Sotera Health Company (SHC) Earnings Call Transcript & Summary

Thanks, everyone, for joining us today. Welcome to the JPMorgan Healthcare Conference. My name is Jaden Rismay, and I'm on the Life Science Tools team here. I'm pleased to be joined by Sotera Health, CEO, Michael Petras. So I'll turn it over here in a second to Michael to get started with the presentation. Afterwards, we'll do the standard Q&A session. And so with that, please take it away, Michael.

Great. Thanks, Jaden, and good morning, everybody, and I appreciate the JPMorgan team for hosting us today. Obviously, we've got forward-looking statements, and you can refer to our securities filings on our website or our SEC filings for any reconciliation of non-GAAP matters. Today, I want to cover 3 topics. One, the crucial role that Sotera Health plays in health care, try to just give an overview of the company for folks that may not be as familiar with the company. Secondly, then I'll cover our strong and consistent financial performance over many years of consistent performance. And then last one, our path to driving value long term for shareholders. So that will be the focus of today's discussion. Safeguarding global health, that is the mission of the company, Sotera Health. Sotera, for the folks that aren't familiar with Sotera, the word comes from Sotera, the Greek goddess of safety, and really, when we look at what our mission is in this company, it's safeguarding global health across our 3 businesses, Sterigenics, Nordion and Nelson Labs. We have over 5,000 customers in 50 countries, over 3,100 employees globally. We provide end-to-end solutions across our 3 businesses and helping customers get their products in the marketplace in the MedTech and pharma environment and also making sure they stay in the marketplace and provide safe products to patients. We have 62 facilities across 13 countries. We do business with 40 of the top 50 medical device companies or 9 of the top 10 pharma companies. We've got strong long-term relationships. Over 70% of our revenue is tied to multiyear contracts. And you'll see a little bit later, strong cash flow and consistent financial performance across that business. These are the foundations for this great company. Our role in health care is pretty evident talking to any of these customers in the med device or pharma, you'll see the end-to-end solutions starting early on in early R&D materials and packaging optimization across our Sterigenics and Nelson Labs business, working across the health care supply chain all the way out to the final quality control testing they perform throughout that, each of the 3 businesses interact across that value chain and helping our customers, again, the MedTech and pharma companies getting their products into the marketplace. These are 3 integrated businesses and outstanding businesses, Sterigenics, Nordion and Nelson Labs. In the Sterigenics side, where this is our largest business. It's about 2/3 of the company. We -- this business does about 50-plus percent EBITDA margins. We're a global leader in sterilization services. So what we do in this business is our customers, the MedTech and pharma companies make their products, package them up, put them in the packages in the master cartons and then they ship them out to the point of care for health care providers. In the step in between there, it comes to one of our facilities around the world, and we bring the product in and we sterilize that product to make sure it's safe and there's no microorganism or anything that could cause harm to the patient as we do the terminal sterilization. We've got 40 facilities in 13 countries across 4 continents. About 39% of that business goes through ethylene oxide sterilization, 49% or just under 50% is gamma sterilization and about 12% goes through e-beam. So one of the things to keep in mind is we never take possession of the product. It's a service business. The customers drop the product off, we sterilize it, they pick it up. We do not pick the modality. That modality is determined by the customer in close coordination with the regulatory bodies, i.e., the FDA. So all we do is provide a service across these facilities around the world. Our second business is Nordion. Nordion is the world's largest provider of Cobalt-60. Cobalt-60, this is the only one of our 3 business that's a product business. The other 2 are services business. In this business, we get Cobalt-60 from reactors around the world. China, Canada, India, Russia, Argentina. We take this product and put it in a usable form for sterilizers like Sterigenics. So we sell the product to Sterigenics as well as Sterigenics competitors around the world. This is a really unique business. Our core capabilities is handling dangerous materials in the nuclear site license facility that we have in Ottawa, Canada. About 70% of the single-use medical devices are sterilized with cobalt, which is really critical. And for us, it's a big competitive advantage, having an integrated play between Sterigenics and Nordion. And this business does approximately 60% EBITDA margins. Our third business is Nelson Labs. This business is a leader in microbiological and analytical chemistry testing. We have about 3,000 customers. The key in this business is quality and reliability. What we do here, we're an independent test lab, we work with the same customers. We have about 70% customer overlap with the Sterigenics side. What we do in this business is we provide testing to make sure the products are safe and meet the regulatory requirements. We do about 900-plus tests across med device and pharma. If you look at the business, about 48%, about -- just about 50% of the business is routine or flow testing lot release. So a big part of this business is the integration between Sterigenics and Nelson Labs and the embedded labs that sit within Sterigenics facilities are co-located in close proximity. Customers sterilize their product and then Nelson Labs does the routine testing or we call the