SEC Form 10-Q filed by Sotera Health Company

8/5/24 4:08:19 PM ET

$SHC

Misc Health and Biotechnology Services

Health Care

Get the next $SHC alert in real time by email

shc-20240630

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39729

SOTERA HEALTH COMPANY

(Exact name of registrant as specified in its charter)

Delaware

47-3531161

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9100 South Hills Blvd, Suite 300

Broadview Heights, Ohio

44147

(Address of principal executive offices)

(Zip Code)

(440) 262-1410

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SHC	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of July 29, 2024, there were 283,214,342 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

Table of Contents

SOTERA HEALTH COMPANY

- TABLE OF CONTENTS -


Part I—FINANCIAL INFORMATION			5
Item 1. Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			46
Part II—OTHER INFORMATION			47
Item 1. Legal Proceedings.			47
Item 1A. Risk Factors.			48
Item 5. Other Information			48
Item 6. Exhibits.			49
SIGNATURES			50

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans” or “anticipates,” or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance, achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:

•a disruption in the availability or supply of, or increases in the price of, ethylene oxide (“EO”), Cobalt-60 (“Co-60”) or our other direct materials, services and supplies, including as a result of geopolitical instability and/or sanctions against Russia by the United States, Canada, United Kingdom and/or the European Union;

•fluctuations in foreign currency exchange rates;

•changes in environmental, health and safety regulations or preferences, and general economic, social and business conditions;

•health and safety risks associated with the use, storage, transportation and disposal of potentially hazardous materials such as EO and Co-60;

•the impact and outcome of current and future legal proceedings and liability claims, including litigation related to the use, emissions and releases of EO from our facilities in California, Georgia, Illinois and New Mexico and the possibility that additional claims will be made in the future relating to these or other facilities;

•allegations of our failure to properly perform services and potential product liability claims, recalls, penalties and reputational harm;

•compliance with the extensive regulatory requirements to which we are subject, the related costs, and any failures to receive or maintain, or delays in receiving, required clearances or approvals;

•adverse changes in industry trends;

•competition we face;

•market changes, including inflationary trends, that impact our long-term supply contracts with variable price clauses and increase our cost of revenues;

•business continuity hazards, including supply chain disruptions and other risks associated with our operations;

•the risks of doing business internationally, including global and regional economic and political instability and compliance with numerous laws and sometimes inconsistent laws and regulations in multiple jurisdictions;

•our ability to increase capacity at existing facilities, build new facilities in a timely and cost-effective manner and renew leases for our leased facilities;

•our ability to attract and retain qualified employees;

•severe health events or environmental events;

•cybersecurity breaches, unauthorized data disclosures, and our dependence on information technology systems;

•an inability to pursue strategic transactions, find suitable acquisition targets, or integrate strategic acquisitions into our business successfully;

•our ability to maintain effective internal controls over financial reporting;

•our reliance on intellectual property to maintain our competitive position and the risk of claims from third parties that we have infringed or misappropriated, or are infringing or misappropriating, their intellectual property rights;

•our ability to comply with rapidly evolving data privacy and security laws and regulations in various jurisdictions and any ineffective compliance efforts with such laws and regulations;

•our ability to maintain profitability in the future;

•impairment charges on our goodwill and other intangible assets with indefinite lives, as well as other long-lived assets and intangible assets with definite lives;

•the effects of unionization efforts and labor regulations in countries in which we operate;

•adverse changes to our tax positions in U.S. or non-U.S. jurisdictions or the interpretation and application of recent U.S. tax legislation or other changes in U.S. or non-U.S. taxation of our operations; and

•our significant leverage and how this significant leverage could adversely affect our ability to raise additional capital, limit our ability to react to challenges confronting our Company or broader changes in our industry or the economy, limit our flexibility in operating our business through restrictions contained in our debt agreements and/or prevent us from meeting our obligations under our existing and future indebtedness.

Table of Contents

These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them publicly in light of new information or future events, except as required by law. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.

You should carefully consider the above factors, as well as the factors discussed elsewhere in this Quarterly Report on Form 10-Q, including under Part II, Item 1A, “Risk Factors,” as well as Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K”). If any of these trends, risks or uncertainties actually occur or continue, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Unless expressly indicated or the context requires otherwise, the terms “Sotera Health,” “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to Sotera Health Company, a Delaware corporation, and, where appropriate, its subsidiaries on a consolidated basis.

Table of Contents

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

Sotera Health Company

Consolidated Balance Sheets

(in thousands, except per share amounts)


	As of
	June 30, 2024		December 31, 2023
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	246,084	$	296,407
Restricted cash short-term	1,674		5,247
Accounts receivable, net of allowance for uncollectible accounts of $3,111 and $4,689, respectively	123,659		147,696
Inventories, net	57,872		48,316
Prepaid expenses and other current assets	56,652		53,846
Income taxes receivable	11,736		5,732
Total current assets	497,677		557,244
Property, plant, and equipment, net	994,614		946,914
Operating lease assets	24,272		24,037
Deferred income taxes	4,749		4,993
Post-retirement assets	30,721		28,482
Other assets	39,541		41,242
Other intangible assets, net	367,938		416,318
Goodwill	1,098,306		1,111,190
Total assets	$	3,057,818	$	3,130,420
Liabilities and equity
Current liabilities:
Accounts payable	$	64,487	$	71,039
Accrued liabilities	69,054		122,471
Deferred revenues	12,989		13,492
Current portion of long-term debt	11,092		4,797
Current portion of finance lease obligations	2,767		8,771
Current portion of operating lease obligations	4,835		5,934
Income taxes payable	4,409		4,150
Total current liabilities	169,633		230,654
Long-term debt	2,213,518		2,223,674
Finance lease obligations, less current portion	93,518		63,793
Operating lease obligations, less current portion	21,353		20,087
Noncurrent asset retirement obligations	48,096		47,944
Deferred lease income	17,906		18,762
Post-retirement obligations	8,184		8,439
Noncurrent liabilities	8,762		8,879
Deferred income taxes	54,084		64,454
Total liabilities	2,635,054		2,686,686
See Commitments and contingencies note
Equity:
Common stock, with $0.01 par value, 1,200,000 shares authorized; 286,037 shares issued at June 30, 2024 and December 31, 2023	2,860		2,860
Preferred stock, with $0.01 par value, 120,000 authorized; no shares issued at June 30, 2024 and December 31, 2023	—		—
Treasury stock, at cost (2,823 and 3,207 shares at June 30, 2024 and December 31, 2023, respectively)	(24,764)		(27,182)
Additional paid-in capital	1,229,428		1,215,178
Retained deficit	(639,363)		(654,440)
Accumulated other comprehensive loss	(145,397)		(92,682)
Total equity	422,764		443,734
Total liabilities and equity	$	3,057,818	$	3,130,420

See notes to consolidated financial statements.

Table of Contents

Sotera Health Company

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023

Revenues:
Service	$	237,756	$	226,050	$	464,237	$	440,560
Product	38,838		29,232		60,533		35,312
Total net revenues	276,594		255,282		524,770		475,872
Cost of revenues:
Service	109,136		103,900		219,988		208,110
Product	14,667		11,794		24,876		16,671
Total cost of revenues	123,803		115,694		244,864		224,781
Gross profit	152,791		139,588		279,906		251,091
Operating expenses:
Selling, general and administrative expenses	60,575		60,287		118,784		122,197
Amortization of intangible assets	15,417		16,097		31,149		32,324
Total operating expenses	75,992		76,384		149,933		154,521
Operating income	76,799		63,204		129,973		96,570
Interest expense, net	40,388		30,728		82,159		59,598
Loss on refinancing of debt	23,400		—		24,090		—
Foreign exchange (gain) loss	(611)		465		(1,183)		812
Other income, net	(1,520)		(2,474)		(1,249)		(3,727)
Income before income taxes	15,142		34,485		26,156		39,887
Provision for income taxes	6,388		10,972		11,079		13,532
Net income	8,754		23,513		15,077		26,355
Other comprehensive income (loss) net of tax:
Pension and post-retirement benefits (net of taxes of $10, $6, $47, and $(11), respectively)	30		18		143		(33)
Interest rate derivatives (net of taxes of $(857), $1,036, $(711) and $(2,360), respectively)	(2,461)		4,002		(2,042)		(5,249)
Foreign currency translation	(23,110)		21,374		(50,816)		32,631
Comprehensive income (loss)	$	(16,787)	$	48,907	$	(37,638)	$	53,704
Earnings per share:
Basic	$	0.03	$	0.08	$	0.05	$	0.09
Diluted	0.03		0.08		0.05		0.09
Weighted average number of shares outstanding:
Basic	282,894		280,893		282,403		280,793
Diluted	284,541		283,147		284,264		283,040

See notes to consolidated financial statements.

Table of Contents

Sotera Health Company

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Operating activities:
Net income	$	15,077	$	26,355
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	40,381		37,920
Amortization of intangible assets	39,879		41,108
Loss on refinancing of debt	24,090		—
Deferred income taxes	(8,099)		315
Share-based compensation expense	18,844		15,661
Accretion of asset retirement obligations	1,278		1,127
Unrealized foreign exchange (gains) losses	(6,980)		4,601
Unrealized gain (loss) on derivatives not designated as hedging instruments	1,750		(747)
Amortization of debt issuance costs	4,704		4,112
Other	(3,258)		(2,623)
Changes in operating assets and liabilities:
Accounts receivable	22,261		2,549
Inventories	(11,084)		(3,877)
Other current assets	(3,602)		(9,220)
Accounts payable	(1,959)		(20,325)
Accrued liabilities	(18,585)		22,273
Illinois EO litigation settlement	—		(407,712)
Georgia EO litigation settlement	(35,000)		—
Income taxes payable / receivable, net	(5,343)		(14,067)
Other liabilities	(128)		(512)
Other long-term assets	(3,232)		358
Net cash provided by (used in) operating activities	70,994		(302,704)
Investing activities:
Purchases of property, plant and equipment	(76,811)		(98,134)
Other investing activities	37		32
Net cash used in investing activities	(76,774)		(98,102)
Financing activities:
Proceeds from long-term borrowings	2,259,350		500,000
Payment of revolving credit facility	—		(200,000)
Payments of debt issuance costs and debt discount	(30,204)		(24,672)
Payment on long-term borrowings	(2,260,600)		—
Buyout of leased facility	(6,736)		—
Other financing activities	(3,172)		(2,122)
Net cash (used in) provided by financing activities	(41,362)		273,206
Effect of exchange rate changes on cash and cash equivalents	(6,754)		1,796
Net decrease in cash and cash equivalents, including restricted cash	(53,896)		(125,804)
Cash and cash equivalents, including restricted cash, at beginning of period	301,654		396,294
Cash and cash equivalents, including restricted cash, at end of period	$	247,758	$	270,490
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	111,169	$	78,352
Cash paid during the period for income taxes, net of tax refunds received	27,714		27,590
Purchases of property, plant and equipment included in accounts payable	13,538		16,986

See notes to consolidated financial statements.

Table of Contents

Sotera Health Company

Consolidated Statements of Equity

(in thousands)

(Unaudited)


	Three Months Ended June 30, 2024
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at March 31, 2024	283,071	$	2,860	$	(26,042)	$	1,220,547	$	(648,117)	$	(119,856)	$	429,392
Share-based compensation plans	143	—		1,278		8,881		—		—		10,159
Comprehensive income (loss):												—
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		30		30
Foreign currency translation	—	—		—		—		—		(23,110)		(23,110)
Interest rate derivatives, net of tax	—	—		—		—		—		(2,461)		(2,461)
Net income	—	—		—		—		8,754		—		8,754
Balance at June 30, 2024	283,214	$	2,860	$	(24,764)	$	1,229,428	$	(639,363)	$	(145,397)	$	422,764


	Six Months Ended June 30, 2024
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at December 31, 2023	282,830	$	2,860	$	(27,182)	$	1,215,178	$	(654,440)	$	(92,682)	$	443,734
Share-based compensation plans	384	—		2,418		14,250		—		—		16,668
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		143		143
Foreign currency translation	—	—		—		—		—		(50,816)		(50,816)
Interest rate derivatives, net of tax	—	—		—		—		—		(2,042)		(2,042)
Net income	—	—		—		—		15,077		—		15,077
Balance at June 30, 2024	283,214	$	2,860	$	(24,764)	$	1,229,428	$	(639,363)	$	(145,397)	$	422,764

See notes to consolidated financial statements.

Table of Contents

Sotera Health Company

Consolidated Statements of Equity (continued)

(in thousands)

(Unaudited)


	Three Months Ended June 30, 2023
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at March 31, 2023	282,516	$	2,860	$	(29,420)	$	1,195,357	$	(702,974)	$	(104,698)	$	361,125
Share-based compensation plans	28	—		720		7,615		—		—		8,335
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		18		18
Foreign currency translation	—	—		—		—		—		21,374		21,374
Interest rate derivatives, net of tax	—	—		—		—		—		4,002		4,002
Net income	—	—		—		—		23,513		—		23,513
Balance at June 30, 2023	282,544	$	2,860	$	(28,700)	$	1,202,972	$	(679,461)	$	(79,304)	$	418,367


	Six Months Ended June 30, 2023
	Common Stock					Additional Paid-In Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive (Loss) Income		Total Equity
	Shares	Amount		Treasury Stock
Balance at December 31, 2022	282,421	$	2,860	$	(29,775)	$	1,189,622	$	(705,816)	$	(106,653)	$	350,238
Share-based compensation plans	123	—		1,075		13,350		—		—		14,425
Comprehensive income (loss):
Pension and post-retirement plan adjustments, net of tax	—	—		—		—		—		(33)		(33)
Foreign currency translation	—	—		—		—		—		32,631		32,631
Interest rate derivatives, net of tax	—	—		—		—		—		(5,249)		(5,249)
Net income	—	—		—		—		26,355		—		26,355
Balance at June 30, 2023	282,544	$	2,860	$	(28,700)	$	1,202,972	$	(679,461)	$	(79,304)	$	418,367

See notes to consolidated financial statements.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

1.Basis of Presentation

Principles of Consolidation – Sotera Health Company (also referred to herein as the “Company,” “we,” “our,” “us” or “its”), is a leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry with operations primarily in the Americas, Europe and Asia.

We operate and report in three segments, Sterigenics, Nordion and Nelson Labs. We describe our reportable segments in Note 16, “Segment Information”. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates – In preparing our consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”), we make estimates and assumptions that affect the amounts reported and the accompanying notes. We regularly evaluate the estimates and assumptions used and revise them as new information becomes available. Actual results may vary from those estimates.

