Larry Kingsley - Chairman Tom Logan - Founding, Chief Executive Officer Brian Schopfer - Chief Financial Officer Alex Gaddy - Vice President of Finance, Investor Relations

Greetings! And welcome to Mirion Technologies Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time all participants are in listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Gaddy, Vice President of Finance. Please go ahead.

Good morning, everyone, and thank you for joining Mirion’s earnings call announcing financial results for the fourth quarter and full year ended December 31, 2021. My name is Alex Gaddy, Vice President of Finance and Investor Relations at Mirion and I will be moderating today's event. A few housekeeping items before we get started. I would like to remind you that the discussions 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 file from time to time with the SEC under the caption Risk Factors and in Mirion’s other filings with the SEC. As a reminder, quarterly references within today's discussion are related to the fourth quarter ended December 31, 2021 unless otherwise stated. The discussions 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 this presentation for this conference call. Please note that today's prepared remarks will be followed by a Q&A session. Our earnings presentation and transcript will be published today, and can be found on Mirion's IR website at ir.mirion.com. Joining me on the call today are Larry Kingsley, Chairman of the Board; Tom Logan, Founding, Chief Executive Officer; and Brian Schopfer, Chief Financial Officer. Now, I will turn it over to our Chairman of the Board, Larry Kingsley. Larry.

Thank you, Alex, and good morning everyone. We appreciate your interest in Mirion and we're pleased to announce our earnings results for our fourth quarter and full year 2021, as well as to share our expectations for the business for fiscal year 2022. Before I turn the call over to Tom, I'd like to take a few moments to highlight some of the key takeaways from ‘21 and to share my thoughts on the company heading into ‘22. As Mirion continues to evolve and develop its public company journey, there is a lot to be excited about going forward. All of the same themes that I highlighted in our call in November remain intact and I want to reiterate how well positioned Mirion is to capitalize on what we believe is a favorable macro environment across the company's diversified product portfolio. I’d like to leave you with three key takeaways from my portion of this morning's call. First, the company overcame a variety of challenges during the fourth quarter and still delivered solid results. Between the surge of the Omicron variant, the state of the global supply chain, labor supply headwinds and the company wide effort needed to become a public company, Mirion was able to grow its business and advance many of its key strategic initiatives. Second, the company specific and macro growth opportunities across the product portfolio are proving sustainable. This includes supportive trends in both the industrial and medical segments and a healthy M&A pipeline, exemplified by the recent CIRS acquisition. Third, and probably most importantly, the team at Mirion has a strong history and is adapting well to the needs and requirements of being a public company as we all expected. Tom Logan has an outstanding reputation delivering meaningful returns for investors over the course of…

Thank you, Larry. Before I dive in, let me echo Larry’s sentiments about the strength and relevance of our relationship. It’s incredibly valuable to me to have an ally and a strategic sparring partner with the domain experience, the relationship capital, and the reputations that Larry brings to the table. I’d also like to thank each of my 2,600 colleagues across the globe who have gone above and beyond to help us become a public company, that driver our strategic and are through an incredibly challenging operating environment. The work you do is paramount in keeping people and the environment safe and healthy. I'm thrilled that we were able to successfully enter the public arena, but candidly I’d have to say that I'm excited to get back into running the business full time. We have a lot to look forward to and we're very well positioned to execute in 2022. Now beginning with slide four of the deck, I’d like to take a few minutes to highlight our view on the various markets in which we operate and show our outlook for this upcoming year. I'll begin with the medical segment, which accounted for 34% of our total company revenue in 2021. We're expecting to deliver high single digit growth in 2022 and are maintaining a positive outlook across Dosimetry, Nuclear Medicine and Radiation Therapy QA. I’d like to reiterate our goal for medical to exceed more than half of our total company revenue over the longer term planning horizon. In occupational Dosimetry, we operate in a stable market and employ a subscription based business model, with high volumes of recurring revenue. We maintain a positive outlook on this space and expect growth to be supported by converting existing customers to our innovative digital Instadose platform in addition to gaining…

Thank you, Tom. I'd like to get started by thanking our team for their hard work and dedication to help us close out our first year end as a public company. I'd also like to thank the investors and analysts on the line for taking the time to get to know our business. We appreciate your time and look forward to continuing the relationship that we have established thus far. And with that, let's turn to slide seven and take a deeper look at our results for the fourth quarter. As Tom noted, our team delivered a solid performance with total revenue growth of 20% and adjusted EBITDA growth of 17%, each compared with the same calendar period from the previous year. Total company organic revenue grew by 2.7%, primarily due to the performance of our industrial business, offset by the Nuclear Medicine challenges that Tom mentioned. Our total sales in the quarter were $180.9 million with adjusted EBITDA of $44.8 million. Adjusted gross margin expanded by 300 basis points to 51% for the quarter, while adjusted EBITDA margin declined slightly by 70 basis points to 24.7%. Adjusted gross margin expansion was driven by our medical segment contributing to a higher percentage of Mirion's total company revenue. This expansion is offset further down the P&L by higher operating expenses associated with recent acquisitions in the medical segment, continued growth focused R&D investment and corporate expenses related to public company requirements. Looking at our performance for the calendar year, we delivered adjusted revenue growth of 32% with 3.6% organic revenue growth and adjusted-EBITDA growth of 29% year-over-year in 2021. Our adjusted gross margin increased by 280 basis points to 51%, but adjusted EBITDA margin decreased by 60 basis points to 24.2% compared to the last year. The adjusted EBITDA margin was…

