Q1 2022 Mirion Technologies Inc Earnings Call

Yeah.

Good day and welcome to the myriad Technologies' first quarter 2022 earnings conference call all participants will be in a listen only mode.

Should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touch somehow to withdraw your question. Please press Star then two. Please also note. This event is being recorded and I would now like to turn the conference over to <unk>.

Alex Gatti, Vice President of Finance and Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining <unk> first quarter 2022 earnings call. A reminder, that comments made during this presentation will include forward looking statements and actual results may differ materially from those projected in the forward looking statements. The 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.

Totally references within todays discussion are related to the first quarter ended March 31 2022.

The comments made during this call will also include certain financial measures that were not prepared in accordance with Charlie 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 accompanying this conference call, which can be found on <unk> IR website at IR Dot Marion 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 now I will turn it over to our chairman of the Board Larry Kingsley Merit.

Thank you Alex and good morning, everyone. We appreciate your continued interest in <unk> and are excited to share our current assessment of the company's performance and outlook.

This morning, we announced our earnings results for the first quarter of 2022.

We have provided an update to our expectations for the rest of the year.

We will also share our view of how this dynamic environment impacts the short and long term growth prospects for the business.

I want to begin by highlighting some of the key trends.

I'd like you to take away from this call.

First the operating environment remains challenging and in some respects deteriorated during the first quarter.

The conflict in Ukraine, and the supply chain issues specific to our bill of materials pose significant challenges for our business, which we expect to continue.

However, all things considered Tom and I are proud of the team for taking the new variety of challenges head on and.

Delivering a solid quarter of results I believe that the team has positioned the company for success in the coming quarters.

Second demand remains robust for variant diverse set of products and services.

Tom and Brian will highlight in more detail later in the call <unk> order volume remained strong across both the industrial and medical segments.

Finally, I want to express how well positioned us to deliver growth during the remainder of 2022.

The company's various end markets actually look stronger now than they did a year ago or even a quarter ago.

Maryann maintains a leadership position in many of its product categories and is well positioned to outgrow its end markets.

The team has a steady grip on the business theyre controlling what they can control and they are responding well to what they cannot.

There was a lot of noise in the first quarter and there will likely continue to be some challenges in the short term.

However, the business is poised to deliver strong results consistent with how we have described our performance expectations for the company.

It's important to remind you that Marriott has a long history of delivering positive results and uncertain operating environments.

And now I'll turn the call over to Tom Tom Logan Marine's CEO , Larry. Thank you and good morning to everyone I'd like to begin my remarks by saying Firstly. Thank you to all of my Maryann colleagues across the globe for your hard work navigating the challenging operating environment throughout the first quarter as Larry mentioned, our company faced multiple challenges to start the year.

Clothing, the ongoing supply chain effects from the Covid pandemic.

Accelerating cost inflation and certainly most recently the Ukraine conflict. These factors have had a negative impact on our short term performance, but I believe that the inherent resilience of our business model positions us well for the road ahead.

While this quarter's performance fell short of our year ago quarter I can tell you that I'm extremely encouraged by the favorable evolution of our end markets, which is evidenced by strong order performance in the quarter. In fact core orders grew approximately 19% year over year in the quarter adjusted for the impact of foreign exchange before I take you through the financial.

Highlights, let me first dive a bit deeper into the market trends that we're currently seeing first the outlook on nuclear power has improved since our last call in February .

The two most important factors defining the health of the commercial nuclear power industry or government support in the price of natural gas. Both of these factors are markedly and I believe permanently improved over the last few months.

From a political standpoint, the Ukraine conflict has heightened the importance for energy independence in Europe . This has caused a number of nuclear states to enhance their commitments to nuclear power generation.

Examples include Belgium, which has announced that it will life extend its operating plants by a decade, the U K announced eight new nuclear projects underpinning Boris Johnson's objective of increasing the percentage of UK electrical generation derived from nuclear power from 16% to 25%, France announced six new <unk>.

<unk> projects, and we expect to see sustained or accelerating newbuild activity in Bulgaria, Turkey, Hungary, Poland, The Czech Republic and elsewhere.

Outside of Europe , a majority of Japanese citizens now favor nuclear power for the first time since Fukushima and the presidential election result, South Korea will likely result in a significant acceleration of nuclear newbuild activity there.

