소테라 헬스(SHC) 2026년 3분기 실적 발표 컨퍼런스 콜: 유럽 메드테크 약세에도 불구하고 가이던스 재확인

핵심 요약

• 소테라 헬스(Sotera Health)의 2026년 3분기 매출은 3억 2,500만 달러로, 전년 동기 대비 4.4% 증가했다(보고 및 고정환율 기준 모두 동일).
• 조정 EBITDA는 3.9% 증가한 1억 7,100만 달러를 기록했으며, 고정환율 기준으로는 4.0% 증가했다. 조정 EBITDA 마진은 52.5%에 달해 전분기 대비 약 100bp 개선되었다.
• 조정 주당순이익(EPS)은 12% 증가한 0.29달러를 기록했으며, 차입 비용 감소와 전년도 기간대출 상환으로 분기 이자 비용이 500만 달러 줄어 3,400만 달러가 되었다.
• 스테리제닉스(Sterigenics)는 고정환율 기준 8.2%의 매출 성장을 달성하고 부문 마진을 57bp 확대했으나, 경영진은 3분기 중·후반부터 유럽 고객사 전반에서 의료기기 수요 약세가 나타났다고 언급했다.
• 넬슨 랩스(Nelson Labs)의 매출은 고정환율 기준 9.2% 증가했으며, 이는 물량 증가, 믹스 개선 및 전문가 자문 서비스 활동에 힘입은 것이다. 반면 노디온(Nordion) 매출은 고정환율 기준 11.5% 감소했는데, 이는 코발트-60 수확 및 출하 시기 차이 때문이었다.
• 경영진은 보고 매출 12억 3,300만~12억 5,000만 달러, 조정 EBITDA 6억 3,200만~6억 4,100만 달러, 조정 EPS 0.95~1.01달러를 포함한 2026년 연결 실적 전망을 재확인했다.

주요 재무 데이터

사업 및 영업 성과

스테리제닉스

스테리제닉스 매출은 8.5% 증가하여 2억 900만 달러(고정환율 기준 8.2%)를 기록했습니다. 이러한 성장은 4.8%의 우호적인 가격 효과, 물량 및 제품 조합 개선으로 인한 3.4% 증가, 그리고 30베이시스포인트의 환율 수혜가 반영되었습니다.

사업부문 이익은 9.6% 증가하여 1억 1,700만 달러(고정환율 기준 9.2%)를 기록했습니다. 사업부문 이익률은 57베이시스포인트 상승하여 56.1%를 나타냈으며, 이는 영업 레버리지와 실행력에 힘입은 결과입니다.

경영진은 공장 휴업일의 우호적인 비교 조건, 외주 고객 프로그램 및 노스캐롤라이나 X선 시설이 3분기 성장에 기여했으며 4분기에도 기여를 이어갈 것으로 본다고 밝혔다. 다만 의료기기 수요는 주로 유럽 고객을 중심으로 3분기 중후반에 둔화되었으며 4분기 초에도 약세를 이어갔다. 미국 수요는 상대적으로 안정적인 것으로 설명되었다.

넬슨 랩스

넬슨 랩스 매출은 8.8% 증가하여 6,100만 달러를 기록했으며, 고정환율 기준으로는 9.2% 증가했습니다. 판매량 및 제품 믹스가 6.6% 기여한 반면, 가격 인상은 2.6%를 더했습니다. 환율 영향으로 성장은 40bp 줄었습니다.

매출 성장은 복잡한 규제 시험 프로젝트를 포함한 전문 자문 서비스(Expert Advisory Services) 활동 증가의 수혜를 입었습니다. 부문 이익은 2.5% 증가하여 1,900만 달러를 기록했으며, 고정환율 기준으로는 3.0% 증가했습니다. 부문 이익률은 19bp 하락한 32.1%를 기록했으며, 이는 주로 사업 믹스 때문이었습니다.

경영진은 4분기 성장률이 3분기보다 둔화될 것으로 예상하면서도 전문 자문 서비스의 수혜는 계속될 것으로 전망하고 있습니다. 또한 해당 프로젝트 기반 사업으로의 지속적인 장기 믹스 전환은 예상하지 않고 있습니다.

회사 측은 교차 판매 역시 기회 요인으로 파악했습니다. 약 스테리제닉스(Sterigenics)와 넬슨 랩스 매출의 70%가 공유 고객에서 발생하며, 경영진은 이들 고객에 대한 침투율을 높이기 위한 방안을 추진하고 있습니다.

