Sotera Health at Jefferies Conference: Strategic Growth Amid Challenges

On Wednesday, 04 June 2025, Sotera Health (NASDAQ:SHC) presented an optimistic outlook at the Jefferies Global Healthcare Conference 2025. The company’s leadership highlighted consistent growth and strategic focus despite ongoing supply chain and labor challenges. Sotera Health reaffirmed its 2025 guidance, reflecting confidence in its market position and future prospects.

Key Takeaways

• Sotera Health reaffirmed its 2025 guidance and expressed optimism about its business outlook.
• The company plans to invest $110 million in capital expenditures by 2027.
• Projected free cash flow is over $500 million from 2025 to 2027.
• Regulatory compliance and capacity expansion are key focus areas.
• The company is exploring strategic acquisitions and maintaining disciplined capital allocation.

Financial Results

• Reaffirmed 2025 guidance, signaling strong confidence in performance.
• Consistent growth since 2005, with target pricing increases between 3.5% and 5%.
• Committed to $110 million in capital expenditures by 2027.

• Projected free cash flow exceeding $500 million over the next three years:

- $255 million in 2025

- $260 million in 2026

- $507+ million in 2027

• Margin expansion expected in 2025, primarily driven by Nelson Labs.

Operational Updates

• Sterigenics: Volumes are normalizing, with increased activity in bioprocessing and pharma. An annual price increase of approximately 4% is anticipated.
• Nelson Labs: Workforce and service levels have stabilized, with rising NPS scores. A new clean room is being built to enhance sterility assurance capabilities.
• Nordion: Maintains consistent performance despite seasonal fluctuations.
• Regulatory Compliance: Preparing for NESHAP regulations effective April 2026, with a $200 million investment in improvements.
• Capacity Expansion: Opening a new X-ray facility in Sterigenics by the end of 2024.

Future Outlook

• Continued focus on organic growth and strategic acquisitions, especially in pharma capabilities for Nelson Labs.
• Disciplined capital allocation, with potential debt reduction if excess capital is available.
• Monitoring tariff impacts and shifts in supply chain dynamics.
• Assessing nuclear medicine opportunities related to cobalt production.

Q&A Highlights

• Supply Chain: Dynamics are stabilizing, reducing concerns.
• Tariffs: No significant impact on business or pricing so far.
• Competitive Landscape: Sterigenics and Steris hold significant market share; smaller players may face challenges with NESHAP compliance.
• Acquisitions: The company remains open to acquisition opportunities, with a focus on disciplined capital allocation.

In conclusion, Sotera Health remains confident in its strategic direction, addressing challenges while capitalizing on growth opportunities. Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Jefferies Global Healthcare Conference 2025:

Dave Windley, Healthcare Analyst, Jefferies: We’re, ready to get started. Hi. Good morning. I’m Dave Windley. I cover pharma services, cover a variety of health care areas, but appreciate your being here.

Welcome to Jefferies Healthcare Conference for 2025 here in New York. It’s a wonderful day on the walkover. I managed to only walk through one weed cloud on my way through, so I think I’m I think I’m still sober. We’re pleased to I don’t think I’ve been in the lead off spot on the first morning very often, so it’s an early wake up call, but appreciate your attention here this morning. So our first presenting company in this track is Soterra Health.

SHE is the ticker. Michael Petrus is the company’s CEO joining us. Jason Peterson is also in the audience, IR. So really appreciate your being here and supporting the conference. I think Michael is going to give us a couple of lead off comments here, and we’ll dig into questions.

So Michael, I’ll turn it over to you.

Michael Petrus, CEO, Soterra Health: Yes. Good morning, Dave. Thanks for the time and inviting us out, and looking forward to a full day of investor meetings. Before we start, there are some statements I’ll make that will be considered forward looking statements. Refer to our SEC filings in our website for more details.

During discussion, I’ll talk about some non GAAP financial measures, including adjusted EBITDA. So refer to our SEC filings for that as well. But overall, we came out of the last quarter some feeling pretty positive about where the business sits today and what the outlook looks like for 2025. You know, we we reaffirm the guide that we have in place, and the team is doing a good job executing and taking care of customers. I I had a chance last week to go out West and spend some time at Nelson Labs, which is doing, which is doing really well and seeing some nice activity.

