Q2 2024 Mirion Technologies Inc Earnings Call

Greetings and welcome to the Marine Technologies second quarter 2024 earnings Conference call.

Operator: Greetings and welcome to Mirion Technology's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jerry Estes, Manager of Investor Relations. Thank you, sir. You may begin.

Speaker Change: At this time all participants are in a listen only mode.

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

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Jerry as the manager of Investor Relations. Thank you Sir you may begin.

Good morning, everyone and thank you for joining Marion second quarter 2024 earnings call. A reminder, that comments made during this call will include forward looking statements and actual.

Jerry Estes: Good morning, everyone, and thank you for joining Mirion's second quarter 2024 earnings call. A reminder that comments made during this call will include forward-looking statements, and actual results may differ materially from those projected in the forward-looking statement. The factors that could cause actual results to differ are discussed in our annual reports on Form 10-K, quarterly reports on Form 10-Q, and in Mirion's other SEC filings under the captioned risk factor. Quarterly references within today's discussion are related to the second quarter ended June 30th, 2024.

Results may differ materially from those projected in the forward looking statements in.

Speaker Change: Factors that could cause actual results to differ are discussed in our annual reports on Form 10-K quarterly reports on Form 10-Q and in other SEC filings under the caption risk factors.

Quarterly references within todays discussion are related to the second quarter ended June 30th 2024.

Jerry Estes: The 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 the presentation accompanying today's call. All of these materials can be found on our IR website at ir.mirion.com. Joining me on the call today are Tom Logan, Chief Executive Officer, and Brian Schopper, Chief Financial Officer. Now I'll turn it over to our CEO, Tom Logan. Tom?

Speaker Change: The 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 the presentation accompanying today's call.

Speaker Change: All of these materials can be found on our IR website at IR Dot Marian Dot com.

Speaker Change: Joining me on the call today are Tom Hogan, Chief Executive Officer, and Brian Shopper, Chief Financial Officer, now I will turn it over to our CEO, Tom Bogan Tom.

Tom Logan: Terry, thank you and good morning everyone. Getting straight to our quarterly performance, I'm pleased with the solid results we reported yesterday evening. I'd like to extend a big thank you to the Mirion team for their efforts and results. A few items of note to kick things off.

Tom Hogan: Thank you and good morning, everyone getting straight to our quarterly performance I am pleased with the solid results, we reported yesterday evening.

Speaker Change: I'd like to extend a big thank you to the myriad team for their efforts and results a few items of note to kick things off.

Tom Logan: First, I'm very excited to announce that we've signed a strategic partnership agreement with EDF, the largest operator of nuclear power plants in the world, making Mirion an exclusive content supplier for all of their nuclear new build projects over the next two decades. This is expected to be the largest commercial deal that we have ever signed, by many multiples, and is a testament to our technological leadership position in the nuclear space and our long-standing relationship with EDF. Moreover, this fortifies our competitive positioning in the new-build arena over the coming decades, where we expect to see significant global development. Next, second quarter order growth was relatively flat compared to the same period last year.

Speaker Change: I'm very excited to announce that we signed a strategic partnership agreement with EDF, the largest operator of nuclear power plants in the world, making here on an exclusive content supplier for all of their nuclear Newbuild projects spanning the next two decades.

This is expected to be the largest commercial deal that we've ever signed by many multiples. So this is a testament to our technological leadership position in the nuclear space and our longstanding relationship with EDF. Moreover, this fortifies our competitive positioning in the Newbuild arena over the coming decades, where we expect to see significant global.

Speaker Change: All of it.

Speaker Change: Next second quarter order growth was relatively flat compared to the same period last year, we continue to see strong engagement from customers across the business led by nuclear power, where orders were up by more than 15% in the second quarter and.

Tom Logan: We continue to see strong engagement from customers across the business, led by nuclear power, where orders were up by more than 15 percent in the second quarter. I'm confident in the overall health of our end markets and believe that the macro trends supporting our business will be long in the tooth. Third, both sides of the business delivered steady organic revenue growth in Q2. Technologies led the way with 4% growth, reflecting strong nuclear power demand.

Speaker Change: I'm confident in the overall health of our end markets and believes that the macro trends supporting our business will be long in tooth third both sides of the business delivered steady organic revenue growth from Q2 technologies led the way with 4% growth, reflecting strong nuclear power demand and medical delivered 3% organic growth driven by acts.

Tom Logan: And medical delivered 3% organic growth, driven by accelerating activity in nuclear meadows. Across the enterprise, we continue to invest in our ground game, most notably through the creation of a Chief Revenue Officer, launching our e-commerce platform in Q4, and bolstering our inside sales capability. Fourth, adjusted free cash flow was nearly $9 million in the quarter, delivering on our commitment to being cash flow positive for the first half of the year.

Speaker Change: Celebrating activity in nuclear Medicine Cros.

Speaker Change: Across the enterprise, we continue to invest in our ground game, most notably to the creation of a chief revenue officer.

Speaker Change: Launching our e-commerce platform in Q4, and bolstering our inside sales capabilities.

Speaker Change: Fourth adjusted free cash flow was nearly $9 million in the quarter delivering on our commitment to being cash flow positive for the first half of the year.

Tom Logan: Finally, we have updated our 2024 financial guidance. We have raised our adjusted EBITDA target to $195 to $205 million and reiterated our ranges for organic revenue growth of 4 to 6%, adjusted EPS of $0.37 to $0.42, and adjusted free cash flow of $65 to $85 million. Moving on from our second quarter financial results, I'd like to spend some time reflecting upon the dynamics in each of our end markets. Let's turn to slide four.

Speaker Change: Finally, we have updated our 2024 financial guidance, we've raised our adjusted EBITDA target to $195 million to $205 million and reiterated our ranges for organic revenue growth of 4% to 6% adjusted EPS of <unk> 37 to 42 cents and adjusted free cash flow of 65 to eight.

Speaker Change: $5 million.

Speaker Change: Moving on from our second quarter financial results I'd like to spend some time, reflecting upon the dynamics in each of our end markets, let's turn to slide four.

Tom Logan: Before I dive in here, I want to note that we will not be providing segment-by-segment order numbers going forward. The competitive environment in many of our businesses is intense, and we don't wish to unnecessarily help our competitors. That being said, order growth was generally flat compared to the first half of last year. While we didn't print a massive growth number, we did see solid order volume and continue to see strong engagement across the business. Backlog grew 11% from the same period last year.

Speaker Change: Before I dive in here I want to note that we will not be providing segment by segment order numbers going forward.

Speaker Change: Competitive environment many of our businesses is intense and we don't wish to unnecessarily help our competitors that being said order growth was generally flat compared to the first half of last year, but we didn't print a massive growth number we did see solid order volume and continue to see strong engagement across the business.

Tom Logan: We expect to book approximately $30 million in orders from two nuclear projects that slipped from Q2 to Q3. In the medical segment, first half order growth was approximately 3%, led by strong performance from dosimetry and nuclear medicine. Radiation therapy QA saw negative order growth in the first half, driven by softer international orders largely stemming from the depreciation of the Japanese yen and market disruptions due to anti-corruption efforts in the Chinese market.

Speaker Change: Backlog grew 11% from the same period last year, and we expect to book approximately $30 million in orders from two nuclear projects that slipped from Q2 to Q3.

Speaker Change: In the medical segment first half order growth was approximately 3% led by strong performance from dosimetry and nuclear medicine.

Speaker Change: Aviation therapy, QA saw negative order growth in the first half driven by softer international orders largely stemming from the depreciation of the Japanese yen and the market disruptions due to anti corruption efforts in the China market on.

Tom Logan: On the domestic side of RTQA, we continue to see better order performance and are encouraged heading into the back half of the year. In occupational dosimetry, we saw strong order growth in the first half, buoyed by the launch of our third generation of InstaDose technology, the InstaDose View. Within nuclear medicine, first-half organic order growth was approximately 18%, and we continue to see strong engagement as market momentum improves. I've noted strong attendance and incredible energy at the nuclear medicine trade shows that I've attended over the summer, and the overall momentum around the Theranostic movement continues to be quite positive. Anticipated changes by CMS for the reimbursement of radiodiagnostic drugs in the U.S. market can only add to the favorable market dynamics.

Speaker Change: On the domestic side of Archie QA, we continue to see better order performance and are encouraged heading into the back half of the year.

Speaker Change: Occupational dosimetry, we saw strong order growth in the first half buoyed by the launch of our third generation of Institute of Technology, The <unk> view.

Speaker Change: Within nuclear Medicine first half organic order growth was approximately 18% and we continue to see strong engagement as market momentum improves I've noted strong attendance and incredible energy, it's a nuclear medicine tradeshows that I've attended over the summer and the overall momentum around with their elastic movement continues to be quite <unk>.

