Sotera Health Co.
11/04/2025 | Press release | Distributed by Public on 11/04/2025 15:03
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2024 Form 10-K. This discussion and analysis contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of various factors, including the factors we describe in the section entitled Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q, as well as Part I, Item 1A, "Risk Factors" in our 2024 Form 10-K.
OVERVIEW
We are a leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry. We are driven by our mission: Safeguarding Global Health®. We provide end-to-end sterilization as well as microbiological and analytical lab testing and advisory services to help ensure that medical, pharmaceutical and food products are safe for healthcare practitioners, patients and consumers in the United States and around the world. Our services are an essential aspect of our customers' manufacturing processes and supply chains, helping to ensure sterilized medical products reach healthcare practitioners and patients. Most of these services are necessary for our customers to satisfy applicable government requirements.
We serve our customers throughout their product lifecycles, from product design to manufacturing and delivery, helping to ensure the sterility, effectiveness and safety of their products for the end user. We operate across two core businesses: sterilization services and lab services. Each of our businesses has a longstanding record and is a leader in its respective market, supported and connected by our core capabilities including deep end market, regulatory, technical and logistics expertise. The combination of Sterigenics, our terminal sterilization business, and Nordion, our Co-60 supply business, makes us the only vertically integrated global gamma sterilization provider in the sterilization industry. This provides us with additional insights and allows us to better serve our customers. For financial reporting purposes, our sterilization services business is comprised of two reportable segments, Sterigenics and Nordion, and our lab services business constitutes a third reportable segment, Nelson Labs.
For thethree and nine months ended September 30, 2025, respectively, we recorded net revenues of $311.3 million and $860.2 million, net income of $48.4 million and $43.1 million, Adjusted Net Income of $75.3 million and $170.4 million, and Adjusted EBITDA of $164.2 million and $436.8 million. Adjusted Net Income and Adjusted EBITDA are financial measures not based on any standardized methodology prescribed by GAAP. For the definition of Adjusted Net Income and Adjusted EBITDA and the reconciliation of these non-GAAP measures from net income, please see "Non-GAAP Financial Measures."
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended September 30, 2025 as compared to Three Months Ended September 30, 2024
The following table sets forth the components of our results of operations for the three months ended September 30, 2025 and 2024.
| (thousands of U.S. dollars) | 2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Total net revenues | $ | 311,312 | $ | 285,468 | $ | 25,844 | 9.1 | % | |||||||||||||||
| Total cost of revenues | 133,751 | 127,444 | 6,307 | 4.9 | % | ||||||||||||||||||
| Net income | 48,400 | 16,998 | 31,402 | 184.7 | % | ||||||||||||||||||
|
Adjusted Net Income(a)
|
75,270 | 48,943 | 26,327 | 53.8 | % | ||||||||||||||||||
|
Adjusted EBITDA(a)
|
164,190 | 146,361 | 17,829 | 12.2 | % | ||||||||||||||||||
(a)Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in "Non-GAAP Financial Measures."
Total Net Revenues
The following table compares our revenues by type for the three months ended September 30, 2025 to the three months ended September 30, 2024.
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(thousands of U.S. dollars)
|
|||||||||||||||||||||||
|
Net revenues for the three months ended September 30,
|
2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Service | $ | 255,529 | $ | 238,790 | $ | 16,739 | 7.0 | % | |||||||||||||||
| Product | 55,783 | 46,678 | 9,105 | 19.5 | % | ||||||||||||||||||
| Total net revenues | $ | 311,312 | $ | 285,468 | $ | 25,844 | 9.1 | % | |||||||||||||||
Net revenues were $311.3 million in the three months ended September 30, 2025, an increase of $25.8 million, or 9.1%, as compared with the three months ended September 30, 2024. Excluding the impact of foreign currency exchange rates, net revenues in the three months ended September 30, 2025increased approximately 8.0% compared with the three months ended September 30, 2024.
Service revenues
Service revenues increased $16.7 million, or 7.0%, to $255.5 million in the three months ended September 30, 2025 as compared to $238.8 million in the three months ended September 30, 2024. The growth in net service revenues was driven by increases in volume/mix in the Sterigenics and Nordion segments and core lab testing service volume/mix in the Nelson Labs segment. In addition, favorable pricing and changes in foreign currency exchange rates contributed to the increase in net service revenues. Partially offsetting these factors was a decline in expert advisory services revenue in the Nelson Labs segment.
Product revenues
Product revenues increased $9.1 million, or 19.5%, to $55.8 million in the three months ended September 30, 2025 as compared to $46.7 million in the three months ended September 30, 2024.The increase was driven by higher revenues from Co-60 in the Nordion segment due to the timing of reactor harvest schedules.
Total Cost of Revenues
The following table compares our cost of revenues by type for the three months ended September 30, 2025 to the three months ended September 30, 2024.
|
(thousands of U.S. dollars)
|
|||||||||||||||||||||||
|
Cost of revenues for the three months ended September 30,
|
2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Service | $ | 114,337 | $ | 111,080 | $ | 3,257 | 2.9 | % | |||||||||||||||
| Product | 19,414 | 16,364 | 3,050 | 18.6 | % | ||||||||||||||||||
| Total cost of revenues | $ | 133,751 | $ | 127,444 | $ | 6,307 | 4.9 | % | |||||||||||||||
Total cost of revenues accounted for approximately 43.0% and 44.6% of our consolidated net revenues for the three months ended September 30, 2025 and 2024, respectively.
