Sotera Health Company (SHC) Earnings Call Transcript & Summary

All right. Well, good morning, everyone. We're going to continue with the MedTech Track of the Goldman Sachs Healthcare Conference. I'm Amit Hazan, the medical technology analyst at Goldman, and we're excited for the next conversation with Sotera Health and Michael Petras is here, who is the Chairman and CEO. So Michael, thanks for coming. It's great to see you we're just joking around before. It's the first time we've actually met in person given...

That's right. So thanks for having me. We've done a lot of videos on Zoom and..

That's right. We've Zoomed a lot. Well, it won't surprise you that a lot of the beginning of the conversation with a lot of folks. It's still around the macro.

And so why don't we start there at a high level, and then we'll get into the more exciting business stuff. But especially for you guys with your line of sight to the U.S. and volumes. I just -- I wonder if you can talk a little bit to recovery and what you're seeing today in the market from a utilization standpoint, whether it's encouraging or meet your expectations or what you would have thought? Just any color on that would be super helpful.

Great. Thanks for having us here at the conference. We will be making some forward-looking statements. So there's risk and uncertainties. You can look at our disclosures to see those in our SEC filings on our website, just so you know, because they could have material impact to the company, obviously. As far as the outlook and what we're seeing on the volumes and activity, it's really a mixed bag. If I reflect on each of the geographies that we play into. In China, we've got a big presence, in Asia, a big presence, in China and Shanghai in particular. With the lockdowns, we've had some mixed results in that area when you see the activities because the volumes have been flowing freely because of some of the restrictions. In the U.S., I'd say it's pretty choppy, it's pretty choppy. And it's -- I think that underlying -- when I look at the end markets in the health systems, and I'm involved with one in particular that I know and see the end market demand. They've seen some real mixed bags with the labor and everything else that's having an impact. And then the supply chain issues our customers are having trying to get components has had a significant impact. Europe surprisingly has seen a little bit more steady rebounding and a little bit more consistency than we've seen in some of the other markets. So I'd say right now, it's a mixed bag, generally positive. But I'd say a mixed bag.

Okay. Okay. We maybe try to tie that back to how you guys talk about the business sometimes, which is just your own capacity, And we used to talk about this during the COVID days when it was pretty low. Maybe just remind us where it had been hovering in '21? And how you came into this year and where you're at these days with capacity at your facility?

Yes. If you look at each of the 3 businesses, if I start with Nordion in particular, for them, it's all about getting cobalt out of nuclear utilities and being able to get it and process it and turn around. We don't really build big inventory. We'll get periods where there's a lot of harvest at 1 point in time that will make it a little tough for us to turn it around in a timely fashion. But it's not something that sits there for months and months and months. So I would say from a capacity side, it comes in peaks and troughs because of the fact that when the harvest comes from the utilities. But overall, we're in a pretty good spot. On the Sterigenics side, we try to target about 80% utilization. I'd say we're in that neighborhood these days. We're bringing capacity on, but we're also getting of our existing capacity with all the operational improvements the teams are putting in place. And then on the Nelson Lab side, when I think about their capacity, a big part of that, we've got facilities and equipment but then it's a people business. And when you think through the first quarter, one of the things that we stated in our first quarter earnings that was a little tougher, more challenge because of absenteeism. We're finding it to be a more stable environment now. Although it's not perfect, I would say the team is doing a really good job getting throughput. There are some pockets where we have challenges of capacity just because of overall demand coming on. But overall, I'd say all 3 businesses are in pretty good spot with capacity.

Okay. Okay. So you mentioned supply chain for your customers. And you guys have talked about -- for you guys inflation environment, supply chain kind of broke it into labor, freight components. Wonder what components means for you, just given your business so you can give us a little bit of insight into that? And whether the other things, freight, is there any improvement that you're seeing there at all?

