Thanks everybody for being here at RBC's Global Healthcare Conference. My name's Sean Dodge. I'm the healthcare IT, healthcare services, analyst here at RBC. I'm pleased to be joined by our last presenting company of the day, Sotera Health. Here on behalf of the company is the Chief Executive Officer, Michael Petras. Michael, special thanks to you for sharing your time with us. I know there's a statement you need to read here to kick us off. Yeah, great, Sean. Thanks to you and the RBC team. I appreciate all your support. Before we begin, some of the statements I make today may be considered forward-looking statements. Please refer to our SEC filings for descriptions and the risks and uncertainties that could cause our actual results to differ materially from those projected or implied. The company assumes no obligation to update the forward-looking statements. During the discussion, we'll talk about certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted EPS, net leverage, and feel free to look at our filings with the SEC. All right. All right? All right. Yeah. Thanks. Great. my lawyers aren't gonna yell me tonight. One day. Yeah. All right. Thank you. Let's start since you all reported Q1 results last week, maybe just kinda walk us through high level how the year started off for you all. Good. You know, we pretty much as expected, you know, we didn't have growth in the quarter, which obviously we always strive for growth, but I would say that the biggest driver on that was the fact that our Nordion business, we had kinda expected and we communicated, you know, back at the end of 2022 that 75% of that revenue in that business is gonna occur in the second half of the year, approximately. That took us down below last year in a meaningful way. Overall, the other businesses, all of them are kind of planning and coming in as expected for the most part. Okay. Before we get into each of the segments, I wanna just kinda walk through some of the other issues that you guys have been dealing with. And just first, the Illinois one. It looks like that's in the final stages of being kinda concluded, being wrapped up. Maybe just talk a little bit about the kind of- Quite an introduction. Yeah. Huh? Quite an introduction. 432, and he's already like, "Can we talk about issues?" I would say, overall, you know, the litigation, what Sean's referencing is the litigation we had with ethylene oxide in Illinois. We reached an agreement on January 9th for all 870 cases there. That's progressing very well. At this point, we've funded the $408 million settlement amount into an escrow account, and the plaintiff firms are working with their claimants to get them all opt in, which we understand is progressing very well. We expect, you know, late summer, call it late July, you know, August, that we'll be able to wrap it all up in Illinois for the most part. Okay. You guys have done some math on the amount of opt-in that you're getting. Just what you need to achieve there and maybe the kind of the potential range of outcomes. Yeah. The, the commitment by the plaintiffs' counsel is they have to deliver 98.6% of the plaintiffs that they represent. That means basically if you do the math, about 12 people can opt out. There's conditions around that they can't trip any conditions that we have put in place. For example, you know, it can't be a breast cancer patient that's been living there for 50 years, that's next door to the facility, something like that. They can't opt out. We feel pretty good about this coming to a conclusion though, based on what we're hearing from the plaintiffs. We haven't seen the opt-in data yet- Mm-hmm. They're giving us indications and the comments I've made at our prepared remarks last week, they'd signed off on those before we did it. We're aligned on where they feel they are. Okay. When do you expect to get some type of formal notice on whether or not that's been achieved or not? Yeah. What they'll do is they're out right now to their claimants. They'll get feedback back over the next several weeks. They'll share it with us. We have a couple of weeks to work through it with them. We'll go through the process of finalizing all the details. I would expect hopefully in our earnings call in August, we'll be able to give you a pretty good update of where we stand. Okay. Then you said before you expected the $408 million that you funded in the settlement to be tax-deductible. Is that still? Yeah. What you understand to be? Yeah. Mm-hmm. Okay. and then if we just think about that, I know I spend a lot of time answering investor questions about what kind of learnings from Illinois can we apply then to Georgia. Maybe, I know you talked, you know, before about the similarities and differences between the two. Maybe just walk us through those. The first learning is I got to share with my mother this weekend when I was with her for Mother's Day that I didn't wanna go to law school. She wanted me to go to law school, and I told her I'm thrilled I didn't go to law school. I confirmed that my instincts were right on that. Yeah. Not to go to law school. Anyway, as far as, and I know more about this than I'd like to be honest with you. As far as Georgia, you know, we've got cases in Georgia. It's a different