Q4 2021 Mirion Technologies Inc Earnings Call
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Yeah.
Great. Thanks, Andrew welcome to myriad technologies.
Fourth quarter and full year 2021 earnings conference call.
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I would now like to turn the conference over to your host Alex Scotty Vice President of Finance. Please go ahead.
Good morning, everyone and thank you for joining <unk> earnings call announcing financial results for the fourth quarter and full year ended December 31, 2021. My name is Alex Gatti, Vice President of Finance and Investor Relations at <unk> 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.
Factors that could cause actual results to differ are discussed in our annual report on Form 10-K , and quarterly reports on Form 10-Q that we file from time to time with the SEC under the caption risk factors and in various other filings with the SEC.
As a reminder, quarterly references with in today's discussion are related to the fourth quarter ended December 31, 2021, unless otherwise stated.
The discussions during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles reconciliation of those 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.
Please note that today's prepared remarks will be followed by Q&A session. Our earnings presentation and transcript will be published today and can be found on marion's IR website at IR Dot dot com.
Joining me on the call today are Larry Kingsley Chairman of the Board, Tom Logan founding Chief Executive Officer, and Brian Shopper, Chief Financial Officer.
Now I'll turn it over to our chairman of the Board Larry Kingsley Larry.
Thank you Alex and good morning, everyone. We appreciate your interest in Marion and we're pleased to announce our earnings results for our fourth quarter and full year 2021.
As well as to share our expectations for the business for fiscal year 2022.
Before I turn the call over to Tom I'd like to take a few moments to highlight some of the key takeaways from 'twenty one to share my thoughts on the company heading into 'twenty two.
As Maryann continues to evolve and develop its public company journey.
There is a lot to be excited about going forward.
All of the same themes that I highlighted in our call in November remain intact, and I want to reiterate how well positioned Marion is to capitalize on what we believe is a favorable macro environment across the company's diversified product portfolio.
I'd like to leave you with three key takeaways from my portion of this morning's call.
First the company overcame a variety of challenges during the fourth quarter and still delivered solid results.
Between the surge of the omicron variant.
Date of the global supply chain labor supply headwinds and the companywide effort needed to become a public company Marine was able to grow its business and advanced many of its key strategic initiatives.
Second the company specific and macro growth opportunities across the product portfolio are proving sustainable. This includes supportive trends in both the industrial and medical segments and a healthy M&A pipeline exemplified by the recent C. I R. S acquisition.
Third and probably most importantly, the team at myriad has a strong history and is adapting well to the needs and requirements of being a public company as we all expected.
Tom Logan has an outstanding reputation of delivering meaningful returns for investors over the course of nearly two decades and I am more confident than ever in his ability to guide the talented team at myriad into what I believe it's a promising future for the company.
After successfully taking Marian public Tom can once again returned his focus to what he does best running his business and executing on meaningful growth opportunities.
It's important for me to reiterate just how unique Marion's story is this is a solid company with resilient underlying markets and a diverse and differentiated product portfolio with high barriers to entry.
Ian has leading positions within his chosen markets and I'm excited to see what the company was able to accomplish as it continued to deliver on our strategic priorities going forward.
In partnership with Tom I believe that there is a strong opportunity for operating margin expansion as marine develops and enhances its ability to gain on pricing and cost efficiencies.
The consistent execution of the <unk> operating system will create returns and <unk> strength in that area is particularly noteworthy.
We are pleased with how <unk> is performing as a new public company, especially given the environment and operational challenges all companies are facing at the moment.
With that I'll turn the call over to Tom who will walk us through the market and the business performance in some detail.
Thank you Larry before I dive in let me.
Echo Larry's sentiments about the strength and relevance of our relationship it's incredibly valuable to me to have an ally and our strategic sparring partner with the domain experience the relationship capital and the reputation that Lori brings to the table.
