Prepared remarks
Good morning, and welcome to the Sotera Health Second Quarter 2026 Earnings 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 second quarter earnings call. Today's press release and earnings presentation 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 Chief Executive Officer, Alton Shader; Chief Financial Officer, John Lyons; and Executive Chairman, Michael Petras. During today's 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 earnings 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 adjusted net income, adjusted net income, adjusted EPS, net debt and net leverage ratio as well as constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant historical periods may be found in the schedules attached to the company's press release and in the supplemental slides to the earnings 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 Executive Chairman of the Board, Michael Petras.
Good morning, everyone, and thank you for joining our quarterly earnings call. As previously announced, Alton Shader assumed the role of Chief Executive Officer on May 26. While I continue to serve as Executive Chairman of the Board and remain actively engaged with the company, Alton is leading the company day-to-day. Today, we welcome Alton to his first Sotera Health earnings call. Having had the privilege of working with Alton for the past two months plus, we are encouraged by the seamless transition. We have received positive responses from our team members, customers, investors and other stakeholders. We built a solid foundation and believe the future is very strong for this great company. Now I will turn the call over to Alton.
Thank you, Michael, and good morning, everyone. Thank you for joining us today. I first want to thank Michael for his strong leadership as Sotera Health's CEO for the last 10 years. He has built a great company, and I look forward to working with him as our Executive Chairman. In addition, I want to thank him for his partnership throughout this transition. I'm honored to serve as Sotera Health's CEO and appreciate the warm welcome I have received from our team members, customers, and shareholders. I've spent the last 25 years working in health care and have always been inspired by the positive impact that health care product and service companies have on the lives of people around the world. And one would be hard-pressed to identify a company that is more essential to the delivery of life-saving health care products than Sotera Health. This criticality to the delivery of health care, the complementary nature of our businesses, the growth opportunities we have and the company's financial strength are a few of the reasons I was drawn to Sotera Health. Since joining the company, I've been impressed by the dedication of our teams, the trust our customers place in us and the industry-leading expertise that differentiates our business, especially in the highly regulated health care markets in which we operate. I look forward to working with our teams to build on these strengths, and to become even more focused on exceeding our customers' expectations every day. These strengths position us well to deliver consistent and reliable growth, and this was evident in our second quarter results, as we delivered 8% constant currency revenue growth, 8.7% constant currency adjusted EBITDA growth and expanded our adjusted EBITDA margins compared to the second quarter of last year. Our strong performance was broad-based across the portfolio. Sterigenics built on its strong momentum from Q1, delivering 7% constant currency revenue growth and more than 50 basis points of margin expansion versus Q2 2025. Nordion continued to execute well with 16.7% constant currency revenue growth and more than 160 basis points of segment income margin expansion. Nelson Labs exceeded expectations, delivering 5.4% constant currency revenue growth. One of the key ways Nelson Labs creates value for customers is by leveraging our technical expertise to solve complex problems. Customers regularly turn to Nelson Labs for support on time-sensitive and critical issues, and we saw that dynamic play out in the second quarter. Based on our strong first half performance, the resilience of our business model and our confidence in the remainder of the year, we are raising our full year 2026 outlook. We now expect constant currency revenue growth of 5.25% to 6.75%, and constant currency adjusted EBITDA growth of 5.75% to 7.25% compared to 2025. Before I turn the call over to Jon, I'd like to briefly highlight a few notable developments during the second quarter. In May, our former private equity sponsors completed their final secondary offering and as planned, no longer hold an ownership stake in Sotera Health. I would like to thank our former sponsors for their partnership and support over the years. They played an important role in helping to build the strong foundation we have today. I would also like to make you aware of a leadership transition at Nelson Labs. Joe Shrawder, President of Nelson Labs, recently retired after six years with the company. We are grateful to Joe for his many contributions to Nelson Labs and wish him the best in his retirement. We are pleased to have Riaz Bandali assume leadership of Nelson Labs following his successful tenure as President of Nordion. Riaz brings extensive experience leading laboratory services organizations, including oversight of global bioanalytical laboratory operations across North America and Europe. This makes him exceptionally well suited to lead Nelson Labs and execute on our growth priorities. And finally, we are progressing well in our search for Riaz's successor at Nordion. I'm proud of what our team has accomplished in the first half of the year and even more excited about the opportunities ahead as we continue to execute our strategy and serve as a trusted partner to our customers. With that, I'll turn the call over to Jon to review our second quarter financial results and updated full year outlook in greater detail.