scenario than we saw in Illinois. The biggest difference. There's several of them. One is, you know, just the whole situation. When it first came out, there was so much misinformation about ethylene oxide. It was so new to people, and I think they've learned quite a bit broadly across the industry. First of all, many people thought we were like one of the only facilities in the country, and I think people have gotten a better understanding there's 100 facilities out there. We only have eight of them. There's regulations in place that we abide by and are compliant with in our permits that, you know, many people said, "Listen, they don't need to use ethylene oxide. There's plenty of alternatives." We kept saying, "No, no, that's not the truth." I think people have understood that's different now. The reality is 50% of medical devices or 20 billion devices a year have to be sterilized with ethylene oxide, and that's the FDA's numbers. I think the whole venom and all the negative stuff that was out there and just the anger and the political dynamics in Illinois, are different than they are in Georgia. It doesn't mean people aren't concerned, they shouldn't be concerned, right? At the end of the day, it's a safe material in the amount that we use. There's no scientific proof that it causes cancer at this low levels. As far as kind of how the process will play out in Georgia, we have one case in one county, but put that one aside for a minute. The other 300 cases, it's a different process than they went through in Illinois. In Illinois, the judge basically had the jury deal with everything, right? You know, private equity ownership, public company disclosures, you know, executive compensation, emission control, science, and all this kind of stuff. The judge, you know, a jury just can't deal with that. Now, fortunately, in the first case, you saw it was bad. The second one was managed a little bit better, and we won the case 12-0. In Georgia, for those 300 cases, they're going through a phase I and phase II. Basically, the judge is gonna spend all the time on the front end understanding general causation. There's gonna be 10 cases. She's gonna go through general causation. If you pass that screen of general causation, let's just say six of them do, they go to phase II, then it's specific causation. After you work through that, then it'll be determined if any cases go to the jury. That's probably a more appropriate way to do it. I would tell you that. I would say the other big difference is just a scientific expertise standard. Illinois is one of five or six states in the country that have something called Daubert standard, which is a really low threshold on expertise required in science. In Georgia, it's the Frye standard, which is much more typical. I'm sorry, I got those backwards. It's Frye in Illinois and Daubert in Georgia. The last one is there's a cap on punitive damages of $250,000 on punitive damages. Again, the basic point I wanna make sure everybody understands, there is no scientific evidence that supports cancer being caused by this low amount of ethylene oxide. Okay. phase I in Georgia will get underway. Late this year. Late this year? No. The, the one trial that I mentioned, that'll happen in October 2023. The other ones aren't till late 2024 into 2025. Okay. Okay. on the better things. around EO emissions, the EPA recently published its, kind of, long-awaited proposal on increasing the standards there. maybe just kind of give us a quick rundown of what all is entailed in this new... Still, it's a proposal by the EPA, but what they're looking to do. Yeah. Context. We've been waiting for new rules and regs since about 2019, when all this activity really started to flare. We got them just in the last 30 days. Mm-hmm. They're about 600 pages in duration. Industry is allowed 60 days to comment on it. We've been waiting, like, four years, and we're gonna get till June 12th to comment on them. Our team is pouring through those documents as we speak. We, you know, we'll provide comments. Listen, at the end of the day, the EPA wants to put more controls and restrictions on ethylene oxide. We're totally fine with that. As long as they're grounded in science and they're rational about it, we are totally comfortable with where we sit in the industry, and we're fine. Regulation doesn't scare us. Mm-hmm. Just give us realistic regulations and good sound science. We'll work within the guardrails. This is something, like you said, you've been expecting for some time and you've already been working to prepare for. Maybe, I guess, you know, question one would be, was there anything in the proposal that surprised you that you didn't anticipate? Then maybe, you know, two, kind of an update on where you are in your plan upgrades. Yeah, you know, there's some positions on there that aren't great for the industry in total. I think it's gonna be hard for the industry to get there if it stayed as is. That's not the intent of the EPA. I don't believe that. You know, the 50% of medical devices or 20 billion devices a year sterilized with EO, there's no alternative. They'll get to the right answer. No regulation's perfect. I feel confident about what we've done, there's gonna have to be some modifications