Mirion Technologies(US:MIR)2023-05-03 21:27PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) This section presents Mirion Technologies, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, acquisitions, debt, equity, and other financial components Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $2,734.8 | $2,738.7 | | Total Liabilities | $1,146.8 | $1,271.5 | | Total Stockholders' Equity | $1,588.0 | $1,467.2 | - Cash and cash equivalents increased from $73.5 million at December 31, 2022, to $88.3 million at March 31, 202322 - Notes payable to third-parties (non-current) significantly decreased from $801.5 million to $679.3 million, reflecting debt repayments22 Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, in millions, except per share data) | Item | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Total Revenues | $182.1 | $163.2 | | Gross Profit | $79.1 | $64.4 | | Loss from Operations | $(13.6) | $(33.6) | | Net Loss | $(42.9) | $(19.0) | | Net Loss Attributable to Mirion Technologies, Inc. | $(41.9) | $(17.7) | | Net Loss Per Common Share (Basic and Diluted) | $(0.22) | $(0.10) | - Total revenues increased by $18.9 million (11.6%) year-over-year, driven by both product and service revenue growth24 - Net loss increased significantly from $(19.0) million in Q1 2022 to $(42.9) million in Q1 2023, primarily due to higher interest expense and an increase in the fair value of warrant liabilities24 Unaudited Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss Highlights (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net Loss | $(42.9) | $(19.0) | | Other Comprehensive Income (Loss), net of tax | $8.3 | $(15.7) | | Comprehensive Loss | $(34.6) | $(34.7) | | Comprehensive Loss Attributable to Mirion Technologies, Inc. | $(33.9) | $(31.9) | - Other comprehensive income (loss) improved from a $(15.7) million loss in Q1 2022 to an $8.3 million income in Q1 2023, mainly due to foreign currency translation gains26 Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit) Condensed Consolidated Statements of Stockholders' Equity (Deficit) Highlights (in millions) | Item | Balance Dec 31, 2022 | Balance Mar 31, 2023 | | :-------------------------------- | :------------------- | :------------------- | | Additional Paid-In Capital | $1,882.4 | $2,039.4 | | Accumulated Deficit | $(408.5) | $(450.4) | | Accumulated Other Comprehensive Loss | $(75.7) | $(67.7) | | Total Stockholders' Equity | $1,467.2 | $1,588.0 | - Additional paid-in capital increased by $157.0 million, primarily due to the issuance of Class A common stock under a direct registered offering29 - Accumulated deficit increased by $41.9 million, reflecting the net loss attributable to Mirion Technologies, Inc. for the quarter29 Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, in millions) | Activity | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net Cash (Used in) Provided by Operating Activities | $(2.7) | $11.4 | | Net Cash Used in Investing Activities | $(7.5) | $(7.9) | | Net Cash Provided by (Used in) Financing Activities | $24.6 | $(0.6) | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | $15.1 | $1.9 | - Operating activities shifted from providing $11.4 million in cash in Q1 2022 to using $2.7 million in Q1 2023, primarily due to changes in working capital and net loss32 - Financing activities provided $24.6 million in Q1 2023, a significant increase from using $0.6 million in Q1 2022, driven by common stock issuance proceeds partially offset by term loan repayments32 Notes to Condensed Consolidated Financial Statements Note 1, Nature of Business and Summary of Significant Accounting Policies - Mirion Technologies, Inc. is a global provider of radiation detection, measurement, analysis, and monitoring products and services across Medical and Industrial segments34 - The Medical segment focuses on radiation oncology quality assurance, dosimetry, radiation therapy QA, and radionuclide therapy products34 - The Industrial segment provides personal radiation detection, analysis tools for power plants, labs, research, and defense applications34 Note 2, Acquisitions - On August 1, 2022, Mirion acquired the Critical Infrastructure (CI) business of Collins Aerospace (renamed Secure Integrated Solutions 'SIS') for $6.6 million cash, integrating it into the Industrial segment56 - Measurement period adjustments in Q1 2023 resulted in a $0.9 million net increase in goodwill related to the CI Acquisition58 Note 3, Assets and Liabilities Held for Sale - The Biodex Rehabilitation ('Rehab') business was classified as held for sale in Q4 202261 Assets and Liabilities Held for Sale (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Assets