Sotera Health Co Q3 FY2024 Earnings Call

Good morning, and welcome to the Sotera Health Third Quarter 2024 Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations and Treasurer, Jason Peterson. Jason, please go ahead.

Good morning, and thank you. Welcome to Sotera Health's Third Quarter 2024 Earnings Call. You can find today's press release and accompanying supplemental slides on the Investors section of our 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 with me today are Chairman and Chief Executive Officer, Michael Petras; and Chief Financial Officer, Jon Lyons. During the call, some of our comments 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 EBITDA margin, segment income margin, adjusted net income, adjusted EPS, and net leverage ratio in addition to constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides for this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up so that we can give everyone an opportunity to ask questions. If you have any questions after the call, please feel free to reach out to me and the Investor Relations team. I will now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Good morning, everyone, and thank you for joining Sotera Health's Third Quarter 2024 Earnings Call. This morning, we reported year-over-year top and bottom line growth with volume and mix improvement in all 3 of our businesses versus the third quarter of 2023. Compared to the third quarter 2023, total company revenues increased 8.5% or 8.9% on a constant currency basis, while adjusted EBITDA increased 9%. We delivered adjusted EPS of $0.17 for the quarter, which is a $0.01 increase from the same period last year. Sterigenics, our large reporting segment, delivered 4.3% top line growth for the third quarter of 2024, which included slight volume and mix growth over the third quarter of 2023. During the quarter, the team completed one facility expansion project for which the customer product validation phase is underway. We also continue to make good progress on our North American EO facility enhancements to ensure we meet the stringent and complex NESHAP regulations by the required deadline. Nordion, our other reporting segment within the sterilization services business, delivered a 28% year-over-year revenue increase, which was driven by the timing of the reactor harvest schedules. The Nordion team fulfilled some shipments in the quarter that were planned for the fourth quarter in support of our customers' requests, which resulted in more revenue in the quarter than originally anticipated. I'm also excited to announce that Nordion has reached an important milestone for one of its cobalt development projects. Recently, the first insertion of cobalt was successfully installed into a Darlington reactor in Canada, and we expect the first Cobalt 60 harvest to occur in 2028. This project is a great example of how we are safeguarding global health by ensuring a steady supply of cobalt 60 for our customers into the future. Nelson Labs, our Lab Testing Advisory Services business, grew its top line 7% and bottom line 9% versus the third quarter of 2023. We are pleased to see higher core lab testing volumes as well as improved margins in the business, both sequentially and year-over-year. And in previous calls, we have mentioned the recent performance of our lower-margin expert advisory services, the strength of which has been tied to one-time projects. This volume is beginning to normalize, and we expect it will continue to do so as we lack the acceleration that began in the second half of 2023. With the majority of the year behind us, we are reaffirming our full year 2024 outlook ranges for revenue and adjusted EBITDA. As a reminder, our 2024 outlook calls for both revenue and adjusted EBITDA growth in the range of 4% to 6%. Jon will go through our 2024 outlook in more detail shortly, but first, I'd like to highlight an example of how our employees across the globe play a critical role in safeguarding global health. We take our role in health care seriously, and our mission is at the heart of our work every day. Continuous glucose monitors are undergoing complex technical innovation, including batteries and cybersecurity, which create new regulatory compliance challenges. Our teams at Nelson Labs and Sterigenics are providing integrated solutions for global manufacturers to address safety and regulatory needs so that patients can better control and more confidently manage their diabetes. Now Jon will walk us through the financials.