노디온

노디온 매출은 12.4% 감소하여 5,500만 달러를 기록했으며, 고정환율 기준으로는 11.5% 감소했습니다. 이는 코발트-60 수확 및 출하 시점을 반영한 것입니다. 우호적인 가격 효과인 2.2%는 13.7%의 물량 및 믹스 감소와 90bp의 환율 역풍으로 상쇄되었습니다.

부문 이익은 11.4% 감소한 약 3,400만 달러를 기록했으며, 고정환율 기준으로는 10.4% 감소했습니다. 매출 감소에도 불구하고 부문 이익률은 71bp 확대되어 61.3%를 기록했으며, 이는 영업 생산성과 가격 상승의 지원을 받았습니다.

경영진 가이던스

경영진은 2026년 연결 전망을 유지했습니다:

보고된 전망치 범위에는 약 70베이시스포인트의 외환 수혜 추정치가 연간 기준으로 포함되어 있습니다. 경영진은 환율이 4분기에 100베이시스포인트를 상회하는 부정적 요인으로 작용할 것으로 예상합니다.

연간 조정 EBITDA 마진은 2025년과 비교해 거의 유지될 것으로 예상됩니다. 스테리제닉스(Sterigenics)와 노디온(Nordion)의 예상 마진 확대가 넬슨 랩스(Nelson Labs)의 마진 하락을 상쇄할 것으로 기대됩니다.

사업 부문별 경영진 전망:

• 스테리제닉스(Sterigenics): 2026년 고정환율 기준 매출은 한 자릿수 중후반대 성장이 예상되며, 4분기에는 약 6% 성장이 전망됩니다. 이러한 4분기 전망은 3분기 대비 매출이 전분기와 거의 유사한 수준임을 의미합니다.
• 노디온(Nordion): 연간 고정환율 기준 매출이 한 자릿수 중간대 성장을 기록할 것으로 예상됩니다.
• 넬슨 랩스(Nelson Labs): 연간 고정환율 기준 매출이 한 자릿수 초중반대 성장을 기록할 것으로 예상되며, 연간 부문 마진은 연초 대비 수준과 유사할 것으로 전망됩니다.

경영진은 순차입금 비율(Net leverage)이 2025년 대비 개선될 것으로 기대하고 있습니다. 본 실적 전망에는 M&A 활동이 포함되어 있지 않습니다.

리스크 및 관전 포인트

• 유럽 의료기기 수요: 경영진은 3분기 중후반부터 여러 유럽 고객사에 걸쳐 광범위한 수요 둔화를 포착했습니다. 회사는 현재 고객 피드백과 4분기 초의 동향을 실적 가이던스에 반영했습니다.
• 2027년 실적 가시성의 한계: 소테라 헬스(Sotera Health)는 여전히 2027년 계획 수립 절차를 진행 중이며, 오는 2월 4분기 실적 발표와 함께 전망치를 제공할 계획입니다.
• 노디온 타이밍 변동성: 코발트-60 수확 및 출하 일정에 따라 분기별 매출 변동성이 크게 나타날 수 있습니다. 3분기 출하 중 일부는 경영진이 당초 예상했던 것보다 일찍 이뤄졌습니다.
• 넬슨 랩스 프로젝트 구성: 전문 자문 서비스(Expert Advisory Services)는 성장을 뒷받침할 수 있으나 프로젝트 중심으로 진행되는 특성이 있어 매출과 마진의 변동성을 유발합니다.
• 환율 영향: 경영진은 연간 기준 환율 수혜가 전망됨에도 불구하고 4분기에는 100베이시스포인트를 상회하는 환율 역풍이 발생할 것으로 예상합니다.
• 소송 관련: 경영진은 조지아주 항소법원 판결이 2027년 봄에 내려질 예정이라고 밝혔습니다. 캘리포니아주 첫 재판은 2027년 1월과 4월로 예정되어 있으며, 일리노이주 사건들은 단독 판사에게 배당되어 심리 전 절차가 진행 중입니다.

애널리스트 Q&A 주요 내용

경영진은 스테리제닉스의 의료기기 수요 둔화가 미국보다는 주로 유럽에 집중되었다고 설명했습니다. 이러한 둔화는 특정 고객이나 제품 카테고리에 국한되지 않았으나, 수요가 충분히 안정적으로 유지되어 4분기 스테리제닉스 매출은 전분기와 유사한 수준을 기록할 것으로 경영진은 예상하고 있습니다.