Cost of service revenues
Cost of service revenues increased $3.3 million, or 2.9%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was attributable to inflation, which primarily impacted direct materials, energy and employee compensation costs. Partially offsetting these factors was a decrease in labor costs related to expert advisory services in the Nelson Labs segment.
Cost of product revenues
Cost of product revenues increased $3.1 million, or 18.6%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase was attributable to a change in product revenue volume and mix, partially offset by a decline in amortization of intangible assets that were fully amortized as of December 31, 2024.
SG&A Expenses
SG&A expenses increased $1.3 million, or 2.1%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The change was the result of an increase litigation and other professional services expense associated with EO sterilization facilities, partially offset by a decline in share-based compensation expense.
Amortization of intangible assets
Amortization of intangible assets decreased $12.4 million, or 80.1%, to $3.1 million for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The decline was primarily due to certain intangible assets that were fully amortized in May 2025.
Interest Expense, Net
Interest expense, net decreased $2.4 million, or 5.8%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a lower interest rate on our Term Loan, partially offset by a decreased benefit from interest rate derivatives.The weighted average interest rate on our outstanding debt was 6.91% and 7.86% as of September 30, 2025 and 2024, respectively.
Loss on Refinancing of Debt
Loss on refinancing of debt for the three months ended September 30, 2025 was $1.1 million relating to the write-off of certain unamortized debt issuance costs and discounts on the Term Loan in connection with Amendment No. 6 to the Credit Agreement.
Foreign Exchange Gain
Foreign exchange gain was $1.5 million for the three months ended September 30, 2025 as compared to $1.1 million in the three months ended September 30, 2024. The change in foreign exchange gain in our Consolidated Statements of Operations and Comprehensive Incomemainly relates to short-term gains and losses on transactions denominated in currencies other than the functional currency of our operating entities. As described in Note 15, "Financial Instruments and Financial Risk" to our consolidated financial statements, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.
Other Income, Net
Other income, net decreased $2.4 million, or 83.6%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The fluctuation was mainly driven by unfavorable changes in the fair value of embedded derivatives in certain of Nordion's customer and supply contracts.
Provision for Income Taxes
Provision for income tax decreased $1.2 million to a net provision of $24.5 million for the three months ended September 30, 2025 as compared to $25.8 million in the three months ended September 30, 2024. The change was attributable to recognition of the cumulative tax effects of the change in U.S. income tax laws under the OBBBA in the period of enactment associated with the accounting for the valuation allowance attributable to the limitation on the deductibility of interest expense. This was offset by higher pre-tax income, the tax effects for a change in our indefinite reinvestment assertion with respect to a portion of our foreign earnings,and an increase in current year permanent tax differences.
Provision for income taxes for the three months ended September 30, 2025 differed from the statutory rate due to recognition of the cumulative tax effects of the change in U.S. income tax laws under the OBBBA in the period of enactment associated with the accounting for the valuation allowance attributable to the limitation on the deductibility of interest expense. This was offset by the tax effects for a change in our indefinite reinvestment assertion with respect to a portion of our foreign earnings,the impact of the foreign rate differential and an increase in current year permanent tax differences. Provision for income taxes for the three months ended September 30, 2024 differed from the statutory rate primarily due to a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense, the foreign rate differential, and GILTI, partially offset by a benefit for state income taxes.
Net Income, Adjusted Net Income and Adjusted EBITDA
Net income for the three months ended September 30, 2025 was $48.4 million, as compared to net income of $17.0 million for the three months ended September 30, 2024 due to the factors described above. Adjusted Net Income was $75.3 million for the three months ended September 30, 2025, as compared to $48.9 million for the three months ended September 30, 2024. Adjusted EBITDA was $164.2 million for the three months ended September 30, 2025, as compared to $146.4 million for the three months ended September 30, 2024. Please see "Non-GAAP Financial Measures" below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.
Nine Months Ended September 30, 2025 as compared to Nine Months Ended September 30, 2024
The following table sets forth the components of our results of operations for the nine months ended September 30, 2025 and 2024.
| (thousands of U.S. dollars) | 2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Total net revenues | $ | 860,176 | $ | 810,238 | $ | 49,938 | 6.2 | % | |||||||||||||||
| Total cost of revenues | 380,562 | 372,308 | 8,254 | 2.2 | % | ||||||||||||||||||
| Net income | 43,102 | 32,075 | 11,027 | 34.4 | % | ||||||||||||||||||
|
Adjusted Net Income(a)
|
170,376 | 139,759 | 30,617 | 21.9 | % | ||||||||||||||||||
|
Adjusted EBITDA(a)
|
436,764 | 395,640 | 41,124 | 10.4 | % | ||||||||||||||||||
(a)Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in "Non-GAAP Financial Measures."