Interim Financial Statements – The accompanying consolidated financial statements include the assets, liabilities, operating results, and cash flows of the Company and its wholly owned subsidiaries. These financial statements are prepared in accordance with GAAP for interim financial information, the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited interim financial statements should be read in conjunction with the Company's annual consolidated financial statements and accompanying notes in our 2023 10-K.

2.Recent Accounting Standards

Accounting Standard Updates (“ASU”) Issued But Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07-Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in ASU 2023-07 require an entity to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of evaluating the impact of this standard on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09-Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require entities to disclose, on an annual basis, specific categories in the reconciliation of the provision (benefit) for income taxes to the statutory rate and provide additional information for reconciling items that meet a quantitative threshold. Additionally, the update requires entities to disclose a disaggregation of taxes paid by category (federal, state and foreign taxes) as well as individual jurisdictions. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024. The Company is in the process of evaluating the impact of this standard on our consolidated financial statements and disclosures.

3.Revenue Recognition

The following table shows disaggregated net revenues from contracts with external customers by timing of revenue and by segment for the three and six months ended June 30, 2024 and 2023:


(thousands of U.S. dollars)	Three Months Ended June 30, 2024
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	176,354	$	40,974	$	—	$	217,328
Over time	—		270		58,996		59,266
Total	$	176,354	$	41,244	$	58,996	$	276,594

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements


(thousands of U.S. dollars)	Three Months Ended June 30, 2023
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	166,590	$	30,653	$	—	$	197,243
Over time	—		1,322		56,717		58,039
Total	$	166,590	$	31,975	$	56,717	$	255,282


(thousands of U.S. dollars)	Six Months Ended June 30, 2024
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	342,851	$	64,025	$	—	$	406,876
Over time	—		1,226		116,668		117,894
Total	$	342,851	$	65,251	$	116,668	$	524,770


(thousands of U.S. dollars)	Six Months Ended June 30, 2023
	Sterigenics		Nordion		Nelson Labs		Consolidated
Point in time	$	326,587	$	38,241	$	—	$	364,828
Over time	—		2,285		108,759		111,044
Total	$	326,587	$	40,526	$	108,759	$	475,872

When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue totaled $13.0 million and $13.5 million at June 30, 2024 and December 31, 2023, respectively. We recognize deferred revenue after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.

4.Inventories

Inventories consisted of the following:


(thousands of U.S. dollars)
	June 30, 2024		December 31, 2023
Raw materials and supplies	$	46,626	$	43,411
Work-in-process	2,371		471
Finished goods	9,104		4,670
	58,101		48,552
Reserve for excess and obsolete inventory	(229)		(236)
Inventories, net	$	57,872	$	48,316

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

5.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


(thousands of U.S. dollars)
	June 30, 2024		December 31, 2023
Prepaid taxes	$	3,709	$	4,129
Prepaid business insurance	3,827		7,174
Prepaid rent	1,226		1,150
Customer contract assets	21,599		17,785
Current deposits	501		715
Prepaid maintenance contracts	455		422
Value added tax receivable	3,576		4,306
Prepaid software licensing	2,746		2,503
Stock supplies	3,881		3,669
Embedded derivatives	1,571		1,225
Other	13,561		10,768
Prepaid expenses and other current assets	$	56,652	$	53,846

6.Goodwill and Other Intangible Assets

Changes to goodwill during the six months ended June 30, 2024 were as follows:


(thousands of U.S. dollars)	Sterigenics		Nordion		Nelson Labs		Total
Goodwill at December 31, 2023	$	659,888	$	276,929	$	174,373	$	1,111,190
Changes due to foreign currency exchange rates	(3,311)		(8,582)		(991)		(12,884)
Goodwill at June 30, 2024	$	656,577	$	268,347	$	173,382	$	1,098,306

Other intangible assets consisted of the following:


(thousands of U.S. dollars)	Gross Carrying Amount		Accumulated Amortization
As of June 30, 2024
Finite-lived intangible assets
Customer relationships	$	652,688	$	511,941
Proprietary technology	75,453		51,222
Trade names	2,545		1,425
Land-use rights	8,529		1,912
Sealed source and supply agreements	202,400		110,243
Other	4,448		3,302
Total finite-lived intangible assets	946,063		680,045

Indefinite-lived intangible assets
Regulatory licenses and other(a)	76,229		—
Trade names / trademarks	25,691		—
Total indefinite-lived intangible assets	101,920		—
Total	$	1,047,983	$	680,045

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements


As of December 31, 2023	Gross Carrying Amount		Accumulated Amortization
Finite-lived intangible assets
Customer relationships	$	657,673	$	485,188
Proprietary technology	84,918		56,846
Trade names	2,567		1,207
Land-use rights	8,756		1,855
Sealed source and supply agreements	208,919		107,561
Other	4,517		2,905
Total finite-lived intangible assets	967,350		655,562

Indefinite-lived intangible assets
Regulatory licenses and other(a)	78,684		—
Trade names / trademarks	25,846		—
Total indefinite-lived intangible assets	104,530		—
Total	$	1,071,880	$	655,562

(a)Includes certain transportation certifications, a class 1B nuclear license and other intangibles related to obtaining such licensure. These assets are considered indefinite-lived as the decision for renewal by the Canadian Nuclear Safety Commission is highly based on a licensee’s previous assessments, reported incidents, and annual compliance and inspection results. New applications for license can take a significant amount of time and cost; whereas an existing licensee with a historical record of compliance and current operating conditions more than likely ensures renewal for another 10-year license period as Nordion has demonstrated over its 75 years of history.

Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.

Amortization expense for finite-lived intangible assets was $19.8 million and $20.5 million for the three months ended June 30, 2024 and 2023, respectively. $15.4 million and $16.1 million was included in “Amortization of intangible assets” in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended June 30, 2024 and 2023, respectively, whereas the remainder was included in “Cost of revenues.”

Amortization expense for finite-lived intangible assets was $39.9 million and $41.1 million for the six months ended June 30, 2024 and 2023, respectively. $31.1 million and $32.3 million was included in “Amortization of intangible assets” in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023, respectively.

The estimated aggregate amortization expense for finite-lived intangible assets for each of the next five years and thereafter is as follows:


(thousands of U.S. dollars)
For the remainder of 2024	$	39,468
2025	42,138
2026	22,039
2027	20,962
2028	20,414
Thereafter	120,997
Total	$	266,018

The weighted-average remaining useful life of the finite-lived intangible assets was approximately nine years as of June 30, 2024.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

7.Accrued Liabilities

Accrued liabilities consisted of the following:


(thousands of U.S. dollars)
	June 30, 2024		December 31, 2023
Accrued employee compensation	$	30,352	$	35,037
Georgia EO litigation settlement reserve	—		35,000
Illinois EO litigation settlement reserve	—		288
Other legal reserves	370		1,480
Accrued interest expense	6,422		26,681
Embedded derivatives	2,508		414
Professional fees	17,367		12,691
Accrued utilities	1,924		2,056
Insurance accrual	3,248		2,922
Accrued taxes	2,337		2,407
Other	4,526		3,495
Accrued liabilities	$	69,054	$	122,471

8.Long-Term Debt

Long-term debt consisted of the following:


(thousands of U.S. dollars)
As of June 30, 2024	Gross Amount		Unamortized Debt Issuance Costs		Unamortized Debt Discount		Net Amount
Secured notes due 2031	$	750,000	$	(3,996)	$	—	746,004
Term loan due 2031	1,509,350		(7,002)		(23,742)		1,478,606
	2,259,350		(10,998)		(23,742)		2,224,610
Less current portion	11,320		(51)		(177)		11,092
Long-term debt	$	2,248,030	$	(10,947)	$	(23,565)	$	2,213,518


(thousands of U.S. dollars)
As of December 31, 2023	Gross Amount		Unamortized Debt Issuance Costs		Unamortized Debt Discount		Net Amount
Term loan, due 2026	$	1,763,100	$	(1,606)	$	(10,298)	1,751,196
Term loan B, due 2026	497,500		(7,616)		(12,609)		477,275
	2,260,600		(9,222)		(22,907)		2,228,471
Less current portion	5,000		(76)		(127)		4,797
Long-term debt	$	2,255,600	$	(9,146)	$	(22,780)	$	2,223,674

Debt Facilities

Senior Secured Credit Facilities

On December 13, 2019, Sotera Health Holdings, LLC (“SHH”), our wholly owned subsidiary, entered into senior secured first lien credit facilities (the “Senior Secured Credit Facilities”), consisting of both a prepayable senior secured first lien term loan (the “Term Loan”) and a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) pursuant to a first lien credit agreement (the “Credit Agreement”). The total borrowing capacity under the Revolving Credit Facility is $423.8 million. The Senior Secured Credit Facilities also provide SHH the right at any time and under certain conditions to request

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

incremental term loans or incremental revolving credit commitments based on a formula defined in the Senior Secured Credit Facilities.

On May 30, 2024, the Company and SHH entered into Amendment No. 4 (“Amendment No. 4”) to the Senior Secured Credit Facilities. Among other changes, Amendment No. 4 provides for term loans (the “Refinancing Term Loans”) to SHH in an aggregate principal amount of $1,509.4 million. Pursuant to Amendment No. 4, the Refinancing Term Loans shall have an applicable interest rate margin per annum equal to (i) ABR plus 2.25% for ABR Loans (as defined in the Credit Agreement), (ii) daily simple SOFR plus 3.25% for RFR Loans (as defined in the Credit Agreement) and (iii) Term SOFR plus 3.25% for Term Benchmark Loans (as defined in the Credit Agreement), in each case with a 0.00% applicable floor and the applicable interest rate margin shall be subject to a pricing step-down of 0.25% when the Senior Secured Leverage Ratio (as defined in the Credit Agreement) is less than or equal to 3.30:1.00. The Refinancing Term Loans are also subject to a “soft call” premium of 1.00% for certain repricing transactions with respect to the Refinancing Term Loans that occur within the six-month period after the effective date of Amendment No. 4. The Refinancing Term Loans amortize at a rate of 1.00% per annum and mature on May 30, 2031. The weighted average interest rate on borrowings under the Refinancing Term Loans for the three months ended June 30, 2024 was 8.58%.

On May 30, 2024, SHH, the Company and certain subsidiaries of the Company (the “Guarantors”), and Wilmington Trust, National Association, as trustee, paying agent, registrar, transfer agent and notes collateral agent, entered into an indenture (the “Indenture”) governing SHH’s newly issued $750.0 million aggregate principal amount of 7.375% senior secured notes due 2031 (the “Secured Notes”). The Secured Notes will pay interest semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024, at a rate of 7.375% per year, and will mature on June 1, 2031. The Secured Notes may be redeemed, at any time or from time to time, in whole or in part, on or after June 1, 2027 at the redemption prices specified in the Indenture, together with accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. At any time or from time to time, prior to June 1, 2027, the Secured Notes may be redeemed, in whole or in part, at a redemption price equal to 100% of the aggregate principal amount thereof plus a make-whole premium, together with accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. In addition, at any time or from time to time, prior to June 1, 2027, SHH may redeem up to 40% of the aggregate principal amount of the Secured Notes (including any additional Secured Notes issued under the Indenture) with an amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 107.375% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Further, at any time or from time to time, on or before June 1, 2027, SHH may redeem up to 10% of the then outstanding aggregate principal amount of Secured Notes (including any additional Secured Notes issued under the Indenture) during each of the twelve-month periods after the issue date, at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date.

The obligations under the Indenture are secured pursuant to a security agreement, dated as of May 30, 2024, by and among SHH, the Company, the other grantors party thereto, and Wilmington Trust, National Association (the “Security Agreement”), as may be amended from time to time, and related financing statements.

The Company used the combined net proceeds from the Refinancing Terms Loans and Secured Notes, along with cash on hand, to refinance its existing $1,763.1 million Term Loan due 2026 and $496.3 million Term Loan B due 2026.

On March 1, 2024, the Company and SHH entered into Amendment No. 3 (“Amendment No. 3”) to the Revolving Credit Facility. Among other changes, Amendment No. 3 provides (i) for new commitments under the existing Revolving Credit Facility to replace the existing revolving commitments in an aggregate principal amount of $83.0 million, (ii) that certain of the lenders providing revolving credit commitments shall also provide additional commitments for the issuance of letters of credit under the Revolving Credit Facility in an aggregate principal amount of $37.5 million and (iii) for the extension of the maturity date of the Revolving Credit Facility to March 1, 2029.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

The Senior Secured Credit Facilities and the Indenture contain additional covenants that, among other things, restrict, subject to certain exceptions, limitations and qualifications, our ability and the ability of our restricted subsidiaries to engage in certain activities, such as incur additional indebtedness or permit to exist any lien on any property or asset now owned or hereafter acquired, as specified in the Senior Secured Credit Facilities and the Indenture. The Senior Secured Credit Facilities and the Indenture also contain certain customary affirmative covenants and events of default, including upon a change of control. In addition, an event of default under the Senior Secured Credit Facilities and the Indenture would occur if the Company or certain of its subsidiaries received one or more enforceable judgments for payment in an aggregate amount in excess of the greater of (i) $162.6 million or (ii) 30.0% of consolidated EBITDA or LTM EBITDA (as defined in the Credit Agreement and the Indenture, respectively) and the judgments were not stayed or remained undischarged for a period of 60 consecutive days. As of June 30, 2024, we were in compliance with all of the covenants under the Senior Secured Credit Facilities and the Indenture.

All of SHH’s obligations under the Senior Secured Credit Facilities and the Indenture are unconditionally guaranteed by the Company and each existing and subsequently acquired or organized direct or indirect wholly owned domestic restricted subsidiary of the Company, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in material adverse tax consequences. All obligations under the Senior Secured Credit Facilities and the Indenture, and the guarantees of such obligations, are secured by substantially all assets of the borrower and guarantors, subject to permitted liens and other exceptions and exclusions, as outlined in the Senior Secured Credit Facilities, the Indenture and the Security Agreement.

Outstanding letters of credit are collateralized by encumbrances against the Revolving Credit Facility and the collateral pledged thereunder, or by cash placed on deposit with the issuing bank. As of June 30, 2024, the Company had $23.7 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $400.1 million.

Term Loan Interest Rate Risk Management

The Company utilizes interest rate derivatives to reduce the variability of cash flows in the interest payments associated with our variable rate debt due to changes in SOFR. For additional information on the derivative instruments described above, refer to Note 15, “Financial Instruments and Financial Risk”, “Derivative Instruments.”