And then I visited several of our Sterigenics facilities as well during the course of the week. So overall, 2025 shaping up to be a pretty good spot.

Dave Windley, Healthcare Analyst, Jefferies: Excellent. So I just wanted to start off with, we’ve known you, known the company since you came public, which has coming up on, I guess, four years ago or so, if I remember correctly, maybe almost five, So just kind of a big picture, a little bit before and after type question. So this you’ve held and integrated this collection of businesses since before the IPO. The pandemic certainly caused kind of a spike and then a hangover after for a lot of different industries, including health care and including your own. And the business appears to be stabilizing.

Like you said, the first quarter was a good quarter. Last few quarters have been positive. So I guess, how would you compare the portfolio of businesses today to before COVID? Same, different, more different mix, competitive position, things like that. What’s the before and after assessment?

Michael Petrus, CEO, Soterra Health: Yes. I’d say the company, we’re very fortunate. We play the critical role in health care, and we continue to grow every year. So that’s been very consistent. Since 02/2005, we’ve grown every single year as a company.

And the team’s done an outstanding job dealing with a lot of challenges. I’d say the biggest thing, David, that we’ve seen change over time is the supply chain dynamics. And just the parts moving around, customers having a lot of dynamics within their own supply chains. When we step back and look at it, that that’s been a bigger challenge than we thought. You know, the inventory correct buildup and then corrections that came out of, COVID.

But we’re as you mentioned, you know, we haven’t been having those discussions with our customers around inventory bake out with Outside of a couple that we do, but that would be normal course pre COVID as well. I’d say that was the biggest thing. And then the second thing would have been the labor dynamics, particularly a business like Nelson Labs that has a significant amount of labor content in the labs. We saw some dynamics there with a great resignation, everything else. But Joe and the team have got that in a much more stable spot.

Our turnover’s in a more stabilized place. Our service rates have recovered very well. So overall, I’d say we’re in a pretty good spot relative. But those are some of the big pieces that really impacted us during the course of COVID and just shortly thereafter. From a mix of business perspective, I would say, particularly across Sterigenics and Nelson, the presence of pharma.

You know, we could you know, that was a strategic priority for us pre COVID. And, you know, not that COVID did that to us, but as we rolled out and started executing on some of our strategies and priorities, we started to see a pickup on that side. So we’re seeing penetration rates increasing from a mix perspective in the more more pharma capabilities as well.

Dave Windley, Healthcare Analyst, Jefferies: And and I’ve I’ve probably failed to put this point on it, but one of the bragging points of the business pre COVID was how kind of consistent it was. You’re specked in, your necessary service for medical products and COVID as it did for so many businesses caused more volatility than normal and your business maybe in particular because it normally is so stable. Do you think we’ve gotten far enough past the supply chain dynamics and things like that? Has that noise settled down enough that this business can settle into a pretty predictable pattern?

Michael Petrus, CEO, Soterra Health: Yes. Let’s kind of walk through that with each respective to each of the businesses. So I’d first start with the Nordion business. Been a very consistent performer year in and year out all through COVID, and we still see the lumpiness from quarter to quarter. That’s not really driven by COVID

It’s really driven by our utility suppliers when they harvest their cobalt. And it’s you know, because remember, what happens in that business is they have a nuclear reactor. Its primary purpose is to generate electricity. So when they when they are shutting down for maintenance is when we’re able to harvest So we’re kinda at their their direction of when we can harvest it.

So you’ll see the lumpiness here, but that business has been very consistent. It’s been delivering year in and year out for us. On the Nelson Labs side, you know, we saw the big COVID bump, and then we saw, you know, a step back, and then we saw the great resignation. That one’s been a little choppier. And even now, I’d say, if you look at the, you know, small element within that business is the RCA business.

We’ve talked about that before. You That’s our regulatory compliance business. And last year was a very strong year in that business because coming out of COVID, a lot of the FDA audits were postponed during COVID. Then the audits really kicked up in 2023 and 2024, and we saw a really nice pickup in that business. We had a record year last year in that business.

