Sotera Health Company - Q3 2023

Transcript

Operator (participant)

Good morning, and welcome to the Sotera Health Third Quarter 2023 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Vice President and Treasurer, Jason Peterson. Please go ahead.

Jason Peterson (VP and Treasurer)

Good morning, and thank you. Welcome to Sotera Health's third quarter 2023 earnings call. You can find today's press release and accompanying supplemental slides on the investor section of our website at soterahealth.com. This webcast is being recorded, and a replay will be available in the investor section of the Sotera Health website. On the call with me today are Chairman and Chief Executive Officer, Michael Petras, and Chief Financial Officer, Jon Lyons. During the call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings in 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 net income, Adjusted EBITDA, adjusted EPS, net debt, Adjusted EBITDA margin, segment income margin, and net leverage ratio, in addition to constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides of this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up so that we can give everyone an opportunity to ask questions. As always, if you have any questions post-call, please feel free to reach out to me and the investor relations team. I will now turn the call over to Sotera Health Chairman and CEO, Michael Petras.

Michael Petras (Chairman and CEO)

Good morning, everyone, and thank you for joining Sotera Health's Third Quarter 2023 earnings call. This morning, we reported year-over-year top and bottom line growth, plus margin improvement. Consistent with our past commentary, macro environment headwinds still exist, such as rising interest rates, inflation, and customer supply chain challenges. The team has done a good job at offsetting these headwinds as we execute on delivering on our mission of safeguarding global health. I want to highlight a few items from our third quarter and year-to-date results. Compared to the third quarter of 2022, total company revenues increased 5.8%, while Adjusted EBITDA increased 7.3%. We delivered adjusted EPS of $0.21 for the quarter, which is a $0.02 decrease from the same period last year, driven by increased interest expense.

Sterigenics, our largest reporting segment, delivered 6.7% top-line growth for the third quarter of 2023 as compared to the third quarter of 2022, despite ongoing customer inventory and supply chain challenges and some market softness. The Sterigenics business has been and is a consistent growth business. Revenue has grown more than 30% since we became a public company, from approximately $500 million in 2020 to $657 million over the last 12 months, and segment income has grown by $90 million during the same period. This consistent growth of Sterigenics is a testament to the great job that's been done by our team and the critical nature of our business, even when our customers are fighting through significant macroeconomic challenges.

Sterigenics is a strong business that plays a critical role in providing government-mandated sterilization services to over 2,000 customers across 48 facilities in 13 countries. More than 90% of sterilization services revenue comes from customers under multiyear contracts. We are very important to our customers in the commercialization of their healthcare products and ultimately in the role we play getting safe products to patients. During the quarter, the team completed another facility expansion project for which the customer product validation phase is underway. We also continue to make good progress on our EO facility enhancements in the United States. These industry-leading enhancements demonstrate our commitment to ensure best-in-class emission controls for our employees, customers, and the communities in which we operate. Nordion, our other reporting segment within the sterilization services business, delivered a 14% year-over-year revenue increase in the third quarter versus last year.

As communicated previously, Nordion's revenue is tied to the harvest schedules of our Cobalt-60 suppliers, which results in irregular revenue patterns on a quarter-to-quarter basis. The team has unique experience in navigating the complex Cobalt-60 supply chain, and the Nordion team remains on track to deliver a significant portion of its full year revenue in the fourth quarter as planned and previously communicated. Cobalt-60 is used to sterilize approximately 30% of the world's single-use medical devices and is critical to the global healthcare community. This is another great example of how we play a critical role in safeguarding global health. Revenue in Nelson Labs, our lab testing advisory service business, experienced a 2.1% decline versus the prior year quarter, as testing volumes continue to be soft based on three primary drivers:... First, the extensions of the deadlines for compliance with the European Union Medical Devices Regulations.

Second, the decline of funding for startups in smaller companies. Lastly, routine Lot Release Testing tied to sterilization volume. A bright spot for the Nelson Labs business is the RCA performance. RCA plays a critical role in helping customers remediate FDA audit findings. As a consulting business, however, RCA margins dilute those of Nelson Labs more generally. In light of the softer-than-expected volumes, the Nelson Labs team is actively managing costs while remaining focused on quality. Our staffing levels have stabilized, turnaround times and utilization levels have improved, and customer satisfaction scores are solid. Turning to the 2023 outlook. Due to the volume softness at Sterigenics and Nelson Labs, we expect that 2023 revenue and Adjusted EBITDA will finish at the lower end of the 2023 outlook range we provided during our second quarter earnings call.

