Sotera Health Company (SHC) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to Day 2 of the healthcare conference. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our first company this morning, Sotera Health. [Operator Instructions] And with that, I'll turn it over to Michael.

Good morning, Tycho. And thank you to you and your team for inviting us to participate in this health care conference. Before we begin, some of the statements I make today may be considered forward-looking statements. Please refer to our SEC filings and this slide for a description of the risks and uncertainties that could cause our actual results to differ materially from those projected or implied. The company assumes no obligation to update forward-looking statements. In this presentation, we will discuss certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of these measures can be found in the appendix of these slides. A copy of this presentation will be posted on our IR section of our website. So I think we're having a little issue getting the slides progressing here, so let's take a minute here. But let me just tell you before we pull the slides back up here. I hope to give the investors during this conversation a better understanding of Sotera Health. I'll do an overview, a business overview and help demonstrate how Sotera Health really helps across the healthcare landscape. And also, the way we -- we'll give you a little bit more definition around the markets that we participate in. We'll give you a view towards our long-term organic growth. We'll talk briefly about M&A and what we've accomplished to date and how we look at M&A. And then we'll talk about our ESG approach and then briefly talk about the financials. As you know, we'll be releasing earnings later in the quarter for the fourth quarter and full year '21 and give guidance for 2022. And then Scott and I will come on and answer questions. So it appears we're having some challenges with the presentation. So why don't I -- I'll jump right in and just start on Page 4. I'll speak a little bit towards it to help everybody understand where we are in the presentation so you could track along. Safeguarding global health through our sterilization services, lab testing and advisory services, that's the page I'm on. Let me -- I'll first -- I'll take you through is what we do and then how we do it and the results that it leads to as a company. When we look at it, we're a leader in sterilization services. And we do that via 2 businesses, Sterigenics and Nordion. In Sterigenics, we have 3 modalities that we really use to help sterilize products for our customers. It's ethylene oxide, E-Beam, x-ray or cobalt-60 gamma radiation. We're the only globally vertically integrated player in the world for gamma radiation. And we've got -- when you think about this business, it's a service business. So what happens here is the customers ship the products to us, and then we put it through our facilities and do the terminal sterilization. Okay? These businesses are highly regulated. We sterilize right through the boxes. We don't take the products out, break them down or anything of that nature. We'll maybe break the pallets down or we'll take the pallets themselves and put them into the chambers in total. And in this business, again, it's a service business where we do the terminal sterilization via ethylene oxide, E-Beam, X-ray or cobalt gamma radiation. Our second business is our Nordion business within our sterilization services. This is what makes us the only globally vertically integrated gamma radiation business in the world. And in this business, we supply cobalt-60 to not only ourselves at Sterigenics, but also more broadly around the world, Nordion ships the cobalt. This is the only 1 of our 3 businesses that's a product business. The other 2 businesses are service businesses. And again, what we do here is we procure the cobalt, process a new usable form for sterilizers and ship it around the world. Our third business is our Lab Testing and Advisory Services business. This is our Nelson Labs business. And in this business, we test the products to make sure they're safe and they meet the regulatory requirements. In many cases, these services are government FDA mandated. But across all 3 of these businesses, we're dealing with a lot of blue-chip customers that you maybe know about in this highly regulated industry. And how we do this, we do it through these blue-chip customer relationships. We do business with 40 of the top 50 med device companies, 8 out of the top 10 pharma companies -- global pharma companies in the world. We do multiyear contracts. Typically, the contracts are 3 to 5 years in nature. We leverage our global network. We have 65 facilities around the world. In our Sterilization Services, we have 50 facilities. And in our Lab Testing and Advisory, we have 15 facilities. As I mentioned, these are highly regulated businesses. So our deep expertise and technical knowledge is really something that's very important to us. We've leveraged for significant organic and inorganic growth. We've mentioned many times to investors about our desire and intent to grow high single-digits. We were able to do that both via organic and inorganic growth. Our culture is really the foundation for this. Really, our focus -- our heavy focus on values. If you move to the right side of the page, you see that this business has had very strong results. We've grown every single year on the top line since 2005. That includes 2008 and '09 in the financial crisis, includes 2020 during the global pandemic. And if you saw this morning, we put a release out that we're going to end up at the high end of our previously communicated range of 9 20 to 9 30. We're going to end up at the high end of that range. So therefore, it translates to 14% top line growth approximately in 2021. So another strong year of top line growth. We have over 50% adjusted EBITDA margins. We have a $33 billion TAM. I'll talk to you a little bit more about that later in the presentation. This business has had a significant cash flow generation year in and year out. And we're very well positioned to be playing in the global healthcare space. I'm hopeful that when you walk away from this presentation, you'll understand why Sotera Health is such a unique asset. What we're going to do now is play a brief video. And I'd like you to get a feel for all the places that Sotera Health plays across the healthcare supply chain in really helping patients and practitioners to have safe medical devices. Look for the Sotera Health Shield throughout this video here. [Presentation]

