from mix and some bolus of large volumes that came in. But I think what you’re seeing, this business should be able to deliver consistent with the margin rates we’re at today. You should think about that that way going forward.

Luke Sergott, Analyst, Barclays: All right. And then follow-up here is, you had your peer that does the same thing, but they’re a little bit more gamma and x-ray focused. They had strong growth in the quarter. And it’s not like Steri had a bad volume quarter either. I’m just wondering, they had a little bit elevated growth.

So are you seeing internally increased demand for gamma and X-ray and potential share gain there? Has there been a technology advancement where they can get that increased capacity for that sterilization technology?

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Luke, obviously, you have to talk to them about their performance, but we’re very proud of what Sterigenics has done here. 10.5% growth in the quarter, 6% volume and mix. We’re seeing it across modalities. We don’t have a huge X-ray base. We’ve got a new X-ray that we announced that will be coming up in the Southeast by the end of the year.

The gamma side is a little weaker, but still nice progress there and ethylene oxide continues to do real well and e beam does real well. So overall, really proud of what the Sterigenics team is doing and it’s consistent with what we told everybody we were going to do is increase volumes as the year progressed and the team is executing against that. And we’re even sitting here today in early August, we’re optimistic where we sit going forward.

Luke Sergott, Analyst, Barclays: Great. Thanks.

Conference Operator: And the next question comes from Jason Bednar from Piper Sandler. Please go ahead.

John Lyons, Chief Financial Officer, Sotera Health: Hey, good morning guys.

Unidentified Speaker: I want to focus on Sterigenics. A couple of questions here. I’ll just ask them all upfront. Are they the growth you’re seeing, is that mostly same store or how much? I think you referenced a little bit on capacity expansion.

I don’t know if there’s any way you can parse that out, what you’re seeing from each of those. And then a bit of a follow-up to Patrick’s question earlier. There’s a ton of med tech players out there that are trying to adjust sourcing supply chains to work around tariffs. So not asking if there was a pull forward, but more so just broadly, are you seeing movement across your network as a lot of these companies were trying to, again, adjust their supply chain? Is that impacting Sterigenics at all?

Thank you.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. Thanks, Jason. It’s Michael. We had healthy performance in same store sales. We did, as I referenced, pick up incremental volumes in one of our expansions in Europe that we expected.

But overall, same store sales were healthy as well as this other expansion. And pull forward, MedTech, there is a lot of moving parts right now with these customers and exactly how they’re trying to optimize their supply chains. We’re having multiple discussions with them around the global where they’re going to ultimately settle. But we didn’t see material numbers pick up because of that, as I referenced earlier. But overall, our goal is to work closely with our customers and help optimize opportunities for them.

As I look forward, there’s a couple of opportunities that are percolating that could be interesting as they look to optimize their supply chains. But right now, we’re just looking forward to serving them as best as we can with the facilities we have in place. Michael, just one quick follow-up.

Unidentified Speaker: Do you think you’re in a good spot? I think you know the answer to this. But given those companies are trying to move supply chains, they’re incentivized to move supply chains, do

Brett Fishman, Analyst, KeyBanc: you feel like you’re in the

Unidentified Speaker: cap urgency just from a pricing position in terms of asking for even more price than you normally would?

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: I don’t know. Well, this is not about taking advantage of the situation. What I feel good about is our position in the marketplace, in our capacity in The U. S. We have a pretty significant presence here.

So if people want to come to The U. S, we feel like we’re pretty well positioned to do that. All right. Also, the other thing to keep in mind, we’ve been talking about investments in incremental capacity. There was one program that we’ve been continuing to scrutinize, and we’ve decided to move forward with that program as well that will optimize opportunities here in The U.

S. That our customers have asked us for support around. The business case has come together pretty well with the pricing that they’ve committed to us as well as the construction costs that we have to apply against, and our Board has made that decision earlier in the year to proceed with that. So we feel really good about that coming on board. Again, that won’t be till late twenty twenty seven or so, but so that again, we’re trying to be responsive to our customers broadly, Jason.

Unidentified Speaker: Great to hear. Thanks, Michael.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Thank you.

Conference Operator: And the next question comes from Casey Woodring from JPMorgan. Please go ahead.

Casey Woodring, Analyst, JPMorgan: Hi, great. Thanks for taking my questions. Just on Sterigenics, you did 6% volume and mix growth in 2Q. You mentioned you’re not really seeing pull forward. So is it fair to assume that same sort of volume and mix growth in the back half and maybe just walk through the quarterly cadence there?

And then I have one follow-up.

