Sotera Health Company (“Sotera Health” or the “Company”) (Nasdaq:
SHC), a leading global provider of mission-critical end-to-end
sterilization solutions, lab testing and advisory services for the
healthcare industry, today announced financial results for the
three and nine months ended September 30, 2023.
Third-quarter 2023 net revenues increased 5.8% to $263 million,
compared with $249 million in the third-quarter 2022. Net loss was
$14 million, or $0.05 per diluted share, including a previously
disclosed legal settlement of $35 million. This compares with net
income of $25 million, or $0.09 per diluted share in the
third-quarter of 2022. Adjusted EBITDA for the third-quarter 2023
increased 7.3% to $134 million compared to $125 million in the
third-quarter 2022. Third-quarter 2023 Adjusted Earnings Per
Diluted Share (“Adjusted EPS”) was $0.21, compared to $0.23 in the
third-quarter of 2022 driven by higher interest expense. Please
refer to the section “Non-GAAP Financial Measures” provided later
in this release.
For the first nine-months of 2023, net revenues decreased 1.7%
to $739 million, compared to $752 million for the same
period in 2022. Net revenues also decreased approximately 1.7% on a
constant currency basis. Net income was $13 million, or $0.04 per
diluted share for the nine-months ended September 30, 2023,
compared with net income of $86 million, or $0.31 per diluted
share, for the same period last year. Adjusted EBITDA for the first
nine-months of 2023 decreased 4.1% to $361 million and
Adjusted EPS decreased by $0.17 to $0.55 compared to the first
nine-months of 2022. Please refer to the section “Non-GAAP
Financial Measures” provided later in this release.
“Today I am pleased to report both top and bottom-line growth
for the third-quarter 2023,” said Chairman and Chief Executive
Officer, Michael B. Petras, Jr. “Our ability to grow revenue,
improve margin performance and generate cash in a challenging
market is a testament to the resilience of our business model. Our
team remains focused on serving our customers and executing our
strategy while delivering on our mission of Safeguarding Global
Health®.”
Third-Quarter and Year-to-Date 2023 Highlights by
Business Segment
Sterigenics
For the third-quarter 2023, Sterigenics’ net revenues were $168
million, an increase of 6.7% compared to the third-quarter a year
ago. Third-quarter 2023 segment income was $93 million, an increase
of 8.9%. For the first nine-months of 2023, Sterigenics’ net
revenues were $495 million, an increase of 6.4% compared to
the same period in 2022. Segment income increased 6.9% to
$267 million.
Net revenue growth for the third-quarter 2023 was driven by
favorable pricing and changes in foreign currency exchange rates,
partially offset by an unfavorable impact from volume and mix.
Segment income and segment income margin increases for the
third-quarter 2023 were driven by favorable customer pricing,
partially offset by unfavorable volume and mix, as well as
inflation.
Nordion
For the third-quarter of 2023, Nordion net revenues were $40
million, an increase of 14.3% compared to the third-quarter a year
ago. Third-quarter 2023 segment income increased 18.5% to $24
million. For the first nine-months of 2023, Nordion net revenues
were $81 million, a decrease of 32.6% compared to the same
period in 2022. Segment income decreased 37.3% to
$43 million.
Net revenue increase for the third-quarter 2023 was driven by
favorable pricing and volume and mix, partially offset by an
unfavorable impact from changes in foreign currency exchange
rates.
Segment income and segment income margin growth for the
third-quarter 2023 were driven by favorable pricing and volume and
mix, partially offset by inflation.
Nelson Labs
For the third-quarter 2023, Nelson Labs net revenues were $55
million, a decrease of 2.1% compared to the third-quarter a year
ago. Third-quarter 2023 segment income decreased by 11.2% to $17
million. For the first nine-months of 2023, Nelson Labs net
revenues were $163 million, a decrease of 2.4% compared to the
same period in 2022. Segment income decreased 12.0% to
$50 million.
Net revenue decline for the third-quarter 2023 was driven by
unfavorable volume and mix, partially offset by a favorable impact
from pricing and changes in foreign currency exchange rates.
Segment income and segment income margin declines for the
third-quarter 2023 were impacted by unfavorable volume and mix as
well as inflation, partially offset by favorable pricing.
Balance Sheet and Liquidity
As of September 30, 2023, Sotera Health had $2.3 billion of
total debt and $245 million of unrestricted cash and cash
equivalents, compared to $2.0 billion in total debt and $395
million of unrestricted cash and cash equivalents as of
December 31, 2022. As of September 30, 2023, the Company
had no balance outstanding on its revolving credit facility. Sotera
Health’s net leverage ratio as of September 30, 2023 was 4.2x.
Please refer to the section “Non-GAAP Financial Measures” provided
later in this release.
