Good morning. This is Joe and welcome to Sotera Health's First Quarter 2022 Results Call. You may find today's press release and accompanying supplemental slides in the Investors section of the Company's website at soterahealth.com. This webcast is being recorded, and a replay will be available in the Investors section of the Sotera Health website. On the call today are Michael Petras, Chairman and Chief Executive Officer; and Scott Leffler, Chief Financial Officer. During the call, some of the statements the Company makes may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties. The Company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the Company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EPS and net leverage ratio. A reconciliation of non-GAAP to GAAP measures for all relevant periods may be found in the schedules attached to the Company's press release and in its supplemental slides.

Good morning, everyone, and thank you for joining us on Sotera Health's First Quarter 2022 Earnings Call. I'm very pleased this morning to be reporting another quarter of double-digit top and bottom line growth compared to the same quarter in the prior year. While both the pandemic and the geopolitical landscape have impacted the labor markets and supply chains, the macro environment continues to experience more disruption than many of us have seen in our lifetimes. Despite this backdrop, Sotera Health has continued to deliver growth consistently in each quarter we have reported as a public company and throughout our history. Scott will provide more detail in a moment, but here are some of the highlights of our first-quarter performance. We reported total revenue growth of 12% and adjusted EBITDA growth of 10% compared to the first quarter of 2021. Diluted EPS was $0.11, up $0.07 per share, and adjusted EPS was $0.22, which is a 22% increase over last year. Sterigenics had a good year to start, and the business continues to see robust demand across all major modalities of sterilization. Sterigenics has also made meaningful progress in its active capacity expansion programs in EO facility enhancements. Nordion also had a strong quarter, driven by the timing of cobalt-60 shipments, in addition to the benefit of a favorable comparable in last year's quarter. Our Nordion team deserves tremendous recognition for navigating the current geopolitical environment in order to maintain the cobalt-60 supply from Russia despite several complexities in the process. I mentioned on our March call that disruptions in the supply of cobalt-60 could potentially impact 0% to 3% of Sotera Health's 2022 revenue. To date, there has been no impact on our supply or on Sotera Health's revenue. Based on the deliveries that we have received since our last earnings call, we now estimate the potential impact from a disruption in Russian supply to be reduced to a range of 0% to 2% of Sotera Health total revenue in 2022. Again, many thanks to the Nordion team for navigating this environment so well during the quarter. While Sterigenics and Nordion are performing well, Nelson Labs, as we expected and communicated on our last call, has faced a more challenging environment. Nelson Labs had weaker performance in the first quarter, which was the last quarter in which Nelson Labs experienced the largest impact from the unwinding of elevated levels of pandemic-related testing. As we had mentioned on our last call, Nelson Labs followed a disproportionate impact in the first quarter from labor-related challenges, including reduced volumes due to Omicron-related absenteeism. We are encouraged to see these various headwinds within Nelson Labs moving in a positive direction, and we expect improvement towards more normalized levels in the second quarter. The impact of Omicron on absenteeism has materially reduced, and the Nelson Labs management team is doing a very good job in managing staffing levels despite the competitive labor market. We continue to manage our balance sheet, achieving net leverage of 3.4x. This is consistent with both our near- and longer-term leverage goals. Based on the solid start to 2022 and given that it's still early in the year, we are reaffirming the outlook that we communicated in our last call with revenue and adjusted EBITDA growth in the range of 7% to 11% and adjusted EPS growth of 6% to 13%. Scott will recap all the details of the outlook in a few minutes. I also want to highlight some recent examples of how we deliver on our mission of Safeguarding Global Health. With the growth of bioprocessing, Sterigenics is sterilizing single-use kits in bioreactor collection bags used for producing cell therapies to fight cancer. At RCA, our recently acquired expert advisory business, we are working with customers to assign effective configurations for secured shipment of gene therapy drugs being used in clinical trials. In our Nelson Labs Europe location, we perform critical testing to ensure the safety of vials and application devices for more than 20 vaccines from COVID-19 to tetanus, to hepatitis B and influenza. These examples are just a few of the ways we help ensure healthcare is consistently and reliably safe every day. Overall, I am very proud of this entire Sotera Health team for delivering another good quarter and positioning the Company for continued success in 2022. As always, the Sotera Health team maintained their focus on our mission, Safeguarding Global Health, while meeting the needs of customers, healthcare workers and patients in being supportive of one another in the process. Before handing over to Scott, I'd like to comment briefly on the broader markets where we operate. As I have mentioned several times previously, the direct and indirect effects of both the pandemic and the geopolitical landscape continue to be felt throughout the marketplace. Supply chain disruptions, labor market challenges, and inflation are especially impactful now. Thus far, we've been able to mitigate most of the direct impacts and are encouraged by our ability to largely offset inflationary pressures with pricing actions. Even with the macro challenges, the markets we serve have remained resilient, giving us reasonable optimism regarding the remainder of 2022. Now I'll turn the call over to Scott to cover the first quarter and the reaffirmed 2022 outlook in more detail.