John Lyons, Chief Financial Officer, Sotera Health: Hey, Casey, thanks for the question on that. We’re really pleased with the performance in Sterigenics. I

Casey Woodring, Analyst, JPMorgan: think

John Lyons, Chief Financial Officer, Sotera Health: if you look at how we upped our guidance there to mid to high single digits growth, that would imply that kind of range in

Unidentified Speaker: the second

John Lyons, Chief Financial Officer, Sotera Health: half. We do have some uptick in maintenance related downtime that will mute the growth a little bit, which is why you can see it being a little less robust in the second half than we saw in Q2, but we’re still really pleased with the trajectory of the business and the growth we’re putting up.

Casey Woodring, Analyst, JPMorgan: Got it. That’s helpful. And then on Nelson, it looks like you took down expectations for the year just on the RCA business. You mentioned a return to growth in 4Q in Nelson. Just curious how we should think about that business maybe in 2026, the moving pieces there.

You’ll have an easier RCA comp. It sounds like core volumes are improving. Maybe just walk us through kind of the normalized growth rate of that business and what that would look like in 2026 with easy comps? Thank you.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. Thanks, Casey. We’re not going to get into 2026 in any depth at this point. We’re only in the 2025. I would just tell you, we don’t see long term significant expansion of the RCA business.

Again, that’s more strategic for us and how it works across the company. We saw the benefits last year, some elevated FDA activity, which is not repeating this year. But overall, we’re looking at bringing a full service to our customers that helps facilitate growth in both Sterigenics and Nelson. So when we get later in the year, we’re able to give you some guidance on ’26. We’ll give you more details around that.

But right now, we’re pretty proud of the work this team has done on getting the margins in line and recovering the lab business. We got a couple of regulations that are coming into place, which the team is maximizing the opportunities around. Happy about that. We got to continue to focus on core lab volume going forward here, and that’s what the second half is going to be about for that team.

Casey Woodring, Analyst, JPMorgan: Got it. Thank you.

Conference Operator: And the next question comes from David Windley from Jefferies. Please go ahead.

David Windley, Analyst, Jefferies: Hi, good morning. Thanks for taking my questions. The first one is a follow-up to the very end of your answer to Jason’s question on the project that you’re approving and moving forward. I think I heard you say the $110,000,000 in ’twenty seven million CapEx target is still valid. I wondered if you could talk about the path to that, particularly in light of that comment about the project.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. David, I’ll make some more comments and then John could jump in. We are looking at that $110,000,000 which is a commitment we made last year. The big things that are going to help ramp that down is cobalt development and the GFE spend, the facility enhancement spend on the Sterigenics side. Those are moving on track to come down just like we said they would.

Those are two big outliers that have had an impact here on our CapEx spend the last couple of years. And then some growth investments on Sterigenics have come down. And then we have this one left that we’ve got forecasted out.

John Lyons, Chief Financial Officer, Sotera Health: Yes, I think the nuance there, David, is that this one was always contemplated. And over the last couple months or even quarters, we’ve kind of we’ve reflected on it just to make sure we were confident in the returns that it would deliver and we feel really good about that as Michael mentioned. So we’re moving forward, but it was always contemplated in the numbers we were talking about.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes, good clarification, David. Was always in those CapEx numbers that we had before. We just were pushing it until we got comfortable on the economics of it.

David Windley, Analyst, Jefferies: Right, okay. I wondered also on Nelson, I think in your description of the margin benefits in addition to the mix shift, was also a mention of optimization. I guess what I’m wondering there is you’re taking the revenue guidance down a little bit on the EAS business. I’m wondering if the second quarter was a level of kind of more of a step function of, hey, the revenue is what it is, let’s right size the staffing levels even more so to current demand without any kind of growth anticipation and that helped to bump the margins up even more than we on the outside at least expected. Am I reading too much into that?

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes, you’re reading too much. There was no incremental actions in the quarter. This is just to run all the things that

John Lyons, Chief Financial Officer, Sotera Health: we talked about a couple of quarters ago.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: There was nothing incremental there, David.

John Lyons, Chief Financial Officer, Sotera Health: Got it.

David Windley, Analyst, Jefferies: Okay. Relatedly, if I could just squeeze one more in. So you had previously said that your margin expansion for the year was going to be Nelson driven. Is that still the case or do you see some benefits in the other two segments? Thank you and I’ll be done.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Chad, do you want

John Lyons, Chief Financial Officer, Sotera Health: to hit the margin one? Yes. No, that’s still our expectation, David. I mean, we feel really good about the improvement and the work that the team at Nelson has done to get margins in a spot where we think is consistent with the long term guide. As Michael mentioned, they’ve been at this for several quarters to get the labor and productivity right.

