Sotera Health Co Aktie

All right. Great. Good morning, everyone. I'm Evie Koslosky, the life science tools and diagnostics analyst here at Goldman Sachs. Joined here by Michael Petras, the CEO of Sotera Health. Thank you for joining us.

Thanks for having us. Good morning.

Good morning. So you delivered a solid start to the year, 6.5% constant currency revenue growth, 20 basis points of EBITDA margin expansion. You've also announced the CEO transition. So I guess, can you talk to the timing? And then anything in Alton's background that kind of stood out to you as you were deciding on the successor?

Yes. So what you're referencing is I announced in the last couple of weeks that I'm going to transition from the CEO seat to the Executive Chair seat. I've been with the company 10 years now, and I've been talking to the Board for the last couple of years about trying to do an orderly transition. And we decided -- I decided that it was going to be something that would happen here in '26. We found Alton. We put a pretty thorough process together.

And Alton's got 20-plus years in the med tech space. He worked at Baxter. He worked at Hill-Rom. His most recent job is at Viant Medical. By the way, he'd be with us here today, but he's out at Salt Lake City. I just hung up the phone from him. He's out at Salt Lake City visiting the Nelson team and having a business review out there, which is great.

Gets started.

Yes. So Alton is outstanding. He's going to be great. We looked at him. There's a couple of things we really liked. And when we did the search committee, we like the fact that he's got a great value set that seems to be very compatible with the culture we have within the company. He's got long established experience in the health care space. And also, we really liked his commercial expertise and his experience based on the commercial side that we thought would really help us in his growth mindset. So those are the things that really stood out to us.

Great. Awesome. And then Sterigenics, mid-single-digit constant currency growth in 1Q despite some weather-related headwinds. I guess how should we think about the growth cadence as we move forward throughout the year, given the guide implies a slight kind of step-up. I guess is this mostly coming from the volume side or the price side?

Yes, it's coming from the volume side. We'll have a little bit of price. I mean the price in that business has been pretty consistent at 4%, slightly above as we had in the first quarter. But overall, the second quarter, we've guided to growth that's pretty similar to what you saw in the first quarter on a constant currency basis. And then we expect to see some step-up as you get into the second half of the year. As I stated recently, we're pretty confident where we sit today, looking at here we are sitting on June 8 and reaffirming our guide for the second quarter and the rest of the year across the whole company, not just Sterigenics.

Awesome. And then another thing we've kind of observed in some of the public med tech companies is a bit of a concern around decelerating volume growth for them. I mean understanding this is only part of your Sterigenics business and outside of these few players, you have broader exposure. But I guess how should we be thinking about the Sterigenics volume growth in the face of some of these med tech-related headwinds?

Yes, there's been a lot of questions around the med tech. I mean there's winners and losers. We have thousands of customers in that segment. But overall, we feel pretty good about what the volume looks like. We think it should be slightly improved as we progress throughout the year. Always could be better. But overall, we feel pretty confident about what we're seeing for the rest of the year in the guide we've provided.

Great. And maybe talk to your ability to sort of drive pricing. I mean we've seen in the past instances like when med tech was destocking. Maybe talk through some of your competitive advantages and your ability to drive price in those types of environments?

Pricing is always a challenging conversations with customers, but we need to get rewarded for the value prop and the value that we bring to our customers. Even in periods of decelerating stock, if you will, when they reduce the stock levels in '23, '24, we still achieved the price targets that we communicated. So we feel confident in our ability to get 4%. The other thing that we've been talking about over the last several quarters is NESHAP. NESHAP is a new regulation that's coming out from the government. There's one that's been proposed and now that's being revised again. We'll talk about that, I'm sure. But we put in significant capital against getting those improvements. We put about $200 million in, and we're also starting to see some of the benefits of that in our price equation as we progress throughout 2026.

Great. And then some of the other kind of end markets that you sell into, I mean, bioprocessing continues to be a high-growth area in pharma. I understand it's a smaller portion of your business today, but I guess, how are you thinking about potentially expanding into that market over time? And I guess, what levels of growth could you see from those more niche applications?

Yes. So as you stated, bioprocessing is a category for us. It's a smaller category relative to our competitors. I think we're under-indexed. We should be gaining more share in that business. Our teams have been focused on that for at least the past 18 months or so. We're seeing nice growth year-over-year in that business. And we're seeing in both Europe and the U.S., and we'd expect that to continue. But we have a lot of ways to be able to catch our competition as far as how well positioned they are there in bioprocessing.

Awesome. And then I guess, how do you stand from a capacity perspective within Sterigenics? Are there any sterilization methods where you feel capacity is maybe tighter on an industry-wide basis compared to others?

Yes. I'd say capacity on a global basis, we're pretty good. Now in any given pockets, you could have some more challenges. So like, for example, a lot of people talk about ethylene oxide. Ethylene oxide is challenged from a capacity perspective. But really, it's large pallet chambers where there's the most challenging capacity situation. When I say large pallet, I'm talking 14 pallet and above. That is really tight in the U.S. But around the world, we feel we're pretty well situated with capacity to be able to achieve our plans that we've laid out for '26 as well as '27.

And I guess as you think about like kind of the global capacity expansion, is there any particular regions that you would look to expand into?

Yes. Today, we have presence in all areas around the world. I'd say we have lower presence in Europe as well [Technical Difficulty] with Sterigenics. I think there's opportunities for us to expand our presence in those 2 geographies. Although we do have a nice base in Europe, I still think we're undersized relative to our competitors and clearly in Asia as well.

Okay. And I think you also talked about the decision to expand the X-ray capacity in the U.S. I guess what goes into those decisions? What level of commitment do you have from customers before deciding to go ahead and build?

Yes. So for us, we do a 3-year strategic planning process. We're in the midst of that right now. Alton and the team are working through that. We'll ultimately review that at the Board level in August. But this is something that we do every single year. And when we lay out, we look at supply and demand curves, we look at our capacity situation and try to figure out where we should make the investment. So right now, we've got an x-ray facility coming up the latter part of this year, and then we have another facility coming up in late '27, '28.

So we try to do a long-term capital plan and making sure that we're situated for the supply and demand. But we try to target 40% capacity, having that 40% commitment before we put it in, in particular, with the X-ray, we decided to go in with less of a threshold there just because that was more of a strategic investment for us. But overall, we feel pretty good about where we sit in capacity today.

Okay. And then I guess do you see any competition come in from other sterilization techniques that maybe Sotera does not have in their portfolio? And maybe help us understand why EO and some of the other methods you have are insulated from newer techniques in terms of the breadth of applications?

I mean there's newer technologies that are being explored by many in the industry, but nothing of any scale. We've got R&D investments ourselves and a couple of smaller opportunities that we've been taking to market over the last couple of years, but nothing material that could have the impact of what you see with gamma sterilization nor ethylene oxide.

Okay. You mentioned the pricing earlier. We talked a bit about that. But I guess Sotera's business model is very critical for customers. And I think there's a lot of moving pieces around rising input costs for your customers. Has the environment changed your philosophy at all? And are you hearing more pushback from customers as they kind of start to look at their margins and their input costs?

Always, as I stated earlier, pricing is always a challenging conversation. We just got to make sure we don't outrun our value proposition. But we feel confident in our ability. We guide across the company, 3% to 4% price, Sterigenics in the high end of that and Nelson and Nordion on the lower end of that. We've been able to deliver that consistently, and it's because we do a really good job with our customers, which our customer satisfaction scores continue to show. And we don't try to outrun our value proposition. We make sure we're getting paid appropriately and we cover our cost of inflation and other costs that we may incur. But we think we continue to be rewarded for the value we bring.

Great. You mentioned the regulation front a bit earlier, but I guess there's been a lot of noise kind of around NESHAP regulations. It would help if you could put into perspective kind of comparing the most recently updated rule versus kind of previous versions and then comparing that to the pre-2024 regulation?

Yes. Let me try to make that simple. So folks that may not be as familiar, NESHAP is the standard that is used for sterilizers that use ethylene oxide in this case. So pre-2024, I'm going to use numbers just -- the numbers aren't representative, but I'll just try to help context this. If the pre-2024, the regs were at 2. And then post -- the '24 rule came out, and it's at 10, let's say, in the amount of regulation controls, right? So there was a significant increase is the point I'm making in regulation and controls that are put in. And we've moved down that path, and we've spent nearly $200 million to put these controls in place.

Now that '24 rule is being challenged and look to be more practical with the new proposed rules, that would be -- let's -- I'm making a number up again. It would be more like a 7 just to give you context, okay? So 2 went to 10 and now we're at 7. So it's significantly above the controls and regs that were pre '24, but it's below, it appears whatever is going to be approved may be lower than the '24 rules. Does that make sense? Sorry?

Yes, absolutely.

Okay. So now let's talk about -- we don't know exactly when these new rules are going to come out. We're hopeful it will be over the next several months. There's some comment periods that just recently closed. We are building our facilities controls to the level of the latest rule that was put out in 2024, okay? Now there's some modifications that we think were necessary, which have been incorporated in these new proposed rules, which we're hopeful to get out there to make it more realistic and practical. But overall, we're trying to put in the most stringent controls we can to make sure the environment continues to be safe and compliant with the requirements. I mean these facilities are safe. The amount of ethylene oxide that's used and released out of these facilities is very, very small.

Okay. And you mentioned the CapEx component and maybe slight changes, but you're still going forward with that. I guess talk about maybe the extension and how that's changed the cadence of CapEx and when we should expect that to kind of roll off?

Yes. So we intend to have the improvements completed by the end of this year with very little tail running into next year. So that -- I think this year, we're projecting $45 million to $50 million or something like that in the number for 2026 in our CapEx, and we'd expect to use most of that to complete our NESHAP compliance requirements.

Okay. And then I guess the other component of NESHAP was the potential reevaluation of the 2016 EtO IRIS value. If that remains an appropriate way to assess the risk, I guess, what are the implications related to this metric? And why does this matter for Sotera?

That's a really good question. So thanks for asking it. Not a lot of people ask that question. Embedded within this new proposed rule is to relook the 2016 IRIS level. And that's a risk assessment that was put out, and it was a very, very, very conservative risk assessment. And that has actually been the basis for a lot of the litigation. This very conservative assessment was put out and plaintiff layers have rallied around that. And I would just tell you that, that apparently in this new rule is being relooked. I don't know exactly where that will stand and what the end result will be.

But if a correct value is assigned and the appropriate context of that risk assessment is presented, that should be a meaningful impact on the litigation going forward. But that's still to be determined, right? And how then that will be absorbed and incorporated within a given jurisdiction is still to be determined, but I'm hopeful that, that becomes more realistic than what the prior reg had.

Okay. Okay. And then I think in the past, kind of as it relates to some of this regulation, you've talked about increased regulation actually means probably more outsourcing and kind of a better market environment for you. I guess, do you think the kind of updated version of this rule still allows you to take some of the market share? And do you think there'll be additional outsourcing on the back of it?

Yes. I would just say this company, Sotera Health, has regulations that impact this business all the time. If it's Nordion handling cobalt, Nelson Labs and the tests that they do and making sure the customers' products are compliant with regulatory requirements or Sterigenics and operating their facilities with all the different Nuclear Regulatory Commission requirements or EHS requirements from the EPA. We're not afraid of regulation at all, right? And to your point, it actually helps us because we have scale and we're pretty darn good at what we do. So we're not afraid of regulation. It's just clarity of what the rules are, tell us what the rules are so we could abide by them and make sure they're realistic. And as long as that happens, we think we'll be able to continue to perform and excel and that will create long-term opportunities for us on all 3 businesses.

Great. And you mentioned the litigation front. I just want to kind of get a quick update there. I mean, I think in Georgia, you had a judge dismiss 5 of the remaining 8 bellwether cases. I guess how should we think about this outcome regarding the remaining cases? And then what are the next steps within kind of the Georgia piece?

Yes. On Georgia specifically, and I think in any of these courts, no court nor has any plaintiff lawyer been able to prove causation at this low level of ethylene oxide usage, okay, in emissions. I want to be very clear on that. There's been no causation proven anywhere in any of these courts. And Atlanta is just further support of that. The other side tried to come in on general causation and specific causation and prove that ethylene oxide at these very low miniscule levels caused the cancer of these plaintiffs.

Listen, we have empathy for anybody who has cancer. All of us have got that in our lives, right? I've got family and friends that have all gone through this, right? But ethylene oxide at these low levels are not the cause of the cancer here. And so right now, we had a judge in Georgia that put science front and center and showed that causation doesn't exist. And we're hopeful that, that will apply to the rest of the cases in Georgia. Now obviously, the other side is going to appeal this, and it's going to run an appellate process, which we probably won't have better visibility to the outcome of that until 2027.

But at the end of the day, these facilities are safe, we operate in a compliant manner. And most importantly, this is critical -- ethylene oxide is absolutely critical. 50% or 20 billion devices a year according to FDA are sterilized with EO. This is what keeps patients safe and patients can have surgical procedures and get critical medical devices because we know that they've been sterilized properly with ethylene oxide, which could be the only source in a lot of these medical devices. So I think we just got to have the proper context here of what's really going on.

Okay. Great. And then any update in California, the next steps we should look for?

I'm not sure how current most people are. There were some recent motions filed in California, motion for summary judgment we wanted to pursue. We thought the probability of winning that would be low at this stage of the trial, but we thought any chance we can have to get in front of the judge and get the facts straight and clear, it's important for us. And we did that.

Listen, there's a lot of time left still here between January and April 27 trials. And we're hopeful that the courts continue to stay focused on science. And if the judge continues to stay focused on science, we feel confident that we're going to prevail. But at the end of the day, we still have to go into a local court in L.A. County, and it's left up to a judge and a jury to decide the outcome there. But we feel confident science front and center, we're going to be in a good spot.

Awesome. Okay. I guess shifting to Nelson Labs, declined in 1Q. I guess, can you talk through some of the moving pieces across expert advisory services, testing and validation? And then when you expect to lap some of the tougher comps in EAS?

So Expert Advisory Services, we had a record year in 2024 and then probably the worst year in the company in 2025. So we had the tail of both cities going on within a very short window of time. If you exclude that out, which I never like to do because I don't like my team excluding anything because at the end of the day, we're accountable to all of it. But if you exclude the Expert Advisory Services, the core lab business grew 5% last year, which is pretty darn good. This business does 30% to 35% margin and lab space has been a little choppy, and this business [Technical Difficulty] well. We'd like it to grow faster, obviously.

As we look coming out of the first quarter, we said second quarter would have slight growth. We're very optimistic about our ability to deliver that sitting here on June 8. We feel pretty darn confident we're going to be able to deliver that growth in the second quarter. And the outlook, we're optimistic. And the reason we're optimistic is routine testing continues to do well, but validation testing, which is based on new regulations and new product spend and some other things, we're seeing some nice activity there. So we're very optimistic on what we see for the rest of the year on Nelson Labs as well. It's a good business. It's very synergistic to what we do on the Sterigenics side as well.

Yes. And I think you guided to margins low to mid-30s. The 1Q is maybe a little bit lower than that. Is it really just a function of better revenue growth kind of getting the operating leverage on that?

Yes, in the volume. So the first quarter, we're not surprised by the first quarter performance. We guided to that. We knew first quarter was going to be where it came in [Technical Difficulty] about 60-plus percent of the cost of that. You're coming out of fourth quarter where volumes are pretty good. There's a seasonality impact that comes down. The first quarter is always the slowest and it's been 10 years I've been here. And you have a choice. Do you get rid of the labor and then bring them back in the second quarter, but that doesn't work, right? You've got to make sure you can give high-quality, reliable service.

So we have to plow through the first quarter is always a challenge, and it was -- and that's what materialized in our numbers in the first quarter, but we expect that to be right on track for the rest of the year and the total margins to be right in that zone you just referenced.

Great. And then earlier, you mentioned the synergy opportunities between Nelson Labs and Sterigenics. I guess, maybe talk through some of the specific cross-selling initiatives that you have and any challenges that maybe you've run into as you start to build on your progress there?

Yes, yes. So as we look at that business, I'd say about 40% of the Nelson Labs business is sterility assurance, which is highly tied to a lot of the work that goes on within Sterigenics. And approximately 20% of the revenue within Nelson Labs comes from embedded labs within Sterigenics facilities, either embedded or real close proximity to it.

So there's a really unique value prop that we're able to give customers on lot release and then also more complicated validation testing. We've done a lot of work around this over the last couple of years. We've -- BJ Lehmann, who runs our strategy and business development effort, has been leading. He's done a really nice job on it, and we're getting it more and more into the organization. We've got a couple of key priorities that we've been focused around guardian accounts, which are strategic accounts that are getting the benefit of the whole package of Sterigenics and Nelson.

And then we've got a couple of other key segments that we're really focused on that we talked about at our Investor Day that are growing a little bit faster in the marketplace. And we've gotten incremental resources and focus in that area. And then we're just measuring it and holding teams accountable and driving growth. So we're very hopeful on what this looks like over the next couple of years as well.

Great. Maybe speak to some of the end market dynamics within Nelson Labs. I mean I think those are end markets maybe have been a little bit more challenged. So maybe talk to how those are performing and then how Nelson is doing specific to even some of the broader trends?

Yes. So Nelson Labs is a business that focused on microbiology and analytical chemistry testing. That area -- this business hasn't grown as much as we'd like over the last several years. But I just -- I think it's important to give context. I mean, during COVID, we had a big opportunity around PP&E testing. The business had pretty significant growth and high margins. We weren't going to pass on that opportunity. And then the volumes settled back down and then you had the great resignation. And then after this, you had a lot of activity by the FDA. And our expert advisory services, as I stated earlier, had a record year in '24 and then '25, a lot of that business went down.

But that -- fundamentally, the Nelson Labs business is a darn good business that's did 30% to 35% margin for a lab business that's not very capital intensive that we think should be growing mid-single digits over time. It is a really darn good business. We're looking at assets that we looked at 3, 4 years ago that are down 40%, 50% in revenue or value. And we're not anywhere near that. This business is pretty strong in the end markets when customers spend on new products, venture capital money comes in, new regulations come in, sterility volume goes up. Those are the big 4 volume drivers that impact this business.

Yes. And I guess shifting to Nordion. You've been investing more recently to ensure kind of future cobalt supply, including the Westinghouse partnership in the U.S. I guess what drove this decision to invest in more capacity in the U.S.? And then how should we think about the cadence of CapEx investments there going forward?

Yes. So there's 2 big -- cobalt development, we haven't done a significant cobalt development program since early 2000s in that business, and we have 2 of them going on right now. And I think it would be helpful to give context on the 2. One is Darlington. It's a nuclear reactor site in and it's part of OPG, Ontario Power Group. They are -- they have been a long-time partner of ours for years, and they had a facility at Pickering. That site was going down. So we worked with them to get Darlington to start making cobalt to offset the Pickering. So that's basically why we did one cobalt. One reactor was going down and another one was going to be able to start to do cobalt. So that was -- just think of it as a replacement with a little incremental.

The bigger one that you're referencing is Westinghouse. And -- most of the cobalt we get today is a CANDU reactor platforms. And the benefit with Westinghouse is between our technology and their capability, we're able to now go to utilities that have pressurized water reactors, okay? That opens up a much larger base of nuclear reactors around the world, a lot of them here in the U.S. Just because you have this reactor, it doesn't mean you can make cobalt though. You've got to get the recipe and the know-how from us and Westinghouse to make that happen.

So we are working with individual utilities to bring them up to speed. So we have the first utility we're working on right now, and we're working with them on bringing cobalt into that reactor platform. That's a long process. So we filed a license -- or the utility filed a license amendment request with the Nuclear Regulatory Commission. It will take about a year to get approved. So sometime late fall, early winter, we should get approval from that. And then they'll be able to start making the cobalt, what then will get us cobalt in 2030.

The reason we did this is it gives us more supply long term and also helps us with some of the geopolitical. So today, we buy cobalt from Canada, as I mentioned. We buy from China, India, Russia and Argentina. This will give us an opportunity if we needed to, to be able to scale other utilities over the next decade, if that's what we choose to do. It gives us some nice flexibility. So when we think about the CapEx, when we get on the other side of these programs, which is why we're confident on the CapEx we've been talking about coming down, we will -- on the other side of these programs, the CapEx for Nordion will go down significantly because these cobalt development programs will be behind us.

Okay, okay.

Sorry, long answer.

No, no, it's really helpful. It's really helpful. And then usually, we think about cobalt as kind of being an input for the sterilization process. But are there any other kind of areas where you're seeing an increased use of cobalt, maybe like radiotherapy treatments in oncology or any other areas?

Yes. So obviously, the big use that we have today is for brain cancer treatment. And there's some other cancer treatments that are starting to explore the use of cobalt. We've been a very reliable supplier on the brain cancer side for many, many years. It's a good market for us. It's not a high -- the capital equipment -- what happens is there's capital equipment in the market, and we supply the cobalt into that capital equipment. And then what happens is it deteriorates at 12% a year, just like cobalt does everywhere, and then we replenish it. So we see opportunities potentially over time in new cancer treatments. But right now, brain cancer is the big one that we're focused on. We use HSA, which is High Specific Activity cobalt, a little higher radiation flux than what you get with sterilization cobalt.

Okay. Okay. And I guess turning to your guidance, in 2026 guide, 5% to 6.5% revenue growth range. I guess walk us through some of the moving pieces in this and then any potential like swing factors we should be aware of?

Yes. Again, I go back to 5% to 6.5%. I go back to looking at your price is 3% to 4% in that area and then volume and mix will make up the rest of that. I think the opportunity to do better than that would be focused around volume and mix. Sterigenics and Nelson Labs, those 2 businesses had more volume influx and that would help us over deliver there. Nordion is pretty -- we give -- Nordion is a little lumpy because it's depending on when the utilities harvest the cobalt out, but we've given pretty clear visibility. It's been our most predictable business over the last several years. I think that's pretty well situated for '26 as well.

Okay. And I guess there's been a lot of macro uncertainty, rising input costs, including freight, but maybe talk through how insulated your business is from some of these dynamics and then give us a sense for maintaining your guide in sort of an ever-changing macro environment?

Yes. On the cost side, particularly I think fuel for transportation would be one that people talk about a lot. We pass that through. So we don't incur transportation charges. So customers drop off the product at Sterigenics and then they pick it up. customers ship the product to us at Nelson Labs. We test it and we get to report to them. At Nordion, we ship cobalt to them. We take it on with all kinds of vessels, if you will. And it's pretty expensive to transport, but that's a pass-through. So we get -- we don't make margin on that. So if costs go up on that, we just pass that through to the customer. So we're insulated from that perspective across all 3 businesses on transportation and energy costs.

Okay. Okay. The other thing that kind of comes up is EO gas costs. I mean are you contracted out with those? Maybe talk through some of the dynamics with sourcing that?

Yes. So we're in multiyear contracts there, and we pretty much have a price agreement on what we're going to pay for that product. So we're pretty well protected on that. And just broadly on energy costs and operating our Sterigenics facilities, it's not a huge material number in our business.

Okay. Okay. And then you ended 1Q with 3.2x net leverage. Is the priority still to get between the 2 to 3x range? And then maybe are you becoming more aggressive on the M&A front as you get closer to this range? And where in your portfolio would you focus on?

Yes. Okay. So our net leverage, as you see, is 3.2x net leverage. We've guided towards -- over time, we think we can get this to 2 to 3x, and we're well on track to do that. Our free cash flow is going to continue to accelerate in the business as we go forward. As far as capital deployment and M&A, all 3 businesses have opportunity, but I would tell you the near term and midterm opportunities seem to be focused more on the Sterigenics side based on opportunities that are out there. And obviously, I want to make sure that Nelson Labs is in a more stable operating environment before we deploy a bunch more capital for M&A there. But strategically, we still want to build out pharma services over time in that business as well.

Okay. Okay. That makes sense. And then I guess as we think about some of the announcements that have been made from pharma on sort of reshoring in the U.S., have you seen any disruptions in terms of where people are looking to build out capacity for sterilization on that front or any changes related to locations of your facilities?

No. I mean this isn't something you just go pop up a tent and start sterilizing tomorrow. So it's pretty well thought out. I would just tell you that overall, if there's a big [Technical Difficulty] sterilization volume, we're very well situated for that because we're one of the largest sterilizers, if not the largest in the U.S. and we're very well situated. That would be a good positive for us and that was a meaningful impact.

Okay. Great. And then maybe talk to some of the competitive dynamics, if any. I mean you talked a little bit about the outsourcing earlier, but any other kind of external sterilization companies and where you feel you are with the competitive side?

We're very well situated. Obviously in Asia, it's much -- we don't have a significant presence as we do in the U.S. and Europe. But we're very well situated competitively. We've got one global player that competes with us -- that is a very good company that we have to compete with all the time. And then there's a bunch of smaller regional players that are out there in the marketplace as well.

But I'd say in U.S. and Europe, we're very well situated. Even in Latin America, South America, we've got some pretty good presence in what we do in Brazil, what we do in Mexico. And I would tell you that in Asia, it's a probably opportunity that we're not as big a force there outside of what we do in China and a little bit in Thailand.

Okay. And as you think to expand into that region, would it be more sort of organic build from the ground up greenfield type capacity expansions? Or would you look to acquire some of maybe the smaller players in that?

Good question. A combination of both. And we'll look at the trade-offs. Speed to market is very critical for us and how quickly we have customers that want us in a given geography. We have to look at is it better off to build and can we get there in the time lines they want and get exactly what we want? Or do we buy something and then maybe have to adapt it to get to our standards. So we'll look at both options and look at the most efficient way to deploy capital and get the best returns in the quickest period of time we can for our shareholders.

Yes. And are there any other like regulation considerations as you look to expand into geographies to keep in mind relative to maybe what you see in like the U.S. and Europe?

Oh, yes. I mean it's -- as I mentioned earlier, these businesses all have -- if it's a nuclear Regulatory Commission, the FDA, the EPA, we look at these regulators around the world in the different places that we have. So there's one geography right now that we just talked with the team in the last week ago. Alton and I met with them and making sure we understood how the regulator thought about this one given modality going into their geography. That's absolutely something you got to be considering.

Okay. Okay. And then I guess, just to kind of -- we have about a minute left. So you recently paid down debt, private equity sponsors sold off some of their positions. And then you've had some positive news on the litigation front. So I guess what do you think is the most underappreciated part of the Sotera Health story? And what are you most excited about as you kind of move through the next year?

Yes. To your point, I want to kind of double down on a couple of those points. Our private equity ownership, they sold their last 31 million shares here in the last month. So they're completely out, which is an exciting time for the company. We're well positioned with the new shareholder base. So it's great. Our leverage has come down to 3.2x. We just repriced our debt again. We've taken out probably 100 basis points out of our debt in the last year. That's about $14 million of incremental interest expense that we've been able to save.

So the company is very well positioned. I would tell you, if you're looking to be in health care, this is a great company. We've grown 20 consecutive years. We get price every single year. We've got big competitive barriers to entry. Our free cash flow is accelerating. If you want to be in a spot, this is a great place to be in health care with a lot of uncertainty. We're stable force, and we're kind of the guys behind health care that a lot of people know. It's a great company, great cash flow and great employees that live safeguarding global health every day. So thank you for having us here, and I appreciate your time.

Yes, great. Thank you so much.

Great.

Good morning, everybody. Hi, I'm Dave Windley with Jefferies Healthcare Equity Research. I appreciate your interest and attendance in Jefferies 2026 Global Healthcare Equity Conference. Also very pleased and appreciative of Sotera Health's attendance and participation. Michael Petras, the company's CEO, outgoing CEO, has joined us.

Michael, thanks for being here, and I was going to start there. So you did make a leadership change announcement. Tell us about what makes now the right time? Why are you comfortable in handing the reins over and what brought you -- what brought the company into this decision?

Yes. So great, David, thanks for having us here. Before we start, obviously, we'll be making forward-looking statements. Refer to our SEC filings for descriptions and details, reconciliation of some of the adjusted EBITDA and some of the other numbers in terms that we may have, you could refer to our filings. But again, thanks for having us here today.