held for sale | $10.1 | $8.5 | | Liabilities held for sale | $1.4 | $0.8 | Note 4, Contracts in Progress Contracts in Progress Balances (in millions) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Costs and estimated earnings in excess of billings (current) | $67.2 | $50.0 | | Billings in excess of costs and estimated earnings (current) | $(18.5) | $(25.5) | | Total Contracts in Progress | $55.9 | $40.9 | - The aggregate transaction price allocated to remaining performance obligations for open contracts was approximately $740.8 million as of March 31, 2023, with 50% expected to be recognized in fiscal year 202349 Note 5, Inventories Inventory Components (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Raw materials | $71.3 | $69.7 | | Work in progress | $34.8 | $28.2 | | Finished goods | $51.4 | $45.4 | | Total Inventories | $157.5 | $143.3 | Note 6, Property, Plant and Equipment, Net Property, Plant and Equipment, Net (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Gross PP&E | $164.1 | $155.2 | | Accumulated Depreciation and Amortization | $(38.1) | $(30.9) | | Net PP&E | $126.0 | $124.3 | - Construction in progress increased from $15.9 million to $21.4 million, indicating ongoing capital investments66 Note 7, Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Compensation and related benefit costs | $30.9 | $37.6 | | Income taxes payable | $6.8 | $5.5 | | Restructuring | $2.3 | $1.5 | | Total | $74.9 | $79.8 | - Compensation and related benefit costs decreased by $6.7 million, while income taxes payable increased by $1.3 million67 Note 8, Goodwill and Intangible Assets Goodwill by Reportable Segment (in millions) | Segment | December 31, 2022 | March 31, 2023 | | :-------------------------------- | :------------------ | :--------------- | | Medical | $616.0 | $616.0 | | Industrial | $802.0 | $808.9 | | Consolidated | $1,418.0 | $1,424.9 | - Goodwill increased by $6.9 million, primarily due to measurement period adjustments from business combinations and translation adjustments in the Industrial segment70 Intangible Assets, Net (in millions) | Item | December 31, 2022 | March 31, 2023 | | :-------------------------------- | :------------------ | :--------------- | | Customer relationships | $253.7 | $239.0 | | Developed technology | $212.6 | $206.2 | | Total Net Book Value | $650.4 | $619.8 | Note 9, Borrowings Third-Party Notes Payable (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | 2021 Credit Agreement | $696.7 | $821.7 | | Total Third-Party Borrowings | $699.6 | $824.7 | | Notes Payable to Third-Parties, Non-Current | $679.3 | $801.5 | - The Company repaid $125.0 million of its term loan in Q1 2023 using proceeds from a direct registered equity offering, reducing the outstanding balance to $696.7 million8081 - The interest rate for the term loan increased to 7.48% as of March 31, 2023, from 3.25% as of March 31, 2022, due to rising LIBOR80194 Note 10, Leased Assets Operating Lease Assets and Liabilities (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $38.7 | $40.1 | | Total operating lease liabilities | $41.6 | $43.3 | - The weighted average remaining lease term for operating leases was 6.7 years, with a weighted average discount rate of 4.15% as of March 31, 202397 Note 11, Commitments and Contingencies Unconditional Purchase Obligations (in millions) | Fiscal Year Ending December 31 | Amount | | :------------------------------- | :----- | | 2023 (Remainder) | $30.6 | | 2024 | $11.6 | | 2025 | $1.2 | | 2026 | $1.1 | | Total | $44.5 | - A Russian customer made a claim for liquidated damages in April 2023 for project delays, which management views as without merit, but the resolution's impact on future cash flows is uncertain102 Note 12, Income Taxes Effective Income Tax Rate | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Three Months Ended March 31, 2023 | 2.5% | | Three Months Ended March 31, 2022 | 17.7% | - The significant decrease in the effective income tax rate was primarily due to the mix of earnings and the impact of valuation allowances in the current period103 Note 13, Supplemental Disclosures to Consolidated Statements of Cash Flows Supplemental Cash Flow Information (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Cash Paid For Interest, Net | $13.9 | $6.9 | | Cash Paid For Income Taxes | $2.8 | $2.4 | - Total cash, cash equivalents, and restricted cash increased from $75.0 million at December 31, 2022, to $90.1 million at March 31, 2023106 Note 14, Stock-Based Compensation Stock-Based Compensation Expense (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Total Stock-Based Compensation Expense | $5.5 | $7.9 | - The 2021 