Speaker Change: Positive anticipated changes by CMS for the reimbursement of radio diagnostic drugs in the U S market can only add to the favorable market dynamics I'm encouraged by the evolution of our nuclear medicine strategy and believe that we are increasingly well positioned to capitalize on macro trends in this market and.

Tom Logan: I'm encouraged by the evolution of our nuclear medicine strategy and believe that we are increasingly well positioned to capitalize on the macro trends in this market. In the technology segment, we saw an approximately 3 percent order step back from the first half of last year. Nuclear power saw positive first half order growth in the low single digits, supported by steady demand from the installed base.

Speaker Change: Technology segment, we saw an approximately 3% order step back from the first half of last year nuclear power saw positive first half order growth in the low single digits supported by steady demand from the installed base. We continue to be excited by the dynamics at play within nuclear and are expecting good order flow in the second half of 'twenty four.

Tom Logan: We continue to be excited by the dynamics at play within nuclear and are expecting good order flow in the second half of 2024 and into early 2025. On a personal note, earlier this week, I attended our largest annual customer event, which is, In my two decades of keynote speaking at this event, I've never seen higher energy or enthusiasm. Moving on to defense, orders were flat compared to last year despite a strong 28 percent growth comparison from the first half of 2023.

Speaker Change: And into early 'twenty five on a personal note earlier. This week I attended our largest annual customer event, which is geared toward the nuclear industry.

Speaker Change: My two decades of Keynoting. This event I've never seen higher energy or enthusiasm moving.

Speaker Change: Moving onto defence orders were flat compared to last year. Despite a strong 28% growth comparison from the first half of 2023 as mentioned on our last call. We booked approximately $15 million of European defense orders at the outset of the second quarter and maintain a positive outlook for this market in 2024, finally labs and research.

Tom Logan: As mentioned on our last call, we booked approximately $15 million in European defense orders at the outset of the second quarter and maintained a positive outlook for this market in 2024. Finally, labs and research had negative order growth compared to last year.

Speaker Change: <unk> had negative order growth compared to last year similar to two defense, our labs business faced a tough 31% order growth comp and governmental budgetary dynamics had a negative impact on order timing in Q1, we saw a small ramp in the second quarter and expect momentum to build as the year progresses.

Tom Logan: Similar to defense, our labs business faced a tough 31 percent order growth comp, and governmental budgetary dynamics had a negative impact on order timing in Q1. We saw a small ramp in the second quarter and expect momentum to build as the year progresses. Overall, I'm encouraged by both market and customer dynamics across the enterprise. The nuclear power and nuclear medicine supertrends continue to provide a strong foundation for future growth, and there's a lot of positive momentum building across the enterprise.

Speaker Change: Overall, I'm encouraged by both market and customer dynamics across the enterprise the nuclear power and nuclear medicine Super trends continue to provide a strong foundation for future growth and there's a lot of positive momentum materializing across the enterprise looking ahead to Q3 and Q4, we were facing tough order growth comes from.

Speaker Change: Last year due to large project orders, but we expect to see accelerating flow business as the installed nuclear base gains momentum.

Tom Logan: Looking ahead to Q3 and Q4, we are facing tough order growth slowdowns from last year due to large project orders, but we expect to see accelerating flow business as the installed nuclear base gains momentum. Before I pass things on to Brian, there are a few items that I'd like to highlight looking ahead to the second half of the year and beyond. First, I'd like to touch on our margin performance in the second quarter. We saw better-than-expected adjusted EBITDA margins, especially within our technologies segment.

Speaker Change: Before I pass things over to Brian There are a few items that I'd like to highlight looking ahead to the second half of the year and beyond first I'd like to touch on our margin performance in the second quarter, we saw better than expected adjusted EBITDA margins, especially within our technologies segment margin expansion was driven by strong execution and pause.

Tom Logan: Margin expansion was driven by strong execution and positive results stemming from our procurement initiatives and operating leverage. We continue to emphasize our business system to improve overall cost performance and capital velocity. Regarding procurement, we're six months into a sweeping strategic effort to consolidate our supplier base, which we believe will yield 150 to 300 basis points of EBITDA margin improvement over the next three years. In addition, we have doubled down on daily management in our factories and the cadence of Kaizen events.

Brian: A result stemming from our procurement initiatives and operating leverage we continue to emphasize our business system to improve overall cost performance and capital velocity regarding procurement, we're six months into a sweeping strategic effort to consolidate our supplier base, which we believe will yield 150000.

Brian: 300 basis points of EBITDA margin improvement over the next three years. In addition, we have doubled down on daily management in our factories and the cadence of Kaizen events I am pleased with the progress progress, we are making and continue to be bullish on our ability to deliver on our 30% long term margin target secondly.

Tom Logan: I'm pleased with the progress we are making and continue to be bullish on our ability to deliver on our 30% long-term margin target. Secondly, cash flows remain a key area of focus for me and the team. I'm pleased that we were cash flow positive for the first half of the year, but we have a great deal of work yet to be done to improve conversion going forward. Capital spending will moderate now that the big insta-dose launch investment is behind us.

Brian: Cash flows remain a key area of focus for me and the team.

Brian: Pleased that we were cash flow positive for the first half of the year, but we have a great deal of work yet to be done to improve conversion going forward capital spending will moderate now that the big instead US launch investment was behind US inventory turns remain a big opportunity for us as we will continue to grind out improvement in the quarters ahead.

Tom Logan: Inventory turns remain a big opportunity for us, as we'll continue to grind out improvement in the quarters ahead. I'm confident in our strategic approach here and believe that we are well positioned to improve our cash conversion in the back half of the year and into 2025. Thirdly, I'm pleased to announce some organizational changes that we've recently implemented. These updates include the following.

Brian: Confident in our strategic approach here and believe that we are well positioned to improve our cash conversion in the back half of the year and into 2025 thirdly I'm pleased to announce some organizational changes that we've recently implemented.

Speaker Change: This include the following first we've named Louis Rivera as Executive Vice President of our medical group reporting to me, while I retained leadership of the segment.

Tom Logan: First, we've named Luis Rivera as the executive vice president of our medical group, reporting to me while I retain leadership of the segment. He has previously led our radiation therapy QA business, and I believe he will have a strong, positive impact in his new role. Additionally, we have named Mark Siviter as Mirion's inaugural... Chief Revenue Officer, where he will oversee Mirion's global sales organization. Prior to this role, Mark led our medical sales team and played an integral role in the success we've seen on that side of the business.

Brian: Well those previously led our radiation therapy, QA business and I believe he will have a strong positive impact in his new role. Additionally, we've named Mark Senator as Maryann inaugural.

Speaker Change: Chief revenue officer, where he will oversee maryann as global sales organization prior to this role Mark let our medical sales team and played an integral role in the success. We've seen on that side of the business I am confident that mark will be instrumental in helping us achieve our long term revenue growth aspirations. Finally, we decided to exit our medical lasers.

Tom Logan: I'm confident that Mark will be instrumental in helping us achieve our long-term revenue growth aspiration. Finally, we decided to exit our medical lasers and alignment business. This business unit was a non-core element of our portfolio and did not fit clearly into our long-term strategy. As part of the shutdown, we are moving all related operations from Middleton, Wisconsin, to our Norfolk, Virginia factory to drive increased efficiency from our operating footprint. With that, I'll now hand the call over to our Chief Financial Officer, Brian Schopfer. Okay, Brian? Thanks.

Speaker Change: In alignment business.

Brian: This business unit was a non core element of our portfolio.

Brian Schopfer: Did not fit clearly into our long term strategy as part of the shutdown. We are moving all related operations from Middleton, Wisconsin to our Norfolk, Virginia factory to drive increased efficiency from our operating footprint with that I'll now hand, the call over to our Chief Financial Officer, Brian Schopfer, Brian. Thanks.

Brian Schopfer: Thanks, Tom, and good morning, everyone. To begin our financial commentary this morning, please turn to slide 5 for an overview of our second quarter results for the total company. Revenue grew by 5% in the quarter, while adjusted EBITDA was up 10.2%. Quarterly revenue was $207.1 million, and organic growth was 3.6%.

Brian Schopfer: Thanks, Tom and good morning, everyone.

Brian Schopfer: To begin our financial commentary. This morning, please turn to slide five for an overview of our second quarter results for the total company.

Brian Schopfer: Revenue grew by 5% in the quarter, while adjusted EBITDA was up 10, 2%.

Brian Schopfer: Quarterly revenue was $207 1 million and organic growth was three 6%.

