Mirion Technologies Inc

NYSE:MIR

Earnings Call Transcript 2021-Q3

[Operator]

Greetings, and welcome to Mirion Technologies, Inc. Fiscal Quarter ended September 30, 2021 Earnings Conference Call. [Operator Instructions] I would like to turn this conference over to your host, Mr. Alex Gaddy, Vice President of Finance and Investor Relations. Thank you, sir. You can go ahead and begin your presentation.

[Alex Gaddy, executive]

Good morning, everyone, and thank you for joining Mirion's earnings call for the financial results for the quarter ended September 30, 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 the registration statement on the Form S-1 filed by Mirion with the SEC under the caption Risk Factors and in Mirion's other filings with the SEC that it makes from time to time. Our 8-K/A to be filed today will be submitted with financial results performed before the business combination with GS Acquisition Holdings Corp. II.

The discussion during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of 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. As a reminder, quarterly references with today's discussion are related to the period ended September 30, 2021, unless otherwise stated. In addition, all guidance referenced excludes the impact of the recently announced acquisition of CIRS.

Today's call will not be followed by a Q&A session, but please direct any follow-ups or questions to [e-mail]. The earnings presentation will be filed today, and can also be found on Mirion's website at ir.mirion.com. Joining me on the call today is Larry Kingsley, Chairman of the Board; Tom Logan, Founder and CEO of Mirion; and Brian Schopfer, CFO of Mirion.

Now I will turn it over to Larry Kingsley, Chairman of the Board. Larry?

[Lawrence Kingsley, executive]

Thank you, Alex, and good morning, everyone. It's great to be on Mirion's first investor call as a public company to announce our first quarter fiscal year 2022 results and our expectations for future performance. Before I turn the call over to Tom Logan, our CEO, I want to begin with a few remarks about how excited I am to be working with Tom and the whole Mirion team to deliver on the many opportunities we see ahead.

I've spoken with many of you over the past 6 months, carefully describing what attracted me to Mirion and what opportunities I see for the business going forward. Today, approximately 10 months from my first meeting with Tom, I am more confident in the opportunities ahead than when we began. I'm especially gratified by the partnership I've developed with him.

Not only is he a founding CEO of Mirion, but he is an incredibly strong operator and a great steward of this company. Our partnership has already exceeded my initial high expectations, and I'm very excited to work ever more closely with him and the broader team to help Mirion continue to delivering on its commitments.

Slide 3 of the earnings deck describes many of the attributes that drew me initially to Mirion. The company has a great position in a good industry, is able to differentiate with technology, and has great potential upside for growth and margin expansion.

Over the past 16 years, Mirion has grown at double-digit rates and expanded margins by over 1,000 basis points and has become the clear global leader in the market it participates in. And I believe the fundamentals are firmly in place for that to continue for a long time to come.

The company serves a large and attractive addressable market with multiple secular growth drivers and multiple paths to expand. The detection and measurement of ionizing radiation is a mission-critical function in essentially all of the company's end markets. High recurring revenue mix and inelastic end market demand makes Mirion's businesses very resilient to economic cycles. Combined with excellent economics, expanding margins, a deep acquisition pipeline, and established acquisition identification and integration process, Mirion is well positioned to deliver strong performance for shareowners.

Much of the heavy lifting necessary to get the foundation in place has been done, and Mirion is very well positioned to benefit from the continued evolution of a solid operating system. A similar type of system with process disciplines that continue to deliver outstanding results at companies like Danaher, IDEXX and Pal Corp, all those that I've been associated with.

With that, I'll turn the call over to Tom, who can take us through the business and the quarterly performance in some more detail. Tom?

[Thomas Logan, executive]

Thanks, Larry, and thanks for the introduction. Before I begin, let me echo Larry's comments. It's been a privilege working with Larry these past several months. We've already forged a very productive and highly collaborative relationship.

I expect this partnership to directly benefit shareholders over the coming quarters. I'd also like to thank investors on the phone today with many of whom we've had the opportunity to discuss our business and the opportunities we see for the company. We appreciate your support and look forward to working hard on your behalf to continue building a great company.