Thanks, Michael. I'll first cover the first quarter 2022 highlights on a consolidated basis and then provide some insight on each of the business segments, along with updates on capital deployment and leverage. I'll end with a reminder of the details of our reaffirmed 2022 outlook. On a consolidated total company basis for the first quarter of 2022, revenue grew by 12% as compared to the first quarter of last year to $237 million. On a constant currency basis, revenue grew by approximately 13%. Adjusted EBITDA grew by 10% from Q1 of 2021 to $115 million. Adjusted EBITDA margins declined 90 basis points compared to Q1 of last year to 48.7%. The decline was driven entirely by margin compression within the Nelson Labs segment, while both Sterigenics and Nordion had margin expansion in the quarter. I will discuss segment margins further in a moment. Our strong operating performance drove adjusted EPS of $0.22 per share, an increase of about 22% from Q1 of 2021. Our reported interest expense of $10 million benefits from a mark-to-market gain on certain outstanding interest rate hedges. We have removed the effect of that gain in our adjusted EPS. Excluding that gain, Q1 interest expense would have been approximately $17 million. Now let's take a closer look at our segment performances. In Q1, Sterigenics delivered 14% revenue growth to $149 million and 16% segment income growth to $79 million compared to Q1 of last year. Revenue growth drivers for Q1 included volume and mix growth of almost 10% as well as pricing contribution of more than 5%. There was no inorganic contribution for the quarter, and FX was a 1% headwind. Compared to the first quarter of 2021, segment income margins expanded by more than 90 basis points to 53.1%, driven by operating leverage and pricing. We are pleased with the progress Sterigenics has made in driving forward both their active expansion projects and the enhancements at our North American EO facilities. For Nordion, Q1 revenue grew by more than 31% to $34 million compared to Q1 of 2021. Nordion segment income grew by about 37% to $19 million compared to the same period last year. Nordion's revenue growth was driven by over 24% contribution from volume and mix and almost 7% from pricing. FX was relatively flat for the quarter. As Michael mentioned, Nordion's year-over-year comparison is impacted by what was a relatively low revenue quarter in Q1 of 2021. Nordion's margins expanded by approximately 240 basis points to 55.6%, driven by operating leverage on higher sales and pricing. For Nelson Labs, Q1 revenue declined by approximately 3% to $53 million compared to the first quarter of 2021, and segment income declined by approximately 26% to $17 million. Revenue declines of 11% from pandemic-related testing and more than 2% from Omicron-related absenteeism, were mostly offset by an 8% benefit from acquisitions and 4% from price. Other core testing volumes and FX also each contributed a decline of about 1%. Q1 2022 margins for Nelson Labs contracted by 990 basis points compared to Q1 of last year to 32%. I want to highlight that this decline was in line with the expectations that we referenced on our last earnings call. Compared to last year, margin decline was driven primarily by almost 200 basis points of impact from lower mix of PPE testing, over 250 basis points from acquisitions and about 300 basis points from Omicron's impact on employee absenteeism and testing volumes. We expect to recover the Omicron-related component in Q2 and see improvement in the acquisition-related dilution as synergies ramp up in the second half of the year. Now let me provide some highlights relating to capital deployment and net leverage. Our CapEx for Q1 was $36 million, which is consistent with the increased levels of spending we have planned for 2022. As of March 31, 2022, we had $121 million in cash and maintain a strong liquidity position. Our net leverage declined to 3.4x. Now I'd like to recap our reaffirmed 2022 outlook. For full year 2022, we expect total revenues in the range of $1 billion to $1.03 billion, representing growth of approximately 7% to 11%. Adjusted EBITDA in the range of $515 million to $535 million, also representing growth of approximately 7% to 11%. Adjusted EPS in the range of $0.93 to $0.99, representing growth of 6% to 13%, and CapEx in the range of $140 million to $170 million for the year. Our program of expansions remains consistent with our comments from the last earnings call, which includes seven capacity expansions at existing facilities and two greenfields for Sterigenics. The other elements of our previously issued outlook remain the same as well. As we look at the cadence of quarterly reporting, I want to remind you that even for a business segment that often has period-to-period variability in performance, Q2 of 2021 was an outlier for Nordion. Nordion had a particularly high concentration of cobalt-60 shipments in Q2 of 2021 that we expect will not occur again in any single quarter this year. We expect solid Sterigenics results and improving Nelson Labs performance in the second quarter.