Total Net Revenues
The following table compares our revenues by type for the nine months ended September 30, 2025 to the nine months ended September 30, 2024.
|
(thousands of U.S. dollars)
|
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|
Net revenues for the nine months ended September 30,
|
2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Service | $ | 736,713 | $ | 703,027 | $ | 33,686 | 4.8 | % | |||||||||||||||
| Product | 123,463 | 107,211 | 16,252 | 15.2 | % | ||||||||||||||||||
| Total net revenues | $ | 860,176 | $ | 810,238 | $ | 49,938 | 6.2 | % | |||||||||||||||
Net revenues were $860.2 million in the nine months ended September 30, 2025, an increase of $49.9 million, or 6.2%, as compared with the nine months ended September 30, 2024. Changes in foreign currency exchange rates had no material impact on consolidated net revenues in the nine months ended September 30, 2025 compared with the nine months ended September 30, 2024.
Service revenues
Service revenues increased $33.7 million, or 4.8%, to $736.7 million in the nine months ended September 30, 2025 as compared to $703.0 million in the nine months ended September 30, 2024. The growth in net service revenues was primarily driven by favorable pricing in the Sterigenics and Nelson Labs segments, favorable volume/mix in the Sterigenics and Nordion segments and improvements in volume/mix related to core lab testing services in the Nelson Labs segment. Further contributing to these growth factors was a favorable impact from foreign currency exchange rates. Partially offsetting these factors was a decline in expert advisory services revenue in the Nelson Labs segment.
Product revenues
Product revenues increased $16.3 million, or 15.2%, to $123.5 million in the nine months ended September 30, 2025 as compared to $107.2 million in the nine months ended September 30, 2024. The increase was driven by favorable volume/mix and pricing in the Nordion segment, partially offset by an unfavorable impact from changes in foreign currency exchange rates.
The following table compares our cost of revenues by type for the nine months ended September 30, 2025 to the nine months ended September 30, 2024.
|
(thousands of U.S. dollars)
|
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|
Cost of revenues for the nine months ended September 30,
|
2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Service | $ | 335,259 | $ | 331,068 | $ | 4,191 | 1.3 | % | |||||||||||||||
| Product | 45,303 | 41,240 | 4,063 | 9.9 | % | ||||||||||||||||||
| Total cost of revenues | $ | 380,562 | $ | 372,308 | $ | 8,254 | 2.2 | % | |||||||||||||||
Total cost of revenues accounted for approximately 44.2% and 46.0% of our consolidated net revenues for the nine months ended September 30, 2025 and 2024, respectively.
Cost of service revenues
Cost of service revenues increased $4.2 million, or 1.3%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The increase was attributable to inflation, which primarily impacted energy, direct materials, and professional services costs. Partially offsetting these factors was a decrease in labor costs related to expert advisory services in the Nelson Labs segment.
Cost of product revenues
Cost of product revenues increased $4.1 million, or 9.9%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The increase was attributable to a change in product revenue volume and mix, partially offset by a decline in amortization of intangible assets that were fully amortized as of December 31, 2024.
SG&A expenses
SG&A expenses increased $14.5 million, or 8.0%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. A $15.2 millionincrease in litigation and other professional services expense associated with EO sterilization facilities was the main driver of the increase in SG&A expenses, partially offset by a decline in share-based compensation expense.
Amortization of intangible assets
Amortization of intangible assets decreased $18.9 million, or 40.6%, to $27.7 million for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The decline was primarily due to certain intangible assets that were fully amortized in May 2025.
Illinois EO litigation settlements
On July 23, 2025, the Company agreed to resolve 129 pending and threatened EO claims in the State of Illinois. Pursuant to the terms of the July Term Sheet, which is subject to the satisfaction of several conditions, the Company agreed to pay $34.0 million to settle the claims.
On April 3, 2025, the Company agreed to resolve 97 pending and threatened EO claims in the State of Illinois. Pursuant to the terms of the April Term Sheet, which have been satisfied, the Company paid $30.9 million in September 2025 to settle the claims.
Interest Expense, Net
Interest expense, net decreased $3.1 million, or 2.5%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a lower interest rate on our Term Loan and a decrease in the amortization of debt issuance costs, partially offset by a lower benefit from interest rate derivatives.The weighted average interest rate on our outstanding debt was 6.91% and 7.86% as of September 30, 2025 and 2024, respectively.
Loss on Refinancing of Debt
Loss on refinancing of debt for the nine months ended September 30, 2025 was $1.2 million relating to the write-off of certain unamortized debt issuance costs and discounts on the Term Loans in connection with Amendment No. 6 to the Credit Agreement. Loss on refinancing of debt for the nine months ended September 30, 2024 was $24.1 million and occurred in connection with the refinancing of our capital structure in May 2024. This refinancing activity resulted in the write off of certain unamortized debt issuance costs and discounts on the Term Loans due 2026 and the expensing of certain new debt issuance costs and discounts upon the issuance of the Refinancing Term Loans and Secured Notes.
Foreign Exchange Gain
Foreign exchange gain was $0.6 million for the nine months ended September 30, 2025 as compared to $2.2 million in the nine months ended September 30, 2024. The change in foreign exchange gain in our Consolidated Statements of Operations and Comprehensive Income mainly relates to short-term losses and gains on transactions denominated in currencies other than the functional currency of our operating entities. As described in Note 15, "Financial Instruments and Financial Risk" to our consolidated financial statements, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.