Now, I would like to give a brief update on the ethylene oxide litigation in Georgia. In October, we announced that Sterigenics signed a binding term sheet to resolve 79 ethylene oxide claims against Sterigenics for $35 million, subject to the participation by all the plaintiffs. We expect to complete this settlement by year-end. This settlement in no way constitutes an admission of liability or that emissions from our Atlanta facility have ever posed any safety hazard to the surrounding community. The settlement was driven by circumstances unique to one of the cases that was about to begin trial in the State Court of Gwinnett County.

We continue to vigorously defend the approximately 240 remaining personal injury claims pending in the State Court of Cobb County, where we are optimistic the court will apply the rules of evidence properly and afford Sterigenics the opportunity to fully and fairly defend itself based on valid science. The judge in Cobb County has already acknowledged the central importance of science to the EO cases by implementing a case management order that places science and causation front and center in the 10 personal injury cases that will be decided first.

In contrast to the approach taken by the judges in Cook County, Illinois, and Gwinnett County, Georgia, only cases in which the plaintiffs present sufficient scientific proof to the judge's satisfaction that the plaintiffs' alleged exposure to EO from the Atlanta facility could have caused, and in fact, did cause the illnesses they allege, will be allowed to go to trial before a jury. We are confident that when the rules of evidence are applied properly, the science and related evidence about EO refutes claims that emissions from Sterigenics facilities can or do cause cancer, or the other harms alleged in the EO litigation. This was proven by the complete defense verdict returned in favor of Sterigenics almost a year ago in the Forni case in Cook County, Illinois.

More detailed information about the settlement and the EO litigation is available in the 10-Q that we filed today, and as always, on the ethylene oxide pages on our investor relations website. Prior to turning this call over to Jon to walk us through the financials in more detail, I'd like to take a minute to underscore our mission: safeguarding global health, which is at the heart of our work. We perform tests for medical and pharmaceutical products used each and every day to make sure the products are safe and meet regulatory requirements. We sterilize millions of products each year that benefit millions of patients. We supply Cobalt-60 to enable gamma sterilization globally and for the treatment of early-stage breast cancer. In addition, we provide critical scientific and regulatory expertise to help solve our customers' challenges.

Our mission-critical services help protect millions of patients and healthcare providers around the world. An example of our teams fulfilling our mission is highlighted in a video link located in the Safeguarding Global Health slide in our third quarter 2023 earnings presentation, released this morning and available on our investor relations website. I encourage you to watch this video to learn how Nordion plays a vital role in the treatment of breast cancer. Now, Jon will walk us through the financials.

Jon Lyons (SVP and CFO)

Thank you, Michael. I will begin by covering the third quarter 2023 highlights on a consolidated basis, and then provide some details on each of the business segments, along with updates on capital deployment and leverage. On a consolidated total company basis, third quarter revenues increased by 5.8% as compared to the same period last year, to $263 million. This equates to a 4.3% increase on a constant currency basis, as foreign exchange turned to a tailwind, as expected for the quarter. Adjusted EBITDA increased by 7.3% to $134 million, as compared to the third quarter of 2022. Adjusted EBITDA margins finished at 51%, which was an increase of more than 70 basis points versus both the third quarter of 2022 and the second quarter of 2023.

Adjusted EPS was $0.21, a decrease of $0.02 from the third quarter of 2022, driven by higher interest expense versus the prior year. The reported net loss for Q3 2023 was $14 million, or $0.05 per diluted share, inclusive of the $35 million Georgia settlement, compared to net income of $25 million, or $0.09 per diluted share in Q3 2022. Our reported interest expense for the third quarter of 2023 was $41 million, which is an increase of approximately $17 million versus the same period last year. The increase is driven primarily by the increase in interest rates and the $500 million term loan that closed in Q1.... Now let's take a closer look at our segment performance.

For the quarter, Sterigenics delivered 6.7% revenue growth to $168 million as compared to the third quarter of last year. Revenue growth drivers for Q3 2023 included favorable pricing of 6.3% and favorable changes in foreign currency exchange rates of 2.2%, partially offset by unfavorable volume and mix of 1.8%. Compared to the prior year quarter, segment income for Q3 2023 increased 8.9% to $93 million, and segment income margins increased by approximately 110 basis points to 55.3%, driven by favorable pricing, partially offset by unfavorable volume and mix, as well as inflation. Nordion's third quarter revenue increased by 14.3% to $40 million compared to Q3 2022.

