Sotera Health Co: Form 10-Q for the period ended Sep 30, 2024
Filed with the SEC on Nov 5, 2024 and accepted by EDGAR at Nov 5, 2024, 16:24 ET.
Management's discussion and analysis
As filed, 60,905 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2023 10-K. This discussion and analysis contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of various factors, including the factors we describe in the section entitled Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q, as well as Part I, Item 1A, “Risk Factors” in our 2023 10-K.
OVERVIEW
We are a leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry. We are driven by our mission: Safeguarding Global Health®. We provide end-to-end sterilization as well as microbiological and analytical lab testing and advisory services to help ensure that medical, pharmaceutical and food products are safe for healthcare practitioners, patients and consumers in the United States and around the world. Our services are an essential aspect of our customers’ manufacturing process and supply chains, helping to ensure sterilized medical products reach healthcare practitioners and patients. Most of these services are necessary for our customers to satisfy applicable government requirements.
We serve our customers throughout their product lifecycles, from product design to manufacturing and delivery, helping to ensure the sterility, effectiveness and safety of their products for the end user. We operate across two core businesses: sterilization services and lab services. The combination of Sterigenics, our terminal sterilization business, and Nordion, our Co-60 supply business, makes us the only vertically integrated global gamma sterilization provider in the sterilization industry. For financial reporting purposes, our sterilization services business consists of two reportable segments, Sterigenics and Nordion, and our lab services business consists of one reportable segment, Nelson Labs.
For the three and nine months ended September 30, 2024, respectively, we recorded net revenues of $285.5 million and $810.2 million, net income of $17.0 million and $32.1 million, Adjusted Net Income of $48.9 million and $139.8 million, and Adjusted EBITDA of $146.4 million and $395.6 million. For the definition of Adjusted Net Income and Adjusted EBITDA and the reconciliation of these non-GAAP measures from net income (loss), please see “Non-GAAP Financial Measures.”
STRATEGIC DEVELOPMENTS AND KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
The following summarizes strategic developments and key factors that have impacted our operating results for the three and nine months ended September 30, 2024 and may continue to affect our performance and financial condition in future periods.
- Business and market conditions. Consolidated net revenues for the three and nine months ended September 30, 2024 increased 8.5% and 9.6%, respectively, compared to the same period of the prior year, mainly driven by higher volumes across all segments and favorability in pricing.
As discussed in more detail in our 2023 10-K, a portion of our supply of Co-60 is generated by Russian nuclear
reactors. We continue to monitor the potential for future disruption in the supply of Co-60 from Russian nuclear reactors. There was no impact to our supply or revenue during the three and nine months ended September 30, 2024.
- Investment initiatives. We continue to advance our growth-related investments, including our two active capacity expansion projects within the Sterigenics segment, Co-60 development projects in the Nordion segment and lab expansion efforts to support pharma testing services in the Nelson Labs segment.
- Disciplined and strategic M&A activity. We remain committed to our highly disciplined acquisition strategy and continue to seek suitable acquisition targets.
- Litigation costs. We are currently the subject of tort lawsuits alleging injury by purported exposure to EO used, emitted or released by current facilities in Atlanta, Georgia and Los Angeles, California and our former facility in Willowbrook, Illinois. In addition, we are defendants in a lawsuit brought by the State of New Mexico Attorney General alleging that emissions of EO from our Santa Teresa facility negatively impacted Santa Teresa and surrounding communities. We maintain that these facilities did not pose and do not pose any safety risk to their surrounding communities. We deny the allegations in these lawsuits and are vigorously defending against these claims. See Part II, Item 1, “Legal Proceedings” and Note 14, “Commitments and Contingencies” to our consolidated financial statements.
For the three and nine months ended September 30, 2024, we recorded costs of $8.2 million and $22.4 million, respectively, representing professional fees and other expenses related to litigation associated with our EO sterilization facilities.
- Borrowings and financial leverage. On May 30, 2024, the Company and SHH entered into Amendment No. 4 to the Senior Secured Credit Facilities, which provided for the issuance of term loans to the Company in an aggregate principal amount of $1.5 billion maturing on May 30, 2031. On the same date, the Company issued Secured Notes in an aggregate principal amount of $750.0 million, which bear interest at an annual rate of 7.375% and mature on June 1, 2031. The proceeds from the Refinancing Term Loans and the issuance of the Secured Notes, along with cash on the balance sheet, were used to refinance all of the Company’s previously outstanding term loans due December 2026.
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended September 30, 2024 as compared to Three Months Ended September 30, 2023
The following table sets forth the components of our results of operations for the three months ended September 30, 2024 and 2023.
| (thousands of U.S. dollars) | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Total net revenues | $285,468 | $263,177 | $22,291 | 8.5% |
| Total cost of revenues | 127,444 | 117,193 | 10,251 | 8.7% |
| Total operating expenses | 77,517 | 69,886 | 7,631 | 10.9% |
| Operating income | 80,507 | 76,098 | 4,409 | 5.8% |
| Net income (loss) | 16,998 | (13,660) | 30,658 | (224.4)% |
| Adjusted Net Income(a) | 48,943 | 46,567 | 2,376 | 5.1% |
| Adjusted EBITDA(a) | 146,361 | 134,328 | 12,033 | 9.0% |
(a) Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in “Non-GAAP Financial Measures.”
