Q3 2022 Mirion Technologies Inc Earnings Call

[music].

Greetings and welcome to the myriad Technologies, Inc.

Cortes 2022 earnings conference call.

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A brief question and answer session will follow the formal presentation.

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It is now my pleasure to introduce your host Alex Sketchy. Thank you Mr. Kirby you may begin.

Good afternoon, everyone and thank you for joining <unk> third quarter 2022 earnings call.

Minder the 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 <unk> other filings with the SEC.

Quarterly references within todays discussion are related to the third quarter ended September 30th 2022.

Comments made 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 accompanying the call today.

All earnings materials can be found on millions IR website at IR Dot Marion Dot com.

Joining me on the call today are Larry Kingsley Chairman of the Board, Tom Logan, Chief Executive Officer, and Brian Shopper, Chief Financial Officer, now I will turn it over to our chairman of the Board Larry Kingsley Larry.

Thank you Alex and good afternoon, everyone. We're grateful for your continued support of Maryanne and look forward to providing some additional color around our third quarter results and updated outlook. This afternoon.

To get started I'd like to applaud the team's continued ability to generate strong order growth during the quarter.

Demand for <unk> product offerings remains robust evidenced by the strong order performance in both operating segments as.

This performance paired with a strong backlog and continued strategic investment in our inventory position has given us confidence in our ability to deliver a good fourth quarter and a good start to 2023.

Similar to what we've seen throughout the year third quarter presented a challenging operating environment, especially in our industrial business supply chain challenges were present throughout the quarter and there's no sign that these challenges will cease in the short term.

However, the team has worked systematically to find creative and sustainable solutions, and we stay and confidence in our position to serve the strong demand.

As presented in our release, we've updated our outlook for fiscal 2022 to reflect the state of the macro environment and the underperformance of our industrial segment in Q3.

The team is hyper focused on operational execution, all while delivering on our longer term strategic priorities.

With that I'll turn the call over to Marion CEO , Tom Logan, Larry. Thank you and good afternoon, everybody before I dive into results I'd like to take a moment to commend the hard work that took place across the enterprise during the quarter I spend much of that time working in the trenches with different teams across the company.

I'm tremendously proud of the progress that's been made to set us up for future success.

A few areas I'd like to address regarding our third quarter performance and the updated outlook. We shared this this afternoon first our order performance during the quarter was outstanding we generated 23% year to date order growth, reflecting strong vertical market conditions, coupled with our broad category leadership.

Normalizing for the effects of foreign exchange, our order intake is up approximately 29% with meaningful contributions from all major verticals. As a reminder, this excludes the impacts of Honey T V. The MPD reversal in 2021 and both recent acquisitions.

The company achieved 9% organic growth during the quarter led by a 21% in medical and 2% in industrial Foreign exchange continues to be a headwind principally in our industrial segment.

To help mitigate FX and related interest rate exposures, we recently implemented a fixed cross currency swap on a portion of our debt that Brian will address later.

Third we're experiencing a trend on the industrial side of the business, where order cycle times have been nominally longer than anticipated. This pattern is impacting both our nuclear power and defense end markets. Finally, we are updating our 2022 guidance to reflect recent business trends, we believe that we have positioned ourselves well in the form of investment.

Centurion operational preparedness to meet elevated demand across our end markets and are expecting a strong fourth quarter. Our focus is on executing and delivering strong results in Q4 and into 2023.

Now before getting into our quarterly results first I'd like to formally welcome Michael Rossi to the mirror Maryann team Michael joined the company in October as the President of Maryann medical and brings with him a wealth of domain experience. His appointment allows me to dedicate more of my time to key areas of focus such as the industrial business digital.

Conversion.

And other strategic growth drivers.

Now, let's get into more detail on our orders performance. Please turn your attention to slide four.

The favorable dynamics across our end markets continue to support robust order intake for Maryann. What is amazing to me is just how broad based the activity is this inspires great confidence for the future as we convert this order flow to revenue in the coming quarters.

Like to share a few quick anecdotes with you to provide insight into what we're seeing in the marketplace first on the medical side order flow and organic revenue growth was strong across all three end markets. We are seeing positive trends, both internationally and domestically within the radiation therapy quality assurance business in fact, we booked our largest ever.

Quarter for international orders and our T QA, despite the challenging FX environment.

