We're ready to get started. Hi, good morning. I'm Dave Windley. Cover pharma services, cover a variety of healthcare areas, but appreciate your being here. Welcome to Jefferies Healthcare Conference for 2025 here in New York. It's a wonderful day on the walk over. I managed to only walk through one weed cloud on my way through, so I think I'm, I think I'm still sober. We're pleased to, I don't think I've been in the lead-off spot on the first morning very often, so it's an early wake-up call, but appreciate your attention here this morning. Our first presenting company in this track is Sotera Health. SHC is the ticker. Michael Petras is the company CEO joining us. Jason Peterson is also in the audience. IR, so really appreciate your being here and supporting the conference. I think Michael's gonna give us a couple of lead-off comments here, and we'll dig into questions. So Michael, I'll turn it over to you. Yeah, good morning, Dave. Thanks for the time and inviting us out, and looking forward to a full day of investor meetings. You know, before we start, you know, there's some of the statements I'll make that'll be considered forward-looking statements. Refer to our SEC filings and our website for more details. You know, during discussion, I'll talk about some Non-GAAP financial measures, including Adjusted EBITDA, so refer to our SEC filings for that as well. Overall, you know, we came out the last quarter feeling pretty positive about where the business sits today and what the outlook looks like for 2025. You know, we reaffirmed the guide that we have in place, and the team's doing a good job executing and taking care of customers. I had a chance last week to go out west and spend some time at Nelson Labs, which is doing really well and seeing some nice activity. Then I visited several of our Sterigenics facilities as well during the course of the week. Overall, 2025's shaping up to be a pretty good spot. Excellent. I just wanted to start off with, you know, we've known you, known the company since you came public, which has been, you know, coming up on, I guess, four years ago or so, if I remember correctly. Five, maybe. Maybe almost five, yeah. Just kind of a big picture, a little bit before and after type question. This, you know, you've held and integrated this collection of businesses since before the IPO. The pandemic certainly caused, you know, kind of a spike and then a hangover after for a lot of different industries, including healthcare and including your own. The business appears to be stabilizing. Like you said, the first quarter was a good quarter. Last few quarters have been positive. I guess, how would you compare the portfolio of businesses today to before COVID? Same, different, more, different mix, competitive position, things like that. What's the before and after assessment? Yeah, I'd say, you know, the company, you know, we're very fortunate. We play the critical role in healthcare, and we continue to grow every year. That, that's been very consistent. Since 2005, we've grown every single year as a company. The team's done an outstanding job dealing with a lot of challenges. I'd say the biggest thing, Dave, that we've seen change over time is the supply chain dynamics and just the parts moving around. You know, customers having a lot of, a lot of dynamics within their own supply chains. When we step back and look at it, that's been a bigger challenge than we thought. You know, the inventory buildup and then corrections, it came out of COVID. As you mentioned, you know, we haven't been having those discussions with our customers around inventory bakeout outside of a couple that we do, but that would be normal course pre-COVID as well. I'd say that was the biggest thing. The second thing would've been the labor dynamics, particularly a business like Nelson Labs that has a significant amount of labor content in the labs. We saw some dynamics there with the Great Resignation, everything else, but Joe and the team have gotten in a much more stable spot. Our turnover's in a more stabilized place. Our service rates have recovered very well. Overall, I'd say we're in a pretty good spot relative, but those are some of the big pieces that really impacted us during the course of COVID and just shortly thereafter. From a mix of business perspective, I would say, particularly, you know, across Sterigenics and Nelson, the presence of pharma. You know, we could, you know, that was a strategic priority for us pre-COVID. And, you know, not that COVID did that to us, but as we rolled out and started executing on some of our strategies and priorities, we started to see a pickup on that side. We are seeing penetration rates increasing from a mixed perspective in the more, more pharma capabilities as well. Mm-hmm. I've probably failed to put this point on it, but one of the bragging points of the business pre-COVID was how kind of consistent it was. You're specked in, you know, your necessary service for medical products. COVID, as it did for so many businesses, caused more volatility than normal. Your business, maybe in particular, because it normally is so stable. Do you think we've gotten far enough past the supply chain dynamics and things like that? Has that noise