- Q1 2023 net revenues of
$221 million decreased 7%, compared to Q1 2022, primarily driven by Nordion Cobalt-60 harvest schedule timing, as expected - Q1 2023 net income of
$3 million or$0.01 per diluted share, compared to net income of$31 million or$0.11 per diluted share in Q1 2022 - Q1 2023 Adjusted EBITDA of
$98 million decreased 15%, compared to Q1 2022, driven by Nordion Cobalt-60 harvest schedule timing, as expected - Q1 2023 Adjusted EPS of
$0.13 decreased by$0.09 per diluted share, compared to Q1 2022 - Total debt of
$2.3 billion and net leverage ratio of 3.4x as ofMarch 31, 2023 - Company reaffirms 2023 outlook
First-quarter 2023 net revenues decreased 6.8% to
“As we outlined in our fourth-quarter 2022 earnings call, our first-quarter total revenue was below the same quarter last year, driven by the anticipated timing of Nordion Cobalt-60 harvest schedules and lower volumes for the
Petras continued, “Looking to the remainder of the year, we feel good about how we are positioned and are reaffirming the 2023 revenue and adjusted EBITDA growth outlook of 5% to 9% that we first provided in February. As always, we remain focused on supporting our global team members and customers while delivering on our mission of Safeguarding Global Health®.”
First-Quarter Review by Business Segment
Sterigenics
For first-quarter 2023, Sterigenics’ net revenue was
Net revenue and segment income growth for the first-quarter 2023 were driven by favorable pricing as well as volume and mix, partially offset by unfavorable changes in foreign currency exchange rates.
Segment income margin decline was driven by the impacts referenced above, offset by the impact of current staffing levels versus the typical lighter first-quarter volume relative to the remainder of the year, as well as inflation.
For first-quarter 2023,
The decreases in net revenue, segment income and segment income margin for the first-quarter 2023 were driven by anticipated volume decline and change in mix due to Cobalt-60 (“Co-60”) harvest schedule timing, and an unfavorable impact from changes in foreign currency exchange rates.
For first-quarter 2023,
The decline in net revenue for the first-quarter 2023 was driven by volume decline and change in mix and an unfavorable impact from changes in foreign currency exchange rates, partially offset by favorable pricing.
Segment income and segment income margin declines were driven by the factors referenced above, as well as the impact of current staffing levels versus the typical lighter first-quarter volume relative to the remainder of the year.
Balance Sheet and Liquidity
As of
Reaffirming 2023 Outlook
Today,
- Net revenues in the range of
$1.055 to$1.090 billion , representing growth of approximately 5% to 9%, compared to the prior year, - Adjusted EBITDA in the range of
$530 to$550 million , representing growth of approximately 5% to 9%, compared to the prior year, - Tax rate applicable to Adjusted Net Income in the range of 30% to 33%,
- Adjusted EPS in the range of
$0.78 to$0.86 , representing a decline of 10% to 19% versus the prior year, primarily driven by increased interest expense and an increased tax rate, - A fully diluted share count in the range of 283 to 285 million shares on a weighted-average basis,
- Capital expenditures in the range of
$185 to$215 million , and - 2023 year-end Net Leverage Ratio to be within the long-term stated range of 2.0x - 4.0x.
The Company does not provide a reconciliation for non-GAAP financial measures on a forward-looking basis where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items without unreasonable effort. The Company cannot reconcile its expected Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Net Leverage Ratio without unreasonable effort because certain items that impact net income, earnings per share and other reconciling metrics are out of the Company’s control and/or cannot be reasonably predicted at this time, including uncertainties caused by changes to the regulatory landscape, restructuring items and certain fair value measurements, all of which are potential adjustments for future earnings.