So this business is really unique in the fact that our inflation is really contained to a couple of key areas where we see inflation right now in our business is: one, on utility spend; another area would be in labor; and then the last 1 would be on construction costs in some of the capacity. We're fortunate that we don't have components per [indiscernible], but we have -- like raw material, we have material like ethylene oxide. We've seen some inflation in that area, but we feel very confident in our ability to push that through to the market in the way our contracting set up with our customers. But labor, construction cost and then on the transportation side and utilities. And the transportation side, just so [ you know ] we don't pay transportation costs in our business. So how the model works if you just take to the 3 businesses, Nelson Labs, customers are shipping their samples into us. We do the testing and then they're being shipped back out at their expense. The Nordion side, we pass through whatever our transportation costs are to get the cobalt from us to them -- to our customers. We pass that through. It's completely passed through. And on the Sterigenics side, we don't have transportation cost. Customers drop their product off, we sterilize it and they pick the product back up. So it's a really unique model, and we have pretty good visibility. It's labor, its fuel cost and the energy spend and then its construction costs.

Okay. Okay. So you're obviously very differentiated than many of the MedTech companies I cover, all of them really in regards to price. And you were taking price pre this inflationary challenge that we're having now. And you've talked about this recently on recent calls, but your ability to take price on whether it's existing contracts or new contracts, incremental to what you already do, just given some of these challenges that we know all your customers are having. How do you think about that? And what kind of price increases are you able to manage in this environment?

Across the company, we see that we get 3.5% to 5% price per year. Okay, Nordion on the high end of that range, Sterigenics in the middle end of that range and Nelson at the bottom end of that range. If you looked at our first quarter, you'd see all 3 businesses were running above that rate. And that's because of the way our pricing or contracting mechanisms work with the customers. We have built in escalators in our contracts with our customers. On a regular cycle, those go in base off of some indexes or formulas that we have in place. So we feel pretty good about our ability to push on increases that we see. There might be a little lag. It not like if I get an increase today, I can go tomorrow morning and do it. But we feel that there's a pretty healthy process on how we are able to achieve that. And you see that in our results. We're able to maintain our margin rates in an inflationary environment, and we're able to continue to get price. But the thing I want to be careful, I've been on the receiving end of giving price and taking price and getting price, it's all about the value we bring our customers. And for us, it's about the mission-critical services that we offer them. These companies have billion-dollar product launches. If it's pharma, if it's med device, they need our often government-mandated services to help them get their products to market. And it's a very small percent of their total cost of the product. And it provides a very valuable [ stuff ]. If you do not have a safe medical device, knee replacement, pacemaker, whatever it might be, some vaccine, it doesn't matter what the price is. So our job is really safeguarding that.

Okay. So let's move to the businesses. Let's start with Sterigenics. And I got to imagine there's a few people that are probably listening in that or here in the audience that don't know the story as well. So I figured spending at least a minute talking through the 3 main ways to do sterilization would be useful? And then maybe just provide your perspective on how that might evolve over the next 5 to 10 years?

Yes. Let me step back from it, some folks that may not be as familiar with our business because it's relatively new to the public markets. In Sterigenics, what happens is the med device and pharma companies make their products and then they ship them to us, okay? And we do not take ownership of the product, we sterilize the product. It goes through our facilities. It's a service business. Product comes in, we sterilize it, they pick it up. At the end, there's a couple of key modalities: ethylene oxide, gamma cobalt-60 or E-Beam x-ray, those are the 3 main modalities for terminal sterilization. We play in all 3 of those. And what happens ultimately is customers drop their product. And based on the product and the product composition and the density of the product and the materials, the modality is chosen. We do not choose that modality that's chosen by the customer and the FDA, and then they use 1 of our facilities to perform that service. So it's really -- we sterilize right through the packaging in most cases. In some few cases we get raw product, but in most cases, it's going through -- you put the product in a package and it goes into a box and into a master carton onto a pallet and we'll sterilize right through all that. So that's just kind of an overview. I mean specifically -- go ahead.

As I was going to say, do you see that evolving next 5 to 10 years? Is it kind of the mix of which sterilization method is used? Do you expect that to evolve in any way?

I continue to see growth and depending on where it goes, like in particular, right now, we've seen area it's growing quite a bit is bioprocessing. And that is a really good store that sterilized with cobalt-60. I think over time, x-ray will probably be an option that will be in there. So we're going to make sure we're prepared in all modalities to service it. I don't see any one going away, in particular, and it's not like they change very quickly because you have to go through all your FDA filings. The product has to be qualified. It has to be approved by the FDA and the whole sterility plan. I don't see that changing, but we're going to continue to invest in all modalities over time as these markets continue to evolve.