Total Net Revenues
The following table compares our revenues by type for the three months ended September 30, 2024 to the three months ended September 30, 2023.
| (thousands of U.S. dollars) Net revenues for the three months ended September 30, | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Service | $238,790 | $227,120 | $11,670 | 5.1% |
| Product | 46,678 | 36,057 | 10,621 | 29.5% |
| Total net revenues | $285,468 | $263,177 | $22,291 | 8.5% |
Net revenues were $285.5 million in the three months ended September 30, 2024, an increase of $22.3 million, or 8.5%, as compared with the three months ended September 30, 2023. Excluding the impact of foreign currency exchange rates, net revenues in the three months ended September 30, 2024 increased approximately 8.9% compared with the three months ended September 30, 2023.
Service revenues
Service revenues increased $11.7 million, or 5.1%, to $238.8 million in the three months ended September 30, 2024 as compared to $227.1 million in the three months ended September 30, 2023. The increase in net service revenues was driven by favorable pricing of $7.4 million and $1.7 million in the Sterigenics and Nelson Labs segments, respectively, and a favorable impact from volume and mix of $3.4 million across all segments. These growth factors were partially offset by a $0.9 million unfavorable impact from changes in foreign currency exchange rates across all segments.
Product revenues
Product revenues increased $10.6 million, or 29.5%, to $46.7 million in the three months ended September 30, 2024 as compared to $36.1 million in the three months ended September 30, 2023. The timing of reactor harvest schedules was the primary driver for the increase in volume and mix of $8.6 million. In addition, Nordion benefited from favorable pricing of $2.3 million, partially offset by a $0.3 million unfavorable impact from changes in foreign currency exchange rates.
Total Cost of Revenues
The following table compares our cost of revenues by type for the three months ended September 30, 2024 to the three months ended September 30, 2023.
| (thousands of U.S. dollars) Cost of revenues for the three months ended September 30, | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Service | $111,080 | $103,580 | $7,500 | 7.2% |
| Product | 16,364 | 13,613 | 2,751 | 20.2% |
| Total cost of revenues | $127,444 | $117,193 | $10,251 | 8.7% |
Total cost of revenues accounted for approximately 44.6% and 44.5% of our consolidated net revenues for the three months ended September 30, 2024 and 2023, respectively.
Cost of service revenues
Cost of service revenues increased $7.5 million, or 7.2%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The key drivers of the increase in cost of service revenues were $4.3 million of incremental depreciation related to capital assets recently placed in service and $2.4 million of higher employee compensation costs.
Cost of product revenues
Cost of product revenues increased $2.8 million, or 20.2%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily a result of higher volumes of Co-60 shipments, which resulted in increases in direct material and transportation costs of $2.5 million.
The following table compares our operating expenses for the three months ended September 30, 2024 to the three months ended September 30, 2023:
| (thousands of U.S. dollars) Operating expenses for the three months ended September 30, | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Selling, general and administrative (“SG&A”) expenses | $62,009 | $54,112 | $7,897 | 14.6% |
| Amortization of intangible assets | 15,508 | 15,774 | (266) | (1.7)% |
| Total operating expenses | $77,517 | $69,886 | $7,631 | 10.9% |
Operating expenses accounted for approximately 27.2% and 26.6% of our consolidated net revenues for the three months ended September 30, 2024 and 2023, respectively.
SG&A
SG&A expenses increased $7.9 million, or 14.6%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily driven by incremental SG&A related compensation costs of $3.5 million, a $1.5 million increase in share-based compensation expense, a $0.9 million increase in legal and other professional service expenses and a $0.9 million increase in depreciation for capital assets recently placed in service.
Amortization of intangible assets
Amortization of intangible assets decreased $0.3 million, or 1.7%, to $15.5 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 due mainly to changes in foreign currency exchange rates.
Interest Expense, Net
Interest expense, net increased $0.9 million, or 2.3%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven by a $3.6 million net unfavorable change from interest rate derivative activity, partially offset by a decrease in in the interest rate on variable rate borrowings, resulting in $2.4 million of decline in interest expense.
Foreign Exchange Gain
Foreign exchange gain was $1.1 million for the three months ended September 30, 2024 as compared to a gain of $0.4 million in the three months ended September 30, 2023. The change in foreign exchange gain in our Consolidated Statements of Operations and Comprehensive Income (Loss) mainly relates to short-term gains and losses on transactions denominated in currencies other than the functional currency of our operating entities. As described in Note 15, “Financial Instruments and Financial Risk” to our consolidated financial statements, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk related to our international subsidiaries.
Other (Income) Expense, Net
Other income, net was $2.8 million for the three months ended September 30, 2024 compared to other expense, net of $0.4 million for the three months ended September 30, 2023. The fluctuation was mainly driven by changes in the fair value of the embedded derivatives in Nordion’s contracts, resulting in a $3.0 million increase in other income.
Provision for Income Taxes
Provision for income tax increased $11.6 million to a net provision of $25.8 million for the three months ended September 30, 2024 as compared to $14.1 million in the three months ended September 30, 2023. The change was driven by higher pre-tax income in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 (driven mainly by a $35.0 million Georgia EO litigation settlement accrual as described in the 2023 10-K) and an incremental increase in the valuation allowance attributable to the limitation on the deductibility of interest expense.