The outlook provided above contains a number of assumptions, including, among others, the Company’s current expectations regarding supply chain continuity, particularly for the supply of EO and Co-60, the impact of inflationary trends including the impact on energy prices and the supply of labor, and the expectation that exchange rates as of
Earnings Webcast
Upcoming Investor Events
Sotera Health 2023 Annual Meeting of Shareholders at9:00 a.m. Eastern Time ,May 25, 2023
Live and archived webcasts and presentations associated with the conferences listed above may be accessed on the Investor Relations section of the
Updates on recent developments in matters relevant to investors can be found on the Investor Relations section of the
Cautionary Note Regarding Forward-Looking Statements
Unless expressly indicated or the context requires otherwise, the terms “Sotera Health,” “Company,” “we,” “us,” and “our” in this document refer to
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Net Debt, Net Leverage Ratio and constant currency financial measures that are not based on any standardized methodology prescribed by GAAP.
We define Adjusted Net Income as net income (loss) before amortization and certain other adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period.
We define Adjusted EBITDA as Adjusted Net Income before interest expense, depreciation (including depreciation of Co-60 used in our operations) and income tax provision applicable to Adjusted Net Income. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by net revenues.
We define Adjusted EPS as Adjusted Net Income divided by the weighted average number of diluted shares outstanding.
Our Net Debt is equal to our total debt, plus unamortized debt issuance costs and debt discounts, less cash and cash equivalents.
Our Net Leverage Ratio is equal to Net Debt divided by Adjusted EBITDA.
Constant currency is a non-GAAP financial measure we use to assess performance excluding the impact of foreign currency exchange rate changes. We calculate constant currency net revenues by translating prior year net revenues in local currency at the average exchange rates applicable for the current period. The translated results are then used to determine year-over-year percentage increases or decreases. We generally refer to such amounts calculated on a constant currency basis as excluding the impact of foreign currency exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
We use these non-GAAP financial measures as the principal measures of our operating performance. Management believes these are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without the impact of certain non-cash items and non-routine items that we do not expect to continue at the same level in the future and other items that are not core to our operations. We believe that these measures are useful to our investors because they provide a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. In addition, we believe these measures will assist investors in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented. Our management also uses these measurements in their financial analysis and operational decision-making and Adjusted EBITDA serves as the key metric for attainment of our primary annual incentive program. These measures may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.
About
INVESTOR RELATIONS CONTACTS | ||
Vice President & Treasurer, IR@soterahealth.com | IR@soterahealth.com | |
MEDIA CONTACT | ||
Chief Marketing Officer, kgibbs@soterahealth.com | ||
Source:
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | |||||||
2023 | 2022 | ||||||
Revenues: | |||||||
Service | $ | 214,510 | $ | 206,218 | |||
Product | 6,080 | 30,536 | |||||
Total net revenues | 220,590 | 236,754 | |||||
Cost of revenues: | |||||||
Service | 104,210 | 94,576 | |||||
Product | 4,877 | 13,303 | |||||
Total cost of revenues | 109,087 | 107,879 | |||||
Gross profit | 111,503 | 128,875 | |||||
Operating expenses: | |||||||
Selling, general and administrative expenses | 61,910 | 59,542 | |||||
Amortization of intangible assets | 16,227 | 15,841 | |||||
Total operating expenses | 78,137 | 75,383 | |||||
Operating income | 33,366 | 53,492 | |||||
Interest expense, net | 28,870 | 10,404 | |||||
Foreign exchange loss | 347 | 788 | |||||
Other income, net | (1,253 | ) | (2,967 | ) | |||
Income before income taxes | 5,402 | 45,267 | |||||
Provision for income taxes | 2,560 | 14,626 | |||||
Net income | 2,842 | 30,641 | |||||
Earnings per share | |||||||
Basic | $ | 0.01 | $ | 0.11 | |||
Diluted | 0.01 | 0.11 | |||||
Weighted average number of common shares outstanding | |||||||
Basic | 280,691 | 279,829 | |||||
Diluted | 282,977 | 279,908 | |||||
Segment Data
(in thousands)
(unaudited)
Three Months Ended | |||||||
2023 | 2022 | ||||||
Segment revenues: | |||||||
Sterigenics | $ | 159,997 | $ | 149,462 | |||
8,551 | 34,002 | ||||||
52,042 | 53,290 | ||||||
Total net revenues | $ | 220,590 | $ | 236,754 | |||
Segment income: | |||||||
Sterigenics | $ | 82,840 | $ | 79,403 | |||
1,526 | 18,903 | ||||||
14,102 | 17,043 | ||||||
Total segment income | 98,468 | 115,349 | |||||
Less adjustments: | |||||||
Interest expense, net(a) | 26,540 | 16,750 | |||||
Depreciation and amortization(b) | 39,538 | 36,049 | |||||
Share-based compensation(c) | 7,348 | 4,538 | |||||
Gain on foreign currency and derivatives not designated as hedging instruments, net(d) | 535 | (6,552 | ) | ||||
Acquisition and divestiture related charges, net(e) | 592 | (160 | ) | ||||
Business optimization project expenses(f) | 2,534 | 104 | |||||
Plant closure expenses(g) | (895 | ) | 671 | ||||
Professional services and other expenses relating to EO sterilization facilities(h) | 16,302 | 18,059 | |||||
Accretion of asset retirement obligation(i) | 572 | 520 | |||||
COVID-19 expenses(j) | — | 103 | |||||
Consolidated income before income taxes | $ | 5,402 | $ | 45,267 | |||
(a) The three months ended
(b) Includes depreciation of Co-60 held at gamma irradiation sites.