Also like to thank each of my 2600 colleagues across the globe, who have gone above and beyond to help us become a public company and to drive our strategic arc through an incredibly challenging operating environment. The work you do is paramount in keeping people and the environment safe and healthy I'm thrilled that we were able to successfully entered the public arena, but candidly.
I have to say that I'm excited to get back into running the business full time, we have a lot to look forward to and we're very well positioned to execute in 2022.
Beginning with slide four of the of the deck I'd like to take a few minutes to highlight our view on the various markets in which we operate insurer outlook for this upcoming year I'll begin with the medical segment, which accounted for 34% of our total company revenue in 2021, we're expecting to deliver high single digit growth in 2022 and are maintaining a positive.
Outlook across dosimetry nuclear medicine, and radiation therapy, QA like to reiterate our goal for medical to exceed more than half of our total company revenue over the longer term planning horizon and.
And occupational dosimetry, we operate in a stable market and employ a subscription based business model with high volumes of recurring revenue.
We maintain a positive outlook on the space and expect growth to be supported by converting existing customers to our innovative digital instead those platform. In addition to gaining market share in international markets and nuclear Medicine. We are encouraged by many factors supporting this space, including favorable demographic trends and improving supply chain for medical isotopes.
And the exciting growth a thorough gnostic applications, while we've experienced some acute short term supply chain challenges in this space demand for our products remains extremely robust and I'm confident that by the end of the first half order fulfillment will be back on track.
Finally, the radiation therapy business continues to enjoy strong demand fundamentals based upon clinician preference for independent quality assurance solutions and improving post pandemic demand dynamics, we're confident in our new product pipeline heading into calendar year 'twenty, two and are particularly excited about the incipient launch of the first cloud based.
Version of our industry, leading QA workflow software platform Sunshine.
Turning now to the industrial segment, we continue to expect mid single growth in 'twenty, a mid single digit growth in 2022, we're highly encouraged by the positive sentiment in the nuclear power end markets, especially with regard to nuclear his role in supporting the global de Carbonization movement, we expect to see positive tailwind from life extensions them.
Graphically driven replacement cycles strong government subsidies and high natural gas prices and the Newbuild space, we anticipate activity to continue increasing carbon emission reduction continues to take center stage in the global environmental push I'm also happy to report that we had major Newbuild awards in China and Brazil.
During the fourth quarter, which continue to solidify our medium and longer term outlook.
In my nearly two decades enroll a CEO candidly I've never seen better conditions in the nuclear industry. The install base is healthy newbuild activity is accelerating and decommissioning opportunities are solid.
Turning now to the lab and research space, we benefited from a relatively strong market aided by stricter environmental regulations and stable government funding, we're expecting continued stability and consistent growth going forward supported by our new product pipeline.
Let's now turn to our December results shown on slide five of the earnings presentation I'd like to begin by noting the fact that we completed our acquisition of Crs in December and look forward to fully integrating the company into our operating model and realizing the benefits we identified during diligence for the quarter, we delivered two 7% of.
Organic revenue growth compared to the same calendar period in 2020.
Looking at the full year, we achieved three 6% organic revenue growth as I mentioned earlier, our nuclear medicine business has been constrained by supply chain dynamics, primarily component availability, which has negatively affected growth in the quarter and in the year, we've been working hard to qualify additional suppliers and engage in creative agreed.
<unk> to offset these shortages I'm optimistic that we are nearing the end of this difficult period we.
We had healthy order intake for the quarter, including the large orders that I mentioned earlier.
Backlog at the end of the year was almost $750 million and continues to solidify our medium to longer term outlook I'm very proud of our sales teams have been working incredibly hard across the globe.
The health of our backlog is the clearest reflection of their efforts.
In addition to the challenging supply chain environment, we've been assertive with pricing actions to counter the growing inflationary trends that have dominated recent headlines.
Given the prominence of our backlog flow through to the P&L. It's important to note that there is an implicit lag before price action is reflected in our financial performance executed actions to date are expected to deliver at least 200 basis points of pricing growth skewed toward the back half of 2022 outstripping the expected impact of inflation.