Thank you, Michael. I will begin by covering the third quarter 2024 highlights on a consolidated basis and then provide some details on each of the business segments, along with updates on capital deployment and leverage. I will then finish up with some additional details on our 2024 outlook. On a consolidated total company basis, third quarter revenues increased by 8.5% as compared to the same period last year to $285 million. This equates to an 8.9% increase on a constant currency basis as foreign exchange was a headwind in the quarter. Adjusted EBITDA increased by 9% compared to the third quarter of 2023 to $146 million. Adjusted EBITDA margins finished at 51.3%, which was an increase of 23 basis points versus the third quarter of 2023. This increase in margins was driven by improved volume and mix at Nordion and Nelson Labs as well as favorable pricing across all 3 businesses. Our reported interest expense for the third quarter 2024 was $42 million, similar to the same period last year. Net income for Q3 2024 was $17 million or $0.06 per diluted share compared to a net loss of $14 million or $0.05 per diluted share in Q3 2023. Adjusted EPS was $0.17, an increase of $0.01 from the third quarter of 2023. Now let's take a closer look at our segment performance. Sterigenics delivered 4.3% revenue growth to $176 million as compared to the third quarter of last year. Revenue growth drivers included favorable pricing of 4.4% as well as a 50 basis point increase from volume and mix. This increase was partially offset by unfavorable changes in foreign currency exchange rates of 60 basis points. Compared to the prior year quarter, segment income for Q3 2024 increased 3% to $96 million. Segment income margins declined by approximately 70 basis points to 54.7% versus the prior year quarter, which was driven by higher employee compensation costs. Nordion's third quarter revenue increased by 28% to $51 million compared to Q3 of 2023, due to the timing of Cobalt-60 harvest schedules. Nordion's revenue increase was driven by a volume and mix benefit of 23.2% and favorable pricing of 5.7%, partially offset by an unfavorable impact from changes in foreign currency exchange rates of 90 basis points. As Michael mentioned, we outperformed our expectations for Nordion with the shift of a couple of shipments from Q4 into Q3 to support our customers. Nordion's segment income increased 31.9% to approximately $32 million and its segment income margin increased approximately 190 basis points to 61.8% compared to the same period last year. Segment income and segment income margin changes versus third quarter 2023 were driven by favorable volume and mix as well as favorable pricing. For Nelson Labs, third quarter 2024 revenue increased 7% to approximately $59 million compared to the third quarter of 2023. Nelson Labs revenue increase for the quarter was driven by favorable changes in volume and mix of 3.7% as well as a pricing benefit of 3.1%. Nelson Labs third quarter 2024 segment income increased by 9% to $19 million, while segment income margins improved by 56 basis points to 31.8% versus third quarter 2023. These improvements were driven by favorable volume and mix as core lab testing improved as well as pricing benefits. Nelson Labs also saw some benefit from labor productivity in the quarter, partially offset by increases in employee compensation costs. On a sequential basis, Nelson margins increased more than 275 basis points. I will now turn to the balance sheet, cash generation, and capital deployment. The company continues to be in a very strong liquidity position with over $700 million of available liquidity at the end of the third quarter, which included $307 million of unrestricted cash and $400 million of available capacity on a revolving line of credit. Our capital expenditures for third quarter 2024 totaled $36 million. As Michael mentioned earlier, Sterigenics completed one of its capacity expansions during the quarter. Free cash flow was positive in the quarter, and we continue to expect to generate positive free cash flow for the full year. Our net leverage ratio improved during the quarter, finishing at 3.6x and within our 2x to 4x long-term range. Now I would like to turn to our 2024 outlook. As Michael mentioned, we are reaffirming our outlook for net revenue and adjusted EBITDA growth in the range of 4% to 6%. We expect full year total company adjusted EBITDA margins to approach 50%. In Sterigenics, we continue to expect slight volume mix improvement with Q4 similar to Q3 of this year. For Nordion, we continue to expect slightly more than 60% of full year revenue to occur in the second half of the year. For Nelson Labs, we anticipate Q4 revenue will decline mid-single digits versus the prior year quarter with the decline of expert advisory services revenue. We expect Nelson Labs full year margins to approach 30%. Interest expense is expected to finish at the lower half of the $165 million to $175 million range. Our effective tax rate on our adjusted net income is expected to be within the 31.5% to 34.5% range. We expect the fully diluted share count to land at the upper end of the range of 283 million to 285 million shares on a weighted average basis. We now expect capital expenditures to fall in the range of $175 million and $185 million. Timing is the primary driver for the decrease in capital expenditures for 2024, driven by Nordion's cobalt development projects and some spending delays for our growth projects related to vendor performance. Given these shifts, we now expect our peak CapEx to be in 2025 and then to decrease in '26 and again in '27. Our guidance assumes foreign exchange rates at the end of the third quarter to remain constant for the remainder of the year. I'll now turn the call back over to Michael.

Thank you, Jon. As you may have seen in our release this morning, Sotera Health will be hosting its first-ever Investor Day in New York City on November 20. During the event, members of the company's management team will present business, strategic, and financial reviews, including growth plans and updates on our corporate responsibility journey. We are looking forward to this event and hope you'll either join us in person or via the webcast. Details on the event are included in the press release we issued this morning as well as on our Investor Relations website. At this point, operator, we'd like to open it up for questions, please.

And our first question will come from Sean Dodge of RBC Capital.