Thank you, Scott. Before we open it up for question-and-answer, our next earnings call will take place after the first EO trials begin, so I want to provide a few comments. The first trial is scheduled to begin in Illinois on July 18 and concludes sometime in August. Our team is actively preparing for trial. Although we cannot predict trial outcomes, we are confident in our defenses to these claims and the safety of our operations. We anticipate a number of legal motions and court decisions over the next several months that could impact the trials and drive media attention. At this time, we do not intend to provide statements about pretrial developments nor trial updates. I want to reinforce what we have stated many times and highlight that the Company intends to vigorously defend itself against these claims. Our company plays a critical role in healthcare, and our employees and facilities operate in a safe and compliant manner. It's our employees' commitments to our company and our mission, which results in Sotera Health's consistent and outstanding performance over so many years and gives me so much optimism over our outlook for 2022 and beyond. Finally, I want to take a moment to introduce a new member of the Sotera Health team. Joe Vitale has joined us as the Company's Head of Investor Relations and is with us on the call today. Joe is ramping up quickly, and we are looking forward to him connecting with the investment community and the Sotera Health story. At this point, I'd like to turn it over to our operator, Joe, and open it up for questions and answers.

Our first question comes from Sean Dodge with RBC Capital.

In Nelson Labs, you mentioned a greater focus on the second half for revenue and EBITDA as the impact of the pandemic diminished and non-COVID-related activities began to pick up. Can you provide an update on whether that perspective still holds? What kind of visibility do you have regarding the normalization or acceleration of activities at Nelson as we approach the latter part of the year?

Sean, it's Michael. Thanks for the question. The Nelson team, the visibility isn't to the level you have in Sterigenics and Nordion, but we still have good visibility there with the team. Obviously, we're depending on some of the testing volumes to continue to rebound. But the team delivered according to expectations that we had here for the first quarter. We continue to get visibility there. We continue to stabilize the labor force. It's not all perfect yet at this point. But we feel confident on how we're looking at the second half and the second quarter and beyond more broadly.

Okay. Michael, you mentioned securing the Nordion supply from Russia, and there are certainly some complexities involved in that. Could you provide more detail on what those complexities are? You also mentioned the potential disruption impact in 2022. How should we consider that as we look towards 2023 and further into the future?

Yes, Sean. I want to emphasize that we are compliant with all the relevant rules and regulations regarding this matter. Cobalt has not been sanctioned by the U.S., Canadian, or Russian governments, and we are continuously monitoring the situation. We are managing the logistics of loading containers, getting them onto vessels, ensuring those vessels can depart and arrive at ports, and handling the banking aspects. There are many complexities involved in conducting global business. The team has been doing an excellent job staying on top of these issues, communicating with regulators, and monitoring existing sanctions to ensure compliance. We have indicated that there could be an impact of 0% to 2% on our ability to secure cobalt, but so far, we have not experienced any disruptions to our supply. We have been able to meet our customers' needs, and they have not noticed any issues due to the team's efforts at Nordion. We received cobalt as recently as this week and will continue to do so. Regarding 2023, we are not ready to discuss Sotera Health, Nordion, or any of our business units at this time.

Our next question comes from Amit Hazan with Goldman Sachs.

This is Phil on for Amit. So I think trying to parse out guidance, it sounds like Nelson Labs was largely in line with the expectations you set. For Sterigenics, it looks to have accelerated basically any way we cut it on a compounded basis or year-over-year. Nordion, obviously, a pretty strong quarter in general. Would you say that the business outperformed your expectations coming into 1Q overall?

Phil, this is Michael. I would say, in total, yes, I mean the pieces as we've communicated in the past, Nordion can get lumpy at times because we're working at harvest schedules from our utilities. And as Scott referenced, the first quarter last year was a lower quarter, the second quarter will be a larger quarter last year, right? So there's just some lumpiness. But I'd say, overall, we came in slightly better than expectations, and we're happy with the performance of the business through the first quarter.

