UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 8-K
_______________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 9, 2021
_______________________
SOTERA HEALTH COMPANY
(Exact Name of Registrant as Specified in Charter)
_______________________
| Delaware | 001-39729 | 47-3531161 | ||||||||||||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS 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)
Not Applicable
(Former name or former address, if changed since last report)
_______________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of 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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
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. ☐
Item 2.02. Results of Operations and Financial Condition.
On March 9, 2021, Sotera Health Company (the “Company”) issued a press release (the “Press Release”) announcing its financial results for the quarter and year ended December 31, 2020. The Company will hold its previously announced conference call on March 9, 2021, at 9:00 a.m. ET, to discuss its financial results for the quarter and year ended December 31, 2020 and full-year 2021 outlook. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly incorporated by specific reference in such filing.
Item 7.01. Regulation FD Disclosure.
On March 9, 2021, the Company posted its fourth quarter and full-year 2020 presentation (the “Investor Presentation”) to the “Presentations and Events” section of its website accessible at https://investors.soterahealth.com. A copy of the Investor Presentation is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
The information in this Item 7.01, including Exhibit 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability under that section, and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly incorporated by specific reference in such filing.
The Company makes reference to non-GAAP financial information in the Company’s Press Release and Investor Presentation. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the Press Release and Investor Presentation.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Sotera Health Company (Registrant) | |||||||||||
| Date: March 9, 2021 | By: | /s/ Scott J. Leffler | |||||||||
| Scott J. Leffler | |||||||||||
| Chief Financial Officer and Treasurer | |||||||||||
Exhibit 99.1
Sotera Health Reports Fourth-Quarter and Full-Year 2020 Results;
Provides 2021 Outlook
•Q4 2020 net revenues of $217 million increased 12%, compared to Q4 2019
•Q4 2020 net loss of $44 million or $0.17 per diluted share, compared to a net loss of $28 million or $0.12 per diluted share in Q4 2019; Q4 2020 and Q4 2019 include losses on extinguishment of debt of $44 million and $30 million, respectively
•Q4 2020 Adjusted EBITDA of $113 million increased 20%, compared to Q4 2019
•Q4 2020 Adjusted EPS of $0.09 improved by $0.04 per diluted share, compared to Q4 2019
•December 31, 2020 total debt of $1,861 million, net debt of $1,797 million, and net leverage ratio reduced to 4.3x
•Full-year 2021 outlook revenue growth of 9% to 12%
CLEVELAND, OH, March 9, 2021 – Sotera Health Company (Nasdaq: SHC), a leading global provider of mission-critical end-to-end sterilization solutions, lab testing and advisory services for the healthcare industry, today announced financial results for the fourth-quarter and full-year 2020.
Fourth-quarter 2020 net revenues increased 12% to $217 million, compared with $193 million in the fourth-quarter a year ago. Net loss attributable to Sotera Health (“net loss”) was $44 million, or $0.17 per diluted share, compared with a net loss of $28 million, or $0.12 per diluted share in the fourth-quarter 2019. Fourth-quarter 2020 net loss included a $44 million charge related to the previously announced paydown of $1,111 million of debt with proceeds from the Company’s initial public offering, and fourth-quarter 2019 net loss included a $30 million charge related to the refinancing of debt. Adjusted EBITDA for the fourth-quarter 2020 increased by 20% to $113 million over the prior-year quarter. Fourth-quarter 2020 Adjusted earnings per diluted share (“Adjusted EPS”) was $0.09, an increase of $0.04 per diluted share, compared to the fourth-quarter 2019. Please refer to the section “Non-GAAP Financial Measures” provided later in this release.
For full-year 2020, net revenues increased 5% to $818 million, compared with $778 million for 2019. Full-year 2020 net loss was $39 million, or $0.16 per diluted share, compared with a net loss of $21 million, or $0.09 per diluted share, for 2019. Full-year 2020 and 2019 net losses included the $44 million and $30 million charges referenced above. Full-year 2020 Adjusted EBITDA increased nearly 11% to $420 million, compared to 2019. Adjusted EPS was $0.42 in 2020, a decrease of 2% over 2019 as interest expense increased by approximately $58M for full-year 2020. Please refer to the section “Non-GAAP Financial Measures” provided later in this release.
“Our fourth-quarter and full-year 2020 results demonstrate the resilience of our business model and ability of our company to perform in a rapidly shifting environment,” said Chairman and Chief Executive Officer, Michael B. Petras, Jr. “Our three businesses – Sterigenics, Nordion and Nelson Labs – successfully navigated a global pandemic, pivoting to meet increased demand for products and services critical to protecting against the coronavirus, while ensuring continuity and quality of service for our broad-spectrum of healthcare customers. Our focus has been, and continues to be, supporting our Sotera Health global team members, providing a healthy and safe work environment and additional support and flexibility as needed.”
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Petras continued, “Despite the external challenges, we delivered double-digit Adjusted EBITDA growth, expanded margins, continued to make necessary infrastructure enhancements, completed the acquisition of Iotron and executed a highly successful IPO. I am tremendously proud of, and grateful to, the entire Sotera Health team for their dedication and professionalism during this important time for the company. We look forward to building on our momentum as 2021 proceeds.”
Fourth-Quarter and Full-Year 2020 Review by Business Segment
Sterigenics
For fourth-quarter 2020, net revenues from Sterigenics were $135 million, an increase of 11% compared to the fourth-quarter a year ago. Segment income was $74 million, an increase of more than 14%.
For full-year 2020, Sterigenics net revenues were $499 million, an increase of 6% compared to 2019. Segment income increased 9% to $267 million.
Revenue and segment income growth for both the fourth-quarter and full-year 2020 were driven by enhanced utilization of existing capacity, favorable pricing, and the acquisition of Iotron.