Nordion's revenue increase was driven by favorable pricing of 9.4% and favorable volume and mix of 6.9%, partially offset by an unfavorable impact from changes in foreign currency exchange rates of 2%. Nordion's segment income increased 18.5% to approximately $24 million, and segment income margin increased more than 210 basis points to 60%, compared to the same period last year. Segment income and margin changes versus third quarter 2022 were driven by favorability in pricing, volume, and mix, and partially offset by inflation. For Nelson Labs, third quarter 2023 revenue declined by 2.1% to approximately $55 million compared to the third quarter of 2022.

Revenue was impacted by volume and mix declines of 8%, partially offset by a 4.1% benefit from pricing and favorable changes in foreign exchange currency of approximately 1.8%. Nelson Labs' third quarter 2023 segment income decreased by 11.2% to $17 million, and segment income margins contracted by approximately 320 basis points to 31.3% versus third quarter 2022. This decline was due to the unfavorable volume and mix, as well as inflation, partially offset by favorable pricing. I will now turn to liquidity, net leverage, and capital deployment. The company is in a strong liquidity position.

As of September 30, 2023, we had approximately $645 million of available liquidity, which includes $245 million in unrestricted cash and $400 million of available capacity on our revolving line of credit. Through the third quarter, after adjusting for the $408 million Illinois settlement, we generated over $145 million of operating cash. This is a testament to the tremendous cash-generating capability of this business. Our net leverage ratio at the end of the third quarter was 4.2x. This was an increase from the year-end 2022 level of 3.2x and was driven by the new $500 million term loan issued in connection with the Illinois ethylene oxide settlement.

Our capital expenditures totaled $52 million for the third quarter of 2023, and $150 million on a year-to-date basis. Over the past couple of years, we have been operating in a period of elevated capital expenditures due to the U.S. EO facility enhancements, Sterigenics capacity additions, and the strategic cobalt development programs. Spending on the cobalt development and U.S. EO facility enhancements programs totaled approximately $50 million in 2022, and we have spent nearly the same amount through Q3 of this year. Our cobalt development programs are required to support the long-term growth of gamma sterilization. Our last significant cobalt program was approximately 20 years ago. It is also important to note the current development programs will begin to yield revenue late in the decade. Sterigenics has three active capacity expansion projects continuing.

Capital spending will be largely complete on the first of these this year. Capital spending for the other two, which are greenfields, will be largely complete by the end of 2025. As previously communicated, we expect 2024 will be another year of heightened investment. Based on our current view, we expect a significant reduction in capital expenditures for the U.S. EO facility enhancements and cobalt development programs in 2025, and Sterigenics growth investments in 2026. We have a great company, and we will continue to invest in all three businesses to maintain and to grow Sotera Health for the long term. As we complete this stage of elevated investment, we expect to substantially increase the conversion of our strong operating cash flow to free cash flow, which is a key priority. Now I'd like to discuss our 2023 outlook.

Based on ongoing market softness, we expect full-year 2023 results to be at the lower end of our previous outlook, which is total revenues in the range of $1.035 billion-$1.055 billion, representing an annual growth rate of approximately 3%-5%. Full-year Adjusted EBITDA in the range of $520 million-$535 million, representing an annual growth rate of approximately 3%-6%. As mentioned earlier, we are on track to deliver approximately 50% of Nordion's full-year revenue in the fourth quarter. For Nordion, we expect 2023 full-year Adjusted EBITDA margins to be similar to 2022 full-year margins.

For the remainder of the business, we expect Q4 to be similar to Q3 for both top and bottom line. Tax rate is expected to be in the range of 30%-32%. Weighted average diluted shares are expected to be in the range of $283 million-$285 million. Adjusted EPS is expected to be in the range of $0.78-$0.86. Capital expenditures are expected to be in the range of $200 million-$215 million. Lastly, we expect net leverage to finish the year at or below 4x. Now, I'll turn the call back over to Michael.

Michael Petras (Chairman and CEO)

Thank you, Jon. Before we move to Q&A, I would like to take a minute to express our condolences to the family, friends, and work colleagues of Matt Mishan from KeyBanc. Matt had been following our company since 2020. In just one week prior to his passing, we were fortunate to spend time with him in Boston. Matt will truly be missed. At this point in time, let's open the call for question and answer.