Yes. Okay. That's very helpful. And I guess the second question in line with that reasoning is the conservatism for the remainder of the year to not raise guidance after the quarter. I know you guys provide a reported top line range. Is there an FX headwind that's countervailing there? Or what other factors are you taking into consideration that it led to not lifting after such a strong first quarter?

Yes. I'll let Scott address the foreign exchange in a moment. But I want to emphasize that we've completed one quarter and have three more to go. We are optimistic about how 2022 is developing, although there are many variables at play. Our customers are facing challenges with material availability and supply chain issues, and we are seeing some fluctuations related to that. There are indeed multiple factors affecting the business. However, we are confident in reaffirming our 2022 guidance, which indicates substantial growth for the year. It is still early in the year as we've only completed one quarter.

Yes. And then specifically with respect to FX, when we issued our guidance a couple of months ago, we did express in that time that there was an assumption embedded in the guidance that we would have about a 1% FX headwind for the year. We did, in fact, see a 1% headwind in our Q1 results, as I referenced earlier, and we're still assuming that scale of headwind relating to FX continues throughout the year.

Our next question comes from Luke Sergott with Barclays.

Can you clarify the M&A contribution for the quarter, specifically regarding Nelson? How much of it was attributed to BioScience and how much to RCA? I'm trying to understand what will impact the rest of the model for the year.

We haven't detailed the specific contribution from each acquisition. To provide some context, we acquired BioScience in March of last year, so in Q1, we are still seeing about two-thirds of the additional contribution from them. Additionally, we acquired RCA in November of the previous quarter, which means we can expect a full quarter's worth of incremental contribution from RCA during the first three quarters of this year, and then a partial contribution in the fourth quarter.

Okay, when discussing the pricing at Nelson, do you have many master service contracts? You've managed to implement it across all three businesses, but can you explain where the impact might be uneven compared to simply passing on higher costs?

I would tell you across all three businesses that we've stated in the past, these businesses are capable of passing on price. We have a very critical service that we bring. That is a small portion of the overall cost of our customers' products and services. So I would just kind of give you that as an umbrella statement. If you look at the three businesses, Nelson is the one that was more reliant upon the shorter term on how to get that price because of the fact that it's more transaction-oriented. The contractors are master contracts with releases against that in time versus the Nordion, Sterigenics are more longer term in nature. So hopefully, that answers your question. I think it just confirms what you were suspecting, though.

Our next question comes from Matt Miksic with Credit Suisse.

Congrats on another strong quarter. I just wanted to maybe see if you could expand a little bit on the trends in Sterigenics. We've seen in the med device side of our universe this kind of rebound in demand maybe faster than folks were expecting, fundamentals driving those businesses reaccelerating a little bit faster. I'm just wondering how we should expect that to translate into Sterigenics trends over the next three to four quarters? Any color on that would be helpful. And then I have one follow-up.

Matt, I would tell you we're optimistic. Obviously, Sterigenics had a very strong first quarter, and we're optimistic about the rest of the year outlook. What I will also tell you there's a lot of variation from customer to customer and geography. Asia, obviously, if I'll start there, and I'll just kind of walk around the world from a Sterigenics perspective, if I could, Matt. If you look at Asia, obviously, there's the COVID shutdowns going on within the facilities and the regions there. That has caused some challenges. We're looking to make sure we take care of our customers. Europe has had pretty strong demand and continues to perform pretty well. And in the U.S., it's been a mixed bag. We have some customers doing really well, and you see that in some of their earnings. You have others that are feeling a little bit of the impact that you see in their announcements as well. So we're monitoring that. It's a matter of supply chain challenges they're having in getting components and getting things over some borders in some instances. And then there's still a little bit of labor impact. Obviously, a lot of people had the impact in January with the absenteeism that we referenced in our remarks as well. So I'd say, overall, we're optimistic about it, but we are cautious as we're seeing some variation from customer to customer. The other backdrop that I would give you from some other places that we have visibility around is around hospitals. The hospitals have big backlogs in surgical volumes, but the challenges they're having right now is staffing. So many people have left the healthcare workforce within the provider network that it's been challenging, particularly around nursing care, that's also impacting end user demand. But overall, we feel positive about what the outlook is for Sterigenics, but as well as the Sotera Health in total for 2022. And I think you had a second question, Matt. I hope I addressed your first one.