2023 Outlook
Based on ongoing market softness, Sotera Health anticipates 2023
results will be at the lower end of its previously announced
outlook on August 3, 2023. That outlook is:
- Net revenues in the range of $1.035 to
$1.055 billion, representing growth of approximately 3% to 5%,
compared to the prior year,
- Adjusted EBITDA in the range of $520 to
$535 million, representing growth of approximately 3% to 6%,
compared to the prior year,
- The tax rate applicable to Adjusted Net
Income in the range of 30% to 32%,
- Adjusted EPS in the range of $0.78 to
$0.86,
- A fully diluted share count remains in
the range of 283 million to 285 million shares on a
weighted-average basis,
- Capital expenditures in the range of
$200 to $215 million, and
- 2023 year-end Net Leverage Ratio
expected to end the year at or below 4.0x.
The Company does not provide a reconciliation for non-GAAP
financial measures on a forward-looking basis where it is unable to
provide a meaningful or accurate calculation or estimation of
reconciling items without unreasonable effort. The Company cannot
reconcile its expected Adjusted EBITDA, Adjusted Net Income,
Adjusted EPS and Net Leverage Ratio without unreasonable effort
because certain items that impact net income, earnings per share
and other reconciling metrics are out of the Company’s control
and/or cannot be reasonably predicted at this time, including
uncertainties caused by changes to the regulatory landscape,
restructuring items and certain fair value measurements, all of
which are potential adjustments for future earnings.
The outlook provided above contains a number of assumptions,
including, among others, the Company’s current expectations
regarding supply chain continuity, particularly for the supply of
EO and Cobalt-60, the impact of inflationary trends including their
impact on energy prices and the supply of labor, and the
expectation that exchange rates as of September 30, 2023
remain constant for the remainder of 2023. Our outlook is based on
current plans and expectations and is subject to several known and
unknown risks and uncertainties, including those set forth below
under “Cautionary Note Regarding Forward-Looking Statements.”
Earnings Webcast
Sotera Health management will host a conference call and webcast
to discuss the Company’s operating highlights and financial results
at 9:00 a.m. Eastern Time today. To participate in the live call,
please dial 1-844-481-2916 if dialing in from the United States, or
1-412-317-0709 if dialing in from other locations. A live webcast
of the conference call and accompanying materials may also be
accessed via the Investor Relations section of the Company’s
website at Presentation & Events | Sotera Health. A replay of
the webcast will be archived on the Company's website.
Updates on recent developments in matters relevant to investors
can be found on the Investor Relations section of the Sotera Health
website at Investor Relations | Sotera Health. For developments
related to EO, updates can be found at Ethylene Oxide | Sotera
Health.
Upcoming Investor Events
- Wolfe Research Conference at 8:45 a.m.
Eastern Time, November 14, 2023
Cautionary Note Regarding Forward-Looking
Statements
Unless expressly indicated or the context requires otherwise,
the terms “Sotera Health,” “Company,” “we,” “us,” and “our” in this
document refer to Sotera Health Company, a Delaware corporation,
and, where appropriate, its subsidiaries on a consolidated basis.
This release contains forward-looking statements that reflect
management’s expectations about future events and the Company’s
operating plans and performance and speak only as of the date
hereof. You can identify these forward-looking statements by the
use of forward-looking words such as “will,” “may,” “plan,”
“estimate,” “project,” “believe,” “anticipate,” “expect,” “intend,”
“should,” “would,” “could,” “target,” “goal,” “continue to,”
“positioned to,” “are confident” or the negative versions of those
words or other comparable words. In addition, any statements that
refer to expectations, projections or other characterizations of
future events or circumstances, are forward-looking statements. Any
forward-looking statements contained in this release are based upon
our historical performance and on our current plans, estimates and
expectations of the Company’s future performance and the future
performance of the markets in which the Company operates in light
of information currently available to us. The inclusion of this
forward-looking information should not be regarded as a
representation by us that the future plans, estimates or
expectations contemplated by us will be achieved. These
forward-looking statements are subject to various risks,
uncertainties and assumptions relating to our operations, financial
results, financial condition, business, prospects, growth strategy
and liquidity. These risks and uncertainties include, without
limitation, any disruption in the availability or supply of, or
increases in the price of, EO or Cobalt-60 (“Co-60”), or our other
direct materials, services and supplies, including as a result of
geopolitical instability and/or sanctions arising from US,
Canadian, UK or European Union relations with Russia; foreign
currency exchange rates and changes in those rates; adverse changes
in industry trends, environmental, health and safety regulations or
preferences, or general economic, social and business conditions;
the impact and outcome of current and future legal proceedings and
liability claims, including litigation related to purported
exposure to emissions of EO from our facilities in Illinois,
Georgia and New Mexico and the possibility that other claims will
be made in the future relating to these or other facilities; our
ability to increase capacity at existing facilities, renew leases
for our leased facilities and build new facilities in a timely and
cost-effective manner; competition for qualified employees in the
industries in which we operate; the risks of doing business
internationally, including global and regional economic and
political instability and compliance with numerous laws and
regulations in multiple jurisdictions; and any inability to pursue
strategic transactions or find suitable acquisition targets. For
additional discussion of these risks and uncertainties, please
refer to the Company’s filings with the SEC, such as its annual and
quarterly reports. We do not undertake any obligation to publicly
update or revise these forward-looking statements, except as
otherwise required by law.