Thank you, Brian. Before we open things up for questions, I'm going to leave you with just a few closing thoughts. Firstly, 2021 was a huge year for Mirion as we became a public company. It was a huge lift, a huge resource dedication internally and we're very, very pleased with the results, but candidly again, I'm very much looking forward to focusing on the business again as we journey through 2022. Secondly, our end markets are healthy; and finally, we're confident in our strategy. So I'd like to close by again sincerely thanking my colleagues on the Mirion team and let me turn it back over to you Alex.

Thank you, Tom. That concludes our prepared remarks for today. We will now open things up for Q&A. With that, I’ll turn it back over to the operator to get things started.

Thank you very much. [Operator Instructions]. One moment please while we poll for questions. We have a question from the line of Joe Ritchie with Goldman Sachs. Please go ahead.

Hi! Good morning Larry, Tom, Brian and Alex. Great to join you guys today and I appreciate all the details this morning.

Thank you, Joe.

Thank you, Joe.

So before I get going, I have Ronny Scardino on my team as well and I think we are going to tag team some questions here. So maybe I'll just kick it off and then can turn it over to Ronny; we’ll just go back and forth. But the first question I have is really look, you're two quarters in as a public company. We recognize that also kind of happens to coincide with like probably the worst supply chain backdrop that most of us have ever seen. But the question though really relates to organic growth and the confidence you have in achieving that 5% to 7% long term target, and what's embedded into your 2022 guide, given that we haven't seen it quite yet in the first couple quarters, maybe let's start there.

Yes Joe, this is Tom. I would tell you that we remain very confident in the 5% to 7% of gross that we guided throughout the – you know essentially the going public process, which would include both the pipe raise and also the official de-stacking. The rationale behind that is, that again if you look at the market conditions that we've addressed today across the reporting segments. So firstly, in the industrial segment which is dominated by commercial nuclear power. Again, I cannot understate the quality of the underlying dynamics right now in the nuclear industry. As I noted in the prepared comments, I've been enrolled now for more than 18 years and as we look across the key elements of the nuclear power industry, which we would define as the installed base dynamics, new build activity and decommissioning activity, we see tremendous strength in each of those areas supported by continued focus on decarbonizing the global economy, the change in alternative energy supply dynamics, most significantly the significant increase year-over-year in natural gas pricing and beyond that, the tremendous new build activity that in many respects is driven by regional energy security needs overall. And so the combination of these factors makes the nuclear industry very attractive to us and is noted we're seeing that in our order intake, we're seeing that in our backlog. As we look across the other sectors of industrial, which would include the life-sciences or lab space, the military and defense space, other industrial applications. Again, for the reasons cited we’re seeing strength there, not only in the current year, but as we look ahead we expect to see sustained strength. Finally, on the medical segment, the dynamics again are consistent with what we've guided previously. On the radiotherapy side we are seeing…

Joe, this is Brian, just two minor other things. One is, I would emphasize that just in our organic growth numbers, is very little Sun right, and Sun definitely grows high single digits as we've talked about before, so I put that into the mix too. And the second thing I would mention is, our first quarter will be our toughest comp as we go through the year. The quarter we went through, you know obviously this processed off of – it's a double digit comp, so that's going to be the hardest comp as we think about it and I think we've laid all of that out in the materials that we provided this morning as well.

Yes, no that's great. I appreciate the answer Tom, and then Brian yeah, it was great to see that all the segment level details that you guys gave on a quarterly basis in the presentation. You know Tom, I want to follow up on a comment that you made in your prepared comments about nuclear, because it's an area that we get a lot of questions on. You said that you've never seen a better I guess point in time than in your history in the space than you're seeing today with the nuclear industry, and I'm just curious like, you look at your low single digit growth guide for 2022. I'm just trying to square those – the comment with the growth expectations and if you could maybe kind of provide color beyond 2022 on the different parts of your business, whether it's decommissioning new builds or the installed business.

