Q3 2024 Mirion Technologies Inc Earnings Call
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Speaker Change: Ladies and gentlemen, greetings and welcome to the media on technologies third quarter 2024 earnings Conference call.
Speaker Change: This time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: 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 Eric Glynn. Please go ahead.
Eric Glynn: Thank you and good morning.
Eric Glynn: And welcome to <unk> third quarter 2024 earnings conference call.
Eric Glynn: Joining me this morning are Maryann, CEO, Tom Logan and Marianne CFO, Brian Shopper.
Eric Glynn: Before we begin todays prepared remarks allow me to remind you that comments made during this call will include forward looking statements and actual results may differ materially from those projected in the forward looking statements.
Eric Glynn: 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 other SEC filings under the caption risk factors.
Eric Glynn: Quarterly references within todays discussion are related to the third quarter ended September 32024, unless otherwise noted.
Eric Glynn: The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.
Eric Glynn: 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.
Eric Glynn: All earnings materials can be found in the Investor Relations section of our website at Www Dot <unk> Dot com.
Speaker Change: With that let me now turn the call over to Tom who will begin on slide three.
Tom Logan: Thank you Eric and good morning, everyone. I am pleased to announce that we delivered another strong quarter consistent with expectations $207 million of third quarter revenue was 8% higher compared to last year's third quarter. Adjusted EPS was <unk> <unk> per share adjusted EBITDA was $45 7 million was 100.
Tom Logan: 80 basis points of margin improvement compared to the year ago period. This keeps us on pace for our previously stated adjusted EBITDA and EPS full year guidance.
Tom Logan: Thank you to the myriad team for delivering outstanding performance in the quarter.
Tom Logan: To start by talking about the evolving macro environment, we compete on the so called Super trends I've detailed over the past several quarters continue to take shape recall that these trends of nuclear power in cancer care are expected to be generational and tenor and provide meaningfully favorable tailwind to both our strategy and execution, let's start with.
Tom Logan: Nuclear power on slide four.
Tom Logan: Biggest news in this vertical is a crude from the so called Hyperscale ours moniker associated with large scale data center leaders like Microsoft, Google and Amazon, who announced the state of nuclear power deals and supported their artificial intelligence business models over the last quarter. These deals include the following first.
Tom Logan: The Microsoft deal with constellation energy to bring one unit of the decommission three mile Island nuclear power plant back online.
Tom Logan: Ordinarily an extraordinary deal because it adds to use nuclear generating capacity through the second re commissioning event of a default nuclear power plant requires Microsoft to consume 100% of the output of the plant for the next 20 years and reflects pricing well above PJM prevailing interchange rates secondly, ammers.
Tom Logan: Hans deals with Talon energy Dominion Energy energy northwest and fourth generation SM, our developer X energy to generate up to five gigawatts of additional nuclear energy in the U S. By the late 2000 thirteen's by way of context today U S capacity is approximately 93 gigawatts of total nuclear energy.
Tom Logan: Thirdly, the Google deal with FMR developer heroes to generate 500 megawatt megawatts of additional nuclear capacity and lastly, an announcement by Oracle that they've secured building permits for three hours some of ours for a large data center at an undisclosed location. These.
Tom Logan: These deals are the tip of the iceberg, reflecting the voracious appetite of Hyperscale ours for reliable and clean Baseload electrical energy. This was a major factor in the U S Department of energy view, the U S nuclear energy capacity could well triple by the year 2015, but to be clear. This is not strictly a U S phenomenon of supply demand.
Tom Logan: And regulatory policy frameworks reflect the same impact on the broader global nuclear industry.
Tom Logan: Political support continues to be favorable this summer the president signed legislation to support advanced nuclear reactor development by cutting processing fees and reducing licensing times. In fact earlier. This month. The administration opened up applications for up to $900 million and incremental funding to support some of our technology.
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Tom Logan: As we've disclosed previously we're working hard to afford strategic relationships with all significant some of our players and while the initial order volume is modest approximately $14 million book since 2023, we're becoming more optimistic about both the market validation of these emerging players and an acceleration.
Tom Logan: One of the commercial scaling of SMS. It seems clear that nuclear power is increasingly an appropriately seen as the secondary play on AI and we are excited by the fact that our nuclear power revenue as a percentage of total sales is proportionately greater than most of the firms seen as pure plays and the nuclear power instead.
Tom Logan: Limitation space.
Tom Logan: On the frothiness of AI, we are seeing solid gains in our core nuclear markets. The global installed base drives roughly three quarters of our nuclear power revenue most of which is recurring a repeat in nature.