외주 스테리제닉스 고객 프로그램은 차질 없이 진행 중이며 3분기 성장에 기여했습니다. 4분기에도 성장에 기여할 것으로 예상됩니다. 노스캐롤라이나 X선 시설은 3분기에 호실적을 기록했으나 4분기 초에는 다소 둔화세를 보였습니다. 그럼에도 경영진은 견조한 파이프라인을 강조하며 시간이 지남에 따라 가동률이 개선될 것으로 전망하고 있습니다.

소테라 헬스는 주요 시설 투자가 마무리됨에 따라 2027년 설비투자가 유의미하게 감소할 것으로 예상하지만, 경영진은 감소 폭을 구체적으로 밝히지는 않았습니다. EO 시설 개선은 2027년 1분기에 완료될 예정입니다. 회사는 또한 인베스터 데이에서 제시했던 명시된 기간 동안 5억 달러에서 6억 달러 규모의 잉여현금흐름 창출 목표를 재확인했습니다.

순레버리지 비율이 2.9배인 상황에서 경영진은 특히 멸균 서비스 분야에서의 자체 성장과 전략적 M&A에 지속적으로 우선순위를 두고 있습니다. 또한 장기적인 주주 가치를 바탕으로 부채 상환 및 자사주 매입도 검토할 예정입니다.

실적발표 컨퍼런스콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, and welcome to the Sotera Health Third Quarter 2026 Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference call over to Vice President of Investor Relations, Mr. Jason Peterson. Mr. Peterson, the floor is yours, sir.

Jason Peterson

Good morning, and welcome to Sotera Health's Third 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, Jon 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.

I will now turn the call over to Sotera Health's CEO, Alton Shader.

Alton Shader

Good morning, and thank you for joining us. Today, we reported solid top and bottom line growth versus the third quarter of 2025. And driven by strong execution and sequential adjusted EBITDA margin improvement of nearly 100 basis points. For the third quarter, we delivered constant currency revenue growth of 4.4% and constant currency adjusted EBITDA growth of 4% versus the same period last year. Sterigenics continued to perform well, generating 8.2% constant currency revenue growth and 57 basis points of segment income margin expansion despite experiencing some softness in the med device market during the quarter, which has continued into the early part of Q4.

Nelson Labs delivered another strong quarter. with revenue increasing 9.2% on a constant currency basis as the team continued to execute on complex projects to support our customers' regulatory needs. As expected, Nordion results reflected the timing of Cobalt 60 harvest schedules. The Nordion team did a great job delivering critical [ cobalt ] shipments for their customers and expanded segment income margins by 71 basis points. Based on our year-to-date performance and our current visibility into the remainder of the year, we are reaffirming our constant currency revenue and adjusted EBITDA outlook for 2026.

At Sotera Health, we worked tirelessly to help ensure the safety and availability of health care products that millions of patients rely on every day. Before John reviews the financials in more detail, I want to provide some additional context around an example we shared on our second quarter call that highlights how our teams make a meaningful difference for customers and patients. As we've discussed previously, customers regularly turn to Nelson Labs when they face time sensitive and complex challenges. During the second and third quarters, a customer of ours faced an urgent regulatory testing need involving a product used in a significant percentage of surgeries performed around the world.

The Nelson Labs team quickly mobilized its scientific and technical expertise, completed the required testing on an accelerated time line and help the customer maintain the availability of a critical health care product. While this is one project, the impact was far broader by helping our customers address a time-sensitive challenge, our team played an important role in supporting tens of millions of patients who rely on these critical medical procedures. This is exactly what we mean when we talk about putting customers first and delivering on our mission of safeguarding global health.

I will now hand it off to Jon, who will walk us through the financials.

Jonathan Lyons

Thank you, Alton. I'll begin with an overview of our consolidated financial results followed by performance highlights from each of our business segments. I'll then review the balance sheet, cash generation and capital allocation before concluding with an update on our 2026 outlook. On a consolidated total company basis, third quarter revenues increased 4.4% on both an as-reported and constant currency basis to $325 million as compared to the third quarter of 2025. Net income on a GAAP basis for the quarter was $58 million or $0.20 per diluted share. Adjusted EBITDA improved by 3.9% to $171 million or 4% on a constant currency basis.

