Mirion Technologies(MIR) - 2022 Q4 - Annual Report

Part I Business Mirion Technologies provides specialized products, services, and software for harnessing ionizing radiation, serving critical applications in the medical, nuclear energy, defense, and research markets - Mirion operates through two primary business segments: Medical and Industrial[28] - The company's solutions are applied in medical diagnostics, cancer treatment, nuclear energy, defense, scientific research, and space exploration[26] - Mirion has a global footprint with facilities in 12 countries and serves customers in over 130 countries[27][30] - As of December 31, 2022, the company's engineering and R&D organization consisted of 411 scientists, engineers, and technicians, representing about 14% of the workforce[30] Industry Overview The industry overview details the key markets Mirion serves, including medical, laboratories, nuclear, and defense, highlighting growth drivers like increasing radioisotope use and demand for carbon-free energy - The use of radiopharmaceuticals in medical diagnosis is growing at over 10% per year[40] - As of January 2023, there were 58 nuclear reactors under construction and 445 planned or proposed globally, indicating strong growth in the new build market[53][74] - The global small modular reactor (SMR) market is projected to grow from $3.5 billion in 2020 to $18.8 billion by 2030[54] - Global defense spending is increasing due to geopolitical instability, with a focus on protecting personnel and infrastructure from radiological threats[55][56][57] Our Segments Mirion's operations are divided into Medical and Industrial segments, providing solutions for cancer diagnostics, nuclear medicine, dosimetry, reactor safety, and radiological measurement systems - The Medical segment offers products in four main categories: Cancer Diagnostics and Therapeutics Quality & Safety, Nuclear Medicine and Medical Imaging, Dosimetry Services, and Rehabilitation[93][94] - The Industrial segment's offerings include Reactor Safety and Control Systems and Radiological Search, Measurement and Analysis Systems, which encompass a wide range of products from dosimeters and monitors to imaging and waste measurement systems[96][97][98] Backlog and Deferred Contract Revenue The company's total backlog was $737.4 million as of December 31, 2022, with deferred contract revenue at $83.0 million, and approximately 57% of backlog expected to be recognized in 2023 Backlog and Deferred Contract Revenue (in millions) | | Dec 31, 2022 (Successor) | Dec 31, 2021 (Successor) | June 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Backlog | $737.4 | $747.5 | $715.8 | | Deferred contract revenue | $83.0 | $73.0 | $50.4 | - Approximately 57% of the backlog as of December 31, 2022, is expected to be recognized as revenue in calendar year 2023[102] - An estimated 10%-15% of the backlog at any given time is related to unfunded contracts that may be at risk for cancellation if funding is not appropriated[100] Human Capital Resources As of December 31, 2022, Mirion employed 2,872 full-time and part-time employees globally, emphasizing an inclusive culture, employee development, and robust health and safety programs - As of December 31, 2022, the company had 2,872 employees, with 1,410 in the U.S. and 1,462 outside the U.S.[119] - Approximately 1.3% of the workforce is covered by collective bargaining agreements with 3 active unions in the United States[119] Regulation Mirion's operations are subject to extensive regulations from bodies like the NRC and FDA, covering radioactive materials, export controls, economic sanctions, anti-corruption, and medical devices - The company is subject to regulations from the Nuclear Regulatory Commission (NRC) and state authorities for the receipt, possession, use, and transfer of radioactive materials[141] - Products and technologies are subject to U.S. export controls under the Department of Energy, Commerce Department (EAR), and State Department (ITAR)[153] - Operations must comply with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act (UKBA)[158] - Medical device products are regulated by the U.S. Food and Drug Administration (FDA) under the Food, Drug, and Cosmetic Act (FDCA), requiring adherence to Current Good Manufacturing Practices and post-market surveillance[163][166] Risk Factors The company faces significant risks including operating losses, geopolitical impacts, supply chain disruptions, intense competition, long sales cycles, and vulnerabilities in IT security and internal controls - The company has a history of operating losses, with a net loss of $288.4 million for the year ended December 31, 2022, and an accumulated deficit of $408.5 million[187] - The military conflict between Russia and Ukraine has adversely affected business, leading to contract terminations (e.g., a nuclear power plant project in Finland) and potential delays in revenue and payments[192] - The company is experiencing supply shortages, particularly for semiconductors, and rising costs for labor, materials, and freight, which could adversely affect operating margins[199][201] - A failure or breach of IT and data security infrastructure poses a significant risk, as evidenced by a ransomware attack in February 2021 where certain personal and proprietary information was misappropriated[248][250] - A material weakness was identified in internal control over financial reporting as of December 31, 2022, related to general information technology controls at its division in France[271] Properties Mirion's principal executive offices are leased in Atlanta, Georgia, supplemented by various owned and leased