And occupational dosimetry there're two encouraging dynamics that are worth noting first we booked our first order for instead OS is an open platform during the quarter. We continue to see Digitization as a positive growth engine for the business and we're encouraged by customer engagement trends next as discussed in Q2, we had a billing.

Timing issue in the first quarter of 2021 that adversely impacts the year over year performance comparison, if you normalize for this and the previously mentioned instead US order, we enjoyed order growth of approximately 4% year to date.

Now turning to the industrial segment.

We've generated 28% year to date order growth on an as reported basis, excluding or correcting for the impacts of foreign exchange year to date order growth is approximately 36%. Moreover, we have seen a meaningful increase to N T M industrial backlog coverage as we exit 2022 I'd also.

Tim mentioned that we have a growing pipeline of defense orders that had been under discussion now for the last few quarters that we had hoped to receive in the third quarter and are still waiting to convert we also booked an order and a developing market the international mining industry. During the third quarter, our customer will use maryann detection and sensing instruments too.

Identify locate and extract precious metals more efficiently disorder is a great example of how maryann core technology can be leveraged across a wide array of industries and applications. So to recap our end markets are healthy our order pipeline is robust and we are expecting elevated engagement to continue both.

Nuclear power and defense customers now, let's turn to slide five to get into our third quarter results.

Looking at the total company, we delivered 9% organic revenue growth compared to the same period last last year on.

On the medical side, the third quarter was another exceptional quarter of growth as we delivered over 20% organic revenue growth compared to the same period last year integration work continues to pay off in the nuclear medicine business as adjusted EBITDA margins are now trending in line with overall maryann levels within our T. QA, we've garnered a strong return.

From our investment in our National account strategy, and our new European Service Center.

On the industrial side organic growth was 2% underperforming our expectations for the quarter challenges in the period included unfavorable customer timing foreign exchange headwinds and a continuation of supply chain friction. We are pleased with the early results from our recent acquisition of the Collins aerospace critical infrastructure business.

Which we renamed secure integrated solutions or S. I S and which closed in August we.

We are seeing better than expected performance from the business and are excited about the software capabilities in cyber security offerings that it adds to our solution set for nuclear power customers. The acquisition also brings our total software engineering head count to approximately 145 people globally. This is a prime example of the type of M&A.

Activity that has been core to marion's inorganic growth strategy over the course of our history.

With that let me pass the call now to our CFO Bryan shop for Bryan Thanks, Tom and good afternoon, everyone.

To kick off my comments I'll ask you to please turn to slide six as we take a deeper review of our third quarter results for the quarter total company adjusted revenue was up eight 7% and adjusted EBITDA was down slightly compared to the same period in 2021 total revenue in the quarter was 100 and.

$60 9 million with adjusted EBITDA totaling $38 million.

On an organic basis revenue was up 9% year over year adjusted gross margin was 54% in the third quarter of <unk>.

Light contraction of 60 basis points from the same period last year.

As expected we were price cost positive in the quarter, which was offset by the impact of product mix and the acquisition of S. I S.

Adjusted EBITDA margin performance contracted 180 basis points to 19, 1%.

Excluding public company costs, adjusted EBITDA margins would have been flat for the quarter.

Please note that we were recently please note that we recently passed our first anniversary as a public company. So the third quarter is the last period, we will be comparing against a full quarter without public company costs.

Adjusted earnings per share was three <unk> for the third quarter.

I also want to highlight just how impactful foreign exchange dynamics, where on our business foreign exchange negatively impacted adjusted revenue performance by five 7% during the third quarter. We are now expecting an approximately 5% negative impact to the top line in 2022 compared to the 4% we stated.

Previously.

As Tom mentioned, we have begun to actively hedging our app that are foreign exchange and interest rate exposures and recently implemented a fixed price cross currency hedge or 14% of our third party debt.

Total savings expected as approximately $2 million on an annualized basis at today's rates.

Flipping over to slide seven for a deeper look at the medical segment.

Adjusted revenue grew 23, 3% and organic revenue was up 27% year over year, all three of our medical verticals contributed to the positive organic growth in the quarter with nuclear medicine, and <unk>, leading the way.

Medical adjusted EBITDA margin was 29, 7% in the quarter, a 100 basis point reduction compared to the same period last year.

Adjusted EBITDA performance was principally driven by higher investment in sales and marketing.

And investment in our service center in Europe .

In the RT QA business and mix.

As Tom highlighted earlier, we are seeing positive results to our order book from these investments already.