Brian Schopfer: Adjusted EBITDA was $48.8 million, with adjusted EBITDA margins expanding 110 basis points to 23.6%. Q2 margin performance came in better than originally expected at both the gross margin and adjusted EBITDA levels. I'll get into more details on margins in a few moments, but we saw gross margin and adjusted EBITDA margin expansion in both segments in the quarter and for the first half. Moving on to our segments, starting with medical on slide 6.

Brian: Adjusted EBITDA was $48 8 million with adjusted EBITDA margins, expanding 110 basis points to 23, 6%.

Brian Schopfer: Q2 margin performance came in better than originally expected at both gross margin and adjusted EBITDA levels I'll get into more details on margins in a few moments we saw gross margin and adjusted EBITDA margin expansion in both segments in the quarter and for the first half moving.

Brian Schopfer: Moving on to our segments, starting with medical on slide six medical revenue growth was seven 7% with organic growth of two 6% medical top line performance in the second quarter was led by nuclear medicine, where the EC squared business added over five points to the top line and we made solid progress catching up.

Brian Schopfer: Medical revenue growth was 7.7%, with organic growth of 2.6%. Medical top-line performance in the second quarter was led by nuclear medicine, where the EC squared business added over five points to the top line. We made solid progress catching up on shipments following the ERP-related slowdown in Q1. In the RTQA business, performance was led by strength in Europe, offset by market disruptions due to China's anti-corruption dynamics.

Brian Schopfer: On shipments following the ERP related slowdown in Q1.

Brian Schopfer: In the RT QA business performance was led by strength in Europe, offset by market disruptions due to China anti corruption dynamics medic.

Brian Schopfer: Medical adjusted EBITDA margin was 34.3% in the quarter, a 150 basis point expansion from last year. Matico Evita margins were supported by a strong quarter from EC Squared and solid execution across the portfolio. As Tom noted earlier, we also announced the closure of our RTQA facility in Wisconsin during the second quarter. The change will positively impact medical-adjusted EVA-DA margins by approximately 70 basis points on an annualized basis. This move simplifies our operating footprint and is a great example of the self-help cost-out initiatives we have at our disposal to reach our longer-term 30% margin target. Moving on to the technology segment, on slide seven, revenue grew by 3.7% in the quarter, with organic growth of 4.1%.

Matt: Medical adjusted EBITDA margin was 34, 3% in the quarter, a 150 basis point expansion from last year Matt.

Brian Schopfer: Medical EBITDA margins were supported by a strong quarter from EMC squared and solid execution across the portfolio as.

Brian Schopfer: As Tom noted earlier, we also announced the closure of our <unk> facility in Wisconsin during the second quarter.

Speaker Change: Change will positively impact medical adjusted EBITDA margins by approximately 70 basis points on an annualized basis.

Tom Hogan: This move simplifies our operating footprint and is a great example of the self help cost out initiatives, we have at our disposal to reach our longer term, 30% margin target.

Speaker Change: Moving on to the technology segment on slide seven.

Speaker Change: Revenue grew by three 7% in the quarter with organic growth of four point.

Speaker Change: 9% topline growth was led by a strong quarter for nuclear power, while FX had a negligible impact I am encouraged by the positive momentum we are seeing in our European technologies business, especially in nuclear power and expect to see continued strength in the coming quarters.

Brian Schopfer: [inaudible] I'm encouraged by the positive momentum we're seeing in our European technologies business, especially in nuclear power, and expect to see continued strength in the coming quarters. Technology's Adjusted EBITDA was $38.9 million, with margins expanding 190 basis points from the same period last year. Adjusted EBITDA margin expansion was supported by good execution in the segment. We realized early results from our procurement improvement initiatives and benefited from operating leverage in our sensing business along with solid operational performance across the rest of the portfolio.

Speaker Change: Technologies, adjusted EBITDA was $38 9 million with margins expanding 190 basis points from the same period last year. Adjusted EBITDA margin expansion was supported by good execution in the segment. We realized early results from our procurement improvement initiatives and benefited from operating leverage in our <unk>.

Speaker Change: Sensing business, along with solid operational performance across the rest of the portfolio.

Speaker Change: While our French business was a headwind to margins on a year over year basis. In Q2 performance was better than we had originally expected and we are pleased with the progress being made there.

Brian Schopfer: While our French business was a headwind to margins on a year-over-year basis in Q2, performance was better than we had originally expected, and we are pleased with the progress being made there. Turning now to slide eight for a look at leverage and cash. Our net leverage ratio ticked down to 3.0 times at the end of the quarter.

Brian: Turning now to slide eight for a look at leverage and cash flow, our net leverage ratio ticked down to 3.0 times at the end of the quarter. We also completed a debt refinancing initiative, which is expected to save us around 75 basis points in total.

Brian Schopfer: We also completed a debt refinancing initiative, which is expected to save us around 75 basis points in total. The 50 basis points of improvement versus the SOFR spread, and an annualized estimate of approximately $5 million in net interest savings. CAPEX was higher year-over-year in Q2, and the first half as a whole, driven by Institut's launch investment.

Brian: 50 basis points of improvement versus the sofa spread and an annualized estimate of approximately $5 million and net interest savings cap.

Brian: Capex was higher year over year in Q2.

Brian: And the first half as a whole driven by incidents launch investments.

Brian Schopfer: We expect CapEx to return to more normal levels in the second half of the year. Cash performance was generally in line with expectations, but networking capital was a use of cash in the first half of the year. We made solid progress on accounts receivable and inventory, but more work remains to be done. However, progress was offset by the timing of cash payments within our nuclear project business.

Brian: We expect Capex to return to more normal levels in the second half of the year cash.

Brian Schopfer: Cash performance was generally in line with expectations, but net working capital was a use of cash in the first half of the year, we made solid progress on accounts receivable and inventory, but more work remains to be done progress was offset by the timing of cash payments within our nuclear project business, improving net working capital efficiency remains a top.

Brian Schopfer: Improving networking capital efficiency remains a top priority, and inventory turnover continues to be our most significant opportunity to improve networking and Capital Dynamics. Finally, let's flip over to slide 9 to take a deeper look at our updated guidance for 2024. As Tom highlighted earlier, we've reiterated our revenue growth targets for the year and continue to expect 5-7% top-line growth and organic revenue growth of 4 to 6%. However, there are some slight changes to how we expect to achieve the organic growth number.

Brian: I already in inventory turnover continues to be our most significant opportunity to improve network.

Brian Schopfer: Capital dynamics finally, let's flip over to slide nine take a deeper look at our updated guidance for 2024.

Brian Schopfer: Tom highlighted earlier, we agreed it reiterated our revenue growth targets for the year and continue to expect 5% to 7% topline growth with all.

Brian Schopfer: Organic revenue growth of 46%.

Brian Schopfer: However, there are some slight changes to how we expect to achieve the organic growth number, namely we are now expecting low single digit plus growth from medical and mid single digit plus growth from technologies.

Brian Schopfer: Namely, we're now expecting low single-digit plus growth for medical and mid single-digit plus growth from technology. The updated estimate for technology's organic growth is supported by strong year-to-date performance from the segment and continued positive momentum across our end market. On the medical side, and in conjunction with the shutdown of the Middleton facility, the updated medical growth estimate is inclusive of our decision to exit the lasers and alignments, which is expected to impact medical organic growth by approximately 80 basis points for 2024 and nearly 200 basis points on an annualized basis.

Speaker Change: The updated estimate in technologies organic growth supported by strong year to date performance from this segment and continued positive momentum across our end markets.

Brian Schopfer: The medical side and in conjunction with the shutdown of the Middle 10 facility. The updated medical growth estimate is inclusive of our decision to exit the lasers in alignment business.

Brian Schopfer: Which is expected to impact medical organic growth by approximately 80 basis points for 2024, and nearly 200 basis points on an annualized basis just to reiterate this is a margin accretive action for the medical group.

Brian Schopfer: Just to reiterate, this is a margin of creative action for the medical group. The updated medical estimate is also reflective of slowing order activity driven by the depreciating Japanese yen as well as the anti-corruption lockdown in China.

Brian Schopfer: The updated medical estimate is also reflective of slowing order activity driven by the depreciating Japanese yen as well as the anti corruption lockdown in China.

Brian Schopfer: Positive domestic momentum is expected to offset some of the impact. We are expecting operating conditions to improve in the international markets in 2025 based on increasing strength in the yen and Deferred Demand in China. As a reminder, our medical business has performed very well over the last few years, with two-year stack growth in 2023 of better than 20% organic growth. So a bit of a normalization was expected.

Brian Schopfer: Positive domestic momentum is expected to offset some of the impact we are expecting operating conditions to improve.