Before I turn it over to Brian for a deeper dive into our financial performance I'd like to take a quick run through our expectations for 2022 as a reminder, we have converted our fiscal year from a June 30th two of December 31 year end and guidance will reflect the 12 months ended December 31 2022 reported.
Adjusted revenue growth is expected to be between five and a half and seven 5% with organic growth of 5% to 7%.
Adjusted EBITDA margins are targeted between 24 and 25% and this includes a 100 to 200 basis points of expansion. If we exclude the impact of public company G&A costs. There are three key areas of focus for our team as we execute on our 2022 operating plan first commercial and pricing excellence.
In addition to already executed actions, we're implementing an enhanced set of value based pricing tools second is our continued investment in strategic cost savings initiatives, most notably we have implemented a streamlined operating model, which we expect will reduce complexity over time and in addition, the company continues to optimize its industrial.
Print and integrate newly acquired assets finally, the combination of new pricing tools plus operating initiatives that are already underway should ensure strong operating leverage for the year. We have a lot to look forward to across the enterprise. We're very encouraged by the trends we see in our order books and in the underlying markets so with that.
Let me now pass the baton over to our Chief Financial Officer, Brian Shopper, who will discuss our financial performance in 2022 outlook in more detail Brian .
Thank you Todd.
Like to get started by thanking our team for their hard work and dedication to help us close out our first year end as a public company.
I'd also like to thank the investors and analysts on the line for taking the time to get to know our business. We appreciate your time and look forward to continuing the relationship that we've established thus far.
And with that let's turn to slide seven and take a deeper look at our results for the fourth quarter as Tom noted our team delivered a solid performance with total revenue growth of 20% and adjusted EBITDA growth of 17% each compared with the same calendar period from the previous year.
Total company organic revenue grew by two 7% primarily due to the performance of our industrial business offset by the nuclear medicine challenges that Tom mentioned.
Our total sales in the quarter were $180 9 million with adjusted EBITDA of $44 8 million adjust.
Adjusted gross margin expanded by 300 basis points to 51% for the quarter, while adjusted EBITDA margin declined slightly by 70 basis points to 24, 7%.
Adjusted gross margin expansion was driven by our medical segment contributing to a higher percentage of <unk> total company revenue.
This expansion is offset further down the P&L, our higher operating expenses associated with recent acquisitions and the medical segment continued growth focused R&D investment and corporate expenses related to public company requirements.
Looking at our performance for the calendar year.
We delivered adjusted revenue growth of 32% with three 6% organic revenue growth and adjusted EBITDA growth of 29% year over year in 2021.
Our adjusted gross margin increased by 280 basis points to 51% adjusted EBITDA margin decreased by 60 basis points to 24, 2% compared to the last year.
Adjusted EBITDA margin was impacted by operating expenses related with going public and the acquisition of biotechs diluted margins.
Next let's turn over to slide eight and nine and take a look at our quarterly in calendar year results by segment Star.
Starting on slide eight with the medical segment.
Adjusted revenue was up 91% and organic revenue was relatively flat as.
As a reminder, organic growth as a limited contribution from the Sun nuclear acquisition executed in December of 2020.
Organic our organic growth in this segment was mainly impacted by supply chain issues, we saw within our nuclear medicine business.
The adjusted EBITDA margin for the medical segment was 32, 4%.
80 basis point decline from the same period last year, primarily driven by the dilutive impact of recent medical acquisitions as expected.
We continue to prioritize the integration of these acquisitions and expect our margin profile to improve as these efforts advance in the coming quarters.
Turning to slide nine the industrial segment reported adjusted revenue growth of one 1% with organic revenue growing three 3% from the same period last year.
Industrial adjusted EBITDA was up one 4% compared to the same period last year the.
Adjusted EBITDA margin remained flat due to mix strengthening U S dollar and inflation impacts.
I'd also like to highlight some key items looking at our capital structure and current liquidity profile.