to what they put out in draft form for it to work for the industry. Just like most regulations that are proposed. We expect to have comments in by June 12, there'll be a period of time where they'll evaluate all those comments from the public. I would say we feel really good about the improvements we've put in place and how well they're working, and we've progressed through a lot of our facilities in the U.S., and we'll continue to do that throughout 2023 and into 2024. Okay. Maybe talk a little more specifically about the improvements you have put into place. I'd say they take on the form of three aspects. One is central discharge. We try to really contain and minimize the points, you know, so they can't come out the windows or the doors. We're talking about parts per billion. Just recognize, we're not talking big plumes of pollution coming out of these facilities. We're talking about really. We've really sealed off and try to control central discharge. Second thing is double scrub. We take our process emissions and scrub them a second time through filtration. The third thing that we've done is negative pressure, PT-204, which is some standard that basically measures your pressure being able to suck the air in so it doesn't go out of the building. All right? Those are the things we're doing. What happens, just to give you the sense of complexity, you got a building that might be 60,000 sq ft, or even take this room. It's a very small amount of EO, so you got to turn a lot of air to capture that small amount of EO to get into your emission control. 'Cause remember, we're capturing 99.9996% of the ethylene oxide we're using through process emissions. Mm-hmm. All right? It's a really small amount. I mean, these are really pretty extreme controls, but, you know, we wanna set a pretty high standard on that as well. You had talked before that there were some elements you thought in this proposal that just weren't reasonable or kind of achievable, and it seemed like those were more around just like the timelines that the EPA looking at to get all this done. Maybe just kind of walk us through, anything beyond timelines that you thought were gonna be tough for the industry to get to. Yeah. You know, I don't want to get into the particulars because I'm not an expert. My team is going to write this up and submit the appropriate comments with the proper, you know, communication context. I would just tell you timeline's challenging, I think, for the entire industry. I'd say some of the, you know, internal metrics around employee exposures and things of that nature are challenging that have to be worked on. You know, the external emissions, I feel really good about what we've done there. I think there's a couple things that the industry is struggling with that they'll articulate in the public comments. I don't want to get into exact specific on which ones, it's, again, it's a complicated document with, you know, lots of input, and my team is working through that. Okay. I guess we talked about you investing ahead of this to prepare. The silver lining here is that it sounds like you're well ahead of a lot of your peers. You know, longer term, is this a market share opportunity for Sterigenics? Yeah. It's too early to tell, but I feel really good about what the team has done, our learnings on this. I think if you look at a couple of the documents the EPA's got out there, and they talk about a handful of facilities that have actually accomplished this, I'm pretty confident they're referencing many of our facilities in those few numbers that they do reference. you know, it's gonna be tough for many people to get to this level. They can do it with time and money, but small operators could be challenged in this. It's too early to tell what that means at the end of the day in result. What we're gonna do is make sure our facilities can operate and take care of the customers in the interim. Okay. Then you in your opening remarks, but just the starts of the year, you know, in Sterigenics, that was definitely a bright spot in the quarter. Maybe just give us an update on that part of the business and trends you're seeing in Sterigenics. Yeah. Sterigenics, a good solid business. We have about 50 facilities around the world. Mike and the team are, you know, continue to execute and take care of our customers. We continue to be bullish on, you know, how volumes could play out today. You know, we've seen med device volumes and surgical procedures increasing. We'd like to see a little bit more of that translate into our volumes. You know, inventory's been kind of a mixed bag across customers. If it's, you know, drapes and gowns or surgical kits or cardiac devices, you know, we do thousands of different devices we sterilize. Overall, you know, volumes are good. They're not great, but, you know, the team is well-positioned. There you've got a pretty kind of well-constructed, kind of long range looking organic in-investment plan that you've kind of built around your existing Sterigenics footprint. Give us a sense of, I don't know how that's progressing, how much incremental new capacity you've, you know, you plan to open up here over the next couple of years? Yeah. We have a pretty disciplined capital allocation