Sotera Health Co Q4 FY2025 Earnings Call

Good morning, and welcome to Sotera Health's Fourth Quarter and Full Year 2025 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead.

Good morning, and thank you. Welcome to Sotera Health's Fourth Quarter and Full Year 2025 Earnings Call. Today's press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will also be available on the Investors section of the Sotera Health website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael Petras; and Chief Financial Officer, Jon Lyons. During the call today, 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, tax rate applicable to net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt and net leverage ratio as well as 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 to 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. For further questions, feel free to reach out to the Investor Relations team. With that, I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Good morning, and thank you for joining us. This morning, we announced another strong year of performance, extending our track record of year-over-year revenue growth to 20 consecutive years. In 2025, the total company revenue increased 5.7% to $1.164 billion or 5.2% growth on a constant currency basis versus 2024. Adjusted EBITDA increased 8.2% or 7.8% on a constant currency basis, with margins expanding to 51%, an increase of nearly 120 basis points. We also delivered adjusted free cash flow of over $200 million in 2025. Our results demonstrate strong execution, growing demand for our mission-critical services and disciplined financial management. The team's performance in 2025 positions us well for sustained growth ahead. We also had several notable achievements during the year. Our customer satisfaction exceeded 80%, underscoring our commitment to delivering excellent service. We advanced our portfolio across several key areas, including our commercial initiatives continue to build momentum with revenue from XBU customers expanding 9% year-over-year. Sterigenics delivered approximately 8% constant currency revenue growth versus 2024, driven by improved volume and mix. Significant progress was also made on the EO facility enhancements program as well as the construction of the new X-ray facility, which is planned to open in 2026. Nordion delivered a strong year, achieving approximately 9% constant currency revenue growth. Also in the fourth quarter, the team signed a cobalt development agreement with Westinghouse and PSEG, and they secured a 25-year Class 1B license renewal for our Ottawa facility, which is the longest ever issued by the Canadian Nuclear Safety Commission. Nelson Labs delivered core lab testing growth during the year. They expanded margins by 312 basis points and made progress on clean room investment. On the capital markets front, we reduced borrowing costs by 75 basis points on our $1.4 billion term loan and paid down $86 million of debt, resulting in $13 million of annual interest savings. We also upsized and extended our revolver, increasing liquidity by $175 million. Sotera Health's public float increased to 80% of our outstanding shares during 2025. We continue to strengthen our corporate governance with the appointment of a lead independent director. Also, as you may have seen, we welcomed Richard Kyle to the Board earlier this month. Rich's leadership experience as a public company CEO and his extensive experience in operations and governance, along with a strong financial acumen will serve as tremendous assets as we continue to grow. Finally, we remain actively engaged with our shareholders on many corporate responsibility initiatives. 2025 was a strong first step in executing the 2025 to 2027 long-range plan we presented at our November 2024 Investor Day, and we expect this year to represent another meaningful year of progress towards those goals. Earlier today, we issued our 2026 outlook. For the full year, we expect total revenue to increase to a range of $1.233 billion to $1.251 billion, representing constant currency growth of 5% to 6.5% versus 2025 and adjusted EBITDA to grow to a range of $632 million to $641 million or 5.5% to 7% constant currency growth. Before I hand it over to Jon, I'd like to highlight a management transition. As you may have seen in our press release this morning, effective April 1 of this year, Senior Vice President and General Counsel, Alex Dimitrief was transitioned to an outside adviser to the company. I would like to thank Alex for his leadership and service in the past 3 years, and we are grateful that he will continue to support the company going forward as an adviser. We are excited to announce that Erika Ostrowski, who has served for the last 2 years as the Vice President, Deputy General Counsel and Corporate Secretary under Alex's leadership, will be promoted to Senior Vice President and General Counsel for Sotera Health after demonstrating strong leadership, sound judgment and a deep understanding of our business. Erika is well positioned for continued success in her new role. Now Jon will take us through our fourth quarter and full year 2025 financials and our 2026 outlook in more depth.