Tom Logan: 12% core nuclear order growth, which excludes large orders booked in the third quarter of 23 reflects the continued improvement in the economic health of the global fleet and an increasing desire to run nuclear power plants hotter longer and within the operated capacity.
Tom Logan: Finally on the Newbuild front, we are extremely pleased with the level of customer engagement and the quantum of opportunities in our bid pipeline last night, we announced that Marianne was awarded strategic contracts with these size well see new nuclear power station project in the United Kingdom. This project has a similar design to the Hinkley point C nuclear power station.
Tom Logan: Project, where we have a significant position of incumbency.
Tom Logan: While these large projects don't occur Ratably. We're excited by the fact that today, we have $3 million to $400 million of new order opportunities in our bid pipeline, which we expect to be awarded by year end 2025, and while we don't expect to run the tables here, we feel very good about our prospects.
Tom Logan: Now, let's turn to the second Super trend on slide five which is the growth in the cancer care market.
Tom Logan: Recall that our medical group is comprised of three primary business lines radiation therapy quality assurance nuclear medicine, and dosimetry services within this group the biggest macro changes have been in the nuclear medicine market, where the revolution and radiopharmaceutical therapy is creating a significant opportunity for myriad.
Tom Logan: As we've discussed previously the catalyst for this dynamic is the introduction of a new generation of therapeutic and diagnostic drugs that are often referred to collectively as thorough gnostics, which hold the promise of precisely targeting cancer cells, and delivering radioactive payload, which destroy the cancer cells from within with <unk>.
Tom Logan: Minimal collateral damage to healthy tissues, we see the momentum building in this space and a number of dimensions first industry conference attendance as well up and becoming increasingly dominated by radiopharmaceutical Drugmakers second theres much higher dealmaking energy overall in the space.
Tom Logan: Third the first two blockbuster drugs in this sector are experiencing significant growth.
Tom Logan: Victim of prostate cancer therapeutic developed by Novartis has seen sales growth of approximately 50% year over year and <unk> prostate cancer diagnostic has seen growth of approximately 30%.
Tom Logan: And finally myriad has seen year to date unit growth in dose calibrate or shipments are franchise product in the space of 18% versus 2023.
Tom Logan: As I've noted in the past, we've devoted enormous energy toward evolving our strategic position and the nuclear medicine value chain. We are increasingly confident that our portfolio of legacy nuclear medicine instruments data management software and balance of clinic radiation measurement equipment will in aggregate yield a compelling solution set for.
Tom Logan: Both incumbent and emerging participants in the space.
Tom Logan: We are looking forward to unpacking our approach comprehensively at our December 3rd Investor Day event.
Tom Logan: And the radiation therapy space, we announced a strategic alliance agreement with Siemens health in years for radiation therapy solutions. We believe this agreement will extend the global reach of our Sunshine software platform via the health in Air sales Force and is further validation of our market leadership position and independent <unk> solutions.
Tom Logan: Our <unk> gross notably has been flat this year.
Tom Logan: Largely due to first half yen weakness, which negatively impacted Japanese market dynamics as well as the ongoing Chinese anti corruption campaign, which has stifled new radiation therapy clinic growth in the region.
Tom Logan: We've seen a recovery in the Japanese market in Q3, and we remain optimistic that the combination of trade compliance process and stimulus activities will improve Chinese market dynamics in 2025, the last highlight I'd like to note is around operational performance, we continue to drive hard on improving procurement strategy.
Tom Logan: <unk> and leveraging our business system to yield improvements in margins and working capital velocity and these efforts are beginning to bear fruit. The Q3 medical EBITA margin is up 50 basis points to 34, 7% versus 2023 and the technologies EBITDA margin is up 370 basis.
Tom Logan: <unk> for the same period net working capital days improved by approximately 10 since Q3 of last year. In addition, the creation of our Chief revenue Officer office, coupled with enhanced insight sales and e-commerce capabilities will enhance and standardize our commercial proficiency across both segments. We expect.
Tom Logan: To address our progress against key operational <unk> again at our Investor Conference in December.
Tom Logan: Before I turn it over to Brian to share additional.
Tom Logan: Details from the quarter I'd like to take just a moment to thank Jerry asked us to lead our Investor Relations efforts previously for a job well done over the past three years, Jerry is taking on a new role within our dosimetry business and I have no doubt that he will make as much of a positive impact there as he did during his time in IR. Thanks.
Tom Logan: With that I'll turn it over to Brian to share more of the details from the quarter right. Thank you Tom and thank you all for joining our call I'll pick back up on slide six third quarter revenue grew eight 2% versus the prior year to $206 8 million. This strong performance was driven primarily by our technologies group.