And as David mentioned, on our last earnings call, we mentioned a transition that I would be moving over to the Executive Chairman job and Alton Shader will be taking over as the CEO. Alton is here today in the crowd. He's been in the job a little over a week. So Alton is going to be having a chance to meet with a bunch of our investors today. So we're thrilled to have him here.

And this is something I've been talking about with the Board for quite some time, David. I -- my personal opinion is 8 years, 2 terms is kind of the right term for CEO and just bring fresh eyes and perspective to the business. And so we had talked about that in '24 and then some things happened and the Board and I decided to defer that discussion. And then later in '25, we started to pick it up again and trying to get to a place we are today. We're really thrilled with Alton as the leader.

Alton has got 20-plus years in health care and med tech experience. He comes from Viant Medical, which is a contract manufacturer. Just about every customer that he has is a customer of Sotera Health today. And just really thrilled with having him on board, his match with the culture of the organization, his commercial skill set, his growth mindset, those are all big factors that the Board and I looked at in evaluating and bringing Alton on.

So Alton started last Tuesday and moving to Executive Chair role. I'm still heavily involved. As you know, I'm a large shareholder of company still, and this company has got great prospects. We've grown 20 straight years, and we don't see that stopping anytime soon.

Got it. So most people in your position would have savored the opportunity to divorce yourselves of having to deal with guys like me. So Alton, sorry about that. On -- from a strategy standpoint, you touched on this a little bit, Michael, in those last comments. But are you seeing -- foreseeing any changes or alterations in the strategic focus, strategic outlook for the company with the change in leadership? Or is it pretty much all systems same and go?

Yes. I mean, listen, we've got a strategy. We go through a strategic planning process every year. It actually is starting now. Alton is going to have a chance to spend -- he's been spending time with the team already, but he's going to spend time, concentrate efforts around the 3-year strat plan, and this all comes together then for a Board discussion we'll have with our Board every August.

Listen, we have a pretty solid strategy. That doesn't mean it can't get better, it can't be accelerated. And we expect Alton to bring value add to it and figure out a way to just enhance that over time. But we don't see wholesale changes in the strategy from where we sit today.

In terms of recent performance, moving to the business, I think, in Sterigenics and I think, Nelson January and February, you described as being a little lighter with some acceleration in March. Perhaps talk about the progression of activity and momentum in the business as we move into the middle of the year.

Yes. So we're sitting here, coming off the last earnings call, we said that the guidance we gave around was around Nordion. We said about 40% to 45% of the revenue would happen in the first half. We said that in the second quarter that Nelson would have slight growth over prior year. And we said Sterigenics would have similar growth on a constant currency basis to what they had in the first quarter.

And I can tell you, a lot of investors ask me the question today, there's a lot of noise around med tech and health care. I can tell you today, we're very confident in what we communicated just several weeks ago in the quarter and the total year outlook.

So we're seeing continued progress in the business. And particularly with Nelson and some of the things going on in the validation testing area that we signaled on our last call that we're seeing momentum around. So I would just tell you, overall, reaffirming where we were several weeks back, what we're seeing for the second quarter and the total year. We're in a pretty darn good spot.

Okay. Fantastic.

And Alton is not going to screw that up. We've already had that conversation multiple times, right?

Here are the keys, don't wreck the car.

Exactly.

The first quarter, there were some call out on weather-related activity in the industry. Again, you had, I think, talked about January and February being a little slower. So relative to your comments that you just made about med device, should we think about the issues being, like the weather impact being customers having difficulty getting volumes to you? Or is it more at the kind of their pull-through demand level that procedures didn't happen, therefore, the system didn't need their product?

Yes, it was a combination of both. I mean, it started with the customer end markets, procedure volumes were a little softer in January and February because of the weather. You heard that from many providers out there, which then flow downstream into some of our customers being able to get product to us as well. We see that coming -- we'll recover that volume over time, most of it, we think. But overall, we're not seeing that kind of noise, if you will, in the second quarter.

Okay. On the flip side, are you seeing -- you kind of alluded to this, but are you seeing that volume come back to you in the second quarter? Or is that something you expect to be stretched over longer time period?

Stretched over multiple times, particularly the Sterigenics business is where we felt most of that impact. And as I just stated, we see consistent with what we talked about several weeks ago with the revenue guide in constant currency basis being consistent with what we saw in the first quarter.

Yes. Focusing on Sterigenics and thinking about that end market, again, you've already referenced the noise a couple of times. Apart from seasonality, how do you think about the longer-term -- medium- to longer-term outlook for commercial activity with your sterilization clients?

Yes. So if we kind of step back and look at our 3 businesses, we got Nordion, the cobalt business, we got Sterigenics, our largest division, which is sterilization, we have Nelson Labs, which is our testing and analytical chemistry. I'd say we have the least visibility on the Nelson side, we have the most visibility on Nordion because you're out working with nuclear utilities and you know when the cobalt is going to be harvested, and you've got to plan for that delivery to our customers.

And then Sterigenics has some visibility several weeks and quarters out and when we -- one of the things that we talked about in the last earnings call, I mean, people want to know, just like last year, people said, "Hey, we're not sure you're going to be able to deliver a back-end loaded plant." Well, we did it last year, and we're telling you we're going to do it again this year. And some things that we gave some sound bites, too, to make sure that investors understood, there's a couple of factors that are going into our confidence on it.

One, we're having conversations with our customers and some of the demands that they have on truckloads and things that they need in the back half of the year based on what they're seeing has been pretty consistent with us. We've got an X-ray facility, which will have a small contribution in the second half that will start to contribute. We've got one customer that had large in-house ethylene oxide sterilization. They decided to outsource that. We'll start to see a little bit of the impact from that late in the year.

And then the fourth thing is we had several days out in the first half of the year for maintenance improvements and facility enhancements that will be less of a drag in the second half of the year. So those are the 4 things that I would tell you that should give you some confidence around what we're seeing in Sterigenics for the rest of the year.

Interesting. So on the -- that's helpful. Good list. The customers that are pointing to that second half, I guess a couple of questions, follow-up on that. One is, is it your sense that any of that is -- will pivot or toggle on the underlying -- like lower volumes, do their volumes come back in terms of surgical volumes at the end market? Would that move those customers off of that inflection in the second half? Second part of that question would be to what extent do you have firm order on that or kind of take-or-pay type protection on that volume.

So if demand were to fall off dramatically, yes, we'd feel that impact, right? Customers aren't going to just finally ship us product without their end demand, but we don't see that happening. We feel pretty comfortable on what we've signaled. And the answer to your other part of your question about take-or-pay, there are -- there's a significant portion of customer base within Sterigenics that does have take or pay.

We haven't disclosed exactly what that number is, but that does give us some confidence as well as we move throughout the year. I mean, listen, we provide a critical service. Our customers need our capacity to be able to provide the safety that's needed to patients in their care. And we provide that safety net for them.

In a more general sense, you mentioned your X-ray facility, you're investing, I think, still bringing on a second greenfield. You are working in kind of the Nordion business with expanded partners that you could harvest cobalt from. How do you think about the longer-term landscape of, I'll call it, modality mix in sterilization? Is there a change or not a change?

There will be changes. I would just tell you, overall, the common theme to what you just described, the investments we're making is growth. Business has grown 20 consecutive years, and we see that growth continuing in the future, and that's what we're planning for.

As far as modality -- across all 3 businesses, right, the testing, the sterilization as well as the cobalt supply. As far as the modality shifts, you'll see some shifts over time, but we don't see dramatic shifts. And we're making sure that we're a full provider across all modalities to our customer base and making sure we're able to hit their needs.

At the same time we're making small R&D investments around some new evolving technologies that are less mature, but more niche-oriented, but we're also going to make sure that we have those options over the years to come for our customers as well.

In Nordion, I want to kind of understand the supply/demand equilibrium and how your investments with, I think, the Westinghouse reactors would relatively affect that? Like is demand far outstripping Supply currently?

Yes. So demand is not outstripping supply currently. So thanks for that question because I think there's a lot of misinformation out there. We're in a pretty darn good spot for the last several quarters where we've been able to supply all the demand for cobalt, and we anticipate being able to do that for the rest of the year.

Now let me step back a little bit and address a couple of words you threw in there and what we're doing. So we've got -- when we look at supply chain planning and capacity planning, remember what happens in this business. We rely on nuclear utilities that primary purpose in life is to generate electricity, okay? And in that, what they do is they also make cobalt for us.

And we pull the cobalt out at the point of when they're doing refurbishments or maintenance of their facilities. That's when we pull out the cobalt. We've got a global base of supply. So Canada is our largest base and our most tenured supply base. We buy it from Russia, we buy it from India, China, Argentina. And when we look at the time horizon on that business, we're making decisions 7, 10 years out based on what we know reactor life cycles are when the utilities are going to be taking them out.

So we know that one of the utilities, OPG in Canada, one of our largest, most stable suppliers, great partner to us, they've got a reactor called Pickering that's going to go out of commission here in the short term. And we have now worked with them to develop Darlington, which is a reactor that will now start to make cobalt, okay? That was part of the strategy.

And then the second one that you referenced is Westinghouse. Westinghouse gets us opportunity longer term. So today, there's a limited number of utility reactors that can make cobalt around the world. And Westinghouse gives us access to a new platform using our technology in conjunction with Westinghouse to go to utilities to make cobalt in PWR reactors, pressurized water reactors. That would be a new reactor platform, an existing reactor platform that has not made cobalt before.

And again, we've started to ramp that up. We haven't got any production out of it today. It will be closer to 2030 when we get it. But we've -- again, we're sitting here at '26, we've been planning for this for several years, and the intent there is to make sure we have supply long term to meet the growing demand for cobalt in the sterilization because about 30% to 40% of sterilization within Sterigenics business is cobalt related, which is so critical coming out of Nordion. Sorry, David, I said a lot, but hopefully, that's helpful.

I think this is an interesting topic. I'm going to pause on it for a second. So can you give us a sense of like how many Westinghouse reactors are out there operating and installed? And how does it compare to the current base that you're fishing in?

Yes. So today, let's just say there's less than 30 reactors around the world that are making cobalt. And the Westinghouse has a much larger installed base of hundreds of reactors. Now it's not just simple like here's a battery, go plug it in this reactor, it's going to start making cobalt. It's a pretty long development cycle. We've got the technology proven out with Westinghouse.

Now we go to utility and the utility has to go for a license amendment request with the U.S. Nuclear Regulatory Commission. And they're basically saying, hey, I've got a safety protocol in my reactors that makes -- generates electricity. Today, we want to now insert cobalt in here and start making a byproduct here, all right? So this isn't something that once it's proven out, you just go plug it in all over.

We will control the ramp of that. It's got to be something that works for us, Westinghouse and the utility. So right now, we literally have one utility that we're working with that has one reactor to start with that's gone for a license amendment request. And that over time, as we see demand, we will engage additional utilities and reactors.

Got it. So it gives you a long target list.

Exactly.

Does that also in the long run in so much as it really hasn't, and you assured me of this early on, but like the Russia-Ukraine conflict hasn't proven to be anything that really clipped your supply. But to the extent that not only does Westinghouse give you opportunity for additional supply, is there also a risk protection, risk mitigation element to that opened avenue?

Yes. Obviously, we're in a geopolitical landscape that we play in, we buy cobalt from Russia, India, China, Argentina, Canada. That's something that we always think about when we look at diversification of our supply base. When I first joined the company in '16, it was pretty much Canada, a little Russia.

Today, we've got other bases that we looked at to diversify the company and we'll continue to do that. This happens to be one opportunity to do that. We've done a phenomenal job. I give credit to the Nordion team and the work that they've done to work through and make sure we're complying with all the rules and regs on this critical isotope.

Yes. Let's move on to Nelson. We did some back of the envelope math and think we arrived -- actually arrived at a different number and Jason corrected me. So I think this is a good one that your core lab business in Nelson was about a mid-single-digit grower in '25. In '26, you're looking for, I think, somewhere in the 2.5% to 3% neighborhood growth. Is that -- is there a decel in there? And what are the various factors influencing that outlook?

Yes. So let's step back. What really drives that business is routine sterilization volume, new product spend, venture capital spend and new regulation. Those are the things that really drive that business. And Nelson is able to work through and help customers get products and make sure they're safe and meet the regulatory requirements.

So when you step back and look at we see this business slight growth here in the upcoming quarter or the quarter we're in today, second quarter, and then we see growth throughout the rest of the year, so we can get to low single-digit numbers that you're referencing.

Overall, we feel pretty darn good about where we're at because of some of these tests are more short term in nature, just routine lot release and then there's more complex testing and validation tests that are based on new regulatory changes or things of that nature that the customer needs help with.

I was telling one of the investors this morning, and I had a call not too short time ago, a customer called, said, "Hey, we got an FDA issue here. We need you, we need Nelson Labs to help get our products to market." That's what we're great at. We're really good at helping solve those problems and those are the kind of things that customers come to us for.

And when we look at the long range of that and being able to connect that with the sterility plans and sterilization, it's really value add that we create for our customers. So overall, we feel pretty good about where we've guided you for the second quarter as well as the rest of the year.

On that point, I'm going to hover on that one for a second. So this problem solving, responding to FDA inquiry, FDA issues, is there a cyclicality to that? For example, I'm wondering, and I don't have as much perspective on the devices on the pharma side, but FDA has obviously gone through a period of some disruption, change in leadership. Is that something that potentially stimulates more scrutiny, more issues, more need for those solutions?

Yes. Let me answer that in multiple aspects. So within that business, we have a consulting business we've talked about in the past, RCA, which has had peaks and troughs all within the last year, right? The best year in the history, the lowest year in the history of that segment within Nelson Labs.

That's really driven by FDA activity and some issues that customers may be having. What I was alluding to just moments ago was more where we could help customers with this problem, which could then lead to ongoing business for us after that when they see our ability to help solve that. So that's a key part.

And then the other thing I would tell you is just when new regulation comes out, right? When you have this new med device or you have this existing med device and new regulations, additional safety measures the FDA wants around that device, that's where we really excel in helping make sure these customers of ours are complying with those new regulations.

So the FDA involvement, David, is across multiple fronts. When they elevate their audits and things of that nature, we see elevated, yes, and it could come back down, which is what we saw with RCA, but then there's this more -- just when they put in additional regulations that require compliance, that creates an opportunity for us.

Got it. While we're on this also, the -- like the Expert Advisory Services RCA was an acquisition. You made a couple of other acquisitions since coming public. Maybe challenges in the demand environment might have quieted that activity down. But going back to the top and change in leadership, M&A has not been as active. Is that something that resumes, something that ramps back up?

Yes. So I'd say when we look at M&A, it's also part of where you are in your capital structure and everything and the timing wasn't right for us to do some M&A. We didn't see the opportunities that lined up with our capital situation and the market opportunity at that point in time. We will continue to look for M&A. As our cash flow becomes more available, we'll look at it.

Obviously, Sterigenics has lots of opportunities around that and opportunities to continue to accelerate growth in that business. But those are trade-offs we'll make versus buy ongoing and making sure we're good stewards of capital.

And one more. Coming back to Nelson, I forgot this one. But there's a complementary, you touched on it a little bit, between Nelson's capabilities and things that can then roll into regular sterilization volume with Sterigenics and you have your cross-sell initiatives that you've ramped up. Can you give us a sense of like how much of Nelson's business is tied to Sterigenics, and maybe vice versa, how much of Sterigenics' growth can be -- is caught by Nelson?

Yes, I'll just give you a couple of high-level figures. I would tell you about 40% of Nelson's business is generally wrapped around sterility assurance. I would tell you about 20% of the revenue, approximately 20% of the revenue is tied to embedded lab right within Sterigenics facility. So there's strong correlation. We think there's real opportunity.

We've showed it in our customer satisfaction scores, which, by the way, we just recently reviewed our scores for 2025. We had phenomenal numbers again. And the cross BU customers continue to be delighted. I think that's really one of the opportunities I think Alton will bring a lot of insights to in his experience on the commercial end and working with a lot of the same customers.

We see opportunities to continue to accelerate that cross BU opportunity and the value prop. There are several things that we're working out the team right now of how to increase our penetration with key customers around some of the services jointly we could offer between Sterigenics and Nelson, guys that are doing sterilization, but not doing as much testing with us and then vice versa.

Okay. Coming back to balance sheet, you mentioned capital structure. You're on track to achieve your LRP targets for free cash flow over the 3-year period, I think, $500 million or $500 million to $600 million and improving your profile there. How do you think about deployment of capital as it becomes more available?

Yes. Thanks for calling that out. Yes, we committed at our November '24 Investor Day for the time period '25, '26, '27, we would do $500 million to $600 million in free cash flow. I'm telling you, today, we're still very confident in our ability to deliver against that.

When we look at capital allocation, the #1 priority would be organic growth. The second would be M&A and strategic M&A that fits along our strategy. And then the third one -- third and fourth would be, do we do buybacks or do we go ahead and pay down debt.

Our net leverage ratio is around 3.2x. We're trying to get it down below 3x. So as we start to free up that capital and start to look at where we would deploy it against those other 2 priorities after we get through the first, that's still something we'll work through depending on where we sit today.

One of the things that we looked at, quite honestly is, David, and I think we talked about this briefly last time, the PE folks owned about 31 million shares, about 12% of our stock coming out of our earnings call, and one thing we seriously considered at the Board was do we go ahead and buy the remaining -- some of the remaining shares that were left.

Well, fortunately, the demand was so strong, we didn't have to get in the middle of that. So all those shares were bought out by the public markets, which was great. We kept our powder, which is super.

One of the other things we've done since earnings that maybe you didn't notice, we also reduced our debt by 25 bps. We're down to SOFR plus 2.25%. So that's down about 100 bps from where it was last year.

When you look at our interest expense between a little pay down we did as well as refinancing, we've got about $14 million of interest expense. So we're just constantly working against that, how do we get to more free cash flow in the business, and we see that accelerating as CapEx comes down as well.

Thanks for that. And for clarity, the interest expense on the $14 million is the decline -- that's the savings number?

Yes, between the rate coming down as well as a slight payback that we did last year. So coming out of last year, it was about $11 million we told you run rate. And then with this latest 25 bps, it's about another $3 million, so it's total $14 million. Think about it that way.

On the -- moving to the litigation here quickly before we end. There was a recent announcement out of California on a summary judgment. Is there an opportunity for the company to appeal? Or what are, generally speaking, next steps?

Yes. David, this litigation takes many twists and turns throughout the process. The trials are set for January and April of 2027. We've got a strategy we're working. We submitted a motion for summary judgment, as you referenced, we lost that. We understood where it was in the timing of this process that the probability of getting that victory at that stage was low, but there were a couple of things we wanted to make sure we got on the record as part of our strategy.

And we're most hopeful is this judge continues to focus on science. And if he does that, we feel pretty darn good about the prospects of us winning in those trials. But listen, it's a state court, there's risk in that, and we're going to continue to evaluate that as a Board as we look through this. But overall, we're going to be well prepared for the trials in January and April.

Got it. And while we're on it, you've had some progress in Georgia. The Phase 1, Phase 2 process is generally, I think, fallen in your favor. Can you give a similar update there?

Yes. So what you're referring, basically, the experts, the quoted experts from the plaintiff side weren't able to show causation, which is pretty darn critical in these cases. And the courts found on our side on that, which is what we've always said that if you put science front and center, we're going to prevail, and that's what's happened thus far.

The plaintiffs are going to appeal. That process is taking a little longer than most people would think it should take. I think we'll have the outcome of those appeals, Phase 1 and Phase 2, I won't get into much detail, but that is sometime spring, summer of 2027. But again, if science is front and center, we feel very good because there is no causation proof that ethylene oxide at these low levels are causing the cancer that's being alleged here.

So this process through the courts, the legal progress is the word I meant to use, progress through the courts, is encouraging. The case counts in these various regions seem to continue to kind of grow. Is there an event or a time lapse that would put a cap on that? Like what would prevent the case counts from...

Yes. I won't get too much into detail, but there's a thing called statute limitations that come into play and then there's folks -- I can't speak for plaintiff firms on how they think about these things, but there are some actions that they take that can have an impact on why you see case counts going up at any given time.

But at the end of the day, if it's junk science, and that gets proven out in the court as junk science, I don't care what the case count is. We'll resolve these. At the end of the day, there's no causation here, and we're going to keep fighting that, but we've got to get the courts to see it the same way, and so far in Georgia, they are.

Got it. I think that brings us to the end. Thanks, everybody, in the audience for your attention. And Michael, thank you for being here.

Thank you.

Okay. Thank you. We're going to get started. We're going to start the afternoon session. And this afternoon, we're going to start with Sotera Health. Sotera Health is an end-to-end sterilization and lab testing services company that caters to the med-surg equipment manufacturers as well as other end markets.

And with the company, I'm happy to have Jon Lyons, CFO; and Jason Peterson, Investor Relations. Jon, thanks for joining us.

Thanks a lot, Ryan. Good to be here.

I wanted to start with the leadership transition that you guys announced recently. Just wanted to get an update, any more details on the succession time line and any perspectives you could add just on Alton's background and experience that you're excited to have on board.

Great. Thanks. And before we get started, I do have to cover the legal side. So I may make some forward-looking statements today. Please refer to our SEC filings for a list of risks and uncertainties related to those. And now, I'll answer your question.

So no, we're excited. I'm excited. I had a chance to talk to Alton a couple of times since he's been appointed. The Board ran an exhaustive search in coordination with Michael, really looking for the right person for the role.

Just from a timing perspective, I think Michael was interested in taking a little bit of a turn. His view is that the role should be -- CEO role should be 2 terms, kind of 4 years, 4 years and then move on and he's nearly a decade -- about a decade in. And so we thought it was a time for transition for him. And I think it's a sign, too, of the position the company is in, and I think we can talk about that a little bit later from a positive perspective.

But Alton is starting next week. We've got a deep med device experience with Hill-Rom, Baxter, most recently as CEO of Viant. We're excited about what he brings and what I understand is a very strong commercial orientation in my conversations with him, he impresses me -- one who's very complete. So might have a commercial orientation, but it is a complete kind of package from operation and commercial strategy. So we're really excited to get him on board and that transition starts next week.

And then just maybe wanted to put on the broader demand landscape. You guys talked -- first off, reported a very strong quarter in terms of volume as well as overall revenue growth. But I think you highlighted in March as the strongest volume month in years for Sterigenics. And then also mentioned April, those trends continue. So any color just on the market dynamics where you're seeing this demand really coming from or any other kind of color around types of customers or ways for us to appreciate.

Yes. No. Thanks, Ryan. Sterigenics, obviously, our biggest business, 2/3 of the company, really important to see that volume and mix growth in the business. And we look back on the quarter, it was very much in line with what we expected when we guided for the year and gave some specific guidance on the quarter. A little slow start to the year, January and February, which I think it's pretty well documented across the space. The weather had an impact on procedure volumes, it appears and certainly had an impact on our business. So we grew 6.1% on a constant currency basis, would have been nearly 8% with the weather impact. So we felt good about the start to the year.

March was really strong, as you mentioned, probably a little bit of catch-up from January and February with some of the weather impact. But again, net-net, it still was a sizable headwind in the quarter. We got off to a good start in April. And as we sit here today, we're feeling good about the guide that we gave.

So particularly as we ramp up in the second half, our guide for Q2 is similar in growth in Q1, coming off a tough comp in Q2 of last year. Then the second half, the comps ease a little bit from our downtime, our maintenance schedule that has a headwind or tailwind depending on what's going on. It's a headwind in the first half, it's a tailwind in the second half. And we're seeing just good fundamental demand from our customers across the med device space. We've seen good demand to date, and we have a good line of sight to what we're seeing going forward.

And we also have our new x-ray facility coming online, which will provide a little bit of a tailwind, and there's been a lot of discussion about another customer, that's not big, but it's a pretty good transition for us in the EO space from an in-sourced to outsourced perspective that's going to start contributing to it.

And how do those trends continue from April into May?

Yes. I mean it's -- we're in the middle of May. Like I said, we feel good about the guidance that we've given in those conversations and the indicators about where the market is going and what kind of demand we're going to see for the balance of the year continue to be there. So I feel good about the quarter. I feel good about the year.

Excellent. You just mentioned the customer converting from in-sourcing to outsourcing that you're expecting to contribute later in the year. Any other -- any way you can help us size or just put into context the contribution that you expect from that customer?

Yes. And I know I brought it up, and it's something that's turned into kind of a much bigger talking point around the business and the industry than it is in size of -- than it is in a size of customers just because of the fact that's relative to the new regulation, it was an outsource versus -- an in-source versus an outsourced conversion. It's not like we have to build a facility for this customer. It's already an existing customer in different parts of the world, in different places. It's a meaningful impact to the business, but it's not like we're going to go build a facility for them or anything like that.

Got it. Okay. The other driver of growth pricing has certainly been an area of strength, 4.5% pricing growth in the first quarter. You've been guiding towards the high end of your historical range on pricing. Just maybe any -- any sort of outlook as to the sustainability of that pricing power you guys enjoyed?

Yes. No, I don't like to use the word pricing power. There's a customer on all -- the other end of all these discussions. And those are never easy discussions. I think we're recognized because we play an absolute critical role in healthcare with the highly regulated industry. What we do is not easy and it's not core to what many of our customers do. And so there's good value for the work that we do, and I think we're recognized for that work. That's been demonstrated over the years. I mean, the business has grown, Sotera Health has grown every year for 20 years.

If you look at since we've been public, we've had good pricing improvement year-on-year. It's adjusted based on accelerating inflation, earlier in the decade, and we've seen that consistent performance, and there's no reason we anticipate that changing. We continue to deliver it quarter in, quarter out, and I don't expect that to change.

Maybe then moving on to the Nelson Labs segment. I think you've finally lapped some of the difficult comps after a record year in late 2024. Margins in the business, I think, are still suboptimal relative to your targets. Just what gives you the confidence that you'll be able to execute on that margin story in Nelson Labs? And just any sort of color on pipeline or you talked about validation projects and where there is a building pipeline. So any sort of visibility into that would be great.

All right. I think you had like 5 questions in there, Ryan. So I'm going to try to tackle them and just catch me if I got -- if I miss anything. I'll back everybody up a little bit. You mentioned 2024, yes, the Expert Advisory Services had a really strong record year in 2024. I mean it's like a $230 million business overall, and it was $34 million. That was really driven by some onetime remediation projects. And we saw that coming, I think, in the end of '24, we started messaging that we saw a little bit of a cliff headwind coming related to those remediation projects cycling off and the Expert Advisory business suffering accordingly. The business dropped from $34 million to about $10 million from '24 to '25 and had even a bit of a headwind coming into this year, as you mentioned, we're just lapping kind of the last comp on this Q1 of that headwind. So that's behind us.

In the middle of facing that headwind, we also improved margins over 300 basis points last year, and we got the margin rate into our low to mid-30s target that we add. I think what you're referencing in Q1, Q1 margins were down year-over-year. It's the slowest month -- slowest quarter of the year, January and February, like in Sterigenics were really soft. The margins were pretty terrible, honestly, when I look at January, February, but that's really volume oriented.

We've got -- it's a highly labor-intensive business. and scale. Volume matters a lot in the lab testing side. And we can't -- if you have a couple of slow months, you can't adjust your workforce that quickly. It becomes almost a fixed cost for you. It's kind of semi-fixed.

And so as we came into March, volumes were back where they're supposed to be. The EBITDA margins were back where they're supposed to even on the high end of where I thought they might be. And so we're feeling good about the margin recovery in the business, the volume's there, the margin's there, and we saw that performance continuing.

And as I look at the volumes for the rest of the year, there's a number of things that are coming through. Number one, you've got Sterigenics volumes. So when Sterigenics is processing, we're testing to support the lot release and validate that the sterilization was successful. So those accelerate. The validation pipeline, which we've said has been choppy depending on new regulations, R&D funding, things like that, new products, those sorts of things coming through. We've got good visibility into a validation pipeline of work coming in. And normally, Nelson is very short cycle. That can give us a little more visibility.

