Mirion Technologies, Inc. (NYSE:MIR) Q1 2024 Earnings Call Transcript

Mirion Technologies, Inc. (NYSE:MIR) Q1 2024 Earnings Call Transcript May 1, 2024

Mirion Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and welcome to the Mirion Technologies First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to hand the call over to Alex Gaddy, Senior Vice President of Strategy and Investor Relations. Please go ahead.

Alex Gaddy: Good morning, everyone and thank you for joining Mirion’s first quarter 2024 earnings call. A reminder that comments made during this presentation will include forward-looking statements and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q that we filed from time-to-time with the SEC under the caption Risk Factors and in Mirion’s other filings with the SEC. Quarterly references within today’s discussion are related to the first quarter ended March 31, 2024. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.

Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying the call today. All earnings materials can be found on Mirion’s IR website at IR [Technical Difficulty]. Joining me on the call today are Tom Logan, Chief Executive Officer; and Brian Schopfer, Chief Financial Officer. Now I will turn it over to our Chief Executive Officer, Tom Logan. Tom?

Tom Logan: Thank you, and good morning, everyone. To get us started today, I’d like to firstly thank my Mirion colleagues for delivering a very solid start to 2024. Taking a look at our Q1 results, there are a few key highlights, so I’d like to note for you. First, our end markets remain healthy across the enterprise, supported by improving fundamentals, particularly in nuclear power and cancer care. Order growth was relatively flat in Q1, but this isn’t surprising given the strength we saw last year and the fact that Q1 is historically our lightest volume quarter. Overall, we continue to see excellent customer engagement, the timing dynamics impacted quarterly order growth. As an example, we received an approximately $15 million European defense order at the outset of Q2, which is not included in the results shared today.

Second, I am proud to announce the commercialization of our InstadoseVUE technology, which we believe will revolutionize the occupational dosimetry space. We’ve commercially deployed thousands of units during a Q1 soft launch and customer interest in the product is high. We expect the adoption cycle for InstadoseVUE to be lengthy, but we are confident in the distinct differentiation that this product brings to the marketplace. Note that for competitive reasons, we will not be providing quarterly updates on badge volume going forward. Third, in terms of financial performance, we delivered total company organic revenue growth of 5.5% in the quarter, which was in line with our expectations. The technologies business led the way with 8% organic growth.

Total company adjusted EBITDA grew by 8% year-over-year, reaching nearly $40 million for the quarter. We delivered 40 basis points of adjusted EBITDA margin expansion led by our technologies business, which provided 170 basis points of expansion. Finally, we have reaffirmed our 2024 financial guidance and continue to project organic revenue growth of 4% to 6% and adjusted EBITDA of $193 million to $203 million. Brian will provide more detail on our quarterly financial performance. So I’d like to use most of my time today to discuss areas of critical importance as we think about medium and longer-term growth. Note that the asset that more than two-thirds of our top line growth is driven by two super trends, namely nuclear power and cancer care, which we expect to be robust, global and long in the tooth.

Turning first to nuclear power, which is in the midst of global resurgence. The world’s demand for energy is increasing dramatically with all geographies struggling to find reliable sources of cost-efficient clean power. The emergence of AI and the attendant growth of high-energy-consuming data centers is putting increased demands on energy infrastructure. Additionally, we see continued decarbonization commitments globally and the push for energy independence driving elevated interest in nuclear power. As stated before, we believe nuclear power is a green energy source and will play a primary role in meeting increased energy demand through both utility scale reactors and small modular reactors. While the overall demand function for Mirion’s nuclear business remains robust.

There’s an emerging body of public policy that makes us confident in the significant tailwinds support in the end market. Looking at the U.S. for a moment. The federal government has set a net 0 target for the year 2050, and it’s difficult to see a path where nuclear power doesn’t play a meaningful role in meeting that goal. Nuclear power plant operators are performing well financially, which is changing the calculus surrounding capacity utilization, life extension and even capacity uprates. Extraordinarily, we saw the restart announcement of the Palisades Nuclear Power Plant in Michigan in Q1, a previously doomed facility. We view this as yet another evidentiary point supporting the criticality of nuclear power in the American power market.

Beyond life extensions and restarts, the EPA has recently issued sweeping new rules requiring existing coal plants to limit and capture carbon emissions and sets forth strict operating rules for future new coal plants. Additionally, an April publication from the DOE under the auspices of its cold and nuclear initiative highlights the expected economic and environmental benefits of replacing coal power plants with SMRs or utility scale reactors. With 30% of the nation’s coal plants expected to retire by 2035 and over 300 existing and retired coal plants that have been deemed suitable to be replaced by nuclear plants, nuclear has a promising opportunity here. Now while the dynamics I’ve just touched on are U.S. centric, they can be broadly extrapolated to global markets as well.

As a reminder, nearly 40% of our total company revenue in 2023 was tied to nuclear power as we are the leading provider of safety-critical radiation detection and measurement solutions to the global nuclear fleet. Mirion’s unmatched product portfolio is reactor technology agnostic and serves all three stages of the plant’s lifecycle, namely new construction, plant operations and decommissioning. We are in robust strategic engagement with the burgeoning SMR community and are committed to extending our relationships with traditional utility scale OEMs and utilities worldwide. There is a similar super trend unfolding in the area of cancer care, which represents nearly 30% of our total company revenue. This has been driven by fundamental growth in radiation therapy, which is supported by an aging population and demographic and developed markets and improving standards of care in developing markets as well as the revolution in nuclear medicine catalyzed by the emergence of therapeutic radio ligand treatments.