process. Matter of fact, we'll have our board meeting next week, and we'll sit down and look at over the last five years what our capital, you know, here's what we said we were gonna do and here's what we've done and what the returns are. We target 20%+ returns on IRR and, you know, capacity programs a little higher on existing facilities expansions and a little lower on brand new facilities. You know, we look at this and try to, you know, work closely with our customers to understand what modality and what geography and the timing of that. We feel pretty good about we've got six active capacity expansion programs going on, and we'll continue to progress those throughout 2023. If we turn to Nordion, you mentioned Q1 being a little light, given the harvest schedule, but that's something that if we just think about how that business works, you've got a lot of good kind of long-range visibility into. Maybe just a little bit more context there. I like that it feels a little light. Down 70%, so a little heavy. Yeah. Anyway, that business, we have pretty good visibility on it. Let me explain how it works. Basically, nuclear utilities, their primary purpose in life is to generate electricity. What they do, that's a big part of their social license, is they also help us with cobalt. The cobalt comes out when the utility does harvesting when they do maintenance or refurbishment of the reactors. They are not gonna shut down a reactor to grab our little cobalt out, to get out to, you know, a Gamma Knife or to sterilization. We kind of work in concert with them when they do their shutdowns. We have visibility on that. It was, you know, and it's, you know, people ask, "Well, is this Russia related?" It's not Russia related. This is probably our largest, most stable supplier that we've been using for many, many years for cobalt. They just, you know, they told us, you know, last year, even just prior to last year, that their harvest schedule was geared towards second half of the year. A large portion of their cobalt will come out in the second half of the year. What happens is they shut down, we extract the cobalt with them, we ship it over to our facility in Ottawa, Canada, and then we process it into usable form to send to sterilizers like Sterigenics. It's quick turn. You know, this stuff decays at about 12% a year, so we don't hold on to a lot of inventory. We might get caught at the end of a month and the end of a quarter flipping over, but it's not like it sits there for months and weeks. It's a pretty quick turn. We had great visibility, and we knew it. We projected the investment community that, you know, second half of the year was gonna be about 75% approximately of the cobalt. Okay. You mentioned Russia. That's an area we certainly get a lot of questions on. It's basically, you know, this year you've sized for less than 3%, and that number continues to get smaller as the year kind of progresses. Maybe just an update on Russia. There was cobalt that you got out of Russia. Is Recent as what? I think it was last month, you said. Yeah, we, you know, Russia's been a supplier for us in the industry for cobalt for many, many, many years. It's unfortunate, there's a geopolitical battle right now going on. We continue to get cobalt. What we try to do is people ask us if something were to happen, what could be the potential impact of the company? We've given a forecast or guidance for the year, and that assumes cobalt continues to flow from Russia. In the event it didn't, it could be anywhere from, we said 0%-3% coming into the year. Since we got some cobalt in the 1st quarter, it's 0%-2.5% now. As the year progresses, we're hopeful that that number continues to get smaller and smaller. Okay. We're flowing cobalt every month. There is some investments that you've accelerated recently into diversifying your Cobalt-59, Cobalt-60 supply over the long run. Mm-hmm. Maybe just a quick kind of like education on what you're doing there and then a little bit on just the lead times. So we've got two significant cobalt development programs going on. One of them is with OPG, Ontario Power Generation, and we're working with them on Darlington Reactor. This is a CANDU reactor. They've made cobalt and CANDU reactors for many years, and we are working with them to start to bring cobalt out of the Darlington reactors, which will happen in the next several years. These are long-range programs, take 3-5 years minimum to get going. We're doing a development program there. Again, that's with OPG, which is a long-term stable supplier for us. The second one, we're in a partnership at Westinghouse. This one's got more of a science project aspect to it. What we're trying to do is figure out, in conjunction with them and utility operators, on how to get LWR, PWR reactors, Pressurized Water Reactors, to start to make cobalt. If that happens, that opens up a fleet of, you know, nuclear reactors throughout the U.S. and on a global basis. There's still a lot of development science, and that's gonna be several years, 2028, 2030. There's still more work to prove that that'll work, but that's something we're investing in as well. We got a couple other we haven't publicly released, but these are all in the interest of supplying cobalt to