Sure. So Joe, the way I would address it overall. Firstly, just to note that if you look at our total nuclear power related business, it represents about 38% to 39% of our total revenue and we can further subdivide that element into the three component pieces that I referenced previously. The installed base typically is about three quarters of our nuclear power related revenue. New build or new construction activity is typically in the 15% to 20% range, decommissioning activity, which is really nascent. The developing market overall represents the remainder, so it begins with the installed base. If you look over the last couple of decades at some of the dynamics within the installed base of nuclear power, you’re seeing a lot of challenges where as an example, in the U.S. you have seen a situation where the operators of nuclear power plants, of which there are about 93 operating today in the United States, and about half of those sold their power into deregulated markets. And if you look at market conditions over the past decade, where we've seen a significant proliferation of combined cycle gas, turbine power plants, you have seen some unusual demand patterns as we emerge from the great recession overall; you’ve seen the increased impact of heavily subsidized wind and solar power and all of those factors created stress for the American nuclear base, which at its peak created a situation where about 30% of the American fleet was economically challenged and potentially facing shut down situations. To fast forward to today, if you are to look at that installed base and really use this as a proxy, there are different conditions regionally in other parts of world, but let's use this as a proxy for the way the dynamics have shifted. Is…

Well, it makes sense. I think Ronny’s got a quick question, a follow-up for Brian.

Yeah, thanks guys. Ronny Scardino here and I'll just – I’ll chime in next. So Brian, you talk about 1Q being the toughest comp. So just want to try to understand the lumpiness of growth of really we should really expect in the business, whether there's any seasonality. Basically I’m just trying to understand how much growth in any one quarter should deviate from that long term growth framework, and specifically weather 1Q growth you think would be negative?

Yeah, so like I said, I think the first quarter's our toughest comp, right, double digits. I think where we sit today is you know we think it'll be a flattish quarter more than anything else. As you look at the rest of the year, the balance of the quarter, I expect you know decent growth in all three quarters. We have a much easier Q2, Q3 comp as we've now disclosed and I think that you know it's fairly balanced after the first quarter. The other thing I would just mention is, as you think about our – you know we’ve changed from a fiscal year to a calendar year, you know I do think we are seeing and probably will see a little bit of movement in revenue from our historical June quarter into the September quarter. I think this is a positive thing for the company frankly and it'll all balance, balance of our planned workload etc. So I am expecting to see a little bit of shift there. When you talk seasonality, I mean general rule of thumb, 20% in the first quarter, 30% in the second, 20% in the third, 30% in the fourth is generally kind of what you – what we expect to see from a revenue kind of percentage standpoint.

Got it. No, that is helpful. I guess maybe just switching to incrementals quickly, I think the guide it takes in mid-20’s type you know incremental if you exclude [inaudible], which you know seems conservative in light of the long term goal, which I think has you know maybe doubled that on an incremental basis. So I guess question one is just you know how do you still feel about that long term incremental target and then you know what is laying down margin specifically in 2022?

I mean, so just stepping back, let's talk about ‘22 for a second. I mean it's mainly just digesting our public company costs. You know what I think we found as we've gone through this process and baked into our planning cycle is it’s a little bit more expensive than we thought it would be to be public, and some of that stuff is not controllable. It's not nice to have stuff. It's insurance, etc. So as you think about the incrementals from ‘21 to ’22, it's mainly a public company costs issue with a little bit of mix, right. So there's a little bit of mix, a little more new build, a little less recurring. Something we had always knew was coming. It’s probably a little heavier than we had originally planned, but I think we're okay with it. As we think about the go-forward, I think this is the biggest year for us to digest cost and I expect you know our longer term guide to get to 30% margins is something Tom, Larry and I are extremely focused on.

Yeah, that is helpful. And just remind us, I know there was a discussion at one point of allocating corporate costs more into the segment. You know did that occur with this additional data that you’ve given and – or is that something we could expect in the next few quarters.

Yeah, I think you'll see us come back out at some point in the first half year with some more on that. You know we did have a couple of million dollars move from corporate to the industrial segment in our planning; it didn't happen in the fourth quarter. So there was a little bit of noise in the – that we'll see in the ‘22 numbers, but any broader reallocation will come back around too on that year in the first half. I want to keep it clean and then as cool as we can.

Thanks Brian. Yeah, I’ll turn it back to Joe1.

Yeah, I mean we'd be remiss if we didn't ask you guys’ questions about M&A. You know clearly it’s like top of mind for investors, really to drive both top line growth and also margin expansion and so I guess maybe my first question is in the near term is the focus still on M&A or is deleveraging the balance sheet more of a focus today?