So we've got the new regulations in with validation pipeline associated with that. We've got a couple of initiatives. We got our new clean room coming online in the second half. We just did an open house. We've got a good pipeline building for that as it comes online in Salt Lake City. So we're excited. We see good revenue growth and feel good about the guide that we've given there for the back half acceleration.

Great. On the strategic...

Did I get them all?

You did.

All right. Good.

And I wanted to go back to one of the points you made, sort of the cross-sell between Sterigenics and Nelson Labs, and that's been a big part of the investment thesis of Nelson Labs. I think you had previously maybe sized a synergy opportunity of $15 million. And I'm just curious how you progress to that goal? Or is that still a goal that's out there?

Yes. Thanks. Yes, we did put that goal out there 1.5 years ago. And so we're making good progress. It's never as fast as you want it to go. Our XBU customers, the customers that are doing business with -- doing business with both businesses generated about 70% of the revenue from the 2 businesses. So it's a really critical customer base. That group of customers grew 10% last year, which is faster than the total enterprise. So we're feeling good about the progress we're making there. But we still got plenty of work to do plenty of opportunity to accelerate that growth. And so we keep focused on it, but we're making the progress.

Okay Switching gears to capacity, always a topic of conversation. I think you've been citing capacity utilization of 80% or at least that's kind of the target. And now you're talking about adding to your capacity. So maybe just -- how do you feel today about your current capacity against that 80% target? Is there wiggle room or I shouldn't say wiggle room, but do you feel like you're nearing that target for -- by modality?

Yes. So as we look at it, capacity utilization really comes down to a modality geographic evaluation because that's what drives the business. Customers need the right modality in the right location with the right service level to support them. And depending on where you are in the globe, I would -- well, generally speaking, there's -- EO is tighter than gamma. We got a good amount of capacity available in gamma, and we have the ability to expand capacity in a lot of our sites to add to gamma.

EO is where there's a considerable amount of tightness. And that is even variable, too, on large chamber versus small chambers. So think about a truckload of pallets versus a less than full truckload of pallets. The large ones are pretty tight across the U.S. and in different parts of the world and the smaller ones have more availability. So that's a piece where we really focus on optimizing our facility throughputs to create capacity where the customers need us. But the big story is we've got room to grow and deliver against what we've committed to, especially with the new facilities coming online that will help support that, too.

Okay. Maybe just to clarify. So the new facility you have coming online is more of the X-ray modality. And that will help -- how does that sort of help to loosen some of the...

It doesn't help loosen the EO, but it's in a good place where we know customers are going to need us with that capacity, and so it's going to help support our growth.

Got it. Okay. And just the time line for when that facility is expected to come online?

As it's coming on right now, it should start to contribute in the second half. And then we have a second greenfield that comes on late '27, early '28, that will start contributing in '28.

Okay. Regarding the EO litigation, you had a favorable update in terms of the dismissal of the 8th Georgia bellwether cases recently. How are you thinking about, I guess, the legal situation in Georgia? And then California is the next -- one of the next big sort of cases, which is more like early 2027, but anything investors should be paying attention to leading up to that?

Yes. No. I think a couple of things. First off, what we've always said is when science is front and center and fairly represented in the court room, to prove that these claims have no basis. And that's what happened in Georgia. Science was in the court room and it was demonstrated that there was no causality here between emissions from our facilities and the plaintiffs claims and those cases were dismissed. We're going to go through the appeal process. Obviously, that's a key thing. So we're not done there. But we are seeing -- I think when that is in forefront and not just us with other defendants, you're finding that we have a good posture.

And California is coming, we're going through the pretrial motion and discovery and depositions and all those things. And we'll work to play that out. It appears so far that science is going to be front and center there. It remains to be seen exactly how that plays out, and we'll continue to monitor it and make sure we manage it effectively like we've been managing these cases very effectively for the last few years -- and January and April of '27.

And you mentioned you're already going through some of the pretrial motions. Can you remind me when is the Daubert hearing? Or when do you get a sense -- of science?

Yes. So that's happening over the coming months -- so weeks to months, I mean, this is imminently happening.

Helpful. I wanted to talk about the NESHAP rule change that is in the proposal phase right now, and I know there's -- it's in the commentary. How has that been impacting the industry, I guess, from a decisions like do we in-source or do we outsource versus in-source? Or do we build new facilities? Are you seeing that proposed rule where it potentially could be finalized? Is that already impacting industry on decisions like those that I mentioned?

Yes, it has impacted decisions. I mean you think about the customer referenced already, they decided to go from in-source to outsource. But the time lines and the implementation time lines has just created uncertainty, but also just deferred it. Deferred what were seemingly more imminent decisions that small players might make some small -- outsourced providers might make to go out of business or sell their facilities or make improvements. It just kicks the can a little bit down the road as the regulators have reflected in potentially adjusting the regulations and move the time lines out. So it's kind of just slowed things. Our dialogues with customers and other industry kind of slowed down from a much more heated level or heated pace than they were 1.5 years ago.

Okay. And you guys have made a lot of investment in your facilities to meet the new standards that are now being proposed to be rolled back. If you could please help us understand how does that still impact your competitive position in the market in terms of those investments.

We've made those investments. We're ready to comply with the standards that are finalized, whether they are the standards that were promulgated in 2024 or what's being contemplated now.

One thing to clarify, the old rule was difficult. The 2024 rule was really, really difficult. When we say rolled back the 2024 rule, what we'll call the 2025 role, it's still way more difficult than the old rule. So these -- everybody is going to need additional improvements, additional capabilities in the facilities to make sure to comply even with that rule. And then who knows where the rule might be 2 years from now. So we're continuing our investments. We're going to be an industry -- we are an industry leader in this, and we're ready to be there and we'll be there for the long term to support our customers.

Okay. Your guidance, it implies some high single-digit growth in the back half of the year after, I guess, more mid-single-digit growth so far in the first quarter. Just you mentioned the new in-sourcing shifting to outsourcing customer, the X-ray capacity. Any other swing factors in terms of the visibility you have into the second half of the year.

Yes. I mean we're having great dialogue with our customers. They want to make sure we've got the capacity there when they need it. And so we've got some visibility from that. Things can always change, but we've got a good dialogue with customers what we expect, good pipeline of validations converting to normal sterilization. We got lower maintenance downtime in the second half than the first, which will turn to a tailwind and then we got those couple of things that you referenced. So there's a bunch of things adding up to shape up for a really good second half.

Great. I wanted to touch on your shareholder base. There's been some change over the past few months since the end of last year or you've seen some of the insider holders now fully sell their positions to the private equity sponsors. Maybe you could share with the audience, just how should investors think about your shareholder base now going forward now that your private equity sponsors have liquidated their position.

Yes. No, great. When I joined the company 3 years ago, 60% of the shares were held by the private equity owners or former private equity owners, and it was an overhang on the stock, and now that's gone. So when I look back and I look at what we've done over the last year, I'd tie it to when I started, I'm not claiming responsibility or pounding my own chest about what we've accomplished. But the private equity ownership is out, our leverage ratio is back into a spot where I think it's more palatable for a lot of the investment -- investor bases. We're almost -- we were at like 4x, now we're nearly 3x levered.

We've taken interest expense. We're actually just closing on another repricing of our loan, in our term loan. In the last 9 months, we've taken out 100 basis points of interest costs out of the term loan. That's $14 million a year. Litigation had much more ambiguous kind of views around it. We've walked through how much clarity we have, still work to do, but things are much more clearing, I think, from my view, evidently manageable from where we are. And I think what that's doing is you're kind of pushing these things aside and everything that everybody loved about this business the strength we have supporting customers in highly regulated markets, the key customer relationships, critical to healthcare. We deliver price every year. We deliver growth every year for 20 years. People are now able to focus more on the fundamentals of this great business versus some of the challenges that we've had to deal with over the last few years. So I'm excited about where we are. I think it's a great opportunity to dig in and learn more about Sotera Health.

Maybe just one final one. Macro factors to the business. Anything that investors should think about in terms of geopolitical or energy costs?

Energy is a very small -- very small component. I came from glass melting industry. I thought about energy costs every day. I worry about supply. I don't worry about the cost because it's pretty much -- it's a very small base. And I don't worry about supply because I've done the diligence and know that we're in good shape from a supply perspective. So they're very small sales like into the Middle East, for example. So there's not a lot to worry about with respect to those kind of exposures right now.

Great. All right. Well wrap there. Thank you very much.

Good morning, and welcome to the Sotera Health First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead.

Good morning, and thank you. Welcome to Sotera Health's First Quarter Earnings call. Today's press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay also will be available on the Investors section of the Sotera Health website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael Petras; and Chief Financial Officer, John Lyons. .

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 and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties.

The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will prevent both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income adjusted EPS, adjusted free cash flow, 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&A portion of the call today. Please limit yourself to 1 question and 1 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 Sotera Health Chairman and CEO, Michael Petras.

Good morning, everyone, and thank you for joining us today. This morning, we announced a strong start to the year with 6.5% constant currency revenue growth and 6.9% constant currency adjusted EBITDA growth, driving over 20 basis points of margin expansion compared to the first quarter of last year. Sterigenics delivered 6.1% constant currency revenue growth in the quarter, while Nordion grew constant currency revenue 25.8% and expand margins by over 290 basis points. Nelson Labs results were in line with the expectations we outlined on our last earnings call.

Today, we are reaffirming our 2026 outlook provided during our February earnings call. As a reminder, we expect total company revenue to increase to a range of $1.23 billion to $1.25 billion, representing constant currency growth of 5% to 6.5% versus 2025 and adjusted EBITDA to grow to a range of $632 million to $641 million or 5.5% to 7% constant currency growth. As we reaffirm our full year outlook, I want to reiterate the strength and resiliency of our business model.

We provide mission-critical regulated services that are deeply embedded in our customer supply chains. More than 70% of our revenue is supported by multiyear contracts servicing long-tenured customer relationships through a global network of facilities. Our commitment to customers is a core company value. And in 2025, we delivered substantial improvements in our customer satisfaction scores across both Sterigenics and Nelson Labs.

Our business model has demonstrated its resilience over time, delivering consistent revenue growth for the past 2 decades across multiple economic cycles. We sit in a unique position in the health care supply chain and take our mission of safeguarding global health very seriously. John will get into the financial details in a moment, but first, I want to take the time to highlight some events that took place during the quarter.

On the governance front, in addition to adding Rich Kyle, to our Board of Directors in February. We're excited to welcome Ken Krause, who joined our Board in March. Ken's leadership and proven track record of creating shareholder value as a public company Chief Financial Officer for over 10 years, combined with his extensive experience in strategy, finance and governance will be tremendous assets as we continue to grow. I'd also like to thank Dean Mehas and Robert Kanas, 2 of our private equity board members for their service and contributions to Sotera Health. Dean recently completed his Board service and Rob will transition off the Board later this month. Both have provided valuable perspective and guidance and we sincerely appreciate their impact over the years.

In March, the private equity shareholders completed another secondary sale of existing shares, bringing our public float to approximately 90% of outstanding shares. Lastly, I want to briefly comment on some positive legal developments in Georgia. As a reminder, 8 by their personal injury cases were selected into Phase I and Phase II causation proceedings with a core focus on the science. On March 30, 2026, the Georgia State Court dismissed the remaining 5 bellwether cases as the plaintiff could not prove general causation in the Phase I proceedings. As a reminder, the court dismissed the other 3 bellwether cases in October of last year in the Phase II specific causation proceedings. All 8 bellwether cases have now been dismissed and are subject to appeal. Although the March 30 order applies directly to the 5 Phase I full cases, the courts rejection of plaintiff general causation series is a critical issue common to all of the personal injury cases.

We believe this order underscores the lack of reliable scientific support for those remaining claims and should inform how the remaining cases are evaluated. We will continue to put sound signs at the center of our defense as we stand behind the safety and importance of Sterigenics operations. As a reminder, developments related to EO can be found on our investor website. Now Jon will take us through the financials in more detail.

Thank you, Michael. I will begin by covering the first quarter 2026 highlights on a consolidated basis and then provide some details on each of the business segments. I will then wrap up with additional details on our 2026 outlook. For the first quarter, on a consolidated total company basis, revenues increased by 10% to $280 million or 6.5% on a constant currency basis compared to the first quarter 2025. Net income on a GAAP basis for the quarter was $27 million or $0.09 per diluted share.

Adjusted EBITDA grew 10.5% to $135 million or 6.9% on a constant currency basis, while adjusted EBITDA margins expanded to over 20 basis points. Interest expense for Q1 2026 improved by $6 million to $35 million compared to the prior year quarter. Approximately half of the improvement was driven by the term loan repricing and debt paydown completed late in the third quarter of 2025 with the remainder driven by lower interest rates.

Adjusted EPS increased to $0.18 per share, an improvement of approximately 29% from the prior year. It was a strong first quarter overall with results largely in line with our expectations, aside from some favorable timing in Nordion. Now let's go through the segment results. Sterigenics delivered 9.7% revenue growth to $186 million or 6.1% on a constant currency basis. Favorable pricing of 4.5% and a foreign currency benefit of 3.6% and improved volume mix of 1.6% drove revenue growth for the quarter.

Localized weather impacts in the U.S. during Q1 resulted in a 1.7% headwind to Sterigenics volumes versus the prior year quarter. Segment income grew 9.6% to $96 million or 6% on a constant currency basis, driven by favorable pricing, a foreign currency tailwind and improved volume mix, partly offset by higher costs. Nordion's first quarter revenue increased 29% to $42 million or 25.8% on a constant currency basis compared to the same period last year. driven primarily by increased volume mix of 23.7% due to the timing of Cobalt-60 harvest schedules, along with foreign currency tailwinds of 3.2% and a pricing benefit of 2.1%.

Nordion segment income increased approximately 36% to $24 million or 33.1% on a constant currency basis. with segment income margins expanding more than 290 basis points to 56.4% driven by higher volume and mix, foreign currency benefits and favorable pricing, partially offset by inflation. Nelson Labs revenue declined 0.7% to $52 million or 3.8% on a constant currency basis. Pricing benefits of 2.8% and a foreign currency benefit of 3.1% were more than offset by the change in volume and mix. Segment income decreased by 11.5% to $15 million or 15.1% on a constant currency basis. with margins of 28%, reflecting lower volume mix, partially offset by favorable pricing and a foreign currency tailwind.

Now I will touch on the balance sheet, cash generation and capital deployment. In the first quarter, we generated $29 million in positive operating cash flow, inclusive of a $34 million payment for a previously disclosed legal settlement. We had positive adjusted free cash flow which will accelerate throughout the year. Capital expenditures for the quarter totaled $46 million as we continue to make progress on our Stardex greenfield expansions, EO facility upgrades and Cobalt-60 development projects.

The company's liquidity position remains strong as of the end of Q1 2026, we had over $900 million of available liquidity. Finally, we finished the quarter with a net leverage ratio of 3.2x nearing our long-term target range of 2 to 3x. As Michael mentioned, we are reaffirming our 2026 outlook. To recap, we expect the following as compared to 2025. Total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit.

We expect adjusted EBITDA to improve to a range of $632 million to $641 million, representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be fully realized in the first half of 2026, with the second half impact expected to be approximately neutral versus the prior year. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth year-over-year. with the second quarter year-over-year growth similar to the first quarter of 2026.

As a reminder, Q2 was our strongest quarter of growth in 2025. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026. Nordion's first half revenue is expected to represent approximately 40% to 45% of full year 2026 revenue. For Nelson Labs, we expect full year 2026 constant currency revenue growth to be in the low single digits with a slight return to growth in Q2.

Segment income margins at Nelson Labs are expected to improve throughout the year, resulting in full year margins in the low to mid-30s. Based on the current forward rate curve, we expect interest expense between $135 million and $145 million. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%.

We expect adjusted EPS in the range of $0.93 to $1.01. We continue to expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. On a weighted average basis, we expect a fully diluted share count in the range of 289 million to 291 million shares. Capital expenditures are expected to be in the range of $175 million to $225 million. We anticipate further net leverage ratio improvement in 2026. Finally, as usual, our guidance does not assume any M&A activity. Now I'll turn the call back over to Michael.

Thank you, Jon. It's been my privilege to serve Sotera Health's CEO and Chair since 2016. With the company on strong footing after a decade progress, I believe the time is right for a leadership transition that supports Sotera Health's continued evolution. Following a thoroughly plan Board-led succession process, the Board has appointed Alton Shader, as SiteHelth's new Chief Executive Officer effective May 26. Alton is a seasoned health care executive with significant experience leading and growing global health care organizations, including buying Medical, Hill-Rom and Baxter.

In my new role as Executive Chair and as a meaningful investor in this company, I look forward to working closely with Alton to ensure a smooth and deliberate leadership transition. We've already started discussing priorities in the path forward for Sotera Health I'll also continue to be actively involved in investor relations and commercial and litigation strategies.

As I transition my new role, I want to thank our Board for its guidance and support over the past decade. I want to thank our 3,100 employees for work with me and our leaders in continuing to make this company really special and a great place to work. I also want to thank our investors for your support since we took the company public in 2020. We rest assured, I continue to believe in and will remain engaged and committed to the long-term success of our company. With that, Ray, I'd like to open it up for questions, please.

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Sean Dodge with BMO Capital Markets.

This is Thomas Keller on for Sean. I guess, first off, congratulations on in 10 years, Michael. I wanted to start off on Sterigenics and the realignment of the business around higher growth end markets. Where are you all in that strategy? I imagine it takes some time to get the pieces in place internally for that and then to win and onboard new business. Was there any benefit here from a volume or mix shift standpoint in Q1, or is there anything contemplated in the full year guide?

Yes. Thanks, Tom. That's something that we're focused on as an organization. As we look at our cross-business unit activity and our strategic selling activity, we're focused on key segments. In the quarter, Sterigenics put up 1.6% volume and mix growth. And then remember, we also had an impact from weather. So we're happy. The first quarter beginning of the quarter started off slow with the weather, which we kind of signaled when we talked last time, but it finished strong and we're optimistic on the outlook as we go forward here and how March finished out and how we're starting out the second quarter. .

And then from a capacity standpoint, where is the business now in terms of utilization kind of across the different modalities, maybe versus historical averages. And with remaining expansion, do you have what you need to support potentially a higher level of growth for the next several years?

Yes. Thank you. Yes. We're in a good spot on capacity. Obviously, modally by geography, you'll have some pinch points at a given point in time. But we target 80%. We're in a good spot. The team has done a nice job operationally and trying to figure out how to get more out of our existing capacity. We've got a facility that we'll start to bring online later this year in the X-ray modality. And then we've got another 1 scheduled late '27, early '28 that we feel good about. So overall, our capacity situations in a good spot. We're well situated and in servicing our customers very well.

I also referenced on the call, we continue to see good customer satisfaction scores. We just got the results for 2025, and we saw a significant improvement year-over-year. So both in Sterigenics and Nelson Labs. So we're going in the right direction. We're really encouraged what we see going forward here.

The next question comes from Brett Fishbin with KeyBanc Capital Markets.

Just a quick question on Sterigenics. 1Q is generally expected to be the lightest quarter for that segment, and you somewhat exceeded expectations. Do you still see 1Q as being the latest quarter of the year and then maybe just to tack on a follow-on. Can you just speak a little bit to what you're seeing within core med devices and bioprocessing volumes, specific to Sterigenics.

Yes. We saw a nice quarter out of Sterigenics. We'd like to see it a little bit better, but obviously, we can't control the weather. Last year, we had a significant second quarter, as we've talked about in the past. So we'll see a good quarter here in the second quarter, consistent with the guide that we've just provided you. We're expecting similar growth to the first quarter in constant currency. And Med Device had a good solid quarter. When you look across all the end markets we serve, bed device had a good solid quarter, and bioprocessing was up significant year-over-year again. But remember, it's a small portion of our total business. but it was significant growth over prior year. .

The next question comes from Patrick Donnelly with Citi.

Michael, congrats...

To the agent -- all right. Go ahead, Patrick.

That's the first. Congrats on the move, the transition. And I guess maybe one on Sterigenics. Can you just talk about what you saw as the quarter progressed on the volume side, just the visibility there? It feels like you're in a pretty good spot, but just maybe talk through the different markets and what you saw as the quarter progressed and the expectations here going forward?

Yes, Patrick, January and February were a little softer, as I mentioned, particularly weather related. But as the quarter progressed, March was the best quarter on volume we've had in the last 3 or 4 years in March. So 1 month doesn't make a year, but we're optimistic about that in April started off strong. So -- we feel very comfortable in the guide that we've given here and we're seeing nice growth, and we expect that to continue as the year progresses with some of the things we've got that x-ray facility coming out. We'll see some growth of that. We've got a customer conversion that we've talked about previously that will start to impact late in the year. And then overall, just the level of engagement with our customers and some of the commitments that we see come forth from them. We feel good about how Sterigenics is positioned coming out of the first quarter.

And then maybe just on the margin side. Can you just talk through the moving pieces? Obviously, pricing always a good lever for you guys? Any changes on that front? And just how we should think about the margins as we work our way to.

Yes, Patrick, it's Jon. Thanks for the question. We feel good about the margins as the guide implies, right? We've got a -- we saw margin improvement in the quarter. As the guide implies, we expect margin improvement in the year. that's really going to be driven from Sterigenics, where we expect to get some good operating leverage in the business and really stable margins on the other part of the segments. But we're very optimistic about the opportunity to see another year of margin improvement, on the heels of our margin improvement last year. So we're feeling good about that.

The next question comes from Max Smock with William Blair.

I'm going to try to hit on the Sterigenics question another way. Excluding the weather impact, you did about 8% constant currency in 1Q, said you expect similar constant currency growth in even though April is off to a strong start, and you don't have that weather piece. Does that slow down relative to the 8% ex weather? Is that just a comp issue? Is it just conservatism? Or are there some other factors in there we should be thinking about for Sterigenics in the second quarter.

Yes. Thanks, Max. The big thing, and I alluded to it in my script, Q2 of last year was our strongest quarter of growth. So it's really a comp issue versus anything else.

And then maybe 1 on Nelson labs here. And I know you said it was in line with your expectations for the quarter. Just wondering if you could help us think through testing growth versus expert advisory services, in particular, how much of a headwind the latter represented in 2Q? And then just thinking through the margins did step down pretty significantly year-over-year. So helping us understand the drivers behind that. And then the outlook for margins for that segment over the balance of the year as well would be super helpful.

Yes. Great, Max. This is Michael. As we communicated, it came in as we expected. What we're seeing on the Nelson side for the first quarter. EAS, this is the last quarter where we had that headwind that we're lapping over testing volumes were down a little bit over prior year. But as we look at some of the activity, routine volumes are coming back. Our service has been outstanding in that area. And as sterilization volume go up, we'll continue to see that correlation and strength on the routine testing side. Not always 1 for one, but there is a correlation there.

And then on the validation side, we're starting to see some pipeline in some of the longer-term projects start to build as we go into the latter parts of 2026. We've signaled that we see the margins coming to low to mid-30s, which is consistent with what we've been talking about for the last many quarters around this topic.

The next question comes from Joseph Downing with Piper Sandler.

Congrats Michael. I'm just going to ask about Sterigenics from a slightly different lens here. Growth in margins in 1Q were obviously impressive even in spite of the weather-related headwinds. But as we look at the broader inflationary backdrop, could you just help us think about the durability of Sterigenics margins through the year, and whether sustained cost inflation actually creates an opportunity for the team to take incremental price throughout the year?

Yes. Thanks, Joseph. We're not seeing significant inflation in that business. We continue to manage that well. Our key inputs are really around labor and then gas and cobalt. We're in a good spot there. We've set pricing in such a way that we make sure our value is positive. In the quarter, Sterigenics had about 4.5% price, which is slightly above the 4% that we've guided towards. But we continue to see that business in a good spot and being rewarded for the value it brings to our customers. And we're not concerned about anything materially on the inflation side as we sit here today. .

Got it. And then you just referenced earlier, but on that large customer onboarding that should come on later this year. Is there any more detail you can provide there about maybe sizing the customer or how to think about the ramp throughout the rest of the year? And also if that's a part of the guide.

Yes. So that is assumed in our guide. It will come late into the year. It's a meaningful customer, but it's not crazy side. We're not building a facility or anything anywhere near that for that kind of business. But it's a significant win for us from both just morale and just helping reinforce the value prop of the company. But overall, we've got that built into our outlook for the rest of this year in the guide, and you'll see it late in the year. .

The next question comes from Luke Sergott with Barclays.

This is Sam on for Luke. Michael, congrats on the 10 years of the company. It's been a pleasure working with you and best luck as the Executive Chair. I wanted to talk a little bit about the Trump administration and their announcement to potentially permanently scale back some of the ethylene oxide emissions regulations. Could you talk about like the different scenarios that might come out of that and what the implications might be from like a top line perspective? I know that has been kind of talked about as a potential opportunity with like higher regulations on some of the smaller players in the industry. And to -- like how that might affect CapEx spend, both like in the near term and the long term?

Yes. Thanks, Sam, for your comments and questions. So we are executing, as you know, we've spent a significant amount of CapEx in Sterigenics, approximately $200 million over the duration and we call general facility enhancements for this ethylene oxide activity. The team is doing a very good job executing on that. We should have the vast majority of that completed here in 2026. There's a rule out there today that has got another couple of years before it's required to meet those requirements. But now there's a new proposed rule out there. .

Listen, we're going as if the rule that's in place is going to be the requirement and our teams are aligned and engineering teams are executing along those plans. I'm not exactly sure how the administration is going to rule on this. Our job is to make sure we're operating in a safe and compliant manner and we're taking all actions that we can put the facility in the best place possible. So we're moving forward with those plans.

We will provide comments just like many others in the industry and the new proposed rule. These are still going to be -- based on what we saw in the proposed rule, they're going to be tough restrictions. They're a little easier than the rule that was just recently put out, but they're still tough and challenging rules, but we feel very well positioned to be able to meet those requirements.

As far as creating opportunities for us, depending on exactly what the final rule is and the timing, that will determine how much opportunity. I would tell you -- we've got a couple of opportunity 1 customer that we just referenced that is converting over to us, and then there's some other smaller ones that we continue to have dialogue, and we're seeing some opportunity with I would say that activity slowed down a little bit over the last several quarters with the uncertainty of the timing of the new rule requirements. But we -- again, we feel very well positioned for whatever the rule may be, and we're just going to make sure that we operate in a safe and compliant manner for all our state employees as well as communities.

Maybe an unrelated follow-up on Nordion pricing. I think that came in slightly below the usual at like 2.1%. Anything significant to call out there?

No. I would tell you, we've got a long-range guide for the company at 3% to 4%. We said Nordea would be on the low end of that, around 3%. You ought to be thinking about that. It's just about our timing and customer mix on which customers got shipments within the quarter. we're fine on price execution in Nordion and across the business. .

The next question comes from Casey Woodring with JPMorgan.

This is Jaden on for Casey. I just had a quick 1 on pricing as well, but could you just share walk us through your pricing assumption for 2026 and highlight if there's anything that's changed by segment? I know you just mentioned, Nordion, but anything else would be helpful.

Yes. No, nothing has changed from what we've communicated previously. This would be in the 3% to 4% range. As I mentioned, just physical Norbe in the low end of the range. Now some would be on the low end of that range and Sterigenics be on the high end of that range. we don't see anything changing as far as our outlook on that. .

The next question comes from Ryan Halston with RBC Capital Markets.

This is Kevin on for Ryan. Just 2 quick ones for us. Was there any extra selling day benefit in 1Q '26? And if so, how much did that impact your guys' growth rates? .

Very minimally.

And then kind of unrelated here. But in '25, you guys talked about your EU customers kind of growing ahead of total company growth. Can you guys just comment on how SBU is performing through the first half of 2016 at this point? And any opportunities you guys have to further accelerate that SBU penetration?

Yes. Thanks for the question. We had a good first quarter in that area we had growth again. And as I mentioned earlier, our customer satisfaction scores were very positive with significant growth on that front as well. So overall, the work is going very well in the -- and remember, a lot of strength around the embedded labs within the Nelson, within Sterigenics to Nelson labs that coexist. We continue to execute in that area as well. So Xfeis pretty well situated. .