flow business to make sure the products are safe and have no microorganisms. About 37% of the business is validation or more project-based business, helping people meet products and make sure they're meeting the regulatory requirements or helping get new products to market. And approximately 15% of the business is expert advisory services, where this business is really helping provide lead generation, both Sterigenics and Nelson Labs. So 3 great businesses outstanding, lots of synergies. If you look here in this next chart, you'll see significant opportunity working across the business units. On the left-hand side, you could see our customer satisfaction rates. We do approximately 75% to 80% is our -- usually our annual customer satisfaction rates. We're in the process right now. We rolled it out at the beginning of each calendar year. So we'll know what the numbers are shortly for the last year, but we try to get 75% to 80%. You could see here that customers that do business across BU, across the business units have a higher customer satisfaction, which we're proud to see through year-to-date 2025, we're seeing those XBU customers growing at a 10% rate. So year-over-year 10% growth, which is higher than our core growth within the company, but you could see the significant value customers see in the synergies of working across business units. Now I'd like to transition and talk a little bit about the strong consistent financial profile we've had over the years. This business has grown since 2005, every single year, we've seen growth on the top line. And you see that through all economic cycles, including the Great Recession in 2008 as well as the pandemic in 2020 and 2021. This morning, we put out our revenue. We talked about an early release this morning of our revenue that we surpassed $1.16 billion in revenue over 5% growth minimum. We'll have final numbers for 2025 when we do our quarterly at the end of February and our guide for 2026. But again, another strong year of consistent growth year in and year out. And if you look at through our TTM through the third quarter of 2025, we had a CAGR from fiscal year 2020 when we went public. We've had a compound annual growth rate of 7% on top line, 7% adjusted EBITDA growth and free cash flow of 8%. So very durable, consistent financial performance. We've had $170 million of adjusted EBITDA growth since we went public in November of 2020. Along with that is capital. We deploy capital in a very disciplined allocation method. We try to maintain a very healthy balance sheet. Our target that we laid out in November of 2024 at our Investor Day was we're trying to target net leverage of 2 to 3x. We, at the end of -- through the third quarter, we were at 3.3x. So our goal is to get that down to 2 to 3x. We want to continue to have ample liquidity between the cash on hand and access to revolver lines that we have. We want to continue to delever this business as we drive long-term growth and hopefully improve the credit ratings over time. Our priorities with our capital is to drive organic growth. That's where our biggest capital deployment is going around organic growth and continue to strengthen businesses. We'll look for opportunities around M&A, debt reduction and share repurchase as we continue to progress the business and we continue to deleverage. So very strong financial performance with a disciplined capital allocation. Let me talk a little bit about how we see value in the long term and how we continue to drive growth. Our company priorities as we laid out at our Investor Day in November 2024 around 4 key priorities: excellence in serving our customers with end-to-end solutions. I talked to you a little bit about that earlier and the work that we do across the health care supply chain and the synergies we have across all the businesses and particularly Sterigenics and Nelson Labs and really bringing seamless solutions to our customers and helping them focus on our capabilities and helping them get their products to market and staying in the market. So it's one of our key priorities in making sure we have good service, predictable, reliable, high-quality service. Second key priority is winning in growth markets. We've done a lot of work within our business to continue to segment. Not all of MedTech and pharma is growing at the same rates as many of you know. So one of the key priorities for us is how we turn around and segment those markets and really highlight and focus in on the segments that are growing at a higher rate than some of the other categories, particularly within MedTech. So the team has done a lot of great work on that throughout 2025, and we're excited about where that's leading into 2026. Third key priority is driving operational excellence to enhance free cash flow. This business has significant cash flow on a year in, year out basis with over $500 million, closer to $600 million of EBITDA. We've got significant cash flow that's created throughout this business. We have good operating leverage, good working capital. But for us, it's really making sure we enhance free cash flow and the work that we've been doing around our CapEx deployment. We had -- the last couple of years, we've had elevated CapEx and that's really driven by a couple of key factors. One is the enhancements we're putting in some of our facilities around ethylene oxide facilities in particular. The second would be the greenfields on the Sterigenics side, the greenfield capacity expansions. And then the third area is the Cobalt-60 development, which we haven't done a program since early 2000s, and we're in the midst of that right now within the Nordion business. As we come off on the back end of those programs, you'll start to see us pop significant free cash flow as the CapEx comes down and a lot of the other work that we've been doing around interest expense and some of the other things around debt reductions. And then the fourth one is around disciplined capital deployment. As I just referenced on the previous