Thank you, Michael. I'll begin with our consolidated fourth quarter and full year 2025 results and close with additional detail on our 2026 outlook. For the quarter, total company revenues increased 4.6% to $303 million or 2.5% on a constant currency basis versus Q4 2024. The year-over-year comparison reflects the expected impact of Cobalt-60 harvest timing at Nordion. Adjusted EBITDA grew 2.7% to $157 million or 0.5% on a constant currency basis, while adjusted EBITDA margins were 51.8% for the quarter. Interest expense was $35 million in the quarter, a $6 million improvement versus Q4 2024. Net income was $35 million or $0.12 per diluted share. Adjusted EPS increased to $0.26, up $0.05 from the prior year, driven by a lower tax rate as well as strong operating performance and lower interest expense, partially offset by higher depreciation. Now let's take a closer look at our segment performances for the fourth quarter as compared to the same period last year. Sterigenics revenue improved 10.6% to $198 million or 8% on a constant currency basis. Growth was driven by 4.3% favorable pricing, 3.7% volume and mix as well as a 2.6% foreign currency benefit. Segment income increased 10.4% to $110 million or 7.8% on a constant currency basis, reflecting favorable pricing, volume mix and foreign currency, partially offset by inflation. As expected, Nordion's revenue decreased 12.3% to $50 million as the timing of Cobalt-60 harvest schedules drove unfavorable volume and mix of 15%, which was partially offset by 2.4% favorable pricing. Nordion segment income decreased by 18.9% to $29 million. Segment income margins decreased 466 basis points to 57.5%, primarily driven by the lower volumes and unfavorable product mix. Nelson Labs revenue increased 2.3% to $55 million, which was nearly flat on a constant currency basis. Favorable pricing of 3.2%, foreign exchange of 2.5% and core lab testing growth were partially offset by lower Expert Advisory Services revenue. Segment income rose 1.9% to $18 million, a decline of 1.2% on a constant currency basis. Growth was driven by favorable pricing, growth in core lab testing and foreign currency, partially offset by lower Expert Advisory Services revenue and higher costs. Now let's turn to the full year 2025 results as compared to the prior year on a consolidated basis. We delivered revenue growth of 5.7% to $1.164 billion or 5.2% on a constant currency basis. Adjusted EBITDA improved 8.2% to $593.8 million or 7.8% on a constant currency basis, resulting in adjusted EBITDA margins of 51%, an improvement of 118 basis points. Interest expense improved $9 million to $156 million, driven by lower interest rates, the favorable repricing of our term loan and $86 million of debt paydown. Reported net income for 2025 was $78 million or $0.27 per diluted share. Adjusted EPS for the year was $0.86 per weighted average diluted share, an increase of $0.16 versus 2024, driven by operational growth, a lower tax rate and improved interest expense, partially offset by higher depreciation. I will now turn to the balance sheet, cash generation and capital deployment for the full year 2025. Adjusted free cash flow was $210 million, putting us well on track to achieve the 2025 through 2027 cumulative goal of $500 million to $600 million we set at our November 2024 Investor Day. Capital expenditures totaled $138 million in 2025. The company continues to maintain a strong liquidity position. As of December 31, 2025, we had approximately $940 million of available liquidity, including $345 million of unrestricted cash and nearly $600 million of capacity under our revolving credit facility. Net leverage improved to 3.2x at year-end from 3.7x in 2024 as we continue progressing toward our 2 to 3x long-term target. Turning to our 2026 outlook. For the full year, we expect total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit as compared to 2025. We expect adjusted EBITDA to improve to a range of $632 million to $641 million representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be weighted towards the first half of 2026 with the largest impact expected in the first quarter. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth year-over-year with the first quarter anticipated to grow in the mid-single digits range. We expect the first quarter revenue to be the lightest of the year. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026. Nordion's first half 2026 revenue is expected to represent approximately 40% to 45% of full year revenue with Q2 2026 revenue expected to be heavier than Q1 2026. For Nelson Labs, we expect full year 2026 constant currency revenue growth to be in the low single digits with Q1 growth expected to decline low to mid-single digits versus Q1 2025. Additionally, Q1 2026 revenue is expected to be the lightest quarter of the year. For 2026, we expect interest expense between $135 million to $145 million based on the current forward rate curve. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%. Adjusted EPS is expected to be in the range of $0.93 to $1.01, driven by operational growth as well as improved interest expense. We expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. We expect a fully diluted share count in the range of 289 million to 291 million shares on a weighted average basis. Capital expenditures are expected to be in the range of $175 million to $225 million in 2026. We expect to make continued progress in reducing our net leverage ratio again in 2026. Finally, as usual, our guidance does not assume any M&A activity. I will now turn the call back over to Michael for closing remarks.

