I guess let's start off at the top. I think that the topic du jour right now is kind of energy costs and, you know, the impact to the various players across the space. Talk about how you guys are either hedged or, I mean, there's a lot of logistics within your business. Can you just kind of walk us through any of the puts or takes there?
Yeah. You know, some questions that we've been getting asked of recent are kind of two flavors. One would be on utility spend and the other one would be on just gas, ethylene oxide gas. On both of those, we're in a pretty good spot. We don't see material risk. We've got a lot of the contracts fixed, not all of them, on the utility spend. Overall, you know, you know, we're not a huge consumer of electricity and gas. On the gas side for ethylene oxide sterilization, you know, our biggest market for that business is the U.S. and we're in a fixed long-term contract there. We don't anticipate a material impact by some of the dynamics playing out right now.
Any supply chain constraints or given that the, you know, the issues?
Nothing that we're aware of today.
Okay. With you know that behind us, as we get into the other fundamentals, you guys had a decent quarter. Talk about the momentum that you've been building throughout the year. You know, you're through the destocking across the other spaces seen and you guys were you know late in that cycle from a recovery, seeing volumes pick up and remain steady. Just give us a quick overview of how the year played out versus you guys thought and then has that shape in your thinking about as a jump off point to begin the year, this year?
Yeah. If you look at it in 2025, we had over 5% growth on the top line, over 8% growth on the bottom line. You know, it did very well that, you know, commitments were made across the businesses. Overall, we generated over $200 million in free cash flow. We had over 118 basis points of margin expansion. We de-levered, we repriced our debt. You know, our private equity sponsors sold down a ton of shares. They're now down about 12% after this past week's secondary. They're down about 12% of outstanding shares. Overall, we like where we settled in 2025 and the team did a really good job and we're well situated for growth in 2026.
You know, the other thing we talked about in our last earnings call is 20 consecutive years of growth we've had in this business at 50+% EBITDA right now currently in the business. Overall, we're really optimistic how we finish 2025 and looking forward into 2026.
All right. From the drivers on that, though, I mean, you had like when you think about Sterigenics in 4Q, you outperformed your largest competitor there by quite a substantial margin. You know, that's kind of led into the feeling that there's a little bit of pull forward there, especially in light of how your 1Q guide came in, you know, from a sequential downtick. Talk about, you know, was there any pull forward or demand and how the order book is kind of filling up there to feel like to inform your outlook.
You know, in any given quarter, our competitor could be a little bit better than us and we could be better than them. I don't read too much into one specific quarters. Over time, we look at, you know, if it's within a quarter, you have customer dynamics, you have facility dynamics when shutdowns because you're loading Cobalt-60 or you're doing maintenance work. So there's several factors that go into it. Different customers have cycles going on within their business. When we look forward into 2026, you know, one of the things we want to make sure people remember is the first quarter is typically the softest quarter of the business. It's been like that traditionally.
Based on what we saw at the time of earnings, we gave a projection and some shaping how we saw the first quarter playing out. Overall, you know, we expect the business to deliver in total 5%-6.5% top line in constant currency growth for the year and a little bit better on EBITDA with about 5.5%-7% EBITDA growth. Overall, again, this business is going to perform again in 2026 and we feel pretty darn confident about that.
Yeah. When you're thinking about, from a competitive standpoint, talk about some of the demand dynamics and how they're changing from your specific customers and kind of what's baked into that seasonality, why one Q is y our weakest. Just trying to think of, like, is it batch ordering from the hospitals and, like, you're just kind of upstream and this is when it's getting shipped?
Yeah. One thing, Luke, I'm sorry, I didn't answer your first part of your question, which is pull-in. I should address that. This business isn't a pull-in business. Like, we don't have warehouses of product. Customers drop it off. We have very limited space. The product gets sterilized and they pick it up and take it. If they keep it in our facility longer than the planned cycle period, we charge them for that. This isn't a business, you know, like, we can't call up and say, "Bring us five extra trucks today." We just don't have the capacity to do it. It's not a pull-in business. This isn't like a distribution business or a retail business where you could stuff the channel.