Yes. Maybe just starting with revenue, Michael, you reaffirmed the full year guidance, but that now implies a pretty wide range for Q4. I guess, seasonally, historically, Sterigenics and Nelson have both tended to have strong fourth quarters. Any reason that won't be the case again? I know you mentioned the dynamic with the expert advisory in Nelson. And then any more direction you can give us on Nordion? I think that can be lumpy. But relative to the third quarter, if my math is right, should we expect Nordion to be up a little sequentially despite the Q3 pull forward you both mentioned, is that fair?

Yes, thanks. You should expect Nordion to be higher in the third quarter. However, it will be considerably lower than last year, as we have mentioned throughout the year that about 60% of the revenue will occur in the second half. You can assess the situation from that. We noted that Nelson is projected to decline in the mid-single digits in the fourth quarter, primarily due to the expert advisory services. We are encouraged by the ongoing progress in the core lab testing market. On the Sterigenics front, we've experienced slight growth in volume and mix during the quarter, and we expect this trend to continue as the year progresses. This should provide you with a better understanding of how the year is unfolding.

Okay. Great. And then as we get a little bit further past the release of the final NESHAP rules, have you seen any subsequent shift in the end market happening there? Any conversations around more insourcers looking to outsource or any changes in just the makeup of the outsourced market. Are there any of those guys falling behind that could be market share opportunities over the, call it, medium long-term?

Yes. We continue to feel confident about where we are on the NESHAP regulations, although they're very challenging, and the team has continued to work against it. It's not an easy task. We think it's going to be a challenge for the industry overall. We're very optimistic about where we sit relative to the marketplace. We haven't seen definitive answers from customers yet or other competitors on exactly how they're proceeding on this but we do anticipate a challenge, and net-net, we view this as a positive for Sterigenics.

The next question comes from Patrick Donnelly of Citi.

Maybe the first question is about Sterigenics. In terms of volume recovery, which has been a major focus as the year has progressed, where do we stand on that front? What are you noticing regarding volume, and could you provide visibility into the fourth quarter and beyond in terms of feedback from customers and your confidence in the trajectory?

We saw volume and mix growth in Sterigenics in the quarter. We'll see slight improvements, similar to what we saw in the third quarter and the fourth quarter. We are seeing things stabilize. We're not hearing as much inventory deceleration, if you will, or reductions. Overall, we're optimistic that volumes will continue to improve as time moves forward.

Okay. Understood. And then, Michael, I guess, I know you guys aren't talking '25 just yet. But I guess when you think about the moving pieces that we have at the moment, kind of looking where we are here, again, the volume piece is picking up a little bit. Is there any reason we would be kind of outside that LFP? I think LFP is high single less we heard obviously have an Analyst Day in a couple of weeks. But any reason why we'd be off that algo of kind of mid- to high-single volume, a little bit 3.5, 4 or 5 price when you think about next year, just maybe high level the moving pieces and any offsets we should be thinking about would be helpful.

Yes. Thanks, Patrick. I don't want to give the specifics on '25 or long-range guide. We will do that at the Investor Day. We'll give you some feel on the longer-range guide and outlook around CapEx, free cash flow, the business segments. One of the parts I'm really excited about is the opportunity for many of you to hear from our division presidents and talk about their businesses, which is a new opportunity for all of you. So we're looking forward to that. But the fundamentals of this business, price ability to deliver price, continue to invest for organic growth, those all still remain intact. We'll continue to see volume and mix improvement as time progresses. So overall, we're very optimistic about where we're looking going forward here.

The next question comes from Luke Sergott of Barclays.

This is Salem on for Luke. Just piggybacking off of Patrick's question. I guess just on a few more specifics on Sterigenics, right, that came in slightly lighter than maybe some expected despite some positive data points in bioprocessing this quarter albeit it's a smaller part of your business, devices seem to be largely over the hump. Could you just talk about visibility a little more there on destocking, especially with hospital systems, maybe what conversations are looking like there? And from your point of view, where are we seeing the most stabilization? And where do you still see some room to run on destocking.

Yes. Okay. One of the first comments you made was bioprocessing. Yes, it's a smaller portion of our business. We did see sequential growth quarter-over-quarter, down significantly still year-over-year. We're seeing several categories starting to move in the right direction with volumes and with procedural activity. But as we've mentioned to you in the past, it's not always a direct line, strong correlation between procedure volume and volume for Sterigenics or Nelson. But we're optimistic we'll continue to see volumes improve as time goes on. Yes, we would have liked to see them a little bit more in the quarter from Sterigenics, but overall, it's consistent with what we communicated yet that we would see slight volume and mix improvements in the quarter and over the prior year, and we did.