Thank you, Jon. As we move into 2026, we are encouraged by our momentum, strengthened balance sheet, and we are confident in our ability to drive long-term growth, strong cash flow and shareholder value. We are on track to meet the commitments we made in our November 2024 Investor Day, and I'm confident in our team's ability to execute and deliver for our customers and investors. We remain focused on executing on the priorities we've laid out previously, which are excellence in serving our customers with end-to-end solutions, winning in growth markets, driving operational excellence to enhance free cash flow and disciplined capital deployment. At this point, operator, let's open the call for questions and answers.

Our first question comes from Sean Dodge with BMO Capital Markets.

Maybe just starting on the guidance and the EBITDA margins at the midpoint implies about 20 basis points of expansion. That's on top of a pretty significant improvement you've driven in 2025. What you're targeting this year, is that all just operating leverage? Or is there any other dynamics kind of happening there worth calling out? Are you taking costs out, adding costs in anywhere? Are there any unusual mix impacts or anything else like that? I guess it looks like Nelson will be a little bit of a kind of a slower grower, so you get a little bit of a mix benefit from that, but anything else worth highlighting?

Sean, thanks for the question. No, you're spot on with the midpoint of the guide and what it implies. And no, it's nothing abnormal going on, just normal operating leverage and running the business.

Okay. Great. And then on Sterigenics, you mentioned recently you had one or at least one client that had been in-sourcing sterilization that's now chosen to outsource to you all. Is there any more background you can share on in their decision? Was that all because of NESHAP? Or were there some other factors driving that decision to finally outsource? And then maybe anything on like the magnitude timing of that shift. And I know you're not building these in numbers, but are we starting to see kind of ice break now and the backdrop being set for more of these decisions to happen?

Yes. Sean, this is Michael. We don't see significant shifts in that area at this time. The compliance period lasts for two more years. The customer you're referring to will begin to bring in some volume late this year, continuing into 2027 and 2028. There are many factors in their decision-making, ultimately it's the customer's choice. I'm sure the new regulations played a role, but I can't speak for the customer or share specific details due to confidentiality agreements. Overall, as we mentioned before, that customer will be transitioning their sterilization volume to us.

Our next question comes from Patrick Donnelly with Citi.

Michael, maybe one for you on Sterigenics. Can you just talk about how you're thinking about '26, both on the volume and pricing side? Would love just a little color on areas like bioprocessing, MedTech, how you're thinking about just those categories improving throughout '26 and what you're seeing on the demand front?

Yes, thank you, Patrick. We've provided a long-term guidance for the company of a 3% to 4% price increase. Sterigenics reached the upper end of that range, which aligns with our expectations. We anticipate similar performance in 2026. In bioprocessing, although our starting point is small, we saw significant growth last year, and we expect that trend to continue into 2026. Regarding MedTech volumes, we observed growth in both volume and mix as the year progressed, and we expect this to persist into 2026 as well. We are seeing steady progress across multiple categories, as mentioned in our last call, and the consistency remains apparent. One point to note, Patrick, is that the commercial segment has faced some challenges with volume as we concluded 2025 and look ahead to 2026. However, the core volumes, particularly in MedTech, which are essential for our business, are in a strong position.