Hopefully, you can see on this page here many of the products and capabilities we have across the company and what our employees do day in and day out in fulfilling our mission of safeguarding global health, and many of these were shown in the previous video. If I turn to the next page, talk a little bit about our total and serviceable addressable markets. Here, we have very high-quality relationships with our customers. As I mentioned earlier, we deal with 40 of the top 50 med device companies, 8 of the top 10 pharma companies in the world in multiyear contracts. We play in a $33 billion total addressable market. When you walk that down to our serviceable addressable markets by $11 billion; $3.5 billion or $3.4 billion of that serviceable addressable market is terminal sterilization. And that's really the in-source and outsource terminal sterilization market that Sterigenics and Nordion are playing on. And really, as we look over time, we hope there will be more of a shift from in-house to outsourcing and really leveraging the strengths of our company. On the testing side, we've got $4.4 billion in serviceable addressable market in the pharma outsourced market. Primarily, it's microbiological and analytical testing, stability testing and extractable and leachable testing. And then in the med device testing side, it's about $3.2 billion serviceable addressable market here. Here, the largest portion of that are routine quality lot release testing as well as the new product validation testing. So this gives you a little bit better feel of how we play in the $33 billion total addressable market, broken down in the $11 billion market that we serve. Going to the next page, to give you some insight. We've talked about this many times, but we thought we'd be able to lay it out here for your organization. How do we get to that high single-digit organic growth? We've got mid- to high single-digit volume and mix growth across the company. And then we get about 3.5% to 5% price growth per year, which then translates into high single-digit organic growth across Sotera Health. If you look at each of the 3 businesses down in the lower bubbles of this page, you'll see, on the volume and mix side, Sterigenics grows in the mid- to high single digits, Nordion is in the low- to mid-single digits, and Nelson Labs is the mid- to high single-digits. Now this is over time, a long-term perspective of how we see these 3 businesses playing out on the volume and mix side. On the price side, you see as a company in total, we grow 3.5% to 5% per year. Sterigenics is in the middle of that range, Nordion is on the high end of that range and Nelson is on the low end of that range. But again, really significant to help us deliver our long-term high single-digit organic growth. On the right-hand side of the page, we talk about our margin expansion and how do we grow margin. And really, there are 3 key elements of driving margin expansion, operating leverage, operational excellence and all the great work that our teams do in the organization to continue to do process improvement, and then lastly, price that I just discussed on the left side of the page. We transition into M&A for a brief moment. I want to kind of reflect on what we've accomplished as an organization over the last several years. But first, I'd like to talk about the process. For us, we have a healthy list of M&A targets throughout the organization that we have a dedicated team that focused on this day in and day out. Really, for us, it's making sure, first of all, it's a strategic fit. And then also, we really look at the front end, how we would integrate these businesses, how we generate synergies in these businesses. But we also make sure there's a cultural fit, that it lines up with our values, which is really important for us before we deploy cash. For us as an organization, we've had 2 transformational M&A transactions. We had the Nordion business in 2014 and the Nelson Labs in 2016. We've done several bolt-on acquisitions since then starting in 2013, and several acquisitions we did in the Sterigenics side, all the way through in 2020 when we bought the E-Beam business, Iotron. And then in 2021, we've made 2 acquisitions; one is BioScience Labs, that helped us in antimicrobial and disinfected in virology space, and then also regulatory compliance associates, which really helps build out our expert advisory services. So you can see here, we have a pretty healthy appetite for M&A. We're very thoughtful about this. It has to be on strategy. And we're really careful on how we deploy capital to make sure we can generate the returns that are necessary. I'd like to now transition briefly and talk to you about ESG. Our values in our business really drive and guide our ESG strategy. If you follow the company over the last 1.5 years since we've been public, you'll know that we really have a strong focus on our core values: safety, customer focus, people, integrity and excellence. And really, this is the foundation of the organization. It really helps us evolve the culture. If you