This is Tom. What I would say is that they are both important. That you know firstly on the M&A side, I think if you look at our track record, in terms of sourcing attractive deals that are strategically coherent, essentially securing the purchase at attractive pre-synergy multiples and ultimately it integrated, that we’ve done well in all of those areas. It's been a very, very important contributor to the overall growth of the business; not only over the last five years, but throughout our longer term history. That will continue to be the case, and I think the expectation that we put out there, 5% to 10% of inorganic growth continues to be very sustainable. There are a few things to note, that firstly if you look at the contribution of CIRS, that will add about 2% of additional growth to the CY ‘22 topline. And as we look beyond that at our ability again to add additional deal flow that will take us into that range, we remain confident. Now on the leverage issue, clearly our view and our expectation is that over the intermediate to longer term, certainly over our planning horizon, we will very deliberately seek to delever the company. Our target as we have cited historically and which we maintain, is that we'd like to bring leverage down into the 3x to 3.5x range overall, so that's leverage as a multiple of the company’s EBITDA overall. Today we’re just over – we’re about 4.3x and we understand that there's an investor desire and expectation that will bring that down as we move ahead. However, when you look at the free cash flow generation of the business, our free cash flow generation overall is about $100 million, and if you look at a reasonable set of assumptions regarding entry multiples, EBITDA margins, immediately attainable synergies, things like that, I would tell you that we remain comfortable that we can again add inorganic growth within the range that we've guided, with nominal deleveraging in the near term, so we are certainly sustaining our view. I’ll conclude the comments here by noting that right now our pipeline is great. We continue to be very active in cultivating a pipeline that's consistent with the strategic objectives of the business and we feel very good about where we sit on the front right now.

That’s super helpful. And just to clarify a point you just made Tom, so the connection to cash flow, is the assumption that you'll be funding deals with cash and can still deliver via cash or are you also contemplating using equity to do deals.

You know, I’d tell you that so we don't have any immediate plans to use equity to fund deals, but our view is that through a combination of cash as well as what would be proportionally lower incremental leverage that ultimately there is a way, there is a pathway for us to again operate within the envelope that we've defined with nominal deleveraging of the business overall.

Got it, okay. And then just a couple of other quick clarification. I want to be cognizant of your time as well, so I appreciate all the questions on the call today, but just a few questions that we've gotten from investors as well. The first one, I think you made a comment earlier around price outstripping inflation, 2 points back half of the year. I guess just to clarity that, the point is, is that 2 points ahead of inflation, is that 2 points excluding inflation. Just trying to understand how you're thinking about the framework for 2022.

So that's 2 points of only price. Net inflation is not – is less than that. The way I would also think about that from a sequencing standpoint is, price costs will be negative in the first quarter, neutral in the second quarter and then obviously we gain a bit in the back half of the year. And I'm not – I would tell you that our assumption is not a huge prices cost up-lift on margin, there is some, but it's not a big number.

Okay, yep, that makes sense. I think that's how we heard it as well. A couple of investors asked us about Russia, Ukraine and whether you know any general thoughts around the situation that's unfolding there and how that could actually impact your business.

Maybe I'll just tune up on the financial side and then Tom you can add some color. So the way we – if we think about our exposure to Russia and Ukraine, it's mainly Russia. It's about 10 million of direct business into Russia. We have obviously – we are partnering with on some Russian backed or some Russian technology reactors being built in Huntington, Finland etc. and our expectation right now is we may see a little bit of cash kind of move to the right, but we're not expecting a P&L impact at this time. So, I think that's kind of how we're thinking about it internally and we continue to watch what's obviously an evolving situation.

Got it great. And then just a last question, because we saw it come out as well with your filings today. Just the COO departure, just give any color around that. Was this always a position that you guys intended to eliminate. Any of your thoughts around it, that would be helpful.

Yeah, the expectation was as we got beyond the public exit, that ultimately we would see again an evolution of our operating model, where the key business units or two segment leaders would report directly to me. This has been the case through most of our history, where the operating unit heads have reported directly to me and as we prepared ultimately to exit the other company even long before we planned on the spec exit. There was great utility and creating the COO position to more directly manage the operations while I could focus on my limited bandwidth on exit processes and other strategic matters. Now that that's behind us, it give us license to again revert to the historical model where there's more direct touch and interaction between me and the unit leaders. And so it's something that as we looked at the evolution of the operating model, that we've been thinking about for quite a while. In terms of the actual departure in the 8-K, that decision was made a few days ago. It certainly was in the SEC filing window for the 8-K and really separating apart from the more strategic structural changes to the operating model I noted.

That makes sense. Tom, Larry, Brian and Alex, thanks. I really appreciate all the time today.

Thank you, Joe. Thank you, Ronny.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session and I'd like to turn the call back to Thomas Logan for closing remarks. Over to you sir.

Ladies and gentlemen, so this is our first public earnings call and we're delighted that you had the opportunity to listen in and participate today. Again, I’d close by saying that we feel good about where we are as a business and good about the strategy and the overall market conditions that we see ahead of us and we look forward to updating you on our progress next quarter. But in the meantime again, thank you for your time and attention and we’ll look forward to connecting with you in the future.

Thank you. Ladies and gentleman, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.