slide, we have processes in place in the capital allocation, a very rigorous process within our committee within the company and also within our Board governance. But these 4 priorities are all focused on how do we generate value for our shareholders over the long term. Consistent with our guide that we gave -- a 3-year guide that we gave in November of 2024, as we look at the businesses, we see overall company growing at 5% to 7% on top line year in and year out. About 3% to 4% of that is price and the rest is volume and mix. If I break it down to each of the respective businesses, Sterigenics is a business that is going to grow mid-single digits to high single digits, and the price will be on the higher end of the range, that 4% that I referenced to you. And as I also stated earlier, it's about 2/3 of the company's revenue. Nelson Labs, we see that business growing in mid-single digits. The business will see about 3% price year in and year out and then the balance of that mid-single digits is made up of volume and mix. Our Nordion business is approximately 15% of the company's total revenue. We see that business growing low single digits to mid-single digits, and it's on the lower end of that price range, about 3%. So what you could see here is all 3 businesses delivering top line growth year in, year out that's contributing to the 5% growth that we see within the business over the next several years. With that, we would expect to see operating leverage an improvement of 50 to 150 basis points of EBITDA. And therefore, we'd see 5% to 8% EBITDA growth over that same period of 2025 through 2027. If I step back and just reflect on what we told you back in November of 2024 and where we are today through the third quarter and we released, we said we would have organic growth of 5% to 7%. And through the third quarter, we hit 6.2%. So we're on track, even exceeding what we committed to at that point. Adjusted EBITDA growth, we said we would grow 5% to 8%, as I just showed you on the previous slide. And through third quarter, we were at 10.4% growth, again, on track. Margin improvement of 50 to 150 basis points, we had 195 basis point improvement through the third quarter. Cumulative free cash flow, we committed that we would be at $500 million to $600 million of free cash flow over the 3-year period, '25 to '27. We're well on track with that, $147 million through the third quarter. And then our net leverage ratio, which I talked to you a moment ago, I said our target would be 2 to 3x net leverage, and we're at 3.3x for the third quarter. So the point I want to make sure that it's very clear to the folks here, we're doing what we told you we're going to do. We're very consistent in execution with our teams and delivering against the commitments that we've made, and we hope to exceed these over time. So really strong execution performance by our team. Also, I think it would be good to do a reflection on where our capital structure has been over the last 2 years because there's a lot of activity and information that we shared to you, but there's a couple of key things I want to draw your attention to. Obviously, as you know, when we initially went public, we were owned by private equity. Today, private equity owns about 20% of the outstanding shares. So we've increased the public float to 80% of the total shares outstanding over the last 2 years. Our net leverage ratio has improved 1 turn over the past 2 years down to the 3.3x that I just referenced. Our debt paydown has been $90 million over the last 2 years, and we've improved our liquidity about $245 million. We've extended our debt maturity 5 years to 2031, and our term loan interest rate has been reduced by 75 basis points in the past year alone. So we continue to strengthen our balance sheet, and we've more than doubled our public float. This is all part of improving our capital structure for the long term and very well situated for the public markets. The last slide, if you're looking at why would you invest in this company, I think this is an important slide for you to take away. These are key aspects and the differentiating factors of why this is such an outstanding company. We're a leader in a large and growing addressable market, about an $18 billion service addressable market today. And you see, as we talked about this morning, we've surpassed $1.16 billion in revenue. We have significant opportunity for more growth. These are very challenging markets in highly regulated markets. You don't just walk into these markets and get a competitive position like we have. We've got a very well-established base and expertise in highly regulated markets, which allow us to get the margins and returns. The total company has adjusted EBITDA margins of 50-plus percent. And that's because of the strong performance we have in these highly regulated and challenging markets. We have a comprehensive global facility network made up of the Sterigenics facilities in Nelson Labs. We have an end-to-end platform that helps us help our customers get their products to market and stay in the market. We're well positioned for above-market growth and the work that we're doing is segmenting the end markets, our commercial excellence work and how we're going to continue to perform over the long run. I walked you through the strong and consistent financial profile of this business, significant margins, significant cash flow and growth every single year since 2005, and we see that continuing. Continued acceleration of free cash flow. I referenced earlier as well and CapEx coming down over time and the commitments we made in $500 million to $600 million of free cash flow between 2025 and 2027 cumulative and then the disciplined capital allocation. So I hope you can see the excitement that my team and I have around this business. It's a great business. We're well positioned in the marketplace, and it's a great investment opportunity. So Jaden, that's all I had in prepared remarks. I'm happy to answer any questions.

