Yet Another Value Podcast - Chris McIntyre thinks Sotera is an incredible business at a good valuation $SHC

Episode Date: March 7, 2023

Chris McIntyre returns to the podcast to discuss Sotera Healthcare (SHC), why he thinks it's such a good business, and why he thinks the stock is still undervalued even after a big run in the wake of putting their legal liabilities (largely) behind them.   Chapters  0:00 Intro  2:15 Sotera Overview  5:30 What makes Sotera such a good business?  14:30 Why it's so unlikely a new competitor can enter the space  19:55 Discussing Sotera's "growth algorithm"   23:30 Sotera's multiple / valuation  32:00 Historical legal liabilities overview  38:45 The "science" behind the legal liabilities  43:15 SHC's settlement and putting the legal liabilities behind them  49:00 Why Georgia is not the same risk as Illinois was  53:35 Sotera's controlling shareholders and their plans for the company  56:00 M&A and roll up possibilities  1:00:45 Closing thoughts

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watching or listening to it. With me today, I'm happy to have on, I believe, for the third time, my friend Chris McIntyre. Chris, how's it going? Good, good. How about you? Doing good, man. Excited to have you back. Let me start this podcast the way I do every podcast. First, a quick disclaimer to remind everyone that nothing on this podcast investing advice. We're not financial advisors. Please do your own diligence, consults financial advisor, whatever you have to do. Let's jump right into the stock we're going to talk about on for the third time. The stock we're going to talk about, we started talking about doing a podcast on this in December, which might have been slightly more timely. But I still think,

I mean, I know you would agree. It's still a super interesting company. I think there are some headwinds to maybe like the trading price that get resolved every time. I think there's a really interesting opportunity. But I'm putting words in your mouth. I'll just turn it over to you. The stock we're going to talk about today is STERRA Healthcare.

The ticker there is S-HC and flip it over to you. What's so interesting about it? So I think the high-level trader talk pitch for it is Sotara Healthcare is a high-quality business that had a legal liability. that drove the stock down tremendously. So it was something like $30 a share almost in, like, early 2021. Exiting, I guess it was more like late 2020, early, whatever, exactly.

It was $30 a share somewhere in the period. They had a legal liability that drove the stock all the way down to like $7 to $8 to start the year. It's now up 100% year-to-date. You and I were both involved before the 100% move. So just pointing that out. You might have been involved a little bit heavier than I was. I was involved, but you were involved. and uh yeah yeah yeah the um the kind of center though was like but so it's had this big

rewading but behind it like as much as we can say that the legal liability probably was exaggerated in the first place it's very much a clearing event and it's a much cleaner easier to understand story but it still is not retraced all the way back to where it was and underneath what you're getting is a super high quality compounding asset it's a health care and market exposed stock without the risks that are i think are higher on most health care investors list like payer risk and like product cycle and things like that. And so it's really like a stable 10 to 12% top line grower, 50% margins, no real economic cycle.

And currently training, we could talk exactly about what the right way to think about it was earnings versus EBITDA, or something like 12 times EBITDA, I would say something like 16 times real owner's earnings for an asset that like the comp group is more like, you know, as I was thinking about like, you know, most people that would like listen to this podcast all the time,

like, you know, some sketchy special situationy off the beat and run kind of but like the comp group for an asset like this is really the stable syciman and IRA typically trades 25 30 times earning stocks but they don't really ever stop growing because there's no real reason they're expected to stop and so I think it's a really interesting opportunity to get long sort of a funky security that is actually just not that funky at this point and is just a really high quality business and so what you do is you get to clip this sort of like 10 to 12 percent top line grower that theoretically at its current price would be a teen's better IRA or kind of set up with a strong i think reweight catalyst in the next six to 18 months something like that where it can get in line with peer group and so this is like an example you know when all the post ipo like price targets came out and what people were using people were slapping like 25 times ebid double targets of like 50 dollars a share exiting like 2023 we're at 16 17 so we're nowhere near like what the bull of bulls would have thought about this asset before the legal

a liability start. And I think when you think about, I'll let you say over the second. When you think about like the pitch, I think there really is like two different sides of the pitch. Like one is which is understanding the legal liability where the simple pitches, they're kind of wrapped up and much easier, I think, to understand now. And then the second pitch is like, this is actually a really good business. And here's how it's going to grow in compound and why it's going to grow up with that. Perfect. So I think we'll revisit the legal in a in a little bit. I mean, if you and I, again, if we had been doing this podcast two months ago, the legal would been front and center, and then we would have talked to business. At this point, the legal

about to wrap up, as you said, the stock's up. It's more about understanding the business. So let's talk about why I don't know if this is the best business in the history of the world, but when I wrap up like the combination of the pricing power, the stickiness, the economic insensitivity, the moderate growth, like, it actually kind of is hard for me to imagine that there's a better business than this once you wrap all those characteristics. So I want to ask you, like, what is the business and why do you and I both think this is such a good business? So TAR health care is three separate kind of divisions that are somewhat related, but not totally related, but the main division, which is roughly say 70% of profits, and I think is the reason to

be the most excited about the company. 70% of revenue is 70% of profits right around that kind of general mix, maybe a little bit. The margins are slightly higher in the second. But what it does is it owns Steregenics. And so Steregenics is an outsourced sterilizer of mainly med devices, but also some pharma and a little bit of other stuff. And so the simple high-level pitch is what you get is med device growth, which is say like units 5-6. So it's like a GDP 1.5 to kind of 2X growth story.

So when people say like biomedical revolution, you know, like we're all going to have artificial limbs and live to be 300, I hope, that sort of like, you know, above market secular growth story is med devices, right? The typical problem you have in med devices, though, are twofold. So there's some really interesting good things in med devices, but it becomes a much harder business to wrap your head around for two reasons. One, there's like payer risk. So the government, you know, is a huge supplier of insurance through Medicare and Medicaid,

and sometimes they change the price. And so like overnight, sometimes you have these things where it comes in and it's like, by way, we're paying 20% less. And so, like, this is a difficult market. You also have, like, product risk, meaning, you know, what is the next gen heart stent going to be? And, like, is this company going to execute or are they going to lose market share? And so these two things make this kind of space a little bit more, you know, challenging to invest in. Just throw one more liability risk, too, right?

You mentioned heart stents. It can turn out two years later. You find out, hey, every heart stent you did, you thought the battery lasted five years, it lasted two years. and you're massively liable for all these heart attacks or there was some led point, like there's, you can invent a lot of different things. And you might laugh, but I can point you to several examples

where companies have come and said, hey, turns out every installed product we've ever shipped is effective and we are going bankrupt because we have to pay all of these warrant liability claims. Yep. Okay. So that's the difficulty in that space, right?