then transition over to our ESG strategy, which actually follows from our values and our mission, just to give you a little brief view, and we'll have a lot more of this in our proxy as we get into this year. But we've really launched this ESG journey in 2021, formally as an ESG journey, if you will. We've been doing a lot of this work over the last several years. High visibility across our board, and this is part of the charter for the Nominating and Corporate Governance Committee, where they have oversight for the ESG efforts. Our Chair has deep expertise in ESG. And we have created an internal ESG team that's led by 2 of our senior executives that have direct reporting responsibility into me, leading the ESG efforts in the company. This is a multiyear strategy that we will continue to inform you and the investment community around all the activities that are taking place as well as any new initiatives. With some of the recent accomplishments, several of the investors have given us feedback. They wanted more visibility onto the ethylene oxide. We put a micro site dedicated to our investors on our Sotera Health website to provide more transparency and education. We launched the DE&I Council, which is chaired by myself. We've had every employee in the company do Unconscious Bias training. We've got a diverse Board of Directors, and we plan to include the diversity matrix in our 2022 proxy. And then as I mentioned earlier, we have oversight of these efforts, but I also talked to you about the compliance aspects, our global code of conduct, which actually I have to complete my annual assessment over the holidays, our supplier code of business ethics and conduct as well. So lots of efforts going on this way, and look forward to sharing more of that with you in the future around this. I'd like to now talk about finances. If you go to the next page, you can see here our revenue performance. As I've mentioned, we have a blue-chip array of customers. Over 90% of our sterilization services sales are under multiyear contracts, which means over $500 million of our $900 million plus in business is tied to multiyear contracts. Many of these contracts, a lot of people are asking these days with inflation. Many of these contracts do include annual price escalators to help us offset the pressures. And as I mentioned in the opening this morning, we've put a release out that we're going to be on the high end of our range, which was 9 20 to 9 30. And we should have about 14% top line growth in 2021. On an EBITDA basis, you see our margins through September was over 51%, nearly 52%. This is really a differentiated service offering that we have in highly regulated industries that will enable us to generate these margins. We continue to work on our margin profiles. As I mentioned earlier, the 3 key things that were really driving this: operational excellence, operating leverage and our price. And we've done a consistent job of delivering margin expansion across the businesses. I talked to you a little bit about cash on the next page. On capital expenditures, we continue to invest in this business for long-term growth. You'll see our investments were slightly down in 2020 due to the pandemic. 2021, we increased our spending rates, not all the way to the levels that we would like because of the fact that we just had some challenges with the pandemic, with labor crews, construction materials. But make no mistake here, we're continuing to invest in this business for long-term growth, if it's facility expansions, if it's ethylene oxide enhancements or some of the long-term cobalt supply that we had mentioned to you many times. Since we went public, we've taken our net leverage down. We're at 7.5x leverage when we went public. And we are now down through the third quarter down to 3.6x leverage. Our long-term commitment is in the 2x to 4x. And also, recognize that our annual run rate of interest expense is $70 million after we did the debt pay down in the third quarter. So I think the team has done a really nice job in delivering cash. I'll wrap up on the last page. This talks about why we believe this is such a unique asset. But I want to reflect here briefly, and we'll get more into this when we do the earnings later in the quarter. But the team has done an outstanding job in delivering what we said we were going to do when we went public as a company. We've grown in both revenue and EBITDA, exceeding high single-digits growth, as you heard me earlier, talking about the 14%. We've done strategic M&A with 2 deals in 2021. We've deleveraged. And we've invested for long-term growth. You could see the aspects of this business that make it so unique: the financial profile; the barriers to entry; the large addressable and growing market; the strong industry dynamics; our trusted relationships with our customers; the operational excellence; our M&A; and our experienced and established management team. So thank you for taking the time this morning to talk to us. And Tycho, I'd like to open it up to any questions that you or others may have.