Next let's turn to slide eight for the industrial segment.

Reported revenue was flat compared to the same period last year with organic revenue growing 2% order cycle challenges, coupled with ongoing supply chain effects negatively impacted organic revenue performance in the quarter and are expected to continue in the near term.

Adjusted EBITDA for the industrial segment was down 11% compared to the same period last year.

Adjusted EBITDA margin decline declined 270 basis points to 21, 9% driven by a couple of key factors we.

We were price cost neutral within industrial for the quarter, which hurt us on a rate basis, our cost inflation was higher this quarter than it had been due to some transitory costs impacting one of our defense products. That's sold large volumes in the quarter. This was a unique circumstance that we don't expect to repeat.

Absorption continues to be a challenge, especially in our sensing business.

Moving on to slide nine let's review our cash position.

As of September 30th we had $58 million of cash on hand, and $140 million of available liquidity.

<unk> free cash flow was negative $6 9 million in the third quarter as Tom mentioned earlier, we invested heavily in strategic inventory and completed the acquisition of <unk> during the quarter. In fact, we have invested approximately $36 million into our inventory position year to date to derisk, our supply chain and support.

Execution of the fourth quarter and 2023 expectations.

We remain steadfast in our commitment to delevering, the balance sheet through execution and disciplined capital allocation.

As of September 30th our leverage ticked up to four eight times. This was principally driven by our investment in net working capital.

Achievement of the midpoint of our updated adjusted EBITDA Guide, we expect to finish 2022 with leverage of approximately four five times.

This is a bit higher than previously discussed in July .

But it is impacted by both the lower guide and our expectation of higher net working capital at year end.

Finally, I'll direct your attention to slide 10 to review our updated guidance for 2022.

First we have reaffirmed our organic revenue growth guidance of 4% to 6%.

However, we are now expecting a different mix contribution with double digit organic growth for medical and low single digit organic growth from industrial.

Inorganic inorganic growth is expected to deliver 4% for 2022 after closing the <unk> acquisition in August .

Our revised adjusted EBITDA range of $160 million to $170 million reflects challenges in industrial timing and foreign exchange, we recognize our adjusted EBITDA guidance as broad at this point in the air.

This is reflected reflective of the strong year to date order volume, our opportunity pipeline and continuation of a difficult operating environment too.

To achieve the upper end of the range. It would require great execution, coupled with the conversion of one or more of our significant defense opportunities, which are ready to ship within the quarter.

Outdated adjusted EPS guidance is now 37 to 41 cents and adjusted free cash flows between 30% and $45 million, reflecting the impacts of the previously mentioned headwinds combined with investments in working capital. Thank.

Thank you for all your continued support of Marianne I'll now pass the call back to Tom for some closing remarks, Brian . Thank you before we open things up for your questions I'd like to leave you with a few key takeaways from this afternoon's call first our order intake and momentum has been exceptional all year customer demand across our product portfolio remains robust.

As I've said before I've never seen our end markets more supportive of sustained growth didn't right now.

Next the third quarter presented a conversion challenge in the industrial segment and I'm proud of the way. Our team responded in due course, we exited the quarter with positive momentum across the business.

<unk> to finish the year strong.

Operational execution execution is my number one priority. Thank you again for your time and continued support let me now pass things over to Alex Gaddy to open things up for Q&A. Thank you Tom that concludes our formal comments for today I'll turn it back to the operator for Q&A.

Thank you we will now be conducting a question and answer session.

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Our first question is from Joe Ritchie of Goldman Sachs. Please go ahead.

Thanks, Good afternoon everybody.

Hey, Joe Hey, Joe.

Hey, so let's just start on.

Where things maybe got a little bit worse this quarter on the supply chain side and industrial because I remember last quarter, you guys had talked about.

Building an inventory buffer.

Improving like some of your supply chain partners.

But it seems like.

On the margin things were worse than expected. So maybe just a little bit, let's just start with a little bit of Colorado.

Yeah. So Joe this is Tom the in General I think the you recap is correct that as you know we've worked very hard on improving.

Improving just kind of a robust dynamics of our supply chain, our general view my view specifically.

Is that the global supply chain.

It's not going to go back to what it was prior to our prior to Covid that we are fundamentally in kind of a different environment.

And the imperative for US is to is to operate well in that environment and I'm confident that we're doing that what we have experienced during the course of the year. I think is emblematic of what we saw during the quarter and that does not have some broad based the matic secular issues in the supply chain, but rather kind of rolling episodic.