Okay. Perfect. Thank you for that helpful overview. Maybe just to start, I wanted to hit on the pre-announcement from this morning. You announced 2025 revenues are expected to surpass $1.16 billion versus expectations of $1.16 billion. Curious on how 4Q trended relative to expectations? And if you could provide a breakdown of how each segment performed in the quarter? And one last one, and are there any end market trends you think are worth calling out?

Yes. I think you'll see when we report at the end of February, our fourth quarter, we give an outlook for 2026, it's going to be pretty boring. It's going to be straight down the middle of what we told you we were going to do. We're delivering the top line growth of $1.16 billion. It's going to be on the higher end of the range we gave you before. All 3 businesses are continuing to perform well. Volumes are going in the direction we want, and we're really optimistic about how the year finished and what 2026 will look like.

Right. And while you didn't guide to '26, just during 3Q, you noted you felt good about that long-range guide provided at your Analyst Day calling for mid- to high single-digit growth in Sterigenics, low to mid-single-digit growth in Nordion and mid-single-digit growth in Nelson Labs. So how are you tracking against those long-term goals? And what are the factors that give you confidence in achieving them?

Yes. We're tracking very well. Nordion has been a very -- I'll take with Nordion first. Nordion has been a very consistent performer. Price, we've said would be at least 3% in the long-range guide. And then volume and mix on top of that to get us our low to mid-single digits growth, and they've been very consistent. They've had some lumpiness in quarter-to-quarter. It's really driven by the harvest of the cobalt from the reactors and our partners that supply the cobalt. But overall, that business consistently performed. Nelson Labs growth continues to do well. We have one business in particular, our Expert Advisory Services that had a challenging year in 2025, but coming off the best year it's ever had in 2024. But the part that gives us encouragement is the core lab business continues to perform and we're seeing nice growth. As more regulation comes in, we're well positioned to capitalize on that margins. We expect that to be in the 30% to 35% range, and we would see that come through as you'll see '25 wrap up again into '26. And then lastly, Sterigenics, 2/3 of our business is Sterigenics. Business is 50-plus percent EBITDA margins. And one of the things we've been talking about since about August, September 2024, I got to make sure I get all these years, right, 2024 is that we're seeing consistent improvement in volumes across that business. And we're optimistic of where we're finishing '25 and how we see '26 playing out and the confidence around our ability to continue to execute in that business, which is 2/3 of the company, and we're very well positioned there. So overall, Jaden, we feel really good about where we finished '25, and we're very optimistic about how we look forward to 2026.