Nordion
For fourth-quarter 2020, net revenues from Nordion were $29 million, an increase of 18%, compared to the fourth-quarter a year ago. Segment income increased nearly 30% to $16 million. The increases in both revenue and segment income were driven by favorable pricing and harvest schedules for industrial-use Co-60, which often vary quarter to quarter. Segment income also benefited from favorable pricing and Co-60 mix.
For full-year 2020, net revenues from Nordion were $115 million, a decline of 1% compared to 2019. The slight decline in sales for the year was driven by lower volumes of medical-use Co-60 impacted by COVID-19. Segment income increased by more than 7% to $67 million, driven by favorable pricing and Co-60 mix.
Nelson Labs
For fourth-quarter 2020, net revenues from Nelson Labs were $53 million, an increase of more than 11% compared to the fourth-quarter a year ago. Segment income increased more than 30% to $23 million.
For full-year 2020, net revenues from Nelson Labs were $205 million, an increase of more than 7% compared to 2019. Segment income increased 19% to $86 million.
Revenue and segment income growth for both the fourth-quarter and full-year 2020 were driven by increased demand for testing related to personal protective equipment, partially offset by a reduction in other lab testing volumes.
Balance Sheet and Liquidity
As of December 31, 2020, Sotera Health had $1,861 million in total debt, and $102 million in cash and cash equivalents, compared to $2,848 million in total debt and $63 million in cash and cash equivalents as of December 31, 2019. No material debt balances currently outstanding mature until 2026. Sotera Health’s net leverage ratio as of December 31, 2020 was 4.3x, compared to 7.5x at December 31, 2019. Please refer to the section “Non-GAAP Financial Measures” provided later in this release.
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Full-Year 2021 Outlook
Today, Sotera Health is providing its full-year 2021 outlook:
•Net revenues in the range of $890 million to $920 million, representing growth of approximately 9% to 12%, compared to the prior year,
•Adjusted EBITDA in the range of $465 million to $485 million, representing growth of approximately 11% to 16%, compared to the prior year,
•Tax rate applicable to Adjusted Net Income of approximately 28%,
•Adjusted EPS in the range of $0.78 to $0.86,
•A fully diluted share count in the range of 281 million to 283 million shares on a weighted-average basis,
•Capital expenditures in the range of $100 million to $110 million, and
•Net leverage reduction of approximately ¾ of a turn.
The guidance provided above contains a number of assumptions, including, among others, the company’s current expectations regarding the impact of the COVID-19 pandemic including the rate of recoveries of elective procedures and new product development testing, and that exchange rates remain constant for the full year 2021.
The company does not provide a reconciliation of the forward-looking Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS guidance to the most directly comparable GAAP measure, as this cannot be done without unreasonable effort due to the variability and low visibility with respect to certain items, including, among others, uncertainties caused by the global COVID-19 pandemic, changes to the regulatory landscape, restructuring items and certain fair value measurements, all of which are potential adjustments for future earnings. The variability of these items could have a potentially unpredictable, and a potentially significant, impact on our future GAAP results.
The guidance provided above is based on current plans and expectations and is subject to a number of known and unknown certainties and risks, including those set forth below under “Forward-Looking Statements.”
Recent Accomplishments
•Closing of initial public offering in November 2020.
•Paydown of $1,111 million of debt and expansion of Revolving Credit Facility in November and December 2020, respectively.
•Successful repricing of First Lien Term Loan facility in January 2021.
Upcoming Investor Events
•Barclays Global Healthcare Conference at 9:10 am Eastern, March 10, 2021.
•KeyBanc Capital Markets’ Life Sciences & MedTech Investor Forum at 9:15 am Eastern, March 23, 2021.
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Earnings Webcast
Sotera Health management will host a conference call and webcast to discuss the Company’s operating highlights and financial results at 9:00 a.m. Eastern today. To participate in the live call, please dial 1-833-303-1211 if dialing from within the United States and Canada or 1-918-922-6527 if dialing from other locations, using conference ID #1765289, at least 10 minutes prior to the scheduled start time. A live webcast of the conference call and accompanying materials also may be accessed via the Investor Relations section of the Company’s website at https://investors.soterahealth.com/. A replay of the webcast will be available beginning at 12 noon Eastern on March 9 for a period of one year.
Forward-Looking Statements
This release contains forward-looking statements that reflect management’s expectations about future events and the Company’s operating plans and performance and speak only as of the date hereof. You can identify these forward-looking statements by the use of forward-looking words such as “will,” “may,” “plan,” “estimate,” “project,” “believe,” “anticipate,” “expect,” “intend,” “should,” “would,” “could,” “target,” “goal,” “continue to,” “positioned to,” “are confident” or the negative version of those words or other comparable words. Any forward-looking statements contained in this release are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. These forward-looking statements are subject to various risks, uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. These risks and uncertainties include, without limitation, any disruption in the availability or supply of ethylene oxide (EO) or Cobalt-60; changes in industry trends, environmental, health and safety regulations or preferences; the impact of current and future legal proceedings and liability claims, including litigation related to purported exposure to emissions of EO from our facilities in Illinois, Georgia and New Mexico and the possibility that other claims will be made in the future relating to these or other facilities; our ability to increase capacity at existing facilities, renew leases for our facilities and build new facilities in a timely and cost-effective manner; the risks of doing business internationally; and any inability to pursue strategic transactions or find suitable acquisition targets. For additional discussion of these risks and uncertainties, please refer to Company’s filings with the SEC, such as its annual and quarterly reports. We do not undertake any obligation to publicly update or revise these forward-looking statements, except as otherwise required by law.
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Net Debt and Net Leverage Ratio, financial measures that are not based on any standardized methodology prescribed by GAAP.
We define Adjusted Net Income as net income (loss) before amortization and certain other adjustments that we do not consider in our evaluation of our ongoing operating performance from period to period.