Issues that typically had been confined to a narrow product category or product line and in this particular quarter.

As a as probably the top example, we had issues with specialized highly qualified type.

Types of tubing and metal metals within our within our some of our nuclear business overall.

There again, just kind of given the the more.

Specialized nature of that business.

The the the context of the type of batch processing that typically.

Those from that business. This led to certain disruptions in the supply chain overall, but in general our view is that we have we've continued to evolve organizationally in terms of managing the supply chain, we have changed our overall stance with the the the supply chain management in terms of how.

We are in managing through that and that's precisely why we delivered 9% growth overall in the in the quarter.

It was essentially catalyzed by again some of the improvements that we've made in dealing with this in this new world order that that exists.

Got it that's helpful color and I guess, you know next logical question right. If you kind of.

Think through that the updated.

Segment organic growth guidance that Brian just gave yeah, you're basically assuming still kind of like high teens, maybe low twenty's type you know organic growth in industrial it's a pretty big step up in the fourth quarter and so what can you do to kind of help us feel confident that.

Even in their supply chain backdrop, youre going to be able to deliver on what seems to be pretty good backlog.

Well I think I think there's a couple of things Joe I think I think youre right.

I think high Twenty's is probably a bit high.

Bye.

You know a couple of things give me comfort first off.

We have a lot of inventory there's like we've since December we fell $36 million of inventory and you can see that we're we're not planning for.

Or a drastic reduction in <unk> in the fourth quarter I think we'll see that kind of at some point next year. So I think you'll see us continue to do that to be able to execute I think the second thing to note.

And I'll give you. This is both for the fourth quarter, but I'll give you some thoughts on 'twenty three here, which is if you look at our backlog coverage for both the fourth quarter and if you think about 'twenty three.

We're high single digits above the coverage number where we sat last year. So the orders are there right. This is all about execution and you heard Tom say, we're very focused on that is number one priority we got mic in place on the medical side.

And there's a there's a lot going on kind of in the trenches to make sure we get product out the door.

Got it that's helpful. Maybe maybe one last one for me.

Yeah, I think historically, we've talked about our conversion rate in in in medical in that kind of like 50 plus percent rate you know obviously supply chain.

Probably hampering some of that a little bit, but I think you guys put up like mid Twenty's type incremental margin. This quarter I'm just curious like any color specifically on the quarter and then like getting back to that 50 plus percent rate over the long term.

Yeah, Yeah, Yeah I think.

First off in the quarter, we like I mentioned on the call we've seen a little bit of mix kind of between the businesses and just how the businesses fell.

The other thing obviously, we talked I just talked about was you know we continue to have asked on the sales and marketing side and we've we've we've invested and we've been doing this all year in our capabilities in Europe , and those are clearly paying off with the order rates.

Yeah, I think I think that business.

You know what we need we need we will continue to invest in that business in those in those ways as long as it pays off but I think I think you see kind of the Incrementals come back in a you know probably probably next year and I think we end up with a we still end up with a very good point in the fourth quarter.

And you know I think you don't see quite as much growth in the in the fourth quarter as we saw in the second and third quarter and medical but I think we still think got we still think there's good growth there and good Incrementals, Yes, Joe Let me let me just build on that too I had been running our medical business are directly no for the majority.

City of of this year right up through the.

The appointment of Mike Rossi.

A combination of both the medical group as well as our RT QA business and its the ladder, where we really saw.

The pick up in and costs related again to our European Service Center.

Which principally flows through Cogs, and then secondly, and broader sales and marketing activities, which had been focused on really improving our commercial capabilities and.

And also just a simple reversion to more active travel trade show participation etcetera, I made those decisions very deliberately and.

And as Brian noted the are the those are the direct Genesis of the kind of top line order dynamics that.

We've seen which again have been extraordinary, particularly in Europe against the headwind of a of a stronger dollar where we compete against a strong localized competition.

Again that is attributable to the investments that we've made here and importantly these.

These are kind of step function increments. This is not something that we will continue to build on a on a ratable basis as we continue to drive organic topline growth, but rather we should we should see you know the leverage garnered from this materialize fairly quickly.

Okay. Thanks, guys I'll get back in queue.

Thanks, Joe.

The next question is from Chris Moore of CJS Securities. Please go ahead.

Hey, good afternoon, guys, Yeah, maybe we could just start on an instant dose he talked about that being you know.