Okay. Okay. Let's talk about -- I mean, we use the word competition. This is an umbrella term because for you, it might mean a couple of things. There's the in-source versus outsource, which I think I want to talk about first, which is that these companies sometimes can do their own sterilization or they can outsource it to you. And it's been an incredible driver for your business. You've told us in the past, it's gone from something like 40% to 60% over the last 5, 6 years in terms of in-source versus outsource for these medical technology companies. And so it kind of begs the question of where we are in that evolution? Is that going to continue? Do you have -- do you anticipate in the next 5 years that the movement towards outsourcing has more room to go that can help drive your underlying volumes as well?

I joined the business in 2016, and we've seen a gradual shift to more outsourcing. So today our estimates are 57% is outsourcing 43% is insourcing. And I've seen that move a few points over the last years that I've been here. We're in the midst of our 3-year strategic planning process right now. And just last week, we're going through some of the numbers. And I think that shift will continue to go in the direction that outsourced piece being larger. We're trying to refine the final market numbers on that, but I anticipate that increasing again. And it's just the nature of -- I think our customers are realizing how challenging it is to do this kind of service. And that's not their core competency. Now some customers feel that is something they want to keep close to in-house, and they don't want to pay margins to outsource sterilize. That's fine, but I can tell you that's a small portion of the customer base. The vast majority see the value that somebody who lives and breathes day in and day out is really the way to go. So we are seeing -- if we look at our market data, we're seeing the trends more to outsourcing again, just based on the growth numbers that are being put out by ourselves and our competitors, it feels like there's a lot more growth happening in outsourcing than insourcing. We don't have to find numbers yet, but again, that 57% is our current estimate, we see that trending up.

And how much control do you have over that? I mean are you enabling this transition in some way? Are you investing in new facilities and locations kind of strategic local places that you know will then further that in-source to outsource trend? And how much is in your control versus these manufacturers coming to you and eventually doing it on their own?

So at the end of the day, the customers are in control, they're going to decide whether they're in-sourcing or outsourcing. We make sure that they understand the value proposition that we offer. We've got 9 capacity expansions in place right now that we're investing in. And those are all well grounded with our customers. So we make sure they're aware. And we don't do that in a vacuum. We make sure we connect with the customers and understand where their supply chains are going, where they need capacity, what kind of capacity in the locations. So we do that in close concert with our customer base. And I would tell you, I could say the vast majority of the expansion, I know going on right now are outsourced. And it's -- we're working with our customers. I was with the customer last night that I know we're involved with and a new project that they're going to be a big customer of ours, and that's something that's really important that we make sure we're connected with the customer. We're not just building that is filled with the dreams and hoping people come, we actually connect them what they wanted. But ultimately it's their choice. If they want to do in-source or outsource. But very few might have seen and there are a couple that are doing in-source. But the vast majority, we're talking about how do we get more of our capacity.

Okay. Okay. So capacity expansion key. And the other part of competition, obviously, is just other folks doing something similar to you. So maybe it's STERIS, maybe -- it's a device companies, maybe it's Mom & Pops. I don't know. I think it would be great to hear your thoughts on your competition, your market share and how you think about gaining share, if that's a part of the story here? Or is it just about maintaining and then building on that outsource volume that [indiscernible] through?

Yes. So the context is Sterigenics, I assume, we're still talking. And I'd say we've got 1 primary competitor in STERIS AST business that's replaced sterilization techniques. That's the closest business to Sterigenics, if you will. And then there are small regional players and then there's in-house. I view those as our competition. For us, it's about making sure -- this is not something where they go out and run an eBid, throwing on the internet, you have to get your bid in by 4:00 a.m. and whoever got the lowest price, that's not how it works at all. It's who has the right capacity, ethylene oxide, E-Beam, X-ray, cobalt where is that capacity and how much of it's available because then you have to design a cycle around their product. So it's a very sticky relationship. You don't see big share shifts going unless a material events really drive that. You don't see a lot of shifting capacity from supplier A to supplier B. It's just -- that's not how the industry works. These are big investments, too. You're talking $30-plus million for a new facility, and you want to make sure you've got a solidified customer path on that. And we work very closely with the customers and what capacity we have and once it's going to be available. So competitive scenario was really around the right capacity, the right time and the right amount in the right location.

Okay. And then the 9 active...

Very different. You should sell lightbulbs to Walmart, and I can tell you that discussion about what the price of your LED bulb is today versus your competition is a lot different than this business, very different.