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in
accordance with GAAP, we consider Adjusted EBITDA, Adjusted EBITDA
margin, Adjusted Net Income, Adjusted EPS, Segment income margin,
Net Debt and Net Leverage Ratio and constant currency financial
measures that are not based on any standardized methodology
prescribed by GAAP.
We define Adjusted Net Income as net income (loss) before
amortization and certain other adjustments that we do not consider
in our evaluation of our ongoing operating performance from period
to period.
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.
Adjusted EBITDA margin is equal to Adjusted EBITDA divided by
net revenues.
Segment income margin is equal to segment income divided by net
segment revenues.
We define Adjusted EPS as Adjusted Net Income divided by the
weighted average number of diluted shares outstanding.
Our Net Debt is equal to our total debt, plus unamortized debt
issuance costs and debt discounts, less cash and cash
equivalents.
Our Net Leverage Ratio is equal to Net Debt divided by Adjusted
EBITDA.
Constant currency is a non-GAAP financial measure we use to
assess performance excluding the impact of foreign currency
exchange rate changes. We calculate constant currency net revenues
by translating prior year net revenues in local currency at the
average exchange rates applicable for the current period. The
translated results are then used to determine year-over-year
percentage increases or decreases. We generally refer to such
amounts calculated on a constant currency basis as excluding the
impact of foreign currency exchange rates. These results should be
considered in addition to, not as a substitute for, results
reported in accordance with GAAP. Results on a constant currency
basis, as we present them, may not be comparable to similarly
titled measures used by other companies and are not measures of
performance presented in accordance with GAAP.
We use these non-GAAP financial measures as the principal
measures of our operating performance. Management believes these
measures 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
without these measures and their disclosure. In addition, we
believe these measures 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 these measurements in their financial analysis
and operational decision-making and Adjusted EBITDA serves as the
key metric for the attainment of our primary annual incentive
program. These measures may be calculated differently from, and
therefore may not be comparable to, a similarly titled measure used
by other companies.
About Sotera Health
Sotera Health Company is a leading global provider of
mission-critical end-to-end sterilization solutions and lab testing
and advisory services for the healthcare industry. Sotera Health
goes to market through three businesses – Sterigenics®, Nordion®
and Nelson Labs®. Sotera Health is committed to its mission,
Safeguarding Global Health®.
INVESTOR RELATIONS CONTACTS
Jason PetersonVice President & Treasurer, Sotera
HealthIR@soterahealth.com
MEDIA
Kristin GibbsChief Marketing Officer, Sotera
Healthkgibbs@soterahealth.com
Source: Sotera Health Company
Sotera Health Company |
Consolidated Statements of Operations |
(in thousands, except per share amounts) |
(unaudited) |
|
|
Three Months EndedSeptember
30, |
|
Nine Months EndedSeptember
30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Revenues: |
|
|
|
|
|
|
|
Service |
$ |
227,120 |
|
|
$ |
216,704 |
|
|
$ |
667,680 |
|
|
$ |
644,451 |
|
Product |
|
36,057 |
|
|
|
32,000 |
|
|
|
71,369 |
|
|
|
107,646 |
|
Total net
revenues |
|
263,177 |
|
|
|
248,704 |
|
|
|
739,049 |
|
|
|
752,097 |
|
Cost of
revenues: |
|
|
|
|
|
|
|
Service |
|
103,580 |
|
|
|
99,772 |
|
|
|
311,690 |
|
|
|
292,755 |
|
Product |
|
13,613 |
|
|
|
12,919 |
|
|
|
30,284 |
|
|
|
44,058 |
|
Total cost of
revenues |
|
117,193 |
|
|
|
112,691 |
|
|
|
341,974 |
|
|
|
336,813 |
|
Gross
profit |
|
145,984 |
|
|
|
136,013 |
|
|
|
397,075 |
|
|
|
415,284 |
|
Operating
expenses: |
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
54,112 |
|
|
|
57,091 |
|
|
|
176,309 |
|
|
|
179,765 |
|
Amortization of intangible assets |
|
15,774 |
|
|
|
15,727 |
|
|
|
48,098 |
|
|
|
47,337 |
|
Total operating
expenses |
|
69,886 |
|
|
|
72,818 |
|
|
|
224,407 |
|
|
|
227,102 |
|
Operating
income |
|
76,098 |
|
|
|
63,195 |
|
|
|
172,668 |
|
|
|
188,182 |
|