Got it. That's helpful. And then just a small check up on litigation, just the Georgia cases, any updates on progress or timelines on either personal injury or the property cases. We're still on track to see the initial set of cases see a ruling in early 2025 on Phase I? And then any updates on the number of cases in California?

Yes. So I'll kind of start the back end come forward. On California, I think there are still 18 claimants. That has not changed. And in Georgia, yes, the Phase I hearings will start to progress, and we do expect, based on what the judge has told us by early 2025 or late January 2025 is when we'd expect to hear something on the Phase I general causation work. Remember, there's 2 phases in Georgia. Phase I is general causation. And then after that, in cases that survive that go to specific causation, and we expect Phase I to hear something by the end of January from the judge.

The next question comes from Brett Fishbin of KeyBanc.

Just on Nelson Labs, the segment margin took another nice step forward in the right direction and is now really healthily in that low 30s range that you guys have talked about. So just curious, like as the mix continues to shift back toward the core testing and away from some of the larger project-based work, how you think about the long-term margin opportunity in that area of the business?

Yes, we're really pleased with what Joe and the team are doing. We've been consistent in our quality and service performance, and we're continuing to improve in both areas off a strong baseline. We're satisfied with this quarter's performance. The core mix volume is improving, and we are optimistic that margins will continue to perform well in the future. Overall, the expert advisory services sector is handling significant numbers for that business, and Eric and the team are effectively creating additional opportunities. We're happy to see the progress being made, and Joe and the team are doing an excellent job. The best part is that customer satisfaction scores remain high, showing that customers value the critical role we play.

All right. And then just one follow-up. We have the Investor Day coming up in just a couple of weeks. You mentioned the opportunity for some of the segment presidents to address the investment community. But just curious if you could provide maybe a little bit more of a teaser on what some of the main objectives of that event will be. And then without specifics, how you're thinking about providing some updated long-term financial objectives.

Yes, Brett. For the upcoming Investor Day, I have a couple of objectives. First, I want to ensure that you meet the leaders of our business aside from Jon, Jason, and me. It’s been several years since we went public, and I want you to see the strength of our team. Second, it's important for you to grasp the critical role we play in health care and to gain more insight into our business. For instance, some of you expressed interest in understanding the Nelson segment better, so Joe will explain how that business operates and the key value we offer to our customers. Additionally, we will provide a long-term view on our capital expenditures, revenue guidance, and free cash flow, as these details are crucial. We will also discuss our strategic approach to mergers and acquisitions, outlining what is included and what is not. Overall, it will be a fantastic opportunity for you to hear from our broader team and engage in a comprehensive discussion about the company. These are the key points you can expect on November 20.

The next question comes from Casey Woodring of JPMorgan.

Maybe to start, just can you break out Nelson performance in the quarter between routine testing, validation testing and advisory services? I think last quarter, you talked about seeing nice growth on the validation side and maybe slower growth on the routine side? And then sort of just how do we think about the moving parts of the business there into Q4, you noted advisory services will decline, but just curious by how much and how you expect routine and validation testing to trend in Q4, respectively.

Yes. Thanks, Casey. So as we talked about, validation has been strong in the last couple of quarters. Again, we saw that in the third quarter routine, we're starting to see progress in the right direction there, which also helps drive with some of the sterilization volumes over time. So overall, we're positive on the outlook there as well. That doesn't mean there won't be some choppiness around the validation opportunities. But overall, we're pretty optimistic about how the core testing volumes are going. And expert advisory services, as I mentioned a couple of minutes ago, there are some big numbers to overlap, but the team is doing a really nice job and continues to bring value to our customers in that area.

Okay. Got it. And then I just want to ask one. This quarter, there's been a lot of talk across the industry around choppiness related to pharma R&D spending and biotech funding over the course of the last several months, in particular. Just curious if you see any risk to the near term from some of these pipeline reprioritizations or cautious spending from those customers, particularly in Nelson, but just across the business. Just wondering how you're thinking about that dynamic, if at all.

Yes, Casey, pharma testing and sterilization continue to be growth areas for us. We've seen growth in those sectors and expect it to persist. There may be some variability in that, but overall our business is performing well. I want to highlight the team in Leuven, Belgium, whose work in pharma testing is doing very well. Some of those projects may take longer due to the validation process, but we are optimistic about the long-term prospects for both sterilization and testing in the pharma sector. Additionally, we are noticing synergies from that value proposition across business units.