But everyone's attracted to the space because of the above market growth and also because there's no real cycle, right? like you need a heart stent you need a emergency you know surgery or whatever like it needs to happen and there's no economic cycle and so you get the growth without any real you know yep if interest rates move 2% heartstand volumes will not matter like this it doesn't matter might go up you might give a couple people heart attacks and maybe you're getting increased yeah yeah but so because that that's like the challenge in the med device space but what these

guys do is they just sterilize the devices. And so I'll get into the algorithm a second, but I'll explain what the sterilization process and what it looks like is. What happens is like this med device company, Johnson & Johnson, let's just say, Stryker, whoever exactly, makes these products. And then they need to get them to market. So they got to ship it to a doctor's office or a distributor or a hospital or wherever it's going, right? But before they do that, they have to prove to the FDA how they actually like made sure that there's not bugs all over this. So just, you know, bacteria, viruses, mold, whatever exactly, right? So what they do is they physically make the device. They load it on a truck and then they drive it. They can either

source sterilize it themselves or the industry is roughly a little over 50% outsourced. And what they do is they drive it to one of either steris, which is the other side of the doopoly, what's so terra's facilities. And in that facility, they sterilize it using either gamma rays or something called athlete oxen, which we'll talk about later when we talk legal liabilities. and the device gets clean there and basically it gets put back onto the truck and then the med device company actually delivers it to the thing so so terra takes no or serogenic specifically takes no delivery risk they take no product like is this a good product or a bad product or is it going to lead market share of it takes none of that actual risk and so as a duopoly set up market they also don't have a real competition angle and we can talk about why there's not competition space but there's really only two players And so what you get is you get med device growth, you get a little bit more trend towards outsourcing because the industry is, say, 55% outsourced or 7% now. And a decade ago, it was say 40%, forget exactly the numbers, but that's roughly the ballpark. And so you get like a little bit extra unit growth from the outsourcing trend, and then they take three to five percent price.

And it's just really one of these like clean businesses where it's very hard to see how that end market doesn't keep growing. and it's also very hard to see how competition would actually come in to serve these products. And so like some of like just the high level stats that I was going through before this that I just like, they have a 100% renewal rate with their top 10 customers or 25. I forget which one they disclose. Contract length is something like three to five years. 80% of their clients use more than one facility and over 50% use five or more. So you're really built into these guys' networks.

And the other thing I also think about is that, like, you know, a heart stand, I lifted up, the average price of a heart cent is something like $1,300. It costs some agency that's trying to complain that hospitals jack up rates put the statistic out there, right? You might be paying $1.70 to sterilize it. And so there's no real financial incentive for someone to switch sterilizers. You're built into their network, and so it's difficult. And on top of it, like, you need to get FDA approval for how you're going to do it.

And so one of the biggest problems is, you know, for some of the, I forget which order is, there's a class one, two, and three, like, med devices. And I forget which one is the complicated one, and which side is the less complicated, like, gauze or, you know, syringe or something. But for any of the complicated ones, you are written, for all of them, you're written into it. And for the complicated ones, you're written into it. And it takes six months minimum, if not a year plus to actually switch suppliers, which has a twofold, we're getting into some details here, but like a twofold benefit to the business,

which is, one, no one ever switches. And two, you need to offer redundancy if you want to bid for larger contracts. Yep. For, you know, if I'm the CFO or I'm head of sterilization or whatever for Johnson and Johnson, I don't want to have 70 different contact people. Having one or two is ideal for me to simplify my world, right?

And so there's really only two people, I mean, not really. There are only two people who can offer redundant things. And to the point being that, like, if there's an earthquake or a storm or a fire, or something happens at one of the facilities that we are using to clean our, to sterilize our heart stents, written into the FDA approval will be the other backup alternative facilities that we can then ship product to so we don't have to pull the product from market. And so if you're looking about it from the competition angle, you know, if we get together and we raised $100 million to open, you know, one of these

facilities, right? Rowdy is like we're going to have to bid for one contract, maybe to start it, but we can't offer redundancy. And it just becomes this very complicated thing. And then, And also just to round out a little more on the contract side or the business side, they actually run to Terra, Steregenics, runs the facilities basically 24-7. So they take deliveries at like three in the morning, like literally on Sundays, you know. And the in-house provider, if you wanted in-sarser Johnson Johnson, we have stuff at our facilities, right? We are not going to be able to run those because we don't have the volumes to run them 24-7. So, like, not only is it more redundancy built into the network, it also is actually cheaper because they're going to have the same basic machinery running 24-7 instead of running 40% of the time. And so it's this very, you know, you're basically like have a huge customer locked in and like it's also cheaper literally, probably, you know, we'll see where pricing goes over a period of time and whatever.

But like, it's just this whole, it has just a great momentum around it and a lot of like barriers and moats. this business is one of the more bankable life that, you know, it's hard to know what will happen in 10 years, but like that med devices are up, I think is highly probable, you know, like one of and that will be sterilizing med devices is also highly probable. Yeah, it's there are, you know, it's, it's hard to imagine that we're not doing some version of all of this. And there's no real nothing happening that would delay the trajectory really of like this 10% top line growth, if anything, accelerating because their current growth investment. But yeah. That was an absolutely great overview. You hit on many of the angles that I wanted to in the Modi section. I mean,

hopefully people, if they're listening, they can understand why we think it's such a good business, right, because of everything you just said. But I just want to pull a little bit more on the why so hard for a new build competitor to come in, because I think this will also help us transition into a little bit of the growth and the growth at KepX angle. And it's, look, if you build a facility, it's all about utilization, right? So if you and I went and built a facility or these guys are out there building new facilities right now, it's not just that you can't go to Johnson and Johnson and say, hey, all the gauze that you're giving,

all the gauze or all the hips that you're getting sterilized at one of the steregenics facilities, switch them over to us. They can't do that because they have to interrupt their supply lines, give an FDA approval. It's not just that. It's that you have to go get new products. So you have to build out these things. So if we went to build something, we'd have zero capacity.

So do you want to talk about how they kind of, when they're doing their growth capax how they get the facilities filled and how they know that that growth capax is going to have things to sterilize there i think i kind of jumped into a few places but i think you'd see where i'm going maybe i'm a little bit to me like they basically like they built out of facility because they have all the relationships and all the network and everyone sort of knows them and they're just like because the industry is expectedly sold out right now and so they need there needs to be growth capic so i i guess where i was trying to go is when they say hey, we're going to build a new facility. What they've done is they've pre-sold, and you can correct

me if I'm wrong or feel free to jump in at any time if they're wrong. They basically pre-sold, I think it's 50% of the capacity before they even put boots in the ground, right? They've got Johnson and Johnson, and they say, hey, it's 2023. We're going to start building a facility. It's going to come online in 2025. We think we can do 100,000 units per day in this facility. Will you take 10,000? Johnson Johnson says yes. And before they even start building, they've got 50,000 units of the 100,000 sold. And I was saying, if you and I went and did that, like, we wouldn't have the relationship, so we basically have to spec build a sterile facility because Johnson Johnson is not going to come and do it, like agree to future products with us.