Interest expense, net |
|
40,627 |
|
|
|
23,427 |
|
|
|
100,225 |
|
|
|
47,875 |
|
Georgia EO litigation
settlement |
|
35,000 |
|
|
|
— |
|
|
|
35,000 |
|
|
|
— |
|
Impairment of investment in
unconsolidated affiliate |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,613 |
|
Foreign exchange (gain)
loss |
|
(426 |
) |
|
|
(535 |
) |
|
|
386 |
|
|
|
(502 |
) |
Other expense (income),
net |
|
427 |
|
|
|
(1,713 |
) |
|
|
(3,300 |
) |
|
|
(4,195 |
) |
Income before income
taxes |
|
470 |
|
|
|
42,016 |
|
|
|
40,357 |
|
|
|
135,391 |
|
Provision for income
taxes |
|
14,130 |
|
|
|
16,926 |
|
|
|
27,662 |
|
|
|
49,242 |
|
Net income
(loss) |
|
(13,660 |
) |
|
|
25,090 |
|
|
|
12,695 |
|
|
|
86,149 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share: |
|
|
|
|
|
|
|
Basic |
$ |
(0.05 |
) |
|
$ |
0.09 |
|
|
$ |
0.04 |
|
|
$ |
0.31 |
|
Diluted |
|
(0.05 |
) |
|
|
0.09 |
|
|
|
0.04 |
|
|
|
0.31 |
|
Weighted average
number of common shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
281,105 |
|
|
|
280,142 |
|
|
|
280,898 |
|
|
|
279,988 |
|
Diluted |
|
281,105 |
|
|
|
280,172 |
|
|
|
283,190 |
|
|
|
280,093 |
|
Sotera Health Company |
Segment Data |
(in thousands) |
(unaudited) |
|
|
Three Months EndedSeptember
30, |
|
|
Nine Months EndedSeptember
30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Segment
revenues: |
|
|
|
|
|
|
|
|
|
Sterigenics |
$ |
168,347 |
|
|
$ |
157,723 |
|
|
$ |
494,934 |
|
|
$ |
464,977 |
|
Nordion |
|
40,098 |
|
|
|
35,071 |
|
|
|
80,624 |
|
|
|
119,551 |
|
Nelson Labs |
|
54,732 |
|
|
|
55,910 |
|
|
|
163,491 |
|
|
|
167,569 |
|
Total net
revenues |
$ |
263,177 |
|
|
$ |
248,704 |
|
|
$ |
739,049 |
|
|
$ |
752,097 |
|
Segment
income: |
|
|
|
|
|
|
|
|
|
Sterigenics |
$ |
93,169 |
|
|
$ |
85,587 |
|
|
$ |
267,459 |
|
|
$ |
250,088 |
|
Nordion |
|
24,052 |
|
|
|
20,294 |
|
|
|
43,362 |
|
|
|
69,179 |
|
Nelson Labs |
|
17,107 |
|
|
|
19,271 |
|
|
|
50,460 |
|
|
|
57,369 |
|
Total segment
income |
|
134,328 |
|
|
|
125,152 |
|
|
|
361,281 |
|
|
|
376,636 |
|
Less
adjustments: |
|
|
|
|
|
|
|
|
|
Interest expense, net(a) |
|
30,464 |
|
|
|
20,080 |
|
|
|
82,275 |
|
|
|
53,974 |
|
Depreciation and
amortization(b) |
|
38,175 |
|
|
|
36,104 |
|
|
|
117,203 |
|
|
|
109,092 |
|
Share-based
compensation(c) |
|
8,378 |
|
|
|
4,616 |
|
|
|
24,135 |
|
|
|
14,955 |
|
Gain (loss) on foreign
currency and derivatives not designated as hedging instruments,
net(d) |
|
1,333 |
|
|
|
3,194 |
|
|
|
1,459 |
|
|
|
(4,788 |
) |
Acquisition and divestiture
related charges, net(e) |
|
72 |
|
|
|
447 |
|
|
|
817 |
|
|
|
978 |
|
Business optimization project
expenses(f) |
|
1,237 |
|
|
|
1,035 |
|
|
|
7,093 |
|
|
|
1,609 |
|
Plant closure expenses(g) |
|
126 |
|
|
|
2,627 |
|
|
|
(640 |
) |
|
|
3,776 |
|
Impairment of investment in
unconsolidated affiliate(h) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,613 |
|
Professional services and
other expenses relating to EO sterilization facilities(i) |
|
18,518 |
|
|
|
14,501 |
|
|
|
51,900 |
|
|
|
50,238 |
|
Georgia EO litigation
settlement(j) |
|
35,000 |
|
|
|
— |
|
|
|
35,000 |
|
|
|
— |
|
Accretion of asset retirement
obligation(k) |
|
555 |
|
|
|
526 |
|
|
|
1,682 |
|
|
|
1,644 |
|
COVID-19 expenses(l) |
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
154 |
|
Consolidated income
before income taxes |
$ |
470 |
|
|
$ |
42,016 |
|
|
$ |
40,357 |
|
|
$ |
135,391 |
|
(a) The three and nine months ended September 30, 2023
exclude $10.2 million and $18.0 million respectively, of interest
expense, net on Term Loan B attributable to the loan proceeds that
were used to fund the $408.0 million Illinois EO litigation
settlement. The three and nine months ended September 30, 2022
exclude $3.3 million of unrealized loss and $6.1 million of
unrealized gain, respectively, on interest rate derivatives not
designated as hedging instruments.(b) Includes depreciation of
Co-60 held at gamma irradiation sites.(c) Represents share-based
compensation expense to employees and non-employee directors.(d)
Represents the effects of (i) fluctuations in foreign currency
exchange rates, (ii) non-cash mark-to-fair value of embedded
derivatives relating to certain customer and supply contracts at
Nordion, and (iii) unrealized gains and losses on interest rate
caps not designated as hedging instruments.(e) Represents (i)
certain direct and incremental costs related to the acquisitions of