Provision for income taxes for the three months ended September 30, 2024 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”), partially offset by a benefit for state income taxes. Provision for income taxes for the three months ended September 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 foreign rate differential, and GILTI, partially offset by a benefit for state income taxes. The increase in the valuation allowance in the three months ended September 30, 2023 was primarily due to a $35.0 million Georgia EO litigation settlement which resulted in additional interest limitation.
Net Income (Loss), Adjusted Net Income and Adjusted EBITDA
Net income for the three months ended September 30, 2024 was $17.0 million, as compared to a net loss of $13.7 million for the three months ended September 30, 2023 due to the factors described above. Adjusted Net Income was $48.9 million for the three months ended September 30, 2024, as compared to $46.6 million for the three months ended September 30, 2023. Adjusted EBITDA was $146.4 million for the three months ended September 30, 2024, as compared to $134.3 million for the three months ended September 30, 2023. Please see “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.
Nine Months Ended September 30, 2024 as compared to Nine Months Ended September 30, 2023
The following table sets forth the components of our results of operations for the nine months ended September 30, 2024 and 2023.
| (thousands of U.S. dollars) | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Total net revenues | $810,238 | $739,049 | $71,189 | 9.6% |
| Total cost of revenues | 372,308 | 341,974 | 30,334 | 8.9% |
| Total operating expenses | 227,450 | 224,407 | 3,043 | 1.4% |
| Operating income | 210,480 | 172,668 | 37,812 | 21.9% |
| Net income | 32,075 | 12,695 | 19,380 | 152.7% |
| Adjusted Net Income(a) | 139,759 | 137,941 | 1,818 | 1.3% |
| Adjusted EBITDA(a) | 395,640 | 361,281 | 34,359 | 9.5% |
(a) Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our calculation of Adjusted Net Income and Adjusted EBITDA, including information about their limitations as tools for analysis and a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted Net Income and Adjusted EBITDA, please see the reconciliation included below in “Non-GAAP Financial Measures.”
Total Net Revenues
The following table compares our revenues by type for the nine months ended September 30, 2024 to the nine months ended September 30, 2023.
| (thousands of U.S. dollars) Net revenues for the nine months ended September 30, | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Service | $703,027 | $667,680 | $35,347 | 5.3% |
| Product | 107,211 | 71,369 | 35,842 | 50.2% |
| Total net revenues | $810,238 | $739,049 | $71,189 | 9.6% |
Net revenues were $810.2 million in the nine months ended September 30, 2024, an increase of $71.2 million, or 9.6%, as compared with the nine months ended September 30, 2023. Changes in foreign currency exchange rates had no material impact on consolidated net revenues in the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023, although there were impacts when viewed at the segment reporting level.
Service revenues
Service revenues increased $35.3 million, or 5.3%, to $703.0 million in the nine months ended September 30, 2024 as compared to $667.7 million in the nine months ended September 30, 2023. The growth in net service revenues was driven by favorable pricing of $23.2 million and $5.0 million in the Sterigenics and Nelson Labs segments, respectively, coupled with a favorable impact from volume and mix of $7.3 million across all segments.
Product revenues
Product revenues increased $35.8 million, or 50.2%, to $107.2 million in the nine months ended September 30, 2024 as compared to $71.4 million in the nine months ended September 30, 2023. The timing of reactor harvest schedules was the primary driver of the improvements in volume and mix of $33.0 million along with a favorable pricing impact of $3.6 million. Partially offsetting this increase was an unfavorable impact from changes in foreign currency exchange rates of $0.8 million.
Total Cost of Revenues
The following table compares our cost of revenues by type for the nine months ended September 30, 2024 to the nine months ended September 30, 2023.
| (thousands of U.S. dollars) Cost of revenues for the nine months ended September 30, | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Service | $331,068 | $311,690 | $19,378 | 6.2% |
| Product | 41,240 | 30,284 | 10,956 | 36.2% |
| Total cost of revenues | $372,308 | $341,974 | $30,334 | 8.9% |
Total cost of revenues accounted for approximately 46.0% and 46.3% of our consolidated net revenues for the nine months ended September 30, 2024 and 2023, respectively.
Cost of service revenues
Cost of service revenues increased $19.4 million, or 6.2%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The key drivers of the increase in cost of service revenues were $10.6 million of higher employee compensation costs and $6.5 million of incremental depreciation related to capital assets recently placed in service.
Cost of product revenues
Cost of product revenues increased $11.0 million, or 36.2%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was primarily a result of higher volumes of Co-60 shipments, which resulted in increases in direct material and transportation costs of $10.2 million.
Operating Expenses
The following table compares our operating expenses for the nine months ended September 30, 2024 to the nine months ended September 30, 2023:
| (thousands of U.S. dollars) Operating expenses for the nine months ended September 30, | 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Selling, general and administrative expenses | $180,793 | $176,309 | $4,484 | 2.5% |
| Amortization of intangible assets | 46,657 | 48,098 | (1,441) | (3.0)% |
| Total operating expenses | $227,450 | $224,407 | $3,043 | 1.4% |
Operating expenses accounted for approximately 28.1% and 30.4% of our consolidated net revenues for the nine months ended September 30, 2024 and 2023, respectively.