All right. That's really helpful. And we'll get to Sterigenics, but maybe just one last one on '26. How are you thinking about pricing in '26? And are you still expecting total company price to be near that long-term stated goal of 3% to 4%? And how are you thinking about price across your different businesses?

Yes. We'll see 3% to 4% price. Again, we'll give a guide on 2026 in a couple of months, but we would see no reason we wouldn't have 3% to 4% price, Sterigenics being the high end of that, Nelson and Nordion being on the lower end of that.

Got it. And maybe just on Sterigenics now. So you've been seeing some improving demand in Sterigenics at a high level and for those who are less familiar with the business, can you touch on what you're seeing as the main drivers behind the improving demand across businesses -- or across that business? And are there any specific end market or customer segments that are leading to that strength?

Yes. We've seen pretty consistent performance across that business, across almost every category. Even as I reflect on the fourth quarter without getting all the particulars, I would tell you, we're seeing strength across most med device and pharma categories. If I reflect where we were a year ago this time, we were seeing some choppiness, but not near the level of inventory we took out -- we saw takeout in early 2024. So the inventory piece seems to be behind us with our customers, and we're seeing growth across multiple categories, in almost every category with our teams. A lot of people ask about bioprocessing. I can't speak for the fourth quarter specifically, but I can tell you through third quarter, we saw significant growth in bioprocessing. It's a small portion of our business in Sterigenics, but we saw nice growth in that category as well. That seems to be one chain everyone likes to anchor against. But overall, the team is doing well and executing on the growth in the med device and pharma space with Sterigenics volumes.

All right. And just as a follow-up, how long do you expect for this positive demand trends to continue? Is there anything that could probably possibly limit that growth you're seeing -- that you just touched on in Sterigenics?

Yes. We continue to be optimistic about our ability to continue to grow this business year in and year out, and we're very well positioned in the marketplace.

Yes. And maybe just on the competitive environment, a key theme from your Analyst Day was the potential for increased regulation to squeeze out smaller players. Have you seen this occur in the marketplace at this point?

Yes. I don't know that we would characterize it as squeeze out smaller players. I don't think that's what we said at our Analyst Day. But just to be clear, what I do recall us saying is we're very well positioned with some of the new regulations that are coming out, and we feel comfortable about our ability to meet those regulations. I think some of the other larger competitors will probably be well positioned. I think some of the smaller folks, they're going to have 2 years. That's the one thing that's changed since Analyst Day. In November 2024, we thought the new regulations for ethylene oxide in the U.S. were going to take place in April '26. They've been extended and people have been given an exception until April 2028. We still think these are very challenging regulations. We're still very confident about our ability to execute and meet those. But I think smaller folks probably have a little pause here now because they've got a little more breathing room. But at the end of the day, they're still going to have to meet these very stringent requirements in April 2028. And we think it's going to be very interesting to see how that plays out in the market. They're going to have to put significant capital in to get these facilities, assuming that their systems can get them to where they need to. We're comfortable with where we're situated, very comfortable.

Yes. And that's just a perfect segue. Maybe just on these NESHAP standards. How are you seeing customer concerns and compliance readiness evolve just given that 2-year pushout? And could you also share more about the impact of customers choosing to outsource sterilization to you and how you expect those volume transitions to affect your business going forward?

Yes. So Jaden, you're referencing NESHAP, which is the new standard that's out there for ethylene oxide, and that's the one I'm referencing that got extended to April 2028. We're seeing a little -- customers were a little more anxious to talk about making some transition earlier last year because they thought the new regs were coming out in April 2026. So we're seeing that slow down a little bit. By the way, we did not have projected in our numbers big gains in share shift or anything like that. But I can tell you that one significant customer that also had a significant amount of in-sourcing has made the determination to outsource to us. So we'll see that in the back half of '26 and more into '27 and '28. So we have one customer in particular that's made the decision that they want to shut down their in-house and move to us, which is a good development. And it's really -- what we tell them is we'll focus on what we're good at, you focus on what you're good at. You guys make products, do R&D and all that great stuff. We'll continue to focus on sterilization. And so we're well positioned on that opportunity. And I think over time, there's still some uncertainty exactly how this is going to play out for some of the smaller players. We continue to have dialogue with customers concerned about their current supplier, but we're not seeing as much effort, honestly, as we did earlier in '24 to transition that. But I don't think that's gone away permanently. I think there's going to be more threat around that for the smaller players in '27 and '28.