Brian Schopfer: In the international markets in 2025 based on increasing strength in the yen.

Brian Schopfer: And deferred demand in China as a reminder, our medical business has performed very well over the last few years with two year stack growth in 2023, a better than 20% organic growth so a bit of a normalization was expected.

Brian Schopfer: We have slightly raised our adjusted EBITDA guide and are now expecting $195 to $205 million of adjusted EBITDA with margins between 23 and 24 percent. Our adjusted EPS range remains unchanged at $0.37 to $0.42. We've also held our adjusted free cash flow range at $65 to $85 million. However, we do expect free cash flow to come in towards the lower end of that range.

Brian Schopfer: We have slightly raised our adjusted EBITDA guide and are now expecting $195 million to $205 million of adjusted EBITDA with margins between 23 and 24%.

Brian Schopfer: Our adjusted EPS range remains unchanged at 37% to 42 cents. We've also held our adjusted free cash flow range at $65 to $85 million. However, we do expect free cash flow to come in towards the lower end of that range.

Brian Schopfer: I'd also like to note that we completed the redemption of all outstanding public and private warrants during the second quarter. This action greatly simplifies our capital structure and is a good step forward for us as we continue to mature as a public company. I point you to slide 20 in the appendix for an updated look at our share account considerations following the redemption. One final item of note before we open things up for Q&A, I am excited to announce that we will be hosting our first ever Investor Day later this year and are targeting early December for the event.

Brian Schopfer: I'd also like to note that we completed the redemption of all outstanding public and private warrants during the second quarter. This action greatly simplifies our capital structure is a good step forward for us as we continue to mature as a public company.

Brian Schopfer: I'd point, you to slide 20 in the appendix for an updated look at our share count considerations following the redemptions.

Brian Schopfer: One final item of note before we open things up for Q&A I'm excited to announce that we will be hosting our first ever Investor day. Later this year and are targeting early December for the event.

Brian Schopfer: More details to come on the event as we get closer, but this will be a great opportunity for us to share our updated strategy and longer-term financial targets with the investment community. Looking at where we stand halfway through the year, I feel good about our financial results thus far and believe that we are well positioned to deliver a strong finish to the year. I look forward to updating you with our third quarter results this fall. With that, I'll now pass it over to Jerry to open things up for Q&A.

Brian Schopfer: More details to come on that on the event as we get closer but this will be a great opportunity.

Brian Schopfer: For us to share our updated strategy and longer term financial targets with the investment community.

Brian Schopfer: Where we stand halfway through the year I feel good about our financial results, thus far and believe that we are well positioned to deliver a strong finish to the year.

Brian Schopfer: I look forward to updating you with our third quarter results. This fall with that I'll now pass it over to Jerry to open things up for Q&A.

Jerry: Thanks, Brian I'll wrap up our formal comments this morning, I'll hand, the call back over to the operator.

Jerry Estes: Thanks, Brian. Now we have time for four more comments this morning. I'm going to call back over to the operator, here, to kick off the Q&A session.

Jerry: If you were to kick off the Q&A session.

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

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Brian Schopfer: You May press Star two if you would like to remove your question from Madhu.

Brian Schopfer: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.

Brian Schopfer: For questions.

Brian Schopfer: Thank you. Our first question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.

Joe Ritchie: Hey, guys good morning.

Speaker Change: Hey, Joe Good morning.

Joe Ritchie: Hey, Tom or Brian look I recognize that you guys are going to be coming up against some tough comps in the second half of the year as it relates to orders.

Joe Ritchie: Hey, Tom or Brian, look, I recognize that you guys are going to be coming up against some tough comps in the second half of the year as it relates to orders. But, at the same time, it seemed like you had roughly $30 million in orders, a nuclear push out to 3Q. I guess, as you kind of think about the health of the order pipeline into the second half of the year, maybe just provide a little bit of color on what you expect to happen to backlog as we progress through the rest of the year. Do you think you can hold backlog at the current level? Is it going to decline? And what is the overall health of the pipeline like?

Speaker Change: At the same time it seemed like you had like what roughly $30 million in orders nuclear push out to three Q I guess as you kind of think about the health of the order pipeline into the second half of the year.

Speaker Change: Maybe just provide a little bit of color on like what what you expect to happen to backlog as we progress through the rest of the year do you think you can hold backlog at current level the kind of decline.

Speaker Change: What is the overall health of the pipeline look like.

Brian Schopfer: Yeah, so maybe a couple..., a couple thoughts there, Joe. First off, yeah, I mean, just a reminder, we're copying 100 million large orders between Q3 and Q4. A lot of that's in Q3, actually. But, you know, we feel very, very good about where we sit today. The businesses continue to be out there in the markets, and the pipelines are very strong across both businesses. Tom and I, like Tom said, just spent some time with the North American customer base at our event in Texas this week. The dynamic there is very good.

Speaker Change: Yeah, So I'll, maybe a couple.

Speaker Change: A couple of thoughts there Joe first off.

Brian Schopfer: Yeah, I mean, just a reminder, we were comping.

Brian Schopfer: $100 million of large orders.

Brian Schopfer: In Q3, and Q4, a lot of that in Q3 actually.

Brian Schopfer: But we feel very very good about where we sit today the businesses continue to be.

Brian Schopfer: Out there in the markets. The pipelines are very strong across both businesses candidly, Tom and I'd like Tom said I just spent some time with the with the North American customer base at our event in in Texas. This week.

Brian Schopfer: Yeah.

Tom Hogan: And the dynamic there is very good on the medical team is continues to be very optimistic about what they're seeing in the pipeline.

Brian Schopfer: The medical team continues to be very optimistic about what they're seeing in the pipeline. I think to answer your question directly, look... Order rates probably won't be positive on a year-over-year basis in the back half of the year, but I like backlog You know continuing to I would say in the third quarter backlog will be up versus the third quarter last year for sure And I think the fourth quarter I think there is you know visibility to us being flat to where we started the year Now look that can that can move around a little bit just based on kind of order dynamics and timing But I think we feel we feel very good about where we're sitting And this isn't something you know Tom and I are are, particularly worried about it.

Speaker Change: I think to answer your question directly look.

Tom Hogan: Order rates, probably won't be positive on a year over year basis in the back half of the year, but I like backlog.

Tom Hogan: Continuing to.

Tom Hogan: I'd say in the third quarter backlog will be up versus the third quarter last year for sure and I think the fourth quarter.

Brian Schopfer: I think there is visibility to us being flat to where we started the year.

Tom Hogan: But that can that can move around a little bit just based on kind of order dynamics and timing, but I think we feel we feel very good about where we're sitting.

Tom Hogan: And this isn't something Tom and I are.

Tom Hogan: Particularly worried about it when when you book these larger project orders they burned down over time.

Brian Schopfer: I mean, when you look at these larger project orders, you know, they burn down over time. And there'll be other projects – there'll be other orders that come in either, you know, at the back end of this year or, candidly, in the front half of next year. But the pipeline's very good, and I think our visibility into that pipeline continues to be very good.

Brian Schopfer: It'll be other project there'll be other orders that come in either at the back end of this year well candidly in the front half of next year.

Brian Schopfer: But the pipeline is very good.

Brian Schopfer: And and I think our visibility into that pipeline continues to be very good yeah. Joe. This is Tom just to tag on to what Brian said.

Tom Logan: Yeah, Joe, this is Tom. Just to tag on to what Brian said, we look ahead multiple years, not only the back half of this year, but into 2025 and beyond. Again, if you look at just the queue that we see coming in terms of larger projects, which typically, but not exclusively, tend to be nuclear projects, again, we feel good about it. To be clear, I think we've always been clear about this. It's not rateable because it is a little bit lumpy. But as it flows through revenue, obviously, it's smooth because, typically, for a large nuclear project, [inaudible]

Joe Ritchie: Yeah, we look I had multiple years not only the back half of this year, but into 'twenty five and beyond.

Speaker Change: Again, if you look at just the Q are that we see coming in terms of larger projects, which typically but not exclusively tend to be nuclear projects again, we feel good about it to be clear I think we've always been clear on this it's not ratable. It is it is a little bit lumpy.

Joe Ritchie: But as it flows through revenue obviously, it it smooths out because typically for a large nuclear project.

Joe Ritchie: And that revenue is booked over a number of years, but in addition to that I think it's also important to note that in terms of the flow business that were seeing so the business above and beyond these large orders, which typically is driven from our install base again are very clearly the case in nuclear but not exclusively this is all.

Joe Ritchie: So broadly true in radiation therapy.

Speaker Change: You et cetera are very clearly based on the health of the installed base, we're seeing a pickup in that in that flow of business and to be clear this doesn't necessarily get reflected in backlog because it trades within a quarter.