So that's kind of where I was driving at it. Maybe I was just being a little bit too cavalier on it. No, no, no, that's true. You know, like there are, it's almost like I feel like I'm overselling. Am I talking about competition, which is like a weird way to phrase it. But like you're like dealing with like the very small amounts, right? So, like, there are, like, some startup X-ray facilities, which is, like, 1% of the market. So it's, like, a really tiny part of this market, right?

So I know that they, like, would they, yeah, they try, like, the startup guys try to, like, find, like, a guy to have one contract to take 25% of volumes. But the reality is, like, it's hard. It's got to be super not that critical. You know what I mean? It's just, it's, and, like, there's also, like, on top of it, like, when these guys do their growth cap, they absolutely are, like, it's booked. Like, they book with enough room that they, you know, they have a plan. for like how we're going to grow and expand our footprint over five plus years 10 years whatever but you know we're not executing on all the 10 year plan at the same time um so they absolutely are

sold out to start i mean like the industry is actually really really quite tight right here which is why you know we can start talking about quarters at some point in this but like it does sound like if anything the 10 percent like they grew up constant currency sales like 10.4 10.2 or something like if anything i'm like we could maybe get up towards like 13 14 in like a couple of years just price plus volume broke but yeah no they're they're deeply sold out the other thing to think about too because i i think a lot about like it's like that puppet thing like if you had a billion dollars could you get in there whatever size dollar amount saying right but like in this industry too like if you think about it it's extremely like niche and so there's not

that many people that actually are employed and have the knowledge to literally help you build it out so even if we raised a billion dollars and we were going to build 10 plants on spec or 12 or whatever that math comes out to it. I know that Sotera says they can build one point 40 billion, but like we might not be as good at it and whatever you want to talk about. But you can do it, which is like a long shot, moon shot pitch with, you know what I mean? Like it's hard to see how it would happen. I don't know that you can literally staff the facilities to create the third competitive. You know what I mean? Like it's just there's not really, it might be, it feels like a, if impossible task and it might literally be an impossible task to actually do it. And as you said,

like Johnson Johnson, the cost of this thing is a dollar, right? How are we going to get them to commit to us where we're going to go, hey, you're sterilizing stuff for a dollar per unit. We'll do it for 95 cents. And Johnson Johnson, you know, it's that famous thing. Oh, yeah, we're saving money on safety. Like sterilization, the saving five cents per unit on a thousand dollar unit is absolutely nothing. But the downsides of, we ship it to Chris and Andrews bootleg sterilization. and they can't get it done so we're not selling these $1,000 units or even worse, they forget to sterilize it and there's like, you know, a hip implant into somebody that's got bacteria on it. Like it's just one of those things, the downside versus the upside versus the

cost. It's going to be really hard unless Chris and Andrew have a lot of background and a lot of money, just going to be really hard to get somebody to agree to go to a new startup competitor. Yeah, which is why it seems like a pretty cushy dooply. Yep. So let's talk about. You know, I think if I'm trying to remember the quote from the Q4 call, but they said, hey, you know, since I, I think the CEO said since I got here in 2006, we've got like 15 years track record of mid single digit plus organic growth. I think their long term kind of their long term algorithm, if you will, is about 10% growth coming from some pricing and some volume. Do you want to talk about just that 10% growth, the pricing, the volume, particularly I think the pricing, because that's the most interesting part of the story. Yeah, so, like, um, so they say, they give blended guidance across the three segments when they say pricing, right? Because they guide to like three to five percent pricing with like one of the segments being at the high end, one of the other segments being low and and Steregerics being in the middle. Um, we should talk about the other segments at some point, but they're good, but not nearly is interesting.

But I think that the argument around pricing is really, which ties into the legal life. liability is, look, there's a capacity shortage because of some of the legal liability stuff on ethnic oxide, which is half of the industry that's at the end of it. Because that legal liability, like, there's just going to be a real hesitance to see any more insourcing and there's going to be, if anything, an acceleration towards outsourcing. So like capacity constraint or demand than ever, two players' regulatory burden going up, equal. better pricing over time. Like it's not much more sophisticated a thought than that. We'll see exactly how it rolls through. I think to them they want to keep their relationships on the right

pace. So I don't like anticipate them jacking prices 10% and inviting turmoil and they might be able to. But to me, I'm like, I think of anything like you could definitely see over time. I mean, you know, if you do the consultant calls, right? Like it's all like people are like, yeah, they no one wants to do this anymore and they're happy to pay the two cents extra to not run the legal liabilities because if you think about it like the quote like you know like does it make your beer better right like the anheiser bush which amazon loves but like you know sterilizing a heartstand in south in source in-house excuse me uh by johnson johnson's not their core competency they don't know about it there's these lawsuits you know that these

guys, so Tara just had to pay $408 million for, like, there's not a whole lot of reason to pushback on price and there's not any real competition. And so I'd absolutely think over time pricing going up is a part of the story. You don't have to, at this price, you don't have to believe that to get along it. But like, it's definitely a part of the story. So I think some of the pushback, I mean, a year ago, the pushback would have been, hey, they lost the legal case. And we'll get to the legal case in a second because it is important to go forward story. But some of the pushback a year ago would have been they lost legal case. and bankruptcy, turmoil, all this sort of stuff.

I think the first pushback a lot of people would have when they look at this idea is they're going to say, all right, Andrew, Chris, great. I'm convinced this is a really good story. It's a really good business. But it's trading low teens, EBITDA. I'm kind of looking at my 2020 numbers about 20 times unlevered free cash flow. There is some growth capics in there we can talk about. But people might say, hey, Andrew, Chris, this isn't early 2021 anymore, right?

20 times unlevered free cashload for a great company, like that, that's about thereish. And so people would probably say more, what's the opportunity cost of me buying this versus something else? Am I really going to generate a lot of alpha at kind of that valuation? How would you talk to people about that? I think you have to like, so if the way I kind of, I point people towards like two directions, one of which is like, okay, so walking through that math. this is roughly speaking like trading in a market multiple different take right stock market does

not have a 50% operating margin with 10% top line growth and no discernible earnings cycle like that is not what the u.s stock market looks like yep so on a pure long short paired off market neutral beta whatever you want to call a book right like long a hundred dollars is so tarad short $100 SPY, I think is an absolute alpha value ad trade, right? Just alone that. The second thing I point people towards 10% top line growth and 50 plus percent operating margins is Visa. And let's call Visa MasterCard like the everyone agrees are great businesses that grow forever. And we all understand why, because we're going from cash to not cash, right?