Aggregate Maturities

Aggregate maturities of the Company’s long-term debt, excluding debt discounts, as of June 30, 2024, are as follows:


(thousands of U.S. dollars)
2024	$	3,773
2025	15,094
2026	15,094
2027	15,094
2028	15,094
Thereafter	2,195,201
Total	$	2,259,350

9.Income Taxes

Income tax expense is provided on an interim basis based upon our estimate of the annual effective income tax rate. In determining the estimated annual effective income tax rate, we analyze various factors, including projections of our annual earnings and the taxing jurisdictions where the earnings will occur, the impact of state and local taxes, our ability to utilize tax credits and net operating loss carryforwards and available tax planning alternatives. Our effective tax rates were 42.2% and 42.4% for the three and six months ended June 30, 2024, respectively, compared to 31.8% and 33.9% for the three and six months ended June 30, 2023, respectively.

Income tax expense for the three and six months ended June 30, 2024 differed from the statutory rate primarily due to the valuation allowance attributable to the limitation on the deductibility of interest expense and the impact of the foreign rate

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

differential, partially offset by a benefit for state income taxes. Income tax expense for the three and six months ended June 30, 2023 differed from the statutory rate primarily due to a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense, the impact of the foreign rate differential, and global intangible low-tax income (“GILTI”). Income tax expense for the six months ended June 30, 2023 was also favorably impacted by a benefit for state income taxes.

10.Employee Benefits

The Company sponsors various post-employment benefit plans including, in certain countries outside the U.S., defined benefit and defined contribution pension plans, retirement compensation arrangements, and plans that provide extended health care coverage to retired employees, the majority of which relate to Nordion.

Defined benefit pension plan

The following defined benefit pension plan disclosure relates to Nordion. Certain immaterial foreign defined benefit pension plans have been excluded from the table below. The interest cost, expected return on plan assets and amortization of net actuarial gain are recorded in “Other income, net” and the service cost component is included in the same financial statement line item as the applicable employee’s wages in the Consolidated Statements of Operations and Comprehensive Income (Loss). The components of net periodic pension benefit for the defined benefit plan for the three and six months ended June 30, 2024 and 2023 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(thousands of U.S. dollars)	2024		2023		2024		2023
Service cost	$	142	$	132	$	287	$	263
Interest cost	2,612		2,742		5,263		5,466
Expected return on plan assets	(3,961)		(4,046)		(7,980)		(8,065)
Net periodic benefit	$	(1,207)	$	(1,172)	$	(2,430)	$	(2,336)

Other benefit plans

Other benefit plans disclosed below relate to Nordion and include a supplemental retirement arrangement, a retirement and termination allowance, and post-retirement benefit plans, which include contributory health and dental care benefits and contributory life insurance coverage. Certain immaterial other foreign benefit plans have been excluded from the table below. All but one non-pension post-employment benefit plans are unfunded. The components of net periodic benefit cost for the other benefit plans for the three and six months ended June 30, 2024 and 2023 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(thousands of U.S. dollars)	2024		2023		2024		2023
Service cost	$	2	$	2	$	5	$	4
Interest cost	85		90		171		180
Amortization of net actuarial gain	(33)		(44)		(66)		(88)
Net periodic benefit cost	$	54	$	48	$	110	$	96

The Company currently has no funding requirements as the Nordion pension plan has a going concern surplus as defined by Canadian federal regulation, which requires solvency testing on defined benefit pension plans on an annual basis.

The Company may obtain a qualifying letter of credit for solvency payments, up to 15% of the market value of solvency liabilities as determined on the valuation date, instead of paying cash into the pension fund. As of June 30, 2024 and December 31, 2023, we had letters of credit outstanding relating to the defined benefit plans totaling $15.9 million and $16.0 million, respectively. The actual funding requirements over the five-year period will be dependent on subsequent annual actuarial valuations. These amounts are estimates, which may change with actual investment performance, changes in interest rates, any pertinent changes in Canadian government regulations and any voluntary contributions.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

11.Other Comprehensive Income (Loss)

Amounts in accumulated other comprehensive income (loss) are presented net of the related tax. Foreign currency translation is not adjusted for income taxes.

Changes in our accumulated other comprehensive income (loss) balances, net of applicable tax, were as follows:


(thousands of U.S. dollars)	Defined Benefit Plans			Foreign Currency Translation		Interest Rate Derivatives			Total
Beginning balance – April 1, 2024	$	(7,184)		$	(118,737)	$	6,065		$	(119,856)
Other comprehensive income (loss) before reclassifications	63			(23,110)		1,177			(21,870)
Amounts reclassified from accumulated other comprehensive income (loss)	(33)		(a)	—		(3,638)		(b)	(3,671)
Net current-period other comprehensive income (loss)	30			(23,110)		(2,461)			(25,541)
Ending balance – June 30, 2024	$	(7,154)		$	(141,847)	$	3,604		$	(145,397)

Beginning balance – January 1, 2024	$	(7,297)		$	(91,031)	$	5,646		(92,682)
Other comprehensive income (loss) before reclassifications	209			(50,816)		5,228			(45,379)
Amounts reclassified from accumulated other comprehensive income (loss)	(66)		(a)	—		(7,270)		(b)	(7,336)
Net current-period other comprehensive income (loss)	143			(50,816)		(2,042)			(52,715)
Ending balance – June 30, 2024	$	(7,154)		$	(141,847)	$	3,604		$	(145,397)


(thousands of U.S. dollars)	Defined Benefit Plans			Foreign Currency Translation		Interest Rate Derivatives		Total
Beginning balance – April 1, 2023	$	3,158		$	(119,948)	$	12,092	$	(104,698)
Other comprehensive income (loss) before reclassifications	62			21,374		10,950		32,386
Amounts reclassified from accumulated other comprehensive income (loss)	(44)		(a)	—		(6,948)		(6,992)
Net current-period other comprehensive income (loss)	18			21,374		4,002		25,394
Ending balance – June 30, 2023	$	3,176		$	(98,574)	$	16,094	$	(79,304)

Beginning balance – January 1, 2023	$	3,209		$	(131,205)	$	21,343	$	(106,653)
Other comprehensive income (loss) before reclassifications	55			32,631		8,555		41,241
Amounts reclassified from accumulated other comprehensive income (loss)	(88)		(a)	—		(13,804)		(13,892)
Net current-period other comprehensive income (loss)	(33)			32,631		(5,249)		27,349
Ending balance – June 30, 2023	$	3,176		$	(98,574)	$	16,094	$	(79,304)

(a)For defined benefit pension plans, amounts reclassified from accumulated other comprehensive income (loss) are recorded to “Other income, net” within the Consolidated Statements of Operations and Comprehensive Income (Loss).

(b)For interest rate derivatives, amounts reclassified from accumulated other comprehensive income (loss) are recorded to “Interest expense, net” within the Consolidated Statements of Operations and Comprehensive Income (Loss).

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

12.Share-Based Compensation

Pre-IPO Awards

Restricted stock distributed in respect of pre-IPO Class B-1 time vesting units vests on a daily basis pro rata over a five-year vesting period (20% per year) beginning on the original vesting commencement date of the corresponding Class B-1 time vesting units, subject to the grantee’s continued services through each vesting date. Upon the occurrence of a change in control of the Company, all then outstanding unvested shares of our common stock distributed in respect of Class B-1 Units will vest as of the date of consummation of such change in control, subject to the grantee’s continued services through the consummation of the change in control.

Restricted stock distributed in respect of pre-IPO Class B-2 Units were considered performance vesting units. The required performance threshold for the vesting of B-2 restricted stock is the first date on which (i) our Sponsors have received actual cash proceeds in an amount equal to or in excess of at least two and one-half times their invested capital in Sotera Health Topco Parent, L.P. (of which the Company was a direct wholly owned subsidiary prior to the IPO) and (ii) the Sponsors’ internal rate of return exceeds 20%, subject to such grantee’s continued services through such date. Both performance thresholds were satisfied on March 4, 2024 and, as a result, all outstanding B-2 Units fully vested as of that date. Stock based compensation expense attributed to the pre-IPO Class B-2 awards was recorded in the fourth quarter of 2020 as the related performance conditions were considered probable of achievement and the implied service conditions were met.

We recognized $0.4 million and $0.5 million of share-based compensation expense related to the pre-IPO Class B-1 awards for the three months ended June 30, 2024 and 2023, respectively, and $0.8 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

A summary of the activity for the six months ended June 30, 2024 related to the restricted stock awards distributed in respect of the pre-IPO awards (Class B-1 and B-2 Units) is presented below:


	Restricted Stock - Pre- IPO B-1	Restricted Stock - Pre- IPO B-2
Unvested at December 31, 2023	352,447	987,111
Forfeited	(2,650)	—
Vested	(144,795)	(987,111)
Unvested at June 30, 2024	205,002	—

2020 Omnibus Incentive Plan

We maintain a long-term incentive plan (the “2020 Omnibus Incentive Plan” or the “2020 Plan”) that allows for grants of incentive stock options to employees (including employees of any of our subsidiaries), nonstatutory stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and other cash-based, equity-based or equity-related awards to employees, directors, and consultants, including employees or consultants of our subsidiaries.

We recognized $9.8 million ($4.6 million for stock options and $5.2 million for RSUs) and $7.9 million ($3.7 million for stock options and $4.2 million for RSUs) of share-based compensation expense for these awards for the three months ended June 30, 2024 and 2023, respectively. We recognized $18.1 million ($8.6 million for stock options and $9.5 million for RSUs) and $14.7 million ($6.8 million for stock options and $7.9 million for RSUs) for the six months ended June 30, 2024 and 2023, respectively, in our Consolidated Statements of Operations and Comprehensive Income (Loss), in “Selling, general and administrative expenses.”

Stock Options

Stock options generally vest ratably over a period of two to four years. They have an exercise price equal to the fair market value of a share of common stock on the date of grant, and a contractual term of 10 years. The following table summarizes our stock option activity for the six months ended June 30, 2024:

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements


	Number of Shares	Weighted-average Exercise Price
At December 31, 2023	6,972,661	$	15.17
Granted	1,586,669	14.56
Forfeited	(80,751)	19.45

At June 30, 2024	8,478,579	$	15.02

As of June 30, 2024, there were 4.2 million vested and exercisable stock options.

RSUs

RSUs generally vest ratably over a period of one to four years and are valued based on our market price on the date of grant. The following table summarizes our unvested RSUs activity for the six months ended June 30, 2024:


	Number of Shares	Weighted-average Grant Date Fair Value
Unvested at December 31, 2023	2,298,836	$	13.81
Granted	1,181,863	13.98
Forfeited	(48,125)	15.05
Vested	(538,939)	17.55
Unvested at June 30, 2024	2,893,635	$	13.16

13.Earnings Per Share

Basic earnings per share represents the amount of income attributable to each common share outstanding. Diluted earnings per share represents the amount of income attributable to each common share outstanding adjusted for the effects of potentially dilutive common shares. Potentially dilutive common shares include stock options and other stock-based awards. In the periods where the effect would be antidilutive, potentially dilutive common shares are excluded from the calculation of diluted earnings per share.

In periods in which the Company has net income, earnings per share is calculated using the two-class method. This method is required as unvested restricted stock distributed in respect of pre-IPO Class B-1 and B-2 awards have the right to receive non-forfeitable dividends or dividend equivalents if the Company were to declare dividends on its common stock. Pursuant to the two-class method, earnings for each period are allocated on a pro-rata basis to common stockholders and unvested pre-IPO Class B-1 and B-2 restricted stock awards. As of March 4, 2024, the performance threshold applicable to all Class B-2 restricted stock awards were fully satisfied, thereby releasing the vesting and forfeiture restrictions on these common shares. Beginning on that date, B-2 restricted stock was not included in the earnings allocation. Diluted earnings per share is computed using the more dilutive of (a) the two-class method, or (b) treasury stock method, as applicable, to the potentially dilutive instruments.

Our basic and diluted earnings per common share are calculated as follows:

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements


	Three Months Ended				Six Months Ended
in thousands of U.S. dollars and share amounts (except per share amounts)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Earnings:
Net income	$	8,754	$	23,513	$	15,077	$	26,355
Less: Allocation to participating securities	7		137		33		159
Net income attributable to Sotera Health Company common shareholders	$	8,747	$	23,376	$	15,044	$	26,196
Weighted Average Common Shares:
Weighted-average common shares outstanding - basic	282,894		280,893		282,403		280,793
Dilutive effect of potential common shares	1,647		2,254		1,861		2,247
Weighted-average common shares outstanding - diluted	284,541		283,147		284,264		283,040
Earnings per Common Share:
Net income per common share attributable to Sotera Health Company common shareholders - basic	$	0.03	$	0.08	$	0.05	$	0.09
Net income per common share attributable to Sotera Health Company common shareholders - diluted	0.03		0.08		0.05		0.09

Diluted earnings per share does not consider the following potential common shares as the effect would be anti-dilutive:


	Three Months Ended		Six Months Ended
in thousands of share amounts	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
Stock options	5,776	4,283	5,248	3,928
RSUs	1,800	1,308	1,583	1,138
Total anti-dilutive securities	7,576	5,591	6,831	5,066

14.Commitments and Contingencies

From time to time, we may be subject to various lawsuits and other claims, as well as gain contingencies, in the ordinary course of our business. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate. We assess these regulatory and legal actions to determine if a contingent liability should be recorded. In making these determinations, we may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts.

We establish reserves for specific liabilities in connection with regulatory and legal actions that we determine to be both probable and reasonably estimable. The outcomes of regulatory and legal actions can be difficult to predict and are often resolved over long periods of time, making our probability and estimability determinations highly judgmental. Probability determinations require the analysis of various possible outcomes, assessments of potential damages and the impact of multiple factors beyond our control, including potential actions by others, interpretations of the law, and changes and developments in relevant facts, circumstances, regulations and other laws. If a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability is disclosed, together with an estimate of the range of possible loss if the range is determinable and material. In certain of the matters described below, we are not able to estimate potential liability because of the uncertainties related to the outcome(s) and/or the amount(s) or range(s) of loss. The ultimate resolution of pending regulatory and legal matters in future periods, including the matters described below, may have a material adverse effect on our financial condition, results of operations and/or liquidity. The Company may also incur material defense and settlement costs, diversion of management resources and other adverse effects on our business, financial condition, and/or results of operations.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

Ethylene Oxide Tort Litigation

Sterigenics U.S., LLC (“Sterigenics”) and other medical supply sterilization companies have been subjected to tort lawsuits alleging various injuries caused by low-level environmental exposure to EO used at or emitted from sterilization facilities. Those lawsuits, as detailed further below, are individual claims, as opposed to class actions.