Tom Logan: Earlier power activity and strong performance from the new.
Tom Logan: Nuclear medicine organic revenue grew six 1% versus the prior year's third quarter. Our technologies group grew at a solid seven 8% organic growth rate, while the medical group delivered three 2% organic growth.
Tom Logan: Adjusted EBITDA for the quarter was $45 7 million and EBITDA margins of 22, 1%.
Tom Logan: A 180 basis point improvement versus the prior year and the fifth consecutive quarter of margin expansion.
Tom Logan: We again saw margin uplift from both of our operating groups.
Tom Logan: Italy, we brought leverage to below three times. This is a significant milestone but more work continues as we approach the end of the year, we fine tune components of our 2024 guide however, our adjusted EBITDA and EPS guidance remains unchanged I'll get into more detail shortly.
Tom Logan: Turning to slide seven our third quarter orders and backlog trends are.
Tom Logan: Our third quarter order rate declined approximately 30% versus prior year's third quarter. However, after adjusting for the two large one time nuclear orders, we booked in the third quarter last year.
Tom Logan: Total company orders actually grew 13% with nuclear power orders growing approximately 12%.
Tom Logan: Recall, we were up against the tough comp this quarter since orders grew 46% in the third quarter of 2023.
Tom Logan: As we've discussed many times approximately 75% of our nuclear power business is historically slowed from the installed base. The adjusted orders numbers I shared is a more direct comparison of the underlying order environment.
As Tom mentioned, we are extremely encouraged by the large project pipeline and robust customer engagement, we're seeing specifically in the nuclear power space.
Tom Logan: Third quarter backlog was $815 million or 2% higher versus the same quarter last year.
Tom Logan: As you will recall, we talked about approximately $30 million of orders moving out of Q2 into Q3, one of these orders the largest what's the size of our seawater announced yesterday.
Tom Logan: This order was booked in October it is not represented in the backlog or overall Q3 order performance.
Tom Logan: Turning to slide eight we delivered another solid quarter in line with our expectations. The revenue increase was driven primarily by broad based nuclear power revenue growth within our technologies group as well as double digit growth from our new nuclear medicine business.
Tom Logan: These tail winds were partially offset by softer labs and research contribution due to a tough comp in the prior year.
Tom Logan: Both gross and EBITDA margins expanded in the quarter solid operating leverage within our nuclear business and the improved performance from our French operations helped expand margins.
Tom Logan: In medical our nuclear medicine business is translating growth to margin expansion and our dosimetry business is exhibiting good operating performance.
Tom Logan: The self help initiatives, we've touched on in the past few quarters are beginning to take hold.
Tom Logan: Our strong operating culture and commitment to margin expansion is alive and well throughout the organization, we're focused on streamlining operations driving procurement savings and optimizing our operating footprint.
Tom Logan: <unk> has been made to date and I am excited about the opportunities that still lie ahead.
Tom Logan: Now, let's dig a bit deeper into the segments.
Tom Logan: First with medical on slide nine.
Tom Logan: Medical revenue grew seven 7% to $74 1 million with organic growth of three 2%.
Tom Logan: The nuclear medicine business delivered a sizable revenue contribution.
Tom Logan: All our ECB squared acquisition completed in November of 2023, and a four 4% of inorganic revenue growth.
Tom Logan: Nuclear medicine team continued to build momentum with higher volumes and a favorable contributions from the EC squared acquisition.
Tom Logan: Even absent the acquisition the nuclear medicine business grew approximately 16% in the quarter.
Tom Logan: Our <unk> business saw revenue growth. Despite continued headwinds from the anti corruption efforts in China, and the lasers closure, we announced last quarter.
Tom Logan: As we had foreshadowed Japan helped to offset these with with a solid rebound in revenue this quarter.
Tom Logan: Turning to the technologies group on Slide 10 technologies group revenue was $132 7 million or eight 4% higher versus the prior year.
Tom Logan: Margins were up 370 basis points, driven by strong operating performance across the board.
Tom Logan: Many of the headwinds from our French operations from prior quarters are behind US and are now reflecting positively in our results procurement savings and operating leverage are benefiting the quarter. It had been a good tailwind all year.
Speaker Change: Next on leverage and free cash flow on slide 11.
Speaker Change: We ended the quarter with $2 nine times leverage and expect and expect to end 2020 for around two six times based on the midpoint of our guidance assumptions.
Speaker Change: Moving below three times leverage marks a significant milestone in our capital structure journey.