Okay. That's helpful. Regarding Nelson Labs, I understand that the EAS headwinds will ease. It appears that Q1 might see a slight decline. How should we anticipate the progression throughout the year as those headwinds diminish? Additionally, for Jon, concerning the Nelson margins, which are crucial for margin expansion, are we expecting to return to that low to mid-30% range by 2026? Some insights on that would be appreciated.

Yes. I'll start with the second part of your question there, Patrick, on the margin side. We see Nelson solidly staying in the low to mid-30s again this year. Q1 being the lightest quarter. I expect on the lower side of the margin rate. And then the first part of your question, could you repeat again, was about Nelson progression throughout the year on the revenue side?

Yes. Yes. Just with the EAS headwinds, how you're thinking about it.

Yes. I would say the biggest headwind we have, the expert advisory comp actually has a little bit trailing into Q1 comp challenge. So we should improve from here, and this should be the last quarter where we faced that kind of headwind. It's a lower headwind than it's been, but still meaningful to the quarter.

And remember, as Jon stated, first quarter is typically our softest quarter in that business. Every year, it's like that. So margins and volumes will be softer in the first quarter.

Our next question comes from Luke Sergott with Barclays.

This is Salem on for Luke. Maybe just piggybacking off of Patrick's question on 1Q guide. Sterigenics ramping a little bit throughout the year. I think you talked a little bit about how volumes are kind of accelerating out of the year. But if you could just talk about any dynamics at play there with the slightly slower start to the year for Sterigenics?

Yes. Thank you, Sam. Sterigenics, similar to Nelson, usually experiences the weakest performance in the first quarter. Currently, we are observing a slow start to the year. This is partly due to shutdowns, but we've also encountered some weather-related impacts. However, we are projecting mid-single-digit growth as we look ahead to the first quarter for Sterigenics.

Got it. That's helpful. And then if you could talk a little bit about the X-ray facility and when exactly it opens in '26, maybe any tailwinds associated with the facility opening? And maybe just talk about a little bit on the strategy behind opening the X-ray facility and how bringing in that capability helps to serve customers and create new opportunities.

Yes. Sam, we're a full supplier across sterilization and all the modalities. We made the strategic decision over 3 years ago when we go through a 3-year strat plan every year with our Board. In the process of that, Mike and the team laid out a strategic plan to build some more X-ray capability beyond the capability we already have today. We expect that to open up in the second half of this year. We're in qualification with our customers, just like any other facility that will have a ramp period over time. There will be a little impact in 2026, and then we'll start to see that accelerate in 2027 and 2028 and beyond. But this was a long-term strategic investment. We got to co-locate with the gamma facilities. We're working with some customers on qualifications now. But again, it's more part of our longer strategic plan to make sure we have full service offering across all modalities.

Our next question comes from Brett Fishbin with KeyBanc.

Just maybe moving past the segment conversation. I think at a high level, you noted that revenue from the cross-selling or XBU customer base was up 9% year-over-year in 2025. So I was curious if you could maybe dive in a little bit. I'm curious how big that group of customers is as a percentage of total? And then maybe any other color on what you think drove that excess 400 bps of growth within that cohort relative to total company?

Yes, we have several activities happening across the business unit. We have hundreds of customers engaging with both platforms. Additionally, we are conducting strategic pilots in key segments that we aim to accelerate. We have experienced significant growth, with a 9% increase, but the growth in those pilots is even higher. The team is doing an excellent job in emphasizing the value proposition across Sotera Health and providing comprehensive capabilities. We are monitoring our customer satisfaction scores, and overall, Sterigenics has exceeded 80%. Last year, Sterigenics' numbers were considerably higher, and the XBU customers consistently perform above that average. We will keep seeking opportunities to enhance that further. There is a lot of commercial activity underway with the teams, and we are optimistic about seeing even greater benefits from that by 2026.

All right. Great. And then for a follow-up, maybe just thought I'd bring up capital allocation. I think the story continues to get better here and net debt and net leverage are continuing to gradually improve. So just wondering if there's any slight marginal change in how you're thinking about further activity here in terms of like organic investment and debt reduction versus the potential to see maybe a bolt-on acquisition this year?