Yes. You mentioned the 9 active capacity expansions. As we think about those, as you build those, you've determined that these are the sites where they're going to be. Do you have line of sight for capacity there to be kind of towards where your Sterigenics average is as you're building that because you know the customers that are going to come through there?

Yes. So we -- so let's take those 9 expansions in Sterigenics. 2 of them are greenfields, new facilities and 7 of them are expansions at existing facilities. One of them happens to be a relocation down the street to a larger facility, we'll pick up the incremental capacity with that. We try to target about 40% or so of that capacity committed to our customers before we put the shovels in the ground. That's typically what we do. And then you get accounts of scale over time, as you build out. When you do expansions within your existing facilities, the economics and the operating leverage is far greater than building a brand new greenfield. So there's a little slower return on that. But overtime, we're pretty confident about our returns on these investments.

Yes. And I think you threw it out and correct me if I'm wrong, if you don't know at the top of your head, but it's -- I think you talked about it yielding somewhere around $40 million in sales over the next 3 years. Does that sound about right?

I don't remember that number off the top of my head, so I don't want to...

Scratch it?

Right. I don't want to -- the number, I can't remember it exactly.

Sure. Let's move to another topic that's really important to Sterigenics and that's the regulation and litigation fees. And then I think as investors get more comfortable here, I think good things can happen. So I'm looking just to get a sense for -- maybe we'll talk about things at a high level first since we just came off the discussion about medical device companies in-sourcing and other competitors, how much of a barrier or a deterrent is regulation today in this industry?

People look at our margin rates, they look at our ability to get price, they look at our CapEx and say, why this business is really interesting? That is because these are highly regulated with deep expertise. These are not -- I've said this all the time. You don't go down the street and say, I'm going to go to Home Depot this afternoon. I'm going to build the EO sterilization facility or cobalt-60 sterilization facility or I'm going to stop at UPS and pick up an envelope to drop cobalt in the mail to my friend. So they have it 10:30 tomorrow morning. These are highly regulated complex businesses that require deep technical expertises. So I would tell you, we're used to deal with that regulation. So we've got a lot of regulatory oversight in all our facilities and a lot of our activities is FDA, the Nuclear Regulatory Commission, the EPA on and on and on. The Canadian Nuclear Society. So we -- this is something that our team is very well equipped for.

Yes. Okay. So the guidelines, I mean, we're anticipating potentially some guidelines maybe later this year. What's the latest update on the EPA side? And what timing of guidelines might be? And then best you can do in base case scenario what to expect? I think investors are trying to get their hands around what's likely -- they know that you don't know exactly every word with the document that will come out. But what's a good base case expectation?

Yes. What I would tell you is there are no new -- we've been getting a lot of scrutiny. And I think people would first started on our company in Sterigenics in 2018. People starts to day, "ah, this is Sterigenics issue, it's an industry issue". We understood very clearly it was a broader industry issue. And I think now it's become very clear to the regulators. This is an industry situation. It's not a Sterigenics only. So it's been -- since 2018 to kind of just step back, 2018, that's come under intense scrutiny. And there are still no new laws or regulations from the federal government on how they want the EO facility [indiscernible]. We have been waiting for new regs from the government since late '18, '19, we're told it was going to come. We're told it's going to come in '20. We were told it's going to come in '21. The latest we're hearing is the rule will be recommended and proposed for 2022, but then it's going to go through all kinds of public comment periods and review cycles, and it probably won't even get into law until potentially 2023, okay? We are very anxious for that to come out. But I also want to give people a broader backdrop here. Over 50% of the medical devices in the United States are sterilized with ethylene oxide. It is not going away. It needs to be there. Over 20 billion devices according the FDA sterilized with EO a year, okay? So it's not going anywhere. As far as the company and what we're doing, we're getting way out in front of this thing. We are making significant capital investments in our facilities to put the most enhanced controls that we know are technically feasible. And we are actually telling the EPA, you ought to make the rest of the industry to put these controls in because we've proven it works. I will be interested to see where the EPA goes on this. If they decide to go all the way to the highest level of control or if they decide to go with a lower level of control to [ PPEs ] others in a broad stakeholder group. But for us, the right thing to do is to make the investments -- to put the most complex engineering solutions in that control the most amount of ethylene oxide. That's what we're doing. And our Board has been committed to this since 2018, '19.