Speaker Change: So again to be clear you know, we're very confident about where we sit right now where we're not at all concerned about.

Speaker Change: Either order flow or market strength here, it's very positive.

Brian Schopfer: One, just maybe to throw a little bit of context on that flow business. I think as we look at the year that we are projecting out, we think that flow business is kind of a mid-single-digit order growth number for us, and we tend to look at that at orders kind of below $5 million because it kind of smooths out under that. So maybe just some context, Joe, on what we're seeing and expecting.

Speaker Change: One just maybe that throw a little bit of context on that flow business I think.

Speaker Change: As we look at the year and are projecting out we think that flow business as kind of a mid single digit order growth number.

Speaker Change: For us and that tends we tend to look at that order is kind of below $5 million because it kind of smooths out under that.

Speaker Change: So maybe just some context, Joe and Oh, what we're seeing and expecting.

Speaker Change: Yeah.

Speaker Change: Got it guys. Thanks.

Joe Ritchie: Got it, guys. That's, um, that's really helpful, Collar. I appreciate that.

Speaker Change: It's really helpful color I appreciate that.

Speaker Change: Thought that the.

Speaker Change: You sign a long term partnership exclusive partnership with EDF with notable at.

Speaker Change: At the same time like I know that you guys have had strong market share in the nuclear.

Speaker Change: Segment already I'm, just curious like how does this potentially expand on an already existing relationship and how do you see this kind of playing out over the next couple of years with EDF.

Joe Ritchie: I thought that the fact that you signed that long-term partnership, exclusive partnership with EDF was notable. At the same time, like I know that you guys have had strong market share in the nuclear segment already. I'm just curious, like, how does this potentially expand on an already existing relationship? And how do you see this kind of playing out over the next couple years with EDF? Yeah, I mean

Speaker Change: Yeah, I mean to your point, Joe we've had an outstanding relationship with EDF for many decades for which we're tremendously grateful they've been they've done an absolutely terrific trading partner for us historically and we've noted I think repeatedly if some of those strong content we've had.

Tom Logan: Yeah, I mean, to your point, Joe, we've had an outstanding relationship with EDF for many decades, for which we're tremendously grateful. They've been an absolutely terrific trading partner for us historically, and we've noted, I think, repeatedly some of the strong content we've had, most recently with the Hinkley Point C project in the UK with EDF.

Speaker Change: Most recently with the Hinkley point C project in the U K with a with ETF and certainly.

Speaker Change: We would.

Tom Logan: We would, you know, if we had not signed this large commercial deal, we would certainly have expected a future flow of strong business from EDF. But what this does is that it streamlines commercial terms and all of the attendant negotiations in and around that. It strengthens our position competitively and effectively. It gives us not only greater confidence in the investments that we're making into the space, but it also clearly has an impact on our cost structure in terms of supporting this commercial activity overall. So we're very happy about it and, again, very honored to have this place of pride with EDF.

Speaker Change: If we had not signed this large commercial deal we would certainly have expected in a future flow of strong business from EDF, but what what this does is it streamlines commercial terms and all of the attendant negotiation in and around that it strengthens our position competitively and and <unk>.

Speaker Change: <unk>.

Speaker Change: So it gives us not only greater confidence and investments that we're making into the space, but it also clearly has an impact on our cost structure in terms of supporting this commercial activity over overall, so we're very happy about it and again very very honored to have this this play surprised with with Etfs.

Speaker Change: That's great and if I can just maybe squeeze one more.

Joe Ritchie: That's great. If I could just maybe squeeze one more in,

Speaker Change: Guys reference Cid that the anti corruption dynamics in China, and the <unk> market.

Speaker Change: Hey, guys.

Joe Ritchie: You guys reference the anti-corruption dynamics in China and the RTQA market. I think there's been talk about this now for probably the better part of the last 12 to 15 months. I guess, how do you see this kind of impacting your business going forward? At what point do you think you kind of hit a bottom in that piece of the business going forward?

Speaker Change: <unk> been talking about this now for probably the better part of the last like 12 to 15 months.

Speaker Change: Yes.

Speaker Change: How do you see this kind of like in impacting your business going forward at what point do you think you can kind of get to a bottom.

Speaker Change: And that piece of the business going forward.

Brian Schopfer: Yeah, I think, you know, just as we think about the numbers, what I would tell you is that the impact on the revenue side in the first half of the year on the revenue side was pretty negligible on the medical side, mainly, with a little bit of kind of timing movement between the first half and the second half on the technology side, but that has nothing to do with anti-corruption. That's just project stuff.

Speaker Change: Yeah.

Speaker Change: I think you know just as we think about the numbers you know what I would.

Speaker Change: Tell you is that the impact in the first half of the year on the revenue side was pretty negligible on the medical side, mainly it a little bit of kind of timing movement between the first half in the second half on the on the technology side, but that's that has nothing to do with the anti corruption that just project stuff.

Speaker Change: And I think on the order side, you know our <unk> business was definitely down in orders in the first half and we expect it to be down in the second half as well.

Brian Schopfer: And I think on the order side, our RTQA business was definitely down in orders in the first half, and we expected it to be down in the second half as well. Our expectation, and I think this is common, Joe, that you guys have heard from other companies that have released this week, I think we expect 24 to probably be the low point. We expect the dynamics to get better maybe late in the fourth quarter, but into 25 is what we're forecasting at this point. Yeah, I'd add to that too, Joe.

Speaker Change: Our expectation so I think this is Tom and Joe that you did.

Speaker Change: As I've heard from other companies that have released this week I think we expect 24 to probably be the low point, we expect the dynamics to get better maybe late in the fourth quarter, but put into 25 is what we're that's.

Speaker Change: It's what we're forecasting at this point I'd add to that too Joe that you know I don't think we've ever kind of call the turn in the Chinese market.

Tom Logan: Yeah, I'd add to that too, Joe, that I don't think we've ever kind of called a turn in the Chinese market. You know, it's just, it takes longer for deals to materialize because people are being much more careful. We certainly understand that.

Speaker Change: It takes longer for deals to materialize because people are being much more careful and we certainly understand that and if you listen to some of the leaders in this space in particular, Siemens health on errors I think you'd get a pretty comprehensive picture.

Tom Logan: And if you listen to, you know, some of the leaders in the space, in particular, Siemens Healthineers, I think you'd get a pretty comprehensive picture of the dynamics in that market. But what's important is that I think there are two speed bumps on the anti-corruption front, and pent-up demand will begin to flow through again in a more rateable fashion. And then, secondly, Chinese stimulus programs will begin to kick in, which will also be favorable broadly in industrial markets but certainly in healthcare markets as well.

Speaker Change: The dynamics in that market, but what's important is that I think there are two.

Speaker Change: Factors that are likely to improve the dynamics in the Chinese market, whether it happens in Q3 or Q4 into 2025 it will happen.

Speaker Change: One is that people will get beyond kind of this.

Speaker Change: This speed bump on the anti corruption and pent up demand will begin to flow through again in a more ratable fashion and then secondly, Chinese stimulus programs will begin to kick in.

Speaker Change: Which also will be favorable broadly and in industrial markets, but certainly in our in health care markets as well we believe both of those factors ultimately will be beneficial to demand in China. So this market continues to be important to us I think Brian you know encapsulated well the fact that our exposure here.

Tom Logan: We believe both of those factors ultimately will be beneficial to demand in China. It is not great, but we expect it to be a continued source of growth in the future as soon as we get past this short-term disruption.

Brian: It's not great, but we expect it to be a continued source of growth in the future.

Brian: We get asked this so the short term disruption.

Speaker Change: Okay.

Brian: That's perfect. Thank you very much guys.

Joe Ritchie: Perfect. Thank you very much, guys.

Joe Ritchie: Thanks, Joe.

Speaker Change: Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Operator: Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Chris Moore: Hey, good morning guys. Thanks for taking a couple questions. Yeah, maybe just start with Tom, you referenced the anticipated CMS changes on reimbursement. Maybe just can you talk a little bit further about the impact or potential impact and, you know, any thoughts on timing you might have?

Chris Moore: Hey, good morning, guys. Thanks for taking a couple questions.

Chris Moore: Maybe just start with Tom you referenced the anticipated CMS changes on reimbursement, maybe just can you talk a little bit further about the impact or potential impact and you know any any thoughts on timing you might have.

Tom Logan: Yes, so the general view within the industry, just for those who are uninitiated, CMS basically is the American Center for Medicare Studies. They really establish reimbursement protocols in the American healthcare market that drive not only government reimbursement but also much of private insurance reimbursement overall. So it's incredibly important.