And so we’re pleased with that. We still are expecting Nordion and Sterigenics to have stable margins for the year on a year over year basis. But again, feel really good about both those businesses trajectory on, super happy about the return to growth or the accelerated growth that we saw in Sterigenics for sure.

David Windley, Analyst, Jefferies: Thanks. Great. Thanks very much for the color. Appreciate it.

Conference Operator: The next question comes from Michael Pollark from Wolfe Research. Please go ahead.

Luke Sergott, Analyst, Barclays: Hey, good morning. I want to put

Unidentified Speaker: this all together. Steris posted a real 10% growth rate as well. I see that in Sterigenics like something clearly is going well as we reflect on the last two, three years. Obviously, was first bioprocess boom and then bust and destocking and then kind of med device customer inventory management. Michael, you’re not saying this is tariffs.

And so is this just look, there was a two, three year period of post, let’s call it post COVID destocking of COVID era inventory bloat. We’ve worked through it because end markets are still pulling through units like hospital utilization and procedures and people are taking drugs and all this stuff and like, it’s back. I need a little more than like, I don’t know, there’s a category thing here and I’m curious if you could give me a little more.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Yes. Michael, I think some of your comments are right on. We’ve been talking the last couple of quarters that we are not hearing about destocking in a significant way, right? We’ve been telling you that. And again, we’re not hearing that at all.

I think you’re starting to see volumes starting to match up a little closer with the volumes you’re seeing in the end markets. We saw it across multiple categories here. We talked about bioprocessing a minute ago, but we’re seeing across multiple categories. And as we said earlier in the year, we expected that to continue throughout the year and we think that will still be the case. And our customers, we’re in active dialogue with them and the volumes are coming through.

So I imagine our competitors are seeing that same thing.

Unidentified Speaker: Understood. And then when we do the Sterigenics 2H guidance, to me, the midpoint of mid to high single digits is 6.5% for the full year. So if I use that, I get like 6.5% revenue growth for Sterigenics in the second half, and let’s assume price is stable because it probably is. And so at 4%, that imputes volume growth of like 2% to 3% in the back half, and you just described 6% volume and mix in the second quarter. So what are you John, you said downtime, but that feels kind of normal course of business.

Tell me if that’s wrong. What else are you bracing for in the back half that kind of explains this lower volume input? Is it simply conservatism? Thank you.

John Lyons, Chief Financial Officer, Sotera Health: Yes, Mike, I think candidly, I think we view the I understand where you hit the six point I view the probably a little bit better than that from how we’re thinking about it. And I think that we could the business could do better than that, but I would say we do have the downtime and it’s a little bit more non routine. We have our facility enhancements that Michael mentioned we’re proceeding with. We’ve got a couple of those that are pretty back half loaded. If you look at our CapEx year to date versus our CapEx year to go, based on our guide, you’ll see the pickup in CapEx and that’s really a good bit of activity.

So we’ve got some caution there around that. We feel good about the team’s execution, but we want to make sure that we deliver against our commitments here.

Unidentified Speaker: If I can sneak one more in and be greedy. The tax rate lowered this year, the midpoint of the new 2025 range, is that a good adjusted tax rate for 2026 and beyond? Thank you.

John Lyons, Chief Financial Officer, Sotera Health: Yes. No, I think there’s going to be some moving pieces as we move forward. We’re happy about the tax bill. I mean, it’s a little bit nuanced here that most of the tax bill changes are timing related for a lot of tax payers. But because we have the valuation allowance against the interest deduction, the increased deduction for us allows us to improve the tax rate.

So the midpoint is the right number for this year. Some moving pieces going forward, but as we grow, we’d expect that tax rate to improve.

Unidentified Speaker: Thank you.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Michael Petrus for any closing remarks.

Michael Petrus, Chairman and Chief Executive Officer, Sotera Health: Great. Thank you, Jason. So we thank everybody for taking the time to join us this morning. Hopefully, you can see the optimism we have on our outlook for the rest of the year. Overall, the team is doing a great job in executing and taking care of our customers.

And a couple of things I just want to connect the dots back to around proof points that we’ve talked about with you in the past here. We talked about Sterigenics volumes improving. We’re seeing that come together. The team is executing on that. We talked about Nelson Labs margins improving.

We’ve seen that over the last several quarters. Nordian has been a very steady performer. We helped try to get some visibility around the lumpiness around that and then our focus on free cash flow. And we’re optimistic about where we sit and hit the long range commitments that we’ve made to the investment community. And we thank you for your ongoing support.

We hope you have a good day and a good weekend. Thank you. Bye bye.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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