Great. If I can just squeeze one last follow-up in. Just curious if you could parse out the driver of the CapEx cut for the year. How much of that is related to facility enhancements versus the Cobalt program and anything else? And then if you could give any kind of color on how you expect that to trend in 2025, that step-up that you kind of mentioned in the prepared.

Thanks for the question, Casey. Firstly, the main factor affecting our progress is the timing of our cobalt development programs. We're on track and have successfully inserted cobalt into Darlington, with the first harvest anticipated in 2028, which is exciting for us. Although the program is advancing well, some of the payments are influenced by timing. The Westinghouse program is also doing well, though it may experience slight delays. Additionally, there are usual timing issues with vendor performance related to our growth projects, which are common in large capital expenditure projects. Looking ahead, we expect our peak capital expenditures in 2025. While we’re not ready to provide specific guidance yet, it would be reasonable to refer to our original guidance for this year as a point of reference.

And Casey, just want to point to add to Jon, I think you mentioned facility enhancements. That's not really the big driver of the CapEx being a little softer for year-end here. That's more of the growth projects in the cobalt that Jon referenced.

The next question comes from Jason Bednar of Piper Sandler.

A question from us on Sterigenics. Definitely good to see another quarter of volume growth in that segment. Just wondering if you can elaborate maybe a bit more on the pricing trend. I don't want to make too big of a deal about it, but it did take another 50 basis point step back, I believe, quarter-over-quarter. Can you talk about what's happening there? Why is that pricing power lessening even while your own variable costs around labor are rising? Or maybe alternatively, do you see the higher labor costs that you're experiencing maybe giving you more ammunition to collect more pricing upside as contracts with your partners reset here going forward?

Jason, we said in the business overall, we get 3.5% to 5% price across the company. We'd be on the lower end of that range this year. Sterigenics has squarely been in the middle of that around 4%, 4.5%. And that spot work came in for the quarter on a year-to-date basis about there. We're not concerned about our overall value proposition and our ability to get price in this business. So not concerned about the price performance at Sterigenics relative to the overall business.

Okay. Fair enough, Michael. I guess on the second part of that question, do you just the cost that you're experiencing on the labor side, does that give you more ammunition ongoing after price increases with your partners as you go forward?

Yes. If we're concerned about the overall cost structure, we have the ability to push price in the marketplace. But we got to always make sure we don't run our value proposition with our customers, you look overall, what's going on with the compensation levels. We have a little bit of reset on AIP incentive comp from last year. We have some open head jobs that we filled and as well as some overall wage increase merit increases. But overall, we're not concerned about the cost structure on that business. And our ability to maintain margins, by the way, is a bigger point. I think you were getting at. That should be clear, yes.

Yes, absolutely. And then on Nelson, I have a follow-up regarding the expert advisory services. I appreciate the insights you shared about the fourth quarter. Can you clarify whether the performance of this segment at the end of the fourth quarter is indicative of its trajectory as we move into 2025? Is this the low point, or could we see a further decline due to tougher comparisons? I'm trying to gain a better understanding as we set targets for next year.

Yes. Jason, maybe it was what you said, I kind of was mixing the total Nelson business and expert advisory. I'd say where you see the business trending towards is probably a good indication of what we expect going forward here. Volumes continue to improve on the core testing side, expert advisory services probably settling back a little bit, which should give you a favorable mix in the business overall, if that helps.

The next question comes from Dave Windley of Jefferies.

I wondered, Michael, if you could comment on a couple of kind of volume-related Sterigenics points. The first one would be, I think you've talked in the past about being aligned with a med tech customer that has struggled with its own market share. I'm wondering if that situation has improved at all? And then the second area would be in kind of the bioproduction life sciences area. I think Casey asked the biotech funding question as regards to maybe Nelson. How is the life sciences bioproduction market as it relates to Sterigenics?

Yes. Great. Thanks, David. On your first question, on the one customer, yes, we're seeing improving signs from that customer, and they're working through some of their challenges over the last several quarters. So that's a net positive for us. And then the second one on bioprocessing, as I mentioned in my comments earlier, we answered Casey, I want to make sure I get your question as well. We did see sequential improvement in bioprocessing. We are seeing uplift opportunities at both Steri and Nelson. We are seeing significantly down double-digit year-over-year though still within the quarter for Sterigenics. But we think that market will continue to be an opportunity for us, although we aren't a huge player in there. We do see opportunities for that as the numbers improve over time in bioprocessing.