settled down enough that this business can settle into a pretty predictable pattern? Yeah, I, let's kind of walk through that with each respective to each of the businesses. I'd first start with the Nordion business. Been a very consistent performer year in and year out all through COVID. We still see the lumpiness from quarter to quarter. That's not really driven by COVID or supply chains. It's really driven by our utility suppliers when they harvest their cobalt. It's, you know, 'cause remember what happens in that business is they have a nuclear reactor, and its primary purpose is to generate electricity. When they are shutting down for maintenance is when we're able to harvest the cobalt. We're kind of at their direction of when we could harvest it. You'll see the lumpiness here, but that business has been very consistent. It's been delivering year in and year out for us. On the Nelson Labs side, you know, we saw the big COVID bump, and then we saw, you know, a step back, and then we saw the Great Resignation. That one's been a little choppier. Even now, I'd say if you look at the, you know, small element within that business is the RCA business. We've talked about that before. You know, that's our regulatory compliance business. Last year was a very strong year in that business because coming out of COVID, a lot of the FDA audits were postponed during COVID. The audits really kicked up in 2023 and 2024, and we saw a really nice pickup in that business. We had a record year last year in that business. Now this year, we're seeing that business, you know, struggling, because of the fact that the FDA's got so much going on. I actually was with the team last week, and I was, you know, I was learning a lot more about some of the dynamics that play out on that side. When you get the labor part, it is in a good spot. The service rates are in a good spot. The quality is in a good spot. We are seeing that. We are not hearing a lot of noise around, you know, issues with supply chain as much on the Nelson Labs side. Then we will take the Sterigenics side. That business has usually had some consistent volume and mix growth. Post-COVID, we saw those volumes flat to slightly down, which is atypical. We are seeing that normalize now. As I mentioned earlier, we are not having as many conversations around concerns around inventory takeout with the customer base. That is getting, you know, a more stable base. You know, that business is roughly two-thirds of our total company. You know, all three of them are very strong cash flow generators. That business in particular gets great leverage as volumes come through. You know, we're optimistic we'll continue to see that improve throughout the year. Got it. Good, good place to step off into a little more detail into the, into the businesses and talk about Sterigenics. You just mentioned the, the flat to down volumes kind of coming back. Can you talk in, you know, maybe bifurcate detail there around, whether that's med tech, bioprocessing, both? What are, you know, what are some of the, the categories of volume that have improved? You know, bioprocessing has improved. It's a small portion of our business, but one that is easily recognized by the investment, you know, community of looking at that, saying, "Hey, there's a distinct set of customers there." We're seeing that volume start to pick up, which is a positive. It's not a huge number for us, but we're seeing sequentially and year over year, you know, nice growth. We're seeing just overall general hospital supplies in several categories, you know, more broadly across med tech. That continues to increase. On the pharma side, we've seen nice volume improvements as well on the Sterigenics side. While we're going back to your point, while we're on this and going back to your point about, one of the bigger macro things being supply chain changes, what are you seeing as it relates to Sterigenics and how companies may be, your clients may be changing their supply chain? While we're talking about it, are tariffs influencing that yet at all? Mm-hmm. We haven't seen a big impact from that. Now, if more people want to bring, more customers want to bring products into the U.S., that should benefit us because we have a very strong network here in the U.S. We're not seeing a significant change in that environment. We've had a couple customers talk to us. We've had some inbounds around some folks that are offshore that want to put more volumes in the U.S., but we haven't seen it materialize in any significance at this point. You know, we continue to monitor that. Overall, I'd say that the volumes are positive in that business, and we continue to track in that direction as well. Okay. So on, on tariff, it sounds like not a change in terms of the routing of, of activity. Any concerns about clients needing to mitigate the tariff impact on their own businesses and coming to you around, you know, cooperation, so to speak, on price? No. Price of your service? No, that hasn't been part of the conversation. Not at all. Okay. Not that I'm aware of. Yeah. Okay. You know, we've got pretty much fixed contract with pricing built into them, and that's really what we're living by day in and day out with our customers. We