(c) Represents share-based compensation expense to employees and Non-Employee Directors.
(d) Represents the effects of (i) fluctuations in foreign currency exchange rates, (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at
(e) Represents (i) certain direct and incremental costs related to the acquisitions of
(f) Represents professional fees, contract termination and exit costs, severance and other payroll costs, and other costs associated with business optimization and cost savings projects relating to the integration of acquisitions, operating structure realignment and other process enhancement projects.
(g) Represents professional fees, severance and other payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the
(h) Represents litigation and other professional fees associated with our EO sterilization facilities. This amount also includes
(i) Represents non-cash accretion of asset retirement obligations related to Co-60 and gamma processing facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities (without regard for whether the decommissioning services would be performed by employees of
(j) Represents non-recurring costs associated with the COVID-19 pandemic, including incremental costs to implement workplace health and safety measures.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
As of | As of | ||||||
2023 | 2022 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 660,180 | $ | 396,294 | |||
Accounts receivable, net | 109,163 | 118,482 | |||||
Inventories, net | 46,736 | 37,145 | |||||
Other current assets | 107,720 | 93,089 | |||||
Total current assets | 923,799 | 645,010 | |||||
Property, plant, and equipment, net | 816,164 | 774,527 | |||||
Operating lease assets | 24,941 | 26,481 | |||||
Other intangible assets, net | 471,860 | 491,265 | |||||
1,103,420 | 1,101,768 | ||||||
Other assets | 73,989 | 78,654 | |||||
Total assets | $ | 3,414,173 | $ | 3,117,705 | |||
Liabilities and equity | |||||||
Total current liabilities | $ | 600,149 | $ | 791,567 | |||
Long-term debt, less current portion | 2,222,333 | 1,747,115 | |||||
Other noncurrent liabilities | 167,340 | 160,761 | |||||
Deferred income taxes | 63,226 | 68,024 | |||||
Total liabilities | 3,053,048 | 2,767,467 | |||||
Total equity | 361,125 | 350,238 | |||||
Total liabilities and equity | $ | 3,414,173 | $ | 3,117,705 | |||
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended | |||||||
2023 | 2022 | ||||||
Operating activities: | |||||||
Net income | $ | 2,842 | $ | 30,641 | |||
Non-cash items | 47,239 | 41,231 | |||||
Changes in operating assets and liabilities | (16,210 | ) | (21,905 | ) | |||
Net cash provided by operating activities | 33,871 | 49,967 | |||||
Investing activities: | |||||||
Purchases of property, plant and equipment | (45,000 | ) | (35,546 | ) | |||
Adjustments to purchase of | — | 63 | |||||
Other investing activities | 32 | — | |||||
Net cash used in investing activities | (44,968 | ) | (35,483 | ) | |||
Financing activities: | |||||||
Proceeds from long-term borrowings | 500,000 | — | |||||
Payment on revolving credit facility | (200,000 | ) | — | ||||
Payments of debt issuance costs | (24,457 | ) | (31 | ) | |||
Other financing activities | (1,627 | ) | (418 | ) | |||
Net cash used in financing activities | 273,916 | (449 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 1,067 | 487 | |||||
Net increase in cash and cash equivalents, including restricted cash | 263,886 | 14,522 | |||||
Cash and cash equivalents, including restricted cash, at beginning of period | 396,294 | 106,924 | |||||
