Sotera Health Files 10-Q Amid Ongoing Litigation

TL;DR

Sotera Health's Q2 10-Q is out, showing financials and ongoing EO litigation in Illinois.

AI Summary

Sotera Health Co. filed its 10-Q for the period ending June 30, 2024. The company reported financial results and provided updates on its operations. Notably, the filing references ongoing litigation related to Ethylene Oxide tort claims in Illinois.

Why It Matters

This filing provides investors with a crucial update on Sotera Health's financial performance and ongoing legal challenges, which could impact future earnings and stock valuation.

Risk Assessment

Risk Level: medium — The mention of ongoing Ethylene Oxide tort litigation in Illinois introduces a significant legal and financial risk for the company.

Key Numbers

• 2024 Q2 — Reporting Period (The second quarter of fiscal year 2024.)
• 2023-12-31 — Previous Year End (Reference point for year-over-year comparisons.)

Key Players & Entities

• Sotera Health Co. (company) — Filer of the 10-Q
• 20240630 (date) — End of reporting period
• Ethylene Oxide Tort Litigation Illinois (legal_case) — Ongoing litigation mentioned in the filing

FAQ

Key Financial Figures

• $0.01 — ange on which registered Common Stock, $0.01 par value per share SHC The Nasdaq Stoc

Filing Documents

• shc-20240630.htm (10-Q) — 1672KB
• shc20240630_exhibitx4x1.htm (EX-4.1) — 2648KB
• shc20240630_exhibitx4x3.htm (EX-4.3) — 375KB
• shc20240630_exhibitx10x1.htm (EX-10.1) — 2182KB
• shc_20240630xexhibitx31x1.htm (EX-31.1) — 10KB
• shc20240630_exhibitx31x2.htm (EX-31.2) — 10KB
• shc20240630_exhibitx32x1.htm (EX-32.1) — 5KB
• shc-20240630_g1.jpg (GRAPHIC) — 234KB
• 0001822479-24-000041.txt ( ) — 15948KB
• shc-20240630.xsd (EX-101.SCH) — 50KB
• shc-20240630_cal.xml (EX-101.CAL) — 98KB
• shc-20240630_def.xml (EX-101.DEF) — 335KB
• shc-20240630_lab.xml (EX-101.LAB) — 709KB
• shc-20240630_pre.xml (EX-101.PRE) — 530KB
• shc-20240630_htm.xml (XML) — 1637KB

—FINANCIAL INFORMATION

Part I—FINANCIAL INFORMATION 5

Financial Statements

Item 1. Financial Statements 5

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 31

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 46

Controls and Procedures

Item 4. Controls and Procedures 46

—OTHER INFORMATION

Part II—OTHER INFORMATION 47

Legal Proceedings

Item 1. Legal Proceedings. 47

Risk Factors

Item 1A. Risk Factors. 48

Other Information

Item 5. Other Information 48

Exhibits

Item 6. Exhibits. 49

SIGNATURES

SIGNATURES 50 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "intends," "plans" or "anticipates," or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance, achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: a disruption in the availability or supply of, or increases in the price of, ethylene oxide ("EO"), Cobalt-60 ("Co-60") or our other direct materials, services and supplies, including as a result of geopolitical instability and/or sanctions against Russia by the United States, Canada, United Kingdom and/or the European Union; fluctuations in foreign currency exchange rates; changes in environmental, health and safety regulations or preferences, and general economic, social and business conditions; health and safety risks associated with the use, storage, transportation and disposal of potentially hazardous materials such as EO and Co-60; the impact and outcome of current and future legal proceedings and liability claims, including litigation related to the use, emissions and releases of EO from our facilities in California, Georgia, Illinois and New Mexico and the possibility that additional claims will be made in the future relating to these or other facilities; allegations of our failure to properly perform services and potential product liability claims, recalls, penalties and reputational har

—FINANCIAL INFORMATION

Part I—FINANCIAL INFORMATION

Financial Statements

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 — — Tr

Notes to Consolidated Financial Statements

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 Financ

Notes to Consolidated Financial Statements

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 11 Table of Contents Sotera Health Company

Notes to Consolidated Financial Statements

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 12 Table of Contents Sotera Health Company

Notes to Consolidated Financial Statements

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. $

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7. Accrued Liabilities Accrued liabilities consisted of the

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