You should read the following discussion and analysis in conjunction with our
consolidated financial statements and related notes included in Part I, Item 1
of this Quarterly Report on Form 10-Q, as well as the audited consolidated
financial statements and notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in our 2021 Form 10-K.
This discussion and analysis contains forward-looking statements that are based
on management's current expectations, estimates and projections about our
business and operations. Our actual results may differ materially from those
currently anticipated and expressed in such forward-looking statements as a
result of various factors, including the factors we describe in the section
entitled Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q,
as well as Part I, Item 1A, "Risk Factors" in our 2021 Form 10-K.
OVERVIEW
We are a leading global provider of mission-critical end-to-end sterilization
solutions, lab testing and advisory services for the healthcare industry. We are
driven by our mission: Safeguarding Global Health®. We provide end-to-end
sterilization as well as microbiological and analytical lab testing and advisory
services to help ensure that medical, pharmaceutical and food products are safe
for healthcare practitioners, patients and consumers in the United States and
around the world. Our services are an essential aspect of our customers'
manufacturing process and supply chains, helping to ensure sterilized medical
products reach healthcare practitioners and patients. Most of these services are
necessary for our customers to satisfy applicable government requirements.
We serve our customers throughout their product lifecycles, from product design
to manufacturing and delivery, helping to ensure the sterility, effectiveness
and safety of their products for the end user. We operate across two core
businesses: sterilization services and lab services. The combination of
Sterigenics, our terminal sterilization business, and Nordion, our Co-60 supply
business, makes us the only vertically integrated global gamma sterilization
provider in the sterilization industry. For financial reporting purposes, our
sterilization services business consists of two reportable segments, Sterigenics
and Nordion, and our lab services business consists of one reportable segment,
Nelson Labs.
For the three months ended March 31, 2022, we recorded net revenues of $236.8
million, net income of $30.6 million, Adjusted Net Income of $60.3 million and
Adjusted EBITDA of $115.3 million. For the definition of Adjusted Net Income and
Adjusted EBITDA and the reconciliation of these non-GAAP measures from net
income, please see "Non-GAAP Financial Measures."
STRATEGIC DEVELOPMENTS AND KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS
The following summarizes strategic developments and key factors that have
supported our operating results for the three months ended March 31, 2022 and
may continue to affect our performance and financial condition in future
periods.
•Business and market conditions. During the three months ended March 31, 2022,
Sterigenics and Nordion benefited from sustained demand for sterilization
services. Reduced demand for pandemic-related testing and ongoing pressures from
labor challenges compounded by the surge of the Omicron variant, supply chain
constraints and slower regulatory updates on certain testing categories
continued to impact Nelson Labs' results of operations in the three months ended
March 31, 2022 compared to the three months ended March 31, 2021. As discussed
in more detail in our most recent Form 10-K, a portion of our supply of Co-60 is
generated by Russian nuclear reactors. We continue to monitor the potential for
disruption in the supply of Co-60 from Russian nuclear reactors; to date there
has been no impact on our supply or revenue.
•Investment initiatives. We have advanced our investments in capacity expansions
as well as our expenditures to increase and diversify Nordion's long-term Co-60
supply chain. For the three months ended March 31, 2022, we increased capital
expenditures by $14.6 million compared to the three months ended March 31, 2021.
•Disciplined and strategic M&A activity. We remain committed to our highly
disciplined acquisition strategy and continue to seek suitable acquisition
targets. On November 4, 2021, we acquired Regulatory Compliance Associates Inc.
("RCA") headquartered in Pleasant Prairie, Wisconsin. RCA is an industry leader
in providing life sciences consulting focused on quality, regulatory, and
technical consulting for the pharmaceutical, medical device and combination
device industries. RCA expands and strengthens the technical consulting and
expert advisory capabilities of Nelson Labs. On March 8, 2021, we acquired
BioScience Laboratories, LLC ("BioScience Labs") based in Bozeman, Montana,
bringing expertise in antimicrobial and virology testing to our Nelson Labs
segment.
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•Exit activities and litigation costs. In connection with the ongoing litigation
related to our Willowbrook, Illinois, Atlanta, Georgia and Santa Teresa, New
Mexico facilities, as described in Note 16, "Commitments and Contingencies", we
recorded costs of $18.1 million for the three months ended March 31, 2022
relating to legal and other professional service costs, as well as $0.7 million
related to the closure of the Willowbrook, Illinois facility.
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