Finally in the U S. We have seen hundreds of millions of dollars of state level subsidies to existing now nuclear power plants now supplemented by $6 billion in subsidies from the federal government as a component of the recent infrastructure Bill. This political support is so striking that even California is reconsidering the shutdown.

As of its last nuclear power station at Diablo Canyon.

Looking now at natural gas pricing, even before the Ukraine conflict prices that more than doubled year over year, we expect the new constraints on Russian export gas will put a floor under that both in Europe as well as in the U S, where marginal economics will favour greater LNG shipments into Europe .

All of this means that the confidence in the profitability of the global nuclear industry, it's better than it has been at any time in my nearly two decades as CEO of this company. We believe that this in turn will likely lead to an increase in capital and operating budgets as operators seek to run plants at higher capacity factors and.

Contemplate more life extensions.

Through this should have a direct and positive effect on the recurring revenue stream, we enjoy from the installed base as well as the scope of Newbuild activity, we expect to support within our five year planning horizon, let's.

Let's turn now to the defense segment, which represents about 8% of our revenue. The Ukraine conflict has spawned enhanced military and civil defense concerns around the possibility of the nuclear radiological incident, and the region as a consequence NATO members and their neighbors are increasing their related military and homeland security spending with both.

Speed and focus today Maryanne provides products and solutions to 19 of the NATO armed forces to a variety of applications, including militarized Dosimeters and survey leaders, we expect to see accelerating demand for this green gear over the balance of our planning horizon.

More broadly European Civil defense agencies have a heightened interest in the food safety environmental monitoring and in vivo assay solutions. We've historically deployed in the wake of events, such as Chernobyl and Fukushima we are standing at the ready to help them meet the needs driven by elevated environmental risks and the reach.

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Pivoting now to our medical end markets, we've seen healthy demand and orders as evidenced by the backlog progression as I've mentioned before we expect digitization to play a critical role in our growth story as we launched new and connected products I am extremely excited with our most recently announced new products some checks and Sun.

Scan, which add to our industry, leading radiation therapy quality assurance portfolio. The team is also making great progress on our third generation into those platform, which is scheduled for release in 2023.

While our end markets are healthy and our order book is strong the lingering effects from COVID-19 on the supply chain continue to impact the predictability of our delivery windows to customers, while Brian will take you through the details on the quarter later in the call I wanted to note. This remains an issue most acute areas of pressure in the quarter accrued from logistics and sub assembly avail.

I'm impressed by our team's ability to find rapid solutions to these late breaking issues, but we've not yet seen the end of it we expect supply chain disruptions to extend into the second quarter, and we'll reevaluate progress and provide another update on our Q2 call in August .

Given the current state of geopolitical dynamics and out of an abundance of caution we have removed all remaining Russian related revenue from our projections and guidance.

This includes the news of the termination.

Of the Honey TV nuclear power contract between a finished consortium and affiliates of Rosa Tom that was announced on Monday, the remaining projects affiliated with Rosa Tom in our backlog, primarily in China, and Hungary have not been terminated and we continue to operate in compliance with the terms of the underlying contracts the updated.

Guidance that we provided today reflects this decision and ongoing supply chain dynamics offset by new opportunities in our defense and core nuclear power markets.

We are confident in our ability to achieve the revised targets understanding that any incremental revenue recurring from Rosa Tom projects would be accretive to our revised guidance.

Sure.

Turning now to slide four to discuss our first quarter results.

As expected the first quarter was a tough comparison to remind you we saw a 14% organic growth from Q1 2020 to Q1 2021, when compared to the first quarter of 2021 organic revenue declined by four 2% with medical growing by seven tenths of a percent and industrial declining by $6.

6% on a two year stacked basis, we delivered organic revenue growth of 10% perf.

Performance was highlighted by strong growth in nuclear medicine into cemetery, but was more than offset by impacts from supply chain disruptions across the business and project delays stemming from the Ukraine conflict.

Brian and I discussed on our last call. We have been very active with pricing actions to offset inflationary pressures. We began to see early signs of price materializing in the first quarter and we expect to see our net price cost relationship improved throughout the year. Finally, we remain focused on delivering our inorganic growth target of 5% to 10 point.