Thank you, Alton. Before I review the quarter, I'd like to say how excited I am to be working alongside Alton as our new CEO. Since joining the company, he has quickly immersed himself in our business, our culture, and our customers. And I look forward to partnering with him as we continue building on our momentum. Turning to the quarter. I'll review our consolidated financial performance, provide highlights from each of our business segments and then discuss capital allocation, liquidity, and leverage. I will finish with additional details on our updated 2026 outlook. For the second quarter, on a consolidated total company basis, revenues increased by 9.2% to $321 million or 8% on a constant currency basis compared to Q2 2025. Net income on a GAAP basis for the quarter was $54 million or $0.19 per diluted share. Adjusted EBITDA improved by 10% to $166 million or 8.7% growth on a constant currency basis, while adjusted EBITDA margins expanded 36 basis points to 51.6%. Interest expense was $34 million in the quarter, an improvement of over $6 million compared to the prior year period, primarily driven by the benefits of the term loan repricing and debt reduction actions completed during the third quarter of 2025, as well as lower interest rates. Including the repricing completed this past quarter, we have lowered the borrowing costs on our $1.4 billion term loan by 100 basis points in less than a year. Adjusted EPS increased to $0.26 per diluted share, an improvement of 30% versus the prior year. Now let's take a closer look at the segment details. Sterigenics delivered strong second quarter 2026 revenue growth of 8.6% to $212 million or 7% on a constant currency basis. Favorable pricing of 4.3%, improved volume and mix of 2.7%, and foreign currency benefit of approximately 160 basis points drove revenue growth for the quarter. Segment income grew 9.6% to $118 million or 7.9% on a constant currency basis, while segment income margins improved 53 basis points versus the prior year quarter. Segment income and margin growth were driven by the strong top line growth, partially offset by inflation. Nordion's Q2 2026 revenue was up 15.8% to $49 million or 16.7% on a constant currency basis versus last year, primarily driven by increased volume mix of 13.6% due to the timing of Cobalt-60 harvest schedules, along with pricing benefits of 3.1%. As discussed on our last earnings call, we expected Nordion's first half 2026 revenue to represent approximately 40% to 45% of Nordion's full year revenue. First half revenue finished above that range, driven by certain shipments anticipated in the second half that occurred in the second quarter. Nordion segment income increased 19.2% to $28 million or 20.6% on a constant currency basis for the quarter, with segment income margins expanding 160 basis points to 56.9%, driven by higher volume mix, favorable pricing and foreign currency benefits, partially offset by inflation. In Nelson Labs, revenue for the quarter improved 6.3% to $61 million or 5.4% on a constant currency basis. Revenue growth was driven by favorable pricing of 2.8%, volume and mix growth of 2.6%, including the benefits Alton referenced earlier, as well as favorable foreign currency impact. Segment income totaled $20 million in the quarter, an increase of 0.6% or down 0.6% on a constant currency basis, with segment income margin of 32.4%. Segment income margin improved 438 basis points sequentially and is within our long-term range of low to mid-30s. Segment income margin declined versus the prior year quarter, primarily reflecting higher costs. Turning to the balance sheet, cash generation, and capital deployment. In the second quarter, we delivered positive operating cash flow of approximately $88 million. Capital expenditures for the quarter totaled $46 million, supporting Sterigenics' capacity expansion projects for future growth, EO facility upgrades, Nordion's Cobalt-60 development initiatives, and the clean room expansion at Nelson Labs. Our balance sheet continues to be well positioned to support our capital allocation priorities. Our net leverage ratio further improved to 3x for the second quarter, marking an important milestone as we reached our long-term target leverage range of 2 to 3x, and our liquidity remains strong. As Alton noted, we are increasing our 2026 outlook for both revenue and adjusted EBITDA constant currency growth. We now expect total company revenue to grow to a range of $1.236 billion to $1.254 billion, representing 5.25% to 6.75% constant currency growth and an estimated 100 basis point foreign currency benefit. Based on recent exchange rates, we expect foreign currency to be a slight headwind in the third quarter. We expect adjusted EBITDA to grow to a range of $634 million to $643 million, representing 5.75% to 7.25% constant currency growth and an estimated 100 basis point foreign currency benefit. Our 2026 outlook assumes total company pricing to be within our long-term 3% to 4% range. For 2026, we continue to expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth year-over-year. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026, with second half revenue split approximately evenly between Q3 and Q4. For Nelson Labs, we continue to expect full year 2026 constant currency revenue growth to be in the low single digits. Consistent with what we have previously communicated, we expect segment income margin in the low to mid-30% range. Moving on to other outlook items. Based on the current forward rate curve and the interest savings we realized from our most recent term loan repricing, we are improving our 2026 interest expense outlook to a range of $135 million to $142 million from our prior range of $135 million to $145 million. We are also improving our effective tax rate applicable to adjusted net income to a range of 27% to 28%. We continue to expect depreciation to increase in 2026, consistent with the increase we experienced in 2025. On a weighted average basis, we expect a fully diluted share count in the range of 289 million to 291 million shares. Taking these factors into account, we are improving our adjusted EPS outlook range to $0.95 to $1.01 per diluted share from our previous range of $0.93 to $1.01. With several key projects progressing as planned and half of the year now behind us, we expect capital expenditures to be in the range of $200 million to $225 million. We expect continued net leverage ratio improvement compared to 2025. Finally, as usual, our outlook does not assume any M&A activity. I'll now turn the call back over to Alton.
Thank you, Jon. We delivered a strong quarter, highlighted by solid execution across our businesses and an increase to our full year outlook. These results reflect the essential role we play in supporting health care around the world, the strong partnerships we have built with our customers, the resilience of our business, and the commitment of our teams. I'm excited about the opportunities ahead and confident in our ability to execute on our priorities and to create long-term value for our stakeholders. I would also like to thank our associates, customers, and shareholders for their continued support, and I look forward to meeting with many of our investors in the months ahead. At this point, operator, let's open the call for questions.
Questions and answers
The first question is from Sean Dodge with BMO.
This is Chris Charlton on for Sean. And welcome, Alton. Maybe just starting on Nelson Labs. It is a strong quarter here. Can you share some more detail on the drivers of the improvement in the quarter? Is this primarily just beginning to lap EAS headwinds? Or are there any other areas you're seeing strength? And then how much visibility do you have into this continuing in the back half of the year?
Chris, Alton here. Thanks for the question. Yes, we're really pleased with the second quarter performance of Nelson Labs with the 5.4% constant currency growth. We got some good news from a few customers that were looking to work with Nelson, and that positively impacted our results here in Q2. And we continue to feel good about the underlying demand that we see in the marketplace and our role as a trusted partner with our customers. So overall, again, feel really good about the performance in Q2 and how the team really focused on serving their customers. And again, feel good about the environment going forward here in the second half of the year.
Okay. Great. And then on Sterigenics, can you share any more detail on how volumes have been trending across your categories, med tech, bioprocessing and commercial? I know you previously mentioned bioprocessing being a small but quickly growing component and commercial being a more challenging backdrop. Is this still the case? Or have there been any changes to the dynamics across these categories?
Sure. So yes, maybe a couple of comments on Sterigenics. The 7% constant currency growth in the quarter, again, really pleased with that performance. Volume of 2.7%. Again, we feel really good about that. Just want to bring your attention and others' attention to the fact that we had a pretty tough comparable versus Q2 2025, where we grew 10% last year with a 6% volume contribution there. So again, really strong performance from that team. Overall, we see a stable demand environment for our Sterigenics business. We obviously have a really broad spectrum of customers within that business, over 2,000 customers. Overall, we see strong growth across that full portfolio. Your point around bioprocessing, yes, a smaller part of our business, but we grew well in that business, and we continue to focus on that with our commercial teams.
The next question is from Evie Koslosky with Goldman Sachs.
Great work with you, Michael, over the last several years, and congrats, Alton, on the new role. I mean I think just to start, Alton, maybe walk us through some of your top priorities kind of within the first year as CEO. And then any thoughts on kind of driving additional synergies between the businesses or commercial strategy update?