Now this year, we’re seeing that business struggling because of the fact that the FDA’s got so much going on. I actually was with the team last week, and I was learning a lot more about some of the dynamics that play out on that side. But when you get the labor part is in a good spot, the service rates are in a good spot, the quality is in a good spot. So we’re seeing that. We’re not hearing a lot of noise around issues with supply chain as much on the Nelson side.

And then we’ll take the Sterigenics side. That business has usually had some consistent volume and mix growth. And post COVID, we saw those volumes flat to slightly down, which is atypical. We’re seeing that normalize now. And as I mentioned earlier, we’re not having as many conversations around concerns around inventory takeout with the customer base.

And that’s getting a more stable base. That business is roughly twothree of our total company. All three of are very strong cash flow generators, and that business, in particular, gets great leverage as volumes come through. We’re optimistic we’ll continue to see that improve throughout the year.

Dave Windley, Healthcare Analyst, Jefferies: Got it. Good place to step off into a little more detail into the businesses and talk about Steregenics. You just mentioned the flat to down volumes kind of coming back. Can you talk in maybe bifurcate detail there around whether that’s medtech, bioprocessing, both? What are some of the categories of volume that have improved?

Michael Petrus, CEO, Soterra Health: Bioprocessing has improved. It’s a small portion of our business, but one that is easily recognized by the investment community of looking at that, saying there’s a distinct set of customers there. We’re seeing that volume start to pick up, which is a positive. It’s not a huge number for us, but we’re seeing sequentially and year over year nice growth. But we’re seeing just overall general hospital supplies in several categories more broadly across medtech that continues to increase.

And in the pharma side, we’ve seen nice volume improvements as well on the stereogenic side.

Dave Windley, Healthcare Analyst, Jefferies: And then while we’re going back to your point while we’re on this and going back to your point about one of the bigger macro things being supply chain changes. What are you seeing as it relates to Sterigenics and how companies may be your clients may be changing their supply chain? And while we’re talking about it, are tariffs influencing that yet at all?

Michael Petrus, CEO, Soterra Health: We haven’t seen a big impact from that. Now if more people want to bring more customers want to bring products into The United States, that should benefit us because we’ve got a very strong network here in The U. S. We’re not seeing a significant change in that environment. We’ve had a couple of customers talk to us.

We’ve had some inbounds around some folks that are offshore that want to put more volumes in The U. S, but we haven’t seen it materialize in any significance at this point. But we continue to monitor that. Overall, I’d say that the volumes are positive in that business, and we continue to track in that direction as well.

Dave Windley, Healthcare Analyst, Jefferies: Okay. So on tariff, it sounds like not a change in terms of the routing of activity. Any concerns about clients needing to mitigate the tariff impact on their own businesses and coming to you around cooperation, so to speak, on price?

Michael Petrus, CEO, Soterra Health: That hasn’t been part of the conversation.

Dave Windley, Healthcare Analyst, Jefferies: Not at all? Okay.

Michael Petrus, CEO, Soterra Health: Not that I’m aware of.

Dave Windley, Healthcare Analyst, Jefferies: Yes. Okay.

Michael Petrus, CEO, Soterra Health: We’ve got pretty much fixed contract with pricing built into them, and that’s really what we’re living by day in day out with our customers. We haven’t seen material changes in that because of tariffs.

Dave Windley, Healthcare Analyst, Jefferies: Got it. And to include, you wouldn’t expect challenges or difficulty in achieving your target pricing. You talk about, I think, a 3.5% to 5% type range for your three businesses. You don’t think that will have to be sacrificed going forward if tariffs become a reality or as they

Michael Petrus, CEO, Soterra Health: do in No. Now we’re sitting listen, you use the word challenge. When we talk to customers about price, those are always difficult conversations. There isn’t somebody sitting on the other end saying, hey, send me a price increase every year, Right? So we I just wanna be I would and respectful to our commercial teams that have to deal with this every day.

Don’t wanna make it sound like it’s really simple because it’s not. You know, we we have a business that brings a critical service to health care. We gotta make sure we don’t outrun our value prop, and we price accordingly for that. But we’ve been a consistent performer, as you referenced, around pricing. We don’t see that changing today or in the near term or in the midterm.