Great. Thanks, Michael. Good presentation. So maybe I would just start out with the guidance adjustment, coming in at the high end of the previously communicated range. Anything you want to say on what that implies for kind of underlying volumes, trends in 4Q?

Yes. I would just say the team did a really nice shot executing here in the fourth quarter. As many know in this industry, there's a lot of moving parts with this pandemic, but the team done a nice job, and we came in at the high end of the range. And we look forward to share more details as we button up the financials for 2021. But overall, Tycho, I think most people would agree that 14% growth was a strong year for us.

And you mentioned or at least alluded to in your comments some of the kind of the wage inflation challenges, the hiring challenges. Can you maybe just touch on those 2 dynamics in this climate?

Yes. I would tell you it's -- we're seeing it across the business, predominantly in the U.S., not exclusively in the U.S. Like many others, we've had to make wage adjustments, no surprise. And we've increased our recruiting efforts. And we see that across the businesses here in the United States, but in most geographies outside the U.S., it's been okay, but not entirely. We feel very good about our ability to pass through these increases in cost with the way our pricing mechanisms are set up in our contract. I think that's one of the things you'll see that's really unique about this business, is our ability to sustain these margins and to recover cost pressures that we may see.

Maybe we could touch on capacity expansion. You've been pretty vocal about some of the ongoing plans. And you've said these are not necessarily in reaction to immediate near-term demand, but planning for the long-term trajectory of the business. Maybe from a high level, what gives you confidence that the demand will be there for this new capacity? And any color on what portion of this is committed at this point? Or do you not necessarily book it out ahead of time?

Yes. Thanks, Tycho. We've got a healthy appetite for expansions. And as we've said in the past, with others investments, we really are focused on making sure we have customer commitments. We try not to build these facilities or put the expansions in without some level of customer commitments. So a large portion of these investments, we have a significant portion, sometimes, up to 40% of the capacity already committed and contracted on multiyear contracts. We work very closely with our customers to have visibility of what kind of capacity they want. If it's ethylene oxide, if it's EO, if it's cobalt, and where they want it. So we want to make sure we have the right capacity in the right location at the right time. We feel pretty good about it. We are having some challenges like others in getting materials. And we're seeing some increases in costs on construction and just getting people on job sites. But overall, the team is progressing on that, and we'll have a lot of activity in 2022. I met with the teams late in the fourth quarter and really to just make sure we're grounded and focused on our activities for 2022. We brought up some nice capacity in late 2021 as we committed. And we're off and running here in 2022.

And can you maybe just talk a little bit more on the type of capacity being added? EO versus gamma versus E-Beam? U.S. versus international? It might be helpful just to understand where the incremental capacity is being added.

Yes. I would tell you, most of that capacity expansion is in North America as well as in Europe. And it's across all 3 modalities.

Got it. And you often talked about the fact that it's the FDA and the customers that decide what modality. But is there any underlying trend in EO versus gamma versus E-Beam in terms of one being used more? I mean EO is, I guess, the dominant. You're #1 there. But any nuances there?

Yes. I would tell you the demands are strong across all of them. Gamma radiation, particularly with bioprocessing right now, there's been a lot of demand and interest in bioprocessing, which -- it goes cobalt predominantly, but not exclusively. I would tell you there's been a lot of demand in that area. But ethylene oxide still -- we still have significant demand. Just yesterday, I was made aware of some new customer commitments coming in. So I would tell you, overall, we're seeing strong demand across all modalities. Remember, Tycho, as you stated, we don't choose the modality. That's ultimately determined by the customer and the FDA. And one thing that's really important to understand, this is, in many times, part of the FDA file, okay? So it's not really easy for customers to switch from one modality to another or even from one location to another because this is part of the FDA file which really makes it challenging for customers to switch. But if the customers want to switch, we'll work with them to enable a different facility if their supply chain dictates that need. But again, we don't choose that modality. It's ultimately determined by the customer and the FDA.

And how about recent trends around Nelson Labs? I know that was a little bit choppy in and out of 3Q around some testing delays. Has that come back?

Yes. I mean Nelson is a strong business. It's performed very well. The key in that business is turnaround time and really high quality. We've seen -- as you know, we've mentioned in the past that we did heavy protective barriers testing. We always did that. But during the heart of the pandemic in 2020, we saw significant growth in that area. And that has continued to come down as we expected. It came down a little faster in 2020 than we thought it would. It's hard to handicap exactly how that would play out. But the team is seeing nice backlog starting to build there. It's not a huge backlog business though. But we're seeing that. And that's one of the businesses, in particular, the labor portion of it is very important. So getting the right amount of people in place, so we could continue to grow is something that's very important for us. But overall, we expect 2022 to be a good year for the Nelson Labs business, just like we do in all 3 of the businesses.