Illinois

Subsidiaries of the Company and other parties are defendants in approximately 40 lawsuits in Illinois in which plaintiffs allege personal injuries or wrongful death resulting from purported emissions and releases of EO from Sterigenics’ former Willowbrook facility (the “Willowbrook Cases”). The Willowbrook Cases are pending in the Circuit Court of Cook County and have been assigned to a single judge for coordinated discovery and pretrial proceedings.

We intend to vigorously defend the Willowbrook Cases.

Georgia

Subsidiaries of the Company and other parties are defendants in lawsuits in Georgia in which plaintiffs allege personal injuries, wrongful death and property devaluation resulting from use, emissions and releases of EO from or at Sterigenics’ Atlanta facility (the “Atlanta Cases”).

Approximately 280 personal injury and wrongful death claims are pending in the State Court of Cobb County and have been consolidated for pretrial purposes (the “Consolidated Personal Injury Cases”). The Consolidated Personal Injury Cases are proceeding under a case management order pursuant to which a “pool” of eight cases will proceed to judicial determination of general causation issues in Phase 1 and specific causation issues in Phase 2; the first trial of any “pool” case that survives Phases 1 and 2 is not expected to begin before September 2025. The remaining Consolidated Personal Injury Cases (including nine cases that include both personal injury and property claims) are stayed. Two additional personal injury lawsuits pending in Cobb County have not been consolidated. The parties have jointly asked the court to stay one of these cases along with the stayed cases in the Consolidated Personal Injury Cases. In the other case, employees of a sterilization customer of Sterigenics allege they were injured while working at the customer’s distribution facility by exposure to residual EO allegedly emanating from products of the customer that had been sterilized at Sterigenics’ Atlanta facility; discovery is underway and, pursuant to the customer’s contract with Sterigenics, the customer is indemnifying Sterigenics against this lawsuit.

Subsidiaries of the Company are also defendants in approximately 365 property devaluation lawsuits pending in the State Court of Cobb County that have been consolidated for pretrial purposes (the “Consolidated Property Cases”). Nine of the Consolidated Property Cases are proceeding under case management orders and the remaining cases are stayed.

We intend to vigorously defend the Atlanta Cases.

California

Subsidiaries of the Company and other parties are defendants in two lawsuits in Los Angeles County Superior Court in which plaintiffs allege personal injuries and wrongful death resulting from emissions and releases of EO from Sterigenics’ Vernon facilities (the “Vernon Cases”). The lawsuits remain in preliminary stages.

We intend to vigorously defend the Vernon Cases.

New Mexico

The Company and certain subsidiaries are defendants in a lawsuit in the Third Judicial District Court, Doña Ana County, New Mexico in which the New Mexico Attorney General ( “NMAG”) alleges that emissions and releases of EO from Sterigenics’ facility in Santa Teresa have deteriorated the air quality in surrounding communities and materially contributed to increased health risks for residents of those communities. In April 2024, the Court of Appeals of the State of New Mexico denied the NMAG’s petition for leave to file an interlocutory appeal of the August 2023 order granting Sterigenics’ motion for summary

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

judgment on strict liability, the Unfair Practices Act claim, and the claims for decreased property values, increased healthcare costs and medical monitoring costs. The case has been remanded to the District Court of Doña Ana County for further proceedings on the remaining claims. The case is set for trial in July 2026. A defense motion challenging the Court’s jurisdiction over Sotera Health Company and another defendant remains pending.

The Company, Sterigenics and certain other subsidiaries are also defendants in a lawsuit pending in the United States District Court for the District of New Mexico alleging wrongful death resulting from purported exposure to EO used, emitted and released from Sterigenics’ facility in Santa Teresa while the decedent was working at a different company’s facility approximately one mile away. The case is set for trial in October 2025.

We intend to vigorously defend the lawsuits relating to the Santa Teresa facility.

* * *

Additional EO tort lawsuits may be filed in the future against the Company and/or its subsidiaries relating to Sterigenics’ Willowbrook, Atlanta, Santa Teresa, Vernon or other EO facilities. Based on our view of the strength of the science and related evidence that emissions of EO from Sterigenics’ operations have not caused and could not have caused the harms alleged in such lawsuits, we believe that losses in the remaining or future EO cases are not probable. Although the Company intends to defend itself vigorously on the merits, future settlements of EO tort lawsuits are reasonably possible. The Willowbrook and Atlanta Settlements (as previously defined in Note 20, Commitments and Contingencies of our 2023 10-K) were driven by dynamics unique to the cases that were settled and thus should not give rise to presumptions that the Company will settle additional EO tort lawsuits and/or that any such settlements will be for comparable amounts.

Potential trial and settlement outcomes can vary widely based a host of factors. EO tort lawsuits will be presided over by different judges, tried by different counsel presenting different evidence and decided by different juries. The substantive and procedural laws of jurisdictions vary and can meaningfully impact the litigation process and outcome of a case. Each plaintiff’s claim involves unique facts and evidence including the circumstances of the plaintiff’s alleged exposure, the type and severity of the plaintiff’s disease, the plaintiff’s medical history and course of treatment, the location of and other factors related to the plaintiff’s real property, and other circumstances. The outcomes of trials before juries are rarely certain and a judgment rendered or settlement reached in one case is not necessarily representative of potential outcomes of other seemingly comparable cases. As a result, it is not possible to estimate a reasonably possible loss or range of loss with respect to any future EO tort lawsuit, trial or settlement.

Insurance Coverage for Environmental Liabilities

An environmental liability insurance policy under which we have received coverage for the EO tort lawsuits in Illinois, Georgia and New Mexico described above had limits of $10.0 million per occurrence and $20.0 million in the aggregate. Those per occurrence and aggregate limits were fully utilized in the defense of the Illinois, Georgia and New Mexico litigation. Our insurance for future alleged environmental liabilities excludes coverage for EO claims.

We are pursuing additional insurance coverage for our legal expenses related to EO tort lawsuits like the Illinois, Georgia, California and New Mexico matters described above. In 2021, Sterigenics filed an insurance coverage lawsuit in the U.S. District Court for the Northern District of Illinois relating to two commercial general liability policies issued in the 1980s (the “Northern District of Illinois Coverage Lawsuit”). The court issued an order declaring that the defendant insurer owes Sterigenics and another insured party a duty to defend the Willowbrook Cases (the “Duty to Defend Order”) and entered judgment for Sterigenics in January 2024 in the amount of $110.2 million for certain defense costs incurred in the Willowbrook Cases as of August 2022 (the “Defense Costs Judgment”). The defendant insurer has appealed the Duty to Defend Order and Defense Costs Judgment. Sterigenics is also a party in insurance coverage lawsuits pending in the Circuit Court of Cook County, Illinois and the Delaware Superior Court relating to insurance coverage from various historical commercial general liability policies for certain EO litigation settlement amounts and defense costs that the insurer in the Northern District of Illinois Coverage Lawsuit may fail to fund. The Delaware Superior Court case is stayed pending resolution of the coverage lawsuit in the Circuit Court of Cook County, Illinois. It is not possible to predict how much, if any, of the insurance proceeds sought will ultimately be recovered.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

Sotera Health Company Securities Litigation & Related Matters

In January 2023, a stockholder class action was filed in the U.S. District Court for the Northern District of Ohio against the Company, certain past and present directors and senior executives, the Company’s private equity stockholders and the underwriters of the Company’s initial public offering (“IPO”) in November 2020 and the Company’s secondary public offering (“SPO”) in March 2021 (the “Michigan Funds Litigation”). In April 2023, the court appointed the Oakland County Employees’ Retirement System, Oakland County Voluntary Employees’ Beneficiary Association, and Wayne County Employees’ Retirement System (the “Michigan Funds”) to serve as lead plaintiff to prosecute claims on behalf of a proposed class of stockholders who acquired shares of the Company in connection with our IPO or SPO or between November 20, 2020 and September 19, 2022 (the “Proposed Class”). The Michigan Funds allege that statements made regarding the safety of the Company’s use of EO and/or its EO tort lawsuits and other risks of its EO operations violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (when made in the registration statements for the IPO and SPO) and Sections 10(b), Section 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 (when made in subsequent securities filings and other contexts). Defendants have moved to dismiss the Amended Complaint and that motion remains pending.

The Company has also received demands pursuant to 8 Del. C. §220 for inspections of its books and records (“220 Demands”) from shareholders purporting to investigate potential wrongdoing by Company fiduciaries and other issues. The Company has produced documents in response to the 220 Demands and may produce additional documents.

In May 2024, a stockholder derivative lawsuit was filed in the Court of Chancery of the State of Delaware for the benefit of the Company as the nominal defendant (“the May 2024 Derivative Litigation”). The May 2024 Derivative Litigation plaintiffs allege breaches of fiduciary duties, insider trading, unjust enrichment and other violations by certain past and present directors and senior executives of the Company and the Company’s private equity stockholders. On June 25, 2024, the court stayed the May 2024 Derivative Litigation pending a ruling on the merits on the motion to dismiss the Amended Complaint in the Michigan Funds Litigation.

The Company believes that the allegations and claims in the Michigan Funds Litigation, 220 Demands and May 2024 Derivative Litigation are without merit, and plans to vigorously defend the Michigan Funds Litigation and May 2024 Derivative Litigation.

15.Financial Instruments and Financial Risk

Derivative Instruments

We do not use derivatives for trading or speculative purposes and are not a party to leveraged derivatives.

Derivatives Designated in Hedge Relationships

From time to time, the Company utilizes interest rate derivatives designated in hedge relationships to manage interest rate risk associated with our variable rate borrowings. These instruments are measured at fair value with changes in fair value recorded as a component of “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets.

In March 2023, we entered into an interest rate swap agreement with a notional amount of $400.0 million. The interest rate swap was effective on August 23, 2023 and expires on August 23, 2025. We have designated the interest rate swap as a cash flow hedge designed to hedge the variability of cash flows attributable to changes in the SOFR benchmark interest rate of our variable rate borrowings. We receive interest at the one-month Term SOFR rate and pay a fixed interest rate under the terms of the swap agreement.

In May 2022, we entered into two interest rate cap agreements with a combined notional amount of $1,000.0 million for a total option premium of $4.1 million. The interest rate caps became effective as of July 31, 2023 and expired on July 31, 2024. We designated these interest rate caps as cash flow hedges designed to hedge the variability of cash flows attributable to changes in the benchmark interest rate of our variable rate borrowings. Accordingly, the interest rate cap agreements hedged the variability of cash flows attributable to changes in SOFR by limiting our cash flow exposure related to Term SOFR under a portion of our variable rate borrowings to 3.5%.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

In October 2021, we entered into two interest rate cap agreements with a combined notional amount of $1,000.0 million for a total option premium of $1.8 million. Both interest rate caps were effective on December 31, 2022 and expired on July 31, 2023. These interest rate caps were designated as cash flow hedges designed to hedge the variability of cash flows attributable to changes in LIBOR (or its successor), the benchmark interest rate being hedged, by limiting our cash flow exposure related to the LIBOR base rate under a portion of our variable rate borrowings to 1.0%.

Derivatives Not Designated in Hedge Relationships

Additionally, from time to time, the Company enters into interest rate derivatives to manage economic risks associated with our variable rate borrowings that are not designated in hedge relationships. These instruments are recorded at fair value on the Consolidated Balance Sheets, with any changes in the value recorded in “Interest expense, net” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company also routinely enters into foreign currency forward contracts to manage foreign currency exchange rate risk of our intercompany loans in certain of our international subsidiaries and non-functional currency assets and liabilities. The foreign currency forward contracts expire on a monthly basis.

Embedded Derivatives

We have embedded derivatives in certain of our customer and supply contracts as a result of the currency of the contract being different from the functional currency of the parties involved. Changes in the fair value of the embedded derivatives are recognized in “Other expense (income), net” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table provides a summary of the notional and fair values of our derivative instruments:


	June 30, 2024							December 31, 2023
(in U.S. Dollars; notional in millions, fair value in thousands)				Fair Value						Fair Value
	Notional Amount			Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments
Interest rate caps	$	1,000.0		$	1,528	—		$	1,000.0	$	8,763	$	—
Interest rate swaps	400.0			3,817		—		400.0		1,487		—
Derivatives not designated as hedging instruments
Foreign currency forward contracts	$	204.4		$	84	$	17	$	171.0	$	149	$	9
Embedded derivatives	136.7		(a)	1,571		2,508		150.1		1,225		405
Total	$	1,741.1		$	7,000	$	2,525	$	1,721.1	$	11,624	$	414

(a)Represents the total notional amounts for certain of the Company’s supply and sales contracts accounted for as embedded derivatives.

Embedded derivative assets/liabilities and foreign currency forward contracts are included in “Prepaid expenses and other current assets” and “Accrued liabilities” on our Consolidated Balance Sheets depending upon their position at period end. Interest rate swaps and interest rate caps are included in “Other assets”, and “Noncurrent liabilities”, respectively, on the Consolidated Balance Sheets depending upon their position at period end.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

The following table summarizes the activities of our derivative instruments for the periods presented, and the line item in which they are recorded in the Consolidated Statements of Operations and Comprehensive Income (Loss):


(thousands of U.S. dollars)	Three Months Ended June 30,		Six Months Ended June 30,
	2024	2023	2024	2023
Realized gain on interest rate derivatives recorded in interest expense, net(a)	(4,906)	(9,400)	(9,802)	(18,571)
Unrealized loss (gain) on embedded derivatives recorded in other expense (income), net	(83)	(973)	1,750	(747)
Realized loss (gain) on foreign currency forward contracts recorded in foreign exchange (gain) loss	1,499	(2,393)	5,507	(1,944)
Unrealized loss (gain) on foreign currency forward contracts recorded in foreign exchange (gain) loss	653	—	73	(282)

(a) Amounts primarily represent quarterly settlement of interest rate caps and swaps.

We expect to reclassify approximately $4.8 million of pre-tax net gains on derivative instruments from accumulated other comprehensive income (loss) to income during the next 12 months associated with our cash flow hedges. Refer to Note 11, “Other Comprehensive Income (Loss)” for unrealized gains on interest rate derivatives, net of applicable tax, recorded in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income to interest expense, net of applicable tax, during the three and six months ended June 30, 2024.

Credit Risk

Certain of our financial assets, including cash and cash equivalents, are exposed to credit risk.

We are also exposed, in our normal course of business, to credit risk from our customers. As of June 30, 2024 and December 31, 2023, accounts receivable was net of an allowance for uncollectible accounts of $3.1 million and $4.7 million, respectively.

