Transcript: Sotera Health Q2 2026 Earnings Conference Call

Sotera Health (NASDAQ: SHC ) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

The full earnings call is available at Summary Full Transcript OPERATOR Good morning and welcome to the Sotera Health second quarter 2026 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson.

Jason, please go ahead. Jason Peterson, Vice President of Investor Relations Good morning and thank you. Welcome to Sotera Health second quarter earnings call. com.

This webcast is being recorded and a replay will also be available on the Investors section of the Sotera Health website shortly after the call. Joining me today are Chief Executive Officer Alton Shader, Chief Financial Officer John Lyons, and Executive Chairman Michael Petras. During today's call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied.

Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the earnings presentation for a description of these risks and uncertainties. The Company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the Company will present both GAAP and non-GAAP financial measures including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to adjusted net income, adjusted net income, adjusted EPS, net debt and net leverage ratio, as well as constant currency comparisons.

A reconciliation of GAAP to non-GAAP measures for all relevant historical periods may be found in the schedules attached to the Company's press release and in the supplemental slides to the earnings presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow up. For further questions, feel free to reach out to the Investor Relations team.

With that, I'll now turn the call over to Executive Chairman of the Board, Michael Petras. Michael Petras, Executive Chairman Good morning everyone and thank you for joining our quarterly earnings call. As previously announced, Alton Shader assumed the role of Chief Executive Officer on May 26. While I continue to serve as Executive Chairman of the Board and remain actively engaged with the company, Alton is leading the company day to day.

Today we welcome Alton to his first Sotera Health earnings call. Having the privilege of working with Alton for the past two-plus months, we are encouraged by the seamless transition. We received positive responses from our team members, customers, investors, and other stakeholders. We built a solid foundation and believe the future is very strong for this great company.

Now I will turn the call over to Alton. Alton Shader, Chief Executive Officer Thank you, Michael, and good morning everyone. Thank you for joining us today. I first want to thank Michael for his strong leadership as Sotera Health CEO for the last 10 years.

He has built a great company and I look forward to working with him as our Executive Chairman. In addition, I want to thank him for his partnership throughout this transition. I'm honored to serve as Sotera Health CEO and appreciate the warm welcome I have received from our team members, customers, and shareholders. I've spent the last 25 years working in healthcare and have always been inspired by the positive impact that healthcare product and service companies have on the lives of people around the world, and one would be hard pressed to identify a company that is more essential to the delivery of life-saving healthcare products than Sotera Health.

This criticality to the delivery of healthcare, the complementary nature of our businesses, the growth opportunities we have, and the company's financial strength are a few of the reasons I was drawn to Sotera Health. Since joining the company, I've been impressed by the dedication of our teams, the trust our customers place in us, and the industry-leading expertise that differentiates our business, especially in the highly regulated healthcare markets in which we operate. I look forward to working with our teams to build on these strengths and to become even more focused on exceeding our customers' expectations every day.

7% constant currency adjusted EBITDA growth, and expanded our adjusted EBITDA margins compared to the second quarter of last year. Our strong performance was broad-based across the portfolio. Sterigenics built on its strong momentum from Q1, delivering 7% constant currency revenue growth and more than 50 basis points of margin expansion vs. Q2 2025.

7% constant currency revenue growth and more than 160 basis points of segment income margin expansion. 4% constant currency revenue growth. One of the key ways Nelson Labs creates value for customers is by leveraging our technical expertise to solve complex problems. Customers regularly turn to Nelson Labs for support on time-sensitive and critical issues, and we saw that dynamic play out in the second quarter.

Based on our strong first half performance, the resilience of our business model, and our confidence in the remainder of the year, we are raising our full year 2026 outlook. 25% compared to 2025. Before I turn the call over to John, I'd like to briefly highlight a few notable developments during the second quarter. In May, our former private equity sponsors completed their final secondary offering and, as planned, no longer hold an ownership stake in Sotera Health.

I would like to thank our former sponsors for their partnership and support over the years. They played an important role in helping to build the strong foundation we have today. I would also like to make you aware of a leadership transition at Nelson Labs. Joe Schroeder, President of Nelson Labs, recently retired after six years with the company.

We are grateful to Joe for his many contributions to Nelson Labs and wish him the best in his retirement. We were pleased to have Riaz Bandali assume leadership of Nelson Labs following his successful tenure as President of Nordion. Riaz brings extensive experience leading laboratory services organizations, including oversight of global bioanalytical laboratory operations across North America and Europe. This makes him exceptionally well suited to lead Nelson Labs and execute on our growth priorities.

And finally, we are progressing well in our search for Riaz's successor at Nordion. I'm proud of what our team has accomplished in the first half of the year and even more excited about the opportunities ahead as we continue to execute our strategy and serve as a trusted partner to our customers. With that, I'll turn the call over to John to review our second quarter financial results and updated full year outlook in greater detail. Jonathan Lyons, SVP and Chief Financial Officer Thank you, Alton.

Before I review the quarter, I'd like to say how excited I am to be working alongside Alton as our new CEO. Since joining the company, he has quickly immersed himself in our business, our culture, and our customers, and I look forward to partnering with him as we continue building on our momentum. Turning to the quarter, I'll review our consolidated financial performance, provide highlights from each of our business segments, and then discuss capital allocation, liquidity, and leverage. I will finish with additional details on our updated 2026 outlook for the second quarter.

2% to $321 million, or 8% on a constant currency basis compared to Q2 2025. Net income on a GAAP basis for the quarter was $54 million, or 19 cents per diluted share. 6%. Interest expense was $34 million in the quarter, an improvement of over $6 million compared to the prior-year period, primarily driven by the benefits of the term loan repricing and debt reduction actions completed during the third quarter of 2025, as well as lower interest rates including the repricing completed this past quarter.