[Operator Instructions] The next question comes from Michael Polark with Wolfe Research.

Michael, congrats, good luck. I would have thought if you were making an addition you would have shed the Investor Relations hat. So you didn't have to deal with folks like me and my clients. But easily surprised to see that's still part of your ongoing commitment, so...

I was trying to shed the litigation, but the board wouldn't let me trust me on that. .

Yes, my other joke that I was newly on was, I'm sure you can imagine more fun things than defending multistate toxic tort cases. So Anyways -- but yes, congrats -- all right. Two for me. In the quarter, I appreciate the weather callout for Sterigenics. If I recall, part of the 1Q guidance also considered kind of excess maintenance downtime. I didn't hear that spiked out. Would you flag that as a significant item in the quarter on Sterigenics volumes? And then, John, maybe for the rest of the year. What's kind of the maintenance schedule across the network? Anything unusual you would have us think about Q3 to 4Q?

Yes. I'll turn it over to John to answer. Just 1 point, Michael, on that. It's 1 thing as I mentioned about the customer coming on board, also the emphasis we're getting from our customers on some of the outlook as well as Hall River coming on. The thing I failed to mention was also the number of days out in the second half will be lower. And Jon.

I wouldn't add anything other than to reiterate that point. We have -- the downtime days are a headwind year-over-year in the first half in terms of a in the second half Helpful.

But Nelson, for the second quarter, a slight return or return to slight growth is slight. Is that 1%? Or is that something better?

I would think in that -- in the range you're talking or below.

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

Great. Thank you. As we move through 2026, we're encouraged by our momentum and the strengthening financial position and remain confident in our ability to drive long-term growth, strong cash flow and shareholder value. our leadership in a large growing market, global scale, the regulatory expertise, accelerating free cash flows and disciplined capital allocation position us really well for sustainable growth. So we look forward to seeing many at the conferences coming up here this spring and early summer, but thank you for your continued support, and have a good day. Thank you. .

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

All right. I'd like to welcome everyone to the Sixth Annual KeyBanc Healthcare Forum. My name is Brett Fishbin, Senior MedTech analyst, and I'm pleased to be joined today by Sotera Health, who's represented by Jon Lyons, the CFO.

I'll start us off with questions, but it will be a 100% Q&A session and questions can be submitted directly to me by typing in the box below the video screen. And if we have time, I can relay them to Jon.

So Jon, just to kick things off, starting at a high level, it's been a bit over 5 years since the original IPO, and it's been an eventful journey for the company so far. So I was hoping we could maybe just take a step back and just get your high-level thoughts on where the company sits today relative to a few years ago for investors who may be revisiting or new to the story.

Thanks, Brett, and thanks for having us again here. It's always great to be with you and your investors. that you serve. Before we get started, I do have to remind everybody, I will likely make some forward-looking statements. Please take a look at our SEC filings for details on those and the like.

Just to get into it, it's been an interesting journey, right, since the IPO back in 2020. I think the short answer really, this is the same great business that we IPO-ed. Certainly, we've been through a few things. There have been some complications in the industry. But everything we said about the company remains intact. We're a global industry leader operating in highly regulated markets. We've got a growing market with an $18 billion SAM. We've got a global footprint with 62 facilities around the world that puts us in the right spot for our customers to support their needs with our end-to-end solutions in sterilization and lab services.

We think we're well positioned for above-market growth moving forward. And the financial profile continues to be incredible. We just hit in 2025, our 20th consecutive year of revenue growth every year in, year out through a couple of different challenging cycles. We continue to have over 50% EBITDA margins. The free cash flow performance is accelerating, and we're disciplined allocators of capital. And so we think there's a lot to love about this business, and we're excited to talk about it.

Awesome. So let's talk a little bit about 4Q and 2026. You guys recently hosted the 4Q '25 earnings call and really concluded last year on a solid note, 5.2% organic revenue for the year, 40 basis points of op margin expansion and a really healthy step-up in earnings per share. So I was hoping we could first look at last year and unpack the results a little bit. And I was hoping you could also just maybe touch on any dynamics or moving pieces that trended better or worse as compared to originally contemplated coming into the year.

Yes. When you start a year, right, the year always plays out a little different than you'd expect. But if you look at where we started the year, we had a 4% to 6% organic revenue guide, and we came in at 5.2%. So large part, some puts and takes, right? The expert advisory business wasn't as good as we thought it would be. It turned into a pretty significant, more of a headwind than we had thought. But we did have some upsides that covered that, particularly on the Sterigenics side, where our continued volume performance improved a little quicker than we expected.

But overall, it was a good year. It was the first year of our 3-year plan that we laid out, and we're on track for all the goals that we set in that plan. You mentioned the 5% revenue growth. We had nearly 8% constant currency EBITDA growth. We actually grew margins 118 basis points for the year, and that was headlined by more than 300 basis points of margin improvement in Nelson. Sterigenics grew nearly 8% on the top line, nearly 9% on the bottom line. Nelson Labs saw growth in core lab testing, which we were pleased with, right? It's higher margin in the business and helped support that expansion.

Nordion had another great year with upper single-digit growth in revenue and EBITDA. But we're not -- we're looking at the total picture here, right? So interest expense improved by $9 million year-over-year. The tax rate was significantly lower. And all that performance led to us a $0.16 improvement in adjusted EPS in '25. So we're really proud of what we accomplished in '25, and we feel great about the fact that we're on track for the objectives that we laid out at our November '24 Investor Day.

And then just looking ahead, you recently gave 2026 guidance and included constant currency organic growth of 5% to 6.5%. So maybe just remind investors how you're thinking about this year, if there's any puts and takes compared to 2025? And then how you think about some of the bigger key variables that could drive results 6.5%, 7% versus 5%?

Yes. Yes. So Sterigenics, we've called for another year of mid- to high single-digit revenue growth on a constant currency basis. And we're looking for another solid year in demand in med device and pharma. On Nordion, we're in the low to mid-single digits for the full year. We've got a little more weighting to the first half than we had in the last couple of years. So 40% to 45% of Nordion revenue, we expect to occur in the first half, with Q2 being a little heavier than Q1. Nelson, we're expecting to grow in the low single digits for '26.

And I'd just call out on the pricing side, we expect another good year of pricing performance. We've called for about the midpoint of our 3% to 4% long-term guide. And so we're feeling good about the trajectory we have on the pricing and continued demonstration of the strength and value of the services we provide. And going into every year, the biggest variable, Brett, as usual, is going to be what our volumes ultimately going to be.

So maybe on that note, you talked about a couple of moving pieces early in the year, but maybe just like higher level, how you're viewing the overall demand environment in your 2 large segments, med device and also thinking about some of the other categories and just overall level of visibility into that volume backdrop as we move into the year?

Yes. So as I mentioned, in Sterigenics, we're looking for another solid year in the med device and pharma side. We exited '25 with good momentum. We're having really good dialogues with our customers. We're in a great spot relative to where we're positioned to support the industry. And we feel like we're going to have a good year of growth there, supporting that mid- to high single digits.

Nelson Labs, a part of the business is really, really closely connected with Sterigenics and that core routine sterilization-related testing that we do, we expect continued growth in that. We expect the consulting business will no longer be a headwind, which is an important step for the business. The one thing I'd call out is the validation testing. That's related to new regulations and new product development and so it can be a little choppy, and I'd expect that to be a little choppy. As we look at how the year plays out, that will be one of the things we continue to watch.

All right. Helpful. And also just thinking about the earnings call, investors are always paying attention to cadence, and you had a couple of comments about the first quarter related to weather and the government shutdown. So maybe curious if you could just touch on the cadence again. And if you've started to see things normalize at this point after some of those big events earlier in the year?

Yes. Good call. One point of clarification. We definitely said shutdown and a lot of investors have thought we meant government shutdown and for obvious reasons, I understand why they would think that. When we say shutdown, we're actually referring to our maintenance downtime. So we have -- we shut down our facilities for, I'll call it, 3 reasons, just normal maintenance. The EO facilities are getting shut down for the improvements in our emissions controls. And then we shut down for cobalt loading in the gamma sites. So that's what we refer to.

Certainly, when we came into the year, it was a little slow start to the year. Weather had a definite impact on us. And then we also -- as we mentioned, that maintenance downtime is higher than it was in the first quarter of last year, which is a year-over-year headwind for us, leading us to the mid-single-digits outlook for Sterigenics in Q1.

On that facility maintenance point, though, we'll see that headwind in Q1 and Q2, and that headwind should turn into a tailwind in the second half. The year did -- as I mentioned, the year did start off a little bit slow, but we definitely have seen it start to pick up, but nothing that would change the outlook that we laid out for Q1.

All right. Perfect. Super, super helpful. And I think that makes a lot more sense. And then turning to the EBITDA guidance. 5.5% to 7% constant currency was the starting point, very squarely in line with your Investor Day targets. So just kind of a 2-part question. First, outside of volume leverage and price, is there anything else that you think is impacting the margin setup for this year? And then just thinking more recently, obviously, a lot going on in the world, and we've seen fluctuation in some commodity and oil prices. I'm just curious if that has an impact on your business and how you think about that?

Yes. So a lot there, Brett. First, I would say, we laid out a target of improving 50 to 150 basis points of margin over our long-range plan from November '24, which was the '25 to '27 period. We did 118 basis points last year. I think when you go to the midpoint of our guide, you get something like 23 basis points improvement implied, which puts us nearly to the top end of our range of EBITDA margin in year 2. You hit on it, pricing. Pricing can actually be margin dilutive. When you have over 50% pricing, you have to more than double inflation in dollar terms to have margin accretive pricing. That's not necessarily something that's very intuitive to people all the time.

So I'd like to just point out like why isn't your margin expanding faster? It's like, well, I've got to more than double my pricing, my inflation with pricing. We get great operating leverage that supports it. Those are the big moving pieces. The energy costs, certainly, we have energy costs. We have exposure to natural gas. We have exposure to electricity. Those are very small factors of production when you look at our facilities. And then we have long-range contracts for EO that's got an annual pricing reset in it.

So from a short-term risk, we're pretty insulated at this stage. A lot of our energy deregulated markets, our energy and gas contracts are fixed for the most part. So I'm not losing any sleep over energy costs, certainly, but I obviously think about the geopolitical impact of the business more than I think about that. But even then we've got a pretty small revenue base, small, very immaterial revenue amount that goes into the Middle East. and the demand for the health care products are continuing to be strong. So we feel good about where we're headed on the margin front, and we don't have a material exposure from energy.

All right. Awesome. And just to conclude the 2026 guidance conversation, the last piece is free cash flow. And I think there's a couple sources of elevated CapEx this year. So I was hoping you could just remind investors why that's going to be higher in 2026 than how you look at it long term? And then also like how you think about normalized CapEx for the business like next 3 to 5 years?

Yes. When you step back from it, I mean, what we're really focused on is free cash flow generation. And obviously, CapEx is a big component of that. Back at our Investor Day, we set a 3-year target of $500 million to $600 million of free cash flow. And that goal, we did $200 million plus last year. We're well on track to achieve that goal. And our assumptions on CapEx are really unchanged relative to what went into that objective. Our CapEx was $138 million in 2025. We came in quite a bit lower than our initial guidance, which I think the midpoint was around $200 million for 2025. And it's really timing, predominantly.

Two things of timing. One, the second one of our greenfields, we delayed a little bit. Michael and I run a very disciplined capital allocation process, and we wanted to make sure we were very confident as we continue with that program that we were going to get the returns that we expected to get out of it. We got in a position where we felt comfortable to move forward. And so we've moved forward, but that kind of shifted a big chunk of 2025 spending into '26.

The other thing with the 2-year delay that we received in the NESHAP regulations, we were able to go back and have a little bit better negotiation with suppliers, some suppliers that were kind of holding us hostage a little bit. And that allowed us to save a little bit of money on the NESHAP-related spending program, but also shifted a good bit of CapEx from '25 to '26.

As we look forward, assuming we hit the plans we have for '26, CapEx in '27 is going to drop significantly. We'll be largely complete with our NESHAP-related spending. There might be a little bit of immaterial amount that trickles into '27 from a timing of payables perspective. We'll have a significant amount of the spending on the growth investments that will step down and even the cobalt development steps down a bit from '26 to '27. So we're in great shape. CapEx is going to drop. Cash flow, free cash flow continues to accelerate, and we're going to achieve that goal. We fully expect to achieve the goal we laid out at the Investor Day for free cash flow.

Awesome. And then I'm going to shift the conversation a little bit to the individual business segments, and we can go in order starting with the largest, which is Sterigenics. You touched on this a little bit about some of the improvement you saw in the back half of last year. It was a nice year for the business overall is a 7%, 8% organic growth coming off of 2 years closer to mid-single digits. So maybe just a little bit more on kind of like what you saw improve in the back half of last year that drove some of the step-up in growth. And we already talked a little bit about '26. So maybe just your thoughts on once we get past some of the 1Q items, if you think we can kind of get back into a similar cadence in the back half of '26?

Yes. No, Brett, I mean when we look at -- we're really pleased with the business performance in '25. And it really -- the volume performance, we started seeing it, and I think we started talking about it in the second half of '24. Obviously, you didn't see the volume performance come through really still starting in Q2 of '25. But we've seen, as I mentioned earlier, really solid demand in med device and our pharma customers. We've seen our XBU customers overall for the business grow at a faster clip. So we're pleased about our efforts there.

We're continue -- we're a critical part of the supply chain, and we continue to expect that good solid demand from those customers. And we got some noise, as I said, in the first half, first on the -- not in the first half, but the first quarter relative to the weather and the downtime, and we fully expect to accelerate particularly in the second half relative to that downtime abatement. We've got new customers coming on. We've got the -- including the Haw River X-ray facility that will start coming online and start contributing.

I want to also ask, there were some dynamics, I feel like over the past couple of years with stocking, and it wasn't a huge topic as we got to the second part of last year. But I think like some people maybe think was there some level of pull forward of demand ahead of tariffs or like anything like that. So just curious like if you think the whole stocking topic, especially in med device has normalized at this point? And if you think that's like a big factor for the cadence this year?

Yes. I mean in our view, it's normalized. This is where -- when I say second half of '24, we saw it kind of normalizing then. This business always -- with 2,000 customers, there's always something going on with some customers. So we're dealing with somebody building inventory or taking inventory out. I would say the industry is stable. We don't see a big -- and by the way, this is not a pull-forward business. It's not like a distribution channel where you can give a quarter end incentive and you're trying to push some volume out the door.

Our customers are delivering us a couple of days. We don't have big warehouses to bring product in, to hold product and wait for them to pick it up. I mean it's in and out in a handful of days with our customers. And so this is just not one of those industries where you can stuff the channel or you can accelerate volumes to any degree. I mean we got limited capacity, limited warehouse space. So it just doesn't work like that.

That makes sense. And then I think it's a good segue to my next question or 2 on capacity because it's -- you bring up a good point about limited capacity in the industry, and you guys have been kind of on the forefront of bringing more capacity to the table for customers. And I think like maybe in '24, you were talking about 8 different projects that were either completed or underway. So maybe just thinking about that overall, like how you think about the capacity additions and how that positions you for growth over the long term?

Yes. So Brett, it was -- there was several projects that we've completed over the last few years, and they vary, right? We're kind of at the tail end of this with 2 projects left. There's 2 greenfields left. But these come in different shapes and sizes. One expansion might be adding a cobalt, adding incremental cobalt to an existing facility or adding a chamber to existing facility. We've had some of that over the last few years when we think about expansion projects. We could add a new irradiator to an existing facility. And we've had those adds over the years that have been contributing actually positive to the business. All the investments we've made, we've seen pretty good returns on those over the last few years.

As I mentioned, there's 2 greenfields left. We've target a 20% IRR. Expansion facility, you can imagine, is going to have a higher IRR than a greenfield, right, where you've got to put a lot more infrastructure in place upfront. So these 2 greenfields will return a little lower than the 20%, but still good returns, still above cost of capital. We feel good we've got the X-ray facility that will come online later this year. And then the second greenfield will come online late '27, early '28. So we're kind of at the end of this -- as I mentioned on the CapEx outlook, we're at the end of this kind of growth investment cycle for Sterigenics.

And I have to ask, I feel like you've answered this question a couple of times, but maybe just any more thoughts. I think it was notable that one of the 2 most recent projects was focused on X-ray, just given -- I think it's been a modality that Sotera in the past hasn't focused on as much. So maybe we can just kind of revisit the decision to start investing in that modality. And if you have maybe like a directional view long term of like where that could potentially go in terms of like mix or future projects?

Yes. No, great. X-ray has obviously become a little bit more prevalent in the industry. I would remind you, we are the global leader in cobalt. So I think it kind of makes sense that we -- cobalt is a great modality. The great thing is it's always available. It's always on. You don't have to worry about electricity. You don't have to worry about the cost of electricity. The cobalt is ready to sterilize products when you need it. X-ray can be a little bit more -- I mean, it's machine generated, right? So it can be a little bit different on the reliability, but still a reliable source of sterilization.

We do have an X-ray -- existing X-ray in our network, but it was small, and the Board made a strategic decision to make sure that we had X-ray available for our customers who might want it. We actually debated a few years ago, should it be 2 or should it be 1? And the Board decided ultimately to go with one that's coming online here. And so we're excited to bring it online. We're excited to have that option for our customers. It's co-located with a gamma site.

So we can kind of be the best of both worlds for our customer depending on what they desire. It's something we'll continue to evaluate more, but we have no plans currently in place for any incremental arrays, but we could over time.

Got it. All right. So we'll monitor that looking ahead, you're not going to get too much into the strategy long term. So maybe shifting gears a little bit on this topic. We had some news last week with the EPA announcing some proposed amendments to the 2024 NESHAP final rule. So we're going back into a period of change after we thought we had some clarity like after a long time. So maybe just -- I understand it's very early, but just maybe like any initial thoughts on some of the changes and your initial impressions on that announcement?

Yes. So it is very early, and it's actually changing. I got a message today, right, the comment period, the regulation was -- or the proposed regulation was posted. The comment period has started that ends May 1. We'll be hearing on April 1. So that was hot off the press this morning. We knew it was coming, obviously, from what was, I think, published on Friday. we're going to continue doing the work that we've been doing on our programs. We've got a leading program in place. We're going to be there to support whatever regulations might be final and required.

A couple of things I'd call out. One, you also have a state-by-state consideration. Two, you also could get -- it could change over time no matter where they end. Lastly, I'd call out that even with the revised -- the updated regulation, it's still significantly more stringent than it was before the '24 regulation came into place. So even if they roll it back some like they've proposed, it's still considerably more stringent than it had been before. I think one thing that makes sure people caught in there was they're also revisiting the 2026 is risk assessment.

We believe that there are certainly some issues with that assessment. And I think there's better understanding of the science and the methodologies that might be used. So they're inviting input on that. We think that's an important development depending on how it goes because it's something that is referenced significantly by plaintiffs attorneys inside our litigation. So if that is rectified, it should be helpful for us as we move forward dealing with the litigation issues.

Was that in reference to the IRS assessment like that took place already like kind of years back? Or is that something that...

Yes. They're revisiting -- they're inviting input on revisiting the output of the 2016 assessment.

2016, okay. Got it. Got it. Perfect. All right. So let's -- we have 15 minutes or so. So let's shift gears again to like Nordion. And I think like one thing that stood out to me as I was just looking at the last few years and our model going ahead is growth in Nordion has been stronger the past couple of years, I think averaging like 9% the last 2 years. And I wanted to just ask about that because it's a little bit different than like how you talk about the LRP and like call it, like normalized growth for Nordion. So what kind of drove that like high single-digit, almost double-digit growth in Nordion in the past 2 years? Was it like timing and just like 2 years in a row or like anything else?

Yes. I would say, over the last few years, there's been a couple of things going on with Nordion. One is we were coming off some old contracts and the industry was in a different position. And so there was some significant pricing resets in those contracts, which supported obviously the revenue growth. The other thing that was going on is cobalt was actually in a tight supply several years ago. And I think there was some pent-up demand for Cobalt-60 that came through over the last couple of years. We expect that moving forward, we're going to normalize to the guide that we had provided of the low to mid-single digits revenue growth.

All right. Got it. Got it. And then just thinking about also like the outlook. I think if we put together the 2025 results and the 2026 guidance, you're kind of in that mid-single-digit plus range. I'm just wondering kind of with that starting point in mind, thinking about '27, like is it reasonable or possible to think that you can end up above the original '25 to '27 LRP, just looking at the 3 years as a whole?

Yes. Brett, I understand the math you're doing. I'm excited about the performance they put up last year. I feel good about the guide that we've given for this year. 14 months into the LRP, I'm not ready to call a victory and raise the number just yet. But we feel really good about the business, great about their performance last year. We feel really good about the team and how they're managing a very complex supply chain, and we'll continue to deliver for our customers there.

Totally fair enough. And another point that came up on Nordion, I think, during this most recent earnings call was some of the milestones around obtaining new operating leases from the Canadian Nuclear Safety Commission. And I think Michael mentioned on the call that like this new contract or agreement was the longest ever granted. So I was hoping you could just like unpack that a little bit and what this means practically for the continuity of Cobalt-60 supply over the long term? And then just to throw in like a part 2, if that changes at all like how you approach contracts with customers given that like longevity of supply locked in?

Yes. I would say a few things here, right? We operate our one-of-a-kind Class 1B nuclear license facility in Ottawa, Canada. We got a 25-year license renewal, which is the longest of its kind. I think what that means is a couple of things. One, it's the recognition of our team we have a phenomenal team up there that operates in this highly regulated, highly complex industry. And the willingness of the regulator to issue that kind of license, I think, is a reflection of the business itself and the people who run it more than it's a testament about anything else.

That said, it does alleviate one thing, right? We fully expect to get that license renewed. If it was a 10-year, we'd fully expect to get it renewed the following 10 years. So I don't think it has a dramatic impact. I just think it's more of a measure of kind of our leadership in the industry and what kind of operation that we truly have up there that they're willing to grant a 25-year license.

All right. Makes sense. And let's conclude the segment conversation with Nelson Labs, an area of the business where you've seen some headwinds over the past couple of years. And I think you mentioned at kind of the top of this call that you think the expert advisory services is no longer a material headwind. And so maybe just as you sit here today, like what are kind of those signs of stabilization and improvement, specifically in the expert advisory part of that business?

I mean just specifically in the expert advisory part of the business, it's effectively reset. It had its best year in its history last year. The expert advisory business was -- or I'm sorry, '24, still last year is still '24 to me, I guess. But in 2024, $34 million of revenue in the Expert Advisory Services business. It then followed up with about its worst year in its history, which was driven by the fact that we had these big remediation projects that were ending and they haven't been replaced, and we don't have line of sight to seeing replacement.

We're effectively restabilizing at a pretty low base. When you look at the history of that business, it might be the worst year in its history, but it's in a range of what looks like a base of that business. So we don't expect it to be a headwind any longer. It is a headwind in Q1 as we do lap a pretty elevated Q1 of last year. But I think important in the business, if you look back at the overall, we saw really nice growth in our core lab testing business last year. particularly in the piece connected to Sterigenics and the sterilization-related testing. We also saw some good developments in some of the regulations on the validation side.

But the validation side, as I mentioned earlier, is still a little choppy, but we're really pleased to see that good solid base of the sterilization and the XBU connection with Sterigenics. And then we'll maximize the opportunity when it's there on validation testing related to new regulations and new product development.

All right. Perfect. And maybe just one more follow-up on the segment, and then we'll conclude on the balance sheet and maybe one on litigation in our last couple of minutes. But you've talked more about the XBU strategy that came up a lot on the Investor Day and has been discussed in depth. through last year. So I think the number was like 9% overall growth from that customer cohort. So maybe just like a little bit more about what's driving like the better performance when you have customers or doing business in both segments and kind of how you drive that excess growth compared to the rest of the business?

Yes. Great. So just stepping back, 70% of our revenue in Sterigenics and Nelson comes from shared customers. And over 50% of the Nelson Labs testing is routine sterilization-related testing. Again, that's closely connected to Sterigenics. If you pull it apart, we've got 12 facilities in Nelson Labs, 9 of them are either co-located or in close proximity to Sterigenics facilities. So we're able to provide more effective solutions to our customer base when they're using both sides, we can be a little bit more streamlined opportunity for them.

We've seen higher customer satisfaction rates when we're seeing both. But we're in the early innings of really maximizing the opportunity. We have opportunity for better attachment both ways. sterilization that we do that then is tested either in-house or by somebody else and further penetrating that for Nelson or validation testing that we do for Nelson and further penetrating that back into the routine sterilization activity. So we see a good opportunity to continue to move this in the right direction and increase that number, but it's a very important focus for us.

Awesome. Well, I think this has been a really good discussion on the growth and margin expansion and some of the segment drivers. I think we have a couple of minutes left. So maybe just concluding, kind of bringing it together. We talked a little bit about free cash flow, but net leverage has continued to creep lower pretty close to your target range of 2 to 3x. So maybe just in the last minute or so, you could touch on just any potential changes we could see in capital allocation once you are comfortably within that target leverage range? And then just if you had any other thoughts you wanted to leave investors with as we sign off here.

Yes. Great. Thanks, Brett. And again, thanks for having us here. Glad to kick off the conference with you. We're really pleased. We've improved net leverage nearly a third in just about 2 years, which just demonstrates the ability for this business, the growth rate of this business to actually grow into some of the elevated leverage that we had. And nothing is really changing from a capital allocation perspective. Clearly, as we move into this range, and we expect another year where we'll improve from the 3.2x. It gives us more flexibility to pursue on the strategic end, but it doesn't change the discipline that we operate from a capital perspective.

So from a balance sheet perspective, continue to focus on maintaining a strong balance sheet. We're going to prioritize organic growth. And then we're going to be opportunistic about debt paydown, M&A and even consider some buybacks over time. So we feel good about the flexibility we have, the balance sheet strength and the trajectory that we have.

When I think about just leaving the group with a couple of messages, it's a little bit of what I said earlier to be a little bit redundant. We've got good momentum in the business. We just mentioned we got a strengthened balance sheet. We're on track for the commitments that we made at our Investor Day. And we're confident in our ability to drive growth, to generate strong free cash flow and ultimately to drive shareholder value, right? That's what the people on this call care about, and that's what we're focused on doing.

And we remain focused on our priorities that we laid out at Investor Day. Number one is excellence in serving our customers with end-to-end solutions. Number two is winning in growth markets. Number three is driving operational excellence to enhance free cash flow; and number four, disciplined capital allocation. We're very focused on those things, and we're looking forward to having a great '26 and generating shareholder value for this group.

All right. Jon, with that, thank you so much for joining us for today's session. Thanks to everyone in the audience for listening. Have a great rest of the conference.

Thanks for having us, Brett.

Good morning, everybody. I'm Luke Sergott, I cover Life Sciences tools and diagnostics at Barclays. With me, I have Michael Petras, CEO of Sotera Health.

With that, I think you have the Safe Harbor. Do you want to read that or -- I mean, you don't have to.

I'll just refer to some of our SEC filings for risks and uncertainties that you may see -- reconciliation of any measures that we talk about today.

Sure, you don't have that memorized.

All right. I guess let's start off at the top. I think that the topic du jour right now is kind of energy costs and the impact of the various players across the space. So talk about how you guys are either hedged or I mean there's a lot of logistics within your business. So talk -- can you just kind of walk us through any other puts or takes there?

Yes. Some questions that we've been getting asked in recent are kind of two flavors. One would be on utility spend and the other one would be on just gas, ethylene oxide gas. So -- and both of those, we're in a pretty good spot. We don't see a material risk. We've got a lot of contracts fixed, not all of them on the utility spend. And overall, we're not a huge consumer of electricity and gas. On the gas side for ethylene oxide sterilization, our biggest market for that business is the U.S., and we're in a fixed long-term contract there. So we will not anticipate a material impact by some of the dynamics playing out right now.

And any supply chain constraints or given that -- the issues?

Nothing that we're aware of today.