Cash and cash equivalents, including restricted cash, at end of period | $ | 660,180 | $ | 121,446 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid during the period for interest | $ | 35,456 | $ | 15,809 | |||
Cash paid during the period for income taxes, net of tax refunds received | 14,014 | 13,505 | |||||
Equipment purchases included in accounts payable | 13,061 | 9,508 | |||||
Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)
Three Months Ended | |||||||
2023 | 2022 | ||||||
Net income | $ | 2,842 | $ | 30,641 | |||
Amortization of intangible assets | 20,607 | 20,182 | |||||
Share-based compensation(a) | 7,348 | 4,538 | |||||
Gain on foreign currency and derivatives not designated as hedging instruments, net(b) | 535 | (6,552 | ) | ||||
Acquisition and divestiture related charges, net(c) | 592 | (160 | ) | ||||
Business optimization project expenses(d) | 2,534 | 104 | |||||
Plant closure expenses(e) | (895 | ) | 671 | ||||
Professional services and other expenses relating to EO sterilization facilities(f) | 16,302 | 18,059 | |||||
Accretion of asset retirement obligation(g) | 572 | 520 | |||||
COVID-19 expenses(h) | — | 103 | |||||
Income tax benefit associated with pre-tax adjustments(i) | (12,392 | ) | (7,852 | ) | |||
Adjusted Net Income | 38,045 | 60,254 | |||||
Interest expense, net(j) | 26,540 | 16,750 | |||||
Depreciation(k) | 18,931 | 15,867 | |||||
Income tax provision applicable to Adjusted Net Income(l) | 14,952 | 22,478 | |||||
Adjusted EBITDA(m) | $ | 98,468 | $ | 115,349 | |||
Net Revenues | $ | 220,590 | $ | 236,754 | |||
Adjusted EBITDA Margin | 44.6 | % | 48.7 | % | |||
Weighted average number of shares outstanding | |||||||
Basic | 280,691 | 279,829 | |||||
Diluted | 282,977 | 279,908 | |||||
Earnings per share: | |||||||
Basic | $ | 0.01 | $ | 0.11 | |||
Diluted | 0.01 | 0.11 | |||||
Adjusted earnings per share: | |||||||
Basic | $ | 0.14 | $ | 0.22 | |||
Diluted | 0.13 | 0.22 | |||||
(a) Represents share-based compensation expense to employees and Non-Employee Directors.
(b) Represents the effects of (i) fluctuations in foreign currency exchange rates, (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at
(c) Represents (i) certain direct and incremental costs related to the acquisitions of
(d) Represents professional fees, contract termination and exit costs, severance and other payroll costs, and other costs associated with business optimization and cost savings projects relating to the integration of acquisitions, operating structure realignment and other process enhancement projects.
(e) Represents professional fees, severance and other payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the
(f) Represents litigation and other professional fees associated with our EO sterilization facilities. This amount also includes
(g) Represents non-cash accretion of asset retirement obligations related to Co-60 and gamma processing facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities (without regard for whether the decommissioning services would be performed by employees of
(h) Represents non-recurring costs associated with the COVID-19 pandemic, including incremental costs to implement workplace health and safety measures.
(i) Represents the income tax impact of adjustments calculated based on the tax rate applicable to each item. We eliminate the effect of tax rate changes as applied to tax assets and liabilities and unusual items from our presentation of adjusted net income.
(j) The three months ended
(k) Includes depreciation of Co-60 held at gamma irradiation sites.