RCA and BioScience Labs and certain related integration efforts as
a result of those acquisitions, (ii) the earnings impact of fair
value adjustments (excluding those recognized within amortization
expense) resulting from the businesses acquired, and (iii)
transition services income and non-cash deferred lease income
associated with the terms of the divestiture of the Medical
Isotopes business in 2018.(f) Represents professional fees, exit
costs, severance and other payroll costs, and other costs
associated with business optimization and cost savings projects
relating to the integration of acquisitions, operating structure
realignment and other process enhancement projects.(g) Represents
professional fees, severance and other payroll costs, and other
costs including ongoing lease and utility expenses associated with
the closure of the Willowbrook, Illinois facility. The nine months
ended September 30, 2023 also includes a $1.0 million cancellation
fee received from a tenant in connection with the termination of an
office space lease at the Nordion facility.(h) Represents an
impairment charge on our equity method investment in a joint
venture.(i) Represents litigation and other professional fees
associated with our EO sterilization facilities. This includes
$10.2 million and $18.0 million of interest expense, net for the
three and nine months ended September 30, 2023, respectively,
associated with Term Loan B that was issued to finance the $408.0
million cost to settle approximately 880 pending and threatened EO
claims against Sterigenics U.S., LLC and Sotera Health LLC (“the
Settling Defendants”) in Illinois under Settlement Agreements
entered into on March 28, 2023.(j) Represents the cost to settle 79
pending EO claims against the Settling Defendants in Georgia under
a settlement term sheet entered into on October 16, 2023.(k)
Represents non-cash accretion of asset retirement obligations
related to Co-60 and gamma processing facilities, which are based
on estimated site remediation costs for any future decommissioning
of these facilities (without regard for whether the decommissioning
services would be performed by employees of Nordion, instead of by
a third party) and are accreted over the life of the asset.(l)
Represents non-recurring costs associated with the COVID-19
pandemic, including incremental costs to implement workplace health
and safety measures.
Sotera Health Company |
Condensed Consolidated Balance Sheets |
(in thousands) |
(unaudited) |
|
|
|
|
|
|
As of September 30, |
|
|
As of December 31, |
|
|
2023 |
|
|
|
2022 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents, including restricted cash |
$ |
252,534 |
|
|
$ |
396,294 |
Accounts receivable, net |
|
118,396 |
|
|
|
118,482 |
Inventories, net |
|
37,924 |
|
|
|
37,145 |
Other current assets |
|
110,792 |
|
|
|
93,089 |
Total current assets |
|
519,646 |
|
|
|
645,010 |
Property, plant, and
equipment, net |
|
884,385 |
|
|
|
774,527 |
Operating lease assets |
|
24,672 |
|
|
|
26,481 |
Other intangible assets,
net |
|
429,112 |
|
|
|
491,265 |
Goodwill |
|
1,100,811 |
|
|
|
1,101,768 |
Other assets |
|
77,948 |
|
|
|
78,654 |
Total assets |
$ |
3,036,574 |
|
|
$ |
3,117,705 |
Liabilities and
equity |
|
|
|
|
Total current liabilities |
$ |
200,594 |
|
|
$ |
791,567 |
Long-term debt, less current
portion |
|
2,222,789 |
|
|
|
1,747,115 |
Other noncurrent
liabilities |
|
166,894 |
|
|
|
160,761 |
Deferred income taxes |
|
68,826 |
|
|
|
68,024 |
Total liabilities |
|
2,659,103 |
|
|
|
2,767,467 |
Total equity |
|
377,471 |
|
|
|
350,238 |
Total liabilities and
equity |
$ |
3,036,574 |
|
|
$ |
3,117,705 |
Sotera Health Company |
Condensed Consolidated Statements of Cash
Flows |
(in thousands) |
(unaudited) |
|
|
Nine Months EndedSeptember
30, |
|
|
2023 |
|
|
|
2022 |
|
Operating
activities: |
|
|
|
Net income |
$ |
12,695 |
|
|
$ |
86,149 |
|
Non-cash items |
|
152,765 |
|
|
|
140,675 |
|
Changes in operating assets
and liabilities |
|
(426,315 |
) |
|
|
(50,789 |
) |
Net cash provided by (used in)
operating activities |
|
(260,855 |
) |
|
|
176,035 |
|
Investing
activities: |
|
|
|
Purchases of property, plant
and equipment |
|
(150,149 |
) |
|
|
(110,642 |
) |
Adjustment to purchase of
Regulatory Compliance Associates Inc. |
|
— |
|
|
|
450 |
|
Other investing
activities |
|
69 |
|
|
|
34 |
|
Net cash used in investing