This quarter you had the first sale there.

Can you provide some more details in terms of the commercial launch over the next 12 months are there specific milestones you know kind of what the biggest challenges are that that you see at this stage.

Sure Chris Thanks for the question. The let me just provide a few high level comments not everybody on the call or listened to the call may be familiar with it but instead OS is a revolutionary technology that digitizes.

The field of occupational dosimetry that field is really focused on protecting workers, who are potentially exposed to a harmful or hazardous source of ionizing radiation. The vast majority of them are medical the great advantage events to dose is that it obviates the need.

And essentially these are radiation detection badges or passive dosimeters back and forth and in the process of eliminating that logistical load it increases compliance within a clinical setting it improves the the safety margin is we find through experience.

That again clinicians are more likely to gain immediate feedback and to tailor their procedural behavior and finally at our it represents a significant cost savings to to the the the fundamental sponsor of these these various health care facilities.

This technology is unique and it's offered in a in a global market that today is still very much in an analog mode. There's nothing like this technology. We have been at this now for about about eight years have built up a substantial book of business really anchored to this technology, but we're about to cross the threshold.

That threshold is that we are currently in the process of preparing the launch of our third generation of the institute of technology, which will be a breakthrough in performance and usability and accessibility characteristics again for our clinical customers, but more broadly in our view this will become the market clearing technology.

Allergy that will allow us to drive a more sweeping conversion of the of the analog base overall the fundamental choice that we have is whether to kind of eat our own cooking and use this as a proprietary technology to drive our service business or rather two to make it available to the world recognizing again.

That this is a superior technology.

Literally to anything else on the market. It is an abundance technology and it is true to our mission to essentially serve the greater good of humanity to make this type of technology available.

That's exactly what we've chosen and then we're in the process now of developing a a more sweeping.

Campaign and offering so that we can systematically again make this technology available to any and all qualified service providers around the world in a way that will be a win win and it will provide a superior customer.

Customer experience for their direct customers.

It will lower their costs on an aggregate basis and you know in our view again it will provide a net benefit to this critically important sector.

Yes.

Got it very.

Very helpful.

Uh huh.

I know you're not giving 'twenty three guide at this point in time, but can you maybe just talk a little bit about free cash flow expectations for next year in terms of normalization you know what you're thinking.

It sounded like Q4 inventory is not going be down that much. Just you know kind of any thoughts you might have on on a free cash flow in 'twenty three.

I think we see the inventory positions and are basically just starting out working capital improve as we go throughout the year next year.

I do think we'll return to.

The first the first quarter I think will be a a good cash quarter.

We have a big fourth quarter, which so it gives us a good opportunity to to do something there, but I think I think as the quarters go next year, you'll see us you'll.

You'll see the net working capital kind of normalize and then come down we've always talked about this business as having network now working capital opportunity, we still believe that and I think we've said on a number of occasions.

I didn't feel this was the time to work on optimization. This was the time to make sure we are delivering and able to execute.

Got it very helpful last one for me just maybe you could just revisit the Russian impact for for a little bit you had.

And the Q1.

Initially I think eliminate roughly $35 million in revenue from Russian customers projects involving Russian counterparties felt that partially it could be recovered through the maybe $20 million of nuclear and in defense on the on the on the Russian side is that 35 million still a good number or are you doing.

A little better than you expected there you know kind of how I should look at that.

Yeah, the Chris your numbers, a little bit high you know our number overall in terms of the kind of the lost revenue associated with this these are Russian technology projects was a was less than $30 million, but it's important to note that this was a this was a significant.

Second headwind, we faced early in the era of essentially we saw a 4% of our revenue.

That was important kind of base load quarterly.

Quarterly distributed revenue.

That evaporated at the drop of a hat and I'm incredibly proud of the way our team has rallied to overcome that.

Recognizing that you know additionally, not to belabor the point, we had foreign exchange headwinds of nearly 10%. So you know when we look at the overall order growth rates, but more fundamentally when we look at the topline growth rate of the business in a world, where we've seen that kind of dynamic change. We obviously have continued to see the same headwinds that others have faced.

In terms of supply chain friction inflation elevated interest rates et cetera, but I think we've demonstrated tremendous resilience as a company as we've done that and continue to involve our evolve and adapt the quality of our operations to these challenges and I'll tell you I've been doing this for nearly 20 years enroll.