Speaker Change: Yeah. So the the general view within the industry just for those who are uninitiated CMS basically is a is the American center for Medicare Studies. So you really establish reimbursement protocols in the American health care market that drive not only our government reimbursement, but also much of our <unk>.

Joe Ritchie: <unk> insurance reimbursement overall, so it's incredibly important.

Tom Logan: As we've talked about historically, there's incredible development taking place right now in nuclear medicine. We generally refer to it as the Theranostics Movement or radiopharmaceutical therapy, but it involves a couple of elements. PET scanning technology coupled with evolving nuclear medical tracers or radioisotopes that are used for this type of molecular imaging.

Joe Ritchie: As we've talked about historically, there's incredible development, taking place right now in nuclear medicine.

Speaker Change: We've talked to you know, we generally refer to it as the <unk> six movement on our radiopharmaceutical therapy, but it involves a couple of elements. One is using improved molecular imaging techniques using.

Joe Ritchie: Hum.

Joe Ritchie: Pet scanning technology, coupled with <unk>.

Joe Ritchie: Evolving.

Joe Ritchie: Nuclear medical tracers or radio isotopes that are used to for those type of molecular imaging and secondly, it involves therapeutic doses, which again utilize.

Tom Logan: And secondly, it involves therapeutic doses, which, again, utilize common ligands but carry different radioisotopes that, in general, carry more energy and have a therapeutic impact overall. In the evolution of the space, there's been an increase in the cost commercially of these radiodiagnostic drugs, and CMS simply hasn't kept up. Reimbursement rates have been very low, in the range of hundreds of dollars when the market value of these drugs and what health care providers are actually paying is thousands of dollars.

Joe Ritchie: The common common law against but carry different radio isotopes in general carry more energy and have a therapeutic impact overall in the evolution of the space. The there's been an increase in costs commercially.

Joe Ritchie: So all of these radio diagnostic drugs Oh.

Joe Ritchie: And that simply hasn't hasn't kept up reimbursement rates have been very low.

Joe Ritchie: The range of hundreds of dollars when the market value of these drugs and what the health care providers are actually playing paying is thousands of dollars and so what CMS has signaled is a strong intent to correct. This discrepancy in the beginning of 2025 and if that happens I think the the law.

Tom Logan: And so, what CMS has signaled is a strong intent to correct this discrepancy by the beginning of 2025. And if that happens, I think the logical, you know, kind of axiomatic pathway here is that health care providers will be less reluctant to prescribe protocols that may be money-losing today but in the future will be, you know, a margin accretive for them overall. So that's the gist of it.

Speaker Change: Logical kind of axiomatic pathway here.

Speaker Change: Is that health care providers will be less reluctant to prescribe protocols that may be money, losing today, but in the future.

Joe Ritchie: <unk> will be a you know a.

Joe Ritchie: Margin accretive for them overall, so that's the that's the gist of it.

Speaker Change: Got it very helpful.

Chris Moore: Got it. Very helpful. I would say you did a good job cleaning up the public and private warrants. Is there anything else from a capital structure standpoint that, you know, those seem like the more obvious things, anything else that can be done to improve the cap structure there?

Speaker Change: Obviously, you had good job cleaning up the public and private warrants.

Speaker Change: Is there anything else from a capital structure standpoint that that you know that.

Speaker Change: It seemed like the more obvious or anything else that that can be done to improve the cap structure there.

Joe Ritchie: Yeah, I mean look I think we're well.

Brian Schopfer: Yeah, I mean, look, I think we're, I think, first off, I think we've made a lot of progress over the last kind of two and a half years on the balance sheet, right? Whether it's Charterhouse, you know, getting out of the capital stack last summer, obviously, the warrants, we did our debt repricing, etc.

Speaker Change: I think first off I think we've made a lot of progress over the last kind of two and a half years on the balance sheet right, whether its charter house, you know getting out of the capital stack last summer obviously, the warrants we did our debt repricing.

Speaker Change: Et cetera, I think.

Brian Schopfer: I think, you know, we'll continue to look at whether we can do more on the other repricing side, on the debt, you know, we'll, you know, your question really comes down to capital allocation, and Tom and I are continuously looking at, you know, M&A versus delevering and, you know, how to make those trade-offs. And I think we will continue to evaluate those kinds of things as the quarters go by and we generate more cash.

Speaker Change: We continue to look at the AR will continue to look at whether we can do more on the Oh, the repricing side on the dot.

Speaker Change: We will.

Tom Hogan: Your question really also then comes down to capital allocation and then Tom and I are continuously looking at M&A versus Delevering.

Tom Hogan: How do we make those trade offs and I think we continue to to evaluate those kind of.

Speaker Change: As the quarters go by and we generate more cash.

Brian Schopfer: But I think we've made a lot of improvements. I don't think there's anything huge and structural left to do from the way we went public. So I think it's really about focusing now on, you know, executing our plan, growing margins, free cash flow for sure, and continuing to grow. You know, I think the growth in the end markets is promising, and therefore, that's where we're focused. I think most of the capital structure stuff is behind us, and if there's something opportunistic, you know, that comes along, we'll always look at things. But I think a lot of the heavy lifting has now been done.

Speaker Change: But I think we I think we've made a lot of improvements I don't think theres anything huge in structural left to do from the way. We went public. So I think it's it's really about focusing now on executing our plan growing margins free cash flow for sure.

Speaker Change: And continuing to grow I think the growth in the end markets is promising.

Speaker Change: And therefore, that's that's where we're focused I think most of the capital structure stuff is behind us and if there's something opportunistic that comes along we'll always look at things, but I think I think a lot of the heavy lifting now has been done I think it's important to note as well Chris that we've we've guided earlier in the year.

Tom Logan: I think it's important to note as well, Chris, that earlier in the year, we guided that organically, we'd continue to delever this year to below two and a half times, assuming we don't enter into a large M&A deal. And I want to be clear that that continues to be our default mode. You know, our view is that we've got a tremendous position right now for the growth that's evolving organically in both the nuclear and the healthcare space.

Speaker Change: But organically we will continue to delever this year to below two five times, assuming we are we don't we don't enter into a large M&A deal and I want to be clear that that continues to be our default mode. You know our view is that a we've got a tremendous position right now for the the growth that's evolving.

Speaker Change: Ganic like in both nuclear and in the health care space.

Speaker Change: Assets that are that have a high degree of interest to US right. Now are continue to be kind of again. These small ball deals. So we've we've done in the recent past that really don't have a significant impact overall.

Tom Logan: Assets that have a high degree of interest to us right now continue to be kind of, again, these small volume deals that we've done in the recent past that really don't have a significant impact overall on net leverage, and so that continues to be our default mode. We know that there is a good opportunity for us to bring down the leverage a little bit more and continue to be extremely focused on the operational quality of the business overall, as measured by the attendant margins and pre-cash flow generation.

Speaker Change: On a net leverage and so that continues to be our default notice we know that there's a good opportunity for us to bring down our leverage a little bit more and a big you know continue to be extremely focused on the operational quality of them.

Speaker Change: Business overall, and the attendant margins and free cash flow generation.

Speaker Change: Got it very helpful. I'll leave it there I appreciate it guys.

Chris Moore: Thank God, it's very helpful. I'll leave it there. I appreciate it, guys.

Speaker Change: Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Operator: Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Andy Kaplowitz: Good morning, everyone.

Hey, Andy.

Speaker Change: Tom or Brian you mentioned some early benefits from your procurement initiative specifically in technologies.

Andy Kaplowitz: Tom or Brian, you mentioned some early benefits from your procurement initiative, specifically in technologies. You talked about 150 to 300 base points of margin over the next three years. In technologies, EBITDA margin was close to 30% this quarter. So could you talk about how the program could play out for technologies in particular? How does it evolve over the second half of 2025?

You talked about 150 to 300 basis points in margin over the next two years you technologies EBITA margin was close to 50%. This quarter. So could you talk about how the program could play out for technologies in particular.

Speaker Change: How does that evolve over the second half in <unk> and 'twenty five.

Brian Schopfer: Just so we're clear, the $150,000 to $300,000 is actually at the total company level, not just in technologies. Yes, of course.

Speaker Change: Sure just just so we're clear the 150 to 300 is actually at the total company level not just in technology of course.

Brian Schopfer: Of course, I understand that. But look, I mean, I think we've done a ton of work in the first half of the year behind our business system to get this done. And I think... What's interesting is, you know, a lot of the early benefits have kind of been the, you know, some of the stop spending stuff, some of the kind of organic, you know, rethinking how we engage with the supplier base, etc.

Speaker Change: So I understand.

Speaker Change: All right.

Speaker Change: But look I mean, I think we've we've done a ton of work in the first half of the year.