activities |
|
(150,080 |
) |
|
|
(110,158 |
) |
Financing
activities: |
|
|
|
Proceeds from long-term
borrowings |
|
500,000 |
|
|
|
— |
|
Payment of revolving credit
facility |
|
(200,000 |
) |
|
|
— |
|
Payment of long-term
borrowings |
|
(1,250 |
) |
|
|
— |
|
Payments of debt issuance
costs |
|
(25,645 |
) |
|
|
(31 |
) |
Other financing
activities |
|
(3,353 |
) |
|
|
(1,452 |
) |
Net cash provided by (used in)
financing activities |
|
269,752 |
|
|
|
(1,483 |
) |
Effect of exchange rate
changes on cash and cash equivalents |
|
(2,577 |
) |
|
|
(6,357 |
) |
Net increase (decrease) in
cash and cash equivalents, including restricted cash |
|
(143,760 |
) |
|
|
58,037 |
|
Cash and cash equivalents,
including restricted cash, at beginning of period |
|
396,294 |
|
|
|
106,924 |
|
Cash and cash equivalents,
including restricted cash, at end of period |
$ |
252,534 |
|
|
$ |
164,961 |
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
Cash paid during the period for interest |
$ |
150,696 |
|
|
$ |
65,045 |
|
Cash paid during the period for income taxes, net of tax refunds
received |
|
42,587 |
|
|
|
56,474 |
|
Purchases of property, plant and equipment included in accounts
payable |
|
16,383 |
|
|
|
18,583 |
|
Sotera Health Company |
Non-GAAP Financial Measures |
(in thousands, except per share amounts) |
(unaudited) |
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net
income |
$ |
(13,660 |
) |
|
$ |
25,090 |
|
|
$ |
12,695 |
|
|
$ |
86,149 |
|
Amortization of intangibles |
|
20,181 |
|
|
|
20,219 |
|
|
|
61,290 |
|
|
|
61,596 |
|
Share-based compensation(a) |
|
8,378 |
|
|
|
4,616 |
|
|
|
24,135 |
|
|
|
14,955 |
|
Gain (loss) on foreign currency and derivatives not designated as
hedging instruments, net(b) |
|
1,333 |
|
|
|
3,194 |
|
|
|
1,459 |
|
|
|
(4,788 |
) |
Acquisition and divestiture related charges, net(c) |
|
72 |
|
|
|
447 |
|
|
|
817 |
|
|
|
978 |
|
Business optimization project expenses(d) |
|
1,237 |
|
|
|
1,035 |
|
|
|
7,093 |
|
|
|
1,609 |
|
Plant closure expenses(e) |
|
126 |
|
|
|
2,627 |
|
|
|
(640 |
) |
|
|
3,776 |
|
Impairment of investment in unconsolidated affiliate(f) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,613 |
|
Professional services and other expenses relating to EO
sterilization facilities(g) |
|
18,518 |
|
|
|
14,501 |
|
|
|
51,900 |
|
|
|
50,238 |
|
Georgia EO litigation settlement(h) |
|
35,000 |
|
|
|
— |
|
|
|
35,000 |
|
|
|
— |
|
Accretion of asset retirement obligation(i) |
|
555 |
|
|
|
526 |
|
|
|
1,682 |
|
|
|
1,644 |
|
COVID-19 expenses(j) |
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
154 |
|
Income tax benefit associated with pre-tax adjustments(k) |
|
(13,100 |
) |
|
|
(7,753 |
) |
|
|
(39,451 |
) |
|
|
(25,337 |
) |
Adjusted Net
Income |
|
58,640 |
|
|
|
64,508 |
|
|
|
155,980 |
|
|
|
200,587 |
|
Interest expense, net(l) |
|
30,464 |
|
|
|
20,080 |
|
|
|
82,275 |
|
|
|
53,974 |
|
Depreciation(m) |
|
17,994 |
|
|
|
15,885 |
|
|
|
55,913 |
|
|
|
47,496 |
|
Income tax provision applicable to Adjusted Net Income(n) |
|
27,230 |
|
|
|
24,679 |
|
|
|
67,113 |
|
|
|
74,579 |
|
Adjusted
EBITDA(o) |
$ |
134,328 |
|
|
$ |
125,152 |
|
|
$ |
361,281 |
|
|
$ |
376,636 |
|
|
|
|
|
|
|
|
|
Net
Revenues |
$ |
263,177 |
|
|
$ |
248,704 |
|
|
$ |
739,049 |
|
|
$ |
752,097 |
|
Adjusted EBITDA
Margin |
|
51.0 |
% |
|
|
50.3 |
% |
|
|
48.9 |
% |
|
|
50.1 |
% |
Weighted average
number of shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
281,105 |
|
|
|
280,142 |
|
|
|
280,898 |
|
|
|
279,988 |
|
Diluted |
|
281,105 |
|
|
|
280,172 |
|
|
|
283,190 |
|
|
|
280,093 |
|
Earnings per
share: |
|
|
|
|
|
|
|
Basic |
$ |
(0.05 |
) |
|
$ |
0.09 |
|
|
$ |
0.04 |
|
|
$ |
0.31 |
|
Diluted |
|
(0.05 |
) |
|
|
0.09 |
|
|
|
0.04 |
|
|
|
0.31 |
|
Adjusted earnings per
share: |
|
|
|
|
|
|
|
Basic |
$ |
0.21 |
|
|
$ |
0.23 |
|
|
$ |
0.56 |
|
|
$ |
0.72 |
|
Diluted |
|
0.21 |
|
|
|
0.23 |
|
|
|
0.55 |
|
|
|
0.72 |
|
(a) Represents share-based compensation expense to employees and
non-employee directors.(b) Represents the effects of
(i) fluctuations in foreign currency exchange rates,
(ii) non-cash mark-to-fair value of embedded derivatives
relating to certain customer and supply contracts at Nordion, and
(iii) unrealized gains and losses on interest rate caps not
designated as hedging instruments.(c) Represents (i) certain direct
and incremental costs related to the acquisitions of RCA and