Omnibus Incentive Plan reserved 31,946,993 shares of Class A common stock for issuance as of January 1, 2023108 - In Q1 2023, the Company granted 695,351 RSUs and 233,165 PSUs, with PSUs subject to market (relative TSR) and performance (organic revenue growth) vesting conditions109110 Note 15, Related-Party Transactions - Founder Shares (18,750,000 Class B common stock) are subject to vesting conditions based on Class A common stock price thresholds ($12, $14, $16) before October 20, 2026117118 - The Sponsor purchased 8,500,000 Private Placement Warrants at $2.00 each, exercisable for Class A common stock at $11.50 per share119 - The Company incurred $0.6 million in Q1 2023 for expenses supporting secondary market offerings by Charterhouse Capital Partners LLP, a former majority stockholder123 Note 16, Segment Information Revenues by Segment (Three Months Ended March 31, in millions) | Segment | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Medical | $66.4 | $60.1 | | Industrial | $115.7 | $103.1 | | Consolidated Revenues | $182.1 | $163.2 | Segment Income (Loss) from Operations (Three Months Ended March 31, in millions) | Segment | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Medical | $0.7 | $(6.7) | | Industrial | $5.5 | $(2.5) | | Total Segment Income (Loss) | $6.2 | $(9.2) | - North America generated the highest revenue at $115.9 million in Q1 2023, followed by Europe ($58.8 million) and Asia Pacific ($7.4 million)128 Note 17, Fair Value Measurements Fair Value of Warrant Liabilities (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Public warrants (Level 1) | $30.2 | $21.0 | | Private placement warrants (Level 2) | $13.7 | $9.5 | | Total Warrant Liabilities | $43.9 | $30.5 | - The Company recognized an unrealized loss of $13.4 million in Q1 2023 due to an increase in the fair value of warrant liabilities137 Note 18, Derivatives and Hedging - Mirion uses fixed-to-fixed cross-currency rate swaps (CCRS) to manage currency risks for its EUR-denominated operations, with a notional amount of €238.8 million as of March 31, 2023139143 - Changes in the fair values of these derivative instruments are recognized in accumulated other comprehensive loss (AOCL)142 Note 19, Loss Per Share Loss Per Share Calculation (Three Months Ended March 31, in millions, except per share amounts) | Item | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net Loss Attributable to Mirion Technologies, Inc. Shareholders | $(41.9) | $(17.7) | | Weighted Average Common Shares Outstanding | 187.701 | 180.774 | | Net Loss Per Common Share (Basic and Diluted) | $(0.22) | $(0.10) | - Potentially dilutive securities, including warrants and founder shares, were excluded from diluted EPS calculations for both periods as their effect would be anti-dilutive due to net losses145151153 Note 20, Restructuring Restructuring Expenses (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Severance and employee costs | $1.2 | $1.0 | | Other | $0.2 | $1.0 | | Total Restructuring Expenses | $1.4 | $2.0 | - The Company expects additional restructuring charges of approximately $1.1 million, primarily in the next 12 months, allocated across Medical ($0.6M), Industrial ($0.4M), and Corporate ($0.1M)155156 Note 21, Noncontrolling Interest - Mirion Technologies, Inc. recognized noncontrolling interests for 7,847,333 shares (3.5%) of IntermediateCo Class B common stock not attributable to the Company as of March 31, 2023165 - Noncontrolling interests totaled $66.7 million in stockholders' equity as of March 31, 2023166 Note 22, Accumulated Other Comprehensive Loss/Income Components of Accumulated Other Comprehensive Loss (in millions) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Cumulative foreign currency translation adjustment, net of tax | $(60.6) | $(71.2) | | Unrealized loss on net investment hedges, net of tax | $(12.2) | $(9.9) | | Accumulated other comprehensive (loss) income | $(67.7) | $(75.7) | - Accumulated other comprehensive loss improved from $(75.7) million to $(67.7) million, primarily due to a positive cumulative foreign currency translation adjustment167 Note 23, Subsequent Events - On April 3, 2023, the Company sold the physical medicine assets of Biodex Medical Systems, Inc. for $1.0 million cash at closing, with up to an additional $7.0 million in deferred cash payments contingent on business performance168 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Mirion's financial condition and results of operations for the three months ended March 31, 2023, compared to the prior year, covering key factors affecting performance, recent developments, segment results, and liquidity, highlighting revenue growth, increased