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. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by net revenues.
We define Adjusted EPS as Adjusted Net Income divided by the weighted average number of diluted shares outstanding.
Our Net Debt is equal to our total debt, plus unamortized debt issuance costs and debt discounts, less cash and cash equivalents.
Our Net Leverage Ratio is equal to Net Debt divided by Adjusted EBITDA.
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We use these non-GAAP financial measures as the principal measures of our operating performance. Management believes these 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 these measures 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 these measurements in their financial analysis and operational decision-making and Adjusted EBITDA serves as the metric for attainment of our primary annual incentive program. These measures may be calculated differently from, and therefore may not be comparable to, a similarly titled measure used by other companies.
About Sotera Health
Sotera Health Company is a leading global provider of mission-critical end-to-end sterilization solutions and lab testing and advisory services for the healthcare industry. Sotera Health goes to market through three businesses – Sterigenics®, Nordion® and Nelson Labs®. Sotera Health is committed to its mission, Safeguarding Global Health®.
INVESTOR RELATIONS CONTACTS
Sally J. Curley, IRC Jenny Kobin
Curley Global IR, LLC IR Advisory Solutions
IR@soterahealth.com IR@soterahealth.com
MEDIA CONTACT
Kristin Gibbs
Chief Marketing Officer, Sotera Health
kgibbs@soterahealth.com
Source: Sotera Health Company
###
5
Sotera Health Company
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Service | $ | 189,495 | $ | 171,162 | $ | 713,520 | $ | 673,037 | |||||||||||||||
| Product | 27,350 | 22,323 | 104,638 | 105,290 | |||||||||||||||||||
Total net revenues | 216,845 | 193,485 | 818,158 | 778,327 | |||||||||||||||||||
| Cost of revenues: | |||||||||||||||||||||||
| Service | 85,973 | 84,884 | 333,359 | 333,290 | |||||||||||||||||||
| Product | 10,295 | 11,380 | 41,227 | 49,606 | |||||||||||||||||||
Total cost of revenues | 96,268 | 96,264 | 374,586 | 382,896 | |||||||||||||||||||
Gross profit | 120,577 | 97,221 | 443,572 | 395,431 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative expenses | 53,156 | 37,120 | 178,525 | 147,480 | |||||||||||||||||||
| Amortization of intangible assets | 15,040 | 14,620 | 59,029 | 58,562 | |||||||||||||||||||
| Impairment of long-lived assets | — | 11 | — | 5,792 | |||||||||||||||||||
Total operating expenses | 68,196 | 51,751 | 237,554 | 211,834 | |||||||||||||||||||
Operating income | 52,381 | 45,470 | 206,018 | 183,597 | |||||||||||||||||||
| Interest expense, net | 48,117 | 43,251 | 215,259 | 157,729 | |||||||||||||||||||
| Loss on extinguishment of debt | 44,262 | 30,168 | 44,262 | 30,168 | |||||||||||||||||||
| Foreign exchange loss (gain) | 140 | (4,582) | (5,230) | 3,862 | |||||||||||||||||||
| Other income, net | (5,060) | (2,500) | (9,413) | (7,246) | |||||||||||||||||||
Loss before income taxes | (35,078) | (20,867) | (38,860) | (916) | |||||||||||||||||||
| Provision (benefit) for income taxes | 8,308 | 6,879 | (1,369) | 19,509 | |||||||||||||||||||
Net loss | (43,386) | (27,746) | (37,491) | (20,425) | |||||||||||||||||||
Less: Net income attributable to noncontrolling interests | 294 | 154 | 1,126 | 425 | |||||||||||||||||||
Net loss attributable to Sotera Health Company | $ | (43,680) | $ | (27,900) | $ | (38,617) | $ | (20,850) | |||||||||||||||
| Loss per share: | |||||||||||||||||||||||
| Basic and diluted | $ | (0.17) | $ | (0.12) | $ | (0.16) | $ | (0.09) | |||||||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||||||||
| Basic and diluted | 253,470 | 232,400 | 237,696 | 232,400 | |||||||||||||||||||
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Sotera Health Company
Segment Data
(in thousands)
(unaudited)
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Segment revenues: | |||||||||||||||||||||||
| Sterigenics | $ | 134,819 | $ | 121,321 | $ | 498,773 | $ | 471,708 | |||||||||||||||
| Nordion | 28,711 | 24,296 | 114,745 | 116,165 | |||||||||||||||||||
| Nelson Labs | 53,315 | 47,868 | 204,640 | 190,454 | |||||||||||||||||||
Total net revenues | $ | 216,845 | $ | 193,485 | $ | 818,158 | $ | 778,327 | |||||||||||||||
| Segment income: | |||||||||||||||||||||||
| Sterigenics | $ | 73,836 | $ | 64,542 | $ | 266,639 | $ | 244,904 | |||||||||||||||
| Nordion | 16,111 | 12,498 | 66,803 | 62,196 | |||||||||||||||||||
| Nelson Labs | 23,115 | 17,435 | 86,417 | 72,832 | |||||||||||||||||||
Total segment income | 113,062 | 94,475 | 419,859 | 379,932 | |||||||||||||||||||
Less adjustments: | |||||||||||||||||||||||
| Interest expense, net | 48,117 | 43,251 | 215,259 | 157,729 | |||||||||||||||||||
Depreciation and amortization(a) | 36,406 | 36,591 | 143,564 | 146,719 | |||||||||||||||||||
Impairment of long-lived assets and intangible assets(b) | — | 11 | — | 5,792 | |||||||||||||||||||
Share-based compensation(c) | 6,968 | 1,762 | 10,987 | 16,882 | |||||||||||||||||||
Capital restructuring bonuses(d) | 2,702 | 1,510 | 2,702 | 2,040 | |||||||||||||||||||
(Gain) loss on foreign currency and embedded derivatives(e) | (3,663) | (5,636) | (8,454) | 2,662 | |||||||||||||||||||
Acquisition and divestiture related charges, net(f) | 962 | 386 | 3,932 | (318) | |||||||||||||||||||
Business optimization project expenses(g) | 40 | 2,710 | 2,524 | 4,195 | |||||||||||||||||||
Plant closure expenses(h) | 261 | 567 | 2,649 | 1,712 | |||||||||||||||||||
Loss on extinguishment of debt(i) | 44,262 | 30,168 | 44,262 | 30,168 | |||||||||||||||||||
Professional services relating to EO sterilization facilities(j) | 11,301 | 3,428 | 36,671 | 11,216 | |||||||||||||||||||
Accretion of asset retirement obligation(k) | 470 | 594 | 1,946 | 2,051 | |||||||||||||||||||
COVID-19 expenses(l) | 314 | — | 2,677 | — | |||||||||||||||||||
| Consolidated loss before income taxes | $ | (35,078) | $ | (20,867) | $ | (38,860) | $ | (916) | |||||||||||||||
(a)Includes depreciation of Co-60 held at gamma irradiation sites.