BioScience Labs and certain related integration efforts as a result
of those acquisitions, (ii) the earnings impact of fair value
adjustments (excluding those recognized within amortization
expense) resulting from the businesses acquired, and (iii)
transition services income and non-cash deferred lease income
associated with the terms of the divestiture of the Medical
Isotopes business in 2018. (d) Represents professional fees, exit
costs, severance and other payroll costs, and other costs
associated with business optimization and cost savings projects
relating to the integration of acquisitions, operating structure
realignment and other process enhancement projects.(e) Represents
professional fees, severance and other payroll costs, and other
costs including ongoing lease and utility expenses associated with
the closure of the Willowbrook, Illinois facility. The nine months
ended September 30, 2023 also includes a $1.0 million cancellation
fee received from a tenant in connection with the termination of an
office space lease at the Nordion facility.(f) Represents an
impairment charge on our equity method investment in a joint
venture. (g) Represents litigation and other professional fees
associated with our EO sterilization facilities. This includes
$10.2 million and $18.0 million of interest expense, net for the
three and nine months ended September 30, 2023, respectively,
associated with Term Loan B that was issued to finance the $408.0
million cost to settle approximately 880 pending and threatened EO
claims against the Settling Defendants in Illinois under Settlement
Agreements entered into on March 28, 2023.(h) Represents the cost
to settle 79 pending EO claims against the Settling Defendants in
Georgia under a settlement term sheet entered into on October 16,
2023.(i) Represents non-cash accretion of asset retirement
obligations related to Co-60 and gamma processing facilities, which
are based on estimated site remediation costs for any future
decommissioning of these facilities (without regard for whether the
decommissioning services would be performed by employees of
Nordion, instead of by a third party) and are accreted over the
life of the asset.(j) Represents non-recurring costs associated
with the COVID-19 pandemic, including incremental costs to
implement workplace health and safety measures. (k) 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.(l) The three and nine
months ended September 30, 2023 exclude $10.2 million and
$18.0 million respectively, of interest expense, net, on Term Loan
B attributable to the loan proceeds that were used to fund the
$408.0 million Illinois EO litigation settlement. The three and
nine months ended September 30, 2022 exclude $3.3 million of
unrealized loss and $6.1 million of unrealized gain, respectively,
on interest rate derivatives not designated as hedging
instruments.(m) Includes depreciation of Co-60 held at gamma
irradiation sites.(n) Represents the difference between the income
tax provision as determined under U.S. GAAP and the income tax
benefit associated with pre-tax adjustments described in footnote
(k).(o) $22.4 million and $22.1 million of the adjustments for the
three months ended September 30, 2023 and 2022, respectively,
and $69.7 million and $62.8 million of the adjustments for the nine
months ended September 30, 2023 and 2022, respectively, are
included in cost of revenues, primarily consisting of amortization
of intangible assets, depreciation, and accretion of asset
retirement obligations.
Sotera Health Company |
Non-GAAP Financial Measures |
($’s in thousands) |
(unaudited) |
|
|
As of September 30, |
|
As of December 31, |
|
|
2023 |
|
|
|
2022 |
|
Current portion of long-term
debt |
$ |
5,235 |
|
|
$ |
197,119 |
|
Long-term debt |
|
2,222,789 |
|
|
|
1,747,115 |
|
Current portion of finance
leases |
|
8,398 |
|
|
|
1,722 |
|
Finance leases less current
portion |
|
63,219 |
|
|
|
56,955 |
|
Total
Debt |
|
2,299,641 |
|
|
|
2,002,911 |
|
Less: cash and cash
equivalents |
|
(244,959 |
) |
|
|
(395,214 |
) |
Total Net
Debt |
$ |
2,054,682 |
|
|
$ |
1,607,697 |
|
|
|
|
|
Adjusted
EBITDA(a) |
$ |
490,894 |
|
|
$ |
506,249 |
|
Net
Leverage |
4.2x |
|
3.2x |
(a) Represents Adjusted EBITDA for the twelve months ended
September 30, 2023 and December 31, 2022, respectively.
Refer to the Adjusted EBITDA reconciliations for details.