Other Income, Net
Other income, net increased $2.4 million, or 59.9%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The primary driver of this increase was a favorable change in the fair value of embedded derivatives in certain of Nordion's customer and supply contracts.
Provision for Income Taxes
Provision for income tax decreased $2.9 million to a net provision of $33.9 million for the nine months ended September 30, 2025 as compared to $36.8 million for the nine months ended September 30, 2024. The change was attributable to recognition of the cumulative tax effects of the change in U.S. income tax laws under the OBBBA in the period of enactment associated with the accounting for the valuation allowance attributable to the limitation on the deductibility of interest expense. This was offset by higher pre-tax income, the tax effects for a change in our indefinite reinvestment assertion with respect to a portion of our foreign earningsand an increase in current year permanent tax differences.
Provision for income taxes for the nine months ended September 30, 2025 differed from the statutory rate due to recognition of the cumulative tax effects of the change in U.S. income tax laws under the OBBBA in the period of enactment associated with the accounting for the valuation allowance attributable to the limitation on the deductibility of interest expense. This was offset by the tax effects for a change in our indefinite reinvestment assertion with respect to a portion of our foreign earnings, the impact of the foreign rate differential and an increase in current year permanent tax differences. Provision for income taxes for the nine months ended September 30, 2024 differed from the statutory rate primarily due to a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense, the foreign rate differential and GILTI, partially offset by a benefit for state income taxes.
Net Income, Adjusted Net Income and Adjusted EBITDA
Net income for the nine months ended September 30, 2025 was $43.1 million, as compared to net income of $32.1 million for the nine months ended September 30, 2024 due to the factors described above. Adjusted Net Income was $170.4 million for the nine months ended September 30, 2025, as compared to $139.8 million for the nine months ended September 30, 2024. Adjusted EBITDA was $436.8 million for the nine months ended September 30, 2025, as compared to $395.6 million for the nine months ended September 30, 2024. Please see "Non-GAAP Financial Measures" below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.
SEGMENT RESULTS OF OPERATIONS
We have three reportable segments: Sterigenics, Nordion and Nelson Labs. Our CODM evaluates performance and allocates resources within our business based on Segment Income, which excludes certain items which are included in income before tax as determined in our Consolidated Statements of Operations and Comprehensive Income. The accounting policies for our reportable segments are the same as those for the consolidated Company.
Our Segments
Sterigenics
Sterigenics provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets using three major technologies: gamma irradiation, EO processing and E-beam irradiation.
Nordion
Nordion is a leading global provider of Co-60 used in the sterilization and irradiation processes for the medical device, pharmaceutical, food safety, and high-performance materials industries, as well as in the treatment of cancer. In addition, Nordion is a leading global provider of gamma irradiation systems.
As a result of the time required to meet regulatory and logistics requirements for delivery of radioactive products, combined with accommodations made to our customers to minimize disruptions to their operations during the installation of Co-60, Nordion sales patterns can often vary significantly from one quarter to the next. However, timing-related impacts on our sales performance tend to be resolved within several quarters, resulting in more consistent performance over longer periods of time. In addition, sales of gamma irradiation systems occur infrequently and tend to be for larger amounts.
Results for our Nordion segment are also impacted by Co-60 mix and harvest schedules, as well as customer, product and service mix.
Nelson Labs
Nelson Labs provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.
For more information regarding our reportable segments, please refer to Note 16, "Segment Information" to our consolidated financial statements.
Segment Results for the Three Months Ended September 30, 2025 and 2024
The following tables compare segment net revenue and segment income for the three months ended September 30, 2025 to the three months ended September 30, 2024:
|
Three Months Ended September 30,
|
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| (thousands of U.S. dollars) | 2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Net Revenues | |||||||||||||||||||||||
| Sterigenics | $ | 192,845 | $ | 175,574 | $ | 17,271 | 9.8 | % | |||||||||||||||
| Nordion | 62,805 | 51,313 | 11,492 | 22.4 | % | ||||||||||||||||||
| Nelson Labs | 55,662 | 58,581 | (2,919) | (5.0) | % | ||||||||||||||||||
| Segment Income | |||||||||||||||||||||||
| Sterigenics | $ | 107,155 | $ | 95,989 | $ | 11,166 | 11.6 | % | |||||||||||||||
| Nordion | 38,048 | 31,733 | 6,315 | 19.9 | % | ||||||||||||||||||
| Nelson Labs | 18,987 | 18,639 | 348 | 1.9 | % | ||||||||||||||||||
| Segment Income margin | |||||||||||||||||||||||
| Sterigenics | 55.6 | % | 54.7 | % | |||||||||||||||||||
| Nordion | 60.6 | % | 61.8 | % | |||||||||||||||||||
| Nelson Labs | 34.1 | % | 31.8 | % | |||||||||||||||||||
Net Revenues by Segment
Sterigenics net revenues were $192.8 million for the three months ended September 30, 2025, an increase of $17.3 million, or 9.8%, as compared to the three months ended September 30, 2024. The increase was attributable to a 4.6% increase in volume and mix, a 3.8% favorable impact from pricing and a 1.4% benefit from changes in foreign currency exchange rates.
