Mirion Technologies, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Mirion supplies radiation detection, measurement, analysis and monitoring products and services through its Medical and Technologies segments. Amounts below are in U.S. dollars; figures are in millions except per-share amounts.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $191.2 | $160.9 | $570.5 | $499.9 |
| Gross profit | $80.8 | $69.8 | $247.9 | $213.1 |
| Gross margin | 42.3% | 43.4% | 43.5% | 42.6% |
| Operating loss | $(11.1) | $(27.6) | $(35.3) | $(135.9) |
| Net loss | $(12.9) | $(50.4) | $(84.2) | $(128.7) |
| Net loss attributable to Mirion | $(12.1) | $(47.1) | $(81.7) | $(123.4) |
| Net loss per share, basic and diluted | $(0.06) | $(0.26) | $(0.42) | $(0.68) |
| Operating cash flow | Not separately presented for the quarter | $28.2 | $14.2 |
Q3 revenue rose 18.8% year over year, led by Technologies; Medical revenue was nearly flat. For the first nine months, revenue increased 14.1%. Gross margin improved year to date but declined in Q3, which management attributed in part to product mix and inflation. Segment operating results turned positive: Q3 Medical income was $4.0 versus a $3.5 loss, and Technologies income was $5.4 versus a $3.3 loss. Nine-month segment income was $1.6 for Medical and $23.7 for Technologies.
Management-reported non-GAAP Adjusted EBITDA was $38.8 in Q3 2023 versus $30.8 in Q3 2022, and $119.7 for the first nine months versus $108.3. These measures exclude specified items and are not substitutes for GAAP results.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $100.5 at September 30, 2023, compared with $73.5 at December 31, 2022; cash, cash equivalents and restricted cash totaled $102.1.
- Total assets were $2,658.9 and total liabilities were $1,115.6. Stockholders’ equity was $1,543.3.
- Third-party borrowings totaled $697.4 before $13.2 of deferred financing costs; balance-sheet debt, net of those costs, was $684.1 non-current plus $0.1 current. The term loan matures in October 2028, and its interest rate was 8.25% at quarter end, up from 7.48% at December 2022. No revolver borrowings were outstanding; approximately $78.7 of revolving capacity remained available.
- Mirion repaid approximately $127.1 of term debt during the first nine months, largely using proceeds from a $150.0 registered equity investment by T. Rowe Price funds. The offering issued 17.1 million Class A shares at $8.75 per share. A $2.6 debt-extinguishment loss was recorded.
- Investing cash outflow was $22.3, including $25.2 of property, plant and equipment purchases. Financing cash inflow was $22.0, reflecting the equity proceeds less debt repayments and other items.
- Management stated that operating cash flow, together with long-term debt arrangements, should provide adequate liquidity for the next 12 months. Debt covenants were reported in compliance at September 30, 2023.
Material changes, outlook and notable items
- Growth and costs: Technologies revenue grew on price increases, organic growth, favorable currency effects and the SIS acquisition. Supply-chain delays and inflation continued to raise costs and threaten future margins. Medical growth was offset by supply-chain impacts and the Rehab divestiture.
- Loss comparison: Lower net losses reflected stronger revenue and operating performance, lower amortization and corporate costs, and the absence of the prior-year $55.2 goodwill impairment. For the first nine months, higher interest expense and an unfavorable $33.8 year-over-year change in warrant-liability fair value partly offset those benefits. Warrant remeasurement is non-cash and volatile.
- Backlog: Remaining performance obligations were approximately $798.8 at September 30, up from $737.4 at year-end. The company expected to recognize approximately 23% in 2023, 36% in 2024, 17% in 2025 and 10% in 2026, with the balance thereafter. Backlog does not assure revenue or margin realization.
- Russia-related exposure and claims: Russian-related projects represented approximately $135.9 of backlog; Mirion reported delays in revenue recognition and maintained $13.6 of advance-payment guarantees and $13.8 of performance guarantees. A customer asserted an updated $21 claim, including daily penalties, subject to a $14 contractual cap, and separately demanded return of $10.2 paid on a cancelled Finland project. Management disputes the claims and intends to defend them; outcomes and potential contract changes remain uncertain.
- Rehab sale: Mirion received $1.0 at closing and was due a further $7.0 from the buyer. Citing the buyer’s going-concern uncertainty, management determined collection was not probable and recorded a $6.5 loss on disposal.
- Guidance and management commentary: The filing provides no specific revenue, earnings or margin guidance. Management expects inflationary pressures and higher interest rates to remain relevant and continues to monitor supply-chain, geopolitical and market developments.
- Subsequent acquisition: On November 1, 2023, Mirion acquired ec2 Software Solutions and NUMA for $33 of cash consideration to expand Medical software offerings.
- Controls: Disclosure controls were deemed ineffective at September 30 because of a previously reported material weakness in France-related IT general controls for program changes and user access. Management reported no identified financial-statement misstatement for the quarter and is implementing remediation; the weakness had not been remediated by quarter-end.
Most important facts for investors to verify
- Whether revenue growth converts into improved margins and cash generation, particularly given Q3 gross-margin pressure and ongoing supply-chain and inflation risks.
- Debt-service sensitivity to floating interest rates, progress on debt reduction, and actual availability of the revolving facility.
- Recoverability and timing of Russian-related backlog and the resolution, potential penalties and contract effects of the disputed claims and guarantees.
- Whether the remaining Rehab-sale consideration is ultimately collected, despite management’s conclusion that collection was not probable.
- Progress and independent evidence of remediation of the France IT-control material weakness.
- Integration, purchase accounting and cash-flow effects of the ec2 and NUMA acquisition.
- Comparability limitations: acquisition accounting created a full step-up basis after the October 2021 business combination, and certain historical periods may not be directly comparable.