Yes, absolutely. Hi, Evie, thanks for the question. Really priority one for me here in the short term is to ensure that I understand the business, get to know my team, understand our processes, and really determine our strengths and our areas of improvement. And key to the process of understanding the business is meeting and understanding and assessing our talent. So one of my most important jobs as the CEO is to ensure that we've got top talent in the organization, and this is an area that I've been working to understand. Next is really how we partner with our customers. So I need to understand how we partner with them, how they perceive us, and how we work across Sotera Health to really develop differentiated solutions. And I'll hit a bit here on that cross-business unit or One Sotera offering in a second. Last thing I'll say before I get into that is I want to build on the customer-focused culture that we have here today. Real compliments to Michael, Jon, Jason, the rest of our leadership team on building a customer-first culture here. It's a real pleasure to be able to join the company like that, and I'm fortunate to be a part of this. But I want to ensure that every associate at Sotera Health understands how important their role is, and that they operate with a high level of urgency to deliver our solutions and delight our customers every single day. So that is one of my big focuses here — just customer focus, again, understanding we are a service business and we've got to delight our customers every single day. I think a real opportunity that we have is around our One Sotera offering or our cross business unit work. There's been a lot of really good work done over time here, but I think there's more opportunity. And the more I get into seeing the differentiated solutions we have, we're at our best when we're working together.
Great. That's super helpful. And then on Sterigenics volumes, I know you touched on it a bit, but that came in above our expectations. I guess what are you guys seeing from a competitive standpoint in that market? And then versus broader end market trends? And maybe talk through some of the competitive wins with new customers and how those are trending?
Sure. So it's a competitive market. We haven't seen any significant difference in competition here in the last quarter, I think in the first half of the year overall. So that's the first point. Second, we spent a lot of time with our team as we put our guide together for the second half of the year, and that really informed the confidence that we have in our guide. So we do not see a slowdown in demand in Sterigenics. We recognize there have been some mixed data points out there with some of the providers. But we think in general, the indicators are pretty constructive. And we've seen a lot of med techs out there with really strong numbers here in Q2 and guides as well. So overall, competition, pretty similar. We continue to like our position in the market, and we're confident in our guide based on where we see the business heading.
The next question is from Luke Sergott with Barclays.
I just want to follow up on that. You guys outperformed your other large peer. Digging a little bit on what differentiates you guys from a mix perspective, is it more weighted towards EO where you're capturing faster parts of the market or more demand coming from those volumes that are going to EO sterilization technologies versus your gamma and X-ray? Just trying to understand the puts and takes and like if you're not seeing — like you said, the volumes are okay, but we hear plenty of noise on the EPA headwinds potentially hitting the space and coming through. So is that one of the reasons why you feel like you'd be insulated because it's a more strategic part or more necessary aspect of what you guys provide?
Thanks for the question. I will start with — I'm only a couple of months in here, so I may not be able to hit on every single one of those points that you brought up, but I'll give you my perspective. One, I can't really comment on competition and what's going on with their business. But I will say, I know that we are higher indexed into the U.S. versus outside the U.S. compared to our primary competitor. That's one. But I think high level, again, when we get really deep with our teams, we're just not seeing that slowdown in demand. I think on the technology side, I've been doing everything I can to get out to as many facilities as possible, and I've been really impressed with what our teams do. And again, we've been making real progress on this cross-business unit work or bringing the full force of Sotera Health into developing solutions for our customers. I'd like to think that we're making a difference there and our customers are noticing. But give me a little bit more time as I get deeper into the role and longer in the seat, and I may have a more fulsome answer for you.
All right. Great. And then I guess from a margin perspective, particularly around Nelson, you guys talked about the higher cost step-up here in the quarter. Can you dig in there what drove those elevated costs? And then as you're bringing on the clean room expansions and doing that, how do we think about that through the second half or even into '27 as the capacity and utilization picks up in the new facilities or the new rooms?
Sure. The first thing I'll mention is that we're really happy with the sequential margin increase of 438 basis points from Q1 to Q2 for Nelson Labs. So the team did a really nice job there executing in Q2. I'll also highlight the fact that we are still guiding our full year margin to low to mid-30% range for Nelson. So we expect to stay within that range. The team is doing, again, a nice job of responding to customer requests. And as has been noted, we performed better than we expected here in Q2. Some of that growth was due to additional business that was earned in Q2, and our team really did their best to deliver on that in the quarter, and we benefited from that financially. As we go forward, again for the full year again, we continue to guide to that low to mid-30% range for margins.