Nordion net revenues were $62.8 million for the three months ended September 30, 2025, an increase of $11.5 million, or 22.4%, as compared to the three months ended September 30, 2024. The increase was driven by favorable volume and mix of 18.9% and a 4.7% impact from pricing, partially offset by a 1.2% unfavorable impact from changes in foreign currency exchange rates.
Nelson Labs net revenues were $55.7 million for the three months ended September 30, 2025, a decrease of $2.9 million, or 5.0%, as compared to the three months ended September 30, 2024. Favorable pricing, a benefit from changes in foreign currency exchange rates and growth in core lab testing service were offset by a decline in expert advisory services revenue.
Segment Income
Sterigenics segment income was $107.2 million for the three months ended September 30, 2025, an increase of $11.2 million, or 11.6%, as compared to the three months ended September 30, 2024. The increase in segment income and segment income margin was primarily a result of an increase in volume and mix coupled with favorable customer pricing, partially offset by inflation.
Nordion segment income was $38.0 million for the three months ended September 30, 2025, an increase of $6.3 million, or 19.9%, as compared to the three months ended September 30, 2024. The increase in segment income was attributable to growth in volume and mix and benefits from customer pricing. Segment income margin decreased as a result of product mix.
Nelson Labs segment income was $19.0 million for the three months ended September 30, 2025, an increase of $0.3 million, or 1.9%, as compared to the three months ended September 30, 2024. Segment income and segment income margin increased as a result of volume and mix improvements, lab optimization and favorable pricing.
Segment Results for the Nine Months Ended September 30, 2025 and 2024
The following tables compare segment net revenue and segment income for the nine months ended September 30, 2025 to the nine months ended September 30, 2024:
|
Nine Months Ended September 30,
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| (thousands of U.S. dollars) | 2025 | 2024 |
$ Change
|
% Change
|
|||||||||||||||||||
| Net Revenues | |||||||||||||||||||||||
| Sterigenics | $ | 557,368 | $ | 518,425 | $ | 38,943 | 7.5 | % | |||||||||||||||
| Nordion | 137,793 | 116,564 | 21,229 | 18.2 | % | ||||||||||||||||||
| Nelson Labs | 165,015 | 175,249 | (10,234) | (5.8) | % | ||||||||||||||||||
| Segment Income | |||||||||||||||||||||||
| Sterigenics | $ | 302,904 | $ | 278,585 | $ | 24,319 | 8.7 | % | |||||||||||||||
| Nordion | 78,947 | 65,938 | 13,009 | 19.7 | % | ||||||||||||||||||
| Nelson Labs | 54,913 | 51,117 | 3,796 | 7.4 | % | ||||||||||||||||||
| Segment Income margin | |||||||||||||||||||||||
| Sterigenics | 54.3 | % | 53.7 | % | |||||||||||||||||||
| Nordion | 57.3 | % | 56.6 | % | |||||||||||||||||||
| Nelson Labs | 33.3 | % | 29.2 | % | |||||||||||||||||||
Net Revenues by Segment
Sterigenics net revenues were $557.4 million for the nine months ended September 30, 2025, an increase of $38.9 million, or 7.5%, as compared to the nine months ended September 30, 2024. The increase was mainly attributable to favorable impacts from pricing and volume and mix of4.0% and 3.5%, respectively.
Nordion net revenues were $137.8 million for the nine months ended September 30, 2025, an increase of $21.2 million, or 18.2%, as compared to the nine months ended September 30, 2024. The increase was driven by favorable changes in volume and mix of 16.7% and pricing of 3.1%, partially offset by an unfavorable impact from changes in foreign currency exchange ratesof 1.6%.
Nelson Labs net revenues were $165.0 million for the nine months ended September 30, 2025, a decrease of $10.2 million, or 5.8%, as compared to the nine months ended September 30, 2024. Growth in core lab testing services, favorable pricing and a benefit from changes in foreign currency exchange rates were offset by a decline in expert advisory services revenue.
Segment Income
Sterigenics segment income was $302.9 million for the nine months ended September 30, 2025, an increase of $24.3 million, or 8.7%, as compared to the nine months ended September 30, 2024. The increase in segment income was driven primarily by favorable customer pricing and improvements in volume and mix, partially offset by inflation.
Nordion segment income was $78.9 million for the nine months ended September 30, 2025, an increase of $13.0 million, or 19.7%, as compared to the nine months ended September 30, 2024. The increase in segment income and segment income margin were primarily attributable to higher volumes and mix of Co-60 and benefits from customer pricing.
Nelson Labs segment income was $54.9 million for the nine months ended September 30, 2025, an increase of $3.8 million, or 7.4%, as compared to the nine months ended September 30, 2024. Segment income and segment income margin increased as a result of volume and mix improvements, lab optimization and favorable pricing.
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted Net Income and Adjusted EBITDA, financial measures that are not based on any standardized methodology prescribed by GAAP.
We define Adjusted Net Income as net income before amortization and certain other adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period as discussed further below. We define Adjusted EBITDA as Adjusted Net Income before interest expense, depreciation (including depreciation of Co-60 used in our operations) and income tax provision applicable to Adjusted Net Income.