Yes, absolutely. That was super helpful. Second is maybe if you could just provide sort of some top-down perspective on how some of the rising input costs that we're seeing across our universe. It's been a big topic, obviously, for the first quarter earnings cycle and outlook for 2022 is labor cost, rising energy cost, shipping, things like that. I'm just wondering if you could give us some perspective on how your sort of three major businesses are affected on a relative basis based on those kinds of shifting costs?

Yes. As we've stated in the past call, I didn't get into a ton of details here today thus far other than the referencing the inflation pressures that we're seeing. It's around labor and energy, utility spend. Those are really the two buckets. On the transportation cost, when you look across our three businesses, we don't have transportation costs within Sterigenics and Nelson. On the Nordion, where we do have transportation costs, it's a pass-through to our customers. On the energy costs, we're seeing it across our businesses, predominantly on the Sterigenics side because they have a larger facility footprint around the world. And then the labor side, again, we see it across the businesses. But I would say it's mostly in the Sterigenics and Nelson side because they have higher labor as a percent of their total cost. That's kind of our overview of where we're seeing the inflation. We don't have the material side. We don't have transportation across the businesses. It's really focused just in energy, utility, and the labor piece.

Our next question comes from Patrick Donnelly with Citi.

Scott, maybe following up on that one in terms of the kind of the different moving pieces on the cost side. Can you just talk about the margin levers as we work our way through the year, maybe touch on pacing as well? Obviously, a lot going on between the Nelson margin pressure. Obviously, some of the things you just touched on pricing. I just want to try to get a handle on kind of the puts and takes there. And how we should think about it as we progress through the year?

Sure. If I discuss each business unit, starting with Sterigenics, while there isn't significant seasonality affecting Sterigenics, the first quarter usually experiences some seasonal pressures. This seasonal impact on revenue often results in the lowest margin profile of the year due to the operating leverage within the business. We anticipate that as Sterigenics continues to increase revenue throughout the year, the margin profile will improve as well, thanks to the operating leverage and additional pricing that will be incorporated into the financials. For Nelson Labs, their performance has been notably affected by the normalization of various factors impacting their recent results. As we noted in our prepared statements, we expect a sequential improvement for Nelson Labs in the second quarter, mainly due to the normalization of Omicron-related absenteeism, which we indicated were about a 300 basis point effect in the first quarter. In the latter part of the year, as Nelson Labs sees the normalization of other revenue streams and margin factors, we expect a more substantial return to the normalized levels observed in the first half of last year. Regarding Nordion, as we have frequently pointed out, it is a business with significant fluctuations, and a considerable portion of their cost structure is fixed. Ultimately, their margin profile from one quarter to the next will largely depend on the harvest schedule, which correlates with top line performance. While there may be some fluctuations in their margin profile due to operating leverage, we expect Nordion's margins to remain relatively stable compared to last year's performance.

Okay. No, that's really helpful. And then Michael, maybe just on the litigation side, helpful to get some framing around that in the prepared remarks. What's the right way to think about maybe the timeline going forward there? Obviously, you touched a little bit on the start dates, potential resolution. Maybe just at a high level, talk through kind of the catalyst set on that front that we can keep an eye out for?

Yes. I would say let's focus on 2022 and take it and kind of bite-size if you will. 2022, right now, the schedule is three trials. July 18 is the first one, as I mentioned, then September 12 and November 7. Those are the three dates for 2022 trials in Illinois. Now remember, we don't set those dates. Those are set by the court. So they're subject to change, but we feel pretty confident that it will adhere to this schedule. We would say that, that would start on July 18, and there would probably be a ruling sometime in mid-August to late August. That's our best estimate of how long we think a given trial will start and then the next one will come right behind that, starting on September 12, similar type of time pattern, four to four weeks, for a ruling to be coming out from the jury.

Our next question comes from Matthew Mishan with KeyBanc.

I just want to start off with the capacity expansions that you're making in Sterigenics. And one of the difficulties, I guess, in the current environment is getting construction moving forward and on time. Just share your confidence that those expansions that you're working towards are going through and progressing as scheduled at this point.