So you're charting a path towards the higher level of control?

Yes. The highest levels that we know are feasible.

So what's our realistic downside scenario? We can come up with all kind of crazy scenarios about not being able to have EO facilities in the U.S. But let's -- what do you see as kind of a realistic downside scenario?

I think one of the cases that could be bad is if we put all these great controls in and the EPA set the new rules would be a lot less than, but to us, it's the right thing to do. So it doesn't matter. And we're going to go sell it to our customers. We're going to tell the industry. We have the most advanced controls in the industry. We have been telling them. In particular, it's around what you're going to do around negative pressure to keep all the air inside the building. So I really don't see a downside, we're putting the most advanced controls in, the downside is how long it's taken them. I wish the EPA would come up tomorrow and tell us what the rules were.

Yes. Do you -- you just want to know the rules?

I just want to know the rules so we can play within. And right now, what's happening is there's a lack of clarity in rules. It's the rules that have been in place for years. But then I got everybody saying, EO is more dangerous. We need more controls. We'll just tell us what they are and we'll do that because what's happening is each state is trying to interpret what they should or shouldn't be. We're trying to raise the bar here and that's been our strategy all along.

That kind of brings us to a state New Mexico and kind of the latest challenge you had in 1 of the facilities there. Any update there at all that's worth sharing?

No. I mean New Mexico is one of our larger facilities in the world for ethylene oxide. We're operating every day. We're doing, I think, 2 million devices a day are being sterilized there for my numbers are right, it's at least 2 million. We're in the middle of the enhancements and the business is moving and as usual, we're putting enhancements in place. We have an attorney general that try to get some additional controls around us, which we didn't really understand. And that -- all we're doing is we're operating that facility, and we're putting the enhancement and I'm referencing, we're putting those words in the middle of construction now and all the permits have been issued and we're moving forward. The business is up and operating. We're taking care of our customers.

Okay. Okay. So the other challenge or thing to get through here is the plaintiff litigation. And so here, too, I mean, we're expecting some first trial is here coming up not too distant future. Just walk us through how you're thinking about the various scenarios that could play out as those trials gets underway?

Yes. So what's happening is we've got plaintiff lawyer toward litigation that believes that the people that in the community to get cancer were caused by our facility. Listen, we have empathy for people that have cancer, many of us in this room if we had people, individual, family members have been impacted by cancer, okay? We have empathy for that. Our facilities did not cause the cancer here. And that's what's got to be proven in the court of law. And the first trials, these are not class action lawsuits. I want to make sure everybody understands that. These are very different than a lot of other mass toward litigation has class action. These are individual trials. The first 1 will start on July -- mid-July. We'll probably have our first verdict by the end of August. Then there'll be another trial mid-September and then another 1 in mid-November. So we'll have the first 3 cases, and then there's 5 more in the first quarter next year. I think that gives us more visibility on that. At the end of the day, it's got to be proven in front of a jury that our facilities cause cancer. And I don't believe that's the case. We firmly believe that we're going to defend it. We're going to work through the county court system in Illinois. And at the end of the day, if we don't get the results we want. There being appeal, and I'm sure if the other side is [indiscernible] what they want, there's going to be appeal and there's going to be some time. We do not believe it's a material long-term impact to the company. We have a company that's multi billions of dollars, and we operate in a compliant manner, follow the rules and regs, and we feel pretty confident in our position. But again, there's risk, we've got to deal with the court on this.

So how do you get investors to think about those risks, the bans around what the financial risks might be here?

Yes, we have not obviously booked any reserves or anything, yes, because we don't think there's a high probability we're going to lose and we wouldn't know what to book at this point in time. What I would tell you is we don't believe it's a material long-term impact to the company. This is a critical sterilization modality, okay? Again, 50% of med devices in the United States have to have to go through EO sterilization. I would just tell you believe our mission of what we do day in and day out, we're going to follow the regulations to be complying with them. We're going to keep operating and servicing the key need we have and other people have goals and objectives that they're trying to throw on us from a [indiscernible] perspective. And it's just the nature of living in a highly regulated industry and something that you see with the med device companies. We don't believe it's a material long-term impact to this company.

