You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2020 Form 10-K. This discussion and analysis contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of various factors, including the factors we describe in the section entitled Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q, as well as Part I, Item 1A, "Risk Factors" in our 2020 Form 10-K. OVERVIEW We are a leading global provider of mission-critical sterilization and lab testing and advisory services to the medical device and pharmaceutical industries. We are driven by our mission: Safeguarding Global Health®. We provide end-to-end sterilization as well as microbiological and analytical lab testing and advisory services to help ensure that medical, pharmaceutical and food products are safe for healthcare practitioners, patients and consumers inthe United States and around the world. Our services are an essential aspect of our customers' manufacturing process and supply chains, helping to ensure sterilized medical products reach healthcare practitioners and patients. Most of these services are necessary for our customers to satisfy applicable government requirements. We serve our customers throughout their product lifecycles, from product design to manufacturing and delivery, helping to ensure the sterility, effectiveness and safety of their products for the end user. We operate across two core businesses: sterilization services and lab services. The combination of Sterigenics, our terminal sterilization business, andNordion , our Co-60 supply business, makes us the only vertically integrated global gamma sterilization provider in the sterilization industry. For financial reporting purposes, our sterilization services business consists of two reportable segments, Sterigenics andNordion , and our lab services business consists of one reportable segment,Nelson Labs . For the three months endedMarch 31, 2021 , we recorded net revenues of$212.1 million , net income of$11.1 million , Adjusted Net Income of$51.5 million and Adjusted EBITDA of$105.3 million . For the definition of Adjusted Net Income and Adjusted EBITDA and the reconciliation of these non-GAAP measures from net income (loss), please see "Non-GAAP Financial Measures." STRATEGIC DEVELOPMENTS AND KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS The following summarizes strategic developments and key factors that have underpinned our operating results for the three months endedMarch 31, 2021 and may continue to affect our performance and financial condition in future periods. •Driving organic growth. During the three months endedMarch 31, 2021 , we continued to make investments to expand capacity and implement EO facility enhancements in our Sterigenics business and expand our cobalt development resources in ourNordion business. In addition, we continue to expand capacity to meet demand for microbiological testing and extractables and leachables testing in ourNelson Labs business. •Disciplined and strategic M&A activity. We continue to pursue strategic acquisitions to grow our footprint and expand our capabilities. OnMarch 8, 2021 , we acquiredBioScience Laboratories, LLC ("BioScience") with one location inBozeman, Montana for approximately$13.2 million , net of$0.8 million of cash acquired plus the repayment of BioScience's outstanding debt of$1.9 million . BioScience is a provider of outsourced topical antimicrobial product testing in the pharmaceutical, medical device, and consumer products industries. BioScience's expertise in analytical testing and clinical trial services will complementNelson Labs' existing strengths in antimicrobial and virology testing. OnFebruary 8, 2021 , we entered into binding agreements to purchase the outstanding noncontrolling interests of 15% and 33% of our twoChina subsidiaries, respectively, for a total purchase price of$8.6 million . The purchase transactions are expected to close in the second quarter of 2021. In addition, onMarch 11, 2021 , we completed the acquisition of the remaining 15% ownership ofNelson Labs Fairfield for$12.4 million . Pursuant to the terms of the transaction, we acquired 85% of the equity interests ofNelson Labs Fairfield inAugust 2018 and were required to acquire the 15% noncontrolling interest within three years from the date of the acquisition. InJuly 2020 , we acquiredIotron Industries Canada, Inc. ("Iotron"), an E-beam processing services and equipment provider. •Borrowings and financing costs. A combination of lower outstanding borrowings and reduced pricing on our debt resulted in a reduction in cash interest expense for the three months endedMarch 31, 2021 compared to the three 30
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months endedMarch 31, 2020 . OnJanuary 20, 2021 we amended our Term Loan to reduce the interest rate spread over LIBOR from 4.50% to 2.75%, and the LIBOR floor from 1.00% to 0.50%. The changes resulted in an effective reduction in current interest rates of 2.25%. We expect the amendment to provide additional cash interest savings of approximately$40.0 million per year based on the outstanding principal balance as of the date of the amendment. Interest savings in 2021 will be offset by cash and non-cash charges associated with the repricing amendment. In connection with this transaction, we wrote off approximately$11.3 million in debt issuance costs and debt discounts and incurred approximately$2.9 million in costs directly related to the refinancing transaction. In addition, onMarch 26, 2021 , we amended our Revolving Credit Facility to reduce the interest rate spread over LIBOR applicable to revolving loans from 3.50% to 2.75%. • Impacts of our IPO. As a newly public company, we continue to incur certain expenses on an ongoing basis that we did not incur as a private company including third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, and investor and public relations expenses. These costs are primarily classified as selling, general and administrative ("SG&A") expenses. We continue to dedicate internal resources, hire additional personnel, and engage outside consultants to assess and document the adequacy of internal controls over financial reporting. In addition, we incurred costs related to a secondary offering of 25 million shares of our common stock offered by selling stockholders, which included certain affiliates of Warburg Pincus LLC andGTCR, LLC as well as certain current and former members of management of the Company. •Exit activities and litigation costs. In connection with the ongoing litigation related to ourWillowbrook, Illinois ,Atlanta, Georgia andSanta Teresa, New Mexico facilities, as described in Note 16, "Commitments and Contingencies", we recorded costs of$13.4 million for the three months endedMarch 31, 2021 relating to legal and other professional service costs, as well as$0.5 million related to the closure of theWillowbrook, Illinois facility. •Impact of COVID-19 pandemic. We remain subject to risks and uncertainties as a result of the COVID-19 pandemic. Our business continuity plans remain in effect and we have maintained certain measures to decrease exposure risk and manage our supply chain for critical materials. The extent to which our operations will continue to be impacted by the pandemic will largely depend on future developments, which still remain uncertain and cannot be predicted.
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