Okay. If I could follow up on your cobalt capacity, you mentioned Darlington. Admitting that it's a 2028 harvest, which is still quite a ways out, how much does that increase capacity? Also, could you discuss the overall programs and the capacity they would add over time?

Yes. So we've got supply base rate now. We buy cobalt from Canada, China, Argentina, and Russia; we get it all around the world. As we look at our multiyear strategic plan, we will bring on new capacity to help displace some as well as give us incremental. We're looking to keep pace with the overall market demand over time, David. We're not looking to build on a huge amount of incremental, but it's a shifting of some of that capacity as we see reactors come online and offline over the next 10 years or so. But we're very optimistic about Darlington. OPG is one of our best partners out of Canada. This is a program we've been working with them on for the last several years, and we're proud of where that's progressing with great work that they're doing alongside our team and a big milestone getting that cobalt, as I call it, putting the loaf of bread in the oven and being able to bring it out in 2028 at Cobalt-60 is a big deal. So we're really proud of where that's going in. You saw the Nordion team had a good quarter here, and we're expecting a solid year from it in total.

Congrats on that. Heck of a long baking period. Appreciate the answers.

Yes. By the way, I'm not so sure the team is doing all the hard work. Would appreciate the bread analogy. But for me, it's in layman's terms, I'm not an engineer by background, but that's basically the scientist's work.

The next question comes from Michael Polark of Wolfe Research.

I have two follow-up on expert advisory services and then a question on the EO upgrade program. On Expert Advisory Services, Michael, can you remind us how big this business is as a portion of Nelson in percent terms or just dollar terms? That's part one. And then part two is, in terms of what was really good over the last year or so, can you frame that what behind the bump? Was it device customers, pharma customers? Was it a specific therapeutic category? I'm just trying to better understand the step down.

So yes, I'll have Jon respond to your question on the overall size of it. But let me just tell you, as far as RCA and what the Expert Advisory team is doing, they help customers with submissions to the FDA; they help get new product launches filed and pulled together for submissions. And when there's problems, they get involved. So as we've mentioned on this call, we're experiencing in our business and our customers are experiencing a lot more increased scrutiny from regulators and FDA visits and audits. And that is where RCA shines. I mean, they've been dragged in to help with problems. They've had some med device customers have issues, but I'd also say there are very significant pharma customers that have had FDA challenges, and they've called us in to help them be a third party to get through that cycle. So that's where we've seen the uplift in that activity. More so than the new filings, Michael, it's more around some of the problems that they've had around compliance issues that they've dragged us in for. As far as the sizing piece, Jon, do you want to just give a rough sense on that?

Yes, Mike, it's roughly, call it, low double digits percent of the total pie of Nelson.

Thank you for that. I'd like to follow up on the EO. Can you give us an update on how much is remaining? How close are you to completing the U.S. modernization? Also, regarding NESHAP, is the current situation fixed, or are there still discussions happening about some details? Do you believe that a change in administration could affect the timeline for compliance? Any insights on that would be appreciated.

We are making good progress on the NESHAP requirements and plan to allocate around $150 million for spending next year. Additionally, we expect to spend another $15 million to $20 million related to our gas base, which we've previously mentioned is a relatively minor amount. This year, we anticipate spending just over $30 million, and we expect similar figures for next year, though the exact details are not yet clear. Mike and the team have provided detailed insights into this program, and we believe that most of the spending will be completed by 2025. Regarding NESHAP, the rules are established, although there are ongoing discussions between the industry and the EPA about how to interpret the measurements. Questions remain about whether these measurements represent absolute figures or averages over different time periods. However, I do not expect significant changes to the core rules, only minor clarifications. While some people suggest that a change in administration could alter the industry's progress, I believe the challenges we're facing are present regardless of the political climate. There is a significant amount of misinformation circulating. Our sterilization facilities operate safely, and we are committed to demonstrating this through litigation, ensuring that our practices are understood to be compliant and safe. We are confident that the low levels of ethylene oxide emissions do not pose a cancer risk, and we recognize the need for continued education on this topic. Additionally, we have ethylene oxide information available on our website, and we will keep updating the frequently asked questions section with any significant news during the quarter.

Any other questions?

Great. Well, thank you, everybody, for taking the time. We're proud of what the team is doing here. Good solid quarter along the expectations that we previously communicated to you. And we look forward to seeing you on November 20 in New York City and giving the opportunity to meet some of our team in here to great things to help safeguard global health. So thanks, and have a great day. Bye-bye.

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