You could say, "Hey, you know, I'll give you a little break on price. You know, take this shipment in." That's just not the way this works. You know, customers make the product, they ship it to us, we sterilize it, they pick it up. All right? There isn't, you know, not every quarter is gonna be up and to the right and there's gonna be some choppiness. There's lots of factors that go in. I know a lot of people say, "Hey, did you see a big tariff pull-in?" Second quarter was a really good quarter last year, right? It was just the timing of how things played out with shutdowns as well as activities from our customers. When we look at the demand, back to your follow-on question here.
When we look at the demand in this business and what customers are asking us for and Nordion, we have pretty darn good visibility. We know when the Cobalt-60 harvest schedules are. That's why we give guidance like we did, that we said, "Hey, 40%-45% of t he year will be done in the first half.” We have a pretty darn good feel. That could shift by a couple weeks here and there, a month but we know when the Cobalt-60's coming out and the demand, because again, this isn't something I could just throw Cobalt-60 in a FedEx envelope and hope it arrives there and they pick it up and they plug it in when they have a chance during lunch hour. This is something that got to shut down the facilities.
They got to make sure the Homeland Security is involved. They got to make sure, you know, that all the people are out of the facility in the area where the cobalt's going. I mean, these are, these are well-planned events, so there's not a lot of pull-in activity that could go on. You know, we didn't see that at all. People keep asking tariffs, did you see the second quarter? We didn't see anything material on that. Now listen, if people decide they want to in-source the U.S. in a big way, we'll be ready for it.
Yeah. On that, I guess. Is there a change in the dynamic there from actually the hospitals, like also the delivery, you know, the distributors from, you know, Medline, they talked about being able to ship 95% of their orders the next day. To your point, like, we don't care. We get the order, we sterilize it and they take it and do what they want with it. How does this actually start impacting from? Are you seeing any changes in the order dynamics from customers?
No. You know, we have 3,000+ customers in that business. Every one of these customers wants to work on trying to free up working capital and be more efficient, right? I mean, we've heard this for many, many years. Coming out of COVID, we saw a lot of instability around the inventories and cost takeout around, you know, freeing up working capital. We just haven't, you know, that's been pretty stable. We're not hearing lots of discussions on it. I'm sure companies like Medline are continuing to look for efficiencies in their supply chain, their delivery methods to hospitals. Hospitals are inefficient. They're, you know, hospitals got to figure out how to manage their inventory and supply. I mean, there's a lot of customers, a lot of warehouses involved in between .
We get the product and they take it then and take it to their distribution channels or ship directly to the hospitals. Overall, you'll see improvements but we don't see a material effect on this impacting our volumes based on inventory. We just really aren't having those conversations with our customers now for at least 18 months.
Okay. From a utilization perspective.
I should clarify, there will be a customer here and there but that's just normal.
Yeah. Yeah, 3,000, right, so o n the fringe.
Yeah. I'm sorry, you're asking utilization.
On the healthcare utilization's been elevated, you know, like when you're getting these orders from customers, like how far ahead in advance are they kind of planning out and when you're starting to see these, the volumes come in?
Yeah. On Nordion we have best visibility. Nelson, we have the least and then Sterigenics is kind of in between. We have, you know, several weeks out of planning over the next couple of months. They will tell us, "Hey, listen, you know, over the next couple of years, this is the kind of capacity we're going to need because we're doing this or that with our supply chain." You know, on a quarterly basis, we'll get visibility of X number of trucks want to come in this week, starting next week or the following week. We start to get visibility around that, you know, earlier than we do in a Nelson business, for example.
Okay. Because the Nelson Labs, that's like in-house, the sterility testing to make sure everything's sterilized.
Yeah. That, you know, about 55% of the Nelson business is routine lot release testing. It comes out of sterilization. The other 45% is talent around new product development, new regulations, you know, R&D spend.
All right. As you were talking, you mentioned the onshoring piece there. This is not something we usually talk about within like outside of bioprocessing exposure but you do have bioprocessing exposure. As you think about that coming on, do you guys have like how are you planning for capacity perspective to meet that demand as it comes on?