All right. And just moving on, you've indicated that you're in a strong position capacity-wise with the 3-year strategic plan in place for Sterigenics that covers '25 to '27. And you feel confident even as you look ahead to '28. Could you elaborate more on your current capacity plans? And what should we expect in '26 as it relates to your 3-year plan?

Yes. So I'm going to address that specifically with Sterigenics. We do feel very good about where we are in capacity. We've got 2 greenfields that are in the CapEx number of '25 to '27. One of them is an X-ray facility that we'll be opening in 2026. So that's going through qualification process now. We feel pretty good about that, and the pipeline is building on that side. And then we have one other greenfield that we haven't gotten into particulars publicly that it's part of the reason CapEx was down in '25. We deferred that investment to later in the year. So we'll see that investment pick up in 2026. That will come to market that capacity in '27 -- late '27, early '28. So we feel we're really pretty well situated on capacity in Sterigenics for the next several years. And listen, we'll continue to look at these investments. We try to target about 40% commitment before we put the shovels in the ground. We don't always get that, particularly with the X-ray one. We didn't -- there was a little more strategic reason that we wanted to do that. But -- and then we also target 20-plus percent IRR and overall CapEx programs. Obviously, greenfield would be more capital. So it's a little lower than the 20% IRR. But we feel very good about the capital allocation around CapEx and how we're thinking about capacity over the next several years.

You just mentioned that 40% capacity being locked up before committing to more capacity expansion. So wondering if that 40% pre-commit threshold is consistent regardless of regulatory timing? Or does that NESHAP change that calculus?

No, NESHAP is really relevant on that piece. And particularly with the X-ray facility, we don't have 40% commitments when we made that, but there was a strategic decision the Board has made to put that investment in place. But we feel really good about how that pipeline is building around that opportunity.

And maybe just quickly shifting to cobalt. Along those same lines in terms of capacity, how should we think about the cobalt capacity expansion moving forward? What does the total dollar amount and time line for expansion look like?

Okay. So on cobalt, that's our Nordion business. Remember, as I mentioned earlier, that's the only business that's a product business. We haven't done a major capacity expansion in that since the early 2000s. So how this works is we work with the utilities. So there's 2 programs that we're involved in cobalt development right now. The first one is with Ontario Power Group, which is a long-term partner of ours in Canada. They have -- they're going to be bringing up a Darlington reactor. That program is going very, very well. It's coming in under budget and slightly ahead of time. We expect to get our first cobalt harvest in 2028. The second capacity program that we're putting in place is with Westinghouse. And what we're doing with working with Westinghouse in conjunction using our intellectual property, and we're working with utilities, particularly here in the U.S. We've got a cobalt development program going on there. We think that will be towards the end of the decade when we'll start to see cobalt come out of that partnership. We've got one utility that we're progressing pretty rapidly with, and we're excited about the progress that's been made there. And that will open up a whole -- right now, I don't want to get too technical, but there's a certain kind of reactor that makes cobalt today. Mostly, there's 2 kinds. This will open up a new category of reactors, which will allow us some flexibility over the longer term for the next 20 to 30 years, which is why we're so confident in how well positioned we are.

All right. And we'll get back to Nordion. But just really quickly on pricing. How do you approach pricing adjustment for existing versus new customers, especially in the context of an evolving capacity and competitive dynamic?

Yes. So I'm going to answer this question across the company in total, we get about 3% to 4% price. As I stated, Sterigenics will be on the high end of that, Nelson and Nordion on the lower end. At the end of the day, when we're out in the marketplace, we cannot run our value prop. Listen, people say, "Oh, you got this great business, you get price every year, you got leverage". At the end of the day, you cannot run your value prop. You've got to make sure that you're aligned with your customers and generate the appropriate value for your services. So there's lots of things we take into consideration, competitive dynamics, capacity in the marketplace, the modality, the time of when capacity is in. There's multiple factors that go into these decisions. But we're proud of the fact that we're able to get paid and rewarded for the services we provide.