Finally, I want to thank all of Mirion's nearly 2,500 employees who have worked entirely this year to continue delivering strong performance across all of our businesses. While our journey is nowhere near complete, I'm very proud of our transition to becoming a public company.

Moving to Slide 4, as you can see, we have been quite busy. We closed the deal with GS Acquisition Holding Corp II on October 20, and followed the closing with a great day on October 21st by ringing the closing bell on the New York Stock Exchange. Those events were a great joy for our team and continue to elevate the Mirion brand in the marketplace.

We formed an excellent Board of Directors chaired by Larry Kingsley. We've also refinanced our debt, reducing net leverage to 4x pro forma and the related interest burden on the heels of a fantastic fiscal year '21 financial performance. Lastly, our M&A campaign continues to evolve as planned with 3 accretive bolt-on acquisitions in the Medical segment, expanding our presence in complementing the Mirion portfolio. Important to note that our acquisition of CIRS is currently pending and has not yet closed.

Now let's turn to Slide 5 to review our financial results for the quarter ended September 30, 2021. First of all, let me say I'm extremely pleased with the company and team's performance during the September quarter. We have seen a number of supply chain challenges and logistical delays throughout the COVID period. We have been successful in mitigating the majority of these by supporting suppliers and sourcing critical components, extending our sales and operational planning forecast windows and leaning on our strong strategic inventory positions.

While global supply chain conditions appear to be worsening, we expect the attendant impact on us to be relatively muted. We believe we've been successful in asserting pricing offsets to rising material labor input costs. We expect to be fully compliant with U.S. federal government vaccine mandates with minimal employee attrition, that harbor some concerns regarding the potential impact on external logistics. This is an area of significant focus for me and the entire Mirion team, and we are sustaining a vigilant posture toward the evolving challenges.

For the quarter, our team delivered total revenue growth of 29%, an adjusted EBITDA growth of 28%, each compared with the prior year periods. We delivered organic adjusted revenue growth of negative 0.1%, a strong performance against the year ago comp of 8.5% growth.

In the Medical segment, 10.8% organic growth was driven by solid end markets and a bounce back from COVID-related headwinds. A better medical mix also helped drive adjusted gross margin expansion of over 300 basis points for the company overall. Industrial segment organic growth was negative 2.4% for the quarter compared to an 11.3% year-ago comp. Brian Schopfer will provide more color on our segment performance shortly.

I'd like to now turn to discuss execution against some of our key strategic initiatives, new products, strategic cost objectives and an update on our M&A process and pipeline. After significant testing in select nuclear power plants, we launched Orion, an innovative ecosystem that facilitates real-time integration of positional information with performance telemetry data in highly attenuated environments.

We also launched lab haul Services, which reduces the downtime of critical scientific instruments through the cloud-based transmission of performance data to our field services teams. The integration and footprint consolidation activities within newly acquired businesses is progressing well despite modest delays associated with certain facility consolidation objectives.

Our M&A pipeline continues to be both active and robust. We recently announced 2 medical dosimetry acquisitions, which will bolster our position in that segment. Yesterday, we announced the acquisition of CIRS, and I am pleased to welcome the CIRS team to the Mirion family. We're excited to augment our medical segment focus through the integration of CIRS' products, software and services capabilities.

Together, we will strive to improve patient care and outcomes in both the therapeutic and diagnostic markets. This acquisition is part of our broader inorganic growth strategy to add accretive, complementary businesses to enhance our product portfolio and to better serve our customers. As we've explained consistently over the past 6 months, we remain confident in the opportunities for acquisitive growth across our portfolio of businesses, both in the near and long term.

I want to close with some specific comments regarding the company's performance in the quarter and our outlook for the year. Performance was in line with our expectations in the quarter, and we are reiterating our guidance for the 12 months ended June 30, 2022 of $723 million in adjusted revenue and approximately $179 million of adjusted EBITDA.

As Alex mentioned, this guidance excludes the incremental impact of CIRS on our results. Demand for our products and services continues to be strong and is accelerating despite continued supply chain pressure.