Dave Windley, Healthcare Analyst, Jefferies: Okay. Okay. Going back to volumes on Ceragenics a little bit. As you kind of alluded, the part of the picture here at least has been clients managing working capital and taking down some inventory in the aftermath of supply chains having been so disrupted by COVID. So the dynamic seems to have been as we watch hospital volumes, surgical volumes, med tech reports, etcetera, that their activity levels have been pretty darn strong for a couple of years during the period you know, volumes for you have been, as you described, flat to down.

Can you talk about that that disconnect and and, you know, the drivers of it?

Michael Petrus, CEO, Soterra Health: Yeah. I I I would say there’s, even pre COVID, there’s been a correlation directionally between procedural volumes in the Steregenics volume or the Nelson Labs volume. Now Nelson’s got some other aspects of it, new products, biotech funding, you know, regulation, things of those nature that also impact that business in a positive way. On the stereogenic side, directionally, we’ve seen those two go the same direction. But we had not, as you just referenced, in the last several quarters.

And I would say, the best of our knowledge and we don’t have great insights exactly where all the inventory sits within our customers and their supply chains, but we’ve seen that really diminish as a concern. And we’re seeing now directionally is as the markets continue to perform on procedures volumes, we’re seeing directionally that alignment. But again, we’re not going have a 99 R squared on this, But we are seeing it more closely tracked now.

Dave Windley, Healthcare Analyst, Jefferies: Yes. And what about kind of competitive positioning and market share? How stable is the existing base? Do you see clients move their activity from yourselves to another sterilization supplier ever?

Michael Petrus, CEO, Soterra Health: This is not a business that’s put off for EBIT or e auction day in and day out. There’s a lot involved in this business. The Sterigenics I’m referencing specifically here. Mean, all our business have similar characteristics. But in this one in particular, it’s part of regulatory filings where they sterilize and the recipes.

They have to go through a validation process. I will tell you, though, over the last couple of years, with all the EO dynamics in some of our facilities having some of the challenges that we had with the regulators and some of the, you know, the dynamics in communities. You know, we lost a little share position over the last couple of years that but that is atypical in this business. Right? Typically, you know, you’re you’re pretty locked in with our customers.

We still have very strong relationships with almost all those customers that are involved, particularly in the Illinois facility. But share is not something that moves in a dramatic fashion like I’ve seen in other industries.

Dave Windley, Healthcare Analyst, Jefferies: Yes. And do you see from a you’ve, I think, generally described that from a capacity standpoint, you’re probably adding capacity at a lag to demand, kind of validating that the demand is there and then break ground, then spend the CapEx. Is that still true? And do your competitors do the same thing? Or have you seen some of them be willing to build ahead of the curve and try to make moves on market share?

Michael Petrus, CEO, Soterra Health: We try to make sure we’re disciplined in our capital we do make sure we’re disciplined in our capital allocation, and we try to have good visibility before we put the shovels in the ground. We want to make sure that this expansion greenfields are pretty expensive in this arena, but even just putting additional cobalt in or an additional chamber can be expensive. So we got to be careful on the capital side to make sure we see the appropriate returns there. So that’s one of our key priorities is disciplined capital allocation. As far as our competitors, I can’t tell you how they look at the demand profile.

My suspicion is they lean in a little bit more in building ahead, but I you’d have to ask them that. I really don’t know how they think about that.

Dave Windley, Healthcare Analyst, Jefferies: Got it. Okay. So let’s move into regulatory environment, but flip this question. NESHAP regs, the general environment has tightened a little bit. That would seem to be more onerous for smaller players with less scale to comply with those tightened regulations.

What do you see in that regard? And is it right to think that we could see some smaller players exiting the business, share shifting because they can’t keep up with the regs? Talk about the landscape as these regulations take hold.

Michael Petrus, CEO, Soterra Health: So the NESHAP regulation that takes place in April 26 is currently in place, and you gotta be conforming to that. That’s a challenging standard. I think there’s gonna be several people that struggle to get there. We’ve spent a significant amount of money on that, and we’re you know, we’ll continue to spend on that. We’ll do that throughout next year as well to make sure we’re compliant.

I I think some the smaller players will struggle. It’s it’s interesting. I was with a major med tech company not last week, the week before, and and, you know, they they said we’re pretty far you know, they have they they they buy from us, and they also do a little bit of insourcing. They said we’re pretty far along on this. And I, you know, I asked a couple key Mike was with me who runs our stereogenic business.