administrative, engineering, production, and warehouse facilities globally - The company's headquarters are leased in Atlanta, Georgia, through 2031[374] - Mirion owns facilities in Belgium, France, Canada, and the United States, and leases additional space in these and other countries including Germany, the UK, Finland, China, and Japan[374] Legal Proceedings Mirion is involved in various legal actions arising in the ordinary course of business, with management not expecting a material effect on its financial condition or operations - The company is involved in legal actions arising from the ordinary course of business[376] - Management does not anticipate that current legal proceedings will have a material impact on the company's financial condition[376] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Mirion's Class A common stock and warrants are listed on the NYSE, with 217.5 million Class A and 8.0 million Class B shares outstanding as of February 2023, and no cash dividends paid to date - The company's Class A common stock and warrants trade on the NYSE under the symbols "MIR" and "MIR WS"[381] - As of February 26, 2023, there were 217,470,076 Class A and 8,040,540 Class B shares of common stock outstanding[382] - The company has not paid any cash dividends on its common stock and is restricted from doing so by its credit facilities[383] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Mirion's financial condition and results, highlighting the impact of the 2021 business combination, with 2022 revenues of $717.8 million and a net loss of $288.4 million, primarily due to goodwill impairment - The Business Combination on October 20, 2021, resulted in a change of control and the application of acquisition accounting, making financial statements for the "Successor" period not directly comparable to the "Predecessor" period[395][397] Key Financial Results Overview (Year Ended Dec 31, 2022) | Metric | Value (in millions) | | :--- | :--- | | Revenues | $717.8 | | Net Loss | $(288.4) | | Adjusted EBITDA | $164.7 | | Backlog (as of Dec 31, 2022) | $737.4 | - The Russia-Ukraine conflict led to a contract termination for a nuclear power plant in Finland, resulting in a $55.2 million goodwill impairment charge in Q2 2022[416][422] - Total goodwill impairment charges for the year ended December 31, 2022, amounted to $211.8 million, impacting both the Medical and Industrial segments[422][423] Results of Operations For 2022, Mirion reported $717.8 million in revenues and a $288.4 million net loss, significantly impacted by a $211.8 million goodwill impairment and increased public company costs, with segment performance affected by acquisitions and geopolitical events Consolidated Results of Operations (in millions) | | Year Ended Dec 31, 2022 (Successor) | Combined 12 Months 2021 (Successor/Predecessor) | | :--- | :--- | :--- | | Revenues | $717.8 | $668.3 | | Gross Profit | $310.1 | $266.3 | | Loss from Operations | $(297.8) | $(68.7) | | Net Loss | $(288.4) | $(223.4) | - The net loss for the year ended Dec 31, 2022, was primarily driven by a $211.8 million goodwill impairment charge, increased amortization and depreciation from purchase accounting, and higher SG&A costs associated with being a public company[433] - Medical segment revenues increased by $58.6 million year-over-year, driven by the CIRS acquisition, price increases, and organic growth[459] - Industrial segment revenues decreased by $9.1 million year-over-year, primarily due to project execution delays related to supply chain issues and the Russia-Ukraine conflict, as well as adverse foreign exchange impacts[461] Liquidity and Capital Resources As of December 31, 2022, Mirion had $73.5 million in cash and access to a $90.0 million revolving credit facility, with a primary debt of $821.7 million, and generated $39.4 million in operating cash flow Cash and Debt Summary (as of Dec 31, 2022, in millions) | Metric | Value | | :--- | :--- | | Cash and cash equivalents | $73.5 | | Total Debt (Principal) | $821.7 | | Revolving Facility Availability | $80.6 | Cash Flow Summary (Year Ended Dec 31, 2022, in millions) | Cash Flow Category | Value | | :--- | :--- | | Net cash from operating activities | $39.4 | | Net cash used in investing activities | $(39.5) | | Net cash used in financing activities | $(7.0) | - The company's 2021 Credit Agreement includes an $830.0 million term loan facility (maturing 2028) and a $90.0 million revolving facility (maturing 2026)[520] - The interest rate on the term loan increased to 7.48% as of December 31, 2022, up from 3.25% at the end of 2021, due to rising LIBOR rates[426][770] Critical Accounting Policies and Estimates Management identifies critical accounting policies requiring significant judgment, including business combinations, goodwill impairment testing, revenue recognition for long-term contracts, income taxes, and derivative warrant liabilities - Business combinations are accounted for using the acquisition method (ASC 805), requiring fair value assessment of acquired assets and liabilities, which involves significant judgment[543] - Goodwill is tested for impairment annually or when triggering events occur. The test compares the reporting unit's carrying amount to its fair value, which is determined using discounted cash flow models and market approaches[546][550] - Revenue for certain contracts is recognized over time based on costs incurred relative to total estimated costs, requiring significant estimation. A significant change in an estimate could materially affect financial results[554] - Derivative warrant liabilities are re-measured to fair value at each reporting period, with changes recognized in the statement