We have a strong M&A pipeline and are currently evaluating a number of compelling opportunities, we look forward to providing everyone with updates as opportunities evolve.

As I turn the call over to Brian I wanted to.

To close by reiterating that we believe Marin is well positioned to weather the challenging operating environment, just as we have done a numerous prior cycles. Our markets are vibrant backlog is strong and we intend to successfully navigate through these short term hurdles with that I'll turn the call now over to our Chief Financial Officer, Brian Shopper.

Thanks, Tom and good morning, everyone.

To get started let's turn to slide five as I walk you through our first quarter financial results in more detail.

As Tom mentioned, our total company revenue was down four 3% and adjusted EBIT declined by 12, 5% when compared to the first calendar quarter of 2021.

On an organic basis, our revenue was down four 2%.

Our total revenue in the quarter with $163 2 million with adjusted EBITDA totaling $34 9 million as a reminder, approximately $3 million of public company costs are included in this quarter's results versus a year ago.

Normalizing for these incremental public company requirements, our EBIT decline would be in line with revenue performance adjust.

Adjusted EBITDA margin contracted by 200 basis points to 21, 4% on lower volumes and incremental public company costs <unk>.

Excluding the public company costs adjusted EBITDA margin would have been flat year over year.

Adjusted gross margin was up 10 basis points compared to the same period last year, finishing.

Finishing at 56% for the first quarter.

With lower volumes I am pleased with the adjusted gross margin performance as cost initiatives and better mix showed improvement year over year in the quarter.

Adjusted EPS for the quarter with Ted said slightly better than expectations on lower taxes.

Moving on to slide six and seven let's look at our quarterly financial performance by segment.

Starting on slide six with the medical segment.

Adjusted revenue was up seven 7% and organic adjusted revenue increased by 70 basis points.

Organic growth in this segment was supported by strength in nuclear medicine, and dosimetry, but was offset by supply chain challenges within radiation therapy.

The supply chain negatively impacted organic growth in the quarter by approximately 5% adjust.

Adjusted EBITDA margin for the medical segment was 39%.

50 basis point decline from the same period last year, driven by both volume impacts and investments in our European Service Center and radiation therapy.

Next looking at the industrial segment on slide seven we reported a quarter over quarter decline in adjusted revenue of 10, 1% with organic revenue declining six 6% from the same period last year.

On a two year stacked basis organic revenue was up 9%.

Revenue performance is reflective of the difficult Q1, 2021 comparison, coupled with the previously mentioned macro issues.

These factors negatively impacted organic growth in the quarter by approximately 8%.

Adjusted EBITDA for the industrial segment was down eight 5% compared to the same period last year, while adjusted EBIT margin increased 40 basis points to 27%.

Pleased with the adjusted EBITDA margin performance, despite lower volumes, reflecting good cost discipline.

Moving on to slide eight to highlight our leverage and liquidity profile and free cash flow performance.

As of March 31, we had $84 million of cash on hand, and $166 million of available liquidity.

During the first quarter, we generated $10 million of adjusted free cash flow, which was a slight improvement compared to the $9 8 million from the same period in 2021.

Cash operating expenses were $7 3 million, which is expected to be the highest quarter in 2022, excluding any incremental deal related expenses.

Finally.

I want to walk you through the updates we made to our full year 2022 guidance turning to slide nine you can see our updated expectations for 2022.

As Tom noted earlier, the actions taken remove approximately $8 million in revenue for the second quarter.

For the full year reported adjusted revenue growth guidance is now three 5% to five 5% down.

Down from our original expectation of five 5% to seven 5%.

This is reflective of us delivering organic growth of 4% to 6%, which is down from the $5 to 7% we guided to previously.

Again. This is all excluding this is excluding all remaining Russian related projects, representing nearly 4% of our top line expectations for the full year.

Foreign exchange considerations are now expected to negatively impact reported revenues by approximately two 5% for the full year.

We are still expecting crs to deliver 2% inorganic growth in 2022.

Our adjusted EBIT target range for 2022 has now shifted to $170 million to $180 million from our original 175 million to 180 $85 million expectation.

The updated EBIT guidance is reflective of the removal of $14 million of Russian related EBITDA and $1 million of negative foreign exchange impacts being partially offset by 10 million new defense and nuclear power opportunities are.