Credit risk on financial instruments arises from the potential for counterparties to default on their contractual obligations to us. We are exposed to credit risk in the event of non-performance, but do not anticipate non-performance by any of the counterparties to our financial instruments. We limit our credit risk by dealing with counterparties that are considered to be of high credit quality. In the event of non-performance by counterparties, the carrying value of our financial instruments represents the maximum amount of loss that would be incurred.

Our credit team evaluates and regularly monitors changes in the credit risk of our customers. We routinely assess the collectability of accounts receivable and maintain an adequate allowance for uncollectible accounts to address potential credit losses. The process includes a review of customer financial information and credit ratings, current market conditions as well as the expected future economic conditions that may impact the collection of trade receivables. We regularly review our customers’ past due amounts through an analysis of aged accounts receivables, specific customer past due aging amounts, and the history of trade receivables written off. Upon concluding that a receivable balance is not collectible, the balance is written off against the allowance for uncollectible accounts.

Fair Value Hierarchy

The fair value of our financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques we would use to determine such fair values are described as follows: Level 1—fair values determined by inputs utilizing quoted prices in active markets for identical assets or liabilities; Level 2—fair values based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable; Level 3—fair values determined by unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

The following table discloses the fair value of our financial assets and liabilities:


As of June 30, 2024			Fair Value
(thousands of U.S. dollars)	Carrying Amount		Level 1		Level 2		Level 3
Derivatives designated as hedging instruments(a)
Interest rate caps	$	1,528	$	—	$	1,528	$	—
Interest rate swaps	3,817		—		3,817		—
Derivatives not designated as hedging instruments(b)
Foreign currency forward contract assets	84		—		84		—
Foreign currency forward contract liabilities	17		—		17		—
Embedded derivative assets	1,571		—		1,571		—
Embedded derivative liabilities	2,508		—		2,508		—
Current portion of long-term debt(c)
Term loan, due 2031	11,092		—		11,292		—
Long-Term Debt(c)
Senior secured notes, due 2031	746,004		—		749,100		—
Term loan, due 2031	1,467,514		—		1,494,285		—
Finance Lease Obligations (with current portion)(d)	96,285		—		96,285		—


As of December 31, 2023			Fair Value
(thousands of U.S. dollars)	Carrying Amount		Level 1		Level 2		Level 3
Derivatives designated as hedging instruments(a)
Interest rate caps	$	8,763	$	—	$	8,763	$	—
Interest rate swaps	1,487		—		1,487		—
Derivatives not designated as hedging instruments(b)
Foreign currency forward contracts	149		—		149		—
Foreign currency forward liabilities	9		—		9		—
Embedded derivative assets	1,225		—		1,225		—
Embedded derivative liabilities	405		—		405		—
Current portion of long-term debt(c)
Term loan B, due 2026	4,797		—		$	5,000	—
Long-Term Debt(c)
Term loan, due 2026	1,751,197		—		1,758,163		—
Term loan B, due 2026	472,477		—		492,500		—
Finance Lease Obligations (with current portion)(d)	72,564		—		72,564		—

(a)Derivatives designated as hedging instruments are measured at fair value with changes in fair value recorded as a component of accumulated other comprehensive income (loss). Interest rate caps and swaps are valued using pricing models that incorporate observable market inputs including interest rate and yield curves.

(b)Derivatives that are not designated as hedging instruments are measured at fair value with gains or losses recognized immediately in the Consolidated Statements of Operations and Comprehensive Income (Loss). Embedded derivatives are valued using internally developed models that rely on observable market inputs, including foreign currency forward curves. Foreign currency forward contracts are valued by reference to changes in the foreign currency exchange rate over the life of the contract.

(c)Carrying amounts of current portion of long-term debt and long-term debt instruments are reported net of discounts and debt issuance costs. The estimated fair value of these instruments are based upon quoted prices for each Term Loan and the Secured Notes in inactive markets as provided by an independent fixed income security pricing service.

(d)Fair value approximates carrying value.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

16.Segment Information

We identify our operating segments based on the way we manage, evaluate and internally report our business activities for purposes of allocating resources and assessing performance. We have three reportable segments: Sterigenics, Nordion and Nelson Labs. We have determined our reportable segments based upon an assessment of organizational structure, service types, and internally prepared financial statements. Our chief operating decision-maker evaluates performance and allocates resources based on net revenues and segment income after the elimination of intercompany activities. The accounting policies of our reportable segments are the same as those described in Note 1, “Significant Accounting Policies” of the Company’s annual consolidated financial statements and accompanying notes in our 2023 10-K.

Sterigenics

Sterigenics provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets using three major technologies: gamma irradiation, EO processing and E-beam irradiation.

Nordion

Nordion is a leading global provider of Co-60 used in the sterilization and irradiation processes for the medical device, pharmaceutical, food safety, and high-performance materials industries, as well as in the treatment of cancer. In addition, Nordion is a leading global provider of gamma irradiation systems.

Nelson Labs

Nelson Labs provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.

For the three months ended June 30, 2024, three customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented 20.6%, 17.0% and 10.5% of the total segment’s external net revenues for the three months ended June 30, 2024. For the three months ended June 30, 2023, five customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented 31.3%, 13.4%, 12.5%, 10.7% and 10.7% of the total segment’s external net revenues for the three months ended June 30, 2023.

For the six months ended June 30, 2024, four customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented 20.0%, 12.8%, 12.4% and 10.0% of the total segment’s external net revenues for the six months ended June 30, 2024. For the six months ended June 30, 2023, four customers reported within the Nordion segment individually represented 10% or more of the segment’s total net revenues. These customers represented 26.3%, 17.5%, 10.7% and 10.1% of the total segment's external net revenues for the six months ended June 30, 2023.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

Financial information for each of our segments is presented in the following table:


	Three Months Ended June 30,				Six Months Ended June 30,
(thousands of U.S. dollars)	2024		2023		2024		2023
Segment revenues(a)
Sterigenics	$	176,354	$	166,590	$	342,851	$	326,587
Nordion	41,244		31,975		65,251		40,526
Nelson Labs	58,996		56,717		116,668		108,759
Total net revenues	$	276,594	$	255,282	$	524,770	$	475,872
Segment income(b)
Sterigenics	$	96,778	$	91,450	$	182,596	$	174,290
Nordion	23,420		17,784		34,205		19,310
Nelson Labs	17,137		19,251		32,478		33,353
Total segment income	$	137,335	$	128,485	$	249,279	$	226,953

(a)Revenues are reported net of intersegment sales. Our Nordion segment recognized $17.9 million and $14.7 million in revenues from sales to our Sterigenics segment for the three months ended June 30, 2024 and 2023, respectively, and $27.9 million and $17.6 million in revenues from sales to our Sterigenics segment for the six months ended June 30, 2024 and 2023, respectively, that is not reflected in net revenues in the table above. Intersegment sales for Sterigenics and Nelson Labs are immaterial for these periods.

(b)Segment income is only provided on a net basis to the chief operating decision-maker and is reported net of intersegment profits.

Corporate operating expenses for executive management, accounting, information technology, legal, human resources, treasury, investor relations, corporate development, tax, purchasing, and marketing not directly incurred by a segment are allocated to the segments based on total net revenue. Corporate operating expenses that are directly incurred by a segment are reflected in each segment’s income.

Capital expenditures by segment for the six months ended June 30, 2024 and 2023 were as follows:


	Six Months Ended June 30,
(thousands of U.S. dollars)	2024		2023
Sterigenics	$	53,798	$	73,725
Nordion	19,463		16,283
Nelson Labs	3,550		8,126
Total capital expenditures	$	76,811	$	98,134

Total assets and depreciation and amortization expense by segment are not readily available and are not reported separately to the chief operating decision-maker.

Table of Contents

Sotera Health Company

Notes to Consolidated Financial Statements

A reconciliation of segment income to consolidated income before taxes is as follows:


(thousands of U.S. dollars)	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Segment income	$	137,335	$	128,485	$	249,279	$	226,953
Less adjustments:
Interest expense, net(a)	40,388		30,728		82,159		59,598
Depreciation and amortization(b)	39,830		39,490		80,260		79,028
Share-based compensation(c)	10,206		8,409		18,863		15,757
Loss on refinancing of debt(d)	23,400		—		24,090		—
(Gain) loss on foreign currency and derivatives not designated as hedging instruments, net(e)	(698)		(409)		532		126
Business optimization expenses(f)	593		3,604		647		5,835
Professional services relating to EO sterilization facilities(g)	7,818		11,623		14,157		25,595
Secondary offering costs(h)	20		—		1,137		—
Accretion of asset retirement obligation(i)	636		555		1,278		1,127
Consolidated income before taxes	$	15,142	$	34,485	$	26,156	$	39,887

(a)Interest expense, net presented in this reconciliation for the three and six months ended June 30, 2023 has been adjusted to conform to the current year presentation to include interest expense, net on Term Loan B due 2026 attributable to the loan proceeds that were used to fund the $408.0 million Illinois EO litigation settlement.

(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 write-off of unamortized debt issuance costs and discounts, as well as certain other costs incurred related to the Refinancing Term Loans and the Secured Notes. The six months ended June 30, 2024 includes $0.7 million of debt refinancing costs related to Amendment No. 3 to the Senior Secured Credit Facilities.

(e)Represents the effects of (i) fluctuations in foreign currency exchange rates and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion.

(f)Represents (i) certain costs related to acquisitions and the integration of recent acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in 2018, (iv) professional fees and other costs associated with business optimization, cost saving and other process enhancement projects, and (v) professional fees, payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility. The six months ended June 30, 2023 includes a $1.0 million cancellation fee received from a tenant in connection with the termination of an office space lease at the Nordion facility.

(g)Represents litigation and other professional fees associated with our EO sterilization facilities. Amounts presented for the three and six months ended June 30, 2023 have been adjusted to exclude interest expense, net associated with Term Loan B due 2026 attributable to the loan proceeds that were used to fund the $408.0 million Illinois EO litigation settlement.

(h)Represents expenses incurred in connection with the secondary offering of our common stock that closed on March 4, 2024.

(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 and are accreted over the life of the asset.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 2023 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 2023 10-K.

OVERVIEW

We are a leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry. 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 in the 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, and Nordion, 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 and Nordion, and our lab services business consists of one reportable segment, Nelson Labs.

For the three and six months ended June 30, 2024, respectively, we recorded net revenues of $276.6 million and $524.8 million, net income of $8.8 million and $15.1 million, Adjusted Net Income of $55.2 million and $90.8 million, and Adjusted EBITDA of $137.3 million and $249.3 million. For the definition of Adjusted Net Income and Adjusted EBITDA and the reconciliation of these non-GAAP measures from net income, 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 impacted our operating results for the three and six months ended June 30, 2024 and may continue to affect our performance and financial condition in future periods.

•Business and market conditions. Consolidated net revenues for the three months ended June 30, 2024 increased 8.3% from the same period of the prior year, mainly driven by improved volumes and sustained favorability in pricing across all segments.

Consolidated net revenues for the six months ended June 30, 2024 increased 10.3% from the same period of the prior year, due to higher volumes in the Nordion and Nelson Labs segments and favorable pricing across all segments.

As discussed in more detail in our 2023 10-K, a portion of our supply of Co-60 is generated by Russian nuclear

reactors. We continue to monitor the potential for disruption in the supply of Co-60 from Russian nuclear reactors. There was no impact to our supply or revenue during the three and six months ended June 30, 2024.

•Investment initiatives. We continue to advance our growth-related investments, including our three active capacity expansion projects within the Sterigenics segment and Co-60 development projects in the Nordion segment. In addition, Nelson Labs has progressed with expansion efforts to support pharma testing services alongside enhancements to its lab information management system.

•Disciplined and strategic M&A activity. We remain committed to our highly disciplined acquisition strategy and continue to seek suitable acquisition targets.

•Litigation costs. We are currently the subject of tort lawsuits alleging injury by purported exposure to EO used, emitted or released by current facilities in Atlanta, Georgia, Santa Teresa, New Mexico, and Los Angeles, California and our former facility in Willowbrook, Illinois. In addition, we are defendants in a lawsuit brought by the State of New Mexico Attorney General alleging that emissions of EO from our Santa Teresa facility negatively impacted Santa Teresa and surrounding communities. We maintain that these facilities did not pose and do not pose any safety risk to their surrounding communities. We deny the allegations in these lawsuits and are vigorously defending against these claims. See Part II, Item 1, “Legal Proceedings” and Note 14, “Commitments and Contingencies” to our consolidated financial statements.

For the three and six months ended June 30, 2024, we recorded costs of $7.8 million and $14.2 million, respectively, representing professional fees and other expenses related to litigation associated with our EO sterilization facilities.

•Borrowings and financial leverage. On May 30, 2024, the Company and SHH entered into Amendment No. 4 to the Senior Secured Credit Facilities, which provided for the issuance of term loans to the Company in an aggregate principal amount of $1.5 billion maturing on May 30, 2031. On the same date, the Company issued Secured Notes in an aggregate principal amount of $750.0 million, which bear interest at an annual rate of 7.375% and mature on June 1, 2031. The proceeds from the Refinancing Term Loans and the issuance of the Secured Notes, along with cash on the balance sheet, were used to refinance all of the Company’s outstanding existing term loans due December 2026.

On March 21, 2024, the Company entered into Amendment No. 3 to the Senior Secured Credit Facilities. Among other changes, the Amendment provides (i) for new commitments under the existing Revolving Credit Facility to replace existing revolving commitments in an aggregate principal amount of $83 million, (ii) that certain of the lenders providing revolving credit commitments shall also provide additional commitments for the issuance of letters of credit under the Revolving Credit Facility in an aggregate principal amount of $37.5 million and (iii) for the extension of the maturity date of the Revolving Credit Facility to March 1, 2029. Amendment No. 3 does not give effect to any other material changes to the terms and conditions of the Credit Agreement, including with respect to the amount of commitments under the Revolving Credit Facility Amendment, which remains $423.8 million.

CONSOLIDATED RESULTS OF OPERATIONS

Three Months Ended June 30, 2024 as compared to Three Months Ended June 30, 2023

The following table sets forth the components of our results of operations for the three months ended June 30, 2024 and 2023.


(thousands of U.S. dollars)	2024		2023		$ Change		% Change

Total net revenues	$	276,594	$	255,282	$	21,312	8.3	%
Total cost of revenues	123,803		115,694		8,109		7.0	%
Total operating expenses	75,992		76,384		(392)		(0.5)	%
Operating income	76,799		63,204		13,595		21.5	%
Net income	8,754		23,513		(14,759)		(62.8)	%
Adjusted Net Income(a)	55,187		55,517		(330)		(0.6)	%
Adjusted EBITDA(a)	137,335		128,485		8,850		6.9	%

(a)Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in “Non-GAAP Financial Measures.”