Great. And maybe just one last one on pricing. Are there any regions or customer segments where you anticipate more pricing pressure? And where the value proposition may be need to be reinforced to maintain that pricing growth?

I would just say that our pricing discipline and insights are -- we have a very disciplined process when we go through this, and we want to make sure that our value is aligned with the services we provide. We're not feeling pricing pressure. I don't want to sound arrogant about this. It's about being able to provide a great service to our customers. Listen, this is -- in the case of Sterigenics, which is 2/3 of our company, the price they pay for sterilization is less than 5% of the overall product cost. These customers are taking multi tens of hundreds of millions of billions of dollars of products in the marketplace. And we're a critical essential service to make sure those products are safe and the patients are safe. And that's -- we price accordingly.

All right. And then just turning to Nordion now. So in the past, you've highlighted complete integration in the cobalt supply chain. So what steps are you taking to ensure long-term supply security? And are there any risks or opportunities you foresee in sourcing cobalt globally in the near or longer term?

Yes. The team has done an outstanding job there. As we stated, this is a highly regulated business, moving dangerous materials around the world. We buy from multiple geographies, as I referenced earlier in my presentation. One thing, this is not a simple task, right? There's significant barriers to entry in this business, right? The things that Riaz and the team deal with in getting cobalt moved around the world and new regulations and port changes and the geopolitical dynamics, this is what this team is great at. They've done an unbelievable job executing through multiple geopolitical dynamics over the last several years. we're very well situated. The last several years, we've been meeting all our -- all the demand with our capacity. And cobalt is very well positioned for long-term growth. We're able to meet the industry needs in '26 and beyond. As we put in this additional capacity, we can be even well better suited to do that.

Great. And with over 30% of the global sterilization market using gamma radiation or cobalt, how do you see this market share shifting over the next 5 years? And what is Nordion's strategy to capture additional share? And how do you plan to attract continued growth and remain competitive?

Yes. Gamma in our view, is the best sterilization modality out there, right? You can turn it on, you can turn it off. It's very targeted. It's reliable, dependable. There's not a lot of residual on the product afterwards. So this is what our customers tell us, right? It's a very significant play for the business at Sterigenics as well as Nordion. And we see continued growth in gamma sterilization, which is why our integration is so critical in what we do across and the competitive advantage we get by being integrated across Sterigenics and Nordion. We continue to see growth there, and we'll continue to invest to make sure we have the cobalt supply for our customers.

All right. And you mentioned the new X-ray facility opening up in the Southeast U.S. in 2026. What is the expected throughput of this facility? And how does it compare to your existing gamma and e-beam sites?

Yes. So I would -- I'm not going to get into particulars, but I would just think about it as a normal size if you look across our facilities and take an average, think of it in that size. This is -- X-ray has been on a long time, okay? And we have some level of customer adoption, but it's not near to the scale of adoption that you see in ethylene oxide or gamma radiation. We want to make sure we have X-ray as a modality we could be viewed as a complete supplier to our customer base. But I don't see us putting in 10 X-rays over the next 5 years. I mean that's just -- we think Cobalt is going to be in great supply in a critical modality and remain a critical modality.

Perfect. And then just turning to Nelson Labs. You noted the RCA Advisory service business has been impacted by fewer remediation projects due to ongoing changes at the FDA, resulting in a significant decline in advisory services in 2Q. So just how the core business continues to grow? And -- or can you elaborate on how you see the outlook for this advisory service evolving? And what is it driving continued strength in the core business? That is the mouth...