More to come here in future calls, but the opportunity for Mirion to participate and drive future growth is clear, compelling and significant. Now turning to commercial and operating teams and focused on improving our execution in the following areas. First, I’m committed to continued improvement within our French business, which will improve our organic growth, margins and capital efficiency. Second, we are aggressively executing on self-help themes, including extending pricing heuristics, cost out and procurement programs, internally focused AI automation and capitalizing upon Mirion’s inherent operating leverage. Let me reiterate here that we remain confidently committed to reaching our 5-year 30% adjusted EBITDA margin target. Third, the continued evolution and enhancement of the Mirion solution set through our investments in digital capabilities, customer-facing AI and our robust new product development pipeline.

And lastly, supplementing the business through strategic and opportunistic M&A, primarily geared toward new capabilities and defending and extending our category leadership. With that, let me pass the call over to our Chief Financial Officer, Brian Schopfer. Brian?

Brian Schopfer: Thanks, and good morning, everyone. To kick off my commentary this morning, let’s turn to Slide 4 to take a look at our first quarter results. Total company revenue was up 5.8% and adjusted EBITDA was up 7.9%. Total revenue in the quarter was $192.6 million, and organic growth was 5.5%. Adjusted EBITDA totaled $39.5 million, with margins expanding 40 basis points to 20.5%. Overall, quarterly performance was in line with our expectations, and I’m pleased with the progress shown with regard to margin expansion. Let’s now dive into more detail around our segment performance during the first quarter. Let’s begin with the Medical segment on Slide 5. Medical revenue grew 0.6% on both a reported and organic basis and the ECS acquisition almost fully offset the Biodex divestiture in terms of revenue contribution.

As a reminder, this will be the last quarter of inorganic impact from the Biodex divestiture. Medical top line performance was negatively impacted by approximately $4 million, stemming from the implementation of a new ERP system within our nuclear medicine business. While we did expect an impact from the ERP implementation, the temporal impact was larger than originally anticipated. The implementation was completed in February. We do not expect further material ERP-related issues in Q2 or the rest of 2024. Order dynamics and backlog remains strong within nuclear medicine, exemplified by order growth of 17% and the doubling of our backlog versus the same period last year. Excluding the impact from the ERP, medical organic growth would have been approximately 7.1%.

Medical adjusted EBITDA margin was 30.7% in the quarter, generally flat compared to the same period last year. And we now have an ERP blip, we would have been – we would have seen solid margin expansion in the segment. Margin enhancement remains a key area of focus, where we expect year-over-year margin expansion in Medical for the full year. Moving on now to Slide 6 in the Technology segment. Technologies revenue grew by 8.7% and for the quarter, with organic growth of 8.4%. Top line growth was broad-based across the segment and supported by strong quarters from our Nuclear Power and labs businesses. Technologies adjusted EBITDA was $33.1 million, up 16.1% from the same period last year. Adjusted EBITDA margin expanded 170 basis points to 26.3%.

As expected, Technologies margins took a step forward in Q1, supported by strong execution. Overall, I am pleased with the progress made against our improvement initiatives, particularly in France, where we are gaining momentum. We still have work to do and expect improvement in the back half of the year, but Q1 was a good first step. Turning over now to our cash flow performance for Q1. Adjusted free cash flow was negative $4.5 million and net working capital was a burn in the quarter. This was generally in line with expectations. And while negative in the quarter, performance versus the same period last year is an improvement. More specifically, inventory momentum is improving as we saw an $11 million reduction versus the same period last year.

Secondarily, you will also see a larger-than-normal CapEx number, and that is reflective of us executing our InstadoseVUE Lounge plan by having product on hand. Absent the CapEx investment InstadoseVUE cash flow would have been positive in Q1. Our target for the first half continues to be cash flow positive for the enterprise. Before diving into our reaffirmed guidance for the year, I wanted to highlight the warrant redemption announcement we made a couple of weeks ago. We have opted to exercise our right under our warrant agreement to redeem all of our outstanding public warrants. Warrant holders may choose to exercise their warrants by either paying the exercise price for one full share or redeeming their warrants on a cashless basis at a ratio of 0.22 shares per warrant before May 20, 2024.

This action is a meaningful step in simplifying our overall capital structure while eliminating future dilutionary effects for existing shareholders. Finally, I’d like to close out my comments by highlighting our reaffirm 2024 guidance on Slide 8. Given our solid start to 2024, we are maintaining our previously issued financial expectations with organic revenue growth of 4% to 6% for the year, supported by mid-single-digit organic growth from both segments. We are also reaffirming our adjusted EBITDA guide of $193 million to $203 million. Thinking through the cadence for the rest of the year, we are expecting Q2 margin pressure in our Technology segment, primarily related to product mix. In addition, we are making investments in supply chain and procurement with the associated costs hitting in the first half and benefits beginning to materialize in the second half and into 2025.

We are very excited about this initiative, and we’ll talk more later in the year about it. Despite the dynamic, visibility into our margin expansion in the second half is robust and supportive of the overall enterprise expansion target for the year. Adjusted free cash flow remains at $65 million to $85 million for the year and adjusted EPS in the range of $0.37 to $0.42. Overall, the first quarter was a good start to the year, and I am encouraged heading into the rest of 2024. With that, I’ll now pass things back to Alex to open the call up for Q&A.

Alex Gaddy: Thank you, Brian and Tom. That concludes our formal comments for this morning. Let me pass things back over to the operator to open up the session for Q&A.

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