haven't seen material changes in that because of tariffs. Got it. And to include, you wouldn't expect challenges or difficulty in achieving your target pricing. You know, you talk about a, I think, a 3.5-5 type range for your three businesses. You don't think that'll have to be sacrificed going forward if tariffs become a reality or as they do? No, that we're sitting, listen, you know, I, you use the word challenge. When we talk to customers about price, those are always difficult conversations. There isn't somebody sitting on the other end saying, "Hey, send me a price increase every year," right? We, you know, I just wanna be, I'm respectful to our commercial teams that have to deal with this every day. I don't wanna make it sound like it's really simple 'cause it's not. You know, we have a business that brings a critical service to healthcare. We gotta make sure we don't outrun our value prop, and we price accordingly for that. We've been a consistent performer, as you referenced, around price, and we don't see that changing today or in the near term or in the midterm. Okay. Okay. Going back to volumes on Sterigenics a little bit, as you kind of alluded, part of the picture here, at least, has been clients, you know, managing working capital and taking down some inventory in the aftermath of supply chains having been so disrupted by COVID. The dynamic seems to have been, as we watch, you know, hospital volumes, surgical volumes, med tech reports, et cetera, that their activity levels have been pretty darn strong for a couple years during the period when, you know, volumes for you have been, as you described, flat to down. Can you talk about that disconnect and, you know, the drivers of it? Yeah, I would say there's even pre-COVID, there's been a correlation directionally between procedural volumes and the Sterigenics volume or the Nelson Labs volume. Now, Nelson's got some other aspects of it: new products, biotech funding, you know, regulation, things of those natures that also impact that business in a positive way. On the Sterigenics side, directionally, we've seen those two go the same direction. We had not, as you just referenced, in the last several quarters. I would say, you know, to the best of our knowledge, and we don't have great insights exactly where all the inventory sits within our customers and their supply chains, but we've seen that really diminish as a concern. We're seeing now directionally as the markets continue to perform on procedural volumes, we're seeing directionally that alignment. But again, we're not gonna have a 99 hours squared on this. Yeah. Right? We are seeing it more closely tracked now. Yep. And what about kind of competitive positioning and market share? How stable is the existing base? Do you see clients move their activity from yourselves to another sterilization supplier ever? You know, this is not a business that's put out for eBid or, you know, eAuction, you know, day in and day out, right? There's a lot involved in this business. Sterigenics, I'm referencing specifically here. I mean, all our businesses have similar characteristics, but in this one in particular, it's part of the regulatory filings where they sterilize and the recipes. They have to go through a validation process. I will tell you though, you know, over the last couple years with all the EO dynamics and some of our facilities having some of the challenges that we had with the regulators and some of the, you know, the dynamics and communities, you know, we lost a little share position over the last couple years, but that is atypical in this business, right? Typically, you know, you're pretty locked in with our customers. We still have very strong relationships with almost all those customers that are involved, particularly in the Illinois facility. You know, share is not something that moves in a dramatic fashion like I've seen in other industries. Yeah. And do you see from a, a, you've, I think, generally described that from a capacity standpoint, you're probably adding capacity at a lag to demand, kind of validating that the demand is there and then break ground, then spend the CapEx. Is that still true? And do your competitors do the same thing, or have you seen some of them be willing to build ahead of the curve and try to make moves on market share? You know, I, I've, we try to make sure we're disciplined in our capital. We do make sure we're disciplined in our capital allocation, and we try to have good visibility before we put the shovels in the ground. You know, we want to make sure that, you know, this expansion, greenfields are pretty expensive in this, in this arena. Even just putting additional cobalt in or an additional chamber can be expensive. We have to be careful on the capital side to make sure we see the appropriate returns there. That is one of our key priorities, disciplined capital allocation. As far as our competitors, I can't tell you how they look at the demand profile. My suspicion is they lean in a little bit more in building ahead, but you would have to ask them that. I really don't know how they think about that. Got it. Okay. Let's move into the regulatory environment, but flip this question. You know, niche app regs, the general