While adjusted EBITDA margins expanded sequentially by nearly 100 basis points to 52.5%. On a year-to-date basis, adjusted EBITDA margins were up 8 basis points. Interest expense for the third quarter was $34 million, a $5 million improvement versus the prior year period, driven by our repricing actions and last year's $75 million term loan pay down. Adjusted EPS increased to $0.29 per diluted share, an improvement of 12% versus the prior year. Now let's review our segment performance. Sterigenics delivered revenue growth of 8.5% to $209 million or 8.2% on a constant currency basis, driven by favorable pricing of 4.8% and increased volume and mix of 3.4% and a foreign currency benefit of 30 basis points. Segment income increased 9.6% to $117 million or 9.2% on a constant currency basis. reflecting continued operating leverage and strong execution. Segment income margin improved 57 basis points year-over-year to 56.1%.

In Nelson Labs, revenue grew 8.8% to $61 million or 9.2% on a constant currency basis. Growth was driven by strong volume mix of 6.6% and favorable pricing of 2.6%, partially offset by a 40 basis point foreign currency headwind. Revenue growth exceeded expectations as we saw an increase in expert advisory services activity in the quarter. Nelson Labs segment income rose 2.5% to $19 million or 3% on a constant currency basis. Segment income margin declined 19 Basis points to 32.1% and driven primarily by business mix. Nordion's third quarter revenue was $55 million, down 12.4% or 11.5% on a constant currency basis. Favorable pricing of 2.2% was offset by a volume mix decline of 13.7% and a foreign currency headwind of 90 basis points.

I would also like to mention that although Nordion's revenue was down for the quarter, it did come in ahead of our expectations, driven by earlier-than-anticipated timing of certain shipments. Nordion's segment income decreased 11.4% to approximately $34 million or 10.4% on a constant currency basis. Margin performance remained strong with segment income margin improving 71 basis points versus Q3 2025 to 61.3%, driven by operational productivity and favorable pricing. Turning to the balance sheet, cash generation and capital deployment. Year-to-date, we have generated $228 million in operating cash flow, including $111 million in Q3 and demonstrating solid generation during the period.

Capital expenditures totaled $145 million during the first 9 months of the year, including $53 million in the third quarter. Supporting Sterigenics capacity expansions and EO facility upgrades, Nordion Cobalt 60 development initiatives and the completion of a new state-of-the-art clean room at our Salt Lake City lab. We continue to make great progress strengthening our balance sheet. Net leverage improved to 2.9x as of September 30, 2026, within our long-term target range of 2x to 3x. This progress was recognized with a credit rating upgrade from Moody's in early October. Now I'd like to turn to our 2026 full year outlook.

As Alton mentioned, we are maintaining our 2026 revenue outlook of 5.25% to 6.75% constant currency growth with reported revenue in the range of $1.233 billion to $1.250 billion. We also remain confident in our full year adjusted EBITDA outlook of 5.75% to 7.25% constant currency growth. with adjusted EBITDA in the range of $632 million to $641 million. These reported ranges incorporate an estimated 70 basis point foreign currency benefit for the full year. with foreign exchange anticipated to be a headwind of more than 100 basis points in the fourth quarter. We expect full year consolidated adjusted EBITDA margins to be approximately flat versus last year. with anticipated margin expansion at Sterigenics and Nordion offsetting a reduction in Nelson Labs.

Our outlook continues to assume total company pricing for 2026 to be within our long-term range 3% to 4%. We continue to expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth in 2026, reflecting recent softness we have seen in the med device market fourth quarter constant currency revenue growth is anticipated to be approximately 6%. At Nordion, we now expect full year constant currency revenue growth in the mid-single digits, supported by a year-to-date performance and our demand expectations through year-end. At Nelson Labs, based on our year-to-date performance, we now expect full year 2026 constant currency revenue growth in the low to mid-single digits. As we look to the fourth quarter, we expect growth to moderate from third quarter levels while continuing to benefit from the previously mentioned expert advisory services activity. We now project full year segment income margins to be similar to year-to-date levels.

