Sotera Health Co [SHC] Filings

10-Q 1 shc-20240630.htm 10-Q shc-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2024


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

For the transition period from to

Commission File Number 001-39729

SOTERA HEALTH COMPANY

(Exact name of registrant as specified in its charter)

Delaware

47-3531161

(State or other jurisdiction of incorporation or organization)

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

9100 South Hills Blvd, Suite 300

Broadview Heights, Ohio

44147

(Address of principal executive offices)

(Zip Code)

(440) 262-1410

(Registrant’s telephone number, including area code)

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


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

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

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

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


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

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

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

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

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SOTERA HEALTH COMPANY

- TABLE OF CONTENTS -


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

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

•fluctuations in foreign currency exchange rates;

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

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

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

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

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

•adverse changes in industry trends;

•competition we face;

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

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

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

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

•our ability to attract and retain qualified employees;

•severe health events or environmental events;

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

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

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

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

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

•our ability to maintain profitability in the future;

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

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

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

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

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

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

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

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Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

Sotera Health Company

Consolidated Balance Sheets

(in thousands, except per share amounts)


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

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(Unaudited)


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

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

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


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

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Equity

(in thousands)

(Unaudited)


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


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

See notes to consolidated financial statements.

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Sotera Health Company

Consolidated Statements of Equity (continued)

(in thousands)

(Unaudited)


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


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

See notes to consolidated financial statements.

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Sotera Health Company

Notes to Consolidated Financial Statements

1.Basis of Presentation

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

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

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

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

2.Recent Accounting Standards

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

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

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

3.Revenue Recognition

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


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

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Sotera Health Company

Notes to Consolidated Financial Statements


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


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


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

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

4.Inventories

Inventories consisted of the following:


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

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Sotera Health Company

Notes to Consolidated Financial Statements

5.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


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

6.Goodwill and Other Intangible Assets

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


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

Other intangible assets consisted of the following:


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

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

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Sotera Health Company

Notes to Consolidated Financial Statements


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

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

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

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

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

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

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


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

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

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Sotera Health Company

Notes to Consolidated Financial Statements

7.Accrued Liabilities

Accrued liabilities consisted of the following:


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

8.Long-Term Debt

Long-term debt consisted of the following:


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


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

Debt Facilities

Senior Secured Credit Facilities

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

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Sotera Health Company

Notes to Consolidated Financial Statements

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

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

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

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

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

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

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Sotera Health Company

Notes to Consolidated Financial Statements

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

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

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

Term Loan Interest Rate Risk Management

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

Aggregate Maturities

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


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

9.Income Taxes

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

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

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Sotera Health Company

Notes to Consolidated Financial Statements

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

10.Employee Benefits

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

Defined benefit pension plan

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


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

Other benefit plans

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


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

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

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

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Sotera Health Company

Notes to Consolidated Financial Statements

11.Other Comprehensive Income (Loss)

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

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


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

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


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

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

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

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

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Sotera Health Company

Notes to Consolidated Financial Statements

12.Share-Based Compensation

Pre-IPO Awards

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

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

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

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


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

2020 Omnibus Incentive Plan

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

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

Stock Options

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

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Sotera Health Company

Notes to Consolidated Financial Statements


	Number of Shares	Weighted-average Exercise Price
At December 31, 2023	6,972,661

Sotera Health Co [SHC] Filings
10-Q	[2024-08-05]
10-Q	[2024-05-02]
10-K	[2024-02-27]
10-Q	[2023-11-01]
10-Q	[2023-08-03]
10-Q	[2023-05-03]
10-K	[2023-02-28]
10-Q	[2022-11-02]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-03-01]
10-Q	[2021-11-10]
10-Q	[2021-08-12]
10-Q	[2021-05-13]
S-1	[2021-03-15]
10-K	[2021-03-09]
S-1	[2020-10-23]