Sotera Health Company — Q2 2021 Form 10-Q
Business context and period. Sotera provides sterilization services, cobalt-60 products and laboratory testing through Sterigenics, Nordion and Nelson Labs. This filing covers the quarter and six months ended June 30, 2021; financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $251.9 million | $213.1 million | $464.1 million | $401.3 million |
| Gross profit / margin | $143.8 million / 57.1% | $119.0 million / 55.8% | $259.1 million / 55.8% | $215.5 million / 53.7% |
| Operating income / margin | $78.3 million / 31.1% | $61.7 million / 29.0% | $124.6 million / 26.9% | $106.6 million / 26.6% |
| Net income | $42.6 million | $7.3 million | $53.7 million | $5.3 million |
| Adjusted EBITDA (non-GAAP) | $134.6 million | $114.4 million | $239.9 million | $206.3 million |
| Diluted EPS | $0.15 | $0.03 | $0.19 | $0.02 |
Cash flow and liquidity. Six-month operating cash flow was $134.3 million, versus $52.7 million; capital expenditures were $44.8 million, versus $23.4 million. Operating cash flow less capital expenditures was $89.5 million. Cash and cash equivalents were $156.2 million at June 30, 2021, up from $102.4 million at year-end 2020; approximately $123.9 million was held by foreign subsidiaries. The company reported $1.864 billion of principal debt and $1.838 billion of debt net of issuance costs and discounts. Its $347.5 million revolving facility had no borrowings and $278.5 million available after $69.0 million of letters of credit.
Changes versus the prior comparable period
- Q2 revenue rose 18.2% (14.3% excluding foreign exchange); six-month revenue rose 15.6% (12.7% excluding foreign exchange). Growth reflected organic volume and pricing, acquisitions and currency effects.
- All three segments grew revenue in Q2: Sterigenics 20.6%, Nordion 16.6% and Nelson Labs 13.9%. Nelson Labs’ growth included BioScience; demand for personal protective equipment testing declined from pandemic-driven 2020 levels.
- Six-month net income improved substantially, while operating income increased 16.9%. Net interest expense fell $71.4 million for the six-month period, mainly due to lower borrowing costs and debt levels.
- SG&A increased 28.3% for the six months, driven in part by EO litigation costs, public-company expenses and share-based compensation. Capital expenditures nearly doubled versus the prior-year period.
Outlook, commentary and notable items
- Management said cash, operating cash flows and available credit were expected to fund operations, planned capital spending, litigation costs and debt service for at least the next 12 months. The filing gives no specific revenue or earnings guidance.
- The January term-loan repricing reduced the LIBOR spread and floor; management estimated approximately $40 million of annual cash interest savings based on the outstanding principal balance. The refinancing also generated a $14.3 million six-month debt-extinguishment loss.
- On August 12, 2021, after quarter-end, the company issued notice to redeem its $100 million First Lien Notes in Q3 at 103% of principal plus accrued interest; it estimated a further $3.3 million write-off of unamortized debt costs.
- EO-related litigation involving Illinois, Georgia and New Mexico remains a significant uncertainty. A New Mexico preliminary injunction restricts uncontrolled EO emissions but does not require facility closure. The company reported no litigation reserve because losses were not considered probable or reasonably estimable. EO environmental-liability insurance limits were $10 million per occurrence and $20 million aggregate; the Illinois per-occurrence limit was fully used, and about $1 million of the remaining aggregate limit had been used by June 30.
- Other risks include reliance on EO and cobalt-60 supply, regulatory and environmental requirements, operational safety, customer concentration in Nordion, variable-rate debt and COVID-19 effects. The filing reports no material change in previously disclosed risk factors.
- Acquisitions and ownership transactions included BioScience for approximately $13.8 million net of acquired cash, the remaining Nelson Labs Fairfield interest for $12.4 million, and the remaining interests in two China subsidiaries for approximately $8.6 million.
Important facts for investors to verify
- Track organic growth and pricing by segment, especially Nordion’s cobalt-60 sales timing and Nelson Labs’ post-pandemic testing mix.
- Assess the sustainability of margins and cash generation against higher capital spending, public-company costs and recurring amortization.
- Monitor debt refinancing and redemption execution, interest-rate exposure, and actual cash interest savings.
- Follow EO litigation, the New Mexico injunction, insurance coverage remaining and any potential operational or financial consequences.
- Evaluate Adjusted EBITDA and Adjusted Net Income alongside GAAP results; the company’s non-GAAP adjustments exclude, among other items, ongoing EO litigation and share-based compensation costs.