environment has tightened a little bit. That would seem to be more onerous for smaller players with less scale to comply with those tightened regulations. What do you see in that regard? And is it right to think that we could see, you know, some smaller players exiting the business, share shifting because they can't keep up with the regs? You know, talk about the landscape as these regulations take hold. The niche app regulation, that takes place in April 26th, it's currently in place, and you gotta be conforming to that. That's a challenging standard. I think there's gonna be several people that struggle to get there. We've spent a significant amount of money on that, and we're gonna, we're continuing to spend on that, and we'll do that throughout next year as well to make sure we're compliant. I think some of the smaller players will struggle. It's interesting. I was with a major med tech company not last week, the week before, and, you know, they said we're pretty far, you know, they have, they buy from us, and they also do a little bit of insourcing. They said we're pretty far along on this. I, you know, I asked a couple key, Mike was with me who runs our Sterigenics business. We asked a couple key questions. They realized he wasn't as far along as they thought he was. We realized, I'm not sure they did yet. I would just tell you, this is not an easy task, and I think it's gonna take a lot of time and effort and a lot of trial and error for some of these folks to figure out. You know, we've been on this journey for quite some time. Now, we have larger facilities, they're older facilities, so they are probably more complicated. They probably will take more capital, but we feel really good about where we're sitting on that. That doesn't mean we have everything perfectly nailed at this point, but we're well positioned to comply with the requirements as we see 'em today. I think it should create a positive momentum for the company. We're getting some inbounds that indicate that as well. Not huge numbers yet that are gonna move the needle. We're feeling pretty good about the dialogue and how we're seeing the landscape play out. This is not gonna be an easy rule for most people to get to. Right. Can we, on this topic, can we lay out the, you know, the kind of the market competitive structure, yourselves and Steris are the two leaders, you're materially bigger than the next largest player. How much share do you have, do the top two have? And relative to this topic, how do you think about the migration of the rest of that pie? Mm-hmm. You know, we'd say at any given modality or geography between us and Steris, we probably have 50%-two-thirds of the market combined collectively, give or take, depending on what market you're in. And then there's some smaller players, regional players. We're not seeing big global international players to the scale of us or, or Steris. You know, when you look at, you know, regionally, if you took the U.S., particularly, we're talking about this regulation, there's smaller guys that, you know, we've seen one file bankruptcy. We've seen a couple smaller guys say they're gonna shut down, and move volumes. They're usually a long list of small customers that, that come with that. So we're involved in some of those discussions and trying to help take care of those customers. A lot of 'em have relationships with us already or did at one point. and, you know, over time that may create more opportunities for us. We feel pretty good about how we're situated on that. Okay. Maybe something you said in that answer makes me wanna ask the question, are those clients, is that business that you would want? You know, the kind of small customers sounds like small volumes. Is it, can that be profitable business? Yes, it could be profitable business as long as we have the capacity for it. You know, people talk about EO capacity and it comes in different shapes and sizes. It depends what kind of chamber size you're talking on, right? Small, medium, or large chamber sizes. In our capacity, it is a little more constrained, some of the larger chamber size, high volume, some of the smaller to medium size chambers. We have a little bit more capacity and flexibility. You know, listen, at the end, a lot of those customers probably are not with us because either A, we did not have the capacity, or B, they did not like our pricing and create an opportunity for somebody else. We are going to be very disciplined around that. Hopefully we are an option for that customer to consider. You're, and we talked about this earlier, but your pricing and pricing strategy, you've been pretty con, I'd say very consistent and disciplined around this and taking a little bit of price every year. How do you think about balance of price versus volume? I mean, do you, is there any willingness to sacrifice price to pick up significant amounts of volume as these regulations are evolving? If I told you yes, my sales team would cringe based on the conversation I have with 'em every day. Yeah. Yeah. No, I would say, you know, our pricing in the Sterigenics business has been pretty consistent around 4% per year. You know, then when inflation, it went a little higher 'cause we're able to pass that through. You