Turning to several other assumptions underlying our outlook. Based on market rates, we are narrowing our 2026 interest expense outlook to a range of $137 million to $140 million. Our effective tax rate applicable to adjusted net income remains unchanged at 27% to 28%. We anticipate depreciation expense to increase in 2026, modestly above the increase experienced in 2025. On a weighted average basis, we continue to expect a fully diluted share count in the range of 289 million to 291 million shares. Taking these factors into account, we expect to remain on track to deliver adjusted EPS of $0.95 to $1.01 per diluted share in 2026. Capital expenditures are anticipated to be in the $200 million to $225 million range. We continue to expect net leverage ratio improvement compared to 2025. And Finally, as usual, our outlook does not assume any M&A activity. I'll now turn the call back over to Alton.

Alton Shader

Thank you, Jon. We're pleased with our performance through the first 3 quarters of the year and remain focused on executing against our priorities. I continue to be impressed with our team's focus on delivering for our customers and the essential nature of our offerings across the company. With that, operator, let's open the line for questions.

Operator

[Operator Instructions]. The first question we have will come from Sean Dodge of BMO.

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Sean Dodge

Maybe just on the guidance. Your range for EBITDA this year is a little wider going into Q4 than it has been historically. Is that just a philosophical change? Do they have to do something with timing unknowns around Nordion? Maybe just kind of wide the wider outlook. And then if you could just kind of walk us through what the bigger unknowns are at this point going into kind of late Q4.

Alton Shader

Sean, thanks for the question. I'll have to go back and look, I'm pretty sure we haven't narrowed our EBITDA consistently over the years. I think it's a pretty typical range for us, if you look over the last 3 to 5 years. And there are some, of course, moving pieces as we finish up the year here. So nothing's changed really that led to this.

Sean Dodge

Okay. And then maybe on Nordion. I know revenue was down because of the timing around harvest. But if you can share just a little bit more detail on how you were able to improve margins there despite the lower revenue.

Alton Shader

Yes. No, thanks, Sean. We had some good operational execution really in the quarter and year-to-date. We had a couple of things that we had to work through from last year. that the team has been focused on just in the day-to-day execution of the operation, and we've managed to improve that, and that really is the performance. So really good work by the team to drive that.

Operator

We have Luke Sergott of Barclays.

Luke Sergott

Thanks for the question here. I guess to start off, you guys talked about seeing some softness in the Med Vice side, excuse me if I missed this, something jumping around between calls. But can you talk about the visibility and how that frames into your 4Q, but more importantly, what your customers are saying, like what the bookings of the orders, I know it's more short cycle. But like how you're thinking about this flowing through to '27?

Alton Shader

Yes. Thanks for the question. I'll take that one. So high level, we performed well in Q3 and continue to have confidence in our full year outlook. And I'll call out really strong quarters from Sterigenics with the 8.2% constant currency growth and Nelson Labs with a 9.2% constant currency growth. As we look to we do expect some moderation in the Nelson Labs growth versus the 9.2% we delivered in Q3, but we do expect that business to grow in Q4.

For Sterigenics, we remain confident in our full year outlook for the mid- to high single digits of growth. But we did experience some softness at the end of and beginning of Q4 here. And based on what we're seeing in the business and what our customers are communicating to us, we are not expecting the sequential Q4 growth that we normally see in Sterigenics. And this really informed our guide.

Luke Sergott

Okay. And then I guess from -- as you think about that, lack of sequential growth. Is this like -- I mean, look, it's a big question is just how this decel keeps going through? Or if this is like -- are we going to bottom out here in the mid of 27% and pick up from there?

Alton Shader

Yes. I mean our -- we're obviously in the midst of our planning processes for 2027 now, and we'll communicate what we expect in 2027 during our Q4 earnings call here in February of obviously, we're staying very close to our customers and doing all we can to understand the kind of the reduction in optimism that they have communicated to us as we head here into Q4.

Operator

The next question will come from Evie Koslosky of Goldman Sachs.

Elizabeth Koslosky

So I wanted to start on Nelson Labs. I know you mentioned the 1 large customer in the quarter, I guess, and it sounds like a deceleration is expected next quarter. But maybe if you could help us quantify how much impact that was in 3Q? And then what was sort of the underlying growth in that market?

Alton Shader

Yes. So for Nelson Labs, we're obviously pleased with the third quarter performance of the 9.2% constant currency growth. The team is doing a really nice job of serving their customers and really helping them out with critical testing and remediation needs. As you mentioned, we do not expect another quarter in Q4 of growth like we saw here in Q3. But we do have a lot of confidence in that business as we move forward. As you know, we increased our guide from low single digits to low to mid-single digits. And we did see some strength out of the EAS business here in Q3, and we do expect to see additional growth from that business in Q4 as well.