Speaker Change: Adjusted free cash flow in the third quarter was $7 5 million year to date adjusted free cash flow is $11 9 million similar to this time last year. As a reminder, this metric is typically fourth quarter loaded.
Speaker Change: You can see this typical cadence and last year's adjusted free cash flow build we continue to spend a lot of time on that working capital efficiency as a team.
Speaker Change: Turning now to slide 12, we have fine tuned components of our guidance heading into year end.
With only one quarter left we have tightened the range on revenue growth to the upper bounds of our previous guidance now expected to be 6% to 7% versus our previous 5% to 7% range.
Speaker Change: <unk> revenue growth is expected to land at the top end of our previous range as well with expectations now at 5% to 6% versus our previous range of 4% to 6%.
Speaker Change: Note that the makeup for the medical group expected organic revenue growth has changed today as a result of the higher mix contribution from nuclear medicine.
Speaker Change: This higher contribution is higher contribution will yield a slightly negative impact so medical grew margins in Q4.
Also we tightened our expected adjusted free cash flow rate range to $65 million to $75 million versus a previously wider range of $65 million to $85 million.
Speaker Change: We mentioned on our August earnings call that we expected to come in on the lower end of our previous adjusted free cash flow guidance range. So this is in line.
Speaker Change: Adjusted EBITDA and adjusted EPS guidance remains unchanged at $195 million to $205 million is 37 to 42 cents per share respectively.
Speaker Change: After today's earnings call, we will be busy through year end with several investor events. We've outlined key dates on slides 13, and 14, including our Investor Day on Tuesday December 3rd in New York with that I'll ask the operator to open the lines of questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
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Ladies and gentlemen, you would wait for a moment, while we poll for questions.
Speaker Change: Yeah.
Speaker Change: The first question is from jewelry Richie Whitt.
Speaker Change: Goldman Sachs. Please go ahead.
Speaker Change: Hey, guys good morning.
Speaker Change: Hey, good morning, good morning, Joe.
Speaker Change: Yes, so many questions I'll try to I'll try to be Frank.
Speaker Change: Maybe can we just start with the de booking.
Speaker Change: You guys booked this quarter or the book this quarter.
Speaker Change: Maybe just kind of talk us through the process that you typically go through to put something into backlog and then specifically what happened with that specific order.
Speaker Change: And why would that be booked.
Speaker Change: Yeah. Joe This is Tom I'll I'll talk about the specific order and then I'll, let Brian talk about just kind of the accounting discipline about as it relates to what we book in the backlog or not.
Speaker Change: But this related to a project in Turkey, where essentially our business here is for electrical penetration assemblies.
We are working through a primary contractor that in turn is working for a larger primary contractor.
Speaker Change: Building out essentially the four reactors at this project and essentially due to a contractual dispute and I'm not going to get into the details.
Speaker Change: We lost this business on two units to a regional competitor.
Speaker Change: And our expectation is that there is a reasonable opportunity for us to get some or all of this business back because we think we are in many respects uniquely qualified not only for this project for a bunch of this product line globally.
Speaker Change: So our efforts internally are really focused on that and and as.
Speaker Change: As we look at production profiles and alike. We are focused on the work package now for the second reactor, but understand that that can be reasonably and easily pivoted to the first reactor if we can.
Speaker Change: Again, if we can gain some of that business back it's a bit of an unusual circumstance generally if you look at our history of a backlog and again the 21 years that I've been doing this it is relatively unusual to see a de booking like us but this one was narrowly tied to again a contractual dispute on the front end.
Speaker Change: We weren't talking about tobacco Joe to answer your second question I mean, we're very disciplined we're very disciplined about what we put into backlog.
Speaker Change: Yeah, we don't put unfunded things in there.
We have to have a contractual obligation where it's clear that we have that.
Speaker Change: So the backlog is is is strong.
Speaker Change: I understand you know we had two of these I guess in the last three years. The other one was obviously completely tied to a to a macro situation and nothing to do with kind of the underlying business.
Speaker Change: And we're very confident in the over $800 million, we have in the backlog and how that how that will churned about revenue EBITDA and cash.
Speaker Change: Got it got it that's all.
Speaker Change: Full color and like I wont have you.
Eric Glynn: Get into the specifics of the contract Tom, but just maybe one follow up question there.
Speaker Change: Was it a case, where you were working for a specific contractor that ended up ended up getting swapped out and Thats why you lost the business or was this more kind of like a direct relationship and now the owner Oh Okay.
Tom Logan: Yes that was really the farmer is really the former Joe.
Tom Logan: Okay, Okay, alright, great.