know, in areas where we have really tight capacity, you know, U.S. EO, for example, we're running higher in that, right? And, we'll continue to price accordingly to the market conditions. You know, we also think there may be opportunity. We're having conversations with our customers about what we call niche app pricing. You know, we're spending, call close to $200 million we'll spend on the niche app pricing or niche app improvements. You know, over time, we're gonna be talking to our customers about, listen, we've gotta get paid for some of that CapEx we're putting in place. Those are things that we're gonna look at as opportunities to make sure we can continue to support the industry. Our business and our conversations internally are not structured around go get the volume, cut the price. Okay. I've been in industries like that where you had to, you had to do that for certain reasons to keep your capacity efficient and everything else. We don't have that dynamic here. We're gonna be very disciplined around our pricing around this. We have a critical service we bring, and we gotta make sure we're getting paid for the value. And then, thinking about capacity and some of these operators that are perhaps gonna struggle to comply and your relative capacity, as you just said, kind of operating at a pretty good utilization and in some modalities, you know, pretty tight. Are some of those facilities acquirable, or does it just make more sense to build your own? You're talking competitors? Yeah. Competitors, right. Yeah. Or, or even an OEM, you know, internal facility that you might carve out. We will always entertain those conversations. You know, we've had conversations with some of these OEMs about badge flipping and taking over the facility for them and running it and haven't been able to find an equation that works there for both sides. We've looked at some of these smaller folks, and, you know, the question becomes for us, is it worth the incremental cost to get that facility compliant in the effort? And we've looked at a few of them over the last several months, and it's just not somewhere we'd want to deploy capital. You know, just too many challenges with those existing facilities, and we think we're better off suited, you know, running within our network and doing what we do really well. We've passed on those to a great extent. we'll continue to look at 'em, you know, not only in the U.S., but around the world as well though. Okay. Let's, I'm using a lot of time on Sterigenics, but it is your biggest business. Yep. Does the Trump nuclear executive order have any impact on your business? No, not in near term. I mean, you know, nuclear is coming in with a lot of acceptance these days, which I can understand to some degree. You know, we rely on nuclear reactors around the world, predominantly in Canada. But as you may know and recall, you know, we've got a partnership with Westinghouse where we're looking at getting PWRs up and running, to make cobalt, which has never been done before. There, that's a combination of our technology and Westinghouse's. That program's moving along very well. I think, you know, the more interest in nuclear can help get more acceptance around that, which could hopefully keep that program moving along as well as it does and may create more opportunities for more utilities to have interest in that. The flip side though, that we wanna think about is, you know, the primary businesses of these utilities I mentioned earlier is to make electricity. You know, that's their primary purpose, but there may be opportunities to make cobalt like we're seeing today. Yeah. I hear there's demand for electricity lately. There is. Moving to Nelson, you commented about staffing's in a better place. Service levels have, I think, stabilized and improved. NPS scores, I think you measure and have been on the rise. What's maybe, you know, not a pain point? What's your primary strategic initiative there? Is it adding staff to be ready for more volume? Is it still more on the quality side? Is it new client capture? Yeah. What's the primary driver there? I, a couple things. First of all, the business is in a good spot. They've really, their volumes are starting to pick up. That business, remember the underlying drivers of that business, routine, you know, processing, you know, product gets sterilized, doing routine testing of that. You know, new funding for new products is another driver of that, right? I would say, you know, regulation is a big one as well. When new regulations come in, and there's several new regulations that are hitting, you know, that business in particular, which is a net positive where customers are coming up saying, we need help. If it's, you know, extractables and leachables testing for bioprocessing, if it's genotoxicity testing, if it's healthcare reprocessing regulations. I was out there last week reviewing with the team, and all three of those regulations are starting to ramp up, and those are net positives for that business. What we're, you know, we're, as you mentioned, we're stable with the labor and the workforce. Quality's been good. What we wanna make sure is we're continuing to be responsive to our customers and turnaround time. We're