Yes. Thanks, Brett. Our priorities are staying the same as what we told you before. Our first priority is to fund organic investments and making sure we get the appropriate returns on that. We committed to a free cash flow target for the '25 to '27 period. We're still committed to that today. And the guide that we gave you an outlook for CapEx for 2026 fits within that framework. So the business will continue to do well and generate cash flow and being prioritized as we've talked about in the past.

Our next question comes from Max Smock with William Blair.

It's Christine Rains on for Max Smock. Just hoping to circle back to your 2 active Sterigenics growth projects. On the X-ray facility, in the past, you pointed to a roughly 40% customer utilization target before breaking ground. And it says the project did not meet the threshold, but obviously, it's strategically important. So curious how much below that 40% typical benchmark you're currently seeing? And if you're assuming any margin dilution for the segment in 2027 until utilization ramps? And then also if you can give us some color on the sterilization modality for the other facility build.

Okay. I'm sorry, you've got like 7 questions within that one. Let me try to break this down from a couple of perspectives. Yes. That's okay. Let me just walk through it. We've stated in the past, we target 40% before we put shovels in the ground, 40% utilization. That's what we hope to have committed with our customers. This one is a little bit lighter than that one. We've also said we target 20% IRR on our investments. Obviously, if we're putting cobalt in existing facilities or an EO chamber in existing facilities that's above the 20%, greenfields are below that. This one will be below that, obviously, because it's a complete greenfield. Strategically, it's important to us because we think there are some segments of the market that would like X-ray, and we're bringing that service to them. We still think that the other modalities will be, by and large, the largest segments in modalities. We will see this ramping up in the second half of the year trying to go through all your questions. On Sterigenics margins, so Jon mentioned that we'll have slight margin improvements in 2026, and that will be driven predominantly by Sterigenics where we sit today. That encompasses some of the costs that will come in with low volumes on the X-ray facility, and we'll see that phenomenon continue as we look into '27 as well. So I think I've addressed all of them. I don't know if I missed anything else.

Yes. No, I think you got the majority of them. I was just wondering if you have any color on the sterilization modality for the other facility. I think your deck pointed to 2 growth projects in Sterigenics.

The second facility, no, we have not gone ahead in detail. We're working with our customers on that facility, and we have not gone ahead and publicly released what kind of facility or where that's going to be at this point in time.

Our next question comes from Casey Woodring with JPMorgan.

Great. Maybe the first one, just any changes on how you're thinking about the competitive positioning in Sterigenics in light of NESHAP. I know that, that was a focus coming out of the last Analyst Day just in terms of opportunity to gain share from smaller players. And then maybe same question on the Nelson side. Maybe just walk us through the latest and greatest on the current competitive landscape there.

Thanks, Casey. On the Sterigenics competitive scenario, I would say, as I mentioned earlier in my comments, NESHAP has got a 2-year extension period. So we're seeing discussions about in-sourcing and outsourcing slowing down. That doesn't mean customers aren't having discussions with us overall on what their strategic plans on their supply chain. Those have always been ongoing. But I don't think there's the urgency that people saw when the April 2026 deadline was in place that's now been extended. We continue to compete very well. Our customer satisfaction scores were up significantly last year versus the prior year. We'll see how '26's are when we do the surveys here coming out shortly. But overall, I think Sterigenics is well positioned. And it's the strength of the business model. It's the global platform, it's consistency in our quality systems. It's our ability for our customers to contract with us on a global basis and us being a full-service provider that helps take care of in all modalities in all geographies. So I would say Sterigenics continues to be very well positioned. On Nelson Labs, Nelson Labs is a very fragmented market overall. but that business is really good at service and quality and the reputation is what really matters with science. And the team continues to do very well. We've got pockets in that business. As you know, the core lab testing has improved over the last year. The advisory business has been a little bit more choppy because of some of the remediation projects that have come and gone based on some of the FDA activity. But overall, we continue to accelerate in the marketplace. Our customer satisfaction scores are good. Our NPS, we also do an NPS, Net Promoter Score, and that continues to perform very, very well. So I'd say we're very well situated, but it's a different dynamic, Casey, in that market. It's a more fragmented market on a global basis. But we do 800, 900 tests in that business across our facilities around the world.