Slide 10 of our earnings deck shows that we had $84 million of cash on hand, and $166 million of available liquidity, which includes our undrawn revolver of $82 million.
Our Crs acquisition resulted in a net use of cash in the quarter totaling 54 million nominally increased our net leverage after closure.
Adjusted free cash flow was positive for the six month period, ending December 31, 2021 compared to the prior year higher adjusted EBITDA and solid working capital performance contributed to the positive change.
Finally, turning to slide 11 to go through some more details on our full year 2022 guidance.
Tom explained earlier, we have issued reported adjusted revenue guidance of five five to seven 5%.
Organic growth is expected between five and 7% FX.
FX for the year is expected to negatively impact reported revenues by approximately one 5% and lastly, see IRS should deliver 2% inorganic growth.
The adjusted EBITDA target range is 175 million to $185 million for the calendar year 2022, and adjusted EBITDA margin is expected to be between 24 and 25%.
We're targeting 100 to 200 basis points of adjusted EBITDA margin expansion, excluding the impacts of a public company G&A costs.
We expect approximately $11 5 million in incremental public company G&A costs for the year, which will result in an estimated 150 basis point adjusted EBITDA margin reduction.
Adjusted EPS outlook for the year is expected between $45 50 per share and adjusted free cash flow is projected to be positive $90 million to $110 million.
To help with modeling considerations, we are utilizing our outstanding share count as of December 31, 2021 to establish guidance.
We expect our effective tax rate to be 24% to 26% and are assuming a U S dollar to euro FX conversion rate of $1 13.
And with that let me turn things back over to Tom to close us out. Thank.
Thank you Brian before we open things up for questions I'm going to leave you with just a few closing thoughts Firstly 2021 was a huge year for maryann as we became a public company.
It was a huge lift a huge resource dedication internally and we're very very pleased with the results, but candidly again I'm very much looking forward to focusing on the business again.
As we journey through 2022, secondly, our end markets are healthy and finally, we're confident in our strategy. So I'd like to close by again sincerely thanking my colleagues on the Marion team and let me turn it back over to you Alex.
Thank you Tom that concludes our prepared remarks for today, we will now open things up for Q&A with that I'll turn it back over to the operator to get things started.
Thank you very much.
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One moment please poll for questions.
We have a question from the line of Joe Ritchie with Goldman Sachs. Please go ahead.
Hi, Good morning, Larry Tom, Brian and Alex Great to join you guys today.
California.
Thank you Joe Thank you Joe.
So before I get going I have Ronny scardino on 19, as well and I think we're going to we're going to take some questions here. So maybe I'll just kick it off and then turn it over to Rodney will just go back and forth but.
The first question I have is really.
Two quarters as a public company.
We recognize that also kind of happens to coincide with like probably the worst supply chain backdrop.
We're seeing.
But the question really relates to organic growth and the confidence you have in achieving that 5% to 7% long term target and what's embedded into your 2022 guide given that we haven't seen it quite yet.
The first couple of quarters, maybe let's start there.
Yes.
Joe This is Tom I would tell you that we remain very confident in the 5% to 7% of growth that we guided throughout the SM.
Essentially the going public process, which would include both the <unk> and also the official of Destocking and the rationale behind that is that again, if you look at the market conditions. So we've addressed today.
Across the reporting segments. So firstly.
In the industrial segment, which is dominated by commercial nuclear power again, I cannot understate the quality of the underlying dynamics right now in the nuclear industry.
As I noted in the prepared comments I've been enroll now for more than 18 years and as we look across the key elements of the nuclear power industry, which we would define as the install base dynamics newbuild activity and decommissioning activity, we see tremendous strength in each of those areas supported by you.
Continued.
Focus on Decarbonising the global economy.
The change in alternative energy supply dynamics most significantly the.
Significant increase year over year natural gas pricing.
And beyond that the tremendous newbuild activity that in many respects is driven by regional energy security needs overall and so the combination of these factors makes the the nuclear industry very attractive to us and as noted we're seeing that in our order intake we are seeing that in our in our backlog.