net loss due to financial factors, and ongoing operational challenges Overview - Mirion is a global provider of radiation detection, measurement, analysis, and monitoring products and services for medical, nuclear, and defense markets171 - The company operates in two business segments: Medical and Industrial, with the Industrial segment rebranded as Mirion Technologies on May 1, 2023173174 Revenue Contribution by Segment (Three Months Ended March 31) | Segment | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Medical | 36.5% | 36.8% | | Industrial | 63.5% | 63.2% | Key Factors Affecting Our Performance - The Russia-Ukraine conflict continues to impact Mirion through increased inflation, supply chain disruptions, and potential delays or cancellations of customer projects175 - Rising interest rates have increased debt service costs, a trend expected to continue if rates further increase175 - Growth in the Medical segment is influenced by global regulatory standards, healthcare safety focus, and demographics, while the Industrial segment is impacted by governmental environmental policies and nuclear new build projects177 Non-GAAP Financial Measures - Mirion uses non-GAAP financial measures such as EBITA, EBITDA, and Adjusted EBITDA to provide additional insights into ongoing performance and for internal decision-making179180 Adjusted EBITDA Reconciliation (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net loss | $(42.9) | $(19.0) | | Interest expense, net | $14.9 | $7.9 | | Income tax (benefit) provision | $(1.1) | $(4.1) | | Amortization | $33.6 | $38.8 | | EBITA | $4.5 | $23.6 | | Depreciation | $7.8 | $6.2 | | EBITDA | $12.3 | $29.8 | | Stock-based compensation expense | $5.6 | $7.8 | | Increase (decrease) in fair value of warrant liabilities | $13.4 | $(19.9) | | Debt extinguishment | $2.6 | — | | Foreign currency (gain) loss, net | $(0.3) | $1.5 | | Cost of revenues impact from inventory valuation purchase accounting | — | $6.3 | | Non-operating expenses | $3.0 | $9.4 | | Adjusted EBITDA | $36.6 | $34.9 | Our Business Segments - The Medical segment offers solutions for radiation therapy, personal dosimetry, and nuclear medicine applications187 - The Industrial segment provides Reactor Safety and Control Systems and Radiological Search, Measurement, and Analysis Systems for defense, nuclear energy, and research markets188 - The acquisition of the Critical Infrastructure (CI) business in August 2022 impacts the Industrial segment's results for Q1 2023 compared to Q1 2022188 Recent Developments - The Russia-Ukraine conflict continues to cause delays in project revenue recognition, with $98.4 million in backlog for Russian-related projects as of March 31, 2023190 - T. Rowe Price funds acquired 17,142,857 shares of Class A common stock for $8.75 per share, with $127 million of proceeds used to pay down outstanding debt, resulting in a $2.6 million loss on debt extinguishment192 - Supply chain disruptions persist, causing delays in sourcing key components and increased material and freight costs, partially mitigated by price increases193 Results of Operations Key Financial Results (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Revenues | $182.1 | $163.2 | +$18.9 | | Cost of Revenues | $103.0 | $98.8 | +$4.2 | | Gross Profit | $79.1 | $64.4 | +$14.7 | | Selling, General and Administrative Expenses | $85.1 | $90.9 | -$5.8 | | Research and Development | $7.6 | $7.1 | +$0.5 | | Loss from Operations | $(13.6) | $(33.6) | +$20.0 | | Interest Expense, Net | $14.9 | $7.9 | +$7.0 | | Loss on Debt Extinguishment | $2.6 | — | +$2.6 | | Foreign Currency (Gain) Loss, Net | $(0.3) | $1.5 | -$1.8 | | Increase (Decrease) in Fair Value of Warrant Liabilities | $13.4 | $(19.9) | +$33.3 | | Net Loss | $(42.9) | $(19.0) | +$23.9 | - Medical segment revenues increased by $6.3 million due to price increases and organic volume growth, while Industrial segment revenues increased by $12.6 million from volume, price, and the SIS acquisition200201 - SG&A expenses decreased by $5.8 million, driven by lower stock-based compensation and reduced public company expenses, partially offset by SIS acquisition impact and increased bad debt reserves for a Russian partner204205206 Liquidity and Capital Resources - Mirion believes net cash from operating activities, supplemented by long-term debt, will provide adequate liquidity for the next 12 months231 - Cash and cash equivalents increased to $88.3 million at March 31, 2023, from $73.5 million at December 31, 2022, with approximately $48.8 million held by non-U.S. entities233 - Net cash used in operating activities was $2.7 million in Q1 2023, a $14.1 million decrease