Got it. Understood. And then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front?

No. I mean there's nothing material change on timing. I think when I look at it, there's no trial set for this year other than the public nuisance case in New Mexico in the July time period. But other than that, there isn't any material change in timelines.

Our next question comes from Jason Bednar with Piper Sandler.

Michael, I wanted to revisit one of your comments regarding the first quarter Sterigenics guidance. Can you elaborate on the slower start to the year and the weather-related challenges for Sterigenics? Were these two comments related? Are you suggesting that demand was slower to pick up at the beginning of the year, and that weather has also posed some difficulties? Additionally, can you provide more detail on how significant the weather impact is? Do you believe it's something you can address within the first quarter, or will it take a few quarters to recover from those challenges?

Yes, Jason, I have a few comments to share. My remarks are centered around the shutdowns we experienced during the quarter and the impact of weather that we've felt. The guidance we provided today of mid-single digit growth aligns with our expectations, and we are also confident in meeting our annual guidance of mid- to high single digit growth. That sums up how you should view the situation.

Okay. Fair enough. And then maybe longer term or medium term to long term, I wanted to ask in the context of future CapEx and free cash flow. You have a couple of capacity expansion plans underway. We've been talking about those here today. I guess do you still feel comfortable with those long-term targets? I think you do. I just you're reiterating them today. But just how do you think about those in the context of medium-term, long-term planning for additional capacity expansion? When do those additional capacity expansions or greenfield opportunities? When do those discussions happen? How are you planning for those today knowing you're looking out to '28, '29 and '30? Hopefully, that question makes sense.

I think I got it, Jason. So as I mentioned multiple times as well as this morning, we do a 3-year strat plan with our leadership team and the Board every August, and we kind of lay out the next 3 years of where we see the capital demands. And that really was the foundation of the Investor Day presentation we gave for the '25 to '27 time period. As we continue to roll forward and look at opportunities beyond that, we continue to make sure that we've got the facility capacity in place to deliver the long-term growth that we need. So we will continue to refresh that and provide updates where appropriate on future outlooks. But for the time periods that we've given guidance around '25 to '27, we feel confident in our ability to deliver the free cash flow that we've outlined in that time period.

Our next question comes from Ryan Halsted with RBC Capital Markets.

Maybe just to ask a question on the Nordion segment. Can you maybe provide a little more color on some of the headwinds you saw in the quarter, certainly, especially given that you were going up against maybe some lighter comps. You obviously talked about the timing of the Cobalt-60 harvest schedule. Maybe just any color around what were the drivers there, including that timing impact?

Michael, I would say it was driven by harvest schedules. We expected it to be down; it's really not a demand problem but a supply timing situation. Remember, cobalt is extracted from nuclear reactors, and their primary purpose is to generate electricity for consumers and businesses. We coordinate with utilities regarding their shutdown schedules to harvest cobalt from the facilities. We have good visibility into this process, though it can shift by a couple of weeks or a month occasionally. We anticipated this and communicated it to the investment community to ensure they understood. Therefore, we are not concerned about the fourth quarter from a volume perspective. We were aware of this and had good visibility. That’s why we also provide insight on our expectations for the first half and second half of the year, so you can better understand how the harvests will progress. There were no surprises, and overall, it came in as expected, and it's actually slightly better even.

Got it. That's helpful. And then for my follow-up, just any updated views on the potential impact of onshoring by your customers, especially given the dynamic environment with tariffs and the government maybe proposing some regulations with incentives for manufacturers to try to bring more of that manufacturing onshore. Just curious your thoughts on impact to your business.