We asked a couple key questions. And

Dave Windley, Healthcare Analyst, Jefferies: Did he realize he wasn’t as far along as he thought he was?

Michael Petrus, CEO, Soterra Health: We realized. I’m not sure if they did yet. I’ll just tell you, it’s there’s a couple of this is not an easy task. And I think it’s going to take a a lot of time and effort and a lot of trial and error for some of these folks to figure out. You know, we’ve been on this journey for quite some time.

Now we have larger facilities that are older facilities, so they are probably more complicated. They probably will take more capital. But we feel really good about where we’re sitting on that. That doesn’t mean we have everything perfectly nailed at this point, but we’re we’re well positioned to comply with the requirements as we see them today. And, I I think it should create a positive momentum for the company.

We’re getting some inbounds that indicate that as well. Not huge numbers yet. They’re going to move the needle. But we’re feeling pretty good about the dialogue and how we’re seeing the landscape play out. This is not going be an easy rule for most people to get to.

Dave Windley, Healthcare Analyst, Jefferies: Right. Can we on this topic, can we lay out the kind of the market competitive structure yourselves and Steris or the two leaders you’re materially bigger than the next largest player. How much share do those do you have, do your the top two have? And relative to this topic, how do you think about the migration of the rest of that pie?

Michael Petrus, CEO, Soterra Health: We’d say, at any given modality or geography, between us and Cerus, probably have 50% to two thirds of the market combined collectively, give or take, depending on what market you’re in. And then there’s some smaller players, regional players. We’re not seeing big global international players to the scale of us or Cerus. When you look at, you know, regionally, if you took The US, particularly, we’re talking about this regulation. There’s smaller guys that, you know, we’ve seen one file bankruptcy.

We’ve seen a couple smaller guys say they’re gonna shut down, and move volumes. They’re usually a long list of small customers that come with that. So we’re involved in some of those discussions and trying to help take care of those customers. A lot of them have relationships with us already or did at one point. And over time, that may create more opportunities for us.

We feel pretty good about how we’re situated on that.

Dave Windley, Healthcare Analyst, Jefferies: Okay. So maybe something you said in that answer makes me want to ask the question, are those clients, is that business that you would want? The kind of small customers, sounds like small volumes, can that be profitable business?

Michael Petrus, CEO, Soterra Health: Yes, could be profitable business as long as we have the capacity for it. People talk about EO capacity, and it comes in different shapes and sizes. It depends what kind of chamber size you’re talking about, right? Small, medium or large chamber sizes. So in our capacity is a little more constrained, some of the larger chamber side, high volume.

Some of the smaller to medium sized chambers, we have a little bit more capacity and flexibility. But listen, at the end, a lot of those customers probably aren’t with us because either, a, we didn’t have the capacity or b, they didn’t like our pricing and create an opportunity for somebody else. So we’re going to be very disciplined around that. And hopefully, we’re an option for that customer to consider.

Dave Windley, Healthcare Analyst, Jefferies: Your and we talked about this earlier, your pricing and pricing strategy, you’ve been pretty I’d say, very consistent and disciplined around this and taking a little bit of price every year. How do you think about balance of price versus volume? I mean do you is there any willingness to sacrifice price to pick up significant amounts of volume as these regulations are evolving?

Michael Petrus, CEO, Soterra Health: If I told you yes, my sales team would cringe based on the conversation I have with them every day. No, I would say our pricing in SteraJank’s business has been pretty consistent around 4% per year. Then when inflation went a little higher because we’re able to pass that through. In areas where we have really tight capacity, U. S.

EO, for example, we’re running higher than that, right? And we’ll continue to price accordingly to the market conditions. We also think there may be opportunity. We’re having conversations with our customers about what we call niche app pricing. We’re spending, call close to $200,000,000 we’ll spend on the niche app pricing or niche app improvements.

And over time, we’re going to be talking to our customers about, listen, we’ve got to get paid for some of that CapEx we’re putting in place. And those are things that we’re going to look at as opportunities to make sure we can continue to support the industry. But our business and our conversations internally are not structured around go get the volume, cut the price. I’ve been in industries like that, where you had to do that for certain reasons to keep your capacity efficient and everything else, we don’t have that dynamic here. We’re going be very disciplined around our pricing around this.