(b)Represents impairment charges related to the decision to not reopen the Willowbrook, Illinois facility in September 2019.
(c)Includes non-cash share-based compensation expense. 2019 also includes $10.0 million of one-time cash share-based compensation expense related to the pre-IPO Class C Units, which vested in the third quarter of 2019.
(d)Represents cash bonuses for members of management relating to the November 2020 IPO and the December 2019 refinancing.
(e)Represents the effects of (i) fluctuations in foreign currency exchange rates, primarily related to remeasurement of intercompany loans denominated in currencies other than subsidiaries’ functional currencies, and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion.
(f)Represents (i) certain direct and incremental costs related to the acquisitions of Gibraltar Laboratories, Inc. (“Nelson Fairfield”) in 2018 and Iotron Industries Canada, Inc. in July 2020, and certain related integration efforts as a result of those acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, and (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in 2018.
(g)Represents professional fees, contract termination and exit costs, severance and other payroll costs, and other costs associated with business optimization and cost savings projects relating to the integration of Nelson Labs, the Sotera Health rebranding, operating structure realignment and other process enhancement projects.
(h)Represents professional fees, severance and other payroll costs, and other costs including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility.
(i)Represents expenses incurred in connection with the refinancing of our debt capital structure in December 2019 and paydown of debt following the November 2020 IPO, including accelerated amortization of prior debt issuance and discount costs, premiums paid in connection with early extinguishment and debt issuance and discount costs incurred for the new debt.
(j)Represents professional fees related to litigation associated with our EO sterilization facilities and other related professional fees.
(k)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 (without regard for whether the decommissioning services would be performed by employees of Nordion, instead of by a third party) and are accreted over the life of the asset.
(l)Represents non-recurring costs associated with COVID-19 pandemic, including donations to related charitable causes and special bonuses for front-line personnel working on-site during lockdown periods.
7
Sotera Health Company
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
| As of December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 102,454 | $ | 63,025 | ||||||||||
| Accounts receivable, net | 91,735 | 88,644 | ||||||||||||
| Inventories, net | 34,093 | 37,396 | ||||||||||||
| Other current assets | 86,733 | 63,289 | ||||||||||||
| Total current assets | 315,015 | 252,354 | ||||||||||||
| Property, plant, and equipment, net | 609,814 | 581,954 | ||||||||||||
| Operating lease assets | 45,963 | — | ||||||||||||
| Other intangible assets, net | 643,366 | 696,006 | ||||||||||||
| Goodwill | 1,115,936 | 1,035,865 | ||||||||||||
| Other assets | 31,185 | 14,495 | ||||||||||||
| Total assets | $ | 2,761,279 | $ | 2,580,674 | ||||||||||
| Liabilities and equity | ||||||||||||||
| Total current liabilities | $ | 140,598 | $ | 123,990 | ||||||||||
| Long-term debt, less current portion | 1,824,789 | 2,800,873 | ||||||||||||
| Other noncurrent liabilities | 219,502 | 159,708 | ||||||||||||
| Deferred income taxes | 121,816 | 137,235 | ||||||||||||
| Total liabilities | 2,306,705 | 3,221,806 | ||||||||||||
| Total equity (deficit) | 454,574 | (641,132) | ||||||||||||
| Total liabilities and equity | $ | 2,761,279 | $ | 2,580,674 | ||||||||||
8
Sotera Health Company
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Year Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Operating activities: | |||||||||||
| Net loss | $ | (37,491) | $ | (20,425) | |||||||
| Non-cash items | 169,869 | 177,817 | |||||||||
| Changes in operating assets and liabilities | (11,793) | (8,351) | |||||||||
| Net cash provided by operating activities | 120,585 | 149,041 | |||||||||
| Investing activities: | |||||||||||
| Purchases of property, plant and equipment | (53,507) | (57,257) | |||||||||
| Purchase of Iotron Industries Canada, Inc., net of cash acquired | (105,187) | — | |||||||||
| Net cash used in investing activities | (158,694) | (57,257) | |||||||||
| Financing activities: | |||||||||||
| Proceeds from issuance of common stock, net of underwriting discounts and issuance costs | 1,155,961 | — | |||||||||
| Proceeds from revolving credit facility and long-term borrowings | 150,000 | 3,144,600 | |||||||||
| Dividends and distributions to shareholders | — | (691,170) | |||||||||
| Repurchase of common shares | (34,000) | — | |||||||||
| Payments of debt issuance costs and prepayment premium | (19,746) | (17,034) | |||||||||
| Payments on revolving credit facility and long-term borrowings | (1,177,325) | (2,561,084) | |||||||||
| Other | (1,458) | (1,342) | |||||||||
| Net cash provided by (used in) financing activities | 73,432 | (126,030) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 4,106 | 485 | |||||||||
| Net increase (decrease) in cash and cash equivalents, including restricted cash | 39,429 | (33,761) | |||||||||
| Cash and cash equivalents, including restricted cash, at beginning of period | 63,025 | 96,786 | |||||||||