Like it's not, you know, with no competition for those two guys. I think Visa trades like right now, like something I haven't written down. over here. The trades, I believe, it's like 28 times forward and like 20 plus times EBITDA. The margins are slightly higher. They're like 65% of them. But like that's kind of thing. And so I think a lot of guys who spend some time looking at off the run sort of value stuff, like end up looking at like companies that aren't nearly as high quality as this, right? And so it clouds like a lens because you're like, well, why wouldn't I, I can buy this like offshore oil service server for three times EBITDA and you're like, hey, hey, hey.

Hey, Chris, come on. Don't call anybody out on the podcast. I'm not going to call anyone out of Ibidio, hilarious at a point. But, like, this is not a business that's going to see, like, down 50, EBITDA every now and that. Like, you know what I mean? That's not part of this business.

And so the peer group of this to me is like, you know, Moody, Sintas, Echo Labs, Rawlins, like these, you know, Europhins, which is a different, it's a very comparable story actually trades in Europe. But Eurofin has a margin issue in it. But, like, you know there's a company called saracicle like go look at these like sure saracicle ran out of growth is part of their problem but like these things can compound at a high rate for a long period of time

because they're growing revenues 10 plus percent and they're also not the hypergrowth ones where like there's going to be a rapid competition out of nowhere right like this is not you're not going to have a tic-tok show up out of nowhere and just blow up potentially the market and we're like oh i thought there were three players now there's four like that's not like what's going to happen here this is a slower but still much still well above GDP growth kind of company and so to me the right peer group is there and then on a i think it's very very likely will ultimately reweight towards like 20 plus times earnings i think that's like a very high probability bet so part of my thesis is making that bet but even if it weren't i'm like i mean i go to sleep we can talk about

what i go to sleep at night feeling safe about or whatever um whatever however i'm supposed to be phrasing that but like this is definitely not a business that like anything happening in the world is going to like freak you out about what is actually happening here and is this business is going to implode or anything like that it's not one of those businesses and so I am absolutely just happy to sit here and clip my 5% or what am 6% let's say levered free cash flow return plus you know my 11% top line bill and even both whatever you want to say and one of the things you said in there like look this is trading at about average market multiple. As you said, like a Visa or MasterCard trade for five X the multiple, five extra

turns of the multiple ish that these guys trade for. Marriott and Hilton probably the same thing. And like, Merritt and Hilton have economic sensitivity. And there's the risk, you know, a few years ago, everybody was heard Airbnb was going to take them down. They're competing in a oligopoly, not a duopoly. VSA and MasterCard, you know, 18 months ago, everybody said Bitcoin and all these crypto players are going to come from like, there is some technological risk With SHC, with serialization, like as you laid out, duopoly, these things are locked in. It's really hard to say that there's any technological risk. I know some people have talked about some things, but, you know, like, there's a reason

we use ethylene oxide. It's very difficult to sterilize a lot of these things in mass as cheaply as we do. It's just hard to see any way this business goes away. As you said, like, if all of that takes care of the downside and the upside is you've got a five or six percent bond that's growing 10 percent plus some of that i said on lever free cash flow that's all the capex they're going to do this year they're investing capital we can talk about how good the returns on capital they think when they build a new facility how that drives growth like that's a pretty nice the downside of so there should be pretty good upside over there

yeah that's right someone commenting on twitter um where obviously had done work right had like a nice little um wharf about it but you know talking about like well if athlete oxide gets replaced said about it, it's like, but even it's like all those scenarios are like minimum a decade. Like it's not, there's no rapid change happening there, you know, unless a miracle occurs. Like it's not, there is not a, whatever you think about like Visa and MasterCard, there are tons of players and payments and tons of turnover and tons of little parts that are changing at any even time and lots of growth CapEx going into it for venture capital dollars or however you want to phrase it. Like those markets are inherently,

much more competitive than what you're looking at here, which is, you know, there's not a lot of demand for a third player and there's almost no scenario that a third player comfortable. There's this, it's, it's a, it took a long time to it for this industry to evolve in this way. And it's kind of like one of those things where like, it's sort of like Moody's right, where it's like, I don't know that it's the, this is actually worse because I actually don't think there's any real argument that Soterra and, uh, Sarah's like bad or any that boy. Moody's people are like, you know, maybe it could be a better system, but like, it's hard to imagine anything replacing it now. And so that's where we're going with. Like, you know what I mean? And so there's just not, it's hard to really imagine how something comes in, which is a very valuable commodity, in my opinion. And so like, I understand people not willing to bank on 25x plus earnings multiples, right? And frankly, like, if this thing rewates to 30x tomorrow,

like, Akitar Partnerships has several shares for sale for anyone looking to purchase at that price. But like, you know, it's just a rare commodity and it's very rare, I think, to get a shot at these sort of type businesses like at anything resembling a reasonable multiple. Yep. Like it is you almost always have to pay up for it. And so what you end up injecting when you have that strategy is you end up injecting, one, it lowers a return because the capital returns are inherently not worth by being an higher multiple. And then two, like, if you get it wrong, you lose a lot more money. You know, like that's the problem is like, oh, we buy something at 35x. it turns out that like there's actually a pricing problem and suddenly it's like 14x you

like that's like a down 60 on a downer you know what I mean that's a huge blowup the stairs I mean even though it's going to trade like commodity chemical multiples like 12x like where where is you know what I mean like what why would okay um you know so I just think it's a as much as it's up and I appreciate that people don't like to buy things up that's like the opportunity is like people don't like to buy things up and that's why it's still attractive. I agree. And I think there's also, look, when the when the legal liability was out there, this was, it was very difficult for anybody who wanted to buy a great business to be here because, you know, we should start shifting and talking about the legal liability. A couple months ago,

you had to be a legal analyst to be involved here. Now, even though it's a couple, it's two months after the decision, the settlement got made, like I do think there's still, A, if you're looking to invest in a great company, you probably want the settlement to be. be completely done, not 99% done, and we'll talk about completely done in a second, but B, there's still probably a flip of the people who bought the shares, like at the height of the crisis, there's still probably some shares to get sold this stock. We should probably talk about ownership. Only 33% or so, but float. So, you know, maybe the largest fundamental guys, this isn't the top, top of their list. They'll get around to it eventually. So I still think

you've got a tailwind as the hands transition to where they should go. But so let's switch over to the legal liabilities. We've alluded to them a lot. Why don't you give a brief background of what these are, what happened, how this resolved earlier this year, and what this looks like going forward. Sure. So do you think I should do like the historical perspective on how we got here, or should I do like an asset by asset? We probably don't need to start in the 80s asset by asset, but probably just focus like, you know, what the government said a few years ago, how that impacted Illinois and what happened last year and this year. Sure. So, So, ethylene oxide is one of the ways that they sterilize stuff.