Well, there's a mouth there, Jaden. I hope I can't get all of it. So let me just kind of try to unpack that a little bit. As I stated earlier, our Expert Advisory Services had the best year in the history of that company in 2024. And last year in '25, probably had the worst year in this company. That was driven by the remediation projects. So there was lots of big remediation projects that were built up with the FDA that we were tasked to help the customers, which is great. We probably took our eye off a little bit of the nonremediation projects, which -- because we were so focused on delivering on the remediation projects became outsized where they've typically been. The impact of this RCA expert advisory business is about 10 points on the overall growth rate of Nelson last year, just to give you context. So if that business is going to be down roughly 5%, you say it would have been up 5% if RCA was just normalized, right? It's the lowest margin of our business within the Nelson Labs. As we look at this, we're not looking for that business to grow 20%, 30%, 40%. We're looking for just steady growth and synergistic value across Nelson and Sterigenics. But the return on investment is very good in that business. We don't -- there's not capital in that business. It's people. And again, it's our expertise that we build across Nelson and Sterigenics that's the real value. We'll see that returning to some growth in 2026. But the key is our core lab business continues to do very well, capitalize on regulatory developments and new product needs by our customers. The Nelson Labs team has continued to see volume growth and then also the flow routine business continues to do very well.

Right. And you just got into this a little bit, but you mentioned the embedded labs within Nelson and Sterigenics facilities have seen significant growth. So just can you share about the operational benefits and throughput improvements delivered by these embedded labs?

Yes. So some of the things you saw earlier when I showed the customer sat ratings and the growth rate for XBU customers, this is a customer specifically telling us the value they see of embedded labs and the close coordination between the lab and the sterilization operations of Sterigenics. We're seeing growth overachieve on the embedded labs. We'll continue to see that accelerate. We'll continue to see opportunities to put a minimal amount of investment in, but some incremental investment that will help accelerate growth. The team has done a great job. For example, we put some additional capital to work in Germany in '24 that we're seeing the fruits of in '25 and as we look forward in '26. We'll continue to look for opportunities like that with these embedded labs.

Yes. And then moving on to some operational questions. We have a few minutes left. You recently received some favorable rulings in Georgia with several bellwether cases dismissed. Can you speak more about how these outcomes could affect other pending cases? And what does your outlook look like for the remaining cases?

Yes. So you're referencing specifically a litigation that we have in the Sterigenics business around ethylene oxide. And in Georgia, it's a pretty complicated topic, so I'll try to be high level, but happy to answer additional questions. The judge has been pretty focused on science, which we think is really important in causation. And there was a 2-phase process. And I would just tell you, in the first phase, there were 8 cases bellwethered that were put through the Phase 1 and Phase 2 process. In the first phase, general causation, 2 of the 3 experts that the plaintiffs brought to the table were thrown out by the judge. We felt the third one should have been thrown out on the same grounds. And the judge chose not to do that and created a new standard of how those that experts should be viewed. It went up to the appellate courts and the appellate courts threw it back down and said all 3 of them had to be evaluated on a consistent standard, which means science matters. So we feel optimistic about how that will play out. But now the judge has to rule based on the direction she was given from the appellate court. Phase 2, again, there were 8 cases in Phase I, 3 of the 8 went to a second phase. All 3 of those were dismissed by the judge, that there's no causation.

All right. That's really helpful. And maybe a quick one. Just is there any update on the California litigation, too?

California litigation, we have litigation in California. As you know, we'll see cases. The first trials are set for January of '27 and April '27. Listen, an investor asked me this morning, will case count go up there? Yes, case count will go up. I think it will go up in Georgia as well. At the end of the day, if we get in a courtroom and science is front and center, we're going to win those cases. We proved that in our second case in Illinois, and we're showing right now in Georgia, science matters. As science gets in that courtroom, we're going to see that. So again, California, we will see an increase in case count. I'm sure of that. But that's what plaintiff [indiscernible] do. We're going to make sure we can get the best story out there on science. And if we do that, we'll be successful.

All right. And it looks like we're almost out of time. Maybe just one last one here. What are you most excited about for in 2026?

What I think investors ought to be most excited about is what's on this page. This is a great company, right? We provide a critical value to our customers end-to-end. And people say, it's kind of boring. We're doing what we told you we were going to do. We're out there delivering growth, delivering cash flow, and we're going to continue to see this business build momentum in the marketplace and take care of it for our customers. So that's the most exciting thing. I'm just proud of the team and what they've been able to do, '25 is a good year and '26 is going to be another strong year. So thank you for your time today.

Yes. Great. We'll have it here. Thank you, guys, for joining us today.