Sotera Health Company Common Stock 2026 Q2 Earnings Call

Welcome to Sotera Health's second quarter earnings call. Today's press release and earnings presentation are available on the investor section of our website at soterahealth.com. This webcast is being recorded and a replay will also be available on the investor section of the Sotera Health website shortly after the call. Joining me today are Chief Executive Officer, Alton Shader; Chief Financial Officer, Jon Lyons; and Executive Chairman, Michael Petras. During today's call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings in the forward-looking statements slide at the beginning of the earnings 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 adjusted 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 historical periods may be found in the schedules attached to the company's press release and in the supplemental slides to the earnings presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up. For further questions, feel free to reach out to the investor relations team. With that, I'll now turn the call over to Executive Chairman of the board, Michael Petras.

Good morning, everyone, and thank you for joining our quarterly earnings call. As previously announced, Alton Shader assumed the role of Chief Executive Officer on May 26th. While I continue to serve as Executive Chairman of the board and remain actively engaged with the company, Alton is leading the company day-to-day. Today, we welcome Alton to his first Sotera Health earnings call. Having the privilege of working with Alton for the past two months plus, we are encouraged by the seamless transition. We've received positive responses from our team members, customers, investors, and other stakeholders. We've built a solid foundation and believe the future is very strong for this great company. Now, I will turn the call over to Alton.

Thank you, Michael. Good morning, everyone. Thank you for joining us today. I first want to thank Michael for his strong leadership as Sotera Health's CEO for the last 10 years. He has built a great company. I look forward to working with him as our Executive Chairman. In addition, I want to thank him for his partnership throughout this transition. I'm honored to serve as Sotera Health's CEO. I appreciate the warm welcome I have received from our team members, customers, and shareholders. I've spent the last 25 years working in healthcare. I've always been inspired by the positive impact that healthcare product and service companies have on the lives of people around the world. One would be hard-pressed to identify a company that is more essential to the delivery of life-saving healthcare products than Sotera Health.

This criticality to the delivery of healthcare, the complementary nature of our businesses, the growth opportunities we have, the company's financial strength are a few of the reasons I was drawn to Sotera Health. Since joining the company, I've been impressed by the dedication of our teams, the trust our customers place in us, the industry-leading expertise that differentiates our business, especially in the highly regulated healthcare markets in which we operate. I look forward to working with our teams to build on these strengths, to become even more focused on exceeding our customers' expectations every day. These strengths position us well to deliver consistent and reliable growth. This was evident in our second quarter results as we delivered 8% constant currency revenue growth, 8.7% constant currency adjusted EBITDA growth, expanded our adjusted EBITDA margins compared to the second quarter of last year.

Our strong performance was broad-based across the portfolio. Sterigenics built on its strong momentum from Q1, delivering 7% constant currency revenue growth and more than 50 basis points of margin expansion versus Q2 2025. Nordion continued to execute well with 16.7% constant currency revenue growth and more than 160 basis points of segment income margin expansion. Nelson Labs exceeded expectations, delivering 5.4% constant currency revenue growth. One of the key ways Nelson Labs creates value for customers is by leveraging our technical expertise to solve complex problems. Customers regularly turn to Nelson Labs for support on time-sensitive and critical issues. We saw that dynamic play out in the second quarter.

Based on our strong first half performance, the resilience of our business model, our confidence in the remainder of the year, we are raising our full year 2026 outlook. We now expect constant currency revenue growth of 5.25%-6.75%, constant currency adjusted EBITDA growth of 5.75%-7.25% compared to 2025. Before I turn the call over to Jon, I'd like to briefly highlight a few notable developments during the second quarter. In May, our former private equity sponsors completed their final secondary offering. As planned, no longer hold an ownership stake in Sotera Health. I would like to thank our former sponsors for their partnership and support over the years. They played an important role in helping to build the strong foundation we have today. I would also like to make you aware of a leadership transition at Nelson Labs.

Joe Shrawder, President of Nelson Labs, recently retired after six years with the company. We are grateful to Joe for his many contributions to Nelson Labs and wish him the best in his retirement. We are pleased to have Riaz Bandali assume leadership of Nelson Labs following his successful tenure as president of Nordion. Riaz brings extensive experience leading laboratory services organizations, including oversight of global bioanalytical laboratory operations across North America and Europe. This makes him exceptionally well-suited to lead Nelson Labs and execute on our growth priorities. Finally, we are progressing well in our search for Riaz's successor at Nordion. I'm proud of what our team has accomplished in the first half of the year and even more excited about the opportunities ahead as we continue to execute our strategy and serve as a trusted partner to our customers.

With that, I'll turn the call over to Jon to review our second quarter financial results and updated full-year outlook in greater detail.

Thank you, Alton. Before I review the quarter, I'd like to say how excited I am to be working alongside Alton as our new CEO. Since joining the company, he has quickly immersed himself in our business, our culture, and our customers. I look forward to partnering with him as we continue building on our momentum. Turning to the quarter, I'll review our consolidated financial performance, provide highlights from each of our business segments. Then discuss capital allocation, liquidity, and leverage. I will finish with additional details on our updated 2026 outlook. For the second quarter, on a consolidated total company basis, revenues increased by 9.2% to $321 million or 8% on a constant currency basis compared to Q2 2025. Net income on a GAAP basis for the quarter was $54 million or $0.19 per diluted share.

Adjusted EBITDA improved by 10% to $166 million or 8.7% growth on a constant currency basis, while adjusted EBITDA margins expanded 36 basis points to 51.6%. Interest expense was $34 million in the quarter, an improvement of over $6 million compared to the prior year period, primarily driven by the benefits of the term loan repricing and debt reduction actions completed during the third quarter of 2025, as well as lower interest rates. Including the repricing completed this past quarter, we have lowered the borrowing cost on our $1.4 billion term loan by 100 basis points in less than a year. Adjusted EPS increased to $0.26 per diluted share, an improvement of 30% versus the prior year. Now let's take a closer look at the segment details. Sterigenics delivered strong second quarter 2026 revenue growth of 8.6% to $212 million or 7% on a constant currency basis.

Favorable pricing of 4.3%, improved volume mix of 2.7%, and foreign currency benefit of approximately 160 basis points drove revenue growth for the quarter. Segment income grew 9.6% to $118 million or 7.9% on a constant currency basis, while segment income margins improved 53 basis points versus the prior year quarter. Segment income and margin growth were driven by the strong top-line growth, partially offset by inflation. Nordion's Q2 2026 revenue was up 15.8% to $49 million or 16.7% on a constant currency basis versus last year, primarily driven by increased volume mix of 13.6% due to the timing of Cobalt-60 harvest schedules, along with pricing benefits of 3.1%. As discussed on our last earnings call, we expected Nordion's first half 2026 revenue to represent approximately 40%-45% of Nordion's full-year revenue.

First half revenue finished above that range, driven by certain shipments anticipated in the second half that occurred in the second quarter. Nordion segment income increased 19.2% to $28 million or 20.6% on a constant currency basis for the quarter, with segment income margins expanding 160 basis points to 56.9%, driven by higher volume mix, favorable pricing and foreign currency benefits, partially offset by inflation. In Nelson Labs, revenue for the quarter improved 6.3% to $61 million or 5.4% on a constant currency basis. Revenue growth was driven by favorable pricing of 2.8%, volume and mix growth of 2.6%, including the benefits Alton referenced earlier, as well as favorable foreign currency impact. Segment income totaled $20 million in the quarter, an increase of 0.6% or down 0.6% on a constant currency basis, with segment income margin of 32.4%.