The other stuff, ways are gamma rays, which is, they make pencils that you take the tip off and it blast radiation at it, and they run a conveyor belt under it, or you literally kind of what you're doing. And then you have ethylene oxide, you also have EB, which is kind of the same thing as gamma rays. And then have ethylene oxide, which is a gas that you basically, what you do is you take a pallet of whatever med device, you stick it in a chamber, you close the doors, you fill it with, I believe actually they fill it with like nitrogen and then they insert a little

ethylene oxide gas into the chamber and the ethylene oxide is a, so ethylene oxide is like a, it's like a pesticide. It's a toxic gas that kills things, right? And so you stick it in the chamber and it's really useful because it goes through plastic packaging. Why am I still getting the fundamentals? We're on the legal stuff. But like, you fill the chamber with it and then you let the gas burn off and then you take the prep stuff out and it's clean. what happens is ethylene oxide is a known carcinogen like it's a it's a dangerous substance you use it to kill stuff right and so people study this stuff for all the time so there's all kinds of OSHA guidelines around like what are the hours how much exposure do you have how do you clean it and it's mainly that study for the whole history of the industry has been focused on you know safety for workers right it's also explosive too so like you know like there's a lot of rules and regulations trying to protect people from using stuff and just going back when we talked about what a good business it is, we didn't talk about, hey, they're dealing with the carcinogen explosive poison. Like those all, that adds a lot of regulatory burden that

increases the moat where Chris and Andrew probably aren't going to be able to start up a business competing with these guys. Yeah, exactly. What also happens, though, is in the background of that is some of the ethylene oxide ends up emitted into the air around the facilities, right um and ethylene oxide is naturally occurring actually so it's in particularly like say exhaust fumes um so i'll put a pin right here in this moment so just you and i you're in manhattan right so yep yeah so we're actually being exposed to more ethylene oxide than the people in this lawsuit we're exposed to just as a side note just i'll take the pin out right there just but so it's naturally occurring it's all around so there's always a background level of ethylene oxide but over time

the EPA, who's very concerned with all carcinogens, right? Like, this is obviously something you'd be looking at. It has, you know, we live, thankfully, we live in a country that has good safety ratings, right? Like, no one wants poisoned water, no one wants poisoned, you know, all that kind of stuff. But what they did is in 2016, they did a study, and they basically put out, and they tried to conduct an estimate of expected cancer cases due to ethylene oxide in the environment around certain facilities right and we can talk about the study in a second but what it did is effectively kind of like put notice that like hey maybe we need some stricter safety ratings

around emissions from these plants and i think it took the i forget the exact number of plants that it said had an issue but of so terrors at the times eight ethylene oxide plants three of them were on the list that said it had an issue right and it's worth just putting a pen there like they have subsequently like put out further notice and all that kind of other stuff and the other five facilities of steregenics that use ethylene oxide have remained not on the list of problems. But it hit these three facilities, right? One of which is in Illinois, one of which was in Georgia, one of which is in New Mexico. And so because of that, and there was a CDC study on top of it, ignoring whatever that is. Because of that, it started litigation at those three facilities.

And in particular, what you ran into is personal injury litigation, mass torque personal injury litigation and I do a good amount of legal liability work is the fun right um and so of all of the legal liabilities out there personal injury mass toward litigation is by far like the most potentially explosive litigation um because reality is once you get in front of a jury and you have someone who seems very sympathetic there's something bad happened to and then you have the big mean company who has the emails that are bad it starts off a whole thing And so what ended up happening, though, is they had a personal injury litigation in advance in Illinois. They have personal injury litigation that will advance in the future in Georgia.

And then in New Mexico, the plant is in the middle of the desert, so there's no one to do them. So there's regulatory actions around the New Mexico plan. But don't, for now, it's not going to surprise to some enormous thing. So for now, just leave the Mexico. So what the main issues were, were the plan in Illinois and the plant in Georgia. And the difference is to the two plants has everything to do with Illinois being the most basically punitive, the most plaintiff-friendly jurisdiction in America. So as I like to phrase people, the issue is really not the science behind what actually it said, hence like go back to the pen that you and I are being exposed to more ethnic oxide right at this moment than this plant was actually spewing into the environment around there. So it's really not a matter of like science and all this kind of stuff.

And if you want to go, people who are like, hey, that doesn't sound right. The EPA has, like, webinars where, like, they're like, because they put this stuff out and they know that they freak neighborhoods out. And so, like, you can go watch people from the EPA who are making these rules be, like, you know, 40% of people get cancer, lifetime exposure. If one in 100,000 people gets cancer in addition, you're really talking about an extremely low threshold that we're at, right? Like, they're not, like, that concern about it.

They're like, don't eat red meat. like that's like higher way higher on the list in this facility right if i remember correctly the EPA and what they said was the people around willowbrook like there's it might have caused like one extra cancer case every three years for all around willowbrook if i'm remembering correctly and that that was like within the realm of rounding error so it was like very shoddy science on that but yeah yeah so it's it's really it's to understand just to talk about the science for half second like the EPA is not like going like, hey, is this like 50% safe or is this 70% safe? They're going, is this 99.9999% safe or is this 99.999% safe, right?

We're not interested in the 40, 60, 80% safe realm, right? Those are non-starters. So because of that, they conduct theoretical experiments that are obviously and intentionally completely unrealistic because we're trying to be extra, extra safe. So for instance, the study as a base level, it assumes that someone's, so what they did is they collected 35 air samples to measure how much ethylene oxide is coming out of the plant. And then they only use the two highest concentrations. The two highest concentrations occurred on days when the wind wasn't blowing because it's a gas, so it blows off immediately, right? So they used the two highest samples and then they conducted a study thinking, well, what would happen to someone who lived there for 70 years from birth till 70, 24-7, 365?

No one has ever lived in a single place for 365 days a year, 24-7 for 70 years, and the wind never blew. It's an obviously and intentionally ridiculous kind of threshold to make sure we're extracts were safe. And what they're looking for is like, hey, maybe this is on the border. Hey, can you guys like spend like $10 million extra and just make this extra safer? Yeah.