Okay. Okay. So let's move to Nordion and spend a couple of minutes on that. Probably worth same thing, maybe spend anything a second about talking about cobalt-60 for people that aren't familiar. And I think with that, you can hit the exposure to Russia here because that's going to come up? And how are you viewing that and whether your views have changed about your kind of risk around that and how you are thinking about that?

Let's explain the business a little bit. So as I mentioned in the Sterigenics business, 1 of the key modalities to sterilize with this gamma cobalt-60. We get that gamma cobalt-60 from Nordion, our other division, right Nordion is the only division within Sotera Health that is a product division. Nelson and Sterigenics are both service businesses. Nordion is a product business. We have multiyear contracts where we harvest cobalt from nuclear utilities. So we give them cobalt-59. They put it into utility in the reactor. For a period of time, 18 months to 3 years, it comes out cobalt-60. We then pick up the cobalt-60. We take it to our facility in [indiscernible] Canada. We process it into a usable form for sterilizers. We then ship that cobalt around the world to the customers. Again, this is not like you drop in a FedEx or UPS envelope. This goes in a 10,000-pound casting with concrete. It's a barrier to shield. We put the cobalt in there. We ship it around. If I walk you through, we could take the rest of the time If walk you through how complicated it is to load that cobalt in container and how to pull it out of the container, how to unload them to customers. It's a very complicated process, which is really a core competency of the company. We -- Nordion has great visibility to cobalt supply around the world. We're the world leader in supplying cobalt. We supply it to ourselves and all the competitors in the industry around the world. It's a really unique business. We have great visibility of where that cobalt is and when the product is coming out of the utility. We have relationships that are all the way out to 2064 with some of our key utilities and the timing of when we're going to get that cobalt out. You mentioned Russia, for the benefit of the audience, we buy cobalt from Russia. But we buy cobalt from India, China, Argentina, Russia, Canada and hopefully soon to be in the United States with our Westinghouse development. Russia has been a supplier of ours for years, and they continue to be a supplier. We continue to get cobalt from them on a regular basis even throughout 2022. We know that it's a very sensitive area. We've got a lot of [ sympathy ] for the folks in Ukraine and what's going on there. But we feel for the benefit of the broader health care ecosystem worldwide, cobalt-60 is a key sterilization modality. It's a large portion of the sterilization market. And if you don't have it, it's going to do a lot of damage in getting surgical procedures and key medical products to patients around the world. So we are actively engaged with the regulatory bodies and the proper government officials around the world in the U.S., Europe, Canada, Russia, and they know the reliance and importance of cobalt-60 to us. So we -- the team is working hard at Nordion. They've done a phenomenal job in dealing with all the complications. There were no sanctions on cobalt at this point in time, we continue to get cobalt from them. But the team has had to work hard logistically to make sure that all the trains run on time and we could still take care of our customer orders, which we've been able to do through where we sit today.

That's right. You have other regions like you said, you're working on improving diversifying the supply chain here. You've got Westinghouse, as you mentioned. How long does it take before you could have greater supply from other locations?

Yes. I joined the company in '16. We had a very limited supply base today. I would tell you we've got the base in geographies that I referenced either in process or we're getting cobalt, something like Westinghouse or new nuclear reactor it could take 5, 6 years before we actually see a harvest of those reactors.

Okay. Let's move to Nelson Labs just and in interest of time, just to make sure we at least touch on it. Maybe talk a little bit about the business, and I think we've got to cover some of the recent challenges and COVID headwinds as well, if you will and just talk to us about where we are in the process of that kind of getting through those and back to normal trend?

Great business. This is a business that provides testing services to the med device and pharma companies. Across Sotera Health, we do service and have customers with 40 of the top 50 medical device companies in the world, 9 of the top 10 pharma companies in the world across the company. Nelson is a key part of that value proposition. In this business, we test the products to make sure they're safe to meet the regulatory requirements, right? That's what we do. We help med device and pharma companies get their products to market. We do that in conjunction a lot with Sterigenics and kind of how we bring end-to-end capability here. This is an outstanding business with a good market opportunity that we feel we're just scratching the surface on. And overall, the business is doing well.

Okay. Okay. So the -- you had absenteeism, you had the PPE testing kind of as a challenges as those absenteeism and both impacted the business. Maybe tell us what the business growth underlying without those things and where we are in kind of -- are we back to normal trend now just given some...