Okay. And so that behind us, as we get into the other fundamentals, you guys had a decent quarter. So talk about the momentum that you've been building throughout the year. You're through the destocking across the other -- the space has seen and you guys were late in that cycle from a recovery, seeing volumes pick up and remain steady. So just give us a quick overview of how the year played out versus you guys thought? And then has that shaped and your thinking about as a jump-off point to begin the year this year?

Yes. If you look at it in 2025, we had over 5% growth on the top line, over 8% growth on the bottom line. So it did very well. The commitments were made across the businesses. Overall, we generated over $200 million of free cash flow. We had over 118 bps of margin expansion. We delevered. We repriced our debt. Our private equity sponsor sold down a ton of shares. They're now down about 12% after this past week's secondary, they're down about 12% of outstanding shares. So overall, we like where we settled in 2025 and the team did a really good job, and we're well situated for growth in 2026.

The other thing we talked about in our last earnings call is 20 consecutive years of growth we've had in this business at 50-plus percent EBITDA, right now currently in the business. So overall, we're really optimistic how we finish '25 and looking forward into 2026.

Right. So from the drivers on that though, I mean, you had -- like when you think about Sterigenics in 4Q, you outperformed your largest competitor there by quite a substantial margin. That's kind of led into the feeling that there's a little bit of pull forward there, especially in light of how your 1Q guide came in from a sequential downtick. So talk about -- was there any pull forward or demand and how the order book is kind of filling up there to feel like to inform your outlook?

In any given quarter, our competitors could be a little bit better than us and we could be better than them. So I don't read too much into one specific quarter. So over time, we look at it within a quarter, you have customer dynamics, you have facility dynamics when shutdowns because you're loading cobalt, you're doing maintenance work. So there's several factors that go into it. Different customers have cycles going on within their business.

When we look forward into 2026, one of the things we want to make sure people remember is the first quarter is typically the softest quarter of the business. It's been like that traditionally. And based on what we saw at the time of earnings, we gave a projection and it's shaping how we saw the first quarter playing out. But overall, we expect the business to deliver in total 5% to 6.5% top line in constant currency growth for the year and a little bit better on EBITDA of about 5.5% to 7% EBITDA growth. So overall, again, this business is going to perform again in 2026, and we feel pretty darn confident about that.

Yes. But when you're thinking about from a competitive standpoint, talk about some of the demand dynamics and how they're changing from your specific customers? And kind of what's baked into that seasonality, why 1Q is your weakest? Just trying to think of like, is it batch ordering from the hospitals and like you just kind of upstream and this is when it's getting shipped?

Yes. So one thing, Luke, I'm sorry, I didn't answer your first part of your question, which is pull-in. I should address that. This business isn't a pull-in business. Like we don't have warehouses on product. Customers drop it off. We have very limited space. The product is sterilized and they pick it up and take it. If they keep it in our facility longer than the planned cycle period, we charge them for that. So this isn't a business like we can't call up and say, brings 5 extra trucks today. We just don't have the capacity to do it. It's not a pull-in business. This isn't like a distribution business or a retail business where you could stuff the channel. And you could say, "Hey, I'll give you a little break on price, take the shipment." That's just not the way this works.

Customers make the product, they ship it to us. We sterilize it, they pick it up, right? So there isn't -- so when you -- not every quarter is going to be up into the right. There's going to be some choppiness. There's lots of factors that go on. I know a lot of people say, "Hey, did you see a big tariff pull-in?" Second quarter was a really good quarter last year, right? It was just the timing of how things played out with shutdowns as well as activities from our customers. But when we look at the demand, back to your follow-on question here, when we look at the demand in this business, and what customers are asking us for Nordion, we have pretty darn good visibility. We know when the cobalt harvest schedules are. That's why we give guide like we did that we said, "Hey, 40% to 45% of the year will be done in the first half."

We have a pretty darn good feel. That could shift by a couple of weeks here and there a month. But we know when the cobalt is coming out and the demand because, again, this isn't something I could just throw cobalt in the FedEx envelope and hope it arrives there, and they pick it up and they plug it in when they have a chance during lunch hour. This is something that kind of shut down the facilities. They got to make sure the homeland security is evolved. They're going to make sure that all the people are out of the facility in the area where the cobalt is going. I mean, these are well planned events. So there's not a lot of pull-in activity that could go on. And we didn't see that at all. People keep asking tariffs, did you see it in the second quarter? We didn't see anything material on that. And -- now listen, if people decide they want to in-source to the U.S. in a big way, we'll be ready for it.

Yes. On that, I guess, the change -- is there a change in the dynamic there from actually the hospitals like also the delivery -- the distributors from Medline, they talked about being able to ship 95% of their -- from an order that next day. So how does the sterilization process? And to your point like, "We don't care, we get the order, we sterilize it and they take it, do what they want with it." But how does this actually start impacting from -- are you seeing any changes in the order dynamics from customers?

No. I would -- we have 3,000-plus customers in that business. And every one of these customers wants to work on trying to free up working capital and be more efficient, right? I mean we've heard this for many, many years. Coming out of COVID, we saw a lot of instability around the inventories and cost takeout around freeing up working capital. We just haven't -- that's been pretty stable. We're not hearing lots of discussions. I'm sure companies like Medline are continuing to look for efficiencies in their supply chain. The delivery methods to hospitals. Hospitals are inefficient. They're -- hospitals got to figure out how to manage their inventory and supply. I mean there's a lot of customers, a lot of warehouses involved in between. We get the product and they take it then and take it through their distribution channels or ship directly to the hospitals. But overall, you'll see improvements, but we don't see a material effect on this impacting our volumes based on inventory. We just really aren't having those conversations with our customers now for at least 18 months.

Okay. And then from a utilization perspective.

I should clarify, there will be a customer here and there, but that's just normal.

3,000, right? So...

Yes. I'm sorry, you're asking...

On the health care utilization has been elevated. How does -- like when you're getting these orders from customers, like how far ahead in advance are they kind of planning out? And when you're starting to see these -- the volumes come in?

Yes. On Nordion, we have best visibility. Nelson, we have the least. And then Sterigenics is kind of in between. So we have several weeks out of planning over the next couple of months, they will tell us, "Hey, listen, over the next couple of years, this is the kind of capacity we're going to need because we're doing this or that with our supply chain. But on a quarterly basis, we'll get visibility of x number of trucks want to come in this week starting next week or the following weeks." So we start to get visibility around that earlier than we do in the Nelson business, for example.

Okay. And because the Nelson business you just -- that's like in-house the sterility testing to make sure everything is sterilized?

Yes. On that, about 55% of the Nelson business is routine lot release testing. So it comes out of sterilization. And then the other 45% is down around new product development and new regulations, R&D spend.

All right. And then as you were talking, you mentioned the onshoring piece there. This is not something we usually talk about within like outside of bioprocessing exposure, but you do have bioprocess exposure. But as you think about that coming on, do you guys have -- like how are you planning for a capacity perspective to meet that demand as it comes on?

Yes. So today, bioprocessing is low single digits for us. We had a very good year in 2025. We had significant growth over the prior year and on a sequential basis, we had good growth in the fourth quarter. We'll see that continuing in 2026. We're well situated for capacity. Our share position just isn't as large there as we'd like it to be. I think we've grown position. But when you're talking low single digits, I don't think it's worth arguing how much share we gain with our teams. So just we'll get more, right?

It's not enough.

Yes, it's not enough. Whatever it is, not enough.

All right. That's helpful. On that margin piece that we were talking about there, I mean, 50% margins you're talking about over 20 years. The price volume dynamics still hold to what you guys have seen in the past? Or are you starting to have to get -- give a little bit more on price as your competitors are getting bigger or anything like that?

We're pretty well situated on price. One of the things we want to be careful is we don't ever outrun our value prop, okay? So we got to make sure we cover our costs, and we want to make sure we're rewarded for the work that we do. We see 4% price in Sterigenics, 3% in Nordion, 3% in Nelson. The thing to keep in mind on Sterigenics, we also react to market dynamics. Where the capacity is, what geography, what modality. But overall, we feel very good about our pricing capability, where we are today and where we're going forward. And our customers recognize the value we bring them. We just have to make sure we don't run that. But overall, our pricing strength continues to -- we continue to demonstrate that and perform because we're getting paid for what we do.

Okay. And then -- I mean, Sterigenics, we stick on this topic. I guess you just talked about your pricing remaining in that same range as you've talked about, volumes to be up and down, but pretty consistent there to give you the mid- to high single-digit type plus growth for the business longer term. NESHAP regulations that just came out. So it's increased -- supposed to increase outsourcing, that's a typical trend what we see is like increased regulation lead to more outsourcing. So as your customers are having to think there on sterilization strategies internally, like are you starting to get more pickup there as we just got -- as we get the regulations continue to come through and digesting?

Yes. So let me -- there's a lot there. Let me unpack it a couple of facets. So NESHAP is a rule that's out there for sterilization companies. There's new regs put out, and we had to be compliant by April 2026, that's been extended now for April 2028. And the administration is looking at new rules for NESHAP and some tweaks to that existing rule. We'd expect to see some modifications to that rule over the next weeks and months, not exactly sure where it stands within the current administration. So that's something we'll be prepared to react to. But we are building our capability off of the existing rule that was in place that just got extended. We think that's going to be more stringent than the revision that's going to come out. Okay. So we feel very good about that. We will have the majority of that done this year in our facilities, okay?

And you think they're going to actually make it a little less stringent?

Our sense is they're going to make a little less stringent. We don't have the details of what that means. They're doing their work. We talk to these folks because they are regulators, but we don't know exactly what they're going to do. But we feel good about the level of controls that we're putting in are going to be at a very high level, right? So that -- we will have more visibility on what this revised rule looks like over the next several weeks and months. I'm not exactly sure on the timing of that. We are moving full speed ahead in 2026 to finish up. If you looked at our 10-K, we said we're going to spend about $50 million in environmental spend that -- and the majority of that is going through these facility enhancements.

So now let's talk about what do we see in the broader landscape of competitor dynamics, right? When this rule first got out, there was a lot of concern from smaller players that they're going to be able to meet those standards. That concern has come down a little bit because of the fact that there was an extension of a couple of years. We've also been on the record to say that there's been one customer that's a big med tech company that all of us know that has made a decision to shut down our operation and outsource it. We're going to be the beneficiary of that. We'll start to see some of the volume in late '26, moving into '27 and '28.

Yes. I mean that's the whole pitch on the outsource, right? It's just like a $50 million to $100 million spend there to update your facility where they could be putting that into R&D?

Right. Yes. So companies have to decide. Some of our customers think this is a core competency they need to have and others say, "This isn't something we want to be involved in." And there's other companies that do that. And that's what we do. We don't make product. We're not taking -- we're not developing therapeutic solutions. We just sterilize. So customers come to us because they know that's our core competency. And some companies want to do it and some don't or some have a blend in between. We're going to make sure we're well positioned to service whoever -- wherever the customers end in that spectrum.

Yes. And so when the -- when you're thinking about this like as this new customer, you just called out, you see some volumes like talk about your pipeline of new customers coming out on top of those person, so we're thinking about incremental growth over the next few years.

One of the fallacies that people have here, I just talked to investors this morning and said, "Oh, we understand that ethylene oxide is 50% of the sterilization volume today, the modality, it's going to go to 40%." That's what we understand. We're not seeing anything like that. We continue to see strong demand for ethylene oxide. No matter what the scrutiny is around this, it's the dangerous material that we have to continue to do the right things and how we control it, but it's absolutely critical to the health care industry. So we're seeing ethylene oxide as a very key credible modality. We've got a pipeline of demand. And I'd say some of them may be NESHAP related, but we're not seeing the level of discussions we did 6 months ago or 8 months, maybe more like 8, 10 months ago, where people were saying, "Should I be sterilizing in-house or not," that slowed down a little bit, Luke. But we are still seeing -- when you look at our CRM and I meet with our sales team, if you look at the pipeline, the pipeline on volume, on ethylene oxide is very strong.

And I guess what caused it to slow down from 6 months ago? Is it just pushing them out?

Yes, pushing out the NESHAP, right. I mean what I want to be clear, what we're seeing slow down is the discussions of people shutting...

Yes, yes, yes. Bringing on new customers.

We're not seeing a slowdown in demand for ethylene oxide sterilization. I just want to be clear.

To be interpreted very different ways. So as the new customers are coming on, like I said, like is this something that could take you above your historic rate? Or is this just something as you think about this is part of just everyday business?

Yes, I think you ought to be thinking about it. We've said Sterigenics is mid-single to high single-digit growth. And you have to think about it within that. When we gave that guide, we understood this. Our aspiration are to grow low double digits in that business. But right now, we've guided to mid-single to high single digits.

Baby steps. Okay. On the technology piece, talk about why ethylene oxide is like sticking around for a sizable part of the market and why we haven't seen -- I mean, you have different limitations from X-ray to some of the other technologies, gamma ray, it's like just walk us through why you're not seeing any type of encroachment on the EO side.

Yes. So for folks who may not be as familiar with how this works, we as a sterilizer, we do not determine the modality. That's determined by the customer in coordination with the FDA, and it's based on the product characteristics, okay? And some materials can't take exposure to radiation. Some can't take the gas exposure. So it depends on the product composition and exactly which modality is used. But we continue to see strong demand for ethylene oxide based on the product pipelines of our customers and what they're continuing to develop as well as the continued growth in core products that already use ethylene oxide as a sterilization modality.

Can you talk about some of those products that are moving over to ethylene oxide, like what were they...

I wouldn't say we're seeing a big migration over. I'm just saying as new products come out.

It's still in there.

It's still in there, right? And existing products are growing in volumes.

Right. And so as you think about the different types of products, right, like you have your hips and knees. Are they going to be more X-ray or gamma? Or is that going to be ethylene oxide?

Hips and knees typically are gamma radiation is what we see.

Yes. And like -- so where is like ethylene oxide sweet spot? Is that just like kits [indiscernible] things like that.

Some cardiac devices. We also see it in some pharmaceutical applications as well.

So the non-U.S. and bolts of the hospital.

Yes, general hospital supply.

Got you. All right. So can we talk about the last piece here in the last 5 minutes on the litigation. Just provide us an update. You guys are making pretty good progress. I guess what kind of spooked some investors in some of the market at the time was when your general counsel stepped down, you guys brought him on. We thought that, that was a very -- from his background and on his experience, it was like it was a good add. So walk us through the reason why he stepped down and then just an overall update on the litigation.

Yes, yes. Okay. So what your referenced is Alex Dimitrief, we made an announcement a couple of weeks ago that Alex is going to retire for the second time on April 1 to become an adviser to the company. So Alex and I were very fortunate to have the relationship. Alex and I worked together when he was at General Electric. He was the General Counsel at GE and he had 20-plus years of litigation experience way before that at [indiscernible]. Outstanding. Alex came to us and said, "Hey, listen, I'll come to this for 2 years and help the company because I think you guys are being wrong and that will help you. It's been over 3 years. I want to go back and try retirement again. It's pretty simple.

I just talked to Alex yesterday a matter of fact. I talk to him almost every day. So Alex is an adviser to the firm.

He's still there?

Yes, he's still going to be an adviser. He's going to be paid a monthly stipend to be an adviser to handle just litigation. Erika Ostrowski, our General Counsel, is outstanding. She's been with us over 2 years. We brought her in for succession planning, for Alex's job. By the way, she's got a litigation experience in her background. She's got significant litigation experience, too. She'll be the General Counsel. She's been running the legal department for some period of time now. And Alex will continue to work with the litigation committee and myself, it's a team sport around the litigation, and Alex will stay involved and Erika is going to be running the legal department, orderly transition that we plan for.

Working on again.

Basically, yes. You just had history, so I don't know...

Yes. But provide us where we are in that litigation -- Atlanta, like how many cases are there and how this is going to progress?

Yes, okay. So outside of the September '22 event, where we had a really bad verdict in Illinois, then we had a complete win in the second case in Illinois that enabled the settlement that we were able to get behind us. I would say the company, particularly the Board has done a really super job in managing this whole dynamic and working through it with a lot of help from our inside management team as well as outside legal advisers. So overall, it's in a manageable spot. We got to deal with it, and we're working through it.

In Georgia, let's take that for the most of the cases, there's 400-plus cases. I don't want to overcomplicate things. There's -- the judge is putting science front and center. There's a Phase I general causation and a Phase II specific causation, okay? You have to get through Phase I to get to Phase II. I'll take the Phase II, it's a little simpler. There were 3 cases that went to Phase II and all 3 of them were dismissed, okay?

The plaintiffs are appealing that and we'll be ready for that game. That will happen late this year. The appellate process will start to play out. They haven't even submitted the appellate papers yet up to the courts for Phase II, so it's going to take time, right? Phase I is general causation. The plaintiffs put 3 experts together, we objected to and said it's junk science. Two of them were rejected by the courts. We think all three should have been. We appealed to appellate courts and say there's a standard that all these have to meet. And we think all 3 of them did not meet that standard. And we think that all 3 of them ought to be dismissed and not be able to testify here. The appellate courts came back and said there cannot be a new standard. They all have to be following the same standard.

So there is a hearing with the courts next week on March 18, where the courts are going to hear arguments from both sides on how we think the judge ought to take that feedback from the appellate courts. We feel very good about it. There's no legitimate science that supports the position. We've said that all along. We feel very good about where we are in these cases. But at the end of the day, we're in state court and things can play out and there's risk to it. That's why we make sure investors know that.

When you focus on science, it's going to be proven that ethylene oxide at these levels are not causing it. And that's what we're going to make sure that the judge knows they have the standard they have to meet and they can't be junk science.

And on the expert panel, I think that the big question was like the judge was saying, look, you're going to have to have experts in this. But to us, the bigger question is like, okay, so they're going to have some of these guys in here, but what extent can they talk about what you're saying, like -- ethylene oxide at these levels are...

That is our objection. They do not have any science that proven dose relationship here. And that's what we're telling -- that's the standard in Georgia, and you have to prove that. And if they can't prove that, those experts are not going to be a lot to testifying that subject. Yes. So we -- listen, our team is ready. I mean, we've got mock prep going on this week. I had a call with them on Monday when this team will be ready. There is no science to support the position these plants are taking, and we're going to make sure that they hear our side of this.

All right. Thank you.

Thank you. Appreciate your time.

Yes. You, too. All right.

Good morning, and welcome to the Sotera Health Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead.

Good morning, and thank you. Welcome to Sotera Health's Fourth Quarter and Full Year 2025 Earnings Call. Today's press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will also be available on the Investors section of the Sotera Health website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael Petras; and Chief Financial Officer, John Lyons.

During the call today, 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 and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements.

Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, adjusted free cash flow, 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 for this presentation.

The operator will be assisting with the Q&A portion of the call today. [Operator Instructions].

With that, I will now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Good morning, and thank you for joining us. This morning, we announced another strong year of performance, extending our track record of year-over-year revenue growth for 20 consecutive years. In 2025, the total company revenue increased 5.7% and to $1.164 billion or 5.2% growth on a constant currency basis versus 2024. Adjusted EBITDA increased 8.2% or 7.8% on a constant currency basis with margins expanding to 51%, an increase of nearly 120 basis points. We also delivered adjusted free cash flow of over $200 million in 2025. Our results demonstrate strong execution, growing demand for our mission-critical services and disciplined financial management. The team's performance in 2025 positions us well for sustained growth ahead.

We also had several notable achievements during the year. Our customer satisfaction exceeded 80% underscoring our commitment to lowering the excellent service. We advanced our portfolio across several key areas, including our commercial initiatives continue to build momentum with revenue from [ XPU ] customers expanding 9% year-over-year.

Sterigenics delivered approximately 8% constant currency revenue growth versus 2024, driven by improved volume and mix. Significant progress was also made on the EO facility enhancement program as well as the construction of the new X-ray facility, which is planned to open in 2026. Nordion delivered a strong year, achieving approximately 9% constant currency revenue growth. Also, in the fourth quarter, the team signed a cobalt development agreement with Westinghouse and PSE&G and they secured a 25-year Class 1B license renewal or our Ottawa facility, which is the longest ever issued by the Canadian Nuclear Safety Commission.

Nelson Labs delivered core lab testing growth during the year, they expand our margins by 312 basis points and made progress on clean room investment. On the capital markets front, we reduced borrowing costs by 75 basis points on our $1.4 billion term loan and paid down $86 million of debt, resulting in $13 million of annual interest savings. We also upsized and extended our revolver, increasing liquidity by $175 million. Sotera Health's public float increased to 8% of abstaining shares during 2025. We continue to strengthen our corporate governance with the appointment of a lead independent director. Also, as you may have seen, we welcome Richard Kyle to the Board earlier this month. Richard's leadership experience as a public company CEO and his extensive experience in operations and governance along with the strong financial acumen, will service tremendous assets as we continue to grow.

Finally, we remain actively engaged with our shareholders on many corporate responsibility initiatives. 2025 was a strong first step in executing the 2025 to 2027 long-range plan we presented at our November 2024 Investor Day and we expect this year to represent another meaningful year of progress towards those goals. Earlier today, we issued our 2026 outlook. For the full year, we expect total revenue to increase to a range of $1.233 billion to $1.251 billion, representing constant currency growth of 5% and to 6.5% versus 2025 and adjusted EBITDA to grow to a range of $632 million to $641 million or 5.5% to 7% constant currency growth.

Before I hand it over to Jon, I'd like to highlight a management transition. As you may have seen in our press release this morning, effective April 1 of this year, Senior Vice President and General Counsel; Alex Dimitrief's transition to an outside adviser to the company. I would like to thank Alex for his leadership and service the past 3 years, and we are grateful that we continue to support the company going forward as an adviser.

We are excited to announce that Erika Ostrowski, who has served for the last 2 years as the Vice President, Deputy General Counsel and Corporate Secretary under Alex's leadership will be promoted to the Senior Vice President and General Counsel for Sotera Health after demonstrating strong leadership, sound judgment and a deep understanding of our business. Erika is well positioned for continued success in her new role.

Now Jon will take us through our fourth quarter and full year 2025 financials and our 2026 outlook in more depth.

Thank you, Michael. I'll begin with our consolidated fourth quarter and full year 2025 results and close with additional detail on our 2026 outlook. For the quarter, total company revenues increased 4.6% to $303 million or 2.5% on a constant currency basis versus Q4 2024. The year-over-year comparison reflects the expected impact of Cobalt-60 0 harvest timing at Nordion. Adjusted EBITDA grew 2.7% to $157 million or 0.5% on a constant currency basis, while adjusted EBITDA margins were 51.8% for the quarter. Interest expense was $35 million in the quarter, a $6 million improvement versus Q4 of 2024. Net income was $35 million or $0.12 per diluted share. Adjusted EPS increased to $0.26, up $0.05 from the prior year, driven by a lower tax rate as well as strong operating performance and lower interest expense, partially offset by higher depreciation.

Now let's take a closer look at our segment performances for the fourth quarter as compared to the same period last year. Sterigenics revenue improved 10.6% to $198 million or 8% on a constant currency basis. Growth was driven by 4.3% favorable pricing, 3.7% volume and mix as well as a 2.6% foreign currency benefit. Segment income increased 10.4% to $110 million or 7.8% on a constant currency basis, reflecting favorable pricing, volume and mix and foreign currency, partially offset by inflation.

As expected, Nordion's revenue decreased 12.3% to $50 million as the timing of Cobalt-60 0 harvest schedules drove unfavorable volume and mix of 15%, which was partially offset by 2.4% favorable pricing. Nordion segment income decreased by 18.9% to $29 million. Segment income margins decreased 466 basis points to 57.5% primarily driven by the lower volumes and unfavorable product mix.

Nelson Labs revenue increased 2.3% to $55 million, which was nearly flat on a constant currency basis. Favorable pricing of 3.2%, foreign exchange of 2.5% and and core lab testing growth were partially offset by lower expert advisory services revenue. Segment income rose 1.9% to $18 million, a decline of 1.2% on a constant currency basis. Growth was driven by favorable pricing, growth in core lab testing and foreign currency, partially offset by lower expert advisory services revenue and higher costs.

Now let's turn to the full year 2025 results as compared to the prior year on a consolidated basis. We delivered revenue growth of 5.7% to $1.164 billion or 5.2% on a constant currency basis. Adjusted EBITDA improved 8.2% to $593.8 million or 7.8% on a constant currency basis resulting in adjusted EBITDA margins of 51%, an improvement of 118 basis points. Interest expense improved $9 million to $156 million, driven by lower interest rates and the favorable pricing of our term loan and $86 million of debt pay down. Reported net income for 2025 was $78 million or $0.27 per diluted shares. Adjusted EPS for the year was $0.86 per weighted average diluted share, an increase of $0.16 versus 2024, driven by operational growth, a lower tax rate and improved interest expense partially offset by higher depreciation.

I will now turn to the balance sheet, cash generation and capital deployment for the full year 2025. Adjusted free cash flow was $210 million, putting us well on track to achieve the 2025 through 2027 cumulative goal of $500 million to $600 million we set at our November 2024 Investor Day. Capital expenditures totaled $138 million in 2025. The company continues to maintain a strong liquidity position. As of December 31, 2025, we had approximately $940 million of available liquidity, including $345 million of unrestricted cash and nearly $600 million of capacity under our revolving credit facility.

Net leverage improved to 3.2x at year-end from 3.7x in 2024 as we continue progressing toward our 2 to 3x long-term target.

Turning to our 2026 outlook. For the full year, we expect total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit as compared to 2025. We expect adjusted EBITDA to improve to a range of $632 million to $641 million, representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be weighted toward the first half of 2026 with the largest impact expected in the first quarter.

Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth year-over-year with the first quarter anticipated to grow in the mid-single digits range, we expect the first quarter revenue to be the lightest of the year. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026. Nordion's first half 2026 revenue is expected to represent approximately 40% to 45% of full year revenue with Q2 '26 revenue expected to be heavier than Q1 2026.

For Nelson Labs, we expect full year 2026 constant currency revenue growth to be in the low single digits with Q1 growth expected to decline low to mid-single digits versus Q1 2025 and Additionally, Q1 2026 revenue is expected to be the lightest quarter of the year. For 2026, we expect interest expense between $135 million to $145 million based on the current forward rate curve. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%.

Adjusted EPS is expected to be in the range of $0.93 to $1.01 and driven by operational growth as well as improved interest expense. We expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. We expect a fully diluted share count in the range of 289 million to 291 million shares on a weighted average basis. Capital expenditures are expected to be in the range of $175 million to $225 million in 2026. We expect to make continued progress in reducing our net leverage ratio again in 2026. Finally, as usual, our guidance does not assume any M&A activity.

I will now turn the call back over to Michael for closing remarks.

Thank you, Jon. As we move into 2026, we are encouraged by our momentum, strengthened balance sheet, and we are confident in our ability to drive long-term growth, strong cash flow and shareholder value. We are on track to meet the commitments we made in our November 2024 Investor Day, and I'm confident in our team's ability to execute and deliver for our customers and investors. We remain focused on executing on the priorities we've laid out previously, which are excellence in serving our customers with end-to-end solutions, winning growth markets, driving operational excellence to enhance free cash flow and disciplined capital deployment.

At this point, operator, let's open the call up for questions and answers.

[Operator Instructions]

Our first question comes from Sean Dodge with BMO Capital Markets.

Maybe just starting on the guidance and the EBITDA margins at the midpoint implies about 20 basis points of expansion that's on top of a pretty significant improvement you drove in 2025. what you're targeting this year? Is that all just operating leverage? Or is there any other dynamics kind of happening there worth calling out? Are you taking costs out, adding costs in anywhere? Are there any unusual mix impacts or anything else like that? I guess it looks like Nelson will be a little bit about kind of a slower grower. So you get a little bit of a mix benefit from that. But anything else worth highlighting?

Sean, thanks for the question. No, you're spot on with the midpoint of the guide and what it implies. And no, it's nothing abnormal going on just normal operating leverage and running the business.