Like that's like the regulatory burden. They're not like, oh my God, this is asbestos and like we're actually killing people. That is not what we're talking about. But what happens is this gets in the hands of personal injury litigation, and we can talk about what Mass Tort personal injury litigation looks like in the U.S., but it's this whole big industry, the highest-paid lawyers, and, you know, no other country really has a lawyer that makes $100 million a year, but in America, being a lawyer at points is an entrepreneurial endeavor, not a civil servant endeavor, and so it is what it is. And Illinois is basically one of the most plaintiff-friendly

jurisdictions, and so what ended up happening is these cases, despite the sort of weak science, you know, in Illinois, you're allowed to assert a single molecule to have paused your cancer, which, of course, a single molecule could never have caused your cancer. That's not all how that works. But you're allowed to say to a jury, that's what it is, right? When I was doing the research here, and I think it's not just Illinois, but this particular jurisdiction within Illinois is the most plaintiff friendly in the nation, I think. And if I remember correctly, one of the quotes I heard when I was doing research was, somebody said, look, I've worked with insurance brokers and they there's only one rule they have we will not write insurance within it was

cook county if i remember probably we will not write it within cook county illinois because the jurisdiction is just too plaintiff friendly we just can't write it there so like they're willing to underwrite you know like water parks for drunk people like they'll underwrite that just fine they just won't underwrite cook county illinois because the rules are so bad there so just to put in perspective like kind of what what jurisdiction you're dealing with I guess yeah exactly and so and it's why like the easy way to deal with is just to zoom out you're like look it is a cook county if you get it if you get it to so the specific thing is causality which we'll talk about we should actually talk about but like if you get it to jury um in that jurisdiction it is a problem it's just what it is

it has nothing to do with science has nothing to do with truth it has everything to do with how, you know, how it works in Illinois. And so specifically, though, there's two plants left, right? And so the Illinois plan, the simple way to wrap it up there is, like, they settle. And so the settlement came in, and this is like, I think people weren't as familiar with these kind of liabilities before we're very worried about these explosive outcome kind of scenarios. And the reality is, like, there are reasonably well-settled ranges for where these things tend to come out.

Can I, can I? They do settle, but can I put, they lose their first case, right? For about the ruling is about 350 million. And that's when the stock falls off a clip because they lose one case. They've got, call it a thousand cases to round up outstanding left. And people quickly start doing the math and say, if every case they're going to lose for 100 million, 200 million, 300 million times 1,000 cases, not only would this case be banked, this company be bankrupt, but every company in America would basically be bankrupt

facing that liability. So they lose that case. They win their second case. They take the first loss, the second win. And earlier this year, they announced the settlement for 400 plus million, and then I'll flip it over to you to kind of start talking about the settlement. Yeah, yeah. So they announced the settlement. Very specifically, I think it's worth just, is it worth mentioning the appeal bond? Well, might as well, I'm talking about it already. So they had an appeal bond. And so very much the timing of it is, look, they had to post 150% of the judgment, which would be roughly $500 million. at like, say, like, 10% interest, whatever, just to make the simple math.

So we're going to do this for two years. So suddenly we're like, we're going to have to pay like $50 to $100 million in like interest to settle this case. Yep. The overall settlement's $400 million. You start kind of staring at the numbers and you're like, how much is this worth really to fight? Right. And so one of the things in the plaintiff's attorneys, if you're ever involved in litigation, figure out how much money to cost the other side to fight you is like a huge part of the battle.

And so it just made sense and they were like, hey, do you really want to go down this? path or can we just let's just admit that like we're not going to get out of like so tarra at this point we're not getting out of this for less than 200 million bucks what it is let's let's just get it done and like you know maybe we paid so taras pay maybe the high end of like typical settlements but like not the high high end but the high end of like let's say not specifically as best as cancer settlements right but whatever it's not that much money we're talking about 40 million dollars is a lot of money a lot of money but we're talking about like one year's free cash flow and so ultimately if we're squabbling over like a quarter as free cash flow as the bid ass between the plaintiffs and

the defendants it was like i just get this done and get this story back on the road right so they hit the bid and that's where we're at right and so talking about illinois the steps left are actually settling the case um i think there's actually a chance you get paid on the settlement finalizing the settlement finalizing is an interesting catalyst i think because people are like oh my god they have to get 99% approval. And it's like the, so Tara, it was like, you need to get 99% because like that's, sorry, go on. Let me just pause you there because we, we haven't said what that 99% approval is.

So they announced the settlement in January and they say, hey, we're paying it's a little over $400 million to settle the cases. And one of the clauses in that settlement is, hey, in order for this settlement to be in play, we have to settle, as you said, 99% of the plaintiffs have to opt into this thing. I think it's, there can only be 12 cases that don't opt into the settlement. If more than 12 cases don't opt in, so Tara has the right to break the settlement, not the plaintiff. So, so Tara can look and say, oh, it was 13, okay, we'll take that. Or they can look and say, it was 13, it was 20, it was 100.

We're out. Not enough of these cases have settled. So please continue. Yeah, exactly. So it's this weird, it's a weird catalyst where like, it's, it's, it's, what happened, the reason you're settled is because of the one case that had the $500 million. appeal bond. The way it also works in these cases is the plaintiffs pick the order, right? So from a factual standpoint, the plaintiffs won their first case for a massive number and lost their second best case, right? So with that kind of hit ratio, the bottom 50% of cases are pretty, they're not

going to be what you want to take to court, right? And so the point is that like in the I think unlikely scenario that the settlement breaks, they've already settled the top cases. So what are we will be left is actually a much weaker batch of cases, which is why I am sure the plaintiff's attorneys are informing the clients, you're probably going to get much less than this if you actually go to court and it'll take a long time, which is why ultimately they are pretty good at getting people to settle. So I think the most likely scenario is that it settles. If it were not to settle, it's a funny thing over with my saying, it's a funny catalyst because the stock is likely down and it is almost unquestionably an EV positive announcement. It has this little

dual duality. So I think it's worth like paying attention to see if the settlement doesn't get to these things. I mean, it's obviously worth paying attention to home. But like, so think about it, it's very likely to work out with the settlement. And the reality is if they don't get 99%, it's likely that the settlement will still occur at a lower number relatively quickly after it breaks. But it will be a headache. It will be a headache. It will be a headache. And if it will occur, it's a buying opportunity, in my opinion. But that's basically, once you have done that settlement, there will in the future, as people develop cancer in the future in this area, like there's really the two cancers of breast cancer and blood cancers. And so there will be future

cases, but like the farther out you get from like having been exposed in the 80s when it was more at risk, the weaker the cases get over time. And also you're talking about probably like, I don't say it's, I think 10 or 20 cases a year would be like a good. good, higher kind of like, you know, think about that. Like the settlements, the real settlement average underneath is probably $400,000. This company does like $600 million a year and even that, let's say, like, fast board one year. So you're like, we're not really talking about a needle moving number of cases, right? Like, this is going to be a small trickle, future problem, not exactly sure what's going to happen. So while the litigation will continue, the bulk of it is

been settled, like 99% of it has been settled, right? I think we've hit the Illinois, one well you talked about new mexico there's not a lot going there i do think a couple of people who uh looked at the stock maybe haven't fully doven in they look and say all right well they settled at illinois but there's still several cases outstanding in georgia and i think both you and i think yeah they're probably going to lose some money there but the georgia it is not a big concern right the headline number for illinois was the first case they lost for like i think it was 360 million all in that's not going to happen in georgia i think they're going to be fine in georgia but Why don't you just quickly address the Georgia risk here?