Speaker Change: Shifting gears you guys mentioned the size well project Yeah. That's great. It seems like that's already you're winning on this EDF relationship that you've that you've already highlighted to us previously.
Speaker Change: I want to make sure that I heard it correctly you said there was roughly $30 million that got pushed from Q2 to Q3 in orders and the vast majority of that was it was it was that contract did I hear that right.
Speaker Change: That's correct.
Speaker Change: Yeah, that's great and I think we are net.
Speaker Change: I think we and John maybe just one other thing I mean, I think there's still more to come on this contract.
Speaker Change: As the project progresses.
Speaker Change: Okay.
Great and then the time your initial comments on what the Hyperscale or some doing or obviously, there's a lot of buzz around it. It's great I think ultimately it's going to be really good for your business I guess, how do you think about that over the next 12 months and in terms of the types of announcements that you would expect.
Speaker Change: Based on based on what Youre hearing and then also like how do you think that this ultimately like impact.
Speaker Change: Your orders over the next 12 months.
Speaker Change: Yes. So our efforts are primarily over the next 12 months are focused on continuing to you know again brought on the swaths of strategic alliances strategic relationships that we forged with the relevant players in the space recognizing that there are many dozens of of <unk>.
Initiatives worldwide.
Speaker Change: And.
Speaker Change: It's a bit of a gold rush environment, right now, where ultimately there will be a consolidation and there will be fewer over time, but to be clear. We're focused on are on taking in all of the above strategy and again you know.
Speaker Change: Really extending the stance that we've always had in the nuclear industry, which is to be independent to be Swiss.
Speaker Change: Well, we'll where we support and.
Speaker Change: And integrate well with all technologies, all players and that's exactly what we're doing here, but beyond that we expect that.
Speaker Change: We will see additional funding and commitments on first of a kind S M or build outs.
Where for US the opportunity set is a combination of reactor instrumentation and control software that is principally but not exclusively focused on security systems.
Speaker Change: But that also tends to be a bit of a backbone for some of the other software opportunities that we've seen in the space and then downstream from that Theres more balance of plant stuff in and around health.
Speaker Change: Health physics applications, dosimetry contamination clearer clearance equivalent and alike, but we'd expect that early on the biggest action will be in and around reactor instrumentation and control and software.
Speaker Change: Got it that's super helpful. If I could ask one more question and I'll turn it over to everybody else out there.
I met with one of your competitors in the radio pharmacy space recently.
Speaker Change: It seems like you know what there is there seems to be a very healthy growth outlook for that business going forward. I think you mentioned your business being up 18% versus 2023.
Speaker Change: How do you think about the long term opportunity in this business can kind of keep this like mid to high teens type growth rate going forward and just just any I know, you'll I know you'll get into this a lot more on December 3rd, but just any any any comments around that would be helpful.
Speaker Change: Yeah, just as a bit of a tease we we really do believe that the what's happening in radiopharmaceutical therapy as a revolution in cancer care, and we think it's going to be tremendously beneficial.
Speaker Change: For for that market for the individuals that are impacted by this terrible disease.
Speaker Change: And if you look at it any leading indicator maybe the best one is to look at what's in the FDA approval pipeline for their fair enough stick drugs in terms of phase one phase two and phase three trials.
And it's an incredibly robust pipeline.
Speaker Change: Hum you know really is reflective of the heavy investment that's taking place in the sector.
Speaker Change: And you've seen the numbers put out by others like GE about he projected exponential growth of this market and we think that's real and it's.
Speaker Change: Hard to pick a true a revenue CAGR for the industry overall, but to understand that a lot of that topline.
Speaker Change: Topline growth was driven by very very expensive drugs that are 50000 or per dose 250000 per course of therapy today, obviously that will come down.
Speaker Change: But we do expect that there will be sizable volumetric growth, even greater revenue growth in the space.
Speaker Change: And our focus is to take our really our unique data management platform understanding that today, we're the leading provider of data management software in the American market.
Speaker Change: Where we connect the drugmakers the isotope producers the contract manufacturers the research organizations.
The radio pharmacies, the clinicians and ultimately the patient and have really kind of a unique perch in the data flows through this market that in combination with the fact that we're the global leader and in critical instruments that are used for calibration and measuring uptake of radar.
Speaker Change: Pharmaceuticals, and further augmented by you know just kind of our baseline capabilities in radiation detection and measurement gives us the ability to create a very interesting and compelling ecosystem.
Speaker Change: Where ultimately over time, we expect the value of the data that flows through there to become a arguably even more important than the capital equipment revenue and to your point, yes, we're going to unpack this in detail.