And I know you talked about the overlap, I think is around 70%, maybe a bit higher between Nelson Labs and Sterigenics, and you're kind of in the early innings of realizing synergies between the 2. Can you maybe talk on some of those efforts?

Yes. I would say this is something culturally -- I worked at General Electric for 18 years and I ran the cross business selling there if it was the GE Olympic efforts or trying to get all those different businesses according. This is a cultural aspect of this that makes that. Just because I say I want to happen, our customers, it takes time to get that going. And I think the team has done a really nice job. We've made a lot of improvements. We've built into some of our contracting. We've got an integrated CRM system. We've done a lot of training. But then the other aspect that's really been exciting for us that we announced late last year was EAS, which is our Expert Advisory Services. This is where our people are brought in as the front-end experts to help solve problems. And that's starting to show some nice fruits and being able to deliver opportunities for downstream testing or sterilization. This is all part of the strategy to leverage, if you will, Sotera Health across the customer base and making sure customers understand the value that comes from Sotera Health.

And has that EAS been kind of magnified because of COVID? I mean is that increased kind of the need for some of these services? Obviously, you've kind of rolled it out in the middle of pandemic, but I'm just curious if that's kind of magnified the need relative to your expectations.

I don't know that, that so much has been magnified. But I know the sterilization services and testing, sterilization in particular with PPE, not all PPE requires testing, but the ones that do, you've seen a pickup in increase in that area. If it's swabs for testing or if it's gloves and caps or gowns, we've seen some increase in that area. But I would tell you, Expert Advisory Services is something we've been doing for years. We've just organized ourselves in a better way, in our opinion, in the eyes of the customers to help give them a full one-stop shop across that product development cycle, and really how Sotera Health can help them.

I got a question over e-mail, just asking for an update on New Mexico, Georgia, Illinois litigations. Can you maybe just kind of walk through latest timelines for each and what we should be thinking about?

Yes. Great. Thanks, Tycho. Always good to have an ethylene oxide conversation first thing in the morning. So some good things going on here that I want to make sure you're aware of. Let's start with New Mexico. If you saw in our investor portal, we put a communication out there just before the holidays. The courts ruled, in our opinion, in our favor. They took our order. And so what happened is both parties, us and the AG, submitted to the courts a monitoring protocol. Both parties submitted proposals in proposed orders. And the courts accepted our order as the path forward. So we continue to operate in that facility, and millions of products are sterilized there. Also, if you remember or recall, we've got the permit for the construction as well as the environmental permit. Both of those are approved in New Mexico. We're moving forward in 2022 in aggressive fashion now to get the facility enhancements in place, a negative pressure to double scrub and the centralized discharge. So we're continuing to work through it. We do have some litigation there with the Attorney General. Not exactly sure where that's going to play out. But what I can tell you is this facility is operating. And it's -- the courts agreed with our approach -- agreed with our approach on the protocol. And Illinois, things are progressing on discovery and depositions, and we will have our first trial in July, then the second trial in September and the third trial in November. So those are progressing as planned. We'll see what happens. We don't control that timeline. We're hopeful that those trials go forward in that timeline. But with COVID, some of the state courts are starting to get backed up as some of you may see in your local markets. But we're hopeful that the trials take place as planned. And then in Georgia, I'm not sure if many people saw it. Last week, the Georgia EPD went ahead and approved our air permit. So as you know, in that facility, it's the first one that we put these facility enhancements in place. They're working very, very well. And in our view, it's industry-leading, and in many instances, probably the best control technology in the world. And the Georgia EPD acknowledged that by issuing a permit to us last week to continue to operate that facility. We still have some other things we're working through with litigation in that market, particularly around the occupancy permit. But as far as the regulators who regulate the emissions and the operations of that facility, we're well positioned and we have the approval from the regulatory to keep operating. So I'll pause there. I'm sorry, Tycho, I said a lot, but obviously, it's something I want to make sure our investors are informed around.

Yes. Another -- that's super helpful. And obviously, in Illinois, you're not accruing for settlements or legal payouts, right, which is encouraging, I think so. In terms of upgrading the other facilities, can you just lay out a road map for this coming year which facilities will be upgraded?