Okay. Great. And then on Sterigenics, you mentioned recently you had on -- or at least 1 client that had been in-sourced and sterilization that's not chosen to outsource to you all. Any more background you can share in their decision? Is that all because of niche app? Or were there some other factors driving that decision to finally outsource? And then maybe anything on like the magnitude and timing of that shift and I know you're not building these into numbers, but are we starting to see kind of ice break now and the backdrop being set for more of these decisions to happen.

Yes, Sean, this is Michael. I would say we don't see -- I don't think it was for icebreaking or we're not seeing significant shifts in that arena at this point in time. The compliance period is out for 2 more years. The 1 customer you're referencing that we've talked about in the past we'll start to bring some volume in late this year, and it will roll in through '27 and '28. There's lots of factors that go into the decisions. That's ultimately the customer's choice. I'm sure the requirements of the new regulations was a factor. I can't speak on behalf of the customer and all the details. And also I've got to respect some confidentiality we have in place with them. But overall, we're progressing as we told you previously, that customer will be transitioning over to us with their sterilization volume.

Our next question comes from Patrick Donnelly with Citi.

Michael, maybe 1 for you on Sterigenics. Can you just talk about how you're thinking about '26, both on the volume and pricing side? Would love just a little color on areas like bioprocessing, med tech, how are you thinking about just those categories improving throughout '26 and what you're seeing on the demand front?

Yes. Thanks, Patrick. I would say we've gotten out a long-range guide for the company at 3% to 4% price. Sterigenics came in at 25% on the high end of that range, which is what we call for. We'd expect the same thing to happen in 2026. Bioprocessing, we have a very small base, but we had significant growth that we experienced last year. We'd expect that to continue as we move into 2026. In med tech volumes, we saw growth in volume and mix as the year progressed, and we expect that to continue into '26 as well.

And we're seeing across multiple categories as we referenced on our last call. And I'd say, we're seeing the consistency there as well.

We've got it. And --, other thing I'd call out, Patrick, as I think about the commercial segment has been a little bit more challenging some of the volumes there. We wrapped up '25 looking to '26. But overall, the core volumes, which are really the foundation for the business is med tech, and those are in a pretty good spot.

Okay. That's helpful. And then maybe just Nelson Labs, I know you guys have the EAS headwinds that are going to ease. It sounds like one, two, maybe down a little bit. How do you think about the progression through the year there? And as that headwind eases? And then maybe for Jon on the Nelson margins, I know that's a big driver for margin expansion. Is '26 getting back to that low to mid-30%. Just would love some color there.

Yes. I'll start with the second part of your question there, Patrick, on the margin side. We see Nelson solidly staying in the low to mid-30s again this year. Q1 being the lightest quarter. I expect that on the lower side of the margin rate. And then the first part of your question, could you repeat again, was about Nelson progression throughout the year on the revenue side? .

Yes. Yes, just with the EAS headwinds, how you're thinking about it.

Yes. I would say the biggest headwind we have, the expert advisory comp actually have a little bit trailing into Q1 comp challenge. So we should improve from here, and this should be the last quarter where we faced that kind of headwind. It's a lower headwind than it's been, but still meaningful to the quarter.

And remember first quarter is typically our softest quarter in that business every year, it's like that. So margins of volumes will be softer in the first quarter.

Our next question comes from Luke Sergott with Barclays.

This is Sam on for Luke. Maybe just piggybacking off of Patrick's question on 1Q guide. Sterigenics, ramping a little bit throughout the year. I think you talked a little bit about how volumes are kind of accelerating out of the year. But if you could just talk about any dynamics at play there with the slightly slower start to the year for Sterigenics.

Yes. Thanks, Sam. Sterigenics, like Nelson, typically the first quarter is soft this quarter. We also kind of where we sit today. We're seeing a soft start to the year. Some of that's shut down related, some but also there is some weather impact that we felt as well. But we're guiding towards mid-single digits as we kind of look at the first quarter for Sterigenics.

Got it. That's helpful. And then if you could talk a little bit about the x-ray facility and when exactly it opens in '26, maybe any tailwinds associated with the facility opening -- and maybe just talk about a little bit on the strategy behind opening the x-ray facility and how bringing in that capability helps to serve customers and create new opportunities.

Yes. Sam, we're a full supplier across sterilization all the modalities. We made the strategic decision over 3 years ago when we go through a 3-year strat plan every year with our board. And in the process of that, Mike and the team laid out a strategic plan to build some more actual capability beyond the capability we already have today. We'd expect that to open up in the second half of this year. We're in a qualification with our customers. Just like any other facility that will have a ramp period over time. there'll be a little impact in 2026, and then we'll start to see that accelerate in '27 and '28 in the outlet.

This was a long-term strategic investment. We got to co-locate with the gamma facilities. We're working with some customers on qualifications now. But again, it's more part of our longer strategic plan to make sure we have full service offering across all modalities.

Our next question comes from Brett Fishbin with KeyBanc.

Just maybe moving past the segment conversation. I think at a high level, you noted that revenue from the cross-selling or XPU customer base was up 9% year-over-year in 2025. So I was curious if you could maybe dive in a little bit I'm curious how big that group of customers is as a percentage of total? And then maybe any other color on what you think drove that excess 400 bps of growth within that cohort relative to total company?

Yes, Brett, we've got several activities going on across BU. We've got several hundreds of customers that are doing business across both platforms. And then we also within there, we have strategic pilots of some key segments that we're really looking to accelerate on. So we've seen significant growth, as I said, the 9%. But even within those pilots, it's even greater than that. The team is doing a really good job in leveraging the value prop across Sotera Health and being able to bring the capabilities end-to-end.

We continue to look at our customer satisfaction scores, Sterigenics overall. I'd say --, in the company, there are over 80% overall Sterigenics numbers were even significantly higher last year, and the XPU customers continue to to be above that average. So we'll continue to look for opportunities to accelerate that. We've got a lot of commercial work going out with the teams, and we're hopeful to see even more rewards from that in 2026.

All right. Great. And then for a follow-up, maybe I just thought I'd bring up capital allocation. I think the story continues to get better here and net debt and net leverage are continuing to gradually improve, So just wondering if there's any slight marginal change in how you're thinking about further activity here in terms of like organic investment and debt reduction versus the potential to see maybe a bolt-on acquisition this year?

Yes. Thanks, Brett. Our priorities are staying the same as what we told you before. Our first priority is to fund organic investments and making sure we're getting appropriate returns on that. We committed to a free cash flow target for the '25 to '27 period. We're still committed to that today. And the guide that we gave you an outlook for CapEx for 2026 fits within that framework. So the business will continue to do well and generate cash flow in being prioritized as we've talked about in the past.

Our next question comes from Max Smock with William Blair.

It's [ Christine Raynes ] on for Max Smock. Just hoping to circle back to your 2 active Sterigenics growth projects. On the x-ray facility in the past, you've pointed to a roughly 40% customer utilization target before breaking ground. And as said at the project did not meet the threshold. But obviously, it's strategically important. So curious how much below that 40% typical benchmark you're currently seeing? And if you're assuming any margin dilution for the segment in 2027 until utilization ramps? And then also, if you can give us some color on the sterilization of modality for the other facility build.

Okay. I'm sorry, you've got like 7 questions within that one. Let me try to break this down a couple of perspectives. That's okay. Let me just walk through it. We've stated in the past, we target 40% before we put shovels in the ground, 40% utilization. That's what we hope to have committed with our customers. This 1 is a little bit lighter than that one. We've also said we target 20% IRR on our investments. Obviously, if we're putting cobalt an existing facility or an EO chamber an existing facility that's above the 20%, greenfields are below that. This 1 will be below that, obviously, because it's a complete greenfield.

Strategically, it's important to us because we think there are some segments of the market that would like x-ray, and we're bringing that service to them. We still think that the other modalities will be by and large the largest segments in modalities. We will see this ramping up in the second half of the year trying to get through all your questions. Sterigenics margins. So Jon mentioned it will light margins improvements in 2026, and that will be driven predominantly by Sterigenics where we sit today that encompasses some of the costs that that will come in with low volumes on the x-ray facility, and we'll see that phenomenon continue as we look into '27 as well.

So I think I've addressed all of them. I don't know if I've missed anything else.

Yes. No. I think you got the majority of them. I was just wondering if you have any color on the sterilization modality for the other facility. I think you're got pointed to growth projects in Sterigenics.

The second facility, we have not gone ahead into detail. We're working with our customers on that facility, and we have not gone ahead and publicly released what kind of facility or where that's going to be at this point in time.

Our next question comes from Casey Woodring with JPMorgan.

Great. Maybe the first one, just any changes on how you're thinking about the competitive positioning in Sterigenics in light of NESHAP. I know that, that was a focus coming out of the last Analyst Day just in terms of opportunity to gain share from smaller players? And then maybe same question on the Nelson side. Maybe just walk us through the latest and greatest about the current competitive landscape there.

Thanks, Casey. On the Sterigenics competitive scenario, I would say, as I mentioned earlier in my comments, NESHAP has got a 2-year extension period. So we're seeing discussions about insourcing and outsourcing slowing down. That doesn't mean customers aren't having discussions with us overall on what the strategic plans on the supply chain. Those have always been ongoing. But I don't think there's the urgency that people saw when the April 2026 deadline was in place that's now been extended.

We continue to compete very well. Our customer satisfaction scores were up significantly last year versus the prior year. We'll see how '26 when we do the surveys here coming out shortly. But overall, I think Sterigenics is well positioned. And it's the strength of the business model. It's the global platform. It's consistency in our quality systems, it's our ability for our customers to contract with us on a global basis and us being a full-service provider that helps take care of the all modalities all geographies.

So I would say Sterigenics continues to be very well positioned. On Nelson Labs, Nelson Labs is a very fragmented market overall but that business is really good at service and quality and the reputation is what really matters there with science. And the team continues to do very well. We've got pockets in that business. As you know, the core lab testing has improved over the last year. The advisory business has been a little bit more choppy because of some of the remediation projects that come and go on based on some of the FDA activity.

But overall, we continue to accelerate in the marketplace. Our customer sat scores are good, our NPS. We also do an NPS, Net Promoter Score, and that continues to perform very, very well. So I'd say we're very well -- the treatment is a different dynamic Casey in that market. It's a more fragmented market on a global basis. But we do 800, 900 tests in that business across our facilities around the world.

Got it. Understood. And then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front?

No. I mean there's stuffing materially change on timing. I think when I look at it, there's no trial set for this year other than the public nuisance case in New Mexico in the July time period, other than that there isn't any material change in time lines.

Our next question comes from Jason Bednar with Piper Sandler.

Mike, I wanted to come back to 1 of the comments you made just on the -- you're responding to the first quarter Sterigenics guide. Just to unpack the comment, if you could, around the slower start to the year and the weather headwinds on Sterigenics. Were those comments connected -- or was that something where you're saying demand was a little bit slower to start the year and weather has been creating some challenges as well?

And then for the weather comment particular, just if you can quantify how large does that headwind? Is that something that like do you feel like you can overcome here within the first quarter? Or does it take a couple of quarters to overcome and catch up on those -- that impact those headwinds.

Yes, I would say a couple of comments. My comments are focused around -- we had some shutdowns in the quarter and weather has had some impact that we felt -- the guide that we gave today, mid-single digits is consistent with what we feel we can deliver and also the guide for the year, mid- to high single digits as we're confident in our ability to deliver that as well. So I would say that's how you should think about it.

Okay. Fair enough. And then maybe longer term or medium term to long term. I wanted to ask in the context of future CapEx and free cash flow. You have a couple of capacity expansion plans underway. We've been talking about those here today. I guess, do you still feel comfortable with those long-term targets? I think you do, just you reiterating them today. But just how do you think about those in the context of medium-term, long-term planning for additional capacity expansion, when do those additional capacity expansions or greenfield opportunities? When do those discussions happen? How are you planning for those today knowing you're looking out to '28, '29 and '30. Hopefully, that question makes sense. .

I think I got it, Jason. So as I mentioned multiple times as well as this morning, we do a 3-year strat plan with our leadership team and the Board every August, and we kind of lay out the next 3 years so where we see the capital demands. And that really was the foundation of the Investor Day presentation we gave for the '25 to '27 time periods. We continue to roll forward and look at opportunities beyond that. We continue to make sure that we've got the facility capacity in place to deliver the long-term growth that we need. So we will continue to refresh that and provide updates where appropriate on future outlooks. But for the time periods that we've given guidance around '25 to '27, we feel confident in our ability to deliver the free cash flow that we've outlined in that time period.

All right. Got it. Makes sense. Congrats again.

Our next question comes from Ryan Halsted with RBC Capital Markets.

Maybe just to ask a question on the Nordion segment. Can you maybe provide a little more color on some of the headwinds you saw in the quarter? -- certainly, especially given that you were going up against maybe some lighter comps. You obviously talked about the timing of the Cobalt 60 harvest schedule. Maybe just -- any color around what were the drivers there, including that timing impact? .

Ryan, this is Michael. I would just say it was driven by harvest schedules. -- right? That's -- we called this, we expected it to be down. It's really -- it's not a demand problem. It's a supply timing situation. So remember how this works you get cobalt out of nuclear reactors that primary purpose in life is to generate electricity for consumers and businesses. So we work with utilities on when they're going to do a shutdown, so we could harvest the cobalt out of the facilities -- out of the reactors. And that's -- so we have very good visibility. That will shift every now and then a couple of weeks or above here and there. but we have good visibility.

So we anticipated this. We projected that to the investment committee to make sure they understood it. So we're not concerned at all about the fourth quarter from a volume perspective. We knew that and we had good visibility. And that's why we also give you visibility on how we think of first half, second half, so you could start just circling and honing on how those harvests will work in the year to come. right? So there was no surprise about that. Overall, it came in as expected. It's actually slightly better even. .

Got it. That's helpful. And then for my follow-up, just -- any updated views on the potential impact of onshoring by your customers, especially given the dynamic environment with tariffs and the government may be proposing some regulations with incentives for manufacturers to try to bring more of that manufacturing onshore. Just curious your thoughts on impact to your business. .

Yes. Great. So remember, the majority of our business is a service business. We're not really impacted by tariffs. The 1 place where we have product is the cobalt product that's U.S. MCA certified. So we don't have any tariffs. So I just want to kind of level set that. Now talking about the bigger macro environment. We've not seen a significant movement at the onshoring, but if that were to happen, and customers are having discussions with us, but we're not seeing a significant investment commitment at this point in time. But if it were to happen, we'd be very well situated because -- we have a very significant position in the marketplace here in the United States, where we anticipate that assuring if it were to occur with what happened here.

Our next question comes from David Windley with Jefferies. .

Michael, I was wondering in regard to the guidance, where are your areas of higher or lower visibility? Or said differently, what could firm up as the year progresses, that takes you to the higher end of the range? .

Yes, David, it's pretty consistent year in and year out. I sound like a broken record, but it's on it's a volume and mix piece that would tend us towards the high end. As you know, Nordion, we have probably the best visibility. Sterigenics less so we've got quarter or so out. And then in Nelson Labs is more transactional in nature and some of these validation projects could take a little longer. So I say in that order. But the biggest thing that could drive us to the higher end of that would be volume and mix in Sterigenics and Nelson Labs. .

And if I ask you to take that down a level, would you -- like between -- you commented on this a little earlier in the call, but like med device versus bioprocessing, your kind of end markets is 1 of those firming up or accelerating more than the other vis-a-vis visibility?

I got to think about that. We're seeing bioprocessing with nice growth, but we're in a pretty small share position. Maybe we picked our sales guys think we picked up a little share. I'm not sure we have. But we're seeing nice growth overall in the but it's a small category. I see they're both in a pretty good spot right now, David. But just recognize bottle processing is a much smaller base for us.

Our next question comes from Michael Polark with Wolf Research. .

One of the things I heard on Sterigenics was the commercial segment volumes are challenged. Michael, can you unpack that? Remind us what product categories or commercials is food and consumer products or something else? And what those challenges are, why you perceive them to be? .

Yes. So Mike, yes, that's reflected on the comment I made earlier. Commercial is exactly what you talked about the small electronics in there. There's some food in there. There's some spice in there. There are some other categories as well that it's just been a choppy market coming out of COVID, it really hasn't been very stable. It's been moving around quite a bit. We continue to see that going forward here, and we're planning around that. But I would say that would be -- again, it's a small portion of the total. I think it's less than 15%. I can't remember what the exact numbers. It's a small portion of Sterigenics and context-wise.

Helpful. And just a follow-up to that and then 1 other topic, please. When you say challenged, like growing, but just low growth or shrinking? .

Combination. I think more probably shrinking than growing. I mean, it's been choppy. Some customers have redesigned products and don't have the need. I think if I say this something you have 1 customer that had some packaging product for the food market and they've changed their designs coming out of Cobalt. But again, that's not impacting 2026. That's -- I'm looking backwards I want to make that comment. So it's just been -- that -- there's a churn in that customer base. And we're seeing -- it's just a little heavier than we've seen in the past, but it's been like this since 2020, 2021.

Helpful. I appreciate that color. And then the other one, also Sterigenics. Just as you reflect on calendar year '25 and the performance in the the acceleration in volume growth, the topic of tariffs, we've discussed on prior calls, do you believe the tariff landscape contributed to customers kind of building some inventory out of that as part of their mitigation plans? Any -- what's the latest perspective on whether that was good, neutral in last year? .

Yes. We see -- as we've stated a couple of times, we've not seen a material impact from the tariff side that we've been able to detect. I referenced in the second quarter, there was a bump up in some stat volume with in a particular facility I was in and I say what happened here and they said, "Oh, customers trying to get some stuff in before tariffs. But that's not -- that's a facility that's got 50 customers. This was a customer that I happened to notice when I was going through some analytics with the team out there.

We're just not seeing material impact from that, Mike. I know people have asked us that question and there's nothing consistently showing up from our customers. We're seeing nice consistent volumes out of the Sterigenics side as we've wrapped up 2025, which was good.

And I'm not showing any further questions at this time. I'd like to turn the call back to Michael for any further remarks. .

Great. We thank you for your time this morning. Hopefully, you could see we had a nice finish to 2025. We're set up for a very strong 2026. And what I want you to take out of this is this business is built to perform. We've had 20 consecutive years of growth, strong cash flow generation, strong margins, sticky customer relationships -- this business is built to run and perform. And what we're going to try doing is making sure you have transparency on what we expect out of the business, and we're just going to keep executing against it. So thank you for your time today and wish you all a good week. Bye-bye.

Thanks, everyone, for joining us today. Welcome to the JPMorgan Healthcare Conference. My name is Jaden Rismay, and I'm on the Life Science Tools team here. I'm pleased to be joined by Sotera Health, CEO, Michael Petras. So I'll turn it over here in a second to Michael to get started with the presentation. Afterwards, we'll do the standard Q&A session. And so with that, please take it away, Michael.

Great. Thanks, Jaden, and good morning, everybody, and I appreciate the JPMorgan team for hosting us today. Obviously, we've got forward-looking statements, and you can refer to our securities filings on our website or our SEC filings for any reconciliation of non-GAAP matters. Today, I want to cover 3 topics. One, the crucial role that Sotera Health plays in health care, try to just give an overview of the company for folks that may not be as familiar with the company. Secondly, then I'll cover our strong and consistent financial performance over many years of consistent performance. And then last one, our path to driving value long term for shareholders. So that will be the focus of today's discussion.

Safeguarding global health, that is the mission of the company, Sotera Health. Sotera, for the folks that aren't familiar with Sotera, the word comes from Sotera, the Greek goddess of safety, and really, when we look at what our mission is in this company, it's safeguarding global health across our 3 businesses, Sterigenics, Nordion and Nelson Labs. We have over 5,000 customers in 50 countries, over 3,100 employees globally. We provide end-to-end solutions across our 3 businesses and helping customers get their products in the marketplace in the MedTech and pharma environment and also making sure they stay in the marketplace and provide safe products to patients.

We have 62 facilities across 13 countries. We do business with 40 of the top 50 medical device companies or 9 of the top 10 pharma companies. We've got strong long-term relationships. Over 70% of our revenue is tied to multiyear contracts. And you'll see a little bit later, strong cash flow and consistent financial performance across that business. These are the foundations for this great company. Our role in health care is pretty evident talking to any of these customers in the med device or pharma, you'll see the end-to-end solutions starting early on in early R&D materials and packaging optimization across our Sterigenics and Nelson Labs business, working across the health care supply chain all the way out to the final quality control testing they perform throughout that, each of the 3 businesses interact across that value chain and helping our customers, again, the MedTech and pharma companies getting their products into the marketplace.

These are 3 integrated businesses and outstanding businesses, Sterigenics, Nordion and Nelson Labs. In the Sterigenics side, where this is our largest business. It's about 2/3 of the company. We -- this business does about 50-plus percent EBITDA margins. We're a global leader in sterilization services. So what we do in this business is our customers, the MedTech and pharma companies make their products, package them up, put them in the packages in the master cartons and then they ship them out to the point of care for health care providers.

In the step in between there, it comes to one of our facilities around the world, and we bring the product in and we sterilize that product to make sure it's safe and there's no microorganism or anything that could cause harm to the patient as we do the terminal sterilization. We've got 40 facilities in 13 countries across 4 continents. About 39% of that business goes through ethylene oxide sterilization, 49% or just under 50% is gamma sterilization and about 12% goes through e-beam.

So one of the things to keep in mind is we never take possession of the product. It's a service business. The customers drop the product off, we sterilize it, they pick it up. We do not pick the modality. That modality is determined by the customer in close coordination with the regulatory bodies, i.e., the FDA. So all we do is provide a service across these facilities around the world.

Our second business is Nordion. Nordion is the world's largest provider of Cobalt-60. Cobalt-60, this is the only one of our 3 business that's a product business. The other 2 are services business. In this business, we get Cobalt-60 from reactors around the world. China, Canada, India, Russia, Argentina. We take this product and put it in a usable form for sterilizers like Sterigenics. So we sell the product to Sterigenics as well as Sterigenics competitors around the world. This is a really unique business. Our core capabilities is handling dangerous materials in the nuclear site license facility that we have in Ottawa, Canada.

About 70% of the single-use medical devices are sterilized with cobalt, which is really critical. And for us, it's a big competitive advantage, having an integrated play between Sterigenics and Nordion. And this business does approximately 60% EBITDA margins.

Our third business is Nelson Labs. This business is a leader in microbiological and analytical chemistry testing. We have about 3,000 customers. The key in this business is quality and reliability. What we do here, we're an independent test lab, we work with the same customers. We have about 70% customer overlap with the Sterigenics side. What we do in this business is we provide testing to make sure the products are safe and meet the regulatory requirements. We do about 900-plus tests across med device and pharma.

If you look at the business, about 48%, about -- just about 50% of the business is routine or flow testing lot release. So a big part of this business is the integration between Sterigenics and Nelson Labs and the embedded labs that sit within Sterigenics facilities are co-located in close proximity. Customers sterilize their product and then Nelson Labs does the routine testing or we call the flow business to make sure the products are safe and have no microorganisms.

About 37% of the business is validation or more project-based business, helping people meet products and make sure they're meeting the regulatory requirements or helping get new products to market. And approximately 15% of the business is expert advisory services, where this business is really helping provide lead generation, both Sterigenics and Nelson Labs.

So 3 great businesses outstanding, lots of synergies. If you look here in this next chart, you'll see significant opportunity working across the business units. On the left-hand side, you could see our customer satisfaction rates. We do approximately 75% to 80% is our -- usually our annual customer satisfaction rates. We're in the process right now. We rolled it out at the beginning of each calendar year. So we'll know what the numbers are shortly for the last year, but we try to get 75% to 80%. You could see here that customers that do business across BU, across the business units have a higher customer satisfaction, which we're proud to see through year-to-date 2025, we're seeing those XBU customers growing at a 10% rate.

So year-over-year 10% growth, which is higher than our core growth within the company, but you could see the significant value customers see in the synergies of working across business units. Now I'd like to transition and talk a little bit about the strong consistent financial profile we've had over the years. This business has grown since 2005, every single year, we've seen growth on the top line. And you see that through all economic cycles, including the Great Recession in 2008 as well as the pandemic in 2020 and 2021.

This morning, we put out our revenue. We talked about an early release this morning of our revenue that we surpassed $1.16 billion in revenue over 5% growth minimum. We'll have final numbers for 2025 when we do our quarterly at the end of February and our guide for 2026. But again, another strong year of consistent growth year in and year out. And if you look at through our TTM through the third quarter of 2025, we had a CAGR from fiscal year 2020 when we went public. We've had a compound annual growth rate of 7% on top line, 7% adjusted EBITDA growth and free cash flow of 8%. So very durable, consistent financial performance. We've had $170 million of adjusted EBITDA growth since we went public in November of 2020.

Along with that is capital. We deploy capital in a very disciplined allocation method. We try to maintain a very healthy balance sheet. Our target that we laid out in November of 2024 at our Investor Day was we're trying to target net leverage of 2 to 3x. We, at the end of -- through the third quarter, we were at 3.3x. So our goal is to get that down to 2 to 3x. We want to continue to have ample liquidity between the cash on hand and access to revolver lines that we have. We want to continue to delever this business as we drive long-term growth and hopefully improve the credit ratings over time.

Our priorities with our capital is to drive organic growth. That's where our biggest capital deployment is going around organic growth and continue to strengthen businesses. We'll look for opportunities around M&A, debt reduction and share repurchase as we continue to progress the business and we continue to deleverage. So very strong financial performance with a disciplined capital allocation.

Let me talk a little bit about how we see value in the long term and how we continue to drive growth. Our company priorities as we laid out at our Investor Day in November 2024 around 4 key priorities: excellence in serving our customers with end-to-end solutions. I talked to you a little bit about that earlier and the work that we do across the health care supply chain and the synergies we have across all the businesses and particularly Sterigenics and Nelson Labs and really bringing seamless solutions to our customers and helping them focus on our capabilities and helping them get their products to market and staying in the market. So it's one of our key priorities in making sure we have good service, predictable, reliable, high-quality service.

Second key priority is winning in growth markets. We've done a lot of work within our business to continue to segment. Not all of MedTech and pharma is growing at the same rates as many of you know. So one of the key priorities for us is how we turn around and segment those markets and really highlight and focus in on the segments that are growing at a higher rate than some of the other categories, particularly within MedTech. So the team has done a lot of great work on that throughout 2025, and we're excited about where that's leading into 2026.

Third key priority is driving operational excellence to enhance free cash flow. This business has significant cash flow on a year in, year out basis with over $500 million, closer to $600 million of EBITDA. We've got significant cash flow that's created throughout this business. We have good operating leverage, good working capital. But for us, it's really making sure we enhance free cash flow and the work that we've been doing around our CapEx deployment.

We had -- the last couple of years, we've had elevated CapEx and that's really driven by a couple of key factors. One is the enhancements we're putting in some of our facilities around ethylene oxide facilities in particular. The second would be the greenfields on the Sterigenics side, the greenfield capacity expansions. And then the third area is the Cobalt-60 development, which we haven't done a program since early 2000s, and we're in the midst of that right now within the Nordion business.

As we come off on the back end of those programs, you'll start to see us pop significant free cash flow as the CapEx comes down and a lot of the other work that we've been doing around interest expense and some of the other things around debt reductions. And then the fourth one is around disciplined capital deployment. As I just referenced on the previous slide, we have processes in place in the capital allocation, a very rigorous process within our committee within the company and also within our Board governance. But these 4 priorities are all focused on how do we generate value for our shareholders over the long term.

Consistent with our guide that we gave -- a 3-year guide that we gave in November of 2024, as we look at the businesses, we see overall company growing at 5% to 7% on top line year in and year out. About 3% to 4% of that is price and the rest is volume and mix. If I break it down to each of the respective businesses, Sterigenics is a business that is going to grow mid-single digits to high single digits, and the price will be on the higher end of the range, that 4% that I referenced to you. And as I also stated earlier, it's about 2/3 of the company's revenue.

Nelson Labs, we see that business growing in mid-single digits. The business will see about 3% price year in and year out and then the balance of that mid-single digits is made up of volume and mix. Our Nordion business is approximately 15% of the company's total revenue. We see that business growing low single digits to mid-single digits, and it's on the lower end of that price range, about 3%. So what you could see here is all 3 businesses delivering top line growth year in, year out that's contributing to the 5% growth that we see within the business over the next several years.