We use Adjusted Net Income and Adjusted EBITDA, non-GAAP financial measures, as the principal measures of our operating performance. Management believes Adjusted Net Income and Adjusted EBITDA are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without the impact of certain non-cash items and non-routine items that we do not expect to continue at the same level in the future and other items that are not core to our operations. We believe that these measures are useful to our investors because they provide a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. In addition, we believe Adjusted Net Income and Adjusted EBITDA will assist investors in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented. Our management also uses Adjusted Net Income and Adjusted EBITDA in its financial analysis and operational decision-making, and Adjusted EBITDA serves as the basis for the metric we utilize to determine attainment of our primary annual incentive program. Adjusted Net Income and Adjusted EBITDA may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.
Adjusted Net Income and Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted Net Income and Adjusted EBITDA rather than net income, the nearest GAAP equivalent. For example, Adjusted Net Income and Adjusted EBITDA primarily exclude:
•certain recurring non-cash charges such as depreciation of fixed assets, although these assets may have to be replaced in the future, as well as amortization of acquired intangible assets and asset retirement obligations ("ARO");
•costs of acquiring and integrating businesses, which will continue to be a part of our growth strategy;
•non-cash gains or losses from fluctuations in foreign currency exchange rates and the mark-to-fair value of derivatives not designated as hedging instruments, which includes the embedded derivatives relating to certain customer and supply contracts at Nordion;
•impairment charges on long-lived assets, intangible assets and investments accounted for under the equity method;
•loss on refinancing of debt incurred in connection with refinancing or early extinguishment of long-term debt;
•expenses incurred in connection with the secondary offering of our common stock and other shareholder activities;
•expenses and charges related to the litigation, settlement agreements, and other activities associated with our EO sterilization facilities, including those related to Willowbrook, Illinois, Atlanta, Georgia, Santa Teresa, New Mexico and Vernon, California;
•in the case of Adjusted EBITDA, interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and
•share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of our compensation strategy.
In evaluating Adjusted Net Income and Adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments in this presentation. Our presentations of Adjusted Net Income and Adjusted EBITDA should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted Net Income and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP measures.
The following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP to Adjusted Net Income and Adjusted EBITDA, for each of the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (thousands of U.S. dollars) | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Net income | $ | 48,400 | $ | 16,998 | $ | 43,102 | $ | 32,075 | |||||||||||||||
| Amortization of intangibles | 5,648 | 19,858 | 36,246 | 59,737 | |||||||||||||||||||
|
Share-based compensation(a)
|
8,047 | 9,860 | 23,465 | 28,723 | |||||||||||||||||||
|
Loss on refinancing of debt(b)
|
1,087 | 70 | 1,167 | 24,160 | |||||||||||||||||||
|
Gain on foreign currency and derivatives not designated as hedging instruments, net(c)
|
(167) | (2,231) | (1,294) | (1,699) | |||||||||||||||||||
|
Business optimization expenses(d)
|
3,098 | 2,949 | 7,575 | 4,733 | |||||||||||||||||||
|
Professional services relating to EO sterilization facilities(e)
|
11,152 | 8,200 | 37,515 | 22,357 | |||||||||||||||||||
|
Illinois EO litigation settlements(f)
|
- | - | 64,943 | - | |||||||||||||||||||
|
Accretion of asset retirement obligations(g)
|
601 | 636 | 1,738 | 1,914 | |||||||||||||||||||
|
Income tax benefit associated with pre-tax adjustments(h)
|
(2,596) | (7,397) | (44,081) | (32,241) | |||||||||||||||||||
| Adjusted Net Income | 75,270 | 48,943 | 170,376 | 139,759 | |||||||||||||||||||
| Interest expense, net | 39,147 | 41,572 | 120,674 | 123,731 | |||||||||||||||||||
|
Depreciation(i)
|
22,642 | 22,693 | 67,726 | 63,074 | |||||||||||||||||||
|
Income tax provision applicable to Adjusted Net Income(j)
|
27,131 | 33,153 | 77,988 | 69,076 | |||||||||||||||||||
|
Adjusted EBITDA(k)
|
$ | 164,190 | $ | 146,361 | $ | 436,764 | $ | 395,640 | |||||||||||||||
(a) Represents share-based compensation expense related to employees and Non-Employee Directors.
(b) Represents the write-off of unamortized debt issuance costs and discounts, as well as certain other costs incurred related to refinancing activity for the Term Loans, the Secured Notes and the Revolving Credit Facility.
(c) Represents the effects of (i) fluctuations in foreign currency exchange rates and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion.
(d) Represents (i) certain costs related to divestitures, acquisitions and the integration of acquisitions, (ii) professional fees and other costs associated with business optimization, cost saving and other process enhancement projects, and (iii) legal, consulting, and other fees associated with the secondary offerings and shareholder engagement.
(e) Represents litigation and other professional fees associated with our EO sterilization facilities.
(f) Represents (i) the cost to settle 97 pending and threatened EO claims against Sterigenics in Illinois pursuant to the term sheet entered into on April 3, 2025 and (ii) the cost to settle 129 pending and threatened EO claims against Sterigenics in Illinois pursuant to the term sheet entered into on July 23, 2025. See Note 14, "Commitments and Contingencies."
(g) Represents non-cash accretion of ARO related to Co-60 gamma and EO sterilization facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities and are accreted over the life of the asset.