| Cash and cash equivalents, including restricted cash, at end of period | $ | 102,454 | $ | 63,025 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the period for interest | $ | 211,276 | $ | 151,005 | |||||||
| Cash paid during the period for income taxes, net of tax refunds received | 23,988 | 44,614 | |||||||||
| Equipment purchases included in accounts payable | 14,288 | 5,197 | |||||||||
9
Sotera Health Company
Non-GAAP Financial Measures
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net loss | $ | (43,386) | $ | (27,746) | $ | (37,491) | $ | (20,425) | |||||||||||||||
| Amortization | 20,431 | 20,005 | 80,255 | 80,048 | |||||||||||||||||||
Impairment of long-lived assets and intangible assets (a) | — | 11 | — | 5,792 | |||||||||||||||||||
Share-based compensation(b) | 6,968 | 1,762 | 10,987 | 16,882 | |||||||||||||||||||
Capital restructuring bonuses(c) | 2,702 | 1,510 | 2,702 | 2,040 | |||||||||||||||||||
(Gain) loss on foreign currency and embedded derivatives(d) | (3,663) | (5,636) | (8,454) | 2,662 | |||||||||||||||||||
Acquisition and divestiture related charges, net(e) | 962 | 386 | 3,932 | (318) | |||||||||||||||||||
Business optimization project expenses(f) | 40 | 2,710 | 2,524 | 4,195 | |||||||||||||||||||
Plant closure expenses(g) | 261 | 567 | 2,649 | 1,712 | |||||||||||||||||||
Loss on extinguishment of debt(h) | 44,262 | 30,168 | 44,262 | 30,168 | |||||||||||||||||||
Professional services relating to EO sterilization facilities(i) | 11,301 | 3,428 | 36,671 | 11,216 | |||||||||||||||||||
Accretion of asset retirement obligation(j) | 470 | 594 | 1,946 | 2,051 | |||||||||||||||||||
COVID-19 expenses(k) | 314 | — | 2,677 | — | |||||||||||||||||||
Income tax benefit associated with pre-tax adjustments(l) | (18,682) | (15,270) | (43,536) | (35,637) | |||||||||||||||||||
| Adjusted Net Income | 21,980 | 12,489 | 99,124 | 100,386 | |||||||||||||||||||
| Interest expense, net | 48,117 | 43,251 | 215,259 | 157,729 | |||||||||||||||||||
Depreciation(m) | 15,975 | 16,586 | 63,309 | 66,671 | |||||||||||||||||||
Income tax provision applicable to Adjusted Net Income(n) | 26,990 | 22,149 | 42,167 | 55,146 | |||||||||||||||||||
| Adjusted EBITDA | $ | 113,062 | $ | 94,475 | $ | 419,859 | $ | 379,932 | |||||||||||||||
| Net Revenues | $ | 216,845 | $ | 193,485 | $ | 818,158 | $ | 778,327 | |||||||||||||||
| Adjusted EBITDA Margin | 52.1 | % | 48.8 | % | 51.3 | % | 48.8 | % | |||||||||||||||
| Weighted average number of shares outstanding | 253,470 | 232,400 | 237,696 | 232,400 | |||||||||||||||||||
| Basic and diluted EPS | $ | (0.17) | $ | (0.12) | $ | (0.16) | $ | (0.09) | |||||||||||||||
| Adjusted EPS | $ | 0.09 | $ | 0.05 | $ | 0.42 | $ | 0.43 | |||||||||||||||
(a)Represents impairment charges related to the decision to not reopen the Willowbrook, Illinois facility in September 2019.
(b)Includes non-cash share-based compensation expense. 2019 also includes $10.0 million of one-time cash share-based compensation expense related to the pre-IPO Class C Units, which vested in the third quarter of 2019.
(c)Represents cash bonuses for members of management relating to the November 2020 IPO and the December 2019 refinancing.
(d)Represents the effects of (i) fluctuations in foreign currency exchange rates, primarily related to remeasurement of intercompany loans denominated in currencies other than subsidiaries’ functional currencies, and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion.
(e)Represents (i) certain direct and incremental costs related to the acquisitions of Gibraltar Laboratories, Inc. (“Nelson Fairfield”) in 2018 and Iotron Industries Canada, Inc. in July 2020, and certain related integration efforts as a result of those acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, and (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in 2018.
(f)Represents professional fees, contract termination and exit costs, severance and other payroll costs, and other costs associated with business optimization and cost savings projects relating to the integration of Nelson Labs, the Sotera Health rebranding, operating structure realignment and other process enhancement projects.
(g)Represents professional fees, severance and other payroll costs, and other costs including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility.
(h)Represents expenses incurred in connection with the refinancing of our debt capital structure in December 2019 and paydown of debt following the November 2020 IPO, including accelerated amortization of prior debt issuance and discount costs, premiums paid in connection with early extinguishment and debt issuance and discount costs incurred for the new debt.
(i)Represents professional fees related to litigation associated with our EO sterilization facilities and other related professional fees.
(j)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 (without regard for whether the decommissioning services would be performed by employees of Nordion, instead of by a third party) and are accreted over the life of the asset.
(k)Represents non-recurring costs associated with COVID-19 pandemic, including donations to related charitable causes and special bonuses for front-line personnel working on-site during lockdown periods.
(l)Represents the tax benefit or provision associated with the reconciling items between net loss and Adjusted Net Income. To determine the aggregate tax effect of the reconciling items, we utilized statutory income tax rates ranging from 0% to 35%, depending upon the applicable jurisdictions of each adjustment.