Total Net Revenues

The following table compares our revenues by type for the three months ended June 30, 2024 to the three months ended June 30, 2023.


(thousands of U.S. dollars)
Net revenues for the three months ended June 30,	2024		2023		$ Change		% Change

Service	$	237,756	$	226,050	$	11,706	5.2	%
Product	38,838		29,232		9,606		32.9	%
Total net revenues	$	276,594	$	255,282	$	21,312	8.3	%

Net revenues were $276.6 million in the three months ended June 30, 2024, an increase of $21.3 million, or 8.3%, as compared with the three months ended June 30, 2023. Excluding the impact of foreign currency exchange rates, net revenues in the three months ended June 30, 2024 increased approximately 8.8% compared with the three months ended June 30, 2023.

Service revenues

Service revenues increased $11.7 million, or 5.2%, to $237.8 million in the three months ended June 30, 2024 as compared to $226.1 million in the three months ended June 30, 2023. The growth in net service revenues was primarily driven by favorable pricing of $8.0 million and $1.7 million in the Sterigenics and Nelson Labs segments, respectively. Sterigenics and Nelson Labs also benefited from a favorable increase in volume and mix of $2.4 million and $0.8 million, respectively.

Product revenues

Product revenues increased $9.6 million, or 32.9%, to $38.8 million in the three months ended June 30, 2024 as compared to $29.2 million in the three months ended June 30, 2023. The timing of reactor harvest schedules was a primary driver for improvements in volume and mix of $8.7 million at Nordion. In addition, Nordion benefited from favorable pricing impacts of $1.2 million.

Total Cost of Revenues

The following table compares our cost of revenues by type for the three months ended June 30, 2024 to the three months ended June 30, 2023.


(thousands of U.S. dollars)
Cost of revenues for the three months ended June 30,	2024		2023		$ Change		% Change

Service	$	109,136	$	103,900	$	5,236	5.0	%
Product	14,667		11,794		2,873		24.4	%
Total cost of revenues	$	123,803	$	115,694	$	8,109	7.0	%

Total cost of revenues accounted for approximately 44.8% and 45.3% of our consolidated net revenues for the three months ended June 30, 2024 and 2023, respectively.

Cost of service revenues

Cost of service revenues increased $5.2 million, or 5.0%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The growth in cost of service revenues was partially driven by a $4.5 million increase in employee compensation costs and $1.1 million of depreciation related to capital assets recently placed in service.

Cost of product revenues

Cost of product revenues increased $2.9 million, or 24.4%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was primarily a result of higher volumes of Co-60 shipments, which resulted in increases in direct material and transportation costs of $2.9 million.

Operating Expenses

The following table compares our operating expenses for the three months ended June 30, 2024 to the three months ended June 30, 2023:


(thousands of U.S. dollars)
Operating expenses for the three months ended June 30,	2024		2023		$ Change		% Change

Selling, general and administrative (“SG&A”) expenses	$	60,575	$	60,287	$	288	0.5	%
Amortization of intangible assets	15,417		16,097		(680)		(4.2)	%
Total operating expenses	$	75,992	$	76,384	$	(392)	(0.5)	%

Operating expenses accounted for approximately 27.5% and 29.9% of our consolidated net revenues for the three months ended June 30, 2024 and 2023, respectively.

SG&A

SG&A expenses increased $0.3 million, or 0.5%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The increase was primarily driven by a $1.8 million increase in share-based compensation expense and a $1.4 million increase in other incremental SG&A compensation-related costs. The increase was partially offset by a $2.3 million decline in legal and other professional services expenses.

Amortization of intangible assets

Amortization of intangible assets decreased $0.7 million to $15.4 million, or 4.2%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due mainly to changes in foreign currency exchange rates.

Interest Expense, Net

Interest expense, net increased $9.7 million, or 31.4%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. The main drivers of the increase in interest expense, net were a $5.3 million decline in interest income and a $4.5 million decline in favorable impacts from interest rate derivative activity. The weighted average interest rate on our outstanding debt was 8.19% and 8.20% at June 30, 2024 and 2023, respectively.

Loss on Refinancing of Debt

Loss on refinancing of debt for the three months ended June 30, 2024 was $23.4 million and occurred in connection with the refinancing of our capital structure in May 2024. The refinancing activity resulted in the write off of certain unamortized debt issuance costs and discounts on the Term Loans due 2026. In addition, certain new debt issuance costs and discounts were expensed upon the issuance of the Refinancing Term Loans and Secured Notes.

Foreign Exchange (Gain) Loss

Foreign exchange gain was $0.6 million for the three months ended June 30, 2024 as compared to a loss of $0.5 million in the three months ended June 30, 2023. The change in foreign exchange (gain) loss in our Consolidated Statements of Operations and Comprehensive Income (Loss) mainly relates to short-term losses (offset by short-term gains) on sales denominated in currencies other than the functional currency of our operating entities. As described in Note 15, “Financial Instruments and Financial Risk”, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.

Other Income, Net

Other income, net was $1.5 million for the three months ended June 30, 2024 compared to $2.5 million for the three months ended June 30, 2023. The majority of the variance stemmed from a net decrease in the fair value of Nordion’s embedded derivative assets, resulting in a decrease in other income of $0.9 million from the three months ended June 30, 2024 compared to the same period of the prior year.

Provision for Income Taxes

Provision for income tax decreased $4.6 million to a net provision of $6.4 million for the three months ended June 30, 2024 as compared to $11.0 million in the three months ended June 30, 2023. The change was primarily attributable to lower pre-tax income for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, partially offset by an

increase in the valuation allowance against our excess interest expense carryforward balance.

Provision for income taxes for the three months ended June 30, 2024 differed from the statutory rate primarily due to the impact of the valuation allowance attributable to the limitation on the deductibility of interest expense and the foreign rate differential, partially offset by a benefit for state income taxes. Provision for income taxes for the three months ended June 30, 2023 differed from the statutory rate primarily due to a net increase in the valuation allowance attributable to the limitation on the deductibility of interest expense, the impact of the foreign rate differential, and GILTI.

Net Income, Adjusted Net Income and Adjusted EBITDA

Net income for the three months ended June 30, 2024 was $8.8 million, as compared to net income of $23.5 million for the three months ended June 30, 2023 due to the factors described above. Adjusted Net Income was $55.2 million for the three months ended June 30, 2024, as compared to $55.5 million for the three months ended June 30, 2023, and Adjusted EBITDA was $137.3 million for the three months ended June 30, 2024, as compared to $128.5 million for the three months ended June 30, 2023. Please see “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.

Six Months Ended June 30, 2024 as compared to Six Months Ended June 30, 2023

The following table sets forth the components of our results of operations for the six months ended June 30, 2024 and 2023.


(thousands of U.S. dollars)	2024		2023		$ Change		% Change

Total net revenues	$	524,770	$	475,872	$	48,898	10.3	%
Total cost of revenues	244,864		224,781		20,083		8.9	%
Total operating expenses	149,933		154,521		(4,588)		(3.0)	%
Operating income	129,973		96,570		33,403		34.6	%
Net income	15,077		26,355		(11,278)		(42.8)	%
Adjusted Net Income(a)	90,816		91,374		(558)		(0.6)	%
Adjusted EBITDA(a)	249,279		226,953		22,326		9.8	%

Total Net Revenues

The following table compares our revenues by type for the six months ended June 30, 2024 to the six months ended June 30, 2023.


(thousands of U.S. dollars)
Net revenues for the six months ended June 30,	2024		2023		$ Change		% Change

Service	$	464,237	$	440,560	$	23,677	5.4	%
Product	60,533		35,312		25,221		71.4	%
Total net revenues	$	524,770	$	475,872	$	48,898	10.3	%

Net revenues were $524.8 million in the six months ended June 30, 2024, an increase of $48.9 million, or 10.3%, as compared with the six months ended June 30, 2023. Excluding the impact of foreign currency exchange rates, net revenues in the six months ended June 30, 2024 increased approximately 10.2% compared with the six months ended June 30, 2023.

Service revenues

Service revenues increased $23.7 million, or 5.4%, to $464.2 million in the six months ended June 30, 2024 as compared to $440.6 million in the six months ended June 30, 2023. The growth in net service revenues was primarily driven by favorable pricing of $15.9 million and $3.3 million in the Sterigenics and Nelson Labs segments, respectively, a favorable change in service revenue volume and mix of $4.7 million in the Nelson Labs segment and a benefit from changes in foreign currency exchange rates of $0.6 million.

Product revenues

Product revenues increased $25.2 million, or 71.4%, to $60.5 million in the six months ended June 30, 2024 as compared to $35.3 million in the six months ended June 30, 2023. The timing of reactor harvest schedules was a primary driver for the improvements in volume and mix of $24.3 million at Nordion. In addition, Nordion benefited from favorable pricing impacts of $1.3 million.

Total Cost of Revenues

The following table compares our cost of revenues by type for the six months ended June 30, 2024 to the six months ended June 30, 2023.


(thousands of U.S. dollars)
Cost of revenues for the six months ended June 30,	2024		2023		$ Change		% Change

Service	$	219,988	$	208,110	$	11,878	5.7	%
Product	24,876		16,671		8,205		49.2	%
Total cost of revenues	$	244,864	$	224,781	$	20,083	8.9	%

Total cost of revenues accounted for approximately 46.7% and 47.2% of our consolidated net revenues for the six months ended June 30, 2024 and 2023, respectively.

Cost of service revenues

Cost of service revenues increased $11.9 million, or 5.7%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The growth in cost of service revenues was primarily driven by higher employee compensation costs of $8.1 million, a $2.2 million increase in depreciation related to capital assets recently placed in service, and a $1.4 million increase in certain facility repairs and maintenance costs.

Cost of product revenues

Cost of product revenues increased $8.2 million, or 49.2%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase was primarily a result of higher volumes of Co-60 shipments, which resulted in increases in direct material and transportation costs of $7.8 million.

Operating Expenses

The following table compares our operating expenses for the six months ended June 30, 2024 to the six months ended June 30, 2023:


(thousands of U.S. dollars)
Operating expenses for the six months ended June 30,	2024		2023		$ Change		% Change

SG&A expenses	$	118,784	$	122,197	$	(3,413)	(2.8)	%
Amortization of intangible assets	31,149		32,324		(1,175)		(3.6)	%
Total operating expenses	$	149,933	$	154,521	$	(4,588)	(3.0)	%

Operating expenses accounted for approximately 28.6% and 32.5% of our consolidated net revenues for the six months ended June 30, 2024 and 2023, respectively.

SG&A expenses

SG&A expenses decreased $3.4 million, or 2.8%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The decrease was driven primarily by a $9.6 million decline in legal and other professional services expenses. This decrease was partially offset by a $3.1 million increase in share-based compensation expense and $3.1 million of other incremental SG&A compensation-related costs.

Amortization of intangible assets

Amortization of intangible assets decreased $1.2 million to $31.1 million, or 3.6%, for the six months ended June 30, 2024 as compared to the three months ended June 30, 2023 due mainly to changes in foreign currency exchange rates.

Interest Expense, Net

Interest expense, net increased $22.6 million, or 37.9%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. The increase was mainly driven by an increase in the interest rate on variable rate borrowings over the course of the first half of 2024, which contributed to a $9.5 million increase interest expense. The variance was also the result of an $8.8 million decline in favorable impacts from interest rate derivative activity, a $6.2 million decline in interest income and $0.6 million increase in debt issuance cost and debt discount amortization. Partially offsetting these factors was a $3.3 million increase in capitalized interest. The weighted average interest rate on our outstanding debt was 8.19% and 8.20% at June 30, 2024 and 2023, respectively.

Loss on Refinancing of Debt

Loss on refinancing of debt for the six months ended June 30, 2024 was $24.1 million and occurred primarily in connection with the refinancing our of our capital structure in May 2024. The refinancing activity resulted in the write off of certain unamortized debt issuance costs and discounts on the Term Loans due 2026. In addition, certain new debt issuance costs and discounts were expensed upon the issuance of the Term Loan and Secured Notes due 2031. Loss on refinancing of debt for the six months ended June 30, 2024 also included the write off of $0.7 million of unamortized debt issuance costs attributable to the Revolving Credit Facility in connection with Amendment No. 3 to the Revolving Credit Facility.

Foreign Exchange (Gain) Loss

Foreign exchange gain was $1.2 million for the six months ended June 30, 2024 as compared to a $0.8 million loss in the six months ended June 30, 2023. The change in foreign exchange loss in our Consolidated Statements of Operations and Comprehensive Income (Loss) mainly relates to short-term losses (offset by short-term gains) on sales denominated in currencies other than the functional currency of our operating entities. As described in Note 15, “Financial Instruments and Financial Risk”, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.

Other Income, Net

Other income, net was $1.2 million for the six months ended June 30, 2024 compared to $3.7 million for the six months ended June 30, 2023. The majority of the variance stemmed from a decline in the fair value of Nordion’s embedded derivatives in the six months ended June 30, 2024, resulting in a decrease in other income of $2.5 million compared to the same the period in the prior year.

Provision for Income Taxes

Provision for income taxes decreased $2.5 million to a net provision of $11.1 million for the six months ended June 30, 2024 as compared to $13.5 million in the six months ended June 30, 2023. The change was primarily attributable to lower pre-tax income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, partially offset by an increase in the valuation allowance against our excess interest expense carryforward balance.

Provision for income taxes for the six months ended June 30, 2024 differed from the statutory rate due to the impact of the valuation allowance attributable to the limitation on the deductibility of interest expense and the foreign rate differential, partially offset by a benefit for state income taxes. Provision for income taxes for the six months ended June 30, 2023 differed from the statutory rate primarily due to a net increase in the foreign differential and GILTI.

Net Income, Adjusted Net Income and Adjusted EBITDA

Net income for the six months ended June 30, 2024 was $15.1 million, as compared to net income of $26.4 million for the six months ended June 30, 2023 due to the factors described above. Adjusted Net Income was $90.8 million for the six months ended June 30, 2024, as compared to $91.4 million for the six months ended June 30, 2023, and Adjusted EBITDA was $249.3 million for the six months ended June 30, 2024, as compared to $227.0 million for the six months ended June 30, 2023. Please see “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted Net Income and Adjusted EBITDA, financial measures that are not based on any standardized methodology prescribed by GAAP.

We define Adjusted Net Income as net income before amortization and certain other adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period as discussed further below. 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.