(h) Represents the income tax impact of adjustments calculated based on the tax rate applicable to each item. We eliminate the effect of tax rate changes as applied to tax assets and liabilities and unusual items from our presentation of adjusted net income.
(i) Includes depreciation of Co-60 held at gamma irradiation sites, and excludes accelerated depreciation associated with business optimization activities.
(j) Represents the difference between the income tax provision or benefit as determined under U.S. GAAP and the income tax provision or benefit associated with pre-tax adjustments described in footnote (h).
(m) $24.1 million and $25.8 million of the adjustments for the three months ended September 30, 2025 and 2024, respectively, and $72.7 million and $73.0 million of the adjustments for the nine months ended September 30, 2025 and 2024, respectively, are included in cost of revenues, primarily consisting of amortization of intangible assets, depreciation, and accretion of asset retirement obligations.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash
The primary sources of liquidity for our business are cash flows from operations and borrowings under our credit facilities. As of September 30, 2025, we had $299.2 million of unrestricted cash and cash equivalents. This is an increase of $22.0 million from the balance at December 31, 2024. The increase in unrestricted cash and cash equivalents was a result of $184.1 million of cash flows provided by operating activities and a $14.9 millionincrease due tofavorable change in foreign currency exchange rates, partially offset by $87.3 million in cash paid for capital expenditures and $92.4 million in cash used in financing activities. Our foreign subsidiaries held cash of approximately $230.6 million at September 30, 2025 and $259.8 million at December 31, 2024. No material restrictions exist to accessing cash held by our foreign subsidiaries notwithstanding any potential tax consequences.
Uses of Cash
We expect that cash on hand, operating cash flows and amounts available under our credit facilities will provide sufficient working capital to operate our business, meet foreseeable liquidity requirements (inclusive of debt service on our long-term debt), make expected capital expenditures including investments in fixed assets to build and/or expand existing facilities, and meet litigation costs that we expect to continue to incur for at least the next twelve months and the foreseeable future thereafter. Our primary long-term liquidity requirements beyond the next 12 months will be to service our debt, make capital expenditures, and fund suitable business acquisitions. As of September 30, 2025, there were no outstanding borrowings on the Revolving Credit Facility. We expect any excess cash provided by operations will be allocated to fund capital expenditures, potential acquisitions, debt paydown or for other general corporate purposes. Our ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected by a range of macroeconomic, competitive and business factors, including interest rate changes and changes in our industry, many of which are outside of our control. As of September 30, 2025, our interest rate derivatives limit our cash flow exposure of our variable rate borrowings under the Term Loans. Refer to Note 15, "Financial Instruments and Financial Risk", "Derivative Instruments" for additional information about changes in interest rate risk.
Capital Expenditures
Our capital expenditure program is a component of our long-term strategy. This program includes, among other things, investments in new and existing facilities, business expansion projects, Co-60 used by Sterigenics at its gamma irradiation facilities, cobalt development projects and information technology enhancements. During the nine months ended September 30, 2025, our capital expenditures amounted to $87.3 million, compared to $113.2 million for the nine months ended September 30, 2024.
Cash Flow Information
| (thousands of U.S. dollars) |
Nine Months Ended September 30, |
||||||||||
| 2025 | 2024 | ||||||||||
| Net Cash Provided by (Used in): | |||||||||||
| Operating activities | $ | 184,091 | $ | 168,447 | |||||||
| Investing activities | (84,445) | (113,126) | |||||||||
| Financing activities | (92,359) | (44,016) | |||||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 14,874 | (4,477) | |||||||||
| Net increase in cash and cash equivalents, including restricted cash | $ | 22,161 | $ | 6,828 | |||||||
Operating activities
Cash flows from operating activities increased $15.6 million to net cash provided of $184.1 million in the nine months ended September 30, 2025 compared to net cash provided of $168.4 million for the nine months ended September 30, 2024. The increase in cash flows from operating activities in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was mainly attributable to an increase in gross profit coupled with a decrease in cash paid for interest, partially offset by an increase in cash paid for income taxes.
Investing activities
Cash used in investing activities decreased $28.7 million to net cash used of $84.4 million in the nine months ended September 30, 2025 compared to $113.1 million for the nine months ended September 30, 2024. The variance was primarily driven by a decrease in cash paid for capital expenditures of $25.9 million in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.
Financing activities
Cash used in financing activities increased $48.3 million to net cash used of $92.4 million in the nine months ended September 30, 2025 compared to net cash used of $44.0 million for the nine months ended September 30, 2024. The increase in cash used in financing activities was mainly attributable to an increase $81.3 million of principal repayments on the Term Loans in 2025, which included a $75.0 million voluntary paydown in connection with Amendment No. 6 to the First Lien Credit Agreement. Partially offsetting these cash outflows, was a decrease in cash paid for debt issuance costs of $28.1 million due to the incremental debt issuance costs paid in connection with the Refinancing Term Loans and Secured Notes in the second quarter of 2024. In addition, in the first quarter of 2024, the Company paid $6.7 million to acquire certain facilities through the settlement of a finance lease.