The big thing I'll add is that the step-up in revenue, of which that was a contributor, really drove that sequential margin improvement. We've gotten great contribution margins that come with the business. So the step-up in revenue is really what helped drive the margin improvement sequentially.
The next question is from Ryan Halsted with RBC.
My first question is on Nelson Labs. Just was interested in any update on the validation testing pipeline and how you see that progressing in the back half of the year, and how we should think about the cadence of that impacting versus the guide.
Thanks for the question, Ryan. We feel good about the pipeline. We've got a number of opportunities that we're hopeful will contribute to additional growth to the business. That said, what we know and all the data that we are analyzing for Nelson Labs is informing our guide for the balance of the year.
Okay. And then you mentioned inflation as a headwind on margins. It would be helpful to hear what are the cost inflation that you're facing? Is it transitory? Are these related to some of the geopolitical events? Just any more color on that would be helpful.
Ryan, it's Jon. Thanks for the question on that. We're not seeing anything extraordinary in inflation. It's standard inflation coming through in labor cost increases, and in standard things on materials, nothing extraordinary. We really don't have any meaningful exposure from a knock-on effect of the Middle East, some very minor costs in Europe for utilities, things like that, but nothing that I would characterize as significant.
The next question is from Casey Woodring with JPMorgan.
Congrats on the new role, Alton. Looking forward to working with you. Maybe just a high-level one here. Looking at the guide, you raised the high end after the beat here. I think last year, around this time, after you beat, you only raised the low end. So maybe just talk a little bit about the seemingly improved visibility you have here, then, moving forward. What's giving you enough confidence to raise at the high end there?
Thanks, Casey. Maybe just a quick thought on my philosophy around guidance. First, I'm very aligned with how Michael, Jon, Jason have handled guidance in the past. I think you'll expect a similar approach here. Our goal is to provide realistic guidance and to be able to provide information to our investors so they understand how we're thinking about the business and what's going on with the company. So that's the first piece. Second piece, obviously, we're really pleased with the performance of the company in Q2 and the first half of the year. When we raised our guidance, there were a lot of factors we had to take into consideration. A few of those are that we see a meaningful uptick in growth in Sterigenics in the second half of the year compared to the first half. So that's contemplated in our guidance. The other thing that's contemplated is, Jon mentioned in his opening remarks, the Nordion business — we guided 40% to 45% of full year revenue to hit in the first half, and we actually achieved above the top end of our range. So some of the revenues we were expecting in the second half shifted into the second quarter based on customer requests. So we had to take that into consideration as well. So you pull that together, we look at what we see in our markets, we're close to our customers, looking at our backlogs, et cetera. That's what informed our 25 basis point increase to both revenue and EBITDA guidance here.
Got it. That's helpful. Maybe if you could spend a minute walking us through just the broader decision to build out the X-ray capacity that you've got coming online over the next couple of years. You've talked about it previously. Is that something customers are asking more of these days? Or are you kind of building out that new capacity anticipating the market might move more towards X-ray? And what would the margin implications be once you guys open these new facilities and more volume goes towards X-ray?
I'll start, and then I'll hand it off to Jon on some specifics, because those decisions were made before I joined the organization. But a couple of things on our new X-ray facility. The good news is things are progressing very well. We're on track. We've got a number of customers in validation, but we also have revenue starting to flow through that facility beginning in Q3. That's one of the factors why we're comfortable with the uptick in growth from Sterigenics in the second half of the year compared to the first half. Overall, things are going very well in X-ray. As a leading sterilization provider, we want to have all modalities, and we want to be able to offer that to our customers. Let me hand it off to Jon for more specifics.
Historically, if you look back a few years, our biggest competitor has also been putting in a number of X-rays. We were looking at the opportunity and making sure we had a complete offering for our customers. We thought it was important to put one in. It was a strategic decision by the Board. Normally we target 40% commitments from our customers, and that was one where we made a bit more of a bet on. I'm happy to report the pipeline is filling. It's giving us optimism in the back half as we grow. That said, we are a world leader in Cobalt-60. We believe strongly in gamma sterilization, and that continues to be a critical part of our portfolio going forward; X-ray is more of a complement. On your margin question, the great thing about these facilities is you don't have a lot of incremental fixed cost coming in when you bring them online, outside of depreciation. They are not hugely people intensive or material intensive. The big thing is electricity, so you can turn them on and off. There is no notable margin impact. We've actually absorbed some costs already over the last 12 months that you wouldn't even see in the financials.
