Mirion Technologies, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Third Quarter Results: Third quarter revenue totaled $223 million, a nearly 8% increase from last year's third quarter. Adjusted EBITDA was $52.4 million, up 14.7% versus last year. The nuclear power end market was the main driver for order growth and organic revenue.
• Nuclear Power Market: Approximately 80% of nuclear revenue comes from the installed base. Year-to-date, nuclear power end market has seen double-digit growth. The company announced the acquisition of Paragon Energy Solutions, which will broaden its U.S. presence with safety-related critical radiation protection systems, with 94% of Paragon's revenue from the currently installed large-scale reactor base. Also, progress in 2025 to broaden the nuclear power portfolio through acquisitions like Certrec, enhancing software solution suite.
• Medical Segment Update: Strategically aligned with the cancer care revolution. Making progress on software and service offerings, but the U.S. health care environment pressures the U.S. RTQA business, though it's expected to be a delay rather than a decline in customer activity.

Segment Performance

• Nuclear Power End Market: Third quarter organic revenue grew 9%, with year-to-date growth of 11%. Third quarter adjusted orders grew 21% (or 16% excluding foreign exchange tailwinds). Year-to-date SMR orders totaled $26 million, a marked acceleration versus prior years. Revenue for the Nuclear and Safety segment grew 9% to $144.6 million, with adjusted EBITDA of $40.6 million, up 16.3% from last year's third quarter, and margins at 28.1%.
• Medical Segment: Revenue totaled $78.5 million, up 5.9% versus last year. Organic revenue grew mid-single digits at 5.2%. Adjusted EBITDA was $28.2 million, nearly 10% better than last year, with margins at 35.9%. 75% of Medical segment revenue stems from the cancer care market, and progress is being made on software and service offerings, though the U.S. health care environment pressures the U.S. RTQA business.

Guidance

• Adjusted free cash flow guidance has been increased. The low end is raised from $95 million to $100 million, and now expects adjusted free cash flow to be between $100 million and $115 million, equating to a conversion of adjusted EBITDA between 45% and 49%.
• Remains on track for 2025 guidance, with nuclear power end market showing double-digit growth year-to-date and broadened nuclear power portfolio through M&A.

Risks

• The current U.S. health care environment pressures the U.S. RTQA business, with timing and magnitude of rebound clouded due to government shutdown headwinds.
• For SMR projects, factors like approvals, negotiations, and holiday season can delay awards. Also, there is uncertainty in the timing of new utility scale builds and potential consolidation in the SMR space.

Question and Answer

• Q: So there's obviously been a flurry of news announcements around commercial nuclear lately, as you mentioned, Tom. So with the understanding that nuclear is obviously very long lead, you haven't yet added to your $350 million large project opportunity funnel that you gave out quite some time ago. But Brian, you talked about Mirion booking projects that are not part of the funnel. So should we really just be focused on your commercial nuclear backlog? And Tom, would you expect a material acceleration in that backlog given the uptick in activity you mentioned? A: Tom Logan said there are 3 important drivers: installed base with potential uptrend in capacity factors, new utility scale builds with government support, and SMR projects with increasing viability. Brian Schopfer added Paragon is additive to the installed base narrative and new builds are hard to predict.
• Q: How do we think about your medical business in the current environment? You said pressure in RTQA, but you still delivered over 5% organic revenue growth in medical in Q3. So is that how we should think about the near and medium-term growth in medical, while there's still some uncertainty out there? I know, Brian, you said you expect spend to normalize, but is there any visibility to that normalization? A: Thomas Logan said the dominant demand drivers for medical business are robust. RTQA business in U.S. has pressure but will equilibrate. Brian Schopfer said expects flattish in next quarter but normalization expected.
• Q: Just a few quick ones. The first one is just like, look, really interesting to see the $55 million award come through in the third quarter. It's interesting that with just 2 months left in the year, you still have that $175 million pipeline. I guess just, Tom, maybe what kind of -- what degree of confidence do you have that the $175 million will be awarded, fully recognizing that you'll have some share of that if it does get awarded? A: Thomas Logan said conviction improves with strong right to win on opportunity set. Brian Schopfer said expects strong double-digit order growth in fourth quarter.
• Q: I'd like to ask SMR as well. Could you talk about the pipeline for SMR projects within $285 million and beyond? And if -- it would be great if you could touch on what factors could accelerate or delay these awards, please? A: Brian Schopfer said factors like approvals, negotiations, holiday season can delay awards. Thomas Logan added booked another SMR-related order yesterday and government support is important.
• Q: This is Will on for Chris. Can you just talk broadly about how your pricing power is holding up? And is it trending differently in nuclear safety versus medical? A: Brian Schopfer said price/cost was $2 million positive this quarter, less aggressive on medical U.S. side but like the portfolio's moats.
• Q: Congrats on a good quarter. Can you expand on the U.S. health care environment? Is it due to the government grants or Medicare, Medicaid reimbursement delaying patients seeking treatment there? A: Thomas Logan said driven by aggregate noise, cuts in Medicaid, and strategic haze in U.S. health care system, but demand dynamics in U.S. market haven't changed.
• Q: Just to kind of -- just to put a finer point on that last topic, Tom, I'm curious relative to the Analyst Day metrics you guys put out on kind of $1 per megawatt of a revenue opportunity, given the data you guys have gathered since then as well as potentially any benefits from Certrec or Paragon that might help be additive to that number. Is that still a decent proxy as best you guys can tell? Or any better update that we should keep in mind as we look forward would be helpful. A: Thomas Logan said will reserve on that for now, will update early next year after Paragon acquisition is closed.
• Q: With respect to these larger onetime orders, are you seeing or do you expect any material difference from a margin profile to the extent these become a larger piece of the revenue pie looking ahead? A: Brian Schopfer said focused on 30% EBITDA margin target, new builds come with lower margin but committed to 30% EBITDA target.