Our adjusted EBIT margin expectation remains between 24 and 25%.

Our adjusted EPS outlook for the year is now between 44 and 49 cents per share and adjusted free cash flow is expected between $75 million to $95 million.

We feel strongly about our current financial position and believe that we're well positioned to execute on our future growth and improvement initiatives I'll now turn things back to Tom for some closing remarks.

Brian . Thank you I'd like to highlight a few key takeaways before we open the lineup for questions first quarter was dominated by a challenging operating environment. We believe there are many positives to take away from it including our robust core order growth of 19% in the quarter, which signals strong future growth supportive conditions in both our industrial and.

Medical end markets, especially in nuclear power and finally, the team's ability to successfully navigate a challenging operating environment. Despite continued supply chain stability.

Thank you all again for the time today and with that I'll pass it back to Alex again.

Thanks, Tom.

That concludes our formal comments for today, we will now open things up for Q&A.

Turn it back over to the operator to get things started.

Well now begin the question and answer session to join the question queue Press Star then one.

If you'd like to remove yourself from the question queue Press Star then two and if youre using a speakerphone you may need to pick up your handset before pressing any key.

We will start with our first question that comes from Chris Moore with CJS Securities. Please go ahead.

Good morning, guys. Thanks for taking a few questions.

Maybe we'll just start off on the supply chain.

Medical side, so it sounds like the challenges of shifting a little bit more towards radiation therapy and nuclear medicine is that correct.

Yeah, Chris the way I would care. This is Tom the way I would characterize our business. Overall is that we are a low volume high mix business and that's reflected broadly in our supply chain and this is both a blessing and a curse. It's a blessing in the sense that our supply base is highly diversified highly regionalized and so as a consequence.

Once our exposure to two thematic issues.

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Direct exposures to the situation in Shanghai or more broadly to southeast Asia are more muted than we might find with with a number of our peers, but it does mean that we see.

Effects that oftentimes are a little bit surprising so what we saw in the quarter.

A new issue for us as you pointed out in our radiotherapy business, where we had an issue obtaining.

Painting power supplies and this was an issue that we had worked very very closely with our core supplier.

Candidly over a number of months we had.

Yeah.

We believe good reason for optimism that we'd be able to kind of shore up the delta over the quarter. Our supplier ultimately was not able to close that gap and this is somewhat reflective of what we saw in the December quarter on the nuclear medical side, where at that time. We noted that we had a what I would say, it's broadly a comparable issue with that.

With certain sub assembly components overall, and our general view around the supply chain is that as a company.

Our our general processes.

<unk> has over indexed to becoming extremely proactive where we no longer take it as an article of faith that we will receive a key component a key sub assembly on a schedule date, we're extremely proactive about confirmation and reconfirmation.

Still given the state of the other global supply chain overall, we continue to see issues like this which we've characterized historically as brush fires that we.

We have been successful in containing but on the other hand, given given the broad macro conditions. We don't have particular cause for optimism right now that we're nearing an end to this.

Got it very helpful.

Maybe just some pricing can you talk a little bit more about the the pricing escalators in your contracts or they get from between medical and nuclear between U.

U S and Europe and finally.

What's the likelihood of.

Of having to give some price back at any point in time.

Yes. So I think there are two broad elements to our revenue stream that I would encourage you to think about from a from a pricing standpoint. What is the is the revenue that flows through backlog and typically that represent represents about half of our next 12 months revenue and within that backlog.

As a diversity of contracts some of them are fairly have a fairly short term time six months or less some of them are multiyear in nature and what you would find.

Across the gamut of those contracts is that the vast majority have pricing escalators indoor opportunities too.

Essentially gain price as scope changes as schedule changes et cetera.

The key distinction between that and the remainder of our business, what we would broadly characterizes our book and Bill and are subscription based.

Technology enabled services business is that the pricing and players have a bit of an implicit time lag and so this is why.

On the prior quarter.

We noted that we feel very good about the price action that we've taken as a company we feel like we've been proactive across both the industrial and the medical segment.

We feel that our price actions have been well received and well supported in the market.

In large measure because of the criticality of what we supply and the related price elasticity of demand.

But our view is that overall again given that that.

Lagging effect associated with price escalation of backlog.