(l) Represents the difference between income tax provision or benefit as determined under
(m)
Non-GAAP Financial Measures
($’s in thousands)
(unaudited)
As of | As of | ||||||
2023 | 2022 | ||||||
Current portion of long-term debt | $ | 4,031 | $ | 197,119 | |||
Long-term debt | $ | 2,222,333 | $ | 1,747,115 | |||
Current portion of finance leases | 8,588 | 1,722 | |||||
Finance leases less current portion | 61,735 | 56,955 | |||||
Total Debt | 2,296,687 | 2,002,911 | |||||
Less: cash and cash equivalents | (647,948 | ) | (395,214 | ) | |||
Total Net Debt | $ | 1,648,739 | $ | 1,607,697 | |||
Adjusted EBITDA(a) | $ | 489,368 | $ | 506,249 | |||
Net Leverage | 3.4x | 3.2x | |||||
(a) Represents Adjusted EBITDA for the twelve months ended
Non-GAAP Financial Measures
(in thousands)
(unaudited)
Twelve Months Ended | Twelve Months Ended | ||||||
2023 | 2022 | ||||||
Net income | $ | (261,369 | ) | $ | (233,570 | ) | |
Amortization of intangible assets | 81,979 | 81,554 | |||||
Share-based compensation(a) | 24,021 | 21,211 | |||||
Gain on foreign currency and derivatives not designated as hedging instruments, net(b) | 10,237 | 3,150 | |||||
Acquisition and divestiture related charges, net(c) | 2,150 | 1,398 | |||||
Business optimization project expenses(d) | 4,656 | 2,226 | |||||
Plant closure expenses(e) | 3,164 | 4,730 | |||||
Impairment of investment in unconsolidated affiliate(f) | 9,613 | 9,613 | |||||
Professional services and other expenses relating to EO sterilization facilities(g) | 70,882 | 72,639 | |||||
Illinois EO litigation settlement(h) | 408,000 | 408,000 | |||||
Accretion of asset retirement obligation(i) | 2,246 | 2,194 | |||||
COVID-19 expenses(j) | 52 | 155 | |||||
Income tax benefit associated with pre-tax adjustments(k) | (107,621 | ) | (103,081 | ) | |||
Adjusted Net Income | 248,010 | 270,219 | |||||
Interest expense, net(l) | 88,280 | 78,490 | |||||
Depreciation(m) | 67,064 | 64,000 | |||||
Income tax provision applicable to Adjusted Net Income(n) | 86,014 | 93,540 | |||||
Adjusted EBITDA(o) | $ | 489,368 | $ | 506,249 | |||
Net Revenues | $ | 987,523 | $ | 1,003,687 | |||
Adjusted EBITDA Margin | 49.6 | % | 50.4 | % | |||
(a) Represents share-based compensation expense to employees and Non-Employee Directors.
(b) Represents the effects of (i) fluctuations in foreign currency exchange rates, (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at
(c) Represents (i) certain direct and incremental costs related to the acquisitions of
(d) Represents professional fees, contract termination and exit costs, severance and other payroll costs, and other costs associated with business optimization and cost savings projects relating to the integration of acquisitions, operating structure realignment and other process enhancement projects.
(e) Represents professional fees, severance and other payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the
(f) Represents an impairment charge on our equity method investment in a joint venture.
(g) Represents litigation and other professional fees associated with our EO sterilization facilities. The twelve months ended
(h) Represents the cost to settle 880+ pending and threatened EO claims against the Defendant Subsidiaries in
(i) Represents non-cash accretion of asset retirement obligations related to Co-60 and gamma processing facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities (without regard for whether the decommissioning services would be performed by employees of
(j) Represents non-recurring costs associated with the COVID-19 pandemic, including incremental costs to implement workplace health and safety measures.
(k) Represents the income tax impact of adjustments calculated based on the tax rate applicable to each item. We eliminate the effect of tax rate changes as applied to tax assets and liabilities and unusual items from our presentation of adjusted net income.
(l) The twelve months ended
(m) Includes depreciation of Co-60 held at gamma irradiation sites.
(n) Represents the difference between income tax provision or benefit as determined under
(o)
Source:
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