Speaker Change: Behind our business system on getting this done.

Speaker Change: And I think well.

Brian Schopfer: You know, this next phase is really about how do we how do we reduce our supplier base? I mean, we have a category and, you know, Tom and I are talking to the team about having a category, we have over 1,000 suppliers. That doesn't need to be the case. That can be less than 100.

Speaker Change: What's interesting is you know a lot of the early benefits has kind of been a yeah.

Speaker Change: Some of them stopped spending stuff some of the kind of organic.

Speaker Change: Rethinking, how we engage with the supplier base et cetera.

Speaker Change: This next phase is really about how do we how do we reduce our supplier base.

Speaker Change: We have a category.

Tom Hogan: Tom and I.

Tom Hogan: Where we're talking to the team if you have a category we have over 1000 suppliers.

Tom Hogan: That doesn't need to be the case that can be less than 100.

Brian Schopfer: And as you can imagine, the benefits of going from a lot of little POs to a few bigger relationships that we both have skin in the game on are tremendous, but also the complexity kind of underneath the hood is tremendous. So I think you'll continue to see margin expansion because of procurement. Some in the back half of the year, but I think it's more of a 25, 26 phenomenon more than anything else, with a tail into 27, just because some of this takes time. And we don't turn our inventory that fast, right?

Speaker Change: As you as you can imagine the benefits of going from a lot of little P. Owes to a few bigger relationships that we both have skin in the game on but also the complexity kind of underneath the hood.

Tom Hogan: Is tremendous so I think you'll continue to see.

Speaker Change: You know margin expansion because of procurement.

Speaker Change: Some in the back half of the year, but I think it's more a 'twenty five 'twenty six phenomenon more than anything else with a tailwind of 27, just because some of this takes time and we don't turn our inventory at fast rate. So we're working on two things here at the same time I think we're super encouraged what we're finding I think we're very encouraged about.

Brian Schopfer: So we're working on two things here at the same time. I think we're really encouraged by what we're finding. I think we're very encouraged about the engagement from our underlying businesses and teams, and I think this is a meaningful impact for us. So I think we're very bullish about this. I think it's a concrete example on top of the operating leverage we expect to get on how we get from where we are today to that 30% margin. And I think, you know, you're starting to see it in the P&L, and I think you'll continue to see it through the back half of the year and into 2025.

Speaker Change: The engagement from our underlying businesses and teams.

Speaker Change: I think this is a meaningful impact for us.

Speaker Change: So I think we're we're very bullish about this I think it's a concrete example on top of the operating leverage we expect to get on how we get from where we are today to that 30% margins.

Speaker Change: And I think youre starting to see it in the P&L and I think you'll continue to see it through the back half of the year and then the 25. Some additional color here too Andy is that firstly, we've you know we've evolved the organization around this so this is not a project. This is just an evolution in the way, we do business and to be clear it covers not only direct but also.

Tom Logan: Some additional color here too, Andy, is that firstly, we've evolved the organization around this, so this is not a project, this is just an evolution in the way we do business. And to be clear, it covers not only direct but also indirect procurement, so the impact is not purely at the gross margin level but really at the EBITDA margin level overall. And secondly... There's been a subtext here in that we've been very clear about our 30% EBITDA margin target within our planning horizon, and I think we've been clear that, in our view, we can get there largely through operating leverage, largely by being disciplined about both SG&A and factory overhead and just taking the natural fall-through of our relatively high gross margins on the business to drive that margin expansion.

Andy Kaplowitz: Indirect procurement so the impact.

Andy Kaplowitz: It's not purely at the at the gross margin level, but really the EBITDA margin level overall.

Andy Kaplowitz: And secondly.

Speaker Change: Yeah, Theres been a subtext here and in that you know we've been very clear about our 30% EBITDA margin target within our within our planning horizon and I think we've been clear that in our view. We can we can get there largely through operating leverage largely by being disciplined about both SG&A and factory overhead.

Speaker Change: And just taking the natural fall through of our relatively high gross margins on the business to drive that margin expansion. We have noted that were very focused also on operational quality and self help in that realm and so here today, we're just being a little bit more tangible about one area and that are in that pool.

Tom Logan: We have noted that we're also very focused on operational quality and self-help in that realm, and so here today, we're just being a little bit more tangible about one area in that pool, which is procurement. And, you know, we're very, very pleased with what we're seeing, again, half a year into this initiative, we expect it's going to pay meaningful dividends.

Speaker Change: <unk>.

Speaker Change: This procurement and you know.

Speaker Change: We're very very pleased with our well work.

Speaker Change: We're seeing again half a year into this initiative, we expect it's going to pay meaningful dividends.

Speaker Change: That's helpful guys and then Tom Nuclear Medicine, I think is your fastest growing medical business and obviously you seem quite excited about it but how big could it end up being over time and can it help you offset if our T QA tends to be slower for longer or ultimately do you still believe that medical is a mid single digit growth business.

Andy Kaplowitz: It's helpful, guys. And then, Tom, nuclear medicine, I think, is your fastest-growing medical business, and obviously, you seem quite excited about it, but how big could it end up being over time, and can it help you offset if RTQA, you know, tends to be slower for longer? Ultimately, do you still believe that healthcare is a mid-single-digit growth business, but maybe the mix ends up changing a bit?

Speaker Change: But maybe the mix ends up changing a bit.

Tom Logan: Yeah, I mean, firstly, just to note that from an RTQA standpoint, if you look at the long-term growth trends there, they've been double-digits. It's a tremendous business. It's a field that continues to grow, and there has not been a secular change in that dynamic. Again, I would attribute all of the growth to two factors. One is that we're lapping big comp numbers from last year, but secondly, it's China and, you know, precision in the call today.

Speaker Change: All of the the the growth to two factors one is so where comps were lapping a big comp numbers from last year, but secondly, it's China and Japan as I as I think we've detailed.

Tom Logan: I candidly I, you know, the evolution of nuclear medicine is quite unpredictable. I think everybody expects with confidence that this is a market that is going to change cancer care overall, not just cancer care, but also cardiac care and potentially Alzheimer's, which, you know, would be far greater than either of the latter two. But nobody expects it will somehow render RTQA obsolete.

Speaker Change: Yeah.

Speaker Change: I candidly I I you know the.

Speaker Change: The evolution of nuclear Medicine is is quite unpredictable I think everybody expects.

Speaker Change: With confidence that this is a market that is going to change cancer care overall, not just cancer care, but also cardiac care and potentially Alzheimers, which you know would be far greater than any of the either the latter two.

Speaker Change: But nobody expects that it will somehow render our T. QA obsolete today in the U S. As an example, a newly diagnosed cancer patients has about a 65% chance of being prescribed external beam therapy as part of their overall treatment protocol there's a.

Tom Logan: Today, in the U.S., as an example, a newly diagnosed cancer patient, you know, has about a 65% chance of being prescribed external beam therapy as part of their overall treatment protocol. There's a high likelihood that that will continue, and what we're likely to see is just a shifting nexus between radiopharmaceutical therapy and external beam therapy and conventional chemo-based oncology and surgical oncology, So the dynamic will change. It'll change differently for different categories of cancer, but the bottom line is that today, the world is dramatically underserved from an external beam therapy standpoint.

Speaker Change: A high likelihood that that continues and what we're likely to see is just a shifting nexus between radiopharmaceutical therapy, and external beam therapy, and conventional chemo based oncology and surgical oncology.

Speaker Change: So the dynamic will change it will change differently for different categories of of cancer, but the bottom line is that today the globally. The world is dramatically underserved.

Speaker Change: From a from an external beam therapy standpoint, the world.

Tom Logan: They only have about half of the linear accelerators and the treatment clinics that it needs. And so we continue to be quite bullish on that business and don't see nuclear medicine cannibalizing it. We see it really as being additive.

Speaker Change: They only has about half of the linear accelerators and the treatment clinics that it needs and so we continue to be quite bullish on that business and don't see a nuclear medicine.

Speaker Change: Cannibalizing and we see it really as being additives, yeah, I think just one other comment and maybe is that business.

Brian Schopfer: Yeah, I think just one other comment maybe is, you know, that business we've, medical overall, we've said is a high single-digit grower for us, not mid-single. This year, it's obviously mid-single coming off of, you know, two very big years the last couple years.

Speaker Change: Medical overall, we set as a high single digit grower for us not that mid single this year. Its obviously against single coming off of two two very big years. The last couple of years.

Speaker Change: Maybe one other thing we're seeing that the teams have been talking about this a lot about is actually the nuclear medicine business and the RT QA business working together right in the field and nuclear medicine kind of being.