Sotera Health Company |
Non-GAAP Financial Measures |
(in thousands) |
(unaudited) |
|
|
Twelve Months Ended September 30, |
|
Twelve Months Ended December 31, |
|
|
2023 |
|
|
|
2022 |
|
Net
income |
$ |
(307,024 |
) |
|
$ |
(233,570 |
) |
Amortization of intangible assets |
|
81,248 |
|
|
|
81,554 |
|
Share-based compensation(a) |
|
30,391 |
|
|
|
21,211 |
|
Gain on foreign currency and derivatives not designated as hedging
instruments(b) |
|
9,397 |
|
|
|
3,150 |
|
Acquisition and divestiture related charges, net(c) |
|
1,237 |
|
|
|
1,398 |
|
Business optimization project expenses(d) |
|
7,710 |
|
|
|
2,226 |
|
Plant closure expenses(e) |
|
314 |
|
|
|
4,730 |
|
Impairment of investment in unconsolidated affiliate(f) |
|
— |
|
|
|
9,613 |
|
Professional services and other expenses relating to EO
sterilization facilities(g) |
|
74,301 |
|
|
|
72,639 |
|
Illinois EO litigation settlement(h) |
|
408,000 |
|
|
|
408,000 |
|
Georgia EO litigation settlement(i) |
|
35,000 |
|
|
|
— |
|
Accretion of asset retirement obligation(j) |
|
2,232 |
|
|
|
2,194 |
|
COVID-19 expenses(k) |
|
1 |
|
|
|
155 |
|
Income tax benefit associated with pre-tax adjustments(l) |
|
(117,195 |
) |
|
|
(103,081 |
) |
Adjusted Net
Income |
|
225,612 |
|
|
|
270,219 |
|
Interest expense, net(m) |
|
106,791 |
|
|
|
78,490 |
|
Depreciation(n) |
|
72,417 |
|
|
|
64,000 |
|
Income tax provision applicable to Adjusted Net Income(o) |
|
86,074 |
|
|
|
93,540 |
|
Adjusted
EBITDA(p) |
$ |
490,894 |
|
|
$ |
506,249 |
|
|
|
|
|
Net
revenues |
$ |
990,639 |
|
|
$ |
1,003,687 |
|
Adjusted EBITDA
margin |
|
49.6 |
% |
|
|
50.4 |
% |
(a) Represents share-based compensation expense to employees and
non-employee directors.(b) Represents the effects of
(i) fluctuations in foreign currency exchange rates,
(ii) non-cash mark-to-fair value of embedded derivatives
relating to certain customer and supply contracts at Nordion, and
(iii) unrealized gains and losses on interest rate caps not
designated as hedging instruments.(c) Represents (i) certain direct
and incremental costs related to the acquisitions of RCA and
BioScience Labs and certain related integration efforts as a result
of those acquisitions, (ii) the earnings impact of fair value
adjustments (excluding those recognized within amortization
expense) resulting from the businesses acquired, and (iii)
transition services income and non-cash deferred lease income
associated with the terms of the divestiture of the Medical
Isotopes business in 2018. (d) Represents professional fees, exit
costs, severance and other payroll costs, and other costs
associated with business optimization and cost savings projects
relating to the integration of acquisitions, operating structure
realignment and other process enhancement projects.(e) Represents
professional fees, severance and other payroll costs, and other
costs including ongoing lease and utility expenses associated with
the closure of the Willowbrook, Illinois facility. The twelve
months ended September 30, 2023 also includes a $1.0 million
cancellation fee received from a tenant in connection with the
termination of an office space lease at the Nordion facility.(f)
Represents an impairment charge on our equity method investment in
a joint venture. (g) Represents litigation and other professional
fees associated with our EO sterilization facilities. This includes
$18.0 million of interest expense, net for the twelve months ended
September 30, 2023 associated with Term Loan B that was issued to
finance the $408.0 million cost to settle approximately 880 pending
and threatened EO claims against the Settling Defendants in
Illinois under Settlement Agreements entered into on March 28,
2023.(h) Represents the cost to settle approximately 880 pending
and threatened EO claims against the Settling Defendants in
Illinois under settlement Agreements entered into on March 28,
2023.(i) Represents the cost to settle 79 pending EO claims against
the Settling Defendants in Georgia under a settlement term sheet
entered into on October 16, 2023.(j) Represents non-cash accretion
of asset retirement obligations related to Co-60 and gamma
processing facilities, which are based on estimated site
remediation costs for any future decommissioning of these
facilities (without regard for whether the decommissioning services
would be performed by employees of Nordion, instead of by a third
party) and are accreted over the life of the asset.(k) Represents
non-recurring costs associated with the COVID-19 pandemic,
including incremental costs to implement workplace health and
safety measures. (l) 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.(m) The twelve months ended September 30, 2023
exclude $18.0 million of interest expense, net on Term Loan B
attributable to the loan proceeds that were used to fund the $408.0
million Illinois EO litigation settlement. The twelve months ended
September 30, 2023 and December 31, 2022 exclude $7.8 million
and $1.7 million, respectively, net decrease in the fair value
of interest rate derivatives not designated as hedging instruments
recorded to interest expense.(n) Includes depreciation of Co-60
held at gamma irradiation sites.(o) Represents the difference
between the income tax provision as determined under U.S. GAAP and
the income tax benefit associated with pre-tax adjustments
described in footnote (l).(p) $90.5 million and $83.6 million and
of the adjustments for the twelve months ended September 30,
2023 and December 31, 2022, respectively, are included in cost
of revenues, primarily consisting of amortization of intangible
assets, depreciation, and accretion of asset retirement
obligations.
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