We use Adjusted Net Income and Adjusted EBITDA, non-GAAP financial measures, as the principal measures of our operating performance. Management believes Adjusted Net Income and Adjusted EBITDA 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 Adjusted Net Income and Adjusted EBITDA 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 Adjusted Net Income and Adjusted EBITDA in their financial analysis and operational decision-making, and Adjusted EBITDA serves as the basis for the metric we utilize to determine attainment of our primary annual incentive program. Adjusted Net Income and Adjusted EBITDA may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.

Adjusted Net Income and Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted Net Income and Adjusted EBITDA rather than net income, the nearest GAAP equivalent. For example, Adjusted Net Income and Adjusted EBITDA primarily exclude:

•certain recurring non-cash charges such as depreciation of fixed assets, although these assets may have to be replaced in the future, as well as amortization of acquired intangible assets and asset retirement obligations;

•costs of acquiring and integrating businesses, which will continue to be a part of our growth strategy;

•non-cash gains or losses from fluctuations in foreign currency exchange rates and the mark-to-fair value of derivatives not designated as hedging instruments, which includes the embedded derivatives relating to certain customer and supply contracts at Nordion;

•impairment charges on long-lived assets, intangible assets and investments accounted for under the equity method;

•loss on refinancing of debt incurred in connection with refinancing or early extinguishment of long-term debt;

•expenses incurred in connection with the secondary offering of our common stock;

•expenses and charges related to the litigation, settlement agreements, and other activities associated with our EO sterilization facilities, including those related to Willowbrook, Illinois, Atlanta, Georgia, Santa Teresa, New Mexico and Los Angeles, California, even though that litigation remains ongoing;

•in the case of Adjusted EBITDA, interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and

•share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of our compensation strategy.

In evaluating Adjusted Net Income and Adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments in the table below. Our presentations of Adjusted Net Income and Adjusted EBITDA should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted Net Income and Adjusted EBITDA alongside other financial performance measures, including our net income and other GAAP measures.

The following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP to Adjusted Net Income and Adjusted EBITDA, for each of the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
(thousands of U.S. dollars)	2024		2023		2024		2023
Net income	$	8,754	$	23,513	$	15,077	$	26,355
Amortization of intangibles	19,755		20,502		39,879		41,109
Share-based compensation(a)	10,206		8,409		18,863		15,757
Loss on refinancing of debt(b)	23,400		—		24,090		—
(Gain) loss on foreign currency and derivatives not designated as hedging instruments, net(c)	(698)		(409)		532		126
Business optimization expenses(d)	593		3,604		647		5,835
Professional services relating to EO sterilization facilities(e)	7,818		11,623		14,157		25,595
Secondary offering costs(f)	20		—		1,137		—
Accretion of asset retirement obligations(g)	636		555		1,278		1,127
Income tax benefit associated with pre-tax adjustments(h)	(15,297)		(12,280)		(24,844)		(24,530)
Adjusted Net Income	55,187		55,517		90,816		91,374
Interest expense, net(i)	40,388		30,728		82,159		59,598
Depreciation(j)	20,075		18,988		40,381		37,919
Income tax provision applicable to Adjusted Net Income(k)	21,685		23,252		35,923		38,062
Adjusted EBITDA(l)	$	137,335	$	128,485	$	249,279	$	226,953

(a) Represents share-based compensation expense to employees and Non-Employee Directors.

(b) Represents the write-off of unamortized debt issuance costs and discounts, as well as certain other costs incurred related to the Refinancing Term Loans and the Secured Notes. The six months ended June 30, 2024 includes $0.7 million of debt refinancing costs related to Amendment No. 3 to the Senior Secured Credit Facilities.

(c) Represents the effects of (i) fluctuations in foreign currency exchange rates and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion.

(d) Represents (i) certain costs related to acquisitions and the integration of recent acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in 2018, (iv) professional fees and other costs associated with business optimization, cost saving and other process enhancement projects, and (v) professional fees, payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility. The six months ended June 30, 2023 includes a $1.0 million cancellation fee received from a tenant in connection with the termination of an office space lease at the Nordion facility.

(e) Represents litigation and other professional fees associated with our EO sterilization facilities. Amounts presented for the three and six months ended June 30, 2023 have been adjusted to exclude interest expense, net associated with Term Loan B due 2026 attributable to the loan proceeds that were used to fund the $408.0 million Illinois EO litigation settlement.

(f) Represents expenses incurred in connection with the secondary offering of our common stock that closed on March 4, 2024.

(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 and are accreted over the life of the asset.

(h) 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.

(i) Interest expense, net presented in this reconciliation for the three and six months ended June 30, 2023 has been adjusted to conform to the current year presentation to include interest expense, net on Term Loan B due 2026 attributable to the loan proceeds that were used to fund the $408.0 million Illinois EO litigation settlement.

(j) Includes depreciation of Co-60 held at gamma irradiation sites.

(k) Represents the difference between income tax provision or benefit as determined under U.S. GAAP and the income tax provision or benefit associated with pre-tax adjustments described in footnote (h).

(l) $23.4 million and $24.4 million of the adjustments for the three months ended June 30, 2024 and 2023, respectively, and $47.2 million of the adjustments for the six months ended June 30, 2024 and 2023, are included in cost of revenues, primarily consisting of amortization of intangible assets, depreciation, and accretion of asset retirement obligations.

SEGMENT RESULTS OF OPERATIONS

We have three reportable segments: Sterigenics, Nordion and Nelson Labs. Our chief operating decision-maker evaluates performance and allocates resources within our business based on segment income, which excludes certain items which are included in income before tax as determined in our Consolidated Statements of Operations and Comprehensive Income (Loss). The accounting policies for our reportable segments are the same as those for the consolidated Company.

Our Segments

Sterigenics

Nordion

As a result of the time required to meet regulatory and logistics requirements for delivery of radioactive products, combined with accommodations made to our customers to minimize disruptions to their operations during the installation of Co-60, Nordion sales patterns can often vary significantly from one quarter to the next. However, timing-related impacts on our sales performance tend to be resolved within several quarters, resulting in more consistent performance over longer periods of time. In addition, sales of gamma irradiation systems occur infrequently and tend to be for larger amounts.

Results for our Nordion segment are also impacted by Co-60 mix, harvest schedules, as well as customer, product and service mix.

Nelson Labs

Nelson Labs provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.

For more information regarding our reportable segments, please refer to Note 16, “Segment Information” to our consolidated financial statements.

Segment Results for the Three Months Ended June 30, 2024 and 2023

The following tables compare segment net revenue and segment income for the three months ended June 30, 2024 to the three months ended June 30, 2023:


	Three Months Ended June 30,
(thousands of U.S. dollars)	2024			2023			$ Change		% Change

Net Revenues
Sterigenics	$	176,354		$	166,590		$	9,764	5.9	%
Nordion	41,244			31,975			9,269		29.0	%
Nelson Labs	58,996			56,717			2,279		4.0	%
Segment Income
Sterigenics	$	96,778		$	91,450		$	5,328	5.8	%
Nordion	23,420			17,784			5,636		31.7	%
Nelson Labs	17,137			19,251			(2,114)		(11.0)	%
Segment Income margin
Sterigenics	54.9		%	54.9		%
Nordion	56.8		%	55.6		%
Nelson Labs	29.0		%	33.9		%

Net Revenues by Segment

Sterigenics net revenues were $176.4 million for the three months ended June 30, 2024, an increase of $9.8 million, or 5.9%, as compared to the three months ended June 30, 2023. The increase reflects favorable impacts from pricing of 4.9% as well as higher volume and changes in mix of 1.4%, partially offset by 0.4% due to unfavorable changes in foreign currency exchange rates.

Nordion net revenues were $41.2 million for the three months ended June 30, 2024, an increase of $9.3 million, or 29.0%, as compared to the three months ended June 30, 2023. The timing of reactor harvest schedules resulted in favorable volume and mix of 26.5%, which was a primary driver for net revenue, and favorable pricing of 3.8% also drove improvement. Partially offsetting this increase was an unfavorable impact of 1.3% from changes in foreign currency exchange rates.

Nelson Labs net revenues were $59.0 million for the three months ended June 30, 2024, an increase of $2.3 million, or 4.0%, as compared to the three months ended June 30, 2023. The increase was attributable to favorable pricing impacts of 3.0% as well as volume improvements and changes in mix of 1.4%. Partially offsetting this increase was an unfavorable impact from foreign currency exchange rates of 0.4%.

Segment Income

Sterigenics segment income was $96.8 million for the three months ended June 30, 2024, an increase of $5.3 million, or 5.8%, as compared to the three months ended June 30, 2023. The increase in segment income was primarily a result of favorable customer pricing, volume and changes in mix, partially offset by inflation.

Nordion segment income was $23.4 million for the three months ended June 30, 2024, an increase of $5.6 million, or 31.7%, as compared to the three months ended June 30, 2023. The timing of reactor harvest schedules was a primary driver for the increase in segment income and segment income margin, as well as favorable pricing.

Nelson Labs segment income was $17.1 million for the three months ended June 30, 2024, a decrease of $2.1 million, or 11.0%, as compared to the three months ended June 30, 2023. The decrease in segment income and segment income margin was primarily due to the impacts of volume and mix, as well as higher labor costs, partially offset by favorable pricing.

Segment Results for the Six Months Ended June 30, 2024 and 2023

The following tables compare segment net revenue and segment income for the six months ended June 30, 2024 to the six months ended June 30, 2023:


	Six Months Ended June 30,
(thousands of U.S. dollars)	2024			2023			$ Change		% Change

Net Revenues
Sterigenics	$	342,851		$	326,587		$	16,264	5.0	%
Nordion	65,251			40,526			24,725		61.0	%
Nelson Labs	116,668			108,759			7,909		7.3	%
Segment Income
Sterigenics	$	182,596		$	174,290		$	8,306	4.8	%
Nordion	34,205			19,310			14,895		77.1	%
Nelson Labs	32,478			33,353			(875)		(2.6)	%
Segment Income margin
Sterigenics	53.3		%	53.4		%
Nordion	52.4		%	47.6		%
Nelson Labs	27.8		%	30.7		%

Net Revenues by Segment

Sterigenics net revenues were $342.9 million for the six months ended June 30, 2024, an increase of $16.3 million, or 5.0%, as compared to the six months ended June 30, 2023. The increase was primarily attributable to favorable impacts from pricing of 4.9% and changes in foreign currency exchange rates of 0.2%.

Nordion net revenues were $65.3 million for the six months ended June 30, 2024, an increase of $24.7 million, or 61.0%, as compared to the six months ended June 30, 2023. The timing of reactor harvest schedules resulted in favorable volumes and changes in mix of 58.8%, and a favorable impact from pricing of 3.2% also drove improvement. Partially offsetting these factors was an unfavorable impact of 1.0% from changes in foreign exchange rates.

Nelson Labs net revenues were $116.7 million for the six months ended June 30, 2024, an increase of $7.9 million, or 7.3%, as compared to the six months ended June 30, 2023. The change was attributable to increases in volume and changes in mix of 4.3% coupled with a favorable impact from pricing of 3.0%.

Segment Income

Sterigenics segment income was $182.6 million for the six months ended June 30, 2024, an increase of $8.3 million, or 4.8%, as compared to the six months ended June 30, 2023. The increase in segment income was driven primarily by favorable customer pricing, partially offset by inflation.

Nordion segment income was $34.2 million for the six months ended June 30, 2024, an increase of $14.9 million, or 77.1%, as compared to the six months ended June 30, 2023. The timing of reactor harvest schedules was a primary driver for the increase in segment income and segment income margin.

Nelson Labs segment income was $32.5 million for the six months ended June 30, 2024, a decrease of $0.9 million, or 2.6%, as compared to the six months ended June 30, 2023. The decrease in segment income and segment income margin was primarily due to the impact of volume and mix, as well as higher labor costs, partially offset by favorable pricing.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Cash

The primary sources of liquidity for our business are cash flows from operations and borrowings under our credit facilities. As of June 30, 2024, we had $246.1 million of unrestricted cash and cash equivalents. This is a decrease of $50.3 million from the balance at December 31, 2023. The decrease in unrestricted cash and cash equivalents is mainly attributable to the $35.0 million

payment of the Atlanta settlement in January 2024 and the $30.2 million payment in debt issuance costs and discounts associated with the issuance of the Refinancing Term Loans and Secured Notes in May 2024. Our foreign subsidiaries held cash of approximately $238.1 million at June 30, 2024 and $224.1 million at December 31, 2023. No material restrictions exist to accessing cash held by our foreign subsidiaries notwithstanding any potential tax consequences.

As described in more detail below, on March 1, 2024, the Company and SHH entered into Amendment No. 3 to the Revolving Credit Facility. Amendment No. 3 did not materially change to the terms and conditions of the Credit Agreement, including with respect to the amount of commitments under the Revolving Credit Facility, which remains $423.8 million.

As discussed below, on May 30, 2024 the Company and SHH closed on the Refinancing Term Loans in an aggregate principal amount of $1,509.4 million as well as an issuance of Secured Notes in an aggregate principal amount of $750.0 million (collectively, the “Financings”), both of which mature in 2031. The Company used the net proceeds from the Financings, along with cash on hand, to refinance its existing $1,763.1 million Term Loan and $496.3 million Term Loan due 2026.

Uses of Cash

We expect that cash on hand, operating cash flows and amounts available under our credit facilities will provide sufficient working capital to operate our business, meet foreseeable liquidity requirements (inclusive of debt service on our long-term debt), make expected capital expenditures including investments in fixed assets to build and/or expand existing facilities, and meet litigation costs that we expect to continue to incur for at least the next twelve months and the foreseeable future thereafter. Our primary long-term liquidity requirements beyond the next 12 months will be to service our debt, make capital expenditures, and fund suitable business acquisitions. As of June 30, 2024, there were no outstanding borrowings on the Revolving Credit Facility. We expect any excess cash provided by operations will be allocated to fund capital expenditures, potential acquisitions, or for other general corporate purposes. Our ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected by a range of macroeconomic, competitive and business factors, including interest rate changes and changes in our industry, many of which are outside of our control. As of June 30, 2024, our interest rate derivatives limit our cash flow exposure of our variable rate borrowings under the Term Loans. Refer to Note 15, “Financial Instruments and Financial Risk”, “Derivative Instruments” for additional information about changes in interest rate risk.

Capital Expenditures

Our capital expenditure program is a component of our long-term strategy. This program includes, among other things, investments in new and existing facilities, business expansion projects, Co-60 used by Sterigenics at its gamma irradiation facilities, cobalt development projects and information technology enhancements. During the six months ended June 30, 2024, our capital expenditures amounted to $76.8 million, compared to $98.1 million for the six months ended June 30, 2023.