Elizabeth Koslosky

Okay. Great. And then on the 4Q guide for Sterigenics, like I understand the med device comments. I think that's something we've seen on a broad basis. But maybe if you could talk through some of the more idiosyncratic to like the x-ray facility coming online, the larger customer that was coming online in the back half and how those should impact 4Q? And then also on pricing, that came in a bit above our expectations for the quarter. So maybe just talk through what's baked into that 6% for pricing in fourth quarter?

Alton Shader

Sure. So again, pleased with our results in Q3 here, 8.2% constant currency growth, 120 basis points of sequential growth at the top line. So the team did a really nice job. We have benefited from the 3 factors we've discussed in the past with the favorable shutdown days, the outsourced customer that we have as well as the North Carolina X-ray facility. So those did contribute to our growth in Q3, and we expect them to contribute to the growth in Q4.

I'll note that even though we're talking about a 6% constant currency growth in Q4, we are seeing relatively stable demand in this business. So we are looking at -- we mentioned that we're not seeing the sequential growth that we normally expect. We are seeing essentially a flat revenue performance in Q4 from Sterigenics versus Q3. So overall, while we have seen a little bit of softness here at the beginning of Q4, we've got a pretty stable environment right now, and this is an incredibly resilient business. It has been over the years, and we continue to see that here as we finish up the year.

Elizabeth Koslosky

Great. And then just pricing baked into that? Is it kind of still the upper end of the -- the 3% to 4%? Or is there upside leverage to that?

Alton Shader

Yes. I mean pricing in Sterigenics is really been consistent, and it obviously reflects a number of factors at the top of that list is the value that we deliver to our customers every day. We are at the higher end of that range, and we would expect to stay at the higher end of that range here in Q4 as well.

Operator

Next, we have Casey Woodring of JPMorgan.

Casey Woodring

Great. Maybe just to follow up on some of the comments around med device. You said that the softness started at some point in 3Q. Can we just get a sense of when in the quarter you started to see that? And then kind of thoughts around the more recent performance that you called out in 4Q? Is there any sort of, I guess, chance that things could get worse than things deteriorate further based on some of the medtech prints we've seen so far this quarter?

Alton Shader

Sure. So we started seeing some of the softness kind of mid to late Q3. And primarily that softness came from our European customers. So that's been the primary impact that, again, that we saw at the end of Q3 and here at the beginning of Q4. Our guide includes what we're seeing in the marketplace and what we are hearing from our customers. And again, we are at in Q4, sequentially, we're going to be flat to Q3. So we're not seeing anything really much more than a pretty stable demand environment here.

And again, as we've gone and really gotten close to our customers here, essentially, this is a reduction in some of their optimism for Q4. it's not uniform across any specific segment or any set of customers, but you bring all the data together and you've got this reduction in optimism, and we diluted that in our guide and we're confident in our guidance.

Casey Woodring

Got it. Understood. And then maybe just one more for me. Any just update on litigation in terms of number of plaintiffs in California, anything along those lines?

Alton Shader

Yes, absolutely. So regarding litigation, we've got a strategy to defend the company, and we are executing against that strategy. And I can give you an update on a couple of the key cases here. So in Georgia, we've got a deadline for an appellate decision in spring of 2027. And in California, we've got our first trials are scheduled for January and April of 2027. And in Illinois, we've got all our cases are assigned to a single judge at this point, and we're in the midst of pretrial proceedings.

Operator

Next, we have David Windley of Jefferies.

David Windley

I was wondering if you could comment on the progress of you've referenced a large customer, the progress of the outsourcing decision and execution and has that event, I'll call it, driven or catalyze any additional conversations of the same ilk.

Alton Shader

Yes. So I'm assuming you're commenting on the one outsourced customer we've talked about previously, that's all on track. That's going well. And that was a contributor to our growth in Q3 and will be a contributor to our growth in Q4. Our commercial team continues to do everything they can to build our commercial pipeline. And within that commercial pipeline are a number of programs and products that would require customers to outsource. I don't have any specific updates for you around specific programs, projects, et cetera.