Yes. We won't get in particulars. I mentioned Santa Teresa because that one has been in there. We've told the courts that we're going to do that, so it's public information. We continue to move forward with improvements across our US EO facilities. They're at various stages. But Tycho, one thing to keep in mind is we don't control that timeline necessarily. If you only knew how many months ago we've been working with many of these regulators, and it's when it's a priority for them. Although this is very important to our stakeholders, it's not always the most important urgent matter within each of these states or local authorities. So we've got in process many of these facilities in anywhere from design or waiting on approvals or permits or we've got the permits, and we're ramping up construction and renovation efforts. So I could just tell you, this will continue at least through '22 and '23 and possibly into '24. It's just depending on the timing of when regulators want a final approval of these things. And it's not that they're not approving them. It's just they have other more pressing things that they may be attending to in their local markets. But we feel good about how this is progressing. And we feel really good about the solution we've put in, in land and some of these other facilities that they're working really well.

What was the latest on EPA? I mean I think there was a little bit of a rumor we could have gotten something at the end of last year but they've been kicking the can down the road there for a while. So what's your best guess at this point on the new regulations?

Yes. We -- the one thing I could tell you, besides predicting that the Browns wouldn't make the playoffs, I can't predict much else, Tycho. I can tell you that. On this EPA side, we would have hoped for due regs in '18, '19, '20 and '21. The latest is that we'll see something here in the second half of '22 and will probably be approved by late '22 or early '23. We feel pretty confident the solutions we're putting in place are going to be industry-leading. And it'll be very closely aligned with the new regs, in our opinion. There's always a chance it won't. But we don't control that and -- that timeline. And I think what people are realizing, this is a complex issue. No matter if a Republican or Democrat saying, oh, why aren't they getting it done? At the end of the day, this is a pretty complex. You've got the med device community. It's requiring us -- the people who live in the communities, the regulators, the politicians. And then you've got the patients at the end of the day that are getting sterilized products that need EO. I think all of the people in the administration have realized this is a complex issue, and there's no easy solution. But what I'm telling you, from our perspective, we're going to lead here as best as we can. We're put negative pressure, double scrub, central discharge. And it's -- in our view, this is going to be something that the competitors are going to probably have to step up to once the regs come out.

Yes. And then presumably, that will drive more outsourcing in your view?

There's a potential for that. It all depends on how our competition reacts to it. I think many of the competitors will have to respond just like we did or similar fashion. But I think there'll be some that probably potentially can't do it for a host of reasons. We feel good about where we're at though, I would tell you that.

Can you maybe just spend a minute on the model and margin drivers? I mean I think people are always amazed when they look at our model, that we've got, continued margin expansion. Obviously, you're getting good pricing every year, 3.5% to 5%. But maybe just talk on some of the other initiatives to drive EBITDA margins beyond pricing.

Yes. So you got pricing, as you mentioned. But then I would tell you, operating leverage, right? You've got these assets. And we're driving more scale, more volume across these fixed assets. That really helps you drive nice operating leverage across the business. And then I would tell you, operational excellence and all the work the team is doing, with Kaizens across facilities, how to reduce downtime, how to have better preventive maintenance, how to really make sure that we streamline our processes to drive overall process improvement. We're also making investments. You take something like the Nelson Labs business. We're putting a lab information management system there to standardize some of the processes. We've done a lot of work in that business and across the company. If you look at what the Nordion team did this past year, there was a lot of cobalt that was back-end loaded in some record numbers of performance that they had to put in to get cobalt in and out. And the process improvements that, that team put in place to be able to turn that and simplify their operations and get that product out to the customers in the market was really phenomenal. So I would tell you, there's a host of levers that the team is pulling day in and day out to drive operational excellence. And coming from an industrial side background, if you will, for myself, I think there's a lot of aspects in healthcare that really haven't optimized their processes, and I see opportunities for that. And I think our team is doing a nice job in that area.

Would it be fair to say the opportunity around Nelson Labs is greater just given where you're starting relative to Sterigenics and Nordion from a margin perspective?

I would just tell you all 3 businesses have growth opportunities and margin expansion opportunities. We've got to continue to take care of our customers. That Nelson Labs business, to me, it's all about the turnaround times, high quality and service. And we see opportunity - significant opportunities for growth in that business.