4 billion term loan by 100 basis points in less than a year. 26 per diluted share, an improvement of 30% versus the prior year. Now let's take a closer look at the segment details. 6% to $212 million, or 7% on a constant currency basis.

7%, and foreign currency benefit of approximately 160 basis points drove revenue growth for the quarter. 9% on a constant currency basis, while segment income margins improved 53 basis points versus the prior year. Quarter segment income and margin growth were driven by the strong top line growth, partially offset by inflation. 1%.

As discussed on our last earnings call, we expected Nordion's first half 2026 revenue to represent approximately 40% to 45% of Nordion's full-year revenue. First half revenue finished above that range, driven by certain shipments anticipated in the second half that occurred in the second quarter. 9% driven by higher volume mix, favorable pricing, and foreign currency benefits, partially offset by inflation. 4% on a constant currency basis.

6% including the benefits Alton referenced earlier, as well as favorable foreign currency impact. 4%. Segment income margin improved 438 basis points sequentially and is within our long-term range of low to mid-30s. Segment income margin declined versus the prior-year quarter primarily reflecting higher costs.

Turning to the balance sheet, cash generation, and capital deployment. In the second quarter we delivered positive operating cash flow of approximately $88 million. Capital expenditures for the quarter totaled $46 million, supporting Sterigenics capacity expansion projects for future growth, EO facility upgrades, Nordion's Cobalt-60 development initiatives, and the cleanroom expansion at Nelson Labs. Our balance sheet continues to be well positioned to support our capital allocation priorities.

Our net leverage ratio further improved to three times for the second quarter, marking an important milestone as we reached our long-term target leverage range of two to three times, and our liquidity remains strong. As Alton noted, we are increasing our 2026 outlook for both revenue and adjusted EBITDA constant currency growth. 75% constant currency growth and an estimated 100 basis point foreign currency benefit. Based on recent exchange rates, we expect foreign currency to be a slight headwind in the third quarter.

25% constant currency growth and an estimated 100 basis point foreign currency benefit. Our 2026 outlook assumes total company pricing to be within our long-term 3% to 4% range for 2026. We continue to expect Sterigenics to deliver mid- to high-single-digit constant currency revenue growth year over year. We expect Nordion to grow constant currency revenue in the low- to mid-single digits in 2026 with second half revenue split approximately evenly between Q3 and Q4.

For Nelson Labs, we continue to expect full-year 2026 constant currency revenue growth to be in the low single digits, consistent with what we have previously communicated. We expect segment income margin in the low- to mid-30% range. Moving on to other outlook items, based on the current forward rate curve and the interest savings we realized from our most recent term loan repricing, we are improving our 2026 interest expense outlook to a range of $135 million to $142 million from our prior range of $135 million to $145 million. We are also improving our effective tax rate applicable to adjusted net income to a range of 27% to 28%.

We continue to expect depreciation to increase in 2026, consistent with the increase we experienced in 2025. On a weighted average basis, we expect a fully diluted share count in the range of 289 million to 291 million shares. 01. With several key projects progressing as planned and half of the year now behind us, we expect capital expenditures to be in the range of $200 million to $225 million.

We expect continued net leverage ratio improvement compared to 2025. Finally, as usual, our outlook does not assume any M&A activity. I'll now turn the call back over to Alton. Alton Shader, Chief Executive Officer Thank you, John.

We delivered a strong quarter highlighted by solid execution across our businesses and an increase to our full-year outlook. These results reflect the essential role we play in supporting healthcare around the world, the strong partnerships we have built with our customers, the resilience of our business, and the commitment of our teams. I'm excited about the opportunities ahead and confident in our ability to execute on our priorities and to create long-term value for our stakeholders. I would also like to thank our associates, customers, and shareholders for their continued support, and I look forward to meeting with many of our investors in the months ahead.

At this point, operator, let's open the call for questions. OPERATOR We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster. The first question is from Sean Dodge with BMO. Please go ahead.

Chris Charlton, Analyst at BMO Capital Markets Hey, good morning. This is Chris Charlton on for Sean. Thanks for taking our questions, and welcome. Starting on Nelson Labs, it was a strong quarter here.

Can you share some more detail on the drivers of the improvement in the quarter? Is this primarily just beginning the last EAS, or are there any other areas you're seeing strength? And then how much visibility do you have continuing in the back half of the year? Thanks.

Alton Shader, Chief Executive Officer Yeah, hey Chris, Alton here. Thanks for the question. 4% constant currency growth. We got some good news from a few customers that were looking to work with Nelson, and that positively impacted our results here in Q2, and we continue to feel good about the underlying demand that we see in the marketplace and our role as a trusted partner with our customers.

So overall, again, feel really good about the performance in Q2 and how the team really focused on serving their customers, and again, feel good about the environment going forward here in the second half of the year. Chris Charlton, Analyst at BMO Capital Markets Okay, great. And then on Sterigenics, can you share any more detail on how volumes have been trending across your categories: MedTech, bioprocessing, and commercial? Now you previously mentioned processing being a small but quickly growing component, and then commercial kind of being a more challenging backdrop.

Is this still the case, or have there been any changes to the dynamics across these? Alton Shader, Chief Executive Officer Sure. So yeah, so maybe a couple comments on Sterigenics. So the 7% constant currency growth in the quarter, again, really pleased with that performance.

7% — again we feel really good about that. Just want to bring your attention and others' attention to the fact that we had a pretty tough comparable versus Q2 2025 where we grew 10% last year with a 6% volume contribution there.