With that, we would expect to see operating leverage an improvement of 50 to 150 basis points of EBITDA. And therefore, we'd see 5% to 8% EBITDA growth over that same period of 2025 through 2027. If I step back and just reflect on what we told you back in November of 2024 and where we are today through the third quarter and we released, we said we would have organic growth of 5% to 7%. And through the third quarter, we hit 6.2%. So we're on track, even exceeding what we committed to at that point. Adjusted EBITDA growth, we said we would grow 5% to 8%, as I just showed you on the previous slide. And through third quarter, we were at 10.4% growth, again, on track.

Margin improvement of 50 to 150 basis points, we had 195 basis point improvement through the third quarter. Cumulative free cash flow, we committed that we would be at $500 million to $600 million of free cash flow over the 3-year period, '25 to '27. We're well on track with that, $147 million through the third quarter. And then our net leverage ratio, which I talked to you a moment ago, I said our target would be 2 to 3x net leverage, and we're at 3.3x for the third quarter.

So the point I want to make sure that it's very clear to the folks here, we're doing what we told you we're going to do. We're very consistent in execution with our teams and delivering against the commitments that we've made, and we hope to exceed these over time. So really strong execution performance by our team. Also, I think it would be good to do a reflection on where our capital structure has been over the last 2 years because there's a lot of activity and information that we shared to you, but there's a couple of key things I want to draw your attention to.

Obviously, as you know, when we initially went public, we were owned by private equity. Today, private equity owns about 20% of the outstanding shares. So we've increased the public float to 80% of the total shares outstanding over the last 2 years. Our net leverage ratio has improved 1 turn over the past 2 years down to the 3.3x that I just referenced. Our debt paydown has been $90 million over the last 2 years, and we've improved our liquidity about $245 million.

We've extended our debt maturity 5 years to 2031, and our term loan interest rate has been reduced by 75 basis points in the past year alone. So we continue to strengthen our balance sheet, and we've more than doubled our public float. This is all part of improving our capital structure for the long term and very well situated for the public markets. The last slide, if you're looking at why would you invest in this company, I think this is an important slide for you to take away. These are key aspects and the differentiating factors of why this is such an outstanding company. We're a leader in a large and growing addressable market, about an $18 billion service addressable market today. And you see, as we talked about this morning, we've surpassed $1.16 billion in revenue. We have significant opportunity for more growth.

These are very challenging markets in highly regulated markets. You don't just walk into these markets and get a competitive position like we have. We've got a very well-established base and expertise in highly regulated markets, which allow us to get the margins and returns. The total company has adjusted EBITDA margins of 50-plus percent. And that's because of the strong performance we have in these highly regulated and challenging markets. We have a comprehensive global facility network made up of the Sterigenics facilities in Nelson Labs. We have an end-to-end platform that helps us help our customers get their products to market and stay in the market.

We're well positioned for above-market growth and the work that we're doing is segmenting the end markets, our commercial excellence work and how we're going to continue to perform over the long run. I walked you through the strong and consistent financial profile of this business, significant margins, significant cash flow and growth every single year since 2005, and we see that continuing.

Continued acceleration of free cash flow. I referenced earlier as well and CapEx coming down over time and the commitments we made in $500 million to $600 million of free cash flow between 2025 and 2027 cumulative and then the disciplined capital allocation. So I hope you can see the excitement that my team and I have around this business. It's a great business. We're well positioned in the marketplace, and it's a great investment opportunity. So Jaden, that's all I had in prepared remarks. I'm happy to answer any questions.

Okay. Perfect. Thank you for that helpful overview. Maybe just to start, I wanted to hit on the pre-announcement from this morning. You announced 2025 revenues are expected to surpass $1.16 billion versus expectations of $1.16 billion. Curious on how 4Q trended relative to expectations? And if you could provide a breakdown of how each segment performed in the quarter? And one last one, and are there any end market trends you think are worth calling out?

Yes. I think you'll see when we report at the end of February, our fourth quarter, we give an outlook for 2026, it's going to be pretty boring. It's going to be straight down the middle of what we told you we were going to do. We're delivering the top line growth of $1.16 billion. It's going to be on the higher end of the range we gave you before. All 3 businesses are continuing to perform well. Volumes are going in the direction we want, and we're really optimistic about how the year finished and what 2026 will look like.

Right. And while you didn't guide to '26, just during 3Q, you noted you felt good about that long-range guide provided at your Analyst Day calling for mid- to high single-digit growth in Sterigenics, low to mid-single-digit growth in Nordion and mid-single-digit growth in Nelson Labs. So how are you tracking against those long-term goals? And what are the factors that give you confidence in achieving them?

Yes. We're tracking very well. Nordion has been a very -- I'll take with Nordion first. Nordion has been a very consistent performer. Price, we've said would be at least 3% in the long-range guide. And then volume and mix on top of that to get us our low to mid-single digits growth, and they've been very consistent. They've had some lumpiness in quarter-to-quarter. It's really driven by the harvest of the cobalt from the reactors and our partners that supply the cobalt. But overall, that business consistently performed.

Nelson Labs growth continues to do well. We have one business in particular, our Expert Advisory Services that had a challenging year in 2025, but coming off the best year it's ever had in 2024. But the part that gives us encouragement is the core lab business continues to perform and we're seeing nice growth. As more regulation comes in, we're well positioned to capitalize on that margins. We expect that to be in the 30% to 35% range, and we would see that come through as you'll see '25 wrap up again into '26.

And then lastly, Sterigenics, 2/3 of our business is Sterigenics. Business is 50-plus percent EBITDA margins. And one of the things we've been talking about since about August, September 2024, I got to make sure I get all these years, right, 2024 is that we're seeing consistent improvement in volumes across that business. And we're optimistic of where we're finishing '25 and how we see '26 playing out and the confidence around our ability to continue to execute in that business, which is 2/3 of the company, and we're very well positioned there. So overall, Jaden, we feel really good about where we finished '25, and we're very optimistic about how we look forward to 2026.

All right. That's really helpful. And we'll get to Sterigenics, but maybe just one last one on '26. How are you thinking about pricing in '26? And are you still expecting total company price to be near that long-term stated goal of 3% to 4%? And how are you thinking about price across your different businesses?

Yes. We'll see 3% to 4% price. Again, we'll give a guide on 2026 in a couple of months, but we would see no reason we wouldn't have 3% to 4% price, Sterigenics being the high end of that, Nelson and Nordion being on the lower end of that.

Got it. And maybe just on Sterigenics now. So you've been seeing some improving demand in Sterigenics at a high level and for those who are less familiar with the business, can you touch on what you're seeing as the main drivers behind the improving demand across businesses -- or across that business? And are there any specific end market or customer segments that are leading to that strength?

Yes. We've seen pretty consistent performance across that business, across almost every category. Even as I reflect on the fourth quarter without getting all the particulars, I would tell you, we're seeing strength across most med device and pharma categories. If I reflect where we were a year ago this time, we were seeing some choppiness, but not near the level of inventory we took out -- we saw takeout in early 2024. So the inventory piece seems to be behind us with our customers, and we're seeing growth across multiple categories, in almost every category with our teams.

A lot of people ask about bioprocessing. I can't speak for the fourth quarter specifically, but I can tell you through third quarter, we saw significant growth in bioprocessing. It's a small portion of our business in Sterigenics, but we saw nice growth in that category as well. That seems to be one chain everyone likes to anchor against. But overall, the team is doing well and executing on the growth in the med device and pharma space with Sterigenics volumes.

All right. And just as a follow-up, how long do you expect for this positive demand trends to continue? Is there anything that could probably possibly limit that growth you're seeing -- that you just touched on in Sterigenics?

Yes. We continue to be optimistic about our ability to continue to grow this business year in and year out, and we're very well positioned in the marketplace.

Yes. And maybe just on the competitive environment, a key theme from your Analyst Day was the potential for increased regulation to squeeze out smaller players. Have you seen this occur in the marketplace at this point?

Yes. I don't know that we would characterize it as squeeze out smaller players. I don't think that's what we said at our Analyst Day. But just to be clear, what I do recall us saying is we're very well positioned with some of the new regulations that are coming out, and we feel comfortable about our ability to meet those regulations. I think some of the other larger competitors will probably be well positioned. I think some of the smaller folks, they're going to have 2 years. That's the one thing that's changed since Analyst Day.

In November 2024, we thought the new regulations for ethylene oxide in the U.S. were going to take place in April '26. They've been extended and people have been given an exception until April 2028. We still think these are very challenging regulations. We're still very confident about our ability to execute and meet those. But I think smaller folks probably have a little pause here now because they've got a little more breathing room.

But at the end of the day, they're still going to have to meet these very stringent requirements in April 2028. And we think it's going to be very interesting to see how that plays out in the market. They're going to have to put significant capital in to get these facilities, assuming that their systems can get them to where they need to. We're comfortable with where we're situated, very comfortable.

Yes. And that's just a perfect segue. Maybe just on these NESHAP standards. How are you seeing customer concerns and compliance readiness evolve just given that 2-year pushout? And could you also share more about the impact of customers choosing to outsource sterilization to you and how you expect those volume transitions to affect your business going forward?

Yes. So Jaden, you're referencing NESHAP, which is the new standard that's out there for ethylene oxide, and that's the one I'm referencing that got extended to April 2028. We're seeing a little -- customers were a little more anxious to talk about making some transition earlier last year because they thought the new regs were coming out in April 2026. So we're seeing that slow down a little bit.

By the way, we did not have projected in our numbers big gains in share shift or anything like that. But I can tell you that one significant customer that also had a significant amount of in-sourcing has made the determination to outsource to us. So we'll see that in the back half of '26 and more into '27 and '28. So we have one customer in particular that's made the decision that they want to shut down their in-house and move to us, which is a good development. And it's really -- what we tell them is we'll focus on what we're good at, you focus on what you're good at. You guys make products, do R&D and all that great stuff. We'll continue to focus on sterilization.

And so we're well positioned on that opportunity. And I think over time, there's still some uncertainty exactly how this is going to play out for some of the smaller players. We continue to have dialogue with customers concerned about their current supplier, but we're not seeing as much effort, honestly, as we did earlier in '24 to transition that. But I don't think that's gone away permanently. I think there's going to be more threat around that for the smaller players in '27 and '28.

All right. And just moving on, you've indicated that you're in a strong position capacity-wise with the 3-year strategic plan in place for Sterigenics that covers '25 to '27. And you feel confident even as you look ahead to '28. Could you elaborate more on your current capacity plans? And what should we expect in '26 as it relates to your 3-year plan?

Yes. So I'm going to address that specifically with Sterigenics. We do feel very good about where we are in capacity. We've got 2 greenfields that are in the CapEx number of '25 to '27. One of them is an X-ray facility that we'll be opening in 2026. So that's going through qualification process now. We feel pretty good about that, and the pipeline is building on that side. And then we have one other greenfield that we haven't gotten into particulars publicly that it's part of the reason CapEx was down in '25. We deferred that investment to later in the year. So we'll see that investment pick up in 2026. That will come to market that capacity in '27 -- late '27, early '28.

So we feel we're really pretty well situated on capacity in Sterigenics for the next several years. And listen, we'll continue to look at these investments. We try to target about 40% commitment before we put the shovels in the ground. We don't always get that, particularly with the X-ray one. We didn't -- there was a little more strategic reason that we wanted to do that. But -- and then we also target 20-plus percent IRR and overall CapEx programs. Obviously, greenfield would be more capital. So it's a little lower than the 20% IRR. But we feel very good about the capital allocation around CapEx and how we're thinking about capacity over the next several years.

You just mentioned that 40% capacity being locked up before committing to more capacity expansion. So wondering if that 40% pre-commit threshold is consistent regardless of regulatory timing? Or does that NESHAP change that calculus?

No, NESHAP is really relevant on that piece. And particularly with the X-ray facility, we don't have 40% commitments when we made that, but there was a strategic decision the Board has made to put that investment in place. But we feel really good about how that pipeline is building around that opportunity.

And maybe just quickly shifting to cobalt. Along those same lines in terms of capacity, how should we think about the cobalt capacity expansion moving forward? What does the total dollar amount and time line for expansion look like?

Okay. So on cobalt, that's our Nordion business. Remember, as I mentioned earlier, that's the only business that's a product business. We haven't done a major capacity expansion in that since the early 2000s. So how this works is we work with the utilities. So there's 2 programs that we're involved in cobalt development right now. The first one is with Ontario Power Group, which is a long-term partner of ours in Canada. They have -- they're going to be bringing up a Darlington reactor. That program is going very, very well. It's coming in under budget and slightly ahead of time. We expect to get our first cobalt harvest in 2028.

The second capacity program that we're putting in place is with Westinghouse. And what we're doing with working with Westinghouse in conjunction using our intellectual property, and we're working with utilities, particularly here in the U.S. We've got a cobalt development program going on there. We think that will be towards the end of the decade when we'll start to see cobalt come out of that partnership. We've got one utility that we're progressing pretty rapidly with, and we're excited about the progress that's been made there.

And that will open up a whole -- right now, I don't want to get too technical, but there's a certain kind of reactor that makes cobalt today. Mostly, there's 2 kinds. This will open up a new category of reactors, which will allow us some flexibility over the longer term for the next 20 to 30 years, which is why we're so confident in how well positioned we are.

All right. And we'll get back to Nordion. But just really quickly on pricing. How do you approach pricing adjustment for existing versus new customers, especially in the context of an evolving capacity and competitive dynamic?

Yes. So I'm going to answer this question across the company in total, we get about 3% to 4% price. As I stated, Sterigenics will be on the high end of that, Nelson and Nordion on the lower end. At the end of the day, when we're out in the marketplace, we cannot run our value prop. Listen, people say, "Oh, you got this great business, you get price every year, you got leverage". At the end of the day, you cannot run your value prop. You've got to make sure that you're aligned with your customers and generate the appropriate value for your services. So there's lots of things we take into consideration, competitive dynamics, capacity in the marketplace, the modality, the time of when capacity is in. There's multiple factors that go into these decisions. But we're proud of the fact that we're able to get paid and rewarded for the services we provide.

Great. And maybe just one last one on pricing. Are there any regions or customer segments where you anticipate more pricing pressure? And where the value proposition may be need to be reinforced to maintain that pricing growth?

I would just say that our pricing discipline and insights are -- we have a very disciplined process when we go through this, and we want to make sure that our value is aligned with the services we provide. We're not feeling pricing pressure. I don't want to sound arrogant about this. It's about being able to provide a great service to our customers. Listen, this is -- in the case of Sterigenics, which is 2/3 of our company, the price they pay for sterilization is less than 5% of the overall product cost. These customers are taking multi tens of hundreds of millions of billions of dollars of products in the marketplace. And we're a critical essential service to make sure those products are safe and the patients are safe. And that's -- we price accordingly.

All right. And then just turning to Nordion now. So in the past, you've highlighted complete integration in the cobalt supply chain. So what steps are you taking to ensure long-term supply security? And are there any risks or opportunities you foresee in sourcing cobalt globally in the near or longer term?

Yes. The team has done an outstanding job there. As we stated, this is a highly regulated business, moving dangerous materials around the world. We buy from multiple geographies, as I referenced earlier in my presentation. One thing, this is not a simple task, right? There's significant barriers to entry in this business, right? The things that Riaz and the team deal with in getting cobalt moved around the world and new regulations and port changes and the geopolitical dynamics, this is what this team is great at. They've done an unbelievable job executing through multiple geopolitical dynamics over the last several years. we're very well situated.

The last several years, we've been meeting all our -- all the demand with our capacity. And cobalt is very well positioned for long-term growth. We're able to meet the industry needs in '26 and beyond. As we put in this additional capacity, we can be even well better suited to do that.

Great. And with over 30% of the global sterilization market using gamma radiation or cobalt, how do you see this market share shifting over the next 5 years? And what is Nordion's strategy to capture additional share? And how do you plan to attract continued growth and remain competitive?

Yes. Gamma in our view, is the best sterilization modality out there, right? You can turn it on, you can turn it off. It's very targeted. It's reliable, dependable. There's not a lot of residual on the product afterwards. So this is what our customers tell us, right? It's a very significant play for the business at Sterigenics as well as Nordion. And we see continued growth in gamma sterilization, which is why our integration is so critical in what we do across and the competitive advantage we get by being integrated across Sterigenics and Nordion. We continue to see growth there, and we'll continue to invest to make sure we have the cobalt supply for our customers.

All right. And you mentioned the new X-ray facility opening up in the Southeast U.S. in 2026. What is the expected throughput of this facility? And how does it compare to your existing gamma and e-beam sites?

Yes. So I would -- I'm not going to get into particulars, but I would just think about it as a normal size if you look across our facilities and take an average, think of it in that size. This is -- X-ray has been on a long time, okay? And we have some level of customer adoption, but it's not near to the scale of adoption that you see in ethylene oxide or gamma radiation. We want to make sure we have X-ray as a modality we could be viewed as a complete supplier to our customer base. But I don't see us putting in 10 X-rays over the next 5 years. I mean that's just -- we think Cobalt is going to be in great supply in a critical modality and remain a critical modality.

Perfect. And then just turning to Nelson Labs. You noted the RCA Advisory service business has been impacted by fewer remediation projects due to ongoing changes at the FDA, resulting in a significant decline in advisory services in 2Q. So just how the core business continues to grow? And -- or can you elaborate on how you see the outlook for this advisory service evolving? And what is it driving continued strength in the core business? That is the mouth...

Well, there's a mouth there, Jaden. I hope I can't get all of it. So let me just kind of try to unpack that a little bit. As I stated earlier, our Expert Advisory Services had the best year in the history of that company in 2024. And last year in '25, probably had the worst year in this company. That was driven by the remediation projects. So there was lots of big remediation projects that were built up with the FDA that we were tasked to help the customers, which is great.

We probably took our eye off a little bit of the nonremediation projects, which -- because we were so focused on delivering on the remediation projects became outsized where they've typically been. The impact of this RCA expert advisory business is about 10 points on the overall growth rate of Nelson last year, just to give you context. So if that business is going to be down roughly 5%, you say it would have been up 5% if RCA was just normalized, right? It's the lowest margin of our business within the Nelson Labs.

As we look at this, we're not looking for that business to grow 20%, 30%, 40%. We're looking for just steady growth and synergistic value across Nelson and Sterigenics. But the return on investment is very good in that business. We don't -- there's not capital in that business. It's people. And again, it's our expertise that we build across Nelson and Sterigenics that's the real value. We'll see that returning to some growth in 2026. But the key is our core lab business continues to do very well, capitalize on regulatory developments and new product needs by our customers. The Nelson Labs team has continued to see volume growth and then also the flow routine business continues to do very well.

Right. And you just got into this a little bit, but you mentioned the embedded labs within Nelson and Sterigenics facilities have seen significant growth. So just can you share about the operational benefits and throughput improvements delivered by these embedded labs?

Yes. So some of the things you saw earlier when I showed the customer sat ratings and the growth rate for XBU customers, this is a customer specifically telling us the value they see of embedded labs and the close coordination between the lab and the sterilization operations of Sterigenics. We're seeing growth overachieve on the embedded labs.

We'll continue to see that accelerate. We'll continue to see opportunities to put a minimal amount of investment in, but some incremental investment that will help accelerate growth. The team has done a great job. For example, we put some additional capital to work in Germany in '24 that we're seeing the fruits of in '25 and as we look forward in '26. We'll continue to look for opportunities like that with these embedded labs.

Yes. And then moving on to some operational questions. We have a few minutes left. You recently received some favorable rulings in Georgia with several bellwether cases dismissed. Can you speak more about how these outcomes could affect other pending cases? And what does your outlook look like for the remaining cases?

Yes. So you're referencing specifically a litigation that we have in the Sterigenics business around ethylene oxide. And in Georgia, it's a pretty complicated topic, so I'll try to be high level, but happy to answer additional questions. The judge has been pretty focused on science, which we think is really important in causation. And there was a 2-phase process.

And I would just tell you, in the first phase, there were 8 cases bellwethered that were put through the Phase 1 and Phase 2 process. In the first phase, general causation, 2 of the 3 experts that the plaintiffs brought to the table were thrown out by the judge. We felt the third one should have been thrown out on the same grounds. And the judge chose not to do that and created a new standard of how those that experts should be viewed. It went up to the appellate courts and the appellate courts threw it back down and said all 3 of them had to be evaluated on a consistent standard, which means science matters.

So we feel optimistic about how that will play out. But now the judge has to rule based on the direction she was given from the appellate court. Phase 2, again, there were 8 cases in Phase I, 3 of the 8 went to a second phase. All 3 of those were dismissed by the judge, that there's no causation.

All right. That's really helpful. And maybe a quick one. Just is there any update on the California litigation, too?

California litigation, we have litigation in California. As you know, we'll see cases. The first trials are set for January of '27 and April '27. Listen, an investor asked me this morning, will case count go up there? Yes, case count will go up. I think it will go up in Georgia as well. At the end of the day, if we get in a courtroom and science is front and center, we're going to win those cases. We proved that in our second case in Illinois, and we're showing right now in Georgia, science matters.

As science gets in that courtroom, we're going to see that. So again, California, we will see an increase in case count. I'm sure of that. But that's what plaintiff [indiscernible] do. We're going to make sure we can get the best story out there on science. And if we do that, we'll be successful.

All right. And it looks like we're almost out of time. Maybe just one last one here. What are you most excited about for in 2026?

What I think investors ought to be most excited about is what's on this page. This is a great company, right? We provide a critical value to our customers end-to-end. And people say, it's kind of boring. We're doing what we told you we were going to do. We're out there delivering growth, delivering cash flow, and we're going to continue to see this business build momentum in the marketplace and take care of it for our customers. So that's the most exciting thing. I'm just proud of the team and what they've been able to do, '25 is a good year and '26 is going to be another strong year. So thank you for your time today.

Yes. Great. We'll have it here. Thank you, guys, for joining us today.

Good morning, and welcome to the Sotera Health Third Quarter 2025 Conference Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead.

Good morning, and thank you. Welcome to Sotera Health's Third Quarter 2025 Earnings Call. You can find today's press release and the company's 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 Petras, and Chief Financial Officer, Jon Lyons. During the call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements.

Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, net debt and net leverage ratio in addition to constant currency comparisons.

A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release in the supplemental slides to this presentation.

The operator will be assisting with the Q&A portion of the call today. Please limit yourself to 1 question and 1 follow-up so that we can give everyone an opportunity to ask questions. If you have any questions after the call, please feel free to reach out to me in the Investor Relations team. I will now call -- turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Good morning, and thank you for joining us today. I'm pleased to report another excellent quarter for Sotera Health marked by strong top line growth, double-digit adjusted EBITDA growth, margin expansion of approximately 150 basis points and a $0.09 adjusted EPS increase compared to the third quarter of 2024. Total company revenues increased 9.1% for the quarter while adjusted EBITDA increased 12.2%. Sterigenics delivered another strong quarter, achieving 9.8% top line growth compared to the third quarter of 2024 driven by consistent performance across our core medical device customers. Nordion delivered revenue growth of 22.4%, which was primarily driven by the timing of the reactor harvest schedules versus the third quarter of 2024. Revenue was ahead of our expectations as certain customer deliveries originally scheduled for the fourth quarter were fulfilled in the third quarter.

While Nelson Labs delivered third quarter revenue that was modestly below our expectations, our growth in core lab testing and operational improvements drove segment income growth and margin expansion. This marks the fifth consecutive quarter of year-over-year margin expansion in Nelson Labs, highlighting our focus on execution.

In addition to our strong performance during the quarter, we strengthened our balance sheet through paying down $75 million of debt and lowered our interest expense by approximately $13 million annually. Jon will elaborate more on this shortly. Given our strong year-to-date results and visibility in the remainder of the year, we are reaffirming our 2025 revenue outlook and are raising our adjusted EBITDA outlook.

Each quarter, I have emphasized Sotera Health's vital role in global health care. I'm pleased to share that Nordion recently secured a 25-year renewal of its Class 1B operating license, the longest Class Ib license ever grant by the Canadian Nuclear Safety Commission. This milestone reflects our deep trusted partnership with the CNSC in their conference in Nordion's safety culture and operational excellence. With this renewed license, Nordion will continue to secure the global supply of Cobalt-60 supporting critical sterilization processes including those performed by Sterigenics and enabling life-saving radiotherapeutic treatments for brain tumors and early-stage breast cancer.

This achievement reinforces our mission of Safeguarding Global Health by ensuring a reliable supply of critical Cobalt-60 for our customers, the health care system and patients for decades to come. Now I'll turn it over to Jon who will walk us through the financials.

Thank you, Michael. I'll start with a review of our consolidated third quarter 2025 results, followed by a breakdown of performance across each business segment.

On a consolidated basis, third quarter revenues increased 9.1% to $311 million or 8% on a constant currency basis as compared to the third quarter of 2024. Adjusted EBITDA increased by 12.2% to $164 million or 11.2% on a constant currency basis versus the third quarter of 2024. Adjusted EBITDA margins reached 52.7%, an increase of 147 basis points over the prior year, driven by improved margins in both Sterigenics and Nelson Labs. Interest expense for the third quarter was $39 million, an improvement of approximately $2.4 million versus the same period last year. Net income for Q3 2025 was $48 million or $0.17 per diluted share compared to net income of $17 million or $0.06 per diluted share in Q3 2024. Adjusted EPS was $0.26, an increase of $0.09 from the third quarter of 2024.

Nearly $0.04 of this benefit came from adjusted EBITDA growth, less than $0.01 came from lower interest expense while the remainder relates to a reduced tax rate.

Now let's take a closer look at our segment performances. Sterigenics continued its strong performance in the third quarter, delivering 9.8% revenue growth to $193 million or 8.4% on a constant currency basis compared to Q3 2024. The revenue growth was driven by favorable volume mix of approximately 4.6%, increased pricing of 3.8% and a 140 basis point benefit from foreign currency exchange.

Segment income increased 11.6% to $107 million or 10.2% on a constant currency basis, with margins improving 90 basis points year-over-year to 55.6% driven by strong top line growth, partially offset by inflation. Nordion's third quarter revenue increased 22.4% to $63 million or 23.6% on a constant currency basis compared to Q3 of 2024. Nordion's revenue increase was driven by a volume and mix benefit of 18.9% and favorable pricing of 4.7% partially offset by an unfavorable impact of 120 basis points from changes to foreign currency exchange rates.

Nordion segment income increased 19.9% to approximately $38 million or 21.2% on a constant currency basis versus Q3 of 2024. Segment income growth was driven by increased volume and mix as well as customer pricing. Segment income margin was 60.6%, reflecting a decrease of approximately 130 basis points, driven by product mix. On a year-to-date basis, Nordion segment income margins have increased more than 70 basis points. Nelson Labs reported third quarter 2025 revenue of $56 million, a 5% decline compared to the same period last year. Favorable contributions from pricing of 2.7%, foreign exchange of 1.4% and core lab testing growth were offset by the decline in Expert Advisory Services.

Nelson Labs' third quarter 2025 segment income rose 1.9% to $19 million or flat on a constant currency basis, with margins expanding 229 basis points year-over-year to 34.1%. Segment income and margin improvement were driven by volume and mix improvements, lab optimization and favorable pricing.

Let's now turn to our balance sheet, cash generation and capital deployment activities. Year-to-date, we have generated $184 million in positive operating cash flow, while capital expenditures totaled $87 million. The company continues to be in a very strong liquidity position. As of the end of the third quarter, we had over $890 million of available liquidity, which included almost $300 million in unrestricted cash and nearly $600 million of available capacity on a revolving line of credit.

We continue making progress toward our long-term net leverage target range of 2 to 3x. Our net leverage ratio improved to 3.3x at quarter end, down from 3.7x at the end of 2024 and down from 4.2x as of Q3 2023. As Michael mentioned, we took strategic actions this quarter to strengthen our balance sheet and lower interest expense. First, continued adjusted EBITDA growth and cash generation helped us achieve contractual net leverage target, triggering a 25 basis point reduction in our term loan interest rate. Then in September, we repriced the term loan for an additional 50 basis point reduction and repaid $75 million of the facility. These steps are expected to generate approximately $13 million in annual interest savings.