To provide a deeper look into our performance and outlook, I'd like to hand the call over to Brian Schopfer, Mirion's CFO.

[Brian Schopfer, executive]

Thank you, Tom. I'd like to also begin by thanking all of you who joined us over the past several months for our virtual investor roadshows, where we had the opportunity to showcase the strong foundation we've built for generating sustainable long-term results. We are excited to begin this chapter as a public company and look forward to working with you more closely.

So with that, let's turn to Slide 6 and our results for the quarter. As Tom noted, our team delivered a positive result with total revenue growth of 29% and adjusted EBITDA growth of 28%, each compared with the prior year periods. Organic revenue growth declined by 0.1% primarily due to challenges in supply chain and our prior year comparable growth of 8.5%. Interruptions in supply chain impacted organic growth by approximately 2 to 3 percentage points for the quarter mainly due to timing delays.

I would like to highlight the 2-year stacked organic growth of 8.4% for the quarter and 9 months ended organic growth of 4% for the company. Our total sales in the quarter were $148 million with adjusted EBITDA of $30.9 million.

Adjusted EBITDA margins remained flat as adjusted gross margin improvement was offset primarily due to higher operating expenses associated with certain recent acquisitions in the Medical segment, continued growth focused R&D investment and corporate expenses related to public company requirements.

So now, let's go into more detail on our quarterly results across the segments on Page 7. In the Medical segment, reported revenue was up 173% and organic revenue grew 10.8%, led by a rebound from COVID-related headwinds. As a reminder, organic growth excludes the impact of the Sun Nuclear acquisition executed in December of 2020. Each of our major medical businesses grew in the quarter as clinical activity, health care spending and patient volumes around the world largely began to return to pre-pandemic levels.

Adjusted EBITDA margins declined primarily to the dilutive impact of certain medical acquisitions as expected. With the continued prosecution of integration efforts and consolidation of our footprint in the Medical segment, we fully expect to see margins expand over time.

Turning to Slide 8, the Industrial segment reported a decrease in revenue of 2% with organic revenue declining 2.4%. This performance was driven by supply chain interruptions, customer timing delays and a strong 11.3% organic year ago comp. For the 9 months ended September 30, 2021, Industrial organic growth is 3.9% versus 3.6% from the same prior year period. Adjusted EBITDA was impacted by volume decline and onetime positive events in the prior year quarter.

On Slide 9, I'm happy to report that we completed a refinancing of our capital structure as a part of the SPAC transaction which will yield 125 basis points of reduction on the current term loan rate with a 50 basis point LIBOR floor. The transaction and the associated refinancing will significantly improve our balance sheet and liquidity.

We closed with more than $220 million of liquidity, approximately $140 million of cash and pro forma net leverage of 4x. Of note, the acquisition of CIRS is expected to increase our net leverage by 2/10 of a turn after closure.

So now let's look ahead to our expectations for the full year. As Tom explained earlier, we are reiterating guidance for the 12 months ended June 30, 2022. We expect to deliver approximately $723 million in adjusted revenue and $179 million in adjusted EBITDA. Euro to USD FX conversion assumed at 1.23 consistent with rates used in projections provided during our pipe raise process.

As we reported in our S-1 filing, we are underway transitioning from a June 30 fiscal year-end to December 31. We look forward to providing an update on our calendar '22 guidance during our next earnings update.

With that, let me turn back to Tom.

[Thomas Logan, executive]

Thank you, Brian. In closing, we're proud to announce strong results for our first quarter, which are in line with the expectations we've discussed with many of you throughout the SPAC process.

The company's performance is a product of our leading portfolio of businesses, our growing end markets and our team's commitment to executing with the Mirion businesses. Taken together, we believe Mirion is a differentiated business with opportunities ahead for sustainable long-term outperformance.

So with that, back over to you, Alex.

[Alex Gaddy, executive]

Thanks, Tom. That concludes our formal comments for today. As a reminder, there will not be a question-and-answer session following the call, but please send any questions to [e-mail]. Thank you all for joining, and you may now disconnect.

[Operator]

Thank you for your participation. Again, you may now disconnect your lines at this time. Enjoy the rest of your day.