Yeah. Today, bioprocessing is low single digits for us. We had a very good year in 2025. We had significant growth over the prior year and sequential basis, we had good growth in the fourth quarter. You know, we'll see that continuing in 2026. We're well situated for capacity. Our share position just isn't as large there as we'd like it to be. I think we've grown position but when you're talking low single digits, I don't think it's worth arguing how much share we gain with our teams. They just tell me, "I gotta go get more.
Right. It's not enough.
Yeah. It's not enough. Whatever it is.
Yeah. All right. That's all. On that margin piece that we were talking about there, I mean, 50% margins you're talking about over 20 years. Does the price volume dynamic still hold to what you guys have seen in the past? Or are you starting to have to give a little bit more on price because, as you know, your competitors are getting bigger or anything like that?
We're pretty well situated on price. You know, one of the things we learn to be careful is we don't ever outrun our value prop, okay? So we got to make sure we cover our costs and we want to make sure we're rewarded for the work that we do. You know, we see 4% price in Sterigenics, 3% in Nordion, 3% in Nelson. You know, the thing to keep in mind in Sterigenics. You know, we also react to market dynamics. You know, where the capacity is, what geography, what modality. Overall, we feel very good about our pricing capability, where we are today and where we're going forward. You know, our customers recognize the value we bring them. We just have to make sure we don't outrun that.
Overall, our pricing strength continues to, you know, we continue to demonstrate that and perform because we're getting paid for what we do.
Okay. I mean, at Sterigenics, if we stick on this topic, I guess, you know, you just talked about your pricing remaining in that same range as you've talked about, volumes be up and down. We're pretty consistent there to give you the mid- to high-single-digit type plus growth for the business longer term. You know, NESHAP regulations that just came out, so it's supposed to increase outsourcing or that's the typical trend. What we see is, like, increased regulations lead to more outsourcing. Your customers are having to think through their sterilization strategies internally. Like, are you starting to get more pickup there as we just got, you know, as we get the regulations continue to come through and digest it?
Yeah. There's a lot there. Let me unpack in a couple facets. NESHAP is a rule that's out there for sterilization companies. There was new regs put out and we had to be compliant by April 2026. That's been extended now to April 2028 and the administration is looking at new rules for NESHAP and some tweaks to that existing rule. We'd expect to see some modifications to that rule over the next weeks and months. Not exactly sure where it stands within the current administration. That's something we'll be prepared to react to. We are building our capability off of the existing rule that was in place that just got extended. We think that's going to be more stringent than the revision that's going to come out.
We feel very good about that. We, you know, we will have the majority of that done this year in our facilities. Okay?
You think they're going to actually make it a little less stringent?
Our sense is they're going to make it a little less stringent. We don't have the details of what that means. You know, they're doing their work. We talk to these folks because they're our regulators but we don't know exactly what they're gonna do. We feel good about the level of controls that we're putting in are gonna be at a very high level. All right. We will have more visibility on what this revised rule looks like over the next several weeks and months. I'm not exactly sure on the timing on that. We are moving full speed ahead in 2026 to finish up. If you looked at our 10-K, we said we're going to spend about $50 million in environmental spend. The majority of that is going to these facility enhancements.
Now let's talk about what do we see on the broader landscape with competitor dynamics, right? When this rule first got out, there was a lot of concern from smaller players if they're going to be able to meet those standards. That concern has come down a little bit because of the fact that there was an extension of a couple of years. We've also been on the record to say that there's been one customer that's a big med tech company that all of us know that has made decision to shut down their operation and outsource it. We're gonna be the beneficiary of that. We'll start to see some of that volume in late 2026 moving into 2027 and 2028.
Yeah, I mean, that's the whole pitch on the outsource, right? It's just like a $50-$100 million spend there to update your facility where they could be putting that into R&D.
Yeah. Companies have to decide. You know, some of our customers think this is a core competency they need to have and others say, this isn't something we want to be involved in, that there's other companies that do that and that's what we do. We don't make product. We're not developing therapeutic solutions. We just sterilize. Customers come to us because they know that's our core competency. Some customers want to do it and some don't or some have a blend in between. We're gonna make sure we're well positioned to service wherever the customer is in that spectrum.