So Georgia, so the big, one of the things that makes Illinois plaintiff friendly, which does not work in Georgia, is that in Illinois, they allow you to go to court alleging one molecule can cause it, right? So the point is that like, you have a carcinogen and you establish that it can cause cancer. You then have to show how it did cause it. It's called causality. You're like, okay, this causes cancer.

How did it cause your cancer? So there's causality generally and then there's cause cause it out of generally and then there's cause out, specifically like your specific cancer. In Illinois, you can be like, one molecule that it. So it's like, there's no real, like, we can talk about what science you get to prevent, but like at terms you're gonna have to go to court, basically, because if you can,

if that's good enough to get to court, we're gonna court on any of these things, right? In federal cases, I believe it's called Daubert, is how you set up causality, so it's not enough to say it caused my cancer, you have to explain to me how it caused my cancer. And there's no studies that explain to you how it caused cancer.

So like, Ethylene Oxite litigation been thrown out several times in federal courts because of it doesn't meet the next standard to actually go to trial. Georgia law is much more similar to federal law than to Illinois law. And so it is going to be harder for those 300 cases in Georgia to actually get to court. So I wouldn't be, I would surprise, nothing about it will surprise me, but like, I definitely think the odds over 50%, they actually don't even end up getting into court because I think there's good, they're going to just, you saw it, for people who kind of follow the news and this,

was it Zantak, but like the judge, there was like, whatever that case is, the judge was like, yep, you don't have enough stuff to go to court. Because the reality is once you go to court, sort of like this play where there's like, you present an expert, we present an expert and we act like it's 50-50, but if the actual evidence is like 90, 10, putting two people in the stand has inherently unfair to the defendant, right? Because it's like, this is already misrepresenting what the odds are, right? So that's why, like, I think it's unlikely to go to court in Georgia. There's only 300 cases in Georgia.

And the other interesting thing is that Georgia has the $250,000 capita unit of damages. There are some people who look at it, and there are cases that are bigger. But I think Georgia, the three standards are you can't be drunk, which doesn't apply here. You can't be intentional, which is like I stabbed someone to death. So it's not going to apply here. And then the other one is a product liability. And there's no product that we're talking about. it's the emissions, not the actual product.

Yep. So there's an absolute cap on punitive damages that we'll fly here. And so, you know, it's just not going to turn into, they're not going to get $400,000 a case. They're going to get legal fees. You know, if they get to court, they'll get legal fees. When we started this, you're like, we're briefly going to address the legal case.

And then, of course, you know, the legal case, I think it's also because both you and I get a little excited remembering the diligence on it, but we spend 20 minutes on the legal case. So, look, at this point, I think we've addressed, hopefully we've addressed a few teams. We've talked about multiple. We've talked about business quality. I think if I had some of those, I'd say this is a fantastic top 1% style business at a market multiple price. We've talked about the legal cases and how there are some catalysts to putting those behind them, you know, the settlement getting finalized in May or June,

the Georgia cases hopefully getting dismissed. I think we've talked about all those. I just want to talk a little bit about the go for it, right? Like it's entirely possible you and I are just sitting here holding our Soterra shares and for the next, you know, 10 years, we're, for the next three years, we're just compounding in the market, multiple keeps expanding. But there's a couple other catalysts here. So I want to talk about those. The lawsuit is getting dismissed, but the main one I look is I say, hey, the private equity owners here still own about 67% of the company. I think they've been involved in Soterra for about 10 years at this point. And you have to look at that ownership, the fact the company IPOed a few years ago and say, hey,

they probably want to exit at some point. So, you know, is there a catalyst around the private equity exiting? Is there, you know, a strategic merger selling the sub-private company? These guys just tendering for a bunch of shares. I don't know, but talk about that stuff. Yeah, I think, like, you certainly have an aligned ownership and board structure, right? Like, you know, this controlled company, two owners, I believe it's like roughly 60% still owned by the private equity firms, GTCR and Warburg, top-tier, well-respected,

intelligent private equity ownership. It's not, you know, you-hoo's or whatever the term. And so, you know, you have a very good setup in that, like, the people in charge of the stock understand it. We talked a little before we hopped on the call about how, like, the background checks

are that, like, they intended actually to sell this to another private equity firm. But because the legal liability is just an awkward spot to sell 100% of business summons that they IPO instead. so the point being that like no smart no sophisticated buyer will take the whole thing so maybe sell a sell a chunk of it to unsophisticated buyers yeah yeah but so you know it's a very so the point being that like it was a likely already shops that there's plenty of people are already familiar

with the asset it's a very leverageable asset um it's it sucks a little over the private equity guys because you're going to have to pay a high EBITDA multiple so you're going to have to put a lot of equity, but you can throw seven turns of leverage on this company without a problem. It's been seven and a half times levered. I mean, before the IPO it was, right? Yeah, it was, for the most of its history, it's been seven and a half times levered without any problem because it grows and doesn't have any cycle. So, like, what's going to happen?

Like, you know, so it's a very private equity, equity attractive story. I think this setup from here is these guys, you know, private equity firms, they know how to get, you know, this is not an IR department that, like, just got hired out of nowhere, right? Like, they know that they got to find guys that know how to tell the story to people and explain to people and find the pitch and go to the right conferences. They have all the right sell side coverage, you know, like, it's, it's not an orphaned weird asset. And so, you know, I think the story for here is, you know, they have to pay down a little bit

of debt because of the settlement funding this year. So it's a little bit of a weird uptick that this year's free cash flow isn't around. But like, you know, 12 months forward, you know, It's going to be buybacks, I mean, dividend, whatever you want to talk about with, like, their cash, M&A, whatever exactly it is. It kind of depends on the stock trades. But it is not one of these things where I think, like, if two years from now, the stock is at the same price, that, like, you're just going to, like, wait it out and see what happens. Like, I think you're going to absolutely see these guys put this thing for up to sale if it's not going to happen to the public market. And so.