the long-term growth of this market. Okay. If we just turn to the third of your businesses, so Nelson Labs. That was also a little bit of a slower start to the year. Maybe just to kinda walk us through, what's going on at Nelson. Yeah. I was actually out there last week with the team, with Joe and the, and the gang. You know, first quarter's always typically a lower quarter for both them and Sterigenics, and that played out in first quarter. Like Sterigenics, we'd like to have a little bit more volume coming through. Overall, that team, you know, great business. You know, that business for some of you who may not be as familiar, it's an independent testing lab. We do microbiological and analytical chemistry testing for the med device and pharma world. What we do in that business is help make sure the products are safe and meet the regulatory requirements. We're brought in as an independent lab to work with the med device and pharma companies. It's a fantastic business. We do about 800, 900 different tests, solely focused on med device and pharma. Since you mentioned volumes there you'd like to see come through a little bit quicker, I guess, what kind of lead times do you have? What kind of visibility do you have on Nelson? Yeah. It's a shorter lead time business. If you look at it, if you put it on a relative basis compared to other businesses, Nordion's probably the longest, most where we have the most visibility. It's not like we're building a jet engine or a power plant, although we have that great level of visibility. You have more visibility on Nordion than any of the three business, then probably Sterigenics. Nelson's more weeks and months or two, you know, where you have visibility, but not for 100% of the business. It's a shorter cycle business. You know, customers doing a sterilization of a product, they send it over to Nelson, who thoroughly tests it. Customer has a substitution of a component, and they wanna make sure that testing works and it meets the regulatory requirements. They're doing, you know, they get a problem with one of their facilities, they send it to us to help them sort it out. It's shorter in nature. Some of the projects may take longer. Mm-hmm. to play out, but it's typically a shorter cycle business. Okay. You recently added some headcount, some staff to Nelson Labs in anticipation of the higher volumes coming through. Maybe just, you know, your thoughts on how long do you wait before you kinda work to, you know, adjust your cost base there. Yeah. You know, on that, in that business, you know, we had a big bolus of volume came in in 2021 and in 2020 and 2021, and we staffed up. You know, then you got into 2022, and you started to get the COVID and the labor challenges. That's, that's a labor-intensive business. They're in Salt Lake City, and that, you know, market was pretty challenging. As the year progressed last year, we decided to make a concerted effort to really focus on service and our customer survey satisfaction work. We staffed up in the last quarter of the year, and it rolled into the first quarter, which we knew was a little lighter. Volume doesn't come in, we'll figure out how to trim that down. We have a, you know, we have a decent amount of turnover in that business. We could trim it down, but we wanted to go a couple quarters and see how the volume plays out. Okay. One of the ideas, one of the pieces behind that business was the cross-sell opportunity between Sterigenics and Nelson Labs and vice versa, I would imagine. How big of an opportunity is that still, and is that unfolding like you thought? Yeah. We haven't publicly communicated those kind of synergies, but I would just, you know, give you an example. Like we, you know, I was out there just last week, and we were talking about, you know, there's a big med device company. They had a new product. It was getting filed with the FDA. You know, RCA, part of the Nelson business, helped with the regulatory filings. The Nelson teams helped put together sterilization protocols. The product, you know, we ultimately put the protocols to work within Sterigenics using Nordion Cobalt. I mean, it's really a nice end-to-end solution we could bring to customers. Lots of activity around validations like that as well. Customers come out with new products or new suppliers, they wanna go in a new facility, we can help coordinate that within our facilities, which gives, you know, the customer benefit is one-stop-shop and improved cycle times. I don't wanna oversell it. This thing is not perfectly run and stuff. I mean, you know, we do have 63 facilities around the world. I don't wanna state that we're perfect at it, those are the things that we're doing really well with the teams. Okay, great. Well, we're out of time. Any parting thoughts, messages, anything before we... No. Great. You know, we've got a critical role we play in healthcare is safeguarding global health. It's, you know, we're the people behind, you know, 40 of the top 50 med device companies, nine of the top 10 pharma companies in the world. It's, you know, we got 3,000 people wake up every day safeguarding global health. It's a, it's a really great business. Thanks to RBC. Sean, thanks for your help. Yeah. Thank you, Michael. Okay. Great.