(m)Includes depreciation of Co-60 held at gamma irradiation sites.
(n)Represents the difference between income tax expense or benefit as determined under U.S. GAAP and the income tax benefit associated with pre-tax adjustments described in footnote (l).
10
Sotera Health Company
Non-GAAP Financial Measures
($’s in thousands)
(unaudited)
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Current portion of long-term debt | $ | — | $ | 16,331 | |||||||
| Long-term debt less current portion | 1,824,789 | 2,800,873 | |||||||||
| Current portion of finance leases | 1,173 | 1,288 | |||||||||
| Finance leases less current portion | 34,939 | 29,883 | |||||||||
| Total Debt | $ | 1,860,901 | $ | 2,848,375 | |||||||
| Add: unamortized debt issuance costs and debt discounts | 38,761 | 73,677 | |||||||||
| Less: cash and cash equivalents | (102,454) | (63,025) | |||||||||
| Total Net Debt | $ | 1,797,208 | $ | 2,859,027 | |||||||
| Adjusted EBITDA | $ | 419,859 | $ | 379,932 | |||||||
| Net Leverage | 4.3x | 7.5x | |||||||||
11
Fourth-Quarter and Full-Year 2020 Earnings Results March 9, 2021 Exhibit 99.2
Forward Looking Statements and Non-GAAP Financial Measures 2 This presentation contains forward-looking statements that reflect management’s expectations about future events and the Company’s operating plans and performance and speak only as of the date hereof. You can identify these forward-looking statements by the use of forward-looking words such as “will,” “may,” “plan,” “estimate,” “project,” “believe,” “anticipate,” “expect,” “intend,” “should,” “would,” “could,” “target,” “goal,” “continue to,” “positioned to,” “are confident” or the negative version of those words or other comparable words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including our 2021 guidance, are forward-looking statements. Any forward-looking statements contained in this presentation are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will be achieved. These forward-looking statements are subject to various risks, uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. These risks and uncertainties include, without limitation, any disruption in the availability or supply of ethylene oxide (EO) or Cobalt-60; changes in industry trends, environmental, health and safety regulations or preferences; the impact of current and future legal proceedings and liability claims, including litigation related to purported exposure to emissions of EO from our facilities in Illinois, Georgia and New Mexico and the possibility that other claims will be made in the future relating to these or other facilities; our ability to increase capacity at existing facilities, renew leases for our facilities and build new facilities in a timely and cost-effective manner; the risks of doing business internationally; and any inability to pursue strategic transactions or find suitable acquisition targets. For additional discussion of these forward-looking statements, please refer to Company’s filings with the SEC, such as its annual and quarterly reports. We do not undertake any obligation to publicly update or revise these forward-looking statements, except as otherwise required by law. This presentation includes Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Net Debt and Net Leverage Ratio, which are unaudited financial measures not based on any standardized methodology prescribed by GAAP. Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Net Debt and Net Leverage Ratio may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Net Debt and Net Leverage Ratio should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. See the Appendix for 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, a reconciliation of GAAP EPS, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EPS, and a reconciliation of total debt, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Total Net Debt and Net Leverage. This presentation also contains estimates and other statistical data made by independent parties and by the Company relating to market size and growth and other data about the Company’s industry and estimated total addressable market. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified this market data. While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involve risks and uncertainties and are subject to change based on various factors, including those described under the headings of “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in the Company’s prospectus dated November 19, 2020 and Form 10- K for the year ended December 31, 2020. In addition, projections, assumptions and estimates of the Company’s future performance and the future performance of the markets in which the Company operates are necessarily subject to a high degree of uncertainty and risk. The Sotera Health name, our logo and other trademarks mentioned in this presentation are the property of their respective owners. All company data and financial information included in this presentation is as of December 31, 2020, unless otherwise stated.
Presenters 3 Michael B. Petras, Jr. Chairman and Chief Executive Officer Scott J. Leffler Chief Financial Officer
Sotera Health at a Glance 4 About: Leading global provider of mission-critical end-to-end sterilization solutions and lab testing and advisory services for the healthcare industry History: With a combined tenure of over 200 years dating back to the 1930’s, Sotera Health goes to market through three best-in-class businesses – Sterigenics, Nordion and Nelson Labs Leader in sterilization services Leader in lab testing and advisory services
Highlights 5 • Completed IPO and began trading in November 2020 • Approximately 19% of total outstanding shares were issued • IPO generated ~$1.2B of net proceeds • Revenue: Q4 2020 increased 12% to $217M, full-year 2020 increased 5% to $818M • Adjusted EBITDA(1): Q4 2020 increased 20% to $113M, full-year 2020 increased nearly 11% to $420M • Adjusted EPS(1): Q4 2020 and full-year 2020 of $0.09 and $0.42, respectively • Nearly all IPO proceeds used to reduce debt in Q4 2020 • Net leverage(1) reduced to 4.3x as of December 31, 2020 • Upsized Revolver and repriced Term Loan in December 2020 and January 2021, respectively • Reduced anticipated annual interest expense of approximately $130M(2) Initial Public Offering Year-Over-Year Performance Capital Structure • Nelson Labs investing in European microbiological center of excellence; completion by year end 2021 • Nordion advancing Co-60 supply projects • Sterigenics investing in 9 capacity expansions, 7 of which are scheduled for go-live in 2021 Strategic Initiatives (1) For a reconciliation of GAAP to non-GAAP results, please refer to Non-GAAP Financial Measures provided in the Appendix. (2) At current LIBOR levels. Includes the impact of the Q4 2020 debt paydown and the Q1 2021 Term Loan repricing. See slide 11.