Our investor events and will save any you know update on guidance at that time, but I will tell you that I am I'm very excited about this market overall and specifically what we're doing.
Speaker Change: Great. Thank you guys.
Speaker Change: Thanks, Joe.
Speaker Change: Thank you.
The next question is from Chris Moore with CJS Securities. Please go ahead.
Chris Moore: Hey, good morning, guys. Thanks for taking a couple yeah I think Tom during the.
Chris Moore: Prepared remarks, he talked about I think $300 million to $400 million in new bids that you here by the end of the year, just trying to get a sense of the average size of these deals.
Speaker Change: Yeah, I mean, they're all over the all of the Mab, Chris, but what I will tell you firstly just.
Speaker Change: To be clear on what I said I said in our active bid Q, meaning deals that we've already bid on or are in the process of bidding on.
Speaker Change: For large projects, we see in aggregate quantum of $3 million to $400 million the scales. All over the board and then these are deals that range from at the top end about 100 million to to well below that.
Speaker Change: Heavy heavy concentration in the nuclear industry, but not exclusively there, but the main takeaway. There is I know there's been some obvious focus on our on our backlog trends. The fact that were off only nominally year over year and just how that correlates with the overall growth of the business and so we tried very.
Speaker Change: Hard in the presentation and to a degree in the commentary that I had really kind of unpack that and show.
Speaker Change: How importantly revenue is driven.
Speaker Change: To a far greater degree by the flow of business. The recurring revenue that we enjoy and I think we've called out pretty clearly what the dynamics are there, but having said all of that I will tell you that those $3 million to $400 million in our large project bid pipeline is an unusually large amount that is not typical this is not what we would.
Speaker Change: You know, we would see it as kind of a standard or in range at a given moment of time, it's very exciting to us we're very encouraged by it and that's how we think about just to be clear, we think that could trade between now and the end of 2020, yes. Good point.
Speaker Change: Gotcha, that's helpful. I appreciate that.
Speaker Change: Maybe switching gears just leverages is in good shape, you talked about 2.6 by the end of the year.
Speaker Change: You know kind of your thoughts on on M&A at this point in time is the pipeline you know relatively full and anything any specific areas, where you're focused on.
Speaker Change: Yes.
As you noted Chris we've got a great M&A pipeline, we continue to actively develop a very high quality executable deals we do not expect to.
Speaker Change: Yeah close any M&A deals in the remainder of the quarter you know again as Brian noted, we're very eager to continue to bring leverage down into what we feel is like.
As a more normative.
Equilibrium than kind of the mid two range, but having said that we see some some smaller deals that would strategically be very important.
In terms of some of the ecosystems that we're trying to build out not just on the medical side, but on the on the technology side as well and we expect that we will we will be active in M&A next year don't expect to do anything.
Speaker Change:
Speaker Change: Beyond kind of the small balls on though we've been focused on just based on what we see today, obviously that could change but that continues to be our posture.
Perfect I'll leave it there thanks guys.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you.
The next question is from Andy.
Speaker Change: <unk> with Citigroup. Please go ahead.
Good morning, everyone.
Andy: Good morning, Ed.
Andy: Tom or Brian I think your previous guidance regarding backlog was that you could reach flattish to year end 'twenty three by the end of this year.
Still what you're thinking or what the additional sizable C and maybe some incremental activity given the seven around nuclear you could even grow backlog year over year in Q4, and then the $3 million to $400 million of large new nuclear projects. You mentioned can you give us a bit more color regarding the geographies and market share expectations that you have for the pipeline.
Yes, maybe I'll take the first one Tom can give some color on the second look first off.
Andy: Size, what was always in the deal flow for this year. So it's not like a bluebird that we weren't expecting I think the timing for us just shifted a little bit between candidly in Q2.
Until we we booked it in Q4.
Yeah, I said at the end of life or at the end of last quarter I thought we could get to flattish. Yes that was we were not expecting the AR the acuity headwind from an orders front I do think when we look when we get to February and look back on December.
Andy: We will be in the zone of flattish I think there are opportunities to.
Be ahead for sure, but I think we have a lot of work to do to get from here to there. So.
I think that's a little bit of a I understand that's probably a little bit more of a squishy answer but I think.
At the end of the day I do think we're still in the zone of being flattish and I think theres opportunity.
And then Andy on the in terms of the composition of geographically I would tell you that the center of gravity is in the U S. So more than half.
Of that total quantum that we are we talked about even at the upper end of the range would accrue from from U S.