David Windley

And can I ask on Nelson, with EAS having shown some strength for a couple of quarters running now, I think, and you're expecting again in the fourth quarter, how are you viewing the mix evolution in that business? In Nelson, to be clear, the mix in Nelson.

Alton Shader

So just to clarify, we really saw strength in EAS here in Q3. We did not see strength in the AS in Q2. So some of that growth that we saw in Q2 was in our core lab testing. So -- but yes, we did see growth here and more growth associated with EAS in Q3 than we had previously. We do expect growth to be driven in some part by EAS in Q4 as well.

David Windley

And how do you expect that to evolve?

Alton Shader

So in the -- so going forward, I mean obviously, let me take a step back here. So we've got a project component to the Nelson Labs business. And within EAS, those tend to be higher concentration of project-based programs and opportunities. We don't expect long-term EAS to be a larger percentage of the business and have this be a consistent mix shift towards EAS going forward. Thank you.

Operator

Next, we have Ryan Halsted of RBC.

Ryan Halsted

Sticking with Nelson Labs and following on the strength in that segment over the past few quarters being somewhat broad-based across the different business lines. Can you just confirm how are you viewing that business in the lens of cross-business unit selling? Do you kind of see this as opportunity to cross-sell and how are you executing on kind of your kind of refreshed strategy to really try to drive that XPU strategy.

Alton Shader

Yes, absolutely. So the cross business unit opportunity is significant for our organization. We've got approximately 70% of our Sterigenics and Nelson Labs revenue comes from shared customers. And we obviously need to focus on penetrating these accounts with our full offering, and Nelson Labs absolutely will benefit from this work. we would expect over time, core lab testing to benefit from the work that we're doing across business unit. And we've got a number of initiatives in place now to drive this growth across the overall organization, which, again, Nelson Labs will benefit from.

Ryan Halsted

Great. And then turning to capital allocation. Can you just confirm, are you on track to complete all the facility upgrade investment? And then just looking ahead, obviously, you're now within your leverage range. How are you thinking about capital priorities into 2027?

Alton Shader

Yes, sure. So we are on track to complete the EO facility enhancements here in -- be completed here in Q1 2027. So team's done a very nice job of that. We're also pleased with our progression of our balance sheet. So we're at 2.9x net leverage today and we're within our long-term target of 2x to 3x. And our approach to capital deployment is ultimately driven by where we see the best opportunities create long-term shareholder value. And we have not materially changed our approach. We continue to prioritize the organic growth investments as well as strategic M&A opportunities where we can drive clear value with a focus on sterilization services. We'll continue to work with our Board to evaluate the full range of other capital deployment opportunities, including share repurchase, debt paydown, et cetera. But ultimately, we're going to deploy this capital to the areas where we think we can optimize our long-term shareholder value.

Operator

Next, we have Jason Bednar of Piper Sandler.

Jason Bednar

A couple of follow-ups here from us, just on some topics that have been discussed this morning. So First, maybe the obligatory question and then the device topic. Alton, you mentioned, I think the softness is mostly tied to your European customer base. I hope I didn't hear that wrong. But have you seen any shifts in volume demand from your U.S. customer device customer base? Or is that more stable? And then I just want to be clear that what you're seeing is specific to end market volumes in September that persisted here in the fourth quarter. It's not a function of channel destocking like one of your peers has been referencing with their business.

Alton Shader

Yes. Thanks for the question. So again, we saw the softness starting in Q3 and extending here into Q4, and it is primarily in Europe. So we're seeing the softness more in Europe than we are seeing here in the U.S. And when it comes to segments, again, it's -- I mentioned this before, but it's not uniform. So within our customer base, we're seeing variability across the segments and end markets. But overall, the balance here is we are seeing an overall reduction in optimism from our customers in Q4. And I think that's pretty consistent to what we've seen from a number of the med tech companies who have announced results over the course of the last few weeks. And it's pretty in line with what we're seeing externally here.

Jason Bednar

Got it. And then a bit of a follow-up on the prior question. Can you talk a little bit about your CapEx plans here I think you -- in the past, you've referenced a significant or a meaningful step down in spending now that you're through a lot of these facility investments, you're rolling off some other big CapEx projects. As we think about the magnitude of inflection in cash flow next year, can you give us any guardrails to think about what this actually looks like? I think The Street is modeling like a $50 million step down in CapEx, is that a fair number? Would you have us any lower or any higher than that? Just trying to get a sense as we think about '27 cash flow.