from Q1 2022, primarily due to a higher net loss and changes in working capital, including a $13.0 million increase in inventories239240 Critical Accounting Policies and Estimates - There were no material changes to the Company's critical accounting policies and estimates during the three months ended March 31, 2023, as compared to those described in the Annual Report on Form 10-K244 Recent Accounting Pronouncements - The Company refers to Note 1 for information on recent accounting pronouncements, specifically ASU 2020-04 regarding Reference Rate Reform (LIBOR transition), for which it intends to extend adoption through December 31, 202455245 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes to the Company's disclosures regarding quantitative and qualitative market risk from those provided in its Annual Report on Form 10-K for the periods ended March 31, 2023, and December 31, 2022 - No material changes to market risk disclosures were reported for the periods ended March 31, 2023, and December 31, 2022246 ITEM 4. Controls and Procedures Mirion's management concluded that its disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in general information technology controls (GITCs) at its French division; despite these weaknesses, the financial statements are fairly presented, and remediation efforts are underway, focusing on IT control training and enhanced monitoring - Disclosure controls and procedures were deemed not effective as of March 31, 2023, due to material weaknesses in general information technology controls (GITCs) at the Company's French division248250 - The material weaknesses relate to program change-management and user access in IT systems supporting financial reporting processes, stemming from a lack of IT personnel training250 - Remediation plans include educating IT control owners, developing enhanced controls for program changes and user access, and adding manual business process controls252 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings Mirion is subject to various legal proceedings in the ordinary course of business; while the ultimate outcomes are uncertain, management does not expect these matters to materially affect financial results, but litigation can incur defense costs and divert management resources - The Company is involved in legal proceedings and claims arising from its ordinary course of business255 - Management believes the resolution of these matters will not have a material effect on results of operations, financial condition, or cash flows, but litigation can still adversely impact the business255 ITEM 1A. Risk Factors This section updates and supplements the risk factors previously disclosed in the Annual Report on Form 10-K, with a particular focus on the adverse impacts of the military conflict between Russia and Ukraine, including sanctions, supply chain disruptions, and potential legal claims - The military conflict between Russia and Ukraine and associated sanctions have adversely affected Mirion's business, including fluctuating demand, project delays, and difficulties in supply/sourcing258259 - A Russian customer's claim for $18 million in penalties for project delays in April 2023 introduces uncertainty, despite management viewing it as without merit259 - The conflict has heightened risks such as increased inflation, limited commodity availability, supply chain disruption, and potential damage to reputation from continued sales of medical equipment to Russia259 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there is no applicable information to report regarding unregistered sales of equity securities and use of proceeds for the period - Not applicable for this reporting period260 ITEM 3. Defaults Upon Senior Securities This section indicates that there are no defaults upon senior securities to report for the period - None to report for this period262 ITEM 4. Mine Safety Disclosures This section states that there is no applicable information to report regarding mine safety disclosures for the period - Not applicable for this reporting period264 ITEM 5. Other Information This section indicates that there is no other information to report for the period - Not applicable for this reporting period266 ITEM 6. Exhibits, Financial Statement Schedules This section lists the exhibits filed or incorporated by reference as part of this Quarterly Report, including the Amended and Restated Bylaws, certifications from executive officers, and XBRL taxonomy documents - Exhibits include Amended and Restated Bylaws, certifications of principal executive and financial officers (31.1, 31.2, 32.1, 32.2), and XBRL Instance and Taxonomy Extension Documents271