Andy: <unk> opportunity is the the balance is kind of split a lot and a lot on Europe, a little bit on the.
Andy: The Arab Gulf region.
So it's a it's a bit more diversified.
It's helpful and maybe I want to ask Joe's question in a slightly different way. He asked about the next 12 months like if I look at your commercial nuclear revenue growth forecast you've raised it this year to high single digits.
But does the excitement around commercial nuclear actually support that high single digit run rate.
Last thing obviously, you know what we know when your dispatch you went a lot lower forecast than that so maybe any comments on that you can sustain this kind of run rate that you had in 'twenty four moving forward, Yes, I would say three things Andy want us and we will talk about this in detail at the Investor day, but again just to.
Andy: A bit of a ts to that overall.
Talking about two things that have changed a lot since we initially set that guidance during the the dis backing one is the overall health of the nuclear industry. This is the most important factor Barnum.
And fundamentally like in any other industry when operators are making money then they tend to be a little bit more free spending on capex and opex.
A decade ago, most of the nuclear operators globally, we're losing money today.
They're all making money and you even see some truly extraordinary turnarounds, none more so than EDF in France, which has always been one of our leading customers where last year. They are they had a very tough year. This year, they're doing extraordinarily well and this also creates an incentive.
Andy: On the baseline of just having better financial resources.
The what's happening today is because of the favorable dynamics in terms of operating margin that the operators are enjoying they want to run the reactors hotter, meaning at higher capacity factors than what our life extend them and in certain cases, they want to operate at capacity and all of those things are beneficial.
For us and have not.
Not only kind of a long term bearing but also impact the cadence of replacement cycles for certain product categories.
Andy: And just kind of the broader demands for services and software within the within the industry. So.
First point there is that the industry has is considerably healthier than it was three years ago, when when we lease backed in and had our public debut.
Andy: And again, we're going to talk about.
What we think that means longer term at the December event, but to be clear. It's a good thing. It's a very healthy for the market is very healthy for us the second thing that's different.
Andy: What's happening in the <unk> World, where you know you've heard US say many times before that we think this is really kind of a.
20, <unk> phenomenon before we start seeing a material ramp in revenue.
All of this discussion about hyperscale or it's.
It's not just trough, it's it's it's it's real it's robust.
Andy: And it's reflective of a almost a desperate demand for clean energy and what's interesting with this group is that they have a far greater willingness to embrace fourth generation technology.
Tableau bed technology, the sodium cooled or moderated or high temperature gas called variance of small modular reactors, rather than you know kind of legacy third generation.
Andy: Lightwater reactors that are downsides.
You know viewing these upstart firms as being kind of like Spacex firms that can can leapfrog some of the legacy players and get to a position of credible scalability more rapidly than people previously believed.
And we think to a degree that that is again kind of changing the game and perhaps accelerating the time frame because the.
The demand could not be more clear.
And the activity is as significant right now.
So it does cause us to be more bullish on the sector are more ambitious about the timeframe.
And again, we'll talk more about this in December just to just to kind of tease you on Investor day.
Tom I just wanted to ask you one more question about the de booking in the past you said it was unusual which I agree with in the past we've seen one or two of these have been as a result of geopolitical conditions changing or maybe new sanctions.
Andy: The turnkey de booking of anything to do with that or was it just purely competitive.
No in essence, there's only one that was geopolitical in nature and that was the loss of the finish.
Projects, they use Russian technology that occurred in our debut year as a public company and that was that was kind of a gut.
Got punch for us because it's a great project.
Andy: Positioned to be kind of ratably recognized in our first year as a public company that clearly was geopolitically driven.
In terms of what we've seen since then.
Andy: The other day bookings related to military idea IQ business, which we no longer book in the backlog because it's.
Andy: Because of the ephemeral nature of some of them.
Andy: And the specific project, which was purely a contractual matter and again.
Andy: We like our odds of getting some or all of us are back overall so.
It's not a part of a broader geopolitical exposure, but I would note that.
You know when we look ahead at the election next week that could have implications for the rapidity with which the Ukraine wawrow subtle.
And that if there is a settlement near term.
Meaning in 2025.
That would be a significantly beneficial event for us if it if coupled with that is kind of a general rat pro small between Russia, and the west are reopening of Russian markets, an opportunity to comment to the Ukraine market and help rebuild the nuclear infrastructure.
Speaker Change: Sure there.
It would be a very very beneficial event for the industry overall and for us.
In terms of Russian market, it would not only be.
On the nuclear side, but also the medical side.
Really the biggest kind of geopolitical.
Potential event that we see in the near term.
Helpful. Thank you.