The next question is from Brendan Diggan with Citi.
Congrats on the quarter. I wanted to spend a little bit of time on the increased EBITDA guide. I understand that the Nelson Labs guide was maintained in the low to mid-30% range. But I was wondering if you could touch on the Sterigenics and Nordion outlook, just given some of the shifts that went on in Nordion and the increased outlook in Sterigenics.
Sure. For Sterigenics, we put up a 7% constant currency growth in Q2 after 6.1% in Q1. In the second half of the year, we are expecting an uptick in growth compared to what we saw in the first half. We have pretty good confidence around that for a few reasons. First, overall demand seems stable in the marketplace, and when we talk to our customers and look at our backlog pipeline, it gives us confidence. There are a few tailwinds we're expecting in the second half of 2026 versus the second half of 2025. One, facility shutdown schedules are favorable in the back half of the year. Two, a large customer who previously in-sourced their sterilization is now outsourcing to us, and we will see that impact in the second half. And three, X-ray with our new facility brings additional revenues starting in Q3. All of those contribute to the guide and our confidence in the uptick in Sterigenics growth. For Nordion, we continue to expect low to mid-single digit constant currency revenue growth for the full year, and we expect Q3 and Q4 to have similar revenues. That is what informed our full year guide.
Great. And then I was wondering if you could touch on the increased CapEx budget for this year. What's behind the increase? And does this change the outlook for 2027 in terms of stepping down?
Yes. We do see a meaningful step-up in CapEx in 2026. We've got a number of growth investments that are driving that, and we've got facility enhancements on the EO side that are driving it as well. We expect to be substantially complete with those facility enhancements by the end of 2026, with a little bit of work and capital bleeding into 2027.
For 2027, Brendan, we continue to expect a meaningful step down from 2026 to 2027 in CapEx spending. Overall, just as we think about our three-year commitment from Investor Day, we're very much on track to deliver the free cash flow commitment of $500 million to $600 million.
The next question is from Dave Windley with Jefferies.
I had a few clarifications, if I could. You've emphasized the positive impact in Nelson in Q2 and highlighted the low 30s percent margin. Should I interpret that the projects you referred to or clients that came in in Q2 were more transient projects in the quarter, or were these clients that you're onboarding for more ongoing work? And was that activity in Q2 part of the enhancement of margin sequentially?
David, thanks for the question. The short answer is it's both for Nelson. In Q2, we did earn business within that quarter. Some of that business is completed in that quarter, but some will continue throughout the year. Part of how our business works is if we get a project, we often have an opportunity to win more business in the future as well. Historically, Nelson has done a nice job of that. That helps explain the sequential margin improvement.
The only thing I would add is just on your sequential margin question: the step-up in revenue, of which that was a contributor, really drove the sequential margin improvement. We got strong contribution margins with the business, so the revenue increase helped drive margin sequentially.
Got it. I was refreshing my memory on pricing. Historically you had talked about 3.5% to 5%, then you revised to 3% to 4%. You're still in that 3% to 4% range. One of the opportunities you mentioned was pricing tied to enhancements to EO and getting appropriately paid for the higher level of quality. Where does that stand? And is that baked into the 3% to 4%? How should we think about your progress on that?
Thanks. We saw strong pricing from Sterigenics in the quarter and previous quarters as customers recognize the value we provide. That's also a reflection of solid execution by our commercial teams securing those price increases. We expect similar types of pricing from Sterigenics this year and expect total company pricing improvement to be consistent with the 3% to 4% guide. We are making progress on getting pricing tied to the investments we're making for EO enhancements, and that's on track.
And the last one quickly on CapEx: I believe there were two greenfields historically discussed. One is the X-ray facility coming online in Q3. The second one you had put on the shelf pending discussions with clients. What's the status on that second one?
Your recollection is correct. We had put that on a brief pause, which was part of why our CapEx last year stepped down from the initial guide. Part of the reason CapEx came back this year is because we're full go on that project now, making really good progress, and expect it to be finished toward the end of next year or early 2028.
The next question is from Brett Fishbin with KeyBanc.