Brian Schopfer: And maybe one other thing we're seeing that, you know, the team's been talking to us a lot about is actually the nuclear medicine business and the RTQA business working together, right, in the field, and nuclear medicine kind of being, you know, additive, like Tom said, to the RTQA treatment regime. So I think there's a bit of I think we continue to just like this space a lot.

Speaker Change:

Speaker Change: Additive like Tom said to <unk> treatment.

Speaker Change: Treatment regime. So I think I think there's I think there's a bit of a I think we continue just like the space a lot.

Speaker Change: Brian I like when you're correct me is a positive that's good so.

Andy Kaplowitz: Brian, I like when you correct me for the positive; that's good. So, let me ask you about cash flow. I know you're focused on cash flow this year. You know, you didn't change your guidance, but you did have positive cash flow in the first half of the year. You do have a steep ramp-up, you know, in the second half. I think, usually, seasonally, you generate better cash in the second half. But maybe talk about the visibility to get into that range. Yeah, well, look, I mean...

Speaker Change: Let me ask you about cash flow.

Speaker Change: I know you are focused on cash flow this year.

Speaker Change: Yeah.

Brian Schopfer: First off, we're ahead of where we were last year, and where we ended up last year is in the range we still have this year. I think this year looks a lot like last year. I actually went back and looked at 22 as well, and 22 looked a lot like 23.

Speaker Change: Well first off we're ahead of where we weren't last year and where we ended up last year is in the range. We still have this year I think this year. It looks a lot like last year and I actually went back and looked at 'twenty two as well in 'twenty two looked a lot like twenty-three so yeah I think.

Brian Schopfer: I think for many different reasons, we tend to generate a lot of cash in the fourth quarter. You know, if we felt like we weren't going to get there, we would have changed direction; we would have changed the numbers. We didn't, you know, we do think we'll be kind of towards the lower end of the range, not the higher end of the range, you know, from where we sit today. But, you know, there's still a lot of time left to make an impact there.

Speaker Change: For you know for.

Speaker Change: Many different reasons, we just we tend to generate a lot of cash in the fourth quarter.

Speaker Change: That this year won't be any different and I think we are.

Speaker Change: If we felt like we weren't going to get there we would have changed we want to change the numbers we didnt.

Speaker Change: We do think will be kind of towards the lower end of the range not the higher end of the range from where we sit today, but there's still there's still a lot of time left to make an impact there.

Speaker Change: Thank you.

Speaker Change: Thanks.

Speaker Change: Our next question comes from the line of you on Z with B Riley. Please proceed with your question.

Operator: Our next question comes from the line of Yuan Zhi with B. Reilly. Please proceed with your question.

Yuan Zhi: All right, thank you for taking our questions and congratulations on a good quarter. First, on a high level, I'm just curious if there's a brief recession coming, do you think your customers will be cautious with spending, such as, you know, delaying or canceling orders in the backlog?

Speaker Change: All right. Thank you for taking our questions and congrats on a record her first all of the high level.

Speaker Change: If there is a real recession comedy duo.

Speaker Change: <unk> well be cautious on spending.

Speaker Change: <unk> or canceling the honor in the backlog.

Tom Logan: Yeah, I'll start Yuan. This is Tom. In general, if you look at our, you know, 20-plus year history... What you would find is that we tend to be a very acyclical business, and candidly, some of our strongest growth has come during recessionary periods overall, and so our view generally is that we're not exposed to the economic cycles that demand drivers are, and our dominant markets, again, tend to be somewhat free of those economic cycles. So no, we're not expecting, you know, an enhanced risk of a dip in demand based on, you know, just kind of macroeconomic growth numbers.

Speaker Change: Yeah I'll start this is Tom the in general if you look at our 20 plus year history.

Speaker Change: What you would find is that we tend to be very a cyclical business and candidly our some of our strongest growth has come from during recessionary periods overall and so our view generally is that we're not a we're not exposed to the economic cycles that the the demand drivers in our.

Speaker Change: And our dominant.

Speaker Change: Markets are again tend to be somewhat free of those economic cycles. So no we're not expecting.

Speaker Change: You know an enhanced risk of a dip in demand based on on you know just kind of macroeconomic growth numbers.

Speaker Change: Got it got it.

Yuan Zhi: Got it. Following on that prior CMS question, can you maybe talk about or comment on your plan to prepare for this upcoming change from CMS?

Speaker Change: Following on that prior question can you, maybe talk about or coming down or plan to prepare for this upcoming changed from CMS.

Yeah for us the Theres candidly very little to prepare IV in the just to for the for the broader audience to note our positioning in this in this area that today, we are on the leading data management software platform in the U S platform.

Tom Logan: Yeah, for us, there's candidly very little to prepare. I mean, just for the broader audience to note our positioning in this area, that today we own the leading data management software platform in the U.S., a platform that in the market is known as EC2. That literally connects all of the players from cradle to grave in this space, the isotope producers, the drug makers, the researchers, the radiopharmacies, the CDMOs, and ultimately the clinicians in terms of how the product moves through that value chain and ultimately is administered to the patient.

Speaker Change: That are in the market is known as easy squared.

Speaker Change: They're literally connects all of the other players from cradle to grave in this space see isotope producers. The drugmakers. The researchers the radio pharmacy is the C. D M O's and ultimately the clinicians in terms of how product moves through that value chain and ultimately is administered to the patient volume.

Tom Logan: You know, overall volume, I should note that also from a hardware standpoint, they are the market leader in dose calibration instruments, thyroid uptake systems, various types of respiratory studies equipment, and are broadly involved in compounding, transport equipment, syringe shields, and a bunch of other peripherals. The general story... is that, again, in the American market, obviously our biggest market in nuclear medicine, with any favorable change in dynamics, but particularly in this case where it's procedurally linked, clearly that just reduces friction for the prescription of radiodiagnostic procedures to the extent that that's an added driver of volume.

Overall.

Speaker Change: I should note that also from a hardware standpoint, where the market later in dose calibration instruments thyroid uptake systems various types of respiratory studies equipment.

Speaker Change: And Ah broadly involved in compounding transport equipment syringe shields, and a bunch of other peripherals the general story.

Speaker Change: Is that again in the American market and obviously, our biggest market in nuclear medicine.

Speaker Change: With a favorable change in dynamics, but particularly in this case, where it's procedurally linked clearly that just reduces friction for the prescription of radio diagnostic procedures and to the extent that that's an add a driver to to volume. It means that people are likely to buy more dose calibrate.

Tom Logan: It means that people are likely to buy more dose calibrators, license more of our software, and to bring along some of the other kind of balance of equipment, balance of clinic equipment we sell. So there's not a specific action for us to take. We're certainly prepared for, you know, continuing, you know, upward evolution in demand.

Speaker Change: Others to license more of our software and to drag along some of the other kind of balance of equipment a balance of clinic equipment, we sell so theres not a specific action for us to take a we're certainly prepared for continuing oh upside evolution in demand.

Speaker Change: Yeah.

Yuan Zhi: Got it, got it. Thanks for the help, Carter.

Speaker Change: Got it got it thanks for the household countered.

Speaker Change: Yeah.

Speaker Change: We have no further questions at this time.

Tom Logan: We have no further questions at this time. Mr. Logan, I would like to turn the floor back over to you for closing comments.

Speaker Change: I like to turn the floor back over to you for closing comments.

Speaker Change: Okay, well, ladies and gentlemen, as always we appreciate your attention you know just to reiterate our point of view on our message here as it was a good partner for the company we executed well.

Tom Logan: Okay, well, ladies and gentlemen, as always, we appreciate your attention. You know, just to reiterate our point of view and our message here, as this was a good quarter for the company. We executed well, and we are very pleased with the margin expansion story and the continued strategic evolution of our business, specifically as it relates to the EDF deal, but also the continued evolution and the operational quality of the business. Our focus for the balance of the year continues, as it has been, to be on driving organic growth in markets that continue to be favorable and where customer engagement continues to be strong and to continue to grind on our cost structure and our capital velocity to hit our goals We very much look forward to reporting back to you in Q3 and appreciate your time and attention today. So I wish all of you a good day.

Speaker Change: I'm very pleased with the margin expansion story and the continued strategic evolution of our business.

Speaker Change: Specifically as it relates to the EDF deal, but also the continued evolution of the operational quality of the business our focus for the balance of the year continues as it has been.

Speaker Change: To be on driving organic growth in markets that continue to be favorable on costs for customer engagement continues to be strong and to continue to grind on our cost structure and our capital velocity.

Speaker Change: To hit our goals are in terms of of margin free cash flow and ultimately a leverage between now and the end of the year. We very much look forward to reporting back to you and in Q3 and appreciate your time and attention today. So I wish all of you a good day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.