Speaker Change: Thank you.
The next question is from the line of <unk> <unk> with B Riley Securities. Please go ahead.
Good morning, Tom or Brian Congrats I'll go to corner.
Speaker Change: Hi, good morning.
Thank you for taking our questions regarding last first question around the backlog dynamics, maybe two parts first can you. Please break down the backlog by segment as we are curious about the patent backlog for technologies as well.
Speaker Change: Medical side.
The technology side have more recurring revenue and then on the medical side, Yeah more short term oriented.
Speaker Change: Yeah, Yeah, yeah. So I'll take that look the backlogs 70, 525, and I think we've said that before 75%.
Technology is 25% medical so there is there's a significant piece that's medical.
I don't I don't think anything has changed.
Speaker Change: I don't think anything has changed from how we think about backlog rolling into revenue.
We've always said, 45% to 50% of the next 12 months revenue is sitting in backlog.
We probably right now are kind of at the midpoint to high end of that range as we think about the future.
Speaker Change: Going forward.
Speaker Change: Yes, it's true that.
Jordi of the revenue on the medical side kind of is more book and Bill.
I'd remind you that 25% of that business is also just said Mr services and very little of that actually sits in the backlog, they're evergreen kind of recurring revenue contracts deferred revenue components et cetera. So.
That's a much more kind of faster churn business, but also has a very high repeat contact.
So that's that's kind of how we think about it.
I said I think we really like where we're sitting right now.
Got it probably will have a color to my second question I will pivot to the relationship with EDF can you provide more color all the all of this related to shape and the housing do you elaborated the relationship took out the size well see a contract maybe easier.
Speaker Change: An example to show how would you kind of leverage either thing that our relationships are kind of more <unk> or more orders.
Yeah. The EDF relationship is a very important one for us. They are they are the largest operator of outside.
Outside of China of nuclear power plants globally with nearly 60 reactors.
Under operation and they've made it very clear and they print a French president Emmanuel Macron has been very clear that our France, we'd like to build up to an additional 14 nuclear reactors in country.
Speaker Change: And and continue to be very active on the export markets with the specifics around the size of all deal is that that was really a follow on to the work that we did at Hinkley point C, which we've talked about before as being a project, where we booked on the front end more than $80 million in backlog.
You know tied into again instrumentation and control things like electrical penetration assemblies, various health physics applications etcetera, so side as well as really a follow on to that.
And importantly, you may recall that we announced a strategic relationship or a strategic a frame agreement with EDF a couple of months ago. This falls outside of that meaning that we had begun the work in the negotiation on size well independent.
Speaker Change: That strategic frame agreement with EDF, but on that point, the very nature of the strategic frame agreement.
Speaker Change: Is.
That we effectively become a sole source supplier of a significant mix of overall content to be used in ETF.
Epr's there their third generation plus reactor technology, and we expect that it could cover up to 20 reactors are those in France. Those are that are associated with export activities.
Over the next two decades or so the advantage of that is that again everything is in terms of the terms and conditions are economic parameters et cetera are pre negotiated and it makes it a far more efficient.
Speaker Change: Speeds.
The overall process of building a new reactor for ETF, and we're thrilled and honored to have that relationship with them.
Got it thanks for the additional color.
Speaker Change: Yeah.
Thank you.
Speaker Change: There are no further questions I would now like to hand, the conference over to Tom Logan for closing comments.
I will end today, firstly by thanking the team for delivering a truly great quarter thinking all participants for listening in today and particularly the Q&A that we received I just want to reiterate that again when you look at the dynamics impacting the company right now that.
Tom Logan: We are fortunate.
Speaker Change: Two to have a what we believe will be very robust and sustainable tail ones and there are two key vertical markets and as noted we're working very very hard to continue to evolve and improve our positioning in those I believe the company is executing well we've demonstrated that through through a variety of measures.
Including margin expansion improvements in working capital velocity and some other measures.
Speaker Change: And again, noting that so that we.
Understanding that our worst.
Still relatively young public company and people are trying to understand the correlation between our backlog dynamics and and and topline growth revenue coverage and alike.
No today, we we provided more detail in and around how that works in our you know our our outlook overall for backlog growth, which is bullish but fundamentally.
How are the demand drivers, particularly as we look at MTM growth.
Really go well beyond the overall backlog metrics. So hopefully we are we advanced understanding there a little bit we feel good about our positioning.
Speaker Change: Again happy about the the quarterly performance the outlook and we appreciate your time and attention today. So thank you for all all of that and we'll look forward to speaking with you.
Speaker Change: In the next quarter.
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: [music].