SG&A expenses
SG&A expenses increased $4.5 million, or 2.5%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven primarily by $8.2 million of incremental SG&A compensation-related costs, a $4.6 million increase in share-based compensation expense. Partially offsetting this increase was an $8.7 million decrease in legal and other professional services expenses.
Amortization of intangible assets
Amortization of intangible assets decreased $1.4 million or 3.0% to $46.7 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 due to changes in foreign currency exchange rates.
Interest Expense, Net
Interest expense, net increased $23.5 million, or 23.5%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven by lower favorability from interest rate derivative activity of $12.5 million and $10.9 million of incremental interest expense, driven by the $500 million Term Loan that closed in February 2023 as well as higher variable interest rates on variable rate debt in the first half of 2024.
Loss on Refinancing of Debt
Loss on refinancing of debt for the nine months ended September 30, 2024 was $24.2 million and occurred in connection with the refinancing of our capital structure in May 2024 and Amendment No. 3 to Revolving Credit Facility. The refinancing activity resulted in the write off of certain unamortized debt issuance costs and discounts on the Term Loans due 2026. In addition, certain new debt issuance costs and discounts were expensed upon the issuance of the Refinancing Term Loans and Secured Notes.
Foreign Exchange (Gain) Loss
Foreign exchange gain was $2.2 million for the nine months ended September 30, 2024 as compared to a loss of $0.4 million in the nine months ended September 30, 2023. The change in foreign exchange (gain) loss in our Consolidated Statements of Operations and Comprehensive Income (Loss) mainly relates to short-term losses and gains on transactions denominated in currencies other than the functional currency of our operating entities. As described in Note 15, “Financial Instruments and Financial Risk” to our consolidated financial statements, we enter into monthly U.S. dollar-denominated foreign currency forward contracts to manage foreign currency exchange rate risk of our international subsidiaries.
Other Income, Net
Other income, net increased $0.8 million, or 23.8%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The fluctuation was mainly driven by activity in the Nordion segment, including a $0.5 million increase in the unrealized gain on embedded derivatives.
Provision for Income Taxes
Provision for income tax increased $9.2 million to a net provision of $36.8 million for the nine months ended September 30, 2024 as compared to $27.7 million for the nine months ended September 30, 2023. The change was attributable to higher pre-tax income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 and an incremental increase in the valuation allowance attributable to the limitation on the deductibility of interest expense.
Provision for income taxes for the nine months ended September 30, 2024 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 foreign rate differential and GILTI, partially offset by a benefit for state income taxes. Provision for income taxes for the nine months ended September 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 and the foreign rate differential, partially offset by a benefit for state income taxes.
Net Income, Adjusted Net Income and Adjusted EBITDA
Net income for the nine months ended September 30, 2024 was $32.1 million, as compared to net income of $12.7 million for the nine months ended September 30, 2023 due to the factors described above. Adjusted Net Income was $139.8 million for the nine months ended September 30, 2024, as compared to $137.9 million for the nine months ended September 30, 2023. Adjusted EBITDA was $395.6 million for the nine months ended September 30, 2024, as compared to $361.3 million for the nine months ended September 30, 2023. Please see “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure calculated and presented in accordance with GAAP.
SEGMENT RESULTS OF OPERATIONS
We have three reportable segments: Sterigenics, Nordion and Nelson Labs. Our chief operating decision maker evaluates performance and allocates resources within our business based on Segment Income, which excludes certain items which are included in income before tax as determined in our Consolidated Statements of Operations and Comprehensive Income (Loss). The accounting policies for our reportable segments are the same as those for the consolidated Company.
Our Segments
Sterigenics
Sterigenics provides outsourced terminal sterilization and irradiation services for the medical device, pharmaceutical, food safety and advanced applications markets using three major technologies: gamma irradiation, EO processing and E-beam irradiation.
Nordion
Nordion is a leading global provider of Co-60 used in the sterilization and irradiation processes for the medical device, pharmaceutical, food safety, and high-performance materials industries, as well as in the treatment of cancer. In addition, Nordion is a leading global provider of gamma irradiation systems.
As a result of the time required to meet regulatory and logistics requirements for delivery of radioactive products, combined with accommodations made to our customers to minimize disruptions to their operations during the installation of Co-60, Nordion sales patterns can often vary significantly from one quarter to the next. However, timing-related impacts on our sales performance tend to be resolved within several quarters, resulting in more consistent performance over longer periods of time. In addition, sales of gamma irradiation systems occur infrequently and tend to be for larger amounts.
Results for our Nordion segment are also impacted by Co-60 mix, harvest schedules, as well as customer, product and service mix.
Nelson Labs
Nelson Labs provides outsourced microbiological and analytical chemistry testing and advisory services for the medical device and pharmaceutical industries.
For more information regarding our reportable segments, please refer to Note 16, “Segment Information” to our consolidated financial statements.