Yes, they are. But we are seeing challenges, Matt, with construction schedules and timing. Right now, as we referenced, we continue to feel confident about the expansions we're putting in place, but they are subject to some changing in timing. We don't think it's going to be a year out or anything like that, but there could be month-to-month movements based on material and contractor availability and things of that nature. I also should reference, Matt asked the question earlier. I think it was Matt that asked about inflation. This is an area, too, that we got to continue to monitor on inflation and construction materials as well. I referenced labor and energy and utility, but there's also some on the construction side that I should reference.

Yes, there are a lot of Matts on the sell side. I imagine you guys have probably spent a lot of time talking through the timeline of diversifying the supply of cobalt throughout the last couple of months. Can you just talk about the long-term investments that you're making in that? I realize that they're multi-year investments. And then kind of any update on how you're thinking about the timeline of additional supply?

Yes. So we've got several projects that we've referenced. Obviously, we've got the work going on in Canada with the expansion of the work with OPG around additional capacity coming out for cobalt development. We also have the work going on with Westinghouse. I actually spent some time with them in the past quarter, updating with the teams on the projects there and with the leadership at Westinghouse. We feel pretty good about those. Those are significant investments. They are very strategic for us. It's to help diversify and expand capacity for cobalt overall. We buy cobalt from all regions of the world: Canada, Argentina, China, India, Russia, and we look to continue to expand and hopefully, we can get into the United States with the Westinghouse relationship. Overall, we feel very good about it. We're deploying capital. Riaz and his team are doing a nice job in working that with our partners. We're optimistic about the results of that in the out years.

Our next question comes from Dave Windley with Jefferies.

I appreciate the detailed information you provided about the Nelson margin, Scott. My question focuses on your pricing strategy. You mentioned that Omicron had an impact of 350 basis points, along with some labor and absenteeism factors. What I'm trying to understand is how much of your margin recovery is due to pricing adjustments versus improvements coming from labor returning and operational excellence initiatives as you progress through the latter part of the year with your acquisitions.

Well, so we mentioned that the Omicron impact on the margin profile in Q1 was about 300 basis points, and that was meant to cover basically Omicron-related absenteeism, which not that there isn't continued absenteeism relating to the pandemic, but that real surge that we saw in Q1, we would see as being largely mitigated in Q2. So the sequential improvement in margin profile from Q1 to Q2, we expect to be driven by that normalization in terms of absenteeism at the frontline lab technician and microbiologist level, which then, of course, translates to increased capacity and throughput for the business, which, of course, translates to an improved revenue profile. The incremental improvements that we talk about in subsequent quarters are really driven by, yes, some amount of continued pricing initiatives in response to the inflationary pressures that we're seeing primarily on the labor force. I think you referenced a second ago, we believe we're seeing good line of sight to realization of some of the synergies associated with recent acquisitions and other operational excellence initiatives that we see manifesting throughout the year.

Got it. That's very helpful. I think you indicated that pricing in Nelson is in the mid-3% range, which is what you achieved last year. Are you able to secure more than that in a more inflationary environment? Or is it still difficult to achieve that despite those reasons?

No. We are able to get more. I think Michael made a couple of comments to that effect a couple of minutes ago in response to a different question. Also, as we mentioned in our prepared comments, we saw a little bit over a 4% contribution from price for Nelson in Q1. That increase versus the recent trends in pricing for Nelson is reflective of their ability to capture price in this inflationary environment. Obviously, Nelson is not the only lab testing business that's impacted in some way by the pandemic. We see overall pricing opportunities continuing there.

David, it's Michael. I would just add, our focus right now is stabilizing the staffing and continue to improve turnaround times and taking care of customers' demand as it starts to come in. That's what the team is doing a really nice job looking at our NPS scores and also our turnaround times; that's really where the team is focused right now on taking care of our customers and as that demand starts to ramp.

Got it. I appreciate that. Sorry, I missed the detail in the prepared. Last question, just a clarification. I think we were looking through past releases, I think this unrealized hedging gain was new. You called that out in your remarks, talked about it being excluded from your adjusted EPS. I wondered, am I right that, that's new and maybe you could explain the nature of that? And then also clarify, is it also excluded from adjusted EBITDA?

Sure. The hedging program itself is not new. What is new is that our risk management program around variable rate debt has experienced significantly more volatility in its profits and losses due to the current macro environment and rising interest rates. Regarding your question about adjusted EBITDA, by definition, it excludes interest rates and any derivatives related to interest rates are also excluded from adjusted EBITDA. Additionally, we have excluded this from our adjusted net income figure for the purpose of calculating adjusted EPS. The aim is to provide a clearer picture of our operating results at the adjusted EBITDA and adjusted EPS levels without the short-term fluctuations related to the mark-to-market of our hedges.