So good question. So let me give me context. This business performs high single digits growth. We're getting 3.5%, 4% price per year. We've got a business that has good volume in mid-single digits. When you put that together, you get a business that's high single digits organic growth. That's the baseline of this business. We feel very good about this in its end markets. What happened as you got into 2020, we are 1 of 3 -- people kind of look at and say, "Oh, the company's got its challenges". These are good challenges. So let's look at what happened in the macro environment. This business was growing, moving along great. And then in 2020, there became a global need for masks for COVID, okay? We are like 1 of 3 companies in the world that can provide the testing to certify these products. We got bombarded with a large influx of product request. That's a good thing. It was very high margin, very labor intensive and very time demanding. The team pivoted and took care of all that activity. So it's a good thing, right? We took care of the customers in the end markets, what happened. In parallel, that time period, you had other testing services slowing down because of the COVID marketplace and people couldn't get back to work and everything else. We come through that -- we take care of those customers. Now we have a big headwind against us because you have a big volume, high margin that we're working against it wasn't normal as a bluebird that came in. But then you go ahead and take a look at what happened in the labor market this business has a high labor component. So you had high labor challenges as everybody else knows. You heard some of the discussions over the last weeks. There's 11 million open jobs and only 6 million people. It's the same thing happens in the lab business, right, when you have a lot of people dependent. So we had that challenge. And then the next wave of Omicron hit in the first quarter of this year, we had a lot of absenteeism. So the fundamentals and underlying markets for this business is good. We just had some big macro factors that came into place. Joe and the team are doing an outstanding job. The volumes are starting to come back. And I feel good about it. We're working against a big headwind that was there and the mass testing and then the labor dynamics. But this is a good business with good end markets. And listen, when I step back and look at what our customers [indiscernible], our Net Promoter Scores every month I look at in that business, I look at our customer satisfaction range from 79%, 80%. This business is in demand from our customers, and we'll be in a good spot.

Okay. Okay. Good. So let's kind of wrap it up and talk a little bit about the P&L and expectations. And you're right. I mean kind of looking at the company as the total of last 15 years, you've grown sales 10%, CAGR -- 13% EBITDA, CAGR. I mean those are pretty good numbers. Excluding COVID, what does this underlying business grow over the next 3 to 5 years?

Yes. This business is a high single-digit growth organic business. It's -- you've got a big TAM, you've got highly regulated, deep technical expertise, great cash flows. This is a business that sustains any economic cycle. We've grown every single year since 2005. We have over 50% margins, adjusted EBITDA, that's because it's a critical service that often government mandated. We feel good about -- as we said all along, this business can grow high single digits organically.

Okay. And EBITDA margins. We've had some things bounce around, right? Sterigenics has been pretty solid. Nelson Labs has gone through between acquisitions, some of the things we're talking about here has seen some pressures, I think, down to 32% in the first quarter, but that's not going to be normal. How do think about recovery in Nelson Labs and how we should think about EBITDA margins here over the next 2, 3 years?

EBITDA margins business are in good shape. So Nelson Labs, if you think about what I told you about a very high mix product on PPE that the testing, the mass testing, you got that flushing out of the system that was up very high margin mix and then you had the labor issue. Just like everybody else in the first quarter. You had a bunch of people you're paying for and no volume coming through. Same thing Nelson had in the first quarter. We feel good about the margins to continue to stabilize. And the margin story across Sotera Health is a stable margin. What you got here is a business that's weathering into the storms, any economic cycle, good cash flow generation, good underlying growth and healthy margins. And again, that it all starts with being critical to our customers and the value we bring them.

Okay. Okay. Just 20 seconds on inorganic growth opportunities given where we're out of time. You've done $1 billion in M&A since 2013. The environment is evolving, let's just say, out there in the world. How do you think about M&A in the next few years? Are you going to continue to be acquisitive?

Yes. Absolutely. We've got a list -- first of all, it's got to be on strategy. That's very important as we look at our markets, the markets we serve. We've got a healthy list of M&A opportunities. It's a matter of timing and which ones play out and when. But all 3 businesses, we see opportunity for inorganic growth as well as organic growth.

Stuff within it there, Michael, good to do this in person.

Great. Amit, great to see you. Yes. Thanks for your time. Thanks everybody for joining us. All right. Good to see you.

Thank you.