As we look across the other sectors of industrial which would include.
The life Sciences or lab space, the military and defense space other industrial applications again for the reasons cited we're seeing strength there not only in the current year, but as we look ahead, we expect to see sustained strength.
Finally on the on the medical segment.
The the dynamics again are consistent with what we've guided previously that on the on the radiotherapy side, we are seeing strong demand not only driven by the growth globally of radiotherapy clinics, but also driven by the new product pipeline.
We've been very focused on and which will continue I believe to yield exciting results. As we look ahead, we talked a little bit about the nuclear medicine space and and expressed some level of disappointment regarding supply chain constraints over the current quarter and over the six month reporting period and to be clear.
This is a space where the demand is very very strong our backlog is at record levels.
We merely have been constrained in terms of shipping product based upon some very narrow very specific some sub component availability and as I noted, we're working very hard to clear that away our longer term outlook remains very positive for the space and then finally in our occupational dosimetry market again as no.
<unk>.
We're very bullish about the technological platform that we've developed and call instead of those the leverage ability of the digital platform across the global market. So all of those factors contributed to the strong underlying market growth and above and beyond that when you look at.
The things that we're doing as a company as we gain scale and sophistication to improve our market coverage.
Narrow areas, where even even noting that we tend to be the number one player in the majority of our product categories and some cases, our share position is a bit uneven and we're working very hard to close those gaps overall and a combination of those factors and enhanced focus on pricing heuristics and a very strong new Prada.
Pipeline all of those factors in our view will support that range of growth that we've guided throughout.
Joe This is Brian just two minor other things one is <unk>.
I would emphasize that in.
In our organic growth numbers is very little Sun right in San John definitely grows high single digits as we've talked about before.
So I put that into the mix too and the second thing I would mention is our first quarter will be our toughest comp as we go through the year. It's the quarter. We are we went through.
Obviously this process off of it as a double digit comp so that's going to be the hardest comp as we think about it and I think we've laid all of that out in the materials that we provided this morning as well.
Yes, no that's good.
I appreciate that answer Tom and then Brian Yes. It was great to see that all the segment level detail that you guys gave on a quarterly basis the knee.
In the presentation.
I wanted to follow up on a comment that you made in your prepared comments about nuclear because it's an area that we get a lot of questions on.
You said that you've never seen a better.
I guess point in time in your in your in your history in the space.
Then youre seeing today with the nuclear industry and I'm just curious like you look at your low single digit growth guide for 2022, I'm, just trying to square that comment with the growth expectations.
You can maybe kind of provide color beyond 2022.
On the different parts of your business, whether it's decommissioning newbuild or the install business.
Sure.
So Joe the way I would address the overall firstly just to note that if you look at our total nuclear power related business. It represents about 38% 39% of our total revenue and we can further subdivide that element into the three component pieces that I referenced previously.
Installed base typically is about three quarters of R. R.
Nuclear power related revenue newbuild or new construction activity is typically in the 15% to 20% range decommissioning activity, which.
<unk>, which is really a nascent a developing market overall represents the remainder so it begins with the installed base and if you look over the last couple of decades at at some of the dynamics within the installed base of nuclear power you've seen a lot of challenges where.
Yeah.
As an example in the U S you have seen.
A situation, where the operators of nuclear power plants.
Which they're about 93 operating today in the United States and about half of those sell their power in the deregulated markets and if you look at market conditions over the past decade, where we've seen a significant proliferation of combined cycle gas turbine power plants you have seen.
Some unusual demand patterns as we as we emerged from the great recession overall, you've seen the increased impact of heavily subsidized wind and solar power and all of those factors created stress for the American nuclear base, which at its peak.
We had a situation where about 30% of the American fleet.
Was was our economically challenged and potentially facing shutdown situations to fast forward to today. If you were to look at that installed base and really use this as a proxy there are different conditions regionally in other parts of the world. Let's use this as a proxy for the way the dynamics have shifted is that if you look.