Operator (participant)

We'll now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Sean Dodge with RBC Capital Markets. Please go ahead.

Sean Dodge (Senior Analyst, Healthcare IT and Healthcare Services)

Yep, thanks, good morning. I just wanna start with a quick clarification, Michael, on your comments around the remaining Georgia cases. So, 240 remain there. But in those counties, you said the judge is gonna require those who provide some type of evidence of exposure that caused their illness. So is it right that number could actually the number that actually go to trial, could that be whittled down some, or is that 240 number of remaining cases, is that the number that have already cleared that initial hurdle that have provided their proof and will go to trial?

Michael Petras (Chairman and CEO)

Good morning, Sean. So here's how it works: there's 240 cases. There were 10 cases that the judge has pulled out to kind of go through Phase I and Phase II. Phase I is general causation,Phase II is specific causation. So the answer to your question is yes, the cases could go down. So if a condition comes through, goes through Phase I, it has to pass through. If it's Leukemia or it's Breast Cancer, Lymphoma, it has to go through Phase I. So a given case has to go through Phase I. If it passes that, it goes to Phase II. If it passes that screen with the judge, then it goes to a trial jury, and you take it through the whole case. So there is a case, a scenario here, where something gets knocked out in one of those first 2 phases.

So let's say all, for example, it could not maybe, maybe not pass Phase I and Phase II, which means it will not go to a jury trial. So yes, it could reduce the number of cases. Is that, is that clear?

Sean Dodge (Senior Analyst, Healthcare IT and Healthcare Services)

Okay.

Michael Petras (Chairman and CEO)

It's a little complex. I wanna make sure I'm being clear enough for you.

Sean Dodge (Senior Analyst, Healthcare IT and Healthcare Services)

No, no, that's great. That helps. And then, maybe just on the EO emissions regulations, is there any more updates you can share there? Have you guys been communicating with the EPA and any ideas on changes we could see in the final rule? It looks like that's expected now in Q1 of 2024.

Michael Petras (Chairman and CEO)

No, we continue to engage with our regulators, like we always do, but we have no more visibility on exactly what's going to be in the final rule. But we again are very confident of the improvements we've put in place, and the timing we expect on the NESHAP is in the first quarter, late first quarter.

Sean Dodge (Senior Analyst, Healthcare IT and Healthcare Services)

Okay, great. Thanks again.

Michael Petras (Chairman and CEO)

Thank you, Sean.

Operator (participant)

The next question comes from Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly (Managing Director)

Hey, guys. Thanks for taking the questions. Michael, just as we think about the go forward, you know, obviously, some of these headwinds are lingering. Is it still right, you know, are you still confident, I should say, in the high single-digit organic growth profile of the business here? You know, a lot of companies have come out and discussed 2024 as, you know, relatively lower growth, given some of the headwinds. Obviously, you guys moved to the low end here. Just curious if we should be thinking about the near term a bit differently and your visibility into things improving as we work our way into 2024.

Michael Petras (Chairman and CEO)

Yeah, Patrick, thank you. We are confident in the ability to continue to grow high single digits in the business. As you know, we felt some of the challenges from our customers and their supply chains and inventory challenges. But when you look at the mid to long range, we expect this business to perform in high single digits organically.

Patrick Donnelly (Managing Director)

Okay, no, that's helpful. And then just on the margin profile, I assume no real changes in terms of the cost controls, given the near-term headwinds. But can you just talk about the moving pieces on the margins? Obviously, pricing been a nice tailwind for you guys for a long time. Any change to that algorithm as we work our way forward and just anything we should be thinking about in the near term in terms of the margin moving pieces? Thank you.

Michael Petras (Chairman and CEO)

Yeah, yeah. You know, obviously, volume is the biggest lever we have on driving, margin and margin expansion. We do get price. We've been able to prove that we're able to offset price, or inflation because of our price actions. But again, it all comes back to the value that we create, with our customers. And, you know, our customers pay for the service because it's so critical and important to them. Yes, price has been running a little higher, than we had guided towards. You know, we've said it's 3.5%-5%, you know, over the long range. It's been a little higher than that because inflation has been a little higher than that. We've been offsetting it, but we expect that, you know, price will continue in that range in the future.

We also expect volumes to return to where they've been historically, which will continue to give us great operating leverage. But the team's doing a good job in managing through that. You know, the Sterigenics facilities don't have a ton of labor, but Mike and the team have done a good job in managing around that, and the same with Joe on the Nelson side and working through the volume challenges there. You know, they've been through a lot with the COVID, the job crises that happened, and then some of the regulation changes. But overall, we feel good about our ability, and our margin rates continue to hold in there as we've proven out in our business model.