Alton Shader

Jason, thanks. Good I appreciate the question. We definitely see a meaningful step down in CapEx next year. We're well on track to deliver the free cash flow objectives that we laid out at Investor Day of $500 million to $600 million of free cash flow over the period. One of the moving pieces is just seeing exactly where we land this year. and then finalizing our plans with the Board on the different programs. So we expect a meaningful step down. It's a little premature for me to tell you exactly how much just given the uncertainty related to just closing out the year, we feel good about the execution, but you can always have a few moving pieces as we close out the year and then again finalizing the budget with the Board.

Operator

Next, we have Michael Polark of Wolfe Research.

Michael Polark

On the topic of the other medical device customer trend in Sterigenics out of Europe heard, we've heard labor strikes war government budget tightness in Europe, and so we can corroborate that. But it sounds like you're not seeing or saying anything in the U.S., are you bracing for? In the guidance for Sterigenics bracing for any U.S. softness or no this modeling is contained to what you're hearing out of your European customers?

Alton Shader

We're seeing relative stability out of the U.S. at this time. And everything that we, again, are seeing from our data we're seeing in the first month of the quarter and what we're hearing from our customers is captured within our guide. And again, that 6% constant currency growth in Sterigenics translates to a relatively stable flat revenue from sequential from Q3 to Q4. Again, I'll just highlight the fact that over time, the Sterigenics business and really Cetera Health overall has been incredibly resilient through different economic challenges, and we do see, again, some of this softening here in Q4. But overall, we feel like we've got a handle on it, and the business remains very healthy and strong.

Michael Polark

On Expert Advisory Services, I'm recalling from a couple of years ago when growth was significant. If I'm recalling correctly, it was attributed at the time to some regulatory actions that customers were dealing with, so three calls, remediation stuff like that, that created a tough comp and now we've rebased and growing again. Is there a thematic behind the uptick that you would have us think about? Or no, it's a project-based business and you kind of troughed out last year, and now you're growing off of that? Just any more color on what's driving the rebound there, I'd appreciate it.

Alton Shader

Sure. I mean this is a project-based business, and the team has done a really nice job of responding to the needs of our customers. And Again, some of these projects did come into the business here in Q3, and we do expect additional business from these customers here in Q4 as well. I mean, we are very focused on having a durable business here in Nelson Labs and focused on ensuring that we have core lab growth within this business. We've had a number of initiatives in place, including new commercial leadership within Nelson Labs to ensure that we are best-in-class commercially here and again, got a lot of confidence in the team to drive durable growth in the business.

Operator

We'll go ahead and proceed to Brett Fishbin of KeyBanc.

Brett Fishbin

Sorry to be a little bit of a dead horse here. I just had one more question on the med device comments. I wanted to ask if the slowdown or softness you're commenting on in Europe, is this very broad-based across the customers? Or would you say it's more specific to a few different product areas or customers in Europe where you may have more concentration.

Alton Shader

Yes. This is more broad-based. Again, we can't say that it's happening with every customer that we have in Europe. But it's not limited to just a couple. So again, it's not uniform across specific segments. But overall, when you add up the information that we have, the conversations we're having with the customers, the data that we're seeing, there is softness there overall in Europe.

Brett Fishbin

All right. Great. And then just one more question on the x-ray facility project, which I believe is now online. I was hoping you could just provide a little bit of an update on how the ramp has gone so far, and then how you're doing in just progressing towards filling more of the overall capacity on a longer-term basis there?

Alton Shader

Sure. So we continue to be optimistic with our investment here in the x-ray facility in North Carolina. We had a really strong Q3. We have seen a bit of softness here in Q4 in that facility. That said, we've got a very strong pipeline and we are confident that we're going to be able to continue to improve the utilization in that facility. n

Operator

This will conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Alton Shader for any closing remarks. Sir?

Alton Shader

Thanks, operator. So we delivered another quarter of solid financial performance, and I wanted to note that I've enjoyed being on the road and connecting with many of our shareholders, and I look forward to continued engagement in the coming months. As we move forward, we remain focused on delivering outstanding service, strengthening our customer partnerships and delivering value for both our customers and the patients that they ultimately serve. Thanks for your continued interest in Sotera Health. Take care, everybody.

Operator

And we thank you, sir, and to the rest of the management team for your time also today. Again, the conference has now concluded. Thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you. Take care, and have a great day, everyone.