At present, what you've seen is that firstly, there have been significant subsidies offered to the operators of nuclear power stations, both at the state level as well as the federal government level, where in the most recent infrastructure legislation theres about $6 billion of operational subsidies for nuclear.
Their power plants, all of which is obviously intended to keep them open to keep them profitable to keep them spending capital. Overall. In addition, if you look at kind of the macro market conditions.
Again as I noted previously the really the key driver of the relative economics of combined cycle gas turbine power plants vs versus nuclear power as the price of gas and his folks have seen that those overall natural gas pricing has more than doubled.
On a year over year basis, and the general outlook. There is that it will remain high for an extended period of time. The net effect of all of this and the installed base is that the operators have more confidence in the economic viability of of nuclear power plants and as a consequence, a number of things happened firstly, they tend to run at higher <unk>.
Pasty factors, which is the term of art within the industry for capacity utilization, secondly, theyre spending more capital.
And we will see that occur in the peak outage seasons in the spring and the fall when when most of the maintenance and upgrade capital is spent on on power plants overall and in many cases people are again talking about further life extension of the existing installed base again.
It's a complex answer.
Using the United States as an example, as to how market conditions have changed the net effect of all of this again is that the operators have much more confidence in the economic viability of the plants.
The time horizon within which they will operate and all of that again tends to drive higher levels of capital spending overall looking briefly at our Newbuild activity I'm sure. Many many have seen the activity, which is considerable which is happening outside of the United States. We don't expect to see significant <unk>.
The activity in the U S. But right now if you were to look at this segment overall and our views on growth. We expect this to be one of the fastest growing segments of our business overall and this is predicated on activity that's occurring throughout Europe .
And in the Pacific Rim in the main and importantly is supported by backlog. So if you look at our internal views on the growth of Newbuild activity again, which are quite quite bullish what you would find is that the vast majority of that in by vast majority I mean, well over three quarters is supported by <unk>.
Backlog that we have in hand today, and if you were add to add to that backlog figure.
The bidding activity the quotation activity.
We're responding to rfps in RF skews that coverage approaches, 90% or better all of which is to say that this is not something that we expect to happen. This is something that is happening and essentially covers again, a very bullish internal forecast.
Newbuild activity.
That spans our planning Horizon final thing I would say is that when you look at decommissioning, which again is a developing market and this is really driven by the fact that of the roughly 450 operating nuclear reactors globally.
That many of them were built in the Seventy's and Eighty's and there is a very predictable decommissioning profile.
That will occur over time, and we're beginning to see that where we're beyond the leading edge getting into an accelerating rate of decommissioning activity overall.
Is net positive for the company because we participate broadly in that decommissioning activity. So.
I think you get the point I could I could go on for quite a while on this but the point is again that the overall demand dynamics are good we are very confident in the in the numbers that we see out there.
And to be clear, we're working very hard to continue to evolve and augment the solutions that we offer into the industry to help productivity.
To help digitize what is today almost entirely in analog base of sensors and we think as we look ahead there'll be there'll be rich opportunities to exploit those factors.
Now that makes sense I think Ron has got a quick question follow up for Brian .
Yeah. Thanks, guys, Yeah, right here and I'll, just chime in Nextel Brian .
Talking about <unk> being the toughest comp. So just wanted to try to understand the lumpiness of growth you can really expect in the business whether there is any seasonality basically I'm just trying to understand how much growth.
Any one quarter should deviate from that long term growth framework.
<unk> do you think would be negative.
Yeah. So like I said I think the first quarter is our toughest comp right double digits.
I think where we sit today is.
We think it'll be a flattish quarter.
More than anything else as you look at the rest of the year the balance of the quarter I expect.
Decent growth in all three quarters, we have a much easier Q2 Q3 comp.
As we've as we've now disclosed.
And I think that.
It's fairly balanced after the first quarter.
Now the other thing I would just mention is.
As you think about our.
We've changed from a fiscal year to a calendar year.