Our next question comes from Michael Polark with Wolfe Research.

I remember last year there were many factors affecting Nelson, which helped clarify the situation. One of the key points was that the FDA was causing delays for certain customers due to a backlog as they awaited guidance on specific products and testing requirements, particularly related to scopes. In April, I noticed ongoing communication from the FDA and large scope manufacturers that indicated this bottleneck might be starting to clear up, which could be a positive sign for Nelson in the latter part of the year. Am I remembering this correctly? And if so, are you also seeing this constraint begin to ease?

Yes, Mike, it's Michael. I would tell you that we referenced in our past comments around some of the regulations around the FDA that they're still waiting for clarification. I don't know that we ever got into particulars of it being scopes or whatnot. But I would tell you that it still hasn't completely been resolved. We are seeing customers in some of those sections start to look at building out their pipeline with us for testing. But we haven't realized all the benefits of that because there is not absolute clarity yet on the regulatory requirements. Your recollection is right. I'm just not getting specific into what test sections, but I would tell you we still have that uncertainty, but we're confident it's going to be resolved and it's going to be helpful for the Nelson Labs business.

Okay. Helpful. And then just capital deployment. Look, you have a lot of moving pieces in the macro this year for most companies. You have historically done a steady stream of tuck-in M&A. I'm curious where that initiative force ranks in calendar '22 and just how the pipeline might look at this point in time.

Yes. We're always going to deploy capital for growth, and our priority is really internal organic expansion. We've got a healthy diet of that, as you know, with the investments we're making in cobalt as well as our facilities in Nelson and Sterigenics. So that's always going to be a priority. We're continuing to look at M&A, and we have a pipeline that we continue to follow and track. We have nothing to tell you of any significance at this point in time, but our strategy hasn't changed in how we look at M&A.

Our next question comes from Casey Woodring with JPMorgan.

So in Sterigenics this quarter, price contributed 5% and volume 10%. I know you have capacity expansion projects coming online in the back half of the year. And then you've also talked about price increases flowing through as the year progresses. So I just want to get your thoughts on what pricing volume growth contribution will look like for the full year in this business relative to what we saw in 1Q.

So Casey, I'll take that. We don't get into specifics on forecast by business unit. But what we have said in the past is these businesses have 3% to 5% price. Sterigenics is kind of in the middle of that. You see a little bit of an outperformance there in the quarter. We've been saying this business is in the high single digits in total when you factor in volume and mix. I would tell you to still be thinking along those lines. We're optimistic about what the rest of the year looks like. But I would just reiterate what we've told you in the past as far as general guidance around Sotera Health growing high single digits is where our focus has been, a combination of price, volume, and mix.

Okay. And then just on the pricing piece, you've talked about how you're going to realize more pricing benefits in the back half of the year. Just wondering why you couldn't pass price on sooner? Is there something structural about the contracts where they're more heavily weighted towards the back half?

No. So in general, we've always talked about the fact that our businesses do have a very generous flexibility in terms of passing through price to the marketplace, but we've never pretended that we have a perfectly dynamic pricing model where you get an increase in your utility rates on day one and you increase prices on day two. There is some amount of structural lag in the system, and that's where you do see the inflation impact in a given period. It takes a quarter or two for us to really roll out in a structured and disciplined manner across our thousands and thousands of customers, the offsetting price increases. It's really just that price lag that the results and the effect that you're talking about.

And Casey, the only other thing I'd add to Scott's comment is that we have great businesses that bring significant value to the industry overall, okay? But it's a value proposition. We got to make sure we continue to get right with our customers, and they recognize the importance of what we do in us being a key supplier and high-quality supplier to them. So there's a balance there. We want to make sure we're also respectful of that as well. It's a critical service that we bring that's often government mandated, and we just got to do a really good job of it. That's where we're going to keep earning our stripes every day with our customers.

This concludes our question-and-answer session. I would like to turn the conference back over to the CEO, Michael Petras, for any closing remarks.

Great. Thank you, Joe, and thank you, everybody, for taking the time this morning. We're proud of how the team has performed here in the first quarter, and we're optimistic about the rest of 2022. So thank you for your ongoing support, and we'll be talking here in the near future. Thank you, and have a great day. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.