We expect to see more visible pickup in positive price cost in the back half of the year, yes.

For what it's worth.

Chris We got about one 5% price in the first quarter and we expect that to pick up as the year goes on.

Got it that's helpful. Thank you guys and last one for me is you had previously talked about new construction being roughly I don't know 17, eight comparable nuclear revenue given the current backlog the significant recent uptick in new plants being announced.

Would you expect that percentage to look much different you know four to five years from now.

Chris I would yeah, I think when you look at the the dynamics that we've articulated.

I review that really in the context of my nearly two decades as CEO of this company, where we've seen.

We see numerous economic cycles, and we've certainly seen a.

A fairly significant change unfortunate to the nuclear industry overall I.

I will tell you without a doubt the conditions in the industry again are better than they have been at any time. During my my my tenure with this company that's driven by as I noted in the remarks, a combination of strong government support across all regions. We're seeing it in Europe , we're seeing it in North America, we're seeing it in Asia Pacific.

Coupled with.

And extremely high increase in the cost of land and natural gas, which again, we've noted has more than doubled year over year and based on a complicated.

Array of both supply side dynamics and demand side dynamics punctuated by the Ukraine crisis, we expect that to continue for a long period of time. What this means is that the government support both for the operating fleet, which which represents about three quarters of our nuclear revenue of about 30% of our total business.

Is higher.

But also the Newbuild activity, we think is very likely to be accelerated and a number of the of the nuclear states and kind of incipient nuclear states that we've talked about on prior calls so I would tell you that while we've not updated our long range plan to to incorporate.

Some of the emerging new assumptions surround newbuild activity.

I would tell you that collectively we believe we will see a pull forward of certain projects into our five year planning horizon that ultimately at that 0.5 years out that you mentioned.

Likely to move the needle overall.

Got it very helpful. I'll jump back in line. Thanks, guys. Thank.

Thank you Chris.

Okay.

Our next question comes from Andy Kaplowitz with Citigroup. Please go ahead.

Good morning, everyone.

Hey, Andy.

I just wanted to go into that last question, a little bit more in the sense that environment changing since Russia, Ukraine, you gave us a lot of examples and in what countries are doing you did add $10 million of incremental defense and nuclear EBITDA. This year, but could you give us a little more color into what that incremental business actually is and do you see the inflection and acceleration.

Waiting as early as 'twenty, three nuclear and defense businesses.

Yes, so on the on the defense side first of all in terms of the pickup of activity. This is a.

A scenario that we've seen before I want to stress that.

The.

Our company if you were to pro forma back our current construct back to.

The 2011 timeframe, we were deeply deeply involved in the civil defense response to the to the Fukushima incident, and if you. If you look through the pro forma impact of that what you would have seen us.

Episodic revenues revenue spike of about $130 million over that period of time and I note that because it reflects the capabilities that we have as a firm both I think the more intuitive military products, which I'll touch on in a moment, but also the more comprehensive suite of civil defense.

Solutions that we brought to bear there and are prepared to bring to bear if we see any similar type of.

Of regional nuclear incident at anytime in the future given the.

The acute nature of the situation in Ukraine and the <unk>.

Sobering effect that that has had on European military budgets in particular, where I think most strikingly Germany announced that they are immediately.

Evolving toward a military spend allocation of about two 8% of GDP, having been well under 2% for many many years that is reflective of.

The heightened in acute defense posture that we're seeing in the region and recognizing the array of.

Potential.

Both military and civil defense threats that could ultimately lead to some type of radiological release, we have seen an incredible pickup in.

Indications of interest in and around the solutions that we offer again from both the military and civil defense standpoint, so on the military side.

We currently equipped 19 of the NATO armed forces, we have been the incumbent dosimetry supplier military dosimetry supplier.

For most of the last three decades.

And we are in the midst right now and have been in a general generational upgrade to two.

The technology that we've deployed we clearly expect to see an acceleration of this activity over time and I will I will tell you that the indications of interest that we have seen overall.

In the mid eight digit range again in terms of.

The scope of what we could potentially see over a multiyear period and order pickup that does not include any potential civil defense activity that might be sponsored through the IEA through the the American federal government.

Or by the EU itself and so the key point here.

Is that this is a.

