Q1 2025 Mirion Technologies Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the median technologies first quarter 2025 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 call. Please signal do you breakout by pressing star and Seattle on the telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Eric Glynn VP of Investor Relations. Please go ahead.
Okay.
Speaker Change: Thank you Ryan and good morning, and welcome to <unk> first quarter 2025 earnings conference call joining.
Speaker Change: Joining me this morning are Marion's, chairman and CEO, Tom Logan and myriad CFO, Brian shopper.
Speaker Change: 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.
Speaker Change: Factors that could cause actual results to differ are discussed in our annual reports on Form 10-K.
Speaker Change: Quarterly reports on Form 10-Q, and in myriad other SEC filings under the caption risk factors.
Speaker Change: Quarterly references within todays discussion.
Speaker Change: A related to the first quarter ended March 31, 2025, unless otherwise noted.
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 earnings materials can be found in the Investor Relations section of our website at Www Dot mirror on Dot com.
With that let me turn the call to Tom who will begin on slide three alright. Thank you and thank you to everyone on today's call for joining us and most importantly, thank you to my nearly 3000 maryann colleagues for delivering a big quarter, we're off to a great start in 2024.
Speaker Change: Hitting our marks both financially and operationally. This is most clearly reflected in our first quarter adjusted free cash flow and order growth we have.
Speaker Change: Delivered $29 million of adjusted free cash flow, a 62% conversion of adjusted EBITDA. In addition, first quarter orders grew 11, 5% driven largely by nuclear power orders. This is our best first quarter performance since going public and I'll share more details with you momentarily.
Speaker Change: As you may have seen in this morning's press release, we acquired a small software business called uncle space Arco space as a cloud native data analytics platform that enables clinicians to confidently design and optimal patient plan for radiation oncology consistently promote best practice behavior and share a peer to peer expert.
Speaker Change: The software is a great addition to our cancer care portfolio and is expected to enhance our go to market strategy. This acquisition is small, but significant small and initial revenue and adjusted EBITDA contribution, but significant in its potential to catalyze the growth in our radiation therapy software business I'm excited.
Marriott: Welcome to the Aimco space team to Marriott.
Marriott: This transaction the M&A deal pipeline remains attractive, but as you would expect today's uncertain market dynamics have clouded valuations and execute a villa as a result, we're remaining disciplined with a patient view of likely activity by euro.
Marriott: Let's get into the details now beginning with first quarter performance on slide four.
Marriott: First quarter organic revenue grew 6% versus the same period last year aided by double digit revenue growth from the nuclear power end market first quarter, adjusted EBITDA totaled $47 million or 18, 2% higher than last year's first quarter.
Marriott: Margins also increased 260 basis points to 23, 1% improvement reflects strong operating leverage and procurement six key components of our pathway to 30 point adjusted EBITDA margins by 2028 is committed to at our December Investor Day, We also repurchased one 2 million shares.
Marriott: In the quarter for $18 6 million as part of our capital deployment strategy outlined in December adjust.
Marriott: Adjusted EPS in the quarter was 10 cents per share compared to <unk> <unk> per share in the first quarter, 2024% to 67% interests as mentioned in my opening comments. The two standout elements for the quarter were adjusted free cash flow and orders Q1 orders are particularly encouraging given that this is typically our lightest.
Marriott: During the quarter importantly, this order summer does not account for any of the $3 million to $400 million of large onetime opportunities that are currently in the pipeline, while global government budget dynamics of likely length embedding cycles, we remain optimistic about our prospects for these contracts and as mentioned last quarter, we think the three to four.
Marriott: $9 sizing may be conservative it is worth noting we've not lost any of these projects. The strong orders nuclear power just another proof point of the momentum building in this market.
Marriott: Meaningly on a weekly basis, we see and hear affirmation that nuclear is a critically important component of the solution to the growing supply demand imbalance in the global electricity market.
Marriott: This view is increasingly reflected in the public consciousness the.
Marriott: The 'twenty 'twenty four national nuclear energy public opinion survey shows that more than 75% of Americans support the use of nuclear energy.
Marriott: A record level for the fourth consecutive year I personally seeing growing bipartisan political support for nuclear energy in the U S. Last month I visited Washington D. C for a lobbying trip during the trip I spend time with legislators and regulators overseeing the nuclear industry I can confidently say that support for nuclear power as the high.