All I've said this many many times, but I've never felt so positively about the end market dynamics, we face the likely tenor of those end markets, where we're carrying forward the quality and duration of our backlog as we exit 'twenty 'twenty, 'twenty, two and and head into 'twenty.

Twenty-three.

And so.

I think we have acquitted ourselves well and we we understand that are that are you know we need to.

Execute well and deliver the goods, particularly on the industrial side.

But I'll tell you I feel very very good about our ability to do that.

Just one one small comment I mean, our FX impact. This year is 5% I think Tom's just talking about the change in the Euro I would just say that.

That's why we've seen a little bit of Russian revenue kind of dribble in it but it hasn't been super material.

Overall.

Got it very helpful.

Leaving one last maybe one last thing that is important to just to add on as you know.

The backlog and the orders were booking definitely churn.

Faster right. So that doesn't mean, one quarter out that could mean, three or two or three or four quarters out and I think that's why we like I told you our our backlog coverage in the next year, it's kind of high single digits year over year and I think that's it that's really important because the fact that we've taken kind of a pause on that.

Russian projects continue to grow order performance and frankly keep our backlog where it is is super encouraging.

Like to you know I'd like to tack on one more thing to it Brian one more thing and that is that I think we've you know we've not adequately describe the dynamic in the defense sector. You know we've been talking about this for.

Much of the of recognizing that the the history of Maryanne is one where you know when the world faces a nuclear crisis and this has been true with three mile Island was Chernobyl with Fukushima, we've been there and we've been there in a big way and provided critical expertise critical equipment critical solutions overall to those situations.

<unk> and more broadly we are as we've noted before perhaps the leading supplier of radiation detection technologies and solutions to I think more than 17 of the of the NATO militaries and the combination of those two dynamics recognize.

The elevated threat that we see coming out of our out of Ukraine has caused us to see a you know a significant uptake in our in dialogue in and around the capabilities that we have to offer.

I think an important component of the inventory that we built has been focused on being able to address that need should it arise and candidly. We've we've expected that we would see a bit more of this this incipient demand translating into revenue in Q2 and Q3, we remain.

Hopeful we remain.

You know of a strong view that we are going to see considerably higher defense related business overall, but it's hard to call. The timing and this is part of the reason why we've you know we've deliberately put a wide range on the on Q4 on the full year.

It's because of the embedded optionality in and around that just to again provide a little bit more color around that specific dynamic.

That's very helpful. I'll leave it there I appreciate it guys.

Thanks, Chris.

Yeah.

Our next question is from Antti Kaplowitz of Citigroup. Please go ahead.

Good afternoon, everyone.

Hey, Andy.

Tom I wanted to follow up on your last comment just simply are you starting to see industrial orders turn into revenue now in early November a little faster or are you still seeing similar supply chain dynamics slowing order conversion at this point.

Yeah, I think the there there are two dynamics at work here and so the answer is in general Andy is faster and the two dynamics at work here are that firstly.

The inventory position that we've built very deliberately.

Supports that activity, we know we're going to have a big Q4 are we are very focused on on providing all the conditions precedent to make sure that that Oh that is ex executable and that is certainly a big factor and the investment that we've made in inventory leading into this the second is the commentary.

About the the duration, we've often talked about the nuclear market being comprised of of the installed base, which is the biggest components about three quarters of our nuclear power related revenue followed by Newbuild activity, which is typically 15% to 20% followed by a decommissioning activity.

Which is the remainder one of the interesting things about our order dynamics. This year is that we haven't booked any large utility scale new nuclear projects. So all of that growth in orders in our backlog is really more geared toward the installed base and smaller projects, which tend to.

To trade quicker or faster they tend to have a shorter order cycle time, and so when we talk about the duration of our backlog. That's that's what we mean, we mean that the quality of the backlog gives us more coverage as we look ahead to the next 12 months and as we look at concluding the ear.

So all of that gives us confidence and conviction about how we'll exit this year.

Tom maybe just a follow up on that last point, you know you've got 20% order growth, 20% plus order growth without new nuclear the conversations with customers, maybe give us an update there going given the energy Crunch in Europe now how does this order pattern trend as you go into 'twenty three.

Yes, I think we see a continuation that fundamentally recognized that the the world needs nuclear power and typically there are two fundamental macro conditions that are that more than anything else govern the health of the industry. One is political support which in turn is a reflection of popular.

Their support.

And we could go region by region and talk through that but again.