Area, where we have seen a pickup in activity. We have seen this movie before not only in Fukushima, but we were present in Chernobyl, we were present in three mile Island, and so we expect that.

Again, if there is an incident or a perception of of an evolving.

Acuteness of risk that this may lead to some additional revenue opportunity for us over.

Thanks for that Tom and then maybe this is related but you gave us the core orders number of up 19% could you give us more perspective on how orders have evolved over the last couple of quarters and what you expect moving forward and then how we should think about that translating over time in two segments given the supply chain headwinds that are out there.

Yes, what we're seeing is a strength in orders across the board, it's not isolated to one segment or the other and I think it's reflective of the vertical market conditions. So we've talked about we talked this morning, a lot about the health of the nuclear power industry, and ultimately that health will translate into into more.

Recurring revenue from the installed base, so it's almost an inevitability.

Again, given the fact that that operators clearly are motivated and incentivized to run their power plants at higher capacity utilization and capacity factors and the life extend the existing infrastructure and variably that throws off both incremental opex budgets and capex budgets and ultimately.

Some of that finds its way to us and so that is the macro demand driver that more than any other factor on the industrial side.

Leading to the kind of order dynamics that we're talking about but on top of that on the industrial side. We have the military activity that are that we've noted.

Picking up and we expect could pick up considerably.

And.

With the exception of the Newbuild activity associated with Rosa Tom projects that we have taken out of the forecast otherwise the newbuild activity overall would be shrunk I wanted to be clear on that point as well again I think we were fairly direct and the commentary that we've made that our goal today is simply to get underneath.

Any any remaining Russian exposure and this is why we've lowered guidance.

To be clear there is potential upside we've heard no. We've had no indications of any delays or cancellation of discussion around the projects in Hungary, and China that we've we've noted in the past that date.

US, Russia and technology and to the extent, we see that flow through.

In an ordinary course that would represent upside to the year overall.

The second point is on the medical side, we're just again to reiterate the.

The overall demand drivers in the industry are driven by a combination of demographics and technology and new product releases and all of those factors are undergirding very healthy medical sector demand for US overall, one just one comment Andy I know youre going to ask another question, but.

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I would say that.

When you look at the end markets within the orders.

There isn't like a large military order something that came in in the quarter. This is this is our normal. This is just our normal business right. There at the end of the quarter. We're only four weeks into this conflict. So I think it's really important to point out that there's not some anomaly because of what's going on we haven't really seen that in the order book.

Brian again this quarter.

Yeah No. That's helpful. Let me ask you a follow up then on sort of how to think about quarterly cadence of earnings going forward should we assume supply chain impacts are still relatively keyed in Q2, and Q3, and then sort of you know they they get sequentially better and obviously, you're starting out relatively low in Q1 versus your organic targets for the year. So.

Should we expect just a gradual ramp up in organic revenue, what's your visibility to that ramp up.

Yeah. So.

Andrew the way I the way I think about this.

Is is a couple of things first off we mentioned that.

We have about $8 million of revenue in the second quarter that we've had to take out of the forecast.

That revenue is very hard to replace disc quick.

With our with with kind of.

How our order profile is there.

So I think the way I think about this is that plus some supply chain is going to make Q2 from like an organic growth percentage look better than Q1, right, but not as good as where we had expected in our prior kind of viewpoint.

That obviously means is we have a pretty big we have a back half of the year that ramps and.

And there is there's good visibility to that with good order flow frankly in in Q1 and in April .

That supports this we have good line of sight to the projects that are coming and half com.

On delivery in the back half of the year. So we're quite confident in that.

And what we've put out.

But I think <unk> is another quarter, that's a little bit challenging.

Then we expect Q3 and Q4 to be pretty robust the other thing just to.

Magic is price ramps as we go here like I told Chris we saw about one 5% in the first quarter.

Candidly.

I would tell you that's a little better than what we had planned for.

Yeah that gets better in the second quarter.

It gets materially better on the on the exit so.

That helps as well in the back half of the year.

Thanks for that guys I'll get back in queue.

Thanks, Dan.

As a reminder, its star then one to join the question queue and the next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Thanks, Good morning, everyone and it's nice to have other analysts on the call. This time.

Thank you chip.

So.

I'll kick it off and then my colleague Ron you've got a few questions as well.