This is Will on for Brett. I want to circle back on the cross-business unit activities. Could you directionally quantify how meaningful those opportunities and efforts are becoming? Where do you see the greatest opportunity for additional penetration among those customers?
I believe it is a meaningful opportunity. We add a lot of value with our Sterigenics business unit and with Nelson Labs, and the two are absolutely complementary. We've had an effort to ensure our teams work well together and provide differentiated solutions. We see meaningful growth opportunity as we get into the planning period. It also impacts customer satisfaction: when customers work seamlessly across Sotera Health business units, they're happier, and that's a key goal for us as a service provider.
I appreciate the color. How is utilization as it stands today? Are there any particular geographies or modalities where you're seeing capacity becoming more constrained?
We're in a good position to support our customers right now with capacity available in most places. EO in the U.S., particularly in large chambers, continues to be an area where capacity is a little tighter in places where it's more difficult. This business is geographic and modality-based, and having the right modality in the right location is critical for the customer. Those are things we work through, but that is the primary area I'd call out.
The next question is from Joseph Downing with Piper Sandler.
Congrats on the quarter. Following up on Sterigenics pricing as you head into 2027 contract conversations, is there anything that changes the ceiling on price here, whether that's customers potentially pushing back harder? It doesn't sound like that's an issue, but just wanted to confirm. And are competitors getting more aggressive to win volume or inflation boiling to the point where the pass-through argument might get tougher to make?
Thanks for the question. We don't see a material difference in competition today. Competition is always fierce in our market, and that's something we handle daily. For pricing, we take an approach of pricing for the value we provide to customers. Our commercial team has done a very good job historically securing price increases, and we expect them to continue to deliver.
Great. I appreciate that. And then one on capital deployment: you're now inside your leverage target, about $950 million of liquidity, nothing drawn on the revolver. What's the priority stack from here? Is it building more cushion? Is M&A in a specific area a priority? Or does buyback come into the conversation at these levels?
I appreciate that question. This is an important time for capital allocation. We will generate significant free cash flow over the next few years. My primary goal is to accelerate growth within the business — become more essential to customers, easier to work with, have best-in-class operations, and allocate capital to maximize growth. We are heavily involved in that process and kicking off our strategic planning. I'm aligned with a focus on internal investment and M&A, particularly focused around sterilization and Nelson Labs, but we are getting deep into the process now and will share more as we have it nailed down.
The next question is from Michael Polark with Wolfe Research.
Jumping around calls. If you commented already on litigation, I apologize. Could we get a brief litigation update? I see New Mexico, which was one of the smaller items on EO, settled in early July. Interested in any comment on that. And then the next steps in Georgia and California — what's on the calendar for later this year and what's still circled for 2027?
Mike, I'll take the litigation questions. On Georgia, we're going through the appellate process now. Our view is the court's rejection of the plaintiff's general causation is a critical issue common to all the cases, and we believe this underscores the lack of reliable scientific support. We'd expect to hear something in spring or summer on the appellate process. We have a team fully engaged, and we feel very good about where we sit relative to the rulings to date. Regarding New Mexico, that was settled in July for an amount that was not material to the company, and the settlement fully and finally resolved all claims asserted or that could have been asserted in the lawsuit. We're happy to have that behind us. On the California litigation, we'll continue to work through court hearings, motions, and procedures. We expect the trial to be in January or April 2027 at this point in time. That could change slightly based on how things play out, but it is unlikely to be earlier than that and will be determined by the judge.
For the follow-up, I want to ask about the large customer that's coming on in the second half in Sterigenics. Is this across your global network? Is it specific to a modality or geography? You mentioned this customer used to in-source and now is outsourcing — are they shutting down internal capacity or do they still keep some level of service in-house?
Mike, thanks. This is the customer we've been talking about. You can surmise this was an in-source to outsource shift related to EO in North America. They are shutting down capacity and moving the business to us. We're happy to support them and move this forward; it's the one we've been discussing for a while.
This concludes our question-and-answer session. I would like to turn the conference back over to Alton for closing remarks.
Thanks, operator, and thank you all for joining us today. I continue to be really excited about Sotera's opportunities. We, as a team, look forward to executing on the back half of the year, and I look forward to engaging with you all as we further develop our strategic priorities. Thanks again for joining. Hope you all have a good week. Take care. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.