Yeah. When you're thinking about this, like, as this new customer you just called out, you see some volumes. Like, talk about your pipeline of new customers coming out on top of this person. We're thinking about incremental growth over the next few years.
Yeah. You know, one of the fallacies that people have here. I just talked to an investor this morning, said, "Oh, we understand that ethylene oxide is 50% of the sterilization volume today, the modality and it's gonna go to 40. That's what we understand." We're not seeing anything like that. We continue to see strong demand for ethylene oxide. No matter what the scrutiny is around this, it's a dangerous material that we have to continue to do the right things in how we control it but it's absolutely critical to the healthcare industry. We're seeing ethylene oxide as a very key credible modality.
We've got a pipeline of demand and I'd say some of it may be NESHAP related but we're not seeing the level of discussions we did six months ago or eight months, maybe more like eight, 10 months ago, where people were saying, "Should I be sterilizing in-house or not?" That's slowed down a little bit, Luke. We are still seeing when you look at our CRM and I meet with our sales teams, you look at the pipeline, the pipeline on volume on ethylene oxide is very strong.
Yeah. I guess what caused it to slow down from six months ago? Is it just them pushing them out?
Yeah, they're pushing out the NESHAP. Yeah. I mean, what I want to be clear, what we're seeing slow down is the discussions of people shutting down.
Yeah, yeah. Bringing on new customers.
We're not seeing a slowdown in demand for ethylene oxide sterilization.
Yeah. Make that very clear.
I just want to be clear.
Can be interpreted very different ways. As the new customers are coming on, like I said, like, is this something that could take you above your historic rate or is this just something, as you think about this, is part of just everyday business?
Yeah. I think you ought to be thinking about it. We've said Sterigenics is mid-single to high single digit growth and you got to think about it within that. When we gave that guide, we understood this. Our aspirations are to grow low double digits in that business but right now we've guided to our mid-single to high single digits.
Baby steps. Okay. On the technology piece, talk about why ethylene oxide is like sticking around for a sizable part of the market and why we haven't seen. I mean, you have your different limitations from X-ray to, you know, some of the other technologies like gamma radiation. You know, it's like. Just walk us through why you're not seeing any type of encroachment on the EO side.
Yeah. For folks who may not be as familiar with how this works, we as a sterilizer, we do not determine the modality. That's determined by the customer in coordination with the FDA and it's based on the product characteristics. Okay. You know, some materials can't take exposure to radiation, some can't take the gas exposure. It depends on the product composition and exactly which modality is used. We continue to see strong demand for ethylene oxide based on the product pipelines of our customers and what they're continuing to develop, as well as their continued growth in core products that already use ethylene oxide as a sterilization.
Can you talk about some of those products that are moving over to ethylene oxide? Like, what were they?
I wouldn't say we're seeing a big migration over. I'm just saying as new products come out.
It's still in there.
It's still in there, right. The existing products are growing in volumes.
Right. As you think about the different types of products, right? Like, you have your hips and knees, are they gonna be more X-ray or gamma or is that gonna be ethylene oxide?
Hips and knees typically are gamma radiation is what we see.
Like, where's ethylene oxide's sweet spot? Is that just, like.
Kits, surgical gowns.
Surgical kits and things like that. Yeah.
Right. Some cardiac devices. We also see it in some pharmaceutical applications as well.
The nuts and bolts of the hospital and.
Yes. General hospital supply.
Gotcha. All right. Can we talk about the last piece here in the last five minutes on the litigation? Just provide us an update. You guys are making pretty good progress. I guess what kind of spooked some investors and some of the market at the time was when your General Counsel stepped down, you guys brought him on. We thought that was a very good add from his background and his experience. It was like a good add. Walk us through the reason why he stepped down and then just an overall update on the litigation.