Cash Flow Information


(thousands of U.S. dollars)	Six Months Ended June 30,
	2024		2023
Net Cash Provided by (Used in):
Operating activities	$	70,994	$	(302,704)
Investing activities	(76,774)		(98,102)
Financing activities	(41,362)		273,206
Effect of foreign currency exchange rate changes on cash and cash equivalents	(6,754)		1,796
Net decrease in cash and cash equivalents, including restricted cash	$	(53,896)	$	(125,804)

Operating activities

Cash flows from operating activities increased $373.7 million to net cash provided of $71.0 million in the six months ended June 30, 2024 compared to $302.7 million of net cash used in operating activities for the six months ended June 30, 2023. The change in overall cash flows from operating activities was primarily due to the timing of the release of the $407.7 million Illinois settlement funds on June 30, 2023 and the release of the $35.0 million Atlanta settlement funds in January 2024.

Investing activities

Cash used by investing activities decreased $21.3 million to net cash used of $76.8 million in the six months ended June 30, 2024 compared to $98.1 million for the six months ended June 30, 2024. The variance was primarily driven by a decrease in cash paid for capital expenditures of $21.3 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Financing activities

Cash used in financing activities was $41.4 million for the six months ended June 30, 2024 compared to $273.2 million of cash provided by financing activities for the six months ended June 30, 2023. The difference was mainly attributable to $500.0 million in proceeds from the issuance of Term Loan B due 2026 on February 23, 2023, partially offset by the $200.0 million paydown of the outstanding balance on the Revolving Credit Facility concurrent with the issuance of Term Loan B due 2026. Additionally, in the six months ended June 30, 2024, the Company paid $6.7 million to acquire certain facilities through the settlement of a finance lease and paid $5.5 million of incremental debt issuance costs as compared to the comparable period of the prior year.

Debt Facilities

Senior Secured Credit Facilities

On December 13, 2019, SHH, our wholly-owned subsidiary, entered into the Senior Secured Credit Facilities, consisting of both the Term Loan and the Revolving Credit Facility pursuant to the Credit Agreement. The total borrowing capacity under the Revolving Credit Facility is $423.8 million. The Senior Secured Credit Facilities also provide SHH the right at any time and under certain conditions to request incremental term loans or incremental revolving credit commitments based on a formula defined in the Senior Secured Credit Facilities.

On May 30, 2024, the Company and SHH entered into Amendment No. 4 to the Senior Secured Credit Facilities. Among other changes, Amendment No. 4 provides for the Refinancing Term Loans to SHH in an aggregate principal amount of $1,509.4 million. Pursuant to Amendment No. 4, the Refinancing Term Loans shall have an applicable interest rate margin per annum equal to (i) ABR plus 2.25% for ABR Loans (as defined in the Credit Agreement), (ii) daily simple SOFR plus 3.25% for RFR Loans (as defined in the Credit Agreement) and (iii) Term SOFR plus 3.25% for Term Benchmark Loans (as defined in the Credit Agreement), in each case with a 0.00% applicable floor and the applicable interest rate margin shall be subject to a pricing step-down of 0.25% when the Senior Secured Leverage Ratio (as defined in the Credit Agreement) is less than or equal to 3.30:1.00. The Refinancing Term Loans are also subject to a “soft call” premium of 1.00% for certain repricing transactions with respect to the Refinancing Term Loans that occur within the six-month period after the effective date of Amendment No. 4. The Refinancing Term Loans amortize at a rate of 1.00% per annum and mature on May 30, 2031. The weighted average interest rate on borrowings under the Refinancing Term Loans for the three months ended June 30, 2024 was 8.58%.

On May 30, 2024, SHH, the Company, the Guarantors, and Wilmington Trust, National Association, as trustee, paying agent, registrar, transfer agent and notes collateral agent, entered into the Indenture governing SHH’s newly issued $750.0 million aggregate principal amount of 7.375% Secured Notes. The Secured Notes will pay interest semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2024, at a rate of 7.375% per year, and will mature on June 1, 2031. The Secured Notes may be redeemed, at any time or from time to time, in whole or in part, on or after June 1, 2027 at the redemption prices specified in the Indenture, together with accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. At any time or from time to time, prior to June 1, 2027, the Secured Notes may be redeemed, in whole or in part, at a redemption price equal to 100% of the aggregate principal amount thereof plus a make-whole premium, together with accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. In addition, at any time or from time to time, prior to June 1, 2027, SHH may redeem up to 40% of the aggregate principal amount of the Secured Notes (including any additional Secured Notes issued under the Indenture) with an amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 107.375% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date. Further, at any time or from time to time, on or before June 1, 2027, SHH may redeem up to 10% of the then outstanding aggregate principal amount of Secured Notes (including any additional Secured Notes issued under the Indenture) during each of the twelve-month periods after the issue date, at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereon to, but excluding, the redemption date.

On March 1, 2024, the Company and SHH entered into Amendment No. 3 to the Revolving Credit Facility. Among other changes, Amendment No. 3 provides (i) for new commitments under the existing Revolving Credit Facility to replace the existing revolving commitments in an aggregate principal amount of $83.0 million, (ii) that certain of the lenders providing revolving credit commitments shall also provide additional commitments for the issuance of letters of credit under the Revolving Credit Facility in an aggregate principal amount of $37.5 million and (iii) for the extension of the maturity date of the Revolving Credit Facility to March 1, 2029.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make judgments, estimates and assumptions at a specific point in time and in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. The application of accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

A comprehensive discussion of the Company’s critical accounting policies and management estimates made in connection with the preparation of the financial statements is included in Item 7 of 2023 10-K. There have been no significant changes in critical accounting policies, management estimates or accounting policies since the year ended December 31, 2023.

NEW ACCOUNTING PRONOUNCEMENTS

For a description of recent accounting pronouncements applicable to our business, see Note 2, “Recent Accounting Standards” to our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risks are described within “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our 2023 10-K. These market risks have not materially changed for the three and six months ended June 30, 2024.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based upon their evaluation, the CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

During the three months ended June 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be subject to various legal proceedings arising in the ordinary course of our business, including claims relating to personal injury, property damage, workers’ compensation, employee safety, corporate governance and our disclosures as a Nasdaq-listed, publicly traded company. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate. At this time, and except as is noted herein, we are unable to predict the outcome of, and cannot reasonably estimate the impact of, any pending litigation matters, matters concerning allegations of non-compliance with laws or regulations and matters concerning other allegations of other improprieties, or the incidence of any such matters in the future. Information regarding our material legal proceedings is included below.

Legal Proceedings Described in Note 14 “Commitments and Contingencies” of Our Consolidated Financial Statements

Note 14, “Commitments and Contingencies” to our consolidated financial statements for the three and six months ended June 30, 2024 contained in this Quarterly Report on Form 10-Q includes information on legal proceedings that constitute material contingencies for financial reporting purposes that could have a material effect on our financial condition or results of operations. This item should be read in conjunction with Note 14 “Commitments and Contingencies” for information regarding the following legal proceedings, which information is incorporated into this item by reference:

•Ethylene Oxide Tort Litigation – Illinois, Georgia, California and New Mexico;

•Insurance Coverage for Environmental Liabilities; and

•Sotera Health Company Securities Litigation and Related Matters.

Legal Proceedings That Are Not Described in Note 14 “Commitments and Contingencies” to Our Consolidated Financial Statements

In addition to the matters that are identified in Note 14 “Commitments and Contingencies” to our consolidated financial statements for the three and six months ended June 30, 2024 contained in this Quarterly Report on Form 10-Q, and incorporated into this item by reference, the following matters also constitute material pending legal proceedings, other than ordinary course litigation incidental to our business, to which we are or any of our subsidiaries is a party. SEC regulations require disclosure of environmental proceedings that involve a government authority and potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. Effective January 1, 2024, except for the previously disclosed Notices of Violation issued to Sterigenics’ facilities in Queensbury, New York, Los Angeles, California and Ontario, California, the Company uses a threshold of $1.0 million to determine whether the disclosure of any such proceedings is required because we believe matters under this threshold are not material to the Company.

Notice of Violation at Queensbury, New York Ethylene Oxide Sterilization Facility

In May 2023, Sterigenics received a Notice of Violation (“NOV”) from the New York State Department of Environmental Conservation (“DEC”) relating to a May 2023 power outage at Sterigenics’ Queensbury, New York facility that resulted in a failure to restart the facility’s scrubber system. On June 10, 2024, Sterigenics and DEC entered into an Administrative Order on Consent pursuant to which Sterigenics agreed to implement additional remedial measures and pay a civil penalty, none of which resulted in a material expense.

Notices of Violation at Vernon and Ontario, California Ethylene Oxide Sterilization Facilities

In 2022, the South Coast Air Quality Management District (“SCAQMD”) in Southern California initiated an investigation into EO sterilization facilities located in the SCAQMD region, including Sterigenics’ facilities in Vernon and Ontario, California. In connection with this investigation, SCAQMD issued NOVs to the Vernon and Ontario facilities alleging violations of SCAQMD operational, maintenance, permitting and reporting requirements and that levels of ambient EO detected by SCAQMD during 2022 caused a public nuisance for off-site workers around the facilities in violation of general prohibitions on emissions. Sterigenics disputes the allegations and expects to be able to resolve the NOVs for an immaterial amount.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2023 10-K filed with the SEC on February 27, 2024, and Part II, Item 1A,“Risk Factors,” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, filed with the SEC on May 2, 2024.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

During the three months ended June 30, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as that term is defined in Regulation S-K, Item 408).

Item 6. Exhibits.

The exhibits listed in the following Exhibit Index are filed, furnished, or incorporated by reference as part of this Quarterly Report on Form 10-Q.

Incorporated by Reference

Exhibit No

Description of Exhibits

Form

File No.

Exhibit

Filing Date

Furnished/Filed
Herewith

3.1

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sotera , dated May 23, 2024

8-K

001-39729

3.1

2024-05-24

4.1

Indenture dated as of May 30, 2024 , a mong Sotera Health Holdings, LLC, as Issuer of the Notes, Sotera Health Company, as Holdings, and the Guarantors party hereto and Wilmington Trust, National Association

4.2

Form of 7.375% Senior Secured Notes due 2031 (included as Exhibit A to Exhibit 4.1)

4.3

Notes S ecurity A greement, dated as of May 30, 2024, among Sotera Health Holdings, LLC , Sotera Health Company, the other G rantors p arty thereto, and Wilmington Trust, National Association

*†

10.1

Amendment No. 4 to First Lien Credit Agreement, dated as of May 30, 2024 , among Sotera Health Company, Sotera Health Holdings, LLC, each Term and Revolving Lender party and JPMorgan Chase Bank, N.A., as First Lien Administrative Agent

*†

31.1

Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document - The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed Herewith

** Furnished Herewith

† Portions of this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			SOTERA HEALTH COMPANY

			By:			/s/ Jonathan M. Lyons
			Name:			Jonathan M. Lyons
			Title:			Senior Vice President and Chief Financial Officer
						(Principal Financial Officer)

Date: August 5, 2024

Get the next $SHC alert in real time by email

Date	Price Target	Rating	Analyst
5/21/2024	$13.00	Neutral	Piper Sandler
4/3/2024	$18.00 → $16.00	Neutral → Buy	Citigroup
3/25/2024	$15.00 → $15.50	Hold → Buy	Jefferies
2/6/2024		Sector Weight	KeyBanc Capital Markets
6/26/2023	$24.00	Sector Weight → Overweight	KeyBanc Capital Markets
1/23/2023	$6.00 → $18.00	Underweight → Neutral	JP Morgan
1/11/2023	$6.00 → $22.00	Underweight → Overweight	Barclays
1/11/2023	$25.00	Peer Perform → Outperform	Wolfe Research

SEC Form 10-Q filed by Sotera Health Company

Chat with this insight

Recent Analyst Ratings for $SHC

$SHC Insider Trading

Insider transactions reveal critical sentiment about the company from key stakeholders. See them live in this feed.

Chairman & CEO Petras Michael B. Jr. gifted 200,000 shares (SEC Form 4)

Director Warburg Pincus & Co. sold $225,450,000 worth of shares (15,000,000 units at $15.03) (SEC Form 4)

Director Warburg Pincus & Co. sold $225,450,000 worth of shares (15,000,000 units at $15.03) (SEC Form 4)

$SHC Analyst Ratings

Analyst ratings in real time. Analyst ratings have a very high impact on the underlying stock. See them live in this feed.

Piper Sandler initiated coverage on Sotera Health with a new price target

Sotera Health upgraded by Citigroup with a new price target

Sotera Health upgraded by Jefferies with a new price target

$SHC SEC Filings

Sotera Health Company filed SEC Form 8-K: Regulation FD Disclosure

SEC Form 10-Q filed by Sotera Health Company

Sotera Health Company filed SEC Form 8-K: Results of Operations and Financial Condition, Financial Statements and Exhibits

$SHC Financials

Live finance-specific insights

Sotera Health Reports Third-Quarter and Year-to-Date 2024 Results

Sotera Health Announces Dates for Third-Quarter 2024 Earnings Release and November 2024 Investor Day

Sotera Health Reports Second-Quarter and First-Half 2024 Results

$SHC Large Ownership Changes

This live feed shows all institutional transactions in real time.

Amendment: SEC Form SC 13G/A filed by Sotera Health Company

Amendment: SEC Form SC 13G/A filed by Sotera Health Company

Amendment: SEC Form SC 13G/A filed by Sotera Health Company

$SHC Leadership Updates

Live Leadership Updates

Sotera Health Appoints Christopher Simon to the Board of Directors

Sotera Health Appoints Karen Flynn to Board of Directors

Compass Diversified Announces New Leader for Healthcare Vertical

$SHC Market Insights

Live Market Insights

Expert Ratings For Sotera Health

Piper Sandler Initiates Coverage On Sotera Health with Neutral Rating, Announces Price Target of $13

Sotera Health Reaffirms 2024 Outlook; Net Revenues And Adjusted EBITDA Growth In Range Of 4.0% To 6.0%; Adjusted EPS Of $0.67-$0.75, Est $0.71

$SHC Press Releases

Fastest customizable press release news feed in the world

Sotera Health to Share Next Chapter of Growth at 2024 Investor Day

Sotera Health Reports Third-Quarter and Year-to-Date 2024 Results

Sotera Health Announces Dates for Third-Quarter 2024 Earnings Release and November 2024 Investor Day

Recent Analyst Ratings for
$SHC

$SHC
Insider Trading

$SHC
Analyst Ratings

$SHC
SEC Filings

$SHC
Financials

$SHC
Large Ownership Changes

$SHC
Leadership Updates

$SHC
Market Insights

$SHC
Press Releases