Yes. Great. So remember, the majority of our business is service business. We're not really impacted by tariffs. The one place where we have product is the cobalt product that's USMCA certified. So we don't have any tariffs. I just want to kind of level set that. Now talking about the bigger macro environment. We have not seen a significant movement of the onshoring. But if that were to happen and customers are having discussions with us, but we're not seeing a significant investment commitment at this point in time. But if it were to happen, we'd be very well situated because we have a very significant position in the marketplace here in the United States where we anticipate that onshoring, if it were to occur, would happen here.

Our next question comes from David Windley with Jefferies.

Michael, I was wondering in regard to the guidance, where are your areas of higher or lower visibility or said differently, what could firm up as the year progresses that takes you to the higher end of the range?

David, it's pretty consistent year in and year out. I sound like a broken record, but it's volume. It's the volume and mix piece that would tend us towards the high end. And as you know, Nordion, we have probably the best visibility. Sterigenics, less so, we've got a quarter or so out. And then in Nelson Labs is more transactional in nature and some of those validation projects could take a little longer. So I'd say in that order, but the biggest thing that could drive us to the higher end of that would be volume and mix in Sterigenics and Nelson Labs.

If I could ask you to elaborate, between med device and bioprocessing, is one of those markets showing more stability or growth in terms of visibility?

I need to consider that. We're experiencing good growth in bioprocessing, but our market share is relatively small. Our sales team believes we might have gained a bit of market share, although I'm not entirely convinced. Overall, we're seeing solid growth in this area, but it remains a small segment for us. Currently, both areas are doing reasonably well, David, but keep in mind that bioprocessing is a much smaller foundation for our business.

Our next question comes from Michael Polark with Wolfe Research.

One of the things I heard on Sterigenics was the commercial segment volumes are challenged. Michael, can you unpack that? Remind us what product categories are commercial? Is this food and consumer products or something else? And what those challenges are, why you perceive them to be?

Yes, Mike, that's in line with my earlier comment. The commercial segment includes various categories like electronics, food, spices, and others, but the market has been choppy. Since COVID, it hasn't stabilized and has been quite volatile. We expect this trend to continue, and we are planning accordingly. However, it's important to note that this segment is relatively small, making up less than 16% of Sterigenics overall. I can't recall the exact figures, but it is a minor part in the broader context.

Helpful. And just a follow-up to that and then one other topic, please. When you say challenged, like growing, but just loan growth or shrinking?

I would say it's more likely to be shrinking than growing. It's been quite inconsistent. Some customers have redesigned their products and no longer have the same needs. For example, I know of one customer in the food packaging sector that changed their designs post-COVID. However, this change doesn't affect 2026; I'm just reflecting on past trends. There's been some turnover in that customer base, which we are experiencing at a greater rate than before, but this has been the scenario since 2020 and 2021.

I appreciate that information. Regarding Sterigenics, as we look ahead to calendar year '25 and the acceleration in volume growth, do you think the tariffs we've discussed in previous calls influenced customers to build some inventory as part of their mitigation strategies? What is your current view on whether that had a positive, neutral, or negative impact last year?

Yes. We have mentioned several times that we have not observed any material impact from tariffs that we can identify. In the second quarter, I noticed an increase in some activity at a specific facility and inquired about it. They explained that one customer was trying to get materials in before tariffs took effect. However, that facility serves 50 customers, and this was just one instance I came across while reviewing analytics with the team. Generally, we are not seeing a significant impact from tariffs. I understand this question has come up frequently, and our customers have not shown consistent patterns related to this. We are experiencing steady volumes on the Sterigenics side as we concluded 2025, which is encouraging.

And I'm not showing any further questions at this time. I'd like to turn the call back to Michael for any further remarks.

Great. We thank you for your time this morning. Hopefully, you can see we had a nice finish to 2025. We're set up for a very strong 2026. And what I want you to take out of this is this business is built to perform. We've had 20 consecutive years of growth, strong cash flow generation, strong margins, sticky customer relationships. This business is built to run and perform. And what we're going to try doing is making sure you have transparency of what we expect out of the business, and we're just going to keep executing against it. So thank you for your time today, and I wish you all a good week. Bye-bye.