Political support for nuclear power is higher than it has been at any time in my nearly two decades at the helm of this company and secondly, it's the price of natural gas that tends to set at the margin our electrical markets are electrical energy market pricing and that is true again in all major markets that we serve obviously.

The price of natural gas is at a a is that a a near term high.

The supply conditions, I think are well understood and there is a strong likelihood that we're going to continue to see Nash our natural gas prices elevated even if we were to go back to a normalized situation in terms of geopolitics get back into a mode of trying to to drive.

You know a greater level of shale gas exploitation of this country et cetera.

You know I think the prevailing view the conventional view is it will take five years or more to.

To see the normalization of natural gas pricing and it's simply unlikely.

We're gonna see natural gas revert back to what to where it was pre pandemic the takeaway from all of us.

Is it that improves dramatically the profitability of of nuclear power operators around the world. It creates a situation where the focus has really become quite acute in terms of how to improve capacity utilization and the term of art in the industry's capacity factors had a minimum.

<unk> downtime how to had a life extend plants and in many cases, how to think about operating capacity and that more than any other factor drives the demand for the capital equipment that we sell into the industry and that's precisely what we're seeing overall, but beyond that as it relates to newbuild activity.

We continue to see tremendous activity and again this is on a global basis in every major market as it relates to Newbuild activity, we are very bullish about.

The the.

The likely developments in newbuild activity and projects that we anticipate booking and so my fundamental deal, whereas we look at nuclear again is that this is a market that has changed in a really in a <unk>.

Significant inflection point, where the installed base again is likely to be very healthy for any rational planning horizon and there's no doubt that we're going to see an acceleration of newbuild activity across the globe.

Thanks for that color, Tom Tom or Brian I think he talked about price versus cost out being green and three Q I think he said it was three 5% year over year growth. In Q2, you know what was it in Q3 in terms of price and you know I know, it's supposed to accelerate but you know obviously.

<unk> gross margins are still under a bit of pressure from the things you talked about so can you give us an update on on price versus cost and what it has been and what do you expect it to be.

Yes, I think so Q3 Andi is is about 4% on the price side.

Overall, I think I think historically ive said, we'd be closer to five by the end of Q4, I don't see I don't see a reason to change that and we can by the way we continue to put.

Priced into the market, where we are where.

Where we can and I think actually even even recently, we've been pretty aggressive about that.

So you know what the what the challenge. We're seeing is we are seeing inflation right just like everybody else and so it's impacting our rate a little bit, but like you said on a dollars basis were for sugar price cost positive and.

And I think you know.

We continue to watch this and we continue to take action.

As we can and we're also very focused actually on the supply chain side about how do we began design out V E. How do we make sure we're attacking as come out some commodity prices have gone down.

Those places electronics are clearly a little bit harder, but theyre also a smaller piece of the overall economics of our products. So.

I think we're all over this we're being super aggressive it does take time this isn't something from a cost perspective, we can see in the next quarter or even two quarters, but I think as 23 kind of comes here and and then you know.

We will continue to more aggressively be able to.

To attack the cost base, just like we're doing on the price side.

Just one more question from me, Brian like any color any more color on the acquisitions and how much if any EBITDA you expect them to contribute in the second half of 'twenty two.

Yeah.

Yeah, I don't want to give.

I don't want to give specific I mean this was a small deal we did on on the SaaS right. So we're coming up here on one year on see IRS, so that all of that.

That will.

Begin to lap inorganic I think we're pretty pleased with the with how that's going in and candidly that.

We've integrated that.

Holistically into the business yeah. The S. I S T O.

Where we're super excited I think I think.

When it's all said and done and you can actually see it in our leverage calc right. I mean, there's a there's a couple of mills almost for over $4 million on an annualized basis kind of baked in.

I think that will continue to prove to be.

Very.

Attractive and yeah. It's a it's a sub two times post synergy deal for US. It will we'll do these deals all day long.

So where are we continue to look for more like that out in the market and.

And we'll go from there.

I appreciate all the color.

Thanks.

We have reached the end of the question and answer session.

I'd like to turn the call back to Thomas slogan for closing comments.

Ladies and gentlemen, we appreciate your time your interest and and your support again are the are this is a very exciting time for us at the company.

We are excited by the momentum that we've garnered during the quarter as we as we exit the year and come into the new year and again, we're hyper focused on execution and I look forward to updating you on our results in a few short months. So thank you and good day.

Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.

Okay.