of operations[562] Quantitative and Qualitative Disclosures About Market Risk Mirion is exposed to foreign currency, interest rate, and inflation risks, with a 10% currency fluctuation impacting 2022 revenues by $34.3 million and a 100 basis point interest rate increase raising annual expense by $8.4 million - A hypothetical 10% change in foreign currency exchange rates against the U.S. dollar would have impacted revenues by approximately $34.3 million in the fiscal year ended December 31, 2022[571] - Based on floating-rate debt levels at December 31, 2022, a 100 basis point (1%) increase in market interest rates would increase annual interest expense by approximately $8.4 million[573] - The company is experiencing significant inflationary pressure on operating costs, including skilled labor, commodities, energy, and freight, which may adversely affect financial results if not offset by price increases[574] Financial Statements and Supplementary Data This section presents Mirion's audited consolidated financial statements for 2022, including the auditor's unqualified opinion on financials but an adverse opinion on internal controls due to a material weakness - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements but an adverse opinion on the company's internal control over financial reporting as of December 31, 2022, due to a material weakness[581][932] Consolidated Balance Sheet Highlights (in millions) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,738.7 | $3,118.0 | | Total Liabilities | $1,271.5 | $1,334.0 | | Total Stockholders' Equity | $1,467.2 | $1,784.0 | Consolidated Statement of Operations Highlights (in millions) | | Year Ended Dec 31, 2022 | | :--- | :--- | | Total Revenues | $717.8 | | Gross Profit | $310.1 | | Goodwill Impairment | $211.8 | | Net Loss | $(288.4) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial data, including the 2021 business combination, 2022 goodwill impairment of $211.8 million, the $821.7 million term loan, income taxes, and stock-based compensation - The October 2021 Business Combination was accounted for as an acquisition by GSAH, with total consideration of approximately $2.6 billion, resulting in $1.64 billion of goodwill[710][712][715] - Goodwill impairment charges totaling $211.8 million were recorded in the year ended December 31, 2022, triggered by the Russia-Ukraine conflict's impact on a contract and declines in market valuations[753][754][757] - As of December 31, 2022, the company had an $821.7 million outstanding balance on its 2021 Credit Agreement term loan, with an interest rate of 7.48%[764][770] - The company adopted ASC 842 for leases on July 1, 2021, recognizing operating lease right-of-use assets of $40.1 million and total operating lease liabilities of $43.3 million as of December 31, 2022[631][801] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2022, due to a material weakness in internal control over financial reporting, with a remediation plan underway - A material weakness was identified in internal control over financial reporting as of December 31, 2022[923] - The weakness relates to deficiencies in general information technology controls (GITCs) at the company's division in France, specifically concerning program change-management and user access[925] - The material weakness did not result in any identified misstatements to the financial statements for the year ended December 31, 2022[926] - A remediation plan is being implemented, which includes educating IT control owners, developing enhanced controls and reviews, and adding manual business process controls[928] Part III Directors, Executive Officers and Corporate Governance This section lists key executive officers and confirms the adoption of a Code of Ethics and Business Conduct, with further details incorporated by reference from the 2023 proxy statement - The company's key executive officers include Thomas D. Logan (Founder and CEO), Brian Schopfer (CFO), Christopher Moore (CAO), Loic Eloy (President, Industrial), and Michael Rossi (President, Medical)[946] - A Code of Ethics and Business Conduct has been adopted and applies to all employees, officers, and directors[952] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's forthcoming definitive proxy statement for its 2023 annual meeting of stockholders - Details on executive compensation are incorporated by reference from the forthcoming 2023 proxy statement[955] Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the company's forthcoming definitive proxy statement for its 2023 annual meeting of stockholders - Information on security ownership is incorporated by reference from the forthcoming 2023 proxy statement[956] Certain Relationships and Related Transactions, and Director Independence Details on certain relationships, related transactions, and director independence are incorporated by reference from the company's forthcoming definitive proxy statement for its 2023 annual meeting of stockholders - Details on related party transactions and director independence are incorporated by reference from the forthcoming 2023 proxy statement[957] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's forthcoming definitive proxy statement for its 2023 annual meeting of stockholders - Information on principal accounting fees and services is incorporated by reference from the forthcoming 2023 proxy statement[959] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and comprehensive exhibits filed as part of the Annual Report on Form 10-K - This section includes the index to consolidated financial statements, financial statement schedules, and a list of all exhibits filed with the report[963][964][965]