Segment Results for the Three Months Ended September 30, 2024 and 2023
The following tables compare segment net revenue and segment income for the three months ended September 30, 2024 to the three months ended September 30, 2023:
| (thousands of U.S. dollars) Net Revenues | Three Months Ended September 30, 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Sterigenics | $175,574 | $168,347 | $7,227 | 4.3% |
| Nordion | 51,313 | 40,098 | 11,215 | 28.0% |
| Nelson Labs | 58,581 | 54,732 | 3,849 | 7.0% |
| Segment Income | ||||
| Sterigenics | $95,989 | $93,169 | $2,820 | 3.0% |
| Nordion | 31,733 | 24,052 | 7,681 | 31.9% |
| Nelson Labs | 18,639 | 17,107 | 1,532 | 9.0% |
| Segment Income margin | ||||
| Sterigenics | 54.7% | 55.3% | ||
| Nordion | 61.8% | 60.0% | ||
| Nelson Labs | 31.8% | 31.3% |
Net Revenues by Segment
Sterigenics net revenues were $175.6 million for the three months ended September 30, 2024, an increase of $7.2 million, or 4.3%, as compared to the three months ended September 30, 2023. The increase was mainly attributable to a 4.4% favorable impact from pricing and a 0.5% increase in volume and mix, partially offset by a 0.6% decrease due to changes in foreign currency exchange rates.
Nordion net revenues were $51.3 million for the three months ended September 30, 2024, an increase of $11.2 million, or 28.0%, as compared to the three months ended September 30, 2023. The increase was primarily attributable to changes in volume and mix of 23.2% and favorable pricing of 5.7%, partially offset by a 0.9% unfavorable impact from changes in foreign currency exchange rates.
Nelson Labs net revenues were $58.6 million for the three months ended September 30, 2024, an increase of $3.8 million, or 7.0%, as compared to the three months ended September 30, 2023. The increase was attributable to favorable changes in volume and mix of 3.7% and a favorable impact from pricing of 3.1%.
Segment Income
Sterigenics segment income was $96.0 million for the three months ended September 30, 2024, an increase of $2.8 million, or 3.0%, as compared to the three months ended September 30, 2023. The increase in segment income was primarily a result of favorable customer pricing as well as volume and mix. Increases in employee compensation costs negatively impacted segment income and segment income margin.
Nordion segment income was $31.7 million for the three months ended September 30, 2024, an increase of $7.7 million, or 31.9%, as compared to the three months ended September 30, 2023. The timing of reactor harvest schedules was a primary driver for the increase in segment income and segment income margin, as well as favorable pricing, partially offset by unfavorable changes in foreign currency exchange rates.
Nelson Labs segment income was $18.6 million for the three months ended September 30, 2024, an increase of $1.5 million, or 9.0%, as compared to the three months ended September 30, 2023. The increase in segment income and segment income margin was primarily a result of favorable pricing, volume and mix, and improvements in labor productivity, partially offset by increases in employee compensation costs.
Segment Results for the Nine Months Ended September 30, 2024 and 2023
The following tables compare segment net revenue and segment income for the nine months ended September 30, 2024 to the nine months ended September 30, 2023:
| (thousands of U.S. dollars) Net Revenues | Nine Months Ended September 30, 2024 | 2023 | $ Change | % Change |
|---|---|---|---|---|
| Sterigenics | $518,425 | $494,934 | $23,491 | 4.7% |
| Nordion | 116,564 | 80,624 | 35,940 | 44.6% |
| Nelson Labs | 175,249 | 163,491 | 11,758 | 7.2% |
| Segment Income | ||||
| Sterigenics | $278,585 | $267,459 | $11,126 | 4.2% |
| Nordion | 65,938 | 43,362 | 22,576 | 52.1% |
| Nelson Labs | 51,117 | 50,460 | 657 | 1.3% |
| Segment Income margin | ||||
| Sterigenics | 53.7% | 54.0% | ||
| Nordion | 56.6% | 53.8% | ||
| Nelson Labs | 29.2% | 30.9% |
Net Revenues by Segment
Sterigenics net revenues were $518.4 million for the nine months ended September 30, 2024, an increase of $23.5 million, or 4.7%, as compared to the nine months ended September 30, 2023. The increase was mainly attributable to a 4.7% favorable impact from pricing.
Nordion net revenues were $116.6 million for the nine months ended September 30, 2024, an increase of $35.9 million, or 44.6%, as compared to the nine months ended September 30, 2023. The increase was driven by favorable changes in volume and mix of 41.1% and pricing of 4.4%. Partially offsetting this decrease was an unfavorable impact from changes in foreign currency exchange rates of 0.9%.
Nelson Labs net revenues were $175.2 million for the nine months ended September 30, 2024, an increase of $11.8 million, or 7.2%, as compared to the nine months ended September 30, 2023. The increase was attributable to favorable changes in volume and mix of 4.1% and a favorable impact from pricing of 3.0%.
Segment Income
Sterigenics segment income was $278.6 million for the nine months ended September 30, 2024, an increase of $11.1 million, or 4.2%, as compared to the nine months ended September 30, 2023. The increase in segment income was fueled mainly by favorable pricing, partially offset by ongoing pressure from inflation and higher employee compensation costs.