Maybe just starting out with the quarterly performance in <unk> I'm. Just curious just however, you guys want to describe it as you think about both of the segments.

How did things kind of trend as the quarter progressed and any any comment on April as well would be helpful.

Yeah I think.

No.

The way the way the quarter progressed, so first at the macro.

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The supply chain situation got more challenging as the quarter went on frankly and even at that month of March went on I would tell you.

More and more challenging.

I think that.

That.

So that's kind of what I would say probably about the first quarter, but again, we're fairly happy with where we ended up here in the first quarter I think on April .

I would tell you that.

Things have got in are getting better but other things are have gotten worse. So I think it's a little bit of a.

We feel good about.

Where we think we'll land here in April .

But there is definitely some positive and there is definitely some negative.

The one thing I don't.

We didn't touch on and we've talked a lot last quarter about our new bad business I'll tell you.

These guys had a phenomenal March there.

Set up to have a very good second quarter and I would I would tell you everything we Tom and I and the team have.

<unk> expected to happen. There is now is now starting to come through into fruition and I think that.

We got our we definitely have our feet under us in that business.

I think that's kind of how I would I would think about it more challenging as the quarter has gone on an even more challenging as March one.

Got it that's helpful. Bryan I guess, it's the.

The follow up I have is is the order trends are good 19%.

How do we think about the conversion of that of those orders in backlog and then.

I guess, maybe related or unrelated question you guys kept the EBITDA margin guide for the year.

It's an interesting a lot of our industrial companies are saying, we're increasing pricing increase in place and that's having an impact on margin. So I'm just curious if like the confidence in that in that margin guide for the year and maybe how your business differs.

In your ability to maintain.

So I guess two questions there.

Yes, so maybe I'll take a shot at both O&M coming over the top so first off I would I want to point to our industrial margins this quarter.

We were down organically.

And still have very robust margin performance. So I think I think first off that points to two <unk>.

Sure.

Discipline.

In the business.

So.

Based on what we're seeing in the first quarter based on the incremental actions, we're taking on both the supply side and on.

The pricing side.

We feel we feel very confident about the range, we put out there.

I would also tell you.

One of the things, we're finding which is which is a bit interesting is we're seeing more inflationary pressure as we try to get things faster.

But the supply dynamic on.

Given the supply chain, a little bit more time is definitely helping our cost pressure as well, which also leads to why we're confident kind of in the back half of the year both on margins, but also on shipments.

Got it and then just.

I don't know that the conversion like the 19 like how do you think about the conversion how does that how does that come through.

Into your into your earnings.

Obviously I mean.

It's kind of the same comments I made.

But Andy on.

Hi, Alan thinking about Q2.

And Q3 and Q4 being.

A bigger ramp.

So I think that 90% of mix of.

Stuff that I'll take a couple of quarters to convert and there is some obviously some some short term stuff in there as well so there's nothing abnormal in the mix of the order conversion.

That.

That changes our profile I think.

Where our caution is around execution and getting and making sure that we are.

We can execute on second quarter.

Hey, guys. This is ronny scardino, so just in a way in with another question.

So look we thought it was prudent you guys move Russia related revenue or EBITDA from your updated guide.

What stood out at least to me was the fact that you added $10 million or these new opportunities in defense nuclear so it was great to trying to gauge your visibility into these earnings and your confidence I guess two to achieve it this year and what I'm really trying to get at is are you seeing orders that support this outlook.

So ronny I'll take that this is Tom the answer is yes, we're seeing.

The pickup in orders both on the nuclear a commercial nuclear power side and as well as on the military side that gives us confidence in that and that number overall and we continue to see again just kind of strong.

Preorder dynamics in terms of the level of dialogue that we are engaged with with with relevant.

NATO based military forces and so our view is that that number is well supported and.

We are working hard too.

To continue to do what we can to provide compelling solutions into the into the region and.

And if we do we might see some some upward bias to those numbers overall.

That's great and just I guess one follow up.

Are those sales associated with the $14 million and EBITDA that you called out for the rest of impact.

Well I mean.

Yeah.

Most most of that is.

A couple of things.

Two projects that are in our backlog, Hungary, and China that we talked about again I think we have some optimism we have optimism that.

No.

We're taking more of a prudent stance in our in our guidance approach, then hopefully where we land.