We have a critical service we bring, and we got to make sure we’re getting paid for the value.

Dave Windley, Healthcare Analyst, Jefferies: And then thinking about capacity in some of these operators that are perhaps going to struggle to comply and your relative capacity, as you just said, kind of operating at pretty good utilization and in some modalities pretty tight. Are some of those facilities acquirable? Or does it just make more sense to build your own

Michael Petrus, CEO, Soterra Health: You’re talking

Dave Windley, Healthcare Analyst, Jefferies: competitors? Competitors, right, Or even an OEM internal facility that you might carve out?

Michael Petrus, CEO, Soterra Health: We will always entertain those conversations. We’ve had conversations with some of these OEMs about badge flipping and taking over a facility for them and running it and haven’t been able to find an equation that works there for both sides. We’ve looked at some of these smaller folks. And, you know, the question becomes for us, is it worth the incremental cost to get that facility compliant in the effort? And we’ve looked at a few of them over the last several months, and it’s just not somewhere we’d want to deploy capital.

You know, just too many challenges with those existing facilities, and we think we’re better off suited, you know, running within our network and doing what we do really well. So we’ve passed on those to to a great extent. We’ll continue to look at them, not only in The US, but around the world as well, though.

Dave Windley, Healthcare Analyst, Jefferies: Okay. Let’s I’m I’m using a lot of time on Sterigenics, but it is your biggest business. Yep. Does does the Trump nuclear executive order have have any impact on your business?

Michael Petrus, CEO, Soterra Health: No. Not near term. Mean, it’s you know, is is is coming in in in with a lot of acceptance these days, which I can understand to some degree. We rely on nuclear reactors around the world, predominantly in Canada. But as you may know and recall, we’ve got a partnership with Westinghouse where we’re looking at getting PWRs up and running to to make cobalt, which has never been done before.

And there that’s a combination of our technology and Westinghouse’s. That program is moving along very well. And I think, you know, the more interest in nuclear can help get more acceptance around that, which could hopefully keep that program moving along as well as it does and may create more opportunities for more utilities that have interest in that. The flip side, though, that we want to think about is, you know, the primary businesses of these utilities I mentioned earlier is to make electricity. So that’s the primary purpose, but there may be opportunities to make cobalt like we’re seeing today.

Dave Windley, Healthcare Analyst, Jefferies: Yes, I hear there’s demand for electricity lately.

Michael Petrus, CEO, Soterra Health: There is. There is.

Dave Windley, Healthcare Analyst, Jefferies: So moving to Nelson, you commented about staffing’s in a better place. Service levels have, I think, stabilized and improved. NPS scores, I think, you measure and have been on the rise. What’s maybe not painful, what’s your primary strategic initiative there? Is it adding staff to be ready for more volume?

Is it still more on the quality side? Is it new client capture? What’s the primary driver there?

Michael Petrus, CEO, Soterra Health: So a couple of things. First of all, business is a good spot. Really, their volumes are starting to pay up. That business, remember the underlying drivers of that business, routine processing, product gets sterilized, doing routine testing of that. New funding for new products is another driver of that, right?

I would say regulation is a big one as well. When new regulations come in, and there are several new regulations that are hitting that business in particular, which is a net positive, where customers are coming to us saying, we need help. If it’s extractable leachable testing for bioprocessing, if it’s geotoxicity testing, if it’s health care reprocessing regulations. I was out there last week reviewing with the team, and all three of those regulations are starting to ramp up. And and those are net positives for that business.

So what we’re you know, we as you mentioned, we’re stable The workforce quality has been good. What we wanna make sure is we’re continuing to be responsive to our customers from turnaround time. We’re putting, you know, capital into expand and and refresh a clean room, basically build out a brand new clean room, which hasn’t been done in fifteen years probably at least. And that’s really to double down on Storilla Assurance, which is core of that business in the foundation.

And we see that as a big thing for our customer base that leads to many other opportunities. So I’d say overall right now, it’s continued to grow. We made an acquisition in ’seventeen in Leuven, Belgium, which has performed really, really well. That continues to perform. And I’m happy.