Nordion segment income was $65.9 million for the nine months ended September 30, 2024, an increase of $22.6 million, or 52.1%, as compared to the nine months ended September 30, 2023. The timing of reactor harvest schedules was a primary driver for the increase in segment income and segment income margin.
Nelson Labs segment income was $51.1 million for the nine months ended September 30, 2024, an increase of $0.7 million, or 1.3%, as compared to the nine months ended September 30, 2023. The increase in segment income was mainly attributable to favorable pricing and labor productivity improvements. The decline in segment income margin was primarily due to the impact of volume and mix, as well as increases in employee compensation costs, partially offset by favorable pricing.
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted Net Income and Adjusted EBITDA, financial measures that are not based on any standardized methodology prescribed by GAAP.
We define Adjusted Net Income as net income before amortization and certain other adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period as discussed further below. We define Adjusted EBITDA as Adjusted Net Income before interest expense, depreciation (including depreciation of Co-60 used in our operations) and income tax provision applicable to Adjusted Net Income.
We use Adjusted Net Income and Adjusted EBITDA, non-GAAP financial measures, as the principal measures of our operating performance. Management believes Adjusted Net Income and Adjusted EBITDA are useful because they allow management to more effectively evaluate our operating performance and compare the results of our operations from period to period without the impact of certain non-cash items and non-routine items that we do not expect to continue at the same level in the future and other items that are not core to our operations. We believe that these measures are useful to our investors because they provide a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure. In addition, we believe Adjusted Net Income and Adjusted EBITDA will assist investors in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented. Our management also uses Adjusted Net Income and Adjusted EBITDA in their financial analysis and operational decision-making, and Adjusted EBITDA serves as the basis for the metric we utilize to determine attainment of our primary annual incentive program. Adjusted Net Income and Adjusted EBITDA may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.
Adjusted Net Income and Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted Net Income and Adjusted EBITDA rather than net income, the nearest GAAP equivalent. For example, Adjusted Net Income and Adjusted EBITDA primarily exclude:
- certain recurring non-cash charges such as depreciation of fixed assets, although these assets may have to be replaced in the future, as well as amortization of acquired intangible assets and asset retirement obligations;
- costs of acquiring and integrating businesses, which will continue to be a part of our growth strategy;
- non-cash gains or losses from fluctuations in foreign currency exchange rates, and the mark-to-fair value of derivatives not designated as hedging instruments, which includes the embedded derivatives relating to certain customer and supply contracts at Nordion;
- impairment charges on long-lived assets, intangible assets and investments accounted for under the equity method;
- loss on refinancing of debt incurred in connection with refinancing or early extinguishment of long-term debt;
- expenses incurred in connection with the secondary offering of our common stock;
- expenses and charges related to the litigation, settlement agreements, and other activities associated with our EO sterilization facilities, including those related to Willowbrook, Illinois, Atlanta, Georgia, Santa Teresa, New Mexico and Los Angeles, California, even though that litigation remains ongoing;
- in the case of Adjusted EBITDA, interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and
- share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of our compensation strategy.
In evaluating Adjusted Net Income and Adjusted EBITDA, you should be aware that in the future, we will incur expenses similar to the adjustments in the table below. Our presentations of Adjusted Net Income and Adjusted EBITDA should not be construed as suggesting that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted Net Income and Adjusted EBITDA alongside other financial performance measures, including our net income (loss) and other GAAP measures.
The following table presents a reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP to Adjusted Net Income and Adjusted EBITDA, for each of the periods indicated:
| (thousands of U.S. dollars) | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
|---|---|---|---|---|
| Net income (loss) | $16,998 | $(13,660) | $32,075 | $12,695 |
| Amortization of intangibles | 19,858 | 20,181 | 59,737 | 61,290 |
| Share-based compensation(a) | 9,860 | 8,378 | 28,723 | 24,135 |
| Loss on refinancing of debt(b) | 70 | — | 24,160 | — |
| Loss (gain) on foreign currency and derivatives not designated as hedging instruments, net(c) | (2,231) | 1,333 | (1,699) | 1,459 |
| Business optimization project expenses(d) | 2,387 | 1,435 | 3,034 | 7,270 |
| Professional services relating to EO sterilization facilities(e) | 8,200 | 8,355 | 22,357 | 33,950 |
| Georgia EO litigation settlement(f) | — | 35,000 | — | 35,000 |
| Secondary offering costs(g) | 562 | — | 1,699 | — |
| Accretion of asset retirement obligations(h) | 636 | 555 | 1,914 | 1,682 |
| Income tax benefit associated with pre-tax adjustments(i) | (7,397) | (15,010) | (32,241) | (39,540) |
| Adjusted Net Income | 48,943 | 46,567 | 139,759 | 137,941 |
| Interest expense, net(j) | 41,572 | 40,627 | 123,731 | 100,225 |
| Depreciation(k) | 22,693 | 17,994 | 63,074 | 55,913 |
| Income tax provision applicable to Adjusted Net Income(l) | 33,153 | 29,140 | 69,076 | 67,202 |
| Adjusted EBITDA(m) | $146,361 | $134,328 | $395,640 | $361,281 |
(a) Represents share-based compensation expense to employees and Non-Employee Directors.