There is.

Obviously taken out all of our direct business in Russia.

And any expected orders for loans at home projects that we were expecting to get it doesn't mean, we won't get those orders it doesn't mean, we won't.

Between this year next year and the coming years.

Continued to deliver on those orders, but I think this was really about US taking this question off the table and.

And that's that.

That's the key here, yeah, Ronny I would add to that too that obviously, we took on ATV finish project.

Which has been cancelled.

Out of the out of the mix in aggregate I think the total is roughly $30 million.

From a.

Topline standpoint that we've taken out of the forecast and so.

I think that highlights just the resilient nature of our business that are that our exposure.

Russia directly and indirectly is probably a bit greater than our peer group.

We want to be again conservative in our in our stance here.

But we're very proud of the way the team has pivoted and.

And.

Really.

Hit the maps in terms of delivering additional revenue in other markets. So I think that's the story of our history and it just highlights the.

The implicit diversification of our business.

Okay. Thanks, guys I'll pass it along.

The next question is a follow up from Andy Kaplowitz with Citigroup. Please go ahead.

Good morning again.

Hey, Brad.

Ian I just wanted to follow up on cash flow for a second you know like all industrial companies. It seems like you've had to invest in working capital debt. So how are you thinking about your ability to generate cash flow to tackle leverage this year and is that sort of the key focus for your cash this year.

Yes, so obviously, we brought the <unk>.

Our cash flow guide down I'd tell you.

There's three components of that is just for transparency.

<unk> five is the EBIT range five as the EBITDA obviously the range we brought down five is on interest.

Hedged through June .

But we are still 100% floating and at five in networking capital.

There is the cash generation picks up throughout the year I think we will see we will see us generate cash next quarter, but we will have to invest to to hit the back end of the ramp and it's something we're super focused on I mean, I think the.

The teams are the teams are very focused on generating cash we want to continue to do deals, but also delever and and.

And we need we need to hit.

We need to hit the market, we will hit the Mark here.

I appreciate that and then Tom maybe just a follow up on supply chain for a second like you know you mentioned you know you're well positioned in the sense that you're sort of low volume high value that helps you a bit but you know everybody is having issues with electronic components, you talked about China do you have any sort of direct exposure that we should know about there.

Else, we should think about as we model the supply chain going forward.

Yeah, our direct exposure to China Shanghai in particular is very limited, where we see the exposure would be really on kind of the second order effects that flow through our big electronic contract manufacturing firms.

The the two leading firms that we use are both highly regarded global ECM players one is in.

Outside of Manila, the other is in Mexico, and so we have seen.

Discrete electronic component issues for really throughout the last two and a half years.

We have learned to be far more proactive in terms of identifying early areas were firstly, our kind of sales and operational planning horizon has been extended.

Effectively more than doubled secondly, we identify and work very closely with our ECM partners to identify early on any any components that may be at risk from a supply or a price cost standpoint, and we've been effective by and large in finding alternatives, where we have run into into into it.

<unk> again. This is just continues to be a pebble in our shoe.

It is it is.

And.

But we're overall conditions continue to linger.

But for us it.

Historically and really as we've seen through the last three quarters. It's meant it's led to more of a delay impact.

In certain areas that are not correlated based on issues that have emerged late in the game we continue to.

Not happy with that I am not happy overall that.

We're not delivering perfect operational performance, while we continue to get better and the key to that is productivity.

Thanks for that guys.

We had hope for.

There are people in the question queue. So this concludes our question and answer session I'll turn the conference back over to management for any closing remarks.

Ladies and gentlemen, thanks again for your participation today and we appreciate.

Your support to our many many shareholders. So I just wanted to again reiterate a few key takeaways from the from the quarter challenging operating environment really are highlighted by a combination of both the supply chain issues and a black Swan event in the form of <unk>.

The war in Ukraine, notwithstanding all of that.

During the quarter delivered robust core order growth again up 19%.

We have seen an evolution in our vertical markets in key segments.

That is.

Extremely favorable on a on a net basis and I'm very proud again of our team's ability to navigate a very dynamic unpredictable changing environment. So we appreciate all of that we look very much forward to briefing you in August as we talk about the second quarter.

And we'll look forward to that event now so thank you again for your time today.

Okay.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.