I did mention the RCA challenge with some of the FDA cutbacks has impacted that. But Joe and the team are doing a really nice job. I’m really proud of what’s going on in that business the last several years.

Dave Windley, Healthcare Analyst, Jefferies: How much of Sterigenics funnel comes from Nelson?

Michael Petrus, CEO, Soterra Health: Sterigenics funnel comes from so let me kind of put it this way. We’ve got about 70% customer overlap. We’ve got about 40% of Nelson Labs is to really assurance business. So there’s a lot of flow that goes through. And then remember, we’ve got these embedded labs, which are really critical.

They’re either literally co located with Sterigenics or within very close proximity, across the parking lot in cases. We see a lot of synergy from that in connectivity for our customer base. And quite honestly, we’re not even as good as we need to be in that area. We’re getting better, but it’s one of the areas I’ve told the team, part of the Cross BU activities, we got to get better here. As we did some of our customer satisfaction survey results, we’re seeing really positive things.

And I want to understand why, why, why is what I keep telling the team and how do we accelerate that.

Dave Windley, Healthcare Analyst, Jefferies: Yeah. So maybe asking in a different way. If we see an uptick, you mentioned building out this additional clean room for sterility assurance. Is an uptick in sterility assurance a precursor to volume sterilisation bulks more volume bulk sterilization in Sterigenics?

Michael Petrus, CEO, Soterra Health: Yes. So you should see it coming from Sterigenics going into Nelson Labs for sterility assurance how you should see it. On the routine testing.

Dave Windley, Healthcare Analyst, Jefferies: Okay. All right. Maybe capital allocation to finish. How are you thinking about that? What are priorities?

And to the to what extent are you still have an appetite for acquisition?

Michael Petrus, CEO, Soterra Health: Yes. So we will continue to look for acquisitions. They got to be on strategy, though, right? So when you look at the Sterigenics business, it’s geographic expansion or tuck ins of key modalities that we are already playing. Nelson Labs, you know, we’ll continue to look for opportunities.

We’ve really stepped off and and held off on doing any m and a on the Nelson side till we got our house in order the last couple of years. We’ll continue to look for opportunities that particularly around the pharma capabilities. And then in Nordeon, you know, if we can look at opportunities diversify that business. But our first priority is to continue to invest in organic growth. That’s really important for us.

And then over time, continue to look for opportunities to pay down debt if we have excess capital. But overall, our capital commitments that we put out for this year and the guidance, we still feel confident around that. We are expanding. We announced recently an X-ray facility in Steregenics that will be opening up by the end of the year this year. That was one of the two greenfields that we had mentioned was still in process.

There’s one more behind that. But we’re really driving that towards focus on where our customers need us and modalities in geographic expansion. So organic growth is one of our first priorities for capital allocation.

Dave Windley, Healthcare Analyst, Jefferies: And last question on overall and on this topic. You’ve also been focused on improving free cash flow. Part of that is CapEx moderating as you get out of some of these more intense spending periods. Can you remind us the path on Yes.

Michael Petrus, CEO, Soterra Health: So first of all, if we get volumes, we get great operating leverage, which helps us get more EBITDA. When I look at 2025, margins will stay pretty consistent in Sterigenics and Nordion. I think we’ll see some margin expansion in the company, primarily driven by Nelson Lab in 2025. We’ve kind of said so it starts with EBITDA and getting margins going. But when we look at our CapEx, we see that coming down.

By the time we get to ’27, we’ll be we’ll have a lot of the cobalt development behind us. We’ll have the two greenfields behind us on Sterigenics, and we’ll have the facility enhancements and niche app behind us. So when you put that all behind us, we feel like we’re going be around $110,000,000 of CapEx is what we committed and over $500,000,000 of free cash flow over this next three year period from when we did our Investor Day last year. So we still feel confident about CapEx around that $110,000,000 range at 2027 And the free cash flow, 25,000,000, 6 million and $507,000,000 plus is what we’ve committed.

Dave Windley, Healthcare Analyst, Jefferies: Excellent. That lands the plane. Michael, thank you for your time and comments, and I wish everybody a good conference. Thanks for being Bye bye.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.