(b) Represents the write-off of unamortized debt issuance costs and discounts, as well as certain other costs incurred related to the Refinancing Term Loans and the Secured Notes. The nine months ended September 30, 2024 also includes $0.7 million of debt refinancing costs related to Amendment No. 3 to the Senior Secured Credit Facilities.
(c) Represents the effects of (i) fluctuations in foreign currency exchange rates and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion.
(d) Represents (i) certain costs related to acquisitions and the integration of recent acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in 2018, (iv) professional fees and other costs associated with business optimization, cost saving and other process enhancement projects, and (v) professional fees, payroll costs, and other costs, including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility. The nine months ended September 30, 2023 includes a $1.0 million cancellation fee received from a tenant in connection with the termination of an office space lease at the Nordion facility.
(e) Represents litigation and other professional fees associated with our EO sterilization facilities. Amounts presented for the three and nine months ended September 30, 2023 have been adjusted to exclude interest expense, net associated with Term Loan B due 2026 attributable to the loan proceeds that were used to fund a $408.0 million Illinois EO litigation settlement.
(f) Represents the cost to settle 79 pending EO claims in Georgia under a settlement term sheet entered into on December 21, 2023.
(g) Represents expenses incurred in connection with secondary offerings of our common stock that closed on March 4, 2024 and September 6, 2024, respectively.
(h) Represents non-cash accretion of asset retirement obligations related to Co-60 and gamma processing facilities, which are based on estimated site remediation costs for any future decommissioning of these facilities and are accreted over the life of the asset.
(i) Represents the income tax impact of adjustments calculated based on the tax rate applicable to each item. We eliminate the effect of tax rate changes as applied to tax assets and liabilities and unusual items from our presentation of adjusted net income.
(j) Interest expense, net presented in this reconciliation for the three and nine months ended September 30, 2023 has been adjusted to conform to the current year presentation to include interest expense, net on Term Loan B due 2026 attributable to the loan proceeds that were used to fund the $408.0 million Illinois EO litigation settlement.
(k) Includes depreciation of Co-60 held at gamma irradiation sites. The three and nine months ended September 30, 2024 excludes accelerated depreciation associated with business optimization activities.
(l) Represents the difference between the income tax provision as determined under U.S. GAAP and the income tax benefit associated with pre-tax adjustments described in footnote (i).
(m) $25.8 million and $22.4 million of the adjustments for the three months ended September 30, 2024 and 2023, respectively, and $73.0 million and $69.7 million of the adjustments for the nine months ended September 30, 2024 and 2023, respectively, are included in cost of revenues, primarily consisting of amortization of intangible assets, depreciation, and accretion of asset retirement obligations.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash
The primary sources of liquidity for our business are cash flows from operations and borrowings under our credit facilities. As of September 30, 2024, we had $306.7 million of unrestricted cash and cash equivalents. This is a decrease of $10.3 million from the balance at December 31, 2023. The decrease in unrestricted cash and cash equivalents was a result of $113.2 million in cash paid for capital expenditures, $44.0 million in cash used in financing activities, partially offset by $168.4 million of cash flows provided by operating activities, which includes a $35.0 million payment of the Georgia EO litigation settlement in January 2024. Our foreign subsidiaries held cash of approximately $297.8 million at September 30, 2024 and $224.1 million at December 31, 2023. No material restrictions exist to accessing cash held by our foreign subsidiaries notwithstanding any potential tax consequences.
As described in more detail below, on March 1, 2024, the Company and SHH entered into Amendment No. 3 to the Revolving Credit Facility. Amendment No. 3 did not materially change to the terms and conditions of the Credit Agreement, including with respect to the amount of commitments under the Revolving Credit Facility, which remains $423.8 million.
As discussed below, on May 30, 2024 the Company and SHH closed on the Refinancing Term Loans in an aggregate principal amount of $1,509.4 million as well as an issuance of Secured Notes in an aggregate principal amount of $750.0 million, both of which mature in 2031. The Company used the net proceeds from the Refinancing Term Loans and Secured Notes, along with cash on hand, to refinance its previously outstanding $1,763.1 million and $496.3 million Term Loans due 2026.
Uses of Cash
We expect that cash on hand, operating cash flows and amounts available under our credit facilities will provide sufficient working capital to operate our business, meet foreseeable liquidity requirements (inclusive of debt service on our long-term debt), make expected capital expenditures including investments in fixed assets to build and/or expand existing facilities, and meet litigation costs that we expect to continue to incur for at least the next twelve months and the foreseeable future thereafter. Our primary long-term liquidity requirements beyond the next twelve months will be to service our debt, make capital expenditures, and fund suitable business acquisitions. As of September 30, 2024, there were no outstanding borrowings on the Revolving Credit Facility. We expect any excess cash provided by operations will be allocated to fund capital expenditures, potential acquisitions, or for other general corporate purposes. Our ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected by a range of macroeconomic, competitive and business factors, including interest rate changes and changes in our industry, many of which are outside of our control. As of September 30, 2024, our interest rate derivatives limit our cash flow exposure of our variable rate borrowings under the Term Loans. Refer to Note 15, “Financial Instruments and Financial Risk”, “Derivative Instruments” to our consolidated financial statements for additional information about changes in interest rate risk.