I do I do think we are seeing and probably we'll see a little bit of movement in revenue from our historical June quarter into the September quarter. I think there is a positive thing for the company frankly, it'll help balance that with some of our plant workload et cetera.
So I am expecting to see a little bit of shift there.
Talk seasonality I mean general rule of thumb, 20% in the first quarter, 30% in the second 20% and 30% in the fourth is generally kind of what you what we expect to see from a from a revenue kind of percentage standpoint.
Got it no that is helpful.
Maybe just switching to Incrementals quickly I think the guidance bakes in mid 'twenty.
Incremental excludes the IRS.
Which seems conservative in light of the long term goal, which I think maybe double that on an incremental basis. So I guess question I wanted to see how do you still feel about that long term incremental target and then what is weighing down margins specifically in 2022.
Well I mean, so just stepping back let's talk about 'twenty two for a second I mean, it's mainly just digesting our public company costs.
What I think we've found as we've gone through this process and have baked into our planning cycle is so a little bit more expensive than we thought it would be to be public.
And some of that stuff is not controllable, it's not nice to have stuff its insurance etcetera. So I think as you think about the incrementals from 'twenty one to 'twenty two it's mainly a public company costs issue.
With a little bit of mix right. So there is a little bit of mix, a little more newbuild little less recurring something we had always new.
Was coming its probably a little heavier than we had originally planned.
But I think we're okay with that as we think about the go forward.
I think this is the biggest year for us to digest costs and I expect.
Our longer term guide to get to 30% margins is something Tom Larry and I are extremely focused on it.
Yes that is helpful and just remind us I know that there was a discussion at one point of allocating corporate costs born to the segment did that occur with the additional data that you've given and I always ask them.
Anything we can expect in the next few quarters.
I think youll see us.
Come back out at some point.
In the first half year with somewhere on that we did have a couple of million dollars moved from corporate to.
To the industrial segment and in our planning it didn't happen in the fourth quarter.
So there's a little bit of noise in the <unk>.
So you will see in the in the 'twenty two numbers by any any broader reallocation will come back around to on that here in the first half.
I want to keep it clean and then.
As close as we can.
Thanks, Brian Yeah, I'll turn it back to Jeff.
Yes, I mean, we'd be remiss, if we didn't ask you guys' questions about M&A.
Clearly top of mind for investors really to drive both topline growth and also margin expansion.
I guess, maybe my first question in the near term is there still is the focus still on M&A or deleveraging the balance sheet more of a focus today.
This is Tom what I would say is that are they are both important that are firstly on the M&A side I think if you look at our track record.
In terms of sourcing.
Sourcing attractive deals that are strategically coherent.
Essentially securing the purchase at attractive pre synergy multiples and ultimately integrating that we've done well on all of those areas. It's been a very very important contributor to the overall growth of the.
Of the business not only over the last five years, but throughout our threat or longer term.
Our history.
That will continue to be the case and I think the.
The expectation that we've put out there are 5% to 10% of inorganic growth continues to be a very sustainable there are a few things to note that firstly.
If you look at the contribution of Crs that will add about 2% of additional growth to the C Y 22 topline and as we look beyond that at our ability again to add additional deal flow that will take us into that range. We remain confident now on.
The leverage issue clearly our view and our expectation is that over the intermediate to longer term certainly over our planning horizon.
We will very deliberately seek to delever the company our target as we have cited historically in which we maintain is that we'd like to bring leverage down into the three to three five times.
Our range overall, so that's leverage as a as a multiple of the company's EBITDA. Overall today were just over about four three times.
And we understand that there is an investor desire and an expectation that will bring that down as we move ahead.
However, when you look at the free cash flow generation of the business our free cash flow generation overall is about $100 million and if you look at a reasonable set of assumptions regarding entry multiples EBITA margins centered immediately attainable.
Synergies things like that.
Would tell you that we remain comfortable that we can again add inorganic growth within the range that we've guided with nominal deleveraging.
In the in the near term so.