Debt Facilities
Under the debt agreements summarized below, at September 30, 2025 we and Sotera Health Holdings, LLC ("SHH"), our wholly owned subsidiary, have debt payment obligations under (a) a term loan in the amount of $1,423.0 million, (b) a revolving credit facility, which supported operationally-related letters of credit but was otherwise undrawn, and which provides to us capacity up to $600.0 million for future potential borrowings, and (c) $750.0 million of senior notes. Our debt agreements also include additional covenants, conditions and rights to request additional debt, as summarized below.
Senior Secured Credit Facilities and Indenture
On December 13, 2019, SHH entered into senior secured first lien credit facilities (the "Senior Secured Credit Facilities"), consisting of both a prepayable senior secured first lien term loan (the "Term Loan") and a senior secured first lien revolving credit facility (the "Revolving Credit Facility") pursuant to a first lien credit agreement (as amended through Amendment No. 6 (as defined below), the "Credit Agreement"). Amendment No. 6 reduced the applicable interest rate margin under the Term Loan by 0.50%. The Senior Secured Credit Facilities also provide SHH the right at any time and under certain conditions to request incremental term loans or incremental revolving credit commitments based on a formula defined in the Senior Secured Credit Facilities.
On September 17, 2025, the Company and SHH entered into Amendment No. 6 ("Amendment No. 6") to the Credit Agreement. Among other changes, Amendment No. 6 provides for refinancing lenders to provide term loans (the "Repriced Term Loans") to SHH in an aggregate principal amount of $1,423.0 million, which reflects the balance after the Company's application of $75.0 million of available cash to repay outstanding borrowings under its term loan facility. Amendment No. 6 also reduces the interest rate spread by 0.50% across term loans under the facility, such that the Repriced Term Loans have an applicable interest rate margin equal to the Adjusted Term SOFR (as defined in the Credit Agreement) plus 2.50%, with a 0.00% floor (with optionality for the Company to elect Alternate Base Rate plus 1.50% or Adjusted Daily Simple SOFR plus 2.50% (each as defined in the Credit Agreement)). This pricing reflects both the 0.50% reduction implemented through Amendment No. 6 and a 0.25% contractual pricing step-down that was triggered in August 2025. The Repriced Term Loans are also subject to a "soft call" premium of 1.00% for certain repricing transactions with respect to the Repriced Term Loans that occur within the six-month period after the effective date of Amendment No. 6. The Repriced Term Loans amortize at a rate of 1.00% per annum and matures on May 30, 2031.
On April 30, 2025, the Company and SHH entered into Amendment No. 5 ("Amendment No. 5") to the Credit Agreement. Among other changes, Amendment No. 5 provides (i) for an increase in the commitments under the existing Revolving Credit Facility in an aggregate principal amount of $176.2 million, (ii) that certain lenders providing revolving credit commitments shall also provide additional commitments for the issuance of letters of credit under the Revolving Credit Facility in an aggregate principal amount of $186.3 million and (iii) for the extension of the maturity date of the Revolving Credit Facility to April 30, 2030. Amendment No. 5 does not give effect to any other material changes to the terms and conditions of the Credit Agreement, including with respect to the representations and warranties, events of default and the affirmative or negative covenants.
The Company and SHH had previously entered into Amendment No. 4 on May 30, 2024, respectively. See Note 8, "Long-Term Debt," to the Financial Statements for a description of these amendments.
On May 30, 2024, SHH, the Company, certain subsidiaries of the Company, and Wilmington Trust, National Association, as trustee, paying agent, registrar, transfer agent and notes collateral agent, entered into an Indenture (the "Indenture") governing SHH's $750.0 million aggregate principal amount of 7.375% senior secured notes due 2031 (the "Secured Notes") issued in May 2024.
The Senior Secured Credit Facilities and the Indenture contain certain covenants and events of default. Additionally, all of SHH's obligations under the Senior Secured Credit Facilities and the Indenture are unconditionally guaranteed by the Company and certain domestic restricted subsidiaries. For additional information about our Senior Secured Credit Facilities, the Indenture and the Secured Notes, including the covenants and events of default, refer to Note 8, "Long-Term Debt," to our Financial Statements.
Outstanding letters of credit are collateralized by encumbrances against the Revolving Credit Facility and the collateral pledged thereunder, or by cash placed on deposit with the issuing bank. As of September 30, 2025, the Company had $8.1 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $591.9 million.
Term Loan Interest Rate Risk Management
The Company utilizes interest rate derivatives to reduce the variability of cash flows in the interest payments associated with our variable rate debt due to changes in SOFR. For additional information on the derivative instruments described above, refer to Note 15, "Financial Instruments and Financial Risk"- "Derivative Instruments."
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make judgments, estimates and assumptions at a specific point in time and in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. The application of accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
A comprehensive discussion of the Company's critical accounting policies and management estimates made in connection with the preparation of the financial statements is included in Item 7 of the Company's 2024 Form 10-K. There have been no significant changes in critical accounting policies, management estimates or accounting policies since the year ended December 31, 2024.
NEW ACCOUNTING PRONOUNCEMENTS
For a description of recent accounting pronouncements applicable to our business, see Note 2, "Recent Accounting Standards" to our consolidated financial statements.
Sotera Health Co. published this content on November 04, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 04, 2025 at 21:03 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]