Maybe we can touch on capital deployment in the last couple of minutes. You've done some interesting bolt-ons. Can you just talk a little bit about the M&A funnel and where you see gaps and what you're prioritizing?

Yes. So we talk about cash. Hopefully, Tycho, you and the investment community, you can see that we said we were going to do some things and we did it coming out. We deleveraged the business. We continue to grow EBITDA. We continue to focus on working capital. And that gives us the opportunity to continue to invest back in the business. We're always going to invest for organic growth or strategic M&A. So we're going to continue to invest for long-term growth in this company. That's really our first priority. We'll then continue to look at M&A. We've done 2 bolt-on. They were small tuck-in acquisitions around Expert Advisory Services and then Antimicrobial and Virology, which from an end-market perspective, that was really strategic first. We had capabilities in that area already. The question is do we build it or do we buy it to go faster? And in this case, we were able to buy and get nice synergies on that. And I would tell you then lastly, we will continue to delever. I feel confident about our cash position coming out of '21 and the prospects for 2022. This is a business that will continue to have strong cash flow generation.

And is it fair to say Nelson Labs will continue to be kind of the hunting ground for M&A? It seems like there's a little more greenfield there versus the other businesses.

That's a highly fragmented business, Tycho, and there's a lot of small players out there. We see opportunities for M&A in that business, I would say, quite a bit. But I would also tell you, all 3 businesses have opportunity. We did Iotron in late 2020 on the Sterigenics side. We did expert advisory services that really is a platform across Sotera Health when you look at both Sterigenics and Nelson unit. And I would tell you, Nordion has some opportunities as well. So Nelson has probably got the richest pipeline, if I think back to the pipeline, but I would say, all 3 businesses have opportunity for M&A. But we're going to be disciplined on how we think about that and making sure we're deploying capital in an efficient manner.

And on CapEx and capacity expansion, how often do you look at asset transfers versus greenfield on your end?

When you say asset transfers, I'm sorry, can you...

Buying customer facilities, right, and upgrade...

Yes. We've done that a couple of times or we've worked with customers that want to outsource them. They maybe don't want to send their asset to us, but they want to repurpose their assets and make it more of a manufacturing site in outsourced sterilization. We've done that several times with our customers, helping them switch from in-house to outsourcing. I can't think of anything recently where we've bought a facility of our customers. There's conversation that take place periodically in that area. But for us, our expansions are really, how do we get more cobalt into our business, and -- if that drives more growth for us, but also how do we go ahead and put more chambers in or more radiation space or just greenfield? Okay. Obviously, one of the expansions we had is the Iotron business. We were able to get another [ beam ] in the Indiana, which has been very helpful for us as we ramp that volume up. So I would tell you, overall, we see several opportunities for expansion, provided our customers continue to support the demand that's out there.

And then how does the math between new build versus capacity expansion generally work for you guys? Enhancing existing facilities versus greenfield?

On that, it really comes down to what kind of -- when you look at what the customers are, what kind of technology do they need, modality, where it is and the timing of that? That will really dictate if it's organic, inorganic, if it -- and the organic, is it an expansion? Or is it a greenfield? Obviously, we did the U.K. Markham Vale Gamma site back in '18, I think it was. That was just driven by customer demand. They've been asking us for years to help them in that marketplace.

Great. I know we're bumping into time. Maybe just one last one. We talked about how 2021 ended up. I guess, given what you know around Omicron, as we think about kind of the first quarter here, do you think we're kind of through the woods on surgical volumes? Do you think things are kind of stabilizing?

It's -- I'm involved with one large health system, involves a mixture on their Board. I can just tell you it's really a mixed bag. And we're seeing different geographies having different approaches on elective procedures. It feels like portions in the Midwest and the Northeast have really gotten hit hard here in this latest round. Not that that's going to be exclusively where it settles, but we're seeing a mixed bag, if you will, on what's happening with the elective procedures. Some of are just doing outpatient. Some of them are really coordinating the COVID patients in certain locations and keeping inpatient free for a couple of other locations. So it's really a mixed bag. We're not seeing a dramatic shutdown that we saw in 2020, though.

Great. Michael, I appreciate you taking the time. We got to wrap it up there. So enjoy.

Great. Thanks, Tycho. Good to see you. And thanks for all your support. Bye-bye.