2020 Consolidated Financial Results 6 (1) For a reconciliation of GAAP to non-GAAP results, please refer to Non-GAAP Financial Measures provided in the Appendix. (2) Adjusted EBITDA margin. Please refer to Non-GAAP Financial Measures provided in the Appendix. (3) Adjusted EPS is defined as Adjusted Net Income divided by the weighted average number of diluted shares outstanding. % margin Full Year $778 $818 2019 2020 $193 $217 2019 2020 Fourth Quarter Revenue Adjusted EBITDA(1) $94 $113 2019 2020 $380 $420 2019 2020 Adjusted EPS(1)(3) $0.05 $0.09 2019 2020 $0.43 $0.42 2019 2020 48.8%(2) 52.1%(2) 48.8%(2) 51.3%(2) +12% +5% +20% +11% +80% -2% In millions, except Adjusted EPS
Revenue +11.1% Segment income (1) +14.4% Revenue +5.7% Segment income (1) +8.9% Sterigenics 2020 Financial Performance 7 $121 $135 $65 $74 2019 2020 Revenue Segment Income $472 $499 $245 $267 2019 2020 Revenue Segment Income • Revenue and segment income growth driven by utilization of existing capacity, favorable pricing, and the acquisition of Iotron • More than 150 bps segment income margin expansion for both Q4 2020 and full-year 2020 • Ongoing investment in capacity expansions and facility enhancements across EO network Fourth Quarter Full Year 53.2%(2) 54.8% (2) 51.9%(2) 53.5%(2) (1) Segment income is defined to exclude, among other things, depreciation and amortization. Please refer to our consolidated financial statements for more information. (2) Segment income margin In millions
Revenue +18.2% Segment income (1) +28.9% Revenue -1.2% Segment income (1) +7.4% Nordion 2020 Financial Performance 8 $24 $29 $12 $16 2019 2020 Revenue Segment Income $116 $115 $62 $67 2019 2020 Revenue Segment Income • Q4 2020 revenue growth driven by favorable pricing and Co-60 harvesting schedule, which resulted in higher sales volumes of industrial-use Co-60 • Full-year 2020 revenue decline driven by lower volumes of medical-use Co-60 impacted by COVID-19 • More than 450 bps segment income margin expansion for both Q4 and full-year 2020 driven by favorable price and Co-60 mix Fourth Quarter Full Year 51.4%(2) 56.1%(2) 53.5%(2) 58.2%(2) (1) Segment income is defined to exclude, among other things, depreciation and amortization. Please refer to our consolidated financial statements for more information. (2) Segment income margin In millions
Revenue +11.4% Segment income (1) +32.6% Revenue +7.4% Segment income (1) +18.7% Nelson Labs 2020 Financial Performance 9 $48 $53 $17 $23 2019 2020 Revenue Segment Income $190 $205 $73 $86 2019 2020 Revenue Segment Income • Top line driven by increased demand for services related to personal protective equipment • Favorable mix and ramp-up of OpEx initiatives drove segment income margin expansion of almost 700bps for Q4 2020 and 400bps for full-year 2020 Fourth Quarter Full Year 36.4%(2) 43.4%(2) 38.2% (2) 42.2%(2) (1) Segment income is defined to exclude, among other things, depreciation and amortization. Please refer to our consolidated financial statements for more information. (2) Segment income margin In millions
10 (1) Excludes any Capital Expenditures included in accounts payable or accruals at the end of the period. The amount in accounts payable or accruals as of 12/31/20 and 12/31/19 were $14M and $5M, respectively. (2) Revolving availability is calculated as maximum facility size less letters of credit. (3) Maximum facility size was $190M and $347.5M as of 12/31/19 and 12/31/20, respectively. % margin Capital Expenditures(1) $127 $284 $63 $102 12/31/2019 12/31/2020 Revolver Availability Cash $190 $386 (2)(3) $21 $57 $20 $54 Q4 Full Year 2019 2020 Capital Expenditures and Liquidity • Recovered pace of CapEx investment in Q4 2020, but overall levels for full-year 2020 depressed by pandemic- related challenges • Continued commitment to facility investments in across our global footprint • Upsized revolver by more than $150M • Finished 2020 in solid cash position • More than doubled liquidity to $386M Liquidity In millions (1) (1)
Deleveraging and Capital Markets 11 (1) For a reconciliation of GAAP to non-GAAP results, please refer to Non-GAAP Financial Measures provided in the Appendix. (2) Sotera Health expects interest savings will be partially offset by cash and non-cash charges associated with the repricing of its Term Loan. (3) Long-term-target is forward-looking and reflects expectations as of March 9, 2021. Sotera Health assumes no obligation to update this statement. Results may be materially different and are affected by many factors detailed in Sotera Health’s SEC filings, including Sotera Health’s 2020 Form 10-K. (4) At current LIBOR levels. Current run rate includes impact of Q4 2020 debt paydown and Q1 2021 Term Loan repricing. % margin Actual Q3 2020 Pro Forma Q3 2020 Actual Q4 2020 $215 $80 FY 2020 Interest Expense Current Run Rate 7.2x 4.5x 4.3x Long-term target net leverage range of 2.0x – 4.0x(3) (1) Reduction of approximately $135M of annual interest expense In millions Expected Annual Interest Expense Reduction(2)Net Leverage Reduction(1) (4)
12 2021 Guidance On the following slides, Sotera Health presents an overview of its full-year 2021 Guidance, including certain non-GAAP measures. As outlined in the company’s March 9, 2021 press release, Sotera Health does not provide a reconciliation of the forward-looking Adjusted EBITDA and Adjusted EPS guidance to the most directly comparable GAAP measure, as this cannot be done without unreasonable effort due to the variability and low visibility with respect to certain costs.