Yeah, yeah. Okay. With your references, Alex Dimitrief, if we made an announcement a couple weeks ago that Alex was gonna retire for the second time on April first and become an advisor to the company. Alex and I, we're very fortunate to have the relationship. Alex and I worked together when he was at General Electric. He was the General Counsel at GE and he had 20-plus years of litigation experience way before that at K&E. You know, outstanding. Alex came to us and said, "Hey, listen, I'll come do this for two years and help the company because I think you guys are being wronged and I'll help you." It's been over three years. Alex says, "I wanna go back and try retirement again." It's pretty simple.
I just talked to Alex yesterday, matter of fact. I talk to him almost every day. Alex is an advisor to the firm.
He's still there.
Yeah. He's still gonna be an advisor. He's gonna be paid a monthly stipend to be an advisor to handle just litigation. Erika Ostrowski, our General Counsel, is outstanding. She's been with us over two years. We brought her in for succession planning f or Alex's job. She, by the way, she's got litigation experience in her background. She's got significant litigation experience too. She'll be the General Counsel. She's been running the legal department for some period of time now and Alex will continue to work with the litigation committee and myself. It's a team sport around the litigation and Alex will stay involved and Erica's gonna be running the legal department. An orderly transition we planned for.
He wants to work on us again.
Yeah. He just had hip surgery, so I don't know. His game might go off.
That's awesome. Yeah.
Yeah.
Yeah. You know, provide us where we are in that litigation.
Yeah. Litigation.
Atlanta. Like, how many cases are there and how this is gonna progress.
Yep, okay. You know, outside of the September 2022 event where we had a really bad verdict in Illinois, then we had a complete win in the second case in Illinois that enabled a settlement that we were able to get behind us. I would say the company, particularly the board, has done a really super job in managing this whole dynamic and working through it with a lot of help from, you know, our inside management team as well as outside legal advisors. Overall, it's in a manageable spot. We got to deal with it and we're working through it. In Georgia, let's take that. There's 400-plus cases. I don't wanna overcomplicate things. The judge is putting science front and center. There's a phase I general causation and a phase II specific causation.
Okay? You have to get through phase I to get to phase II. I'll take the phase II, it's a little simpler. There were three cases that went to phase II and all three of them were dismissed. Okay? The plaintiffs are appealing that and we'll be ready for that game. That'll happen late this year. The appellate process will start to play out. They haven't even submitted the appellate papers yet to the courts for phase II, so that's gonna take time All right? Phase I is general causation. The plaintiffs put three experts together we objected to and said it's junk science. Two of them were rejected by the courts. We think all three should have been.
We appealed to the appellate courts and say there's a standard that all these have to meet and we think all three of them did not meet that standard and we think that all three of them ought to be dismissed and not be able to testify here. The appellate courts came back and said, "There cannot be a new standard. They all have to be following the same standard." There is a hearing with the courts next week on March eighteenth where the courts are gonna hear arguments from both sides on how we think the judge ought to take that feedback from the appellate courts. We feel very good about it. There's no legitimate science that supports the position. We've said that all along .
We feel very good about where we are in these cases but at the end of the day, we're in state court and things can play out and there's risk to it. That's why I wanna make sure our investors know that. When you focus on science, it's gonna be proven that ethylene oxide, these levels are not causing cancer. That's what we're gonna make sure that the judge knows they have the standard they have to meet and it can't be junk science.
On that, the expert panel, I think that the big question was, like, the judge is saying, "Look, you're gonna have to have experts in this." To us the bigger question is like, okay, so they're gonna have some of these guys in here but to what extent can they talk about what you're saying, like, ethylene oxide at these levels are causing cancer.
That is our objection. They do not have any science that's proven dose relationship here. That's what we're telling them, that's the standard in Georgia and you have to prove that. If they can't prove that, those experts are not gonna be allowed to testify on that subject. You know, listen, our team is ready. I mean, we've got mock prep going on this week. I had a call with them on Monday. This team will be ready. There is no science that supports the position these plaintiffs are taking and we're gonna make sure that they hear our side of this.
Awesome. All right.
Thank you.
Thank you.
Appreciate your time.
Yeah, me too. All right.