putting, you know, capital in to, you know, expand and refresh a Clean room, basically build out a brand new Clean room, which hasn't been done in 15 years probably at least. That's really to double down on sterility assurance, which is core to that business in the foundation. We see that as a big thing for our customer base that leads to many other opportunities. I'd say overall right now it's continuing to grow. You know, we made an acquisition in 2017 in Luven, Belgium, which has performed really, really well. That continues to perform. You know, I'm happy, you know, I did mention the RCA challenge with some of the FDA cutbacks has impacted that. But Joe and the team are doing a really nice job. You know, I'm really proud of what's going on in that business the last several years. How much of Sterigenics funnel comes from Nelson? Sterigenics funnel comes from, so let me, let me kind of put it this way. We've got about 70% customer overlap. We've got about 40% of the, of Nelson Labs' sterility assurance business. So there's a lot of flow that goes through. And then remember, we've got these embedded labs, which are really, really critical. They're either literally co-located with Sterigenics or like within very close proximity across the parking lot in cases. We see a lot of synergy from that in, in connectivity for our customer base. And quite honestly, we're not even as good as we need to be in that area. We're getting better, but it's one of the areas I've told the team, part of the cross BU activities, we gotta get better here. As we did some of our customer satisfaction survey results, we're seeing really positive things. I wanna understand why, why is what I keep telling the team and how do we accelerate that? Yeah. So maybe asking in a different way, if we see an uptick, you mentioned building out this additional Clean room for sterility assurance, is an uptick in sterility assurance a precursor to volume sterilization, bulks, more volume bulk sterilization in Sterigenics? Yeah. So you should see it coming from Sterigenics going into Nelson Labs for sterility assurance is how you should see it. Okay. On the routine, on the routine testing. Oh, okay. All right. Maybe capital allocation to finish. How are you thinking about that? What are priorities and, and to the, you know, to what extent are you still have an appetite for acquisition? Yeah. We will continue to look for acquisitions. They gotta be on strategy though, right? When you look at the Sterigenics business, it's, you know, geographic expansion or tuck-ins, the key modalities that we are already playing. Nelson Labs, you know, we'll continue to look for opportunities. And we've really stepped off and held off on doing any M and A on the Nelson side till we got our house in order the last couple of years. We'll continue to look for opportunities there, particularly around the pharma capabilities. And then in Nordion, you know, if we can look at opportunities to diversify that business. Our first priority is to continue to invest in organic growth. That's really important for us. Over time, you know, continue to look for opportunities to pay down debt, if we have excess capital. Overall, you know, our capital commitments that we put out for this year and the guidance, we still feel confident around that. We are expanding, you know, we announced recently an X-ray facility in Sterigenics. That will be opening up by the end of the year this year. That was one of the two greenfields that we had mentioned was still in process. There is one more behind that. You know, we are really driving that towards focus on where our customers need us and modalities and geographic expansion. Organic growth is one of our first priorities for capital allocation. Last question on overall and on this topic, you've also been focused on improving free cash flow. Part of that is CapEx, moderating as you get out of some of these more intense spending periods. Can you remind us the path on that? Yeah. Yeah. So, you know, first of all, you know, if we get volumes, we get great operating leverage, which helps us, you know, get more EBITDA. When I look at 2025, you know, margins will stay pretty consistent in Sterigenics and Nordion. I think we'll see some margin expansion of the company primarily driven by Nelson Labs in 2025. We, we've kind of said, so it starts with EBITDA and getting margins, going. But when we look at our CapEx, we see that coming down. By the time we get to 2027, we'll be, we'll have a lot of the cobalt development behind us. We'll have the two greenfields behind us on Sterigenics, and we'll have the facility enhancements and niche app behind us. When you put that all behind us, we feel like we're gonna be around $110 million of CapEx is what we committed. You know, over $500 million of free cash flow over this next three-year period from when we did our investor day last year. We still feel confident about CapEx around that $110 million range at 2027. The free cash flow 2025, 2026, and 2027, you know, $500 million plus is what we've committed. Excellent. That lands the plane. Michael, thank you for your time and comments, and wish everybody a good conference. Thanks for being here. Thanks for being here. Bye-bye.