Operator (participant)

Appreciate it. The next question comes from Luke Sergott with Barclays. Please go ahead.

Raoul Salomon (Senior Executive)

Morning, this is Salomon for Luke. Maybe just a follow-up on Sean's question earlier about the cases outstanding. Is there a timeline right now for when we might hear about whether some of these cases are exiting Phase I or Phase II, or if they're getting stopped? Just curious about a timeline there.

Michael Petras (Chairman and CEO)

Yes. So, good morning, Sam. Yes, there is a timeline set up. Phase I, we'll get through General Causation, through October of 2024. Phase II would be August of 2025, and then ultimately, any surviving cases would go to a jury trial. They would start in September or October of 2025, is the current timeline that we expect.

Raoul Salomon (Senior Executive)

Gotcha. That's really helpful. Thank you. And then, hearing a lot about biopharma kind of tightening their budgets. Just wondering about, you know, what the effects are there for you guys, what's your exposure there, and if you're hearing anything similar on that demand environment? And then, just on GLP-1s, it's expected to hit devices, volumes, kind of in the long run. What's kind of your sense of or your plan for capacity, and is that kind of offset by any sterilization of some of the pens that will be used for GLP-1s? Just curious about how you're thinking about that as well.

Michael Petras (Chairman and CEO)

Yeah. So on the biopharma side, we do business in biopharma. We probably aren't to the scale that we'd like to be in that segment, but we have performed very well there. Obviously, this year has been a headwind. Our customers, and some that you referenced, they've had significant challenges on their volumes and inventory takedown, which has impacted the Sterigenics volume in a meaningful way. We are bullish on that segment long term. When you look at the testing opportunities as well, we've also felt the impact of that to some degree, although pharma, again, is a smaller percent of total Nelson Labs. But when you look at that segment, it's strategic to us longer term.

On the GLP-1, there will be some volumes, you know, that are impacted longer term, but it's, you know, for the surgical procedures. But there's a really mixed bag. You know, obviously, you're seeing some communication recently with the diabetes companies and how well they're performing, and we see the benefit of that in our business, too. So we think long term, there's opportunities for us, particularly when you start to look at prefilled syringe and some of the things that come from that, that creates opportunities across Sotera Health. So we, we think it actually could be a net positive as, as prefilled syringes and these injectables take on a bigger portion of the marketplace long term.

Raoul Salomon (Senior Executive)

Gotcha. Thank you.

Operator (participant)

The next question comes from Mike Polark with Wolfe Research. Please go ahead.

Mike Polark (Managing Director and Senior Equity Research Analyst)

Hey, good morning. Thank you for taking the questions. I want to go back to the question about the high single digit growth goal. I mean, look, Michael, I appreciate over the mid to long haul, that's the North Star. But as I look at, you know, 2024 being so close, it, it just—unless I'm missing something, unless you anticipate, you know, market recovery, this destock cycle being over, maybe the Sterigenics capacity coming online is more impactful, than, than we're appreciating. It, it just looks like high singles may be a stretch place to start for 2024 for now. And so, you know, I'll ask the question again, knowing you're not giving guidance today, like, you know, what are the puts and takes as, as we sit here today to, to frame up growth opportunity in, in 2024?

Michael Petras (Chairman and CEO)

Yeah. Mike, as you stated, we're not in a position to talk about 2024 guidance. We'll do that in the first quarter when we wrap up 2023, and we're going through that process right now with our teams. Mid to long term, we expect the high single digits organic growth, as we'd mentioned, and I referenced earlier. You know, we're working through inventories with our customers. You know, they've destocked, and that's had an impact on both Sterigenics and Nelson, as well as some of the development efforts have had an impact. You know, as that starts to burn off, we expect some volumes to return, but obviously, we're talking about the lower end of our range today because of the fact that, you know, we're still seeing some of the challenges around that inventory side.

So as we look into 2024, we're going to have to make some assumptions based on where we think our customers' inventories are going to go. I don't want to get into that level of detail today because we're not prepared to do it, but you see what's happening with the, the customer base and what they're communicating to you on, on inventories and the destocking challenges. So that's something that we'll be focused on as we, we communicate our, our guidance for 2024 as well.