Capital Expenditures
Our capital expenditure program is a component of our long-term strategy. This program includes, among other things, investments in new and existing facilities, business expansion projects, Co-60 used by Sterigenics at its gamma irradiation facilities, cobalt development projects and information technology enhancements. During the nine months ended September 30, 2024, our capital expenditures amounted to $113.2 million, compared to $150.1 million for the nine months ended September 30, 2023.
Cash Flow Information
| (thousands of U.S. dollars) Net Cash Provided by (Used in): | Nine Months Ended September 30, 2024 | 2023 |
|---|---|---|
| Operating activities | $168,447 | $(260,855) |
| Investing activities | (113,126) | (150,080) |
| Financing activities | (44,016) | 269,752 |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | (4,477) | (2,577) |
| Net increase (decrease) in cash and cash equivalents, including restricted cash | $6,828 | $(143,760) |
Operating activities
Cash flows from operating activities increased $429.3 million to net cash provided of $168.4 million in the nine months ended September 30, 2024 compared to net cash used of $260.9 million for the nine months ended September 30, 2023. The increase in cash flows from operating activities in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to the timing of the settlement fund release of approximately $408.0 million on June 30, 2023 in connection with the settlements of the Illinois EO claims and an increase in operating income of $37.8 million in the nine months ended September 30, 2024 compared to the same period in the prior year.
Investing activities
Cash used by investing activities decreased $37.0 million to net cash used of $113.1 million in the nine months ended September 30, 2024 compared to $150.1 million for the nine months ended September 30, 2023. The variance was primarily driven by a decrease in cash paid for capital expenditures of $36.9 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Financing activities
Cash used in financing activities was $44.0 million for the nine months ended September 30, 2024 compared to net cash provided by financing activities of $269.8 million for the nine months ended September 30, 2023, resulting in a net change of $313.8 million. The difference was mainly attributable to $298.8 million of debt proceeds (net of repayments) in the nine months ended September 30, 2023 compared to $1.3 million of debt repayments (net of debt proceeds) in the nine months ended September 30, 2024. Cash outflows for debt issuance costs also increased $6.4 million during the nine months ended September 30, 2024 compared to the same period in the prior year. In addition, a purchase option for a leased facility was exercised in the first quarter of 2024 resulting in a $6.7 million cash outflow.
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 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 Secured Overnight Financing Rate (“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 and nine months ended September 30, 2024 was 8.56%.
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 previously outstanding $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.
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
September 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 September 30, 2024, the Company had $23.9 million of letters of credit issued against the Revolving Credit Facility, resulting in total availability under the Revolving Credit Facility of $399.9 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make judgments, estimates and assumptions at a specific point in time and in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. The application of accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
A comprehensive discussion of the Company’s critical accounting policies and management estimates made in connection with the preparation of the financial statements is included in Item 7 of 2023 10-K. There have been no significant changes in critical accounting policies, management estimates or accounting policies since the year ended December 31, 2023.
NEW ACCOUNTING PRONOUNCEMENTS
For a description of recent accounting pronouncements applicable to our business, see Note 2, “Recent Accounting Standards” to our consolidated financial statements.
Market risk
As filed, 240 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Market risks are described within “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our 2023 Form 10-K. These market risks have not materially changed for the three and nine months ended September 30, 2024.
Controls and procedures
As filed, 1,301 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Based upon their evaluation, the CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control
During the three months ended September 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 326 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2023 10-K filed with the SEC on February 27, 2024, and Part II, Item 1A,“Risk Factors,” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, filed with the SEC on May 2, 2024.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-07-01 to 2024-09-30 | $285.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-01-01 to 2024-09-30 | $810.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months2024-07-01 to 2024-09-30 | $127.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months2024-01-01 to 2024-09-30 | $372.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months2024-07-01 to 2024-09-30 | $158.0m | us-gaap:GrossProfit |
| Gross profit | 9 months2024-01-01 to 2024-09-30 | $437.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months2024-07-01 to 2024-09-30 | $62.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months2024-01-01 to 2024-09-30 | $180.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2024-07-01 to 2024-09-30 | $80.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-01-01 to 2024-09-30 | $210.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months2024-07-01 to 2024-09-30 | $25.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-01-01 to 2024-09-30 | $36.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-07-01 to 2024-09-30 | $17.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months2024-01-01 to 2024-09-30 | $32.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-01-01 to 2024-09-30 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-07-01 to 2024-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-01-01 to 2024-09-30 | $0.11 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-07-01 to 2024-09-30 | 285,564,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-01-01 to 2024-09-30 | 284,660,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-01-01 to 2024-09-30 | $168.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-01-01 to 2024-09-30 | $113.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2024-09-30 | $306.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-09-30 | $563.6m | us-gaap:AssetsCurrent |
| Total assets | At period end2024-09-30 | $3.15bn | us-gaap:Assets |
| Current liabilities | At period end2024-09-30 | $195.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2024-09-30 | $2.68bn | us-gaap:Liabilities |
| Long-term debt | At period end2024-09-30 | $2.21bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | At period end2024-09-30 | $14.8m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | At period end2024-09-30 | $470.2m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001822479-24-000049. Last ingested by Listed: Nov 3, 2026, 18:50 ET. Listed shows no prices and gives no investment advice.