And it's $5.50 of EBITDA this year, you know, two years from now, it's almost unthinkable that EBITL wouldn't be. 600 or 650 or something. And that's ignoring M&A. I just wanted to briefly touch on M&A. You know, this is a 55 to 60 percent outsource business. It's been in private equity hands a lot that outsourcing race increases and it's kind of a duopoly that there are some smaller players out there. And M&A, I mean, I think the other thing, the reason private equities love this so much is and management talks about it. They clearly want to do M&A. Eminet's been in their genes and I think M&A can be really, really interesting here. Do you want to just talk about the bolts on possibilities and why that kind of is good for these guys sure so the other there's two other

divisions one of which is Nordian which is basically a monopoly supplier of cobalt um i'll just very very quickly head on it the buried entry there is you have to talk someone into putting a new thing that could blow up a nuclear reactor so there's no competition whatsoever for that thing it's a nice little business grows like 10% top line too say that's like 10% of ebid doc and then nelson labs is um or 15% And Nelson Labs is the other third division, which is about 15% of EBITDA also. And it's really the M&A story for this business. It's where they want to direct the most of their M&A. And what they do is it's another, they're adding a little bit of a cost for its revenue thing.

And so it's a very minor part of the story, in my opinion, frankly. But like another little part of the story is like you should see a normalization in that business. But like what they're trying to do in that segment is they're basically, trying to say that so what nelson does is it does um you want to make a heart scent okay but you want to use a new plastic how do you get that through fd approval and nelson does everything from like providing you know it's all tango and like this is what the fd is looking at now here's where we're at to like we're going to take a rat and sew a piece of the plastic into the rat and like let it live for a couple weeks and then break his neck and look at what happened in the rat like that's what

we do um and so that's kind of what it does but it's a pretty niche kind of thing. And again, it's just like the pitches that it's like sterilization 20 years ago where it's like, again, it's like, does you make your beer better? No, this is not an area that you guys really know about. Out sister to us. We're on top of the science. We're on top of the stuff. We're on top of what the FDA wants. And hey, J&J, do you want the headlines? J&J breaks five rats next during testing for a device. Give that reputational risk to us. Yeah, exactly. So you just sort of play it off. And there's a lot. lot of smaller players out there to kind of do this stuff. And so, like, there's an opportunity

to, like, roll it out and build this business. And also, while you're building the business with M&A, also grow your share with the companies, because, like, the more bulk you have, the easier the contract is, the easier, do you really want to have this in-house, do it outsource? So, you know what I mean? So it has this nice kind of thing. And frankly, a lot of the customers, I mean, almost all the customers are the same customers that Serenics has. So there's a complete overlap. They have separate right now. important legal liability they had separate go-to-market kind of thing so they really are two separate businesses inside it's definitely a holding company two separate businesses but there's a

very obvious overlap in that like they basically sell to almost the same exact department inside like the med device companies and so i i think like over time you know they've done well in acquisitions in the past right now the segment has this little you know revenue growth versus cost kind of thing which is mainly just hiring people it's people business not an asset business really. But I think there's a very nice, you know, the core, this business is already growing, like, say, 10% top line. If you actually throw like an M&A pipeline and there is a lot of these companies out there that you could look to roll up, there are a lot of these companies that will grow up. Like, you can easily push this to like a bid teens. You know, you're taking

with a free cash slow, but like you could definitely see this thing grow 15% topline and like 15% non-scyclical top line growers do not trade 15 times. And most importantly, the M&A should be pretty accretive because, A, you're buying, there aren't a lot of other buyers for smaller companies in this industry, you would think. And B, you should, as you were alluding to, they should have fantastic synergies, right? Hey, we're going to buy you. We're the largest player in this quirky industry. When we buy you, you know, if you're a one-off sterilization facility, we plug you into we deal with every single major medical player in the world. We plug you into all of them to fill your supply. If you're just a quirky little consulting site, well, we have reputation, we have

relationship with every major medical person you might only be working with one or two so you should have great like cross-selling synergies through those things so all your m&A should be quite accretive if done correctly but it looks and has been with not with staying the last one month it very classic looking private equity roll-up strategy of you get the bulk head going exactly come in at lower multiples we traded a higher multiple and then there's a tremendous cross-s synergy across the Yes. Last question I want to ask, and then maybe we can do last thoughts and wrap it up. One person did say, hey, you know, we talked about the legal. You talked earlier about there's a trend towards outsourcing both because it makes sense. It doesn't make your beer better, but also because you kind of want to avoid the legal headache. So why not put that on outsource? One person did comment, hey, is pricing in this industry going to go crazy now that the, you know, that legal overhangs over there? They used to take three to five percent pricing. Can they just start going back to customer and be like, hey,

Nobody wants to deal with this legal risk. We've got all these legal costs. Like, does pricing accelerate because just nobody wants to take on new risk from this? I think, like, that's definitely, I think that is a very high probability kind of event. I think it's very captive at this point, like demand-wise. Yeah, I think the answer is yes. And I also think, like, it's one of those things. I think it's super high probability for all the reasons you laid out.

But, like, you're certainly not paying for it anywhere. So I was like, you know, you don't need to talk me more into wanting to own Sotera at $17 a chair. Cool. Look, I think we hit everything. I think hopefully we've covered great business, reasonable multiple potential catalysts, legal choice, might. Anything we didn't talk about here that you think people should be thinking about or that you kind of think about with the company?

No, I mean, we didn't talk about Lurney and Nelson, but I don't think. The business and, you know, yeah. I think that, you know, I mean, they're pretty fun and interested. I particularly like Nordian, I think it's just a fun company. At any time you can deal with Russian nuclear waste, why not get excited about it, right? Yeah, exactly. Yeah, no. The only other final thing is your mustache.

We haven't addressed your mustache yet. The classic elephant in the room. I shaved it yesterday. I had speeding up with a group of guys. I thought they would be figuratively tickled by the mustache, so shaved it. And thinking about keeping it for a while. I was telling you before, I can only see a bunch of. your mouth when you popped on the Zoom, and I thought you were joining me in the mustache crew.

I try to shave my face one time a year to just keep track of what it looks like. And I do a little mustache then. Next time you come on the pod, when you come on for the fourth appearance, I expect you to have a mustache to join me. Sounds good. Well, hey, Chris, this has been awesome. I appreciate you coming on. I mean, you and I, we've been following it for a while.

You more successfully than me, but this is a really interesting story. And I'm with you, you know? I think this is a great business trading out a real. reasonable multiple. And I think you just get a little tailwind as people get more and more comfortable with the legal overhang being behind them and their results produce. And it's hard to see how the results don't come in at this point. Yeah, absolutely. Cool. Well, Chris Magdard, thanks so much and we will chat soon. Yeah, sounds good. Appreciate it. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have

positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.