Now I'd like to turn to our 2025 full year outlook. We are maintaining our full year constant currency revenue growth outlook range of 4.5% to 6% and anticipate revenue growth will land near the midpoint of this range. With continued benefits from volume growth and operational improvements, we are raising our constant currency adjusted EBITDA growth outlook to 6.75% to 7.75%, up from the prior range of 6% to 7.5%. Foreign currency is expected to contribute approximately 25 basis points to revenue and adjusted EBITDA growth versus the prior outlook of no impact.

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 continue to expect 2025 constant currency revenue growth of mid- to high single digits. For Nordion, we've raised our full year 2025 constant currency revenue growth outlook and now expect mid- to high single-digit growth. Additionally, I'm pleased to report that for 2025, there is no longer any revenue risk associated with Cobalt-60. For Nelson Labs, we now expect full year 2025 constant currency revenues to decline mid-single digits as the impact from Expert Advisory Services more than offset the continued growth in core lab testing and improved pricing. We expect segment income margin to finish in the low to mid-30s percent range for the full year.

Turning to other guidance items. Driven by our balance sheet initiatives discussed earlier, we are improving our interest expense range to $154 million to $158 million from our previous outlook of $155 million to $165 million. Our effective tax rate on our adjusted net income is expected to be in the range of 29% to 31%, improving from the prior range of 31.5% to 33.5%.

The lower tax rate on adjusted net income reflects the adoption of recent accounting guidance related to the U.S. tax law changes enacted in July. We now expect adjusted EPS to be in the range of $0.81 to $0.86, an increase in the previous range of $0.75 to $0.82. The $0.05 improvement from the midpoint of the prior EPS range reflects $0.02 driven by incremental EBITDA generation and reduced interest expense, with the balance driven by the favorable tax rate change.

We expect the fully diluted share count to remain in the range of 286 million to 287 million shares. We now expect capital expenditures to be in the range of $125 million to $135 million, below our prior outlook of $170 million to $180 million, driven by project timing and incremental cost savings. While spending cadence has shifted, our expectation for cumulative capital expenditures from 2025 through 2027 remains unchanged.

And we are on track to achieve our $500 million to $600 million cumulative free cash flow commitment provided at our 2024 Investor Day. We continue to expect year-end 2025 net leverage ratio to improve compared to 2024. Finally, as usual, our outlook does not assume any M&A activity. I'll now turn the call back over to Michael.

Thank you, Jon. We're very pleased with the quarter's performance. I would now like to give an update regarding the ethylene oxide, EO, personal injury claims in Cobb County, Georgia. Although this is a lengthy and detailed update, the key point is while the case is pending in Cobb County still have ways to go, we believe the recent Phase I and Phase II rulings align with our long-standing position that when science is considered fully, fairly and properly, the evidence refutes the plaintiffs' claims in these matters. As a reminder, the Cobb County Court ordered phase proceedings in 8 bellwether cases selected by the plaintiffs Council. Phase 1 was devoted to general causation. The court required the plaintiffs to prove that EO emissions from our Atlanta facility are capable of causing the diseases alleged by the plaintiffs.

In November 2024, the court excluded 2 of the plaintiff's 3 general causation experts, but allowed the third expert under a "new standard" created by the court for these cases that did not require the plaintiffs to establish the exposure levels at which EO becomes harmful to humans. Both sides appealed. On Friday, October 31, the Georgia Court of Appeals rejected the trial court's "new standard" and vacated the trial court's Phase 1 orders.

Consistent with our position, the Court of Appeals directed the trial court to apply the correct standard that requires causation experts to reliably identify the levels at which exposure to EO becomes harmful. The Court of Appeals also instructed the trial court to consider whether plaintiffs can prove general causation using epidemiologic evidence and background risk of the diseases at issue, which all occur in the general population without exposure to emissions.

While the Phase I appeals were pending, 3 of the bellwether cases proceeded to Phase II, which was devoted to specific causation. Plaintiffs were required to present admissible expert testimony that the plans were exposed to doses of EO from the Atlanta facility that caused their diseases. On October 17, the trial court excluded all 3 of the plaintiffs causation experts and dismissed all 3 cases for failure to present reliable and admissible evidence of a specific causation.

The court also dismissed the plaintiff 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 II orders apply only the 3 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 Sterigenics safe and essential operations. This statement, the trial court Phase I and Phase II 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.

[Operator Instructions]

And your first question today will come from Patrick Donnelly with Citi.

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 bioproduction. Maybe what you're seeing there and what the expectations on the volume trajectory are from here?

Patrick, this is Michael. We're seeing pretty consistent performance across Sterigenics 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, hopeful on the litigation update there. I guess maybe a quick one, just in terms of where some of the other cases are. And again, if that sounds like we can continue to see some of these updates, but we'd love to just hear the latest on the broad litigation side and how you're feeling on that front?

Yes. Patrick, Illinois is wrapping up. We've got April 2025 settlement that we did that's been completed and closed out. The July 25th one is progressing well. That will leave us with only 1 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 1 suit brought by the AG for public nuisance that's set for trial in July 2026. And then in California, we've recently been informed that the first trials are expected in January and April of 2027.

Your next question today will come from Casey Woodring with JPMorgan.

This is [ Jaden ] on for Casey. Just first on Sterigenics, just wondering, are you factoring any expectation of budget flush in 4Q and given you've reaffirmed your revenue outlook for the year after your 3Q, can you touch on how conservative your guidance sits for '25 and the puts and takes behind that?

I'm sorry, can you repeat the question on Sterigenics. 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 for 4Q?

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

I'm talking from the MedTech customers -- from MedTech or bioprocessing?

We're not expecting a budget flush from -- no. And when I look forward, we feel confident of our guidance and outlook that we're giving 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 1 quarter ago.

Okay. Got it. And then just a 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 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.

Your next question today will come from Luke Sergott with Barclays.

Just two for me is 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 on the implied 4Q EBITDA margin step down? I just want to know what's going on there. I assume it's probably just not the Nordion volumes, but just wanted to see if anything else going on.

Yes, I would say 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. It was worse than we expected. But overall, it's had a material impact on the top line for the company. It's about 10 points of impact. Jon, is it roughly about 10-point?

Yes.

10-point of impact on the top line. But overall, the core lab testing is improving, which is what we had hoped for and we'll continue to see. Jon, do you want to address the margin question Luke had as well?

Yes. 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 has the benefit of some pretty low expenses inside of that. And then we've been running really well in Steri. We could see a little bit of step back in that, but nothing alarming there, still stable margins for the year, maybe even slight growth for the year for Sterigenics.

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

Maybe follow up on Nelson and ask the -- is 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 funding an FDA. What does the rest of the business look like? And what's the demand quotient there?

Yes. 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've got some pockets, particularly with some of the new regulations, 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 fundamentally, we're seeing the Embedded Labs growth continue. The linkage with the Sterigenics 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 Jon, 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, things that for the year were reflected in 3Q that you maybe thought we're going to land in 4Q, that kind of thing relative to kind of -- what's the smooth trajectory that fits through what is a higher 3Q and a lower 4Q?

Yes. Thanks, David. I would just say, we talked about the Nelson comments and things that we're seeing on Expert Advisory Services. So the other big factor that we talked about last quarter, we're reentering today is the Nordion, the Nordion lumpiness, 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.

We -- so we had a portion of it, as we referenced in our comments here, that pulled into the third quarter from customers' requests, but overall, we still expect it to be down significantly 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.

The next question will come from Brett Fishbin with KeyBanc.

Just had a quick one on Nordion. I noticed 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 was just curious kind of like what type of mix shift with Nordion was causing some margin compression. And does that persist moving forward?

Brett, it's Michael here. So when you look at the business, it's tough to talk about margin pressure in the Nordion business when you see the margins that we put up in that business. What we're referencing there is product sales, and particularly 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 fair point. And then just on Sterigenics, it was really great to see a second quarter of really improved trends for the segment. I was just curious 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 maybe sort of giving guidance, if there's any key moving pieces that you would call out for next year other than potentially more challenging comparisons.

Yes. Great. Listen, we're proud of what Sterigenics team is they're executing very well. We've said our long-range guide there would be mid-single digits to high single digits. We're reiterating that. And I would just say, overall, we'll give guidance when we give 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.

And the next question will come from Jason Bednar with Piper Sandler.

Congrats on the quarter here. I wanted to first start on Sterigenics 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 tailwind we've seen in at least a few years. And look, it's still good, it's better than a lot of other health care verticals. But where do you think this pricing contribution stabilize? Is this a 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 in Sterigenics 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 Sterigenics.

Yes. Thanks, Jason. We said last year in November, we talked about price across the company in 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. 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 then maybe just on the -- to follow up on that last point, Michael, is that you referenced that opportunity over time. Is that more of a like post '26 -- not asking for '26 guidance, but is that a post '26 comment knowing that your compliance with NESHAP is still in -- 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. I -- we'll get the details when the Q is filed, but can you update us on a number of cases in California. I don't think we heard that other than just the start of the -- some of those case dates?

Yes. 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, I think I had a little hesitation there. I would just say we're working with our customers on the appropriate way to price in 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 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 and NESHAP. As far as California, there's 83 personal injury claims.

Your next question today will come from Michael Polark with Wolfe Research.

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 '26?

Yes. Yes. That's a logical conclusion, Mike. We're not getting into '26 guidance, but you're thinking about it 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, 3 to 6 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 for MedTech customers as they maneuver supply chains ahead of Trump tariffs.

Yes. 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 there's -- the only reason I even tell you any is because we have a couple of facilities. 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 the business to an approximately $300 million of revenue per quarter across the company in total or $190-some million in Sterigenics, there's nothing material that we're able to see.

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. 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 in expertise enables 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.

Good morning, and welcome to the Sotera Health Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Vice President and Treasurer, Jason Peterson. Please go ahead.

Good morning, and thank you. Welcome to Sotera Health's Second Quarter 2025 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 Petras; and Chief Financial Officer, Jon Lyons. During the call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks, uncertainties that could cause actual results to differ materially from those projected or implied.

Please refer to Sotera Health's SEC filings and our 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 and 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 the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today.

Please limit yourself to 1 question and 1 follow-up so that we can give everyone an opportunity to ask questions. If you have any questions after the call, please feel free to reach out to me in the Investor Relations team. I will now turn the call over to Sotera Health's Chairman and CEO, Michael Petras.

Good morning, everyone, and thank you for joining our quarterly earnings call. We're excited to share that Sotera 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%, an improvement in adjusted EPS compared to the second quarter 2024.

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 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 2024. Stronger volumes were driven by our core med device customers along with continued momentum in bioprocessing, which was supported by our most recent facility expansion. Nordion delivered stronger-than-expected second quarter revenue versus the second quarter of 2024, driven by the timing of Cobalt-60 shipments.

As a 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 the 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 at Nelson Labs.

Given the strong [indiscernible] through 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 are 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. Jon 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 Sotera Health plays an essential role in safeguarding global health. Together, Sterigenics and Nelson Labs play a critical role in patient safety and supporting FDA approval of groundbreaking treatments. From validation testing such as biocompatibility and packaging to a teen sterilization, our teams contributed to a launch of this new infusion set 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 Jon will walk us through the financials.

Thank you, Michael. I will begin by covering the second quarter 2025 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 million, or 6% on a constant currency basis compared to Q2 2024. Foreign currency was a tailwind of approximately 40 basis points for the quarter. Adjusted EBITDA increased by 9.8% to $151 million or 9.5% growth on a constant currency basis. Adjusted EBITDA margins were 51.2%, representing 156 basis point increase from Q2 2024, driven by a 514 basis point increase in Nelson Labs segment margin. Interest expense of $41 million for the second quarter of 2025 was consistent with the prior year period. Net income on a GAAP basis for Q2 2025 was $8 million or $0.03 per diluted share inclusive of the pending and previously disclosed $34 million settlement of EO claims in Illinois. That compares to net income of $9 million or $0.03 per diluted share in Q2 of 2024. Adjusted EPS was $0.20 for the second quarter of 2025, an improvement of $0.01 from Q2 2024.

Now let's take a closer look at the segment details. Sterigenics tiered strong second quarter 2025 revenue growth of 10.5% to $195 million or 10% on a constant currency basis as compared to Q2 2024. 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 million with segment income margins expanding 42 basis points versus Q2 2024. Segment income and margin growth were driven by strong top line growth, partially offset by inflation. Nordion's Q2 2025 revenue increased by 2.9% to $42 million 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's segment income was $23 million for the quarter, while segment income margin decreased 145 basis points to 55.3% compared to Q2 2024 driven by the timing of supplier mix. Nordion's year-to-date margins versus 2024 are up over 200 basis points. In Nelson Labs, revenue for the quarter was $57 million, a decline of 3.3% compared to Q2 2024 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 million, while segment income margins expanded by 514 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 million in the quarter and capital expenditures totaled approximately $31 million. Our liquidity position remains very strong. At the end of Q2, we had $918 million of available liquidity, which included $332 million of unrestricted cash and $586 million of available capacity on our revolving line of credit. Finally, we finished the quarter with a net leverage ratio of 3.5x, an improvement from net leverage of 3.7x at the end of 2024 and continued progress towards our long-term goal of 2 to 3x.

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 2025 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 1.25% and 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 2025 revenue expected to be down mid-teens versus Q4 2024, and due to the timing of Cobalt-60 shipments. Also, revenue risk associated with Russian supplied Cobalt-60 has improved to less than 0.5% 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 2025 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 million to $165 million. 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 $0.75 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 million to 287 million shares on a weighted average basis. We now expect 2025 capital expenditures to be in the range of $170 million to $180 million, down from our prior outlook of $190 million to $210 million. Approximately 1/4 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 million which supports our goal of delivering $500 million to $600 million 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 2x to 3x net leverage. Finally, as usual, our guidance does not assume any M&A activity.

I'll now turn the call back over to Michael.

Thank you, Jon. We are proud of the strong quarter we delivered, which was highlighted by continued momentum and enable us to raise our full year outlook. 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 up for questions and answers.

Our first question comes from Patrick Donnelly from Citi.

Michael, maybe one just on the overall results, particularly Sterigenics. Just given the strength there kind of have to 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?

Patrick, I would just -- we're not seeing any material and 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.

Okay. Yes. Let me dive a little bit more into the recovery here. Can you just pull back? It sounds like both the med tech side and bioprocessing we're doing well for you in the quarter. Can you just maybe parse out the 2, 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 med tech and Biopron volume versus price would be helpful just to talk through how you're seeing it and the expectations for the rest of the year?

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 in the ability to capture volume based on that performance.

And then in addition to that, the med tech volumes were pretty steady. 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 med tech had nice volume in the quarter, and we anticipate that going forward to be positive as well.

The next question comes from Brett Fishbin from KeyBanc.

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?

Yes. 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 in the core lab testing. And I'd say the other thing is that business continues to perform on price at 3% price in the quarter. So overall, this is 4 quarters a row of margin expansion, which is what we communicated as we expected, and the team is delivering against that.

And then I think [indiscernible] a little bit. During the quarter, there was an announced extension to the implementation time frame for the updated ET regs. It looks like the EPA is still reevaluating the updated [indiscernible]. 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?

Yes. Thanks, Brett. On the [indiscernible] 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 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.

And the next question comes from Luke Sergott from Barclays.

I guess on the -- just pile on, on the Nelson improvement for the margin. I know that you're hitting up against your targets here, 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?

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 like low 30s, right, low to mid-30s. That's what you're going 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 bowls 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 it that way going forward.

All right. And then follow-up here is, you had your per that does the same thing. They're a little bit more gamma-ray focused. They had strong growth in the quarter. It's not like Steri had a bad volume quarter either. I'm just wondering, they had a little bit of 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?

Yes. 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 we're 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 for 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. The team is executing against that. And we're even sitting here today in early August, we're optimistic where we sit going forward. .

And the next question comes from Jason Bednar from Piper Sandler.

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 are trying to, again, adjust their supply chain? Is that impacting Sterigenics at all?

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. Pull forward, med tech, there is a lot of moving parts right now with these customers and exactly how they're trying to optimize their supply chain. 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 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 service them as best as we can with the facilities we have in place.

Michael, just one quick follow-up. Do you think you're in a good spot. And 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 you feel like you're in the cap burn see just from a pricing position in terms of asking for even more price than you normally would?

I don't know, it's not about taking advantage of the situation. What I feel good about is our position in the marketplace and our capacity in the U.S. we have a pretty significant presence there. So if people want to come to the U.S., we feel like we're pretty well positioned to do that. And also we -- 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 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 cost that we have to apply against and our Board has not 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 '27 or so. So that -- again, we're trying to be responsive to our customers broadly, Jason.

The next question comes from Casey Woodring from JPMorgan.

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.

Casey, thanks for the question on that. We're really pleased with the performance in Sterigenics. I think if you look at how we've upped our guidance there, to mid- to high single-digit growth, that would imply that kind of range in the second half. We do have some uptick in maintenance-related downtime that will mute the growth a little bit, which is why you could 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.

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 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 '26 with easy comps.

Yes. Thanks, Casey. We're not going to get into '26 any debt at this point. We're only in the second quarter of 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. So happy about that. We've got to continue to focus on core lab volume going forward here. And that's what the second half is going to be around for that team.

The next question comes from David Windley from Jefferies.

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 million in '27 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.

Yes. David, I'll make some of the comments and Jon could jump in. We are looking at that $110 million, 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 2 big outliers that have had an impact here on our CapEx spend in the last couple of years. And then some growth investments in Sterigenics have come down. And then we have this one left that we've got forecasted out.

Yes. I think the nuance there, David, is that this one was always contemplated. And over the last couple of months or even quarters, we've kind of -- we've reflected on it just to make sure we're 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 that we were talking about.

Yes, good clarification. David, it was always in those CapEx numbers that we had before. We just -- we're pushing it until we get comfortable on the economics of it.

Right. Okay. I wondered also on Nelson, I think in your description of the margin benefits in addition to the mix shift, there 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 rightsize 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 then we, on the outside, at least expected. Am I reading too much into that?

Yes, you read too much. There was no [indiscernible] actions. There was no incremental actions in the quarter. This is just to run off the things that we talked about a couple of quarters ago. There was nothing incremental there, David.

Got it. Okay. So 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 2 segments.

Jon, do you want 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, I 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.

The next question comes from Michael Polark from Wolfe Research.

I want to put 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 2, 3 years, obviously, there 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 2, 3-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 the stuff. And like it's back. Like 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.

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 that 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 it 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.

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 prices stable because it probably is. And so at 4%, that imposes 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 -- Jon, 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?

Yes, Mike, I think Candidly, I think we view the -- I understand where the 6.5%. I view the -- probably a little bit better than that from how we are 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 on 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.

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 in 2026 and beyond?

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 nuance here that most of the tax bill changes are timing related for a lot of taxpayers. 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.

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

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. .

Nordion has been a very steady performer. We help 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.

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

Good morning. I'm Dave Windley. I cover pharma services, cover a variety of health care areas. But appreciate you 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 1 weed cloud on my way through. So 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 I appreciate your attention here this morning.

So our first presenting company in this track is Sotera Health, SHC is the ticker. Michael Petras is the company's CEO, joining us. Jason Peterson, is also in the audience, IR. So really appreciate you 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.

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 on our website for more details. During the 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 with some -- feeling pretty positive about where the business sits today and what the outlook looks like for 2025. We reaffirm the guide that we have in place. And the team is doing a good job executing and taking care of customers. I had a chance last week to go out West and spend some time at Nelson Labs, 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.

Excellent. So I just wanted to start off with -- we've known you, known the company since you came public, which has been coming up on, I guess, 4 years ago or so, if I remember correct, maybe almost 5, yes. 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?

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 2005, we've grown every single year as a company. And the team has 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's been a bigger challenge than we thought. The inventory correct -- buildup and then corrections, it came out of COVID. But we -- as you mentioned, we haven't been having those discussions with our customers around inventory takeout 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 the Great Resignation and everything else. But Joe and the team have got that in a much more stable spot or turnover is 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 just shortly thereafter.

From a mix of business perspective, I would say, particularly across Sterigenics and Nelson, the presence of pharma, we -- that was a strategic priority for us pre-COVID. And not that COVID did that to us but as we rolled out and started executing 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 pharma capabilities as well.

And I 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 spec-ed 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?

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 or supply chains. It's really driven by our utility suppliers when they harvest their cobalt. And it's -- because remember, what happens in that business is they have a nuclear reactor and its primary purpose is to generate electricity. So when they are shutting down for maintenance is when we're able to harvest the cobalt. So we're kind of at 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, we saw the big COVID bump and then we saw 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 small element within that business is the RCA business. We've talked about that before, 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 has 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 2/3 of our total company. All 3 of them are very strong cash flow generators and that business, in particular, gets great leverage as volumes come through. So we're optimistic we'll continue to see that improve throughout the year.

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

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 and 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's continues to increase. And then the pharma side, we've seen nice volume improvements as well on the Sterigenics side.

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 maybe -- your clients may be changing their supply chain and while we're talking about it, are tariffs influencing that yet at all?

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 the volumes are positive in that business and we continue to track in that direction as well.

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 -- the price of your service?

No. That hasn't been part of the conversation.

Not at all. Okay.

Not that I'm aware of. We've got pretty much fixed contract with pricing built into them and that's really what we're living by day in and day out with our customers. We haven't seen material changes in that because of tariffs.

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 3 businesses. You don't think that will have to be sacrificed going forward if tariffs become a reality or as they do [indiscernible].

No, we should -- listen, you used 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 I just want to be respectful to our commercial teams that have to deal with this every day. I don't want to make it sound like it's really simple because it's not. We have a business that brings a critical service to health care. We got to 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 price and we don't see that changing today or in the near term or in the midterm.

Okay. Going back to volumes on Sterigenics 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, medtech reports, et cetera, that their activity levels have been pretty darn strong for a couple of years during the period when volumes for you have been, as you described, flat to down. Can you talk about that disconnect and the drivers of it?

Yes. I would say there's, even pre-COVID, there's been a correlation directionally between procedural volumes and the Sterigenics volume or the Nelson Labs volume. Now Nelson's got some other aspects of it, new products, biotech funding, regulation, things of those nature that also impact that business in a positive way. On the Sterigenics side, directionally, we've seen those 2 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, as the markets continue to perform on procedure volumes, we're seeing directionally that alignment. But again, we're not going to have a 99 R-squared on this, right? But we are seeing it more closely tracked now.

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?

This is not a business that's put out for e-bid or e-auction day in and day out. There's a lot involved in this business with Sterigenics I'm referencing specifically here. I mean, all our business have similar characteristics. But in this one, in particular, it's part of the regulatory filings where they sterilize and the recipes. They had 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 dynamics in communities, we lost a little share position over the last couple of years that -- but that is atypical in this business, right?

Typically, you're pretty locked in with our customers. We still have very strong relationships with almost all those customers that involve particularly in the Illinois facility. But share is not something that moves in a dramatic fashion like I've seen in other industries.

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. 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?

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 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 and building ahead but you'd have to ask them that, I really don't know how they think about that.

Got it. Okay. So let's move into the 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.

So the NESHAP regulation that takes place in April '26 is currently in place and you got to be conforming to that. That's a challenging standard. I think there's going to be several people that struggle to get there. We've spent a significant amount of money on that and we'll continue to spend on that and we'll do that throughout next year as well to make sure we're compliant. I think some of the smaller players will struggle. It's interesting. I was with a major medtech company, not last week, the week before and they said, we're pretty far -- they have -- they buy from us and they also do a little bit of in-sourcing. They said, we're pretty far along on this. And I asked a couple of key -- Mike was with me, who runs our Sterigenics business. We asked a couple of key questions. And...

They realized he wasn't as far along as he thought he was?

We realized. I'm not sure they did yet. I would 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 lot of time and effort and a lot of trial and error for some of these folks to figure out. 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 well positioned to comply with the requirements as we see them today. And 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 that are 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 to be an easy rule for most people to get to.

Right. Can we -- on this topic, can we lay out the kind of the market competitive structure yourselves and STERIS, are the 2 leaders, you're materially bigger than the next largest player. How much share do those -- do you have -- do you -- the top 2 have? And relative to this topic, how do you think about the migration of the rest of that pie?

We'd say in any given modality or geography between us and STERIS, we probably have 50% to 2/3 of the market combined, collectively, give or take, depending on what market you're in. And then there are some smaller players, regional players. We're not seeing big global international players to the scale of us or STERIS. When you look at regionally, if you took the U.S., particularly we're talking about this regulation, there are smaller guys that we've seen one file bankruptcy. We've seen a couple of smaller guys say they're going to 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.

Okay. So maybe something you said and that answer makes me want to ask the question, are those -- are those clients -- is that business that you would want? The kind of small customers sounds like small volumes, can that be profitable business?

Yes, it 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.

You're -- and we talked about this earlier but 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?

If I told you, yes, my sales team would cringe, based on the conversation I have with them every day. Yes. No, I would say our pricing in the Sterigenics business has been pretty consistent around 4% per year. Then with inflation, it 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 NESHAP pricing. We're spending, call it, close to $200 million we'll spend on the NESHAP pricing or NESHAP 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 to 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.

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?

You're talking competitors?

Competitors, right, yes or even an OEM internal facility that you might carve out.

We will always entertain those conversations. We've had conversations with some of these OEMs about badge flipping and taking over the 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 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.

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

Okay/ Let's -- I'm using a lot of time on Sterigenics but it is your biggest business. Does the Trump nuclear executive order have any impact on your business?

No, not near term. I mean, it's -- nuclear is coming 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 make cobalt, which has never been done before. And that's a combination of our technology and Westinghouse's.

That program is moving along very well. And I think 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 to have interest in that. The flip side, though, that we want to think about is, 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.

I hear, there's demand for electricity lately.

There is. There is.

So moving to Nelson, you commented about staffing is 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?

So a couple of things. First of all, business is in a good spot. They, really, their volumes are starting to pay up. That business, remember the underlying drivers of that business, routine processing, how to get 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 3 of those regulations are starting to ramp up and those are net positives for that business. So -- what -- we -- as you mentioned, we're stable with the labor and the workforce quality has been good. What we want to make sure is we're continuing to be responsive to our customers on turnaround time. We're putting capital in to expand and refresh a clean room, basically build out a brand-new clean room, which hasn't been done in 5 years probably at least. And that's really to double down on sterility 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 continuing to grow. We made an acquisition in '17 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 -- 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.

How much of Sterigenics funnel comes from Nelson?

Sterigenics funnel comes -- so let me kind of put it this way. We've got about 70% customer overlap. We've got -- about 40% of the of Nelson Labs is sterility 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 like 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?

Yes. 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 sterilize -- some more volume bulk sterilization in Sterigenics?

Yes. So you should see it coming from Sterigenics going into Nelson Labs for sterility assurance is how you should see it kind of on the routine on routine testing.

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?

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 already play in. Nelson Labs, we'll continue to look for opportunities. So we've really stepped off and held off on doing any M&A on the Nelson side till we get our house in order the last couple of years. We'll continue to look for opportunities here, particularly around the pharma capabilities.

And then in Nordion, if we can look at the opportunities to diversify our 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 Sterigenics that will be opening up by the end of the year this year. That was one of the 2 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 and geographic expansion. So organic growth is one of our first priorities for capital allocation.

And the 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 that?

Yes. 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 2 greenfields behind us on Sterigenics and we'll have the facility enhancements in NESHAP behind us. So when you put that all behind us, we feel like we're going to be around $110 million of CapEx is what we committed and over $500 million of free cash flow over this next 3-year period from when we did our Investor Day last year. So we still feel confident about CapEx around the $110 million range at 2027 and the free cash flow of '25, '26 and '27, $500 million plus is what we've committed.

Excellent. That lands the plane. Michael, thank you for your time and comments and I wish everybody a good conference. Thanks for being here.

Thanks, David.