2021 Guidance(1) 13 (1) The guidance provided above contains a number of assumptions, including, among others, the company’s current expectations regarding the impact of the COVID-19 pandemic including the rate of recoveries of elective procedures and new product development testing and that exchange rates remain constant for the full-year 2021. The information presented here is forward-looking and reflects expectations as of March 9, 2021. Sotera Health assumes no obligation to update this statement. Results may be materially different and are affected by many factors detailed in Sotera Health’s SEC filings, including Sotera Health’s 2020 Form 10-K. (2) One turn is equivalent to trailing 12-months of Adjusted EBITDA. FY 2021 Guidance YoY% Revenue $890M to $920M +9% to +12% Adj EBITDA $465M to $485M +11% to +16% Tax Rate ~28% ~-6% Adj EPS $0.78 to $0.86 +86% to +105% Weighted Avg. Diluted Shares 281M to 283M +18% to +19% Capital Expenditures $100M - $110M +87% to +106% Net Leverage Approximately ¾ turn(2) of deleveraging
2021 Qualitative Guidance(1) 14 • Q1 2021 revenue expectation of $205M to $210M • Nordion sales expectations fairly balanced between 1st and 2nd half of 2021, but sales can be impacted by changes in Co-60 harvest schedules Quarterly Rhythm Guidance based on current rates as of December 31, 2020FX Impact Prioritizing business investment and debt reduction, with potential for opportunistic acquisitions Capital Deployment Expecting gradual normalization of volumes throughout 2021COVID-19 (1) The guidance provided above contains a number of assumptions, including, among others, the company’s current expectations regarding the impact of the COVID-19 pandemic including the rate of recoveries of elective procedures and new product development testing and that exchange rates remain constant for the full-year 2021. The information presented here is forward-looking and reflects expectations as of March 9, 2021. Sotera Health assumes no obligation to update this statement. Results may be materially different and are affected by many factors detailed in Sotera Health’s SEC filings, including Sotera Health’s 2020 Form 10-K.
15 Appendix
Non-GAAP Financial Measures 16 (a) Represents impairment charges related to the decision to not reopen the Willowbrook, Illinois facility in September 2019. (b) Includes non-cash share-based compensation expense. 2019 also includes $10.0 million of one-time cash share-based compensation expense related to the pre-IPO Class C Units, which vested in the third quarter of 2019. (c) Represents cash bonuses for members of management relating to the November 2020 IPO and the December 2019 refinancing. (d) Represents the effects of (i) fluctuations in foreign currency exchange rates, primarily related to remeasurement of intercompany loans denominated in currencies other than subsidiaries’ functional currencies, and (ii) non-cash mark-to-fair value of embedded derivatives relating to certain customer and supply contracts at Nordion. (e) Represents (i) certain direct and incremental costs related to the acquisitions of Gibraltar Laboratories, Inc. (“Nelson Fairfield”) in 2018 and Iotron Industries Canada, Inc. in July 2020, and certain related integration efforts as a result of those acquisitions, (ii) the earnings impact of fair value adjustments (excluding those recognized within amortization expense) resulting from the businesses acquired, and (iii) transition services income and non-cash deferred lease income associated with the terms of the divestiture of the Medical Isotopes business in 2018. (f) Represents professional fees, contract termination and exit costs, severance and other payroll costs, and other costs associated with business optimization and cost savings projects relating to the integration of Nelson Labs, the Sotera Health rebranding, operating structure realignment and other process enhancement projects. (g) Represents professional fees, severance and other payroll costs, and other costs including ongoing lease and utility expenses associated with the closure of the Willowbrook, Illinois facility. (h) Represents expenses incurred in connection with the refinancing of our debt capital structure in December 2019 and paydown of debt following the November 2020 IPO, including accelerated amortization of prior debt issuance and discount costs, premiums paid in connection with early extinguishment and debt issuance and discount costs incurred for the new debt. (i) Represents professional fees related to litigation associated with our EO sterilization facilities and other related professional fees. (j) 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 (without regard for whether the decommissioning services would be performed by employees of Nordion, instead of by a third party) and are accreted over the life of the asset. (k) Represents non-recurring costs associated with COVID-19 pandemic, including donations to related charitable causes and special bonuses for front-line personnel working on-site during lockdown periods. (l) Represents the tax benefit or provision associated with the reconciling items between net loss and Adjusted Net Income. To determine the aggregate tax effect of the reconciling items, we utilized statutory income tax rates ranging from 0% to 35%, depending upon the applicable jurisdictions of each adjustment. (m) Includes depreciation of Co-60 held at gamma irradiation sites. (n) Represents the difference between income tax expense or benefit as determined under U.S. GAAP and the income tax benefit associated with pre-tax adjustments described in footnote (l). (unaudited) ($’s in thousands, except per share amounts)
IPO Pro Forma September 30, 2020 Adjustments September 30, 2020 December 31, 2020 Current portion of long-term debt 21,200$ -$ 21,200$ -$ Long-term debt less current portion (1) 2,888,780 (1,082,138) 1,806,642 1,824,789 Current portion of finance leases 1,044 - 1,044 1,173 Finance lease less current portion 30,743 - 30,743 34,939 Total Debt 2,941,767 (1,082,138) 1,859,629 1,860,901 Add: unamortized debt issuance costs and debt discounts 69,870 (28,862) 41,008 38,761 Less: cash and cash equivalents (2) (108,446) 17,400 (91,046) (102,454) Total Net Debt 2,903,191$ (1,093,600)$ 1,809,591$ 1,797,208$ Trailing 12-month Adjusted EBITDA 401,267$ 401,267$ 419,859$ Net Leverage 7.2x 4.5x 4.3x Non-GAAP Financial Measures 17 (1) Long-term debt less current portion reduction of $1,082M is comprised of $1,111M principal paydown and $29M write off of unamortized debt issuance costs and debt discounts. (2) Cash IPO Adjustment represents the payment of accrued interest on our Term Loan and 2nd Lien Notes. (unaudited) ($’s in thousands)