We are certainly sustaining our view.
I'll I'll conclude the comments here by noting that right now our pipeline is great. We continue to be very active in cultivating a pipeline.
That's consistent with the strategic objectives of the business.
We feel very good about where we sit on that front right now.
That's super helpful and just to clarify a point you just made Tom.
So the connection to cash flow is this is the assumption that you'll be funding deals with cash and can still delever.
The cash or are you also contemplating using equity.
To do a deal.
I would tell you that we don't have any immediate plans to use equity to fund deals that our view is that through a combination of all of our cash as well as what would be proportionally lower incremental leverage that ultimately there is a way there is a pathway.
For us to again operate within the envelope that we've defined with nominal deleveraging of the business overall.
Got it Okay, and then I guess just a couple of other quick clarifications I want to be cognizant of your time as well. So appreciate all the questions on the call today, just a few questions that we've gotten from investors as well.
The first one I think you made a comment earlier around.
Price price outstripping inflation, two point back half of the year.
I guess just.
To clarify that the point is.
Is that two points ahead of inflation is at two point.
Excluding in place just trying to understand how youre thinking about the framework for 2022.
So thats two two points of only price.
Net inflation is not is less than that.
I would also think about it from a sequencing standpoint is <unk>.
<unk> cost will be negative in the first quarter.
Neutral in the second quarter, and then obviously, we gain a bit in the back half of the year.
And I'm not I would tell you that our assumption is not a huge price cost uplift on margin. There is some but it's not a it's not a big number.
Okay, Yes that makes sense I think that that's how we heard it as well.
A couple I a couple of investors asked us about Russia, Ukraine, and whether any general thoughts around the situation, that's unfolding, there and how that potentially impacts your business.
Maybe I'll just tee it up on the financial side and then Tom you can add some color.
So.
The way, we if we think about our exposure to Russia, and Ukraine, It's mainly Russia.
It's about $10 million of direct business into Russia.
We have obviously.
We are partnering with.
With.
On some Russian backed.
Are some Russian technology reactors being built in Finland.
Et cetera.
And our expectation right now is we may see a little bit of.
Cash kind of moved to the right, but we're not expecting a P&L impact at this time.
So I think I think that's kind of how we're thinking about it internally and we continue to watch whats obviously, an evolving situation.
Got it great and then.
Just a last question because we saw we thought them out as well with your filings today.
The CLO the part carriers, if any color around that was there's always that.
Does it mean that you guys intended to eliminate if any any other thoughts around that would be helpful.
Yes.
The expectation was that as we got beyond the public exit.
That ultimately we would see again on the evolution of our operating model.
Where the key business units or <unk> segment leaders would report directly to me. This has been the case through most of our history, where the the operating unit heads.
Reported directly in demand as we prepared.
Ultimately two to exit the company, even long before we planned on the spec exit.
There was great utility and creating the COO position to more directly manage the operations, while I could focus on.
My limited bandwidth on.
<unk> processes and other strategic matters now that that's behind US. It gives us license to again revert to the historical model, where there's a there's more direct touch interaction.
Between me and the and the unit leaders and so it's something that as we looked at the evolution of the operating model that.
We've been thinking about for quite a while in terms of the actual.
Departure in the 8-K that.
That decision was made a few days ago, certainly within the SEC filing window after the 8-K and really separate and apart from the the.
The more strategic structural changes to the operating model I noted.
That makes sense.
Tom Larry Brian and Alex that thanks, really appreciate all the time today.
Thank you Joe Thank you very much.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Thomas Logan for closing remarks.
No Sir.
Ladies and gentlemen, so this is our first public earnings call and we're delighted that our that you had the opportunity to listen in and participate today.
Again, I would close by saying that.
We are we feel good about where we are as a business.
And good about the strategy and the overall market conditions that we see ahead of us and we look forward to updating you on our progress.
Next quarter, but in the meantime, again, thank you for your time and attention and we'll look forward to connecting with you in the future.
Thank you.
Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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