Mike Polark (Managing Director and Senior Equity Research Analyst)

The follow-up on Nordion, just the fourth quarter, all year, you've been consistent that it'd be a very Q4 heavy year. You know, a month into the quarter, have some of these very large shipments and deliveries already happened, or are they yet to happen? I guess I'm just curious for what level of visibility and/or confidence you have into making this large sequential step up. And then I will extend the Nordion question and ask just, you know, this year was especially lumpy. We know this business is lumpy and hard to predict quarter to quarter, but very predictable over the mid-run.

... best guess for seasonal pattern in 2024, lumpy like the lumpiness of 2023 or maybe a little smoother?

Michael Petras (Chairman and CEO)

Yeah, thanks, Mike, for all the lumpiness there. When, when we look at the fourth quarter, we've been very clear and consistent all year, that 75% of the revenue would come in the second half, 50% would be in the fourth quarter. We're recommunicating that again to you today. The reality of the team has done a phenomenal job in executing against that and giving, you know, visibility to that throughout the year. There's always operational things that can happen, but we feel confident, and we've reiterated that on our call this morning, that we expect the Nordion team to deliver approximately 50% of their revenue in the fourth quarter. As far as next year, again, I know you really want me to tell you what 2024 looks like.

I won't get into great specifics on it. It will not be as lumpy and as back-end loaded as you're seeing right now in, in 2023. This was a very, you know, as we, as we stated many times, this is really driven by harvest schedules from the utilities. Our customers want cobalt, and they want it as fast as they can get it, and that's what we're doing to turn it as quickly as we can get it. So that is-- I just wanna make sure everyone knows the demand is there for Nordion. It's all driven by when the supply with the nuclear reactors. This year was extremely lumpy, with 75% in the back half of the year. We do not anticipate it being as lumpy next year.

Jon Lyons (SVP and CFO)

Thank you.

Operator (participant)

The next question comes from Casey Woodring with JPMorgan. Please go ahead.

Casey Woodring (VP and Senior Equity Research Analyst)

Great, thank you for taking my questions. The first one is just around Nelson Labs. So margins declined more than 250 basis points sequentially. Wondering if you can expand on that. Looks like revenues seem to be in line with expectations, but the margins had been anticipated to improve quarter-over-quarter. Was that all just the RCA dynamic that Michael, you mentioned earlier, or was something else going on there? And then maybe just touch on what's assumed in 4Q for Nelson. I think last quarter you said 4Q would look more like 2Q in that business, so has that expectation changed at all?

Michael Petras (Chairman and CEO)

Yeah, I just...

Jon Lyons (SVP and CFO)

Hey, Casey, it's Jon Lyons. Thanks for the question. You know, really, you called it out. The RCA piece had an impact sequentially, not the biggest impact. I think really when you look at it, you know, we dropped revenue $2 million sequentially, and there's, you know, that's just primarily the volume and loss leverage in the business that's really the biggest driver of the margin decline. And as you look at the overall story in Q4, yeah, we had been calling, I think, on the last call, that Q4 might be up a little bit.

As we look at Q4 today and how we've seen things overall transpire across the businesses, we're calling for Sterigenics and Nelson in total to be flat to Q3, and haven't gotten specific as to how that might shake out between the two of them.

Casey Woodring (VP and Senior Equity Research Analyst)

Gotcha. And then maybe just if I can fit one more in. Last quarter, you gave some color around bioprocessing, as being the key driver of, or one of the key drivers for the full year guidance reduction. Just curious if the continued softness there is a contributing factor for why you're pointing to the low end of the full year guidance range here today, or if the market softness you referred to, you know, when talking about the guidance, is more generalized than that. Thank you.

Michael Petras (Chairman and CEO)

Yes, Casey, this is Michael. Yes, bioprocessing has an impact on the guide, and then I would also tell you, you know, it's a really mixed bag on the medical device side. You know, we have some categories doing really well and others not, and some of it's really tied to our customers and some of their inventory challenges and supply chain challenges.

Casey Woodring (VP and Senior Equity Research Analyst)

Got it. Thank you very much.

Operator (participant)

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Petras for any closing remarks.

Michael Petras (Chairman and CEO)

Thank you. I wanna emphasize what a great business this is. We produced 6% top line growth and 7% bottom line growth in the quarter, and we also generated strong operating cash flow. We remain focused on living our mission of safeguarding global health, and we'd like to thank our customers and investors for their continued support throughout the year. So thank you, and have a good day. Bye-bye.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.