Just I've seen in my career and my sense of optimism strongly correlates to that dynamic now zooming out a bit to talk about <unk> resilient business model on slide five.
Marriott: Given today's uncertain economic backdrop. It is important to remind investors why we believe we are well positioned to diversity unpredictable road that lies ahead first it begins with the customer maryann as a trusted partner to our global customer base in most instances our safety critical solutions for compulsory for customer.
Marriott: We are a leader in 17 of the 19 major product categories, we serve and define ourselves as a category want the leading player in the detection measurement and analysis of ionizing radiation. This is all that we do and we're better at this than anybody in the world.
Marriott: We've also proven the resilience of our financial performance by consistently delivering organic growth and consistently outperforming our peer set on a through cycle basis more than 70% of our revenue is recurring a repeat in Asia also approximately 80% of our nuclear power based revenue is tied to the installed base.
Marriott: This was evident in our first quarter orders were 79% of the year over year nuclear power order growth came from the existing nuclear fleet importantly, structural tailwind from nuclear power in cancer care have us better positioned today versus previous cycles. We are highly levered to two generational trends that should be robust.
Marriott: Beyond structural tailwind our path to future value creation is predicated on established self help initiatives, including operating leverage procurement savings and our proven maryann business system.
Marriott: Our business system has been central to our operating activities for more than 15 years and informs everything we do from the C suite to the shop floor one.
Marriott: One of the factors, helping to mitigate potential tariff impacts is the regionalized supply chain. We've established this is table stakes for us and our local for local business model has us well positioned in today's macroeconomic environment. The benefits of this regional supply chain or better illustrated on slide six where we detail the expected.
Marriott: The tariff exposure based upon what we know today as mentioned, we believe we are well positioned to weather the tariff storm impact more broadly we have a deep stack of mitigating actions to diffuse our modest net exposure not surprisingly China accounts for the largest exposure between a $7 million to $9 million headwind for 2012.
Marriott: Five this is largely attributable the medical segment products that have historically been produced in the U S and sold into China note. The majority of nuclear safety segment goods that we sell into China originate from Europe, and therefore, not subject to today's retaliatory tariffs placed on U S goods outside of China. The 2025.
Marriott: <unk> exposure is minimal at a $3 million to $4 million headwind. We are currently evaluating ways to reduce this exposure moving forward.
Marriott: Of note we've learned in the last 24 hours that a plurality potentially a majority of our product said may be exempt from the higher Chinese retaliatory tariffs if true this would position us at the upper end of our mitigating strategies.
Marriott: I caution here that the situation is extraordinarily dynamic and is likely to take some time to stabilize mitigating actions totaling $5 million to $8 million include alternative sourcing strategies production shifts price increases and cost management.
Marriott: Lastly, prevailing foreign exchange represents an additional tailwind upwards of $5 million of current rates to help offset the potential impact from tariffs taken together, our net impact to 2025 adjusted EBITDA from today's known tariff rates plus the offsets from mitigating actions and FX it's between.
Marriott: <unk> $3 million tailwind and an $8 million headwind with the $8 million had one representing a worst case scenario again based upon what we know today as a result, you saw in yesterday's press release that we are reaffirming our full year 2025 organic revenue growth target adjusted EBITDA adjusted EPS and <unk>.
Marriott: Adjusted free cash flow guidance, while increasing our topline revenue growth and revising the corresponding low end of adjusted EBITDA margin guidance to account for the unknown tariff impacts we remain confident in our value creation strategy and well positioned for the evolving landscape, Brian will share additional details around our 2002.
Tom Logan: 25 guidance as well as share additional color on our first quarter per perf performance, Brian. Thanks, Tom.
Brian Shopper: And good morning, everyone.
Brian Shopper: Let's pivot to the first quarter financials now on slide seven.
Brian Shopper: As Tom stated first quarter orders grew 11, 5% compared to the first quarter 2024.
Brian Shopper: Driven by disproportionate demands from the installed base of nuclear reactors.
Brian Shopper: Additionally, we received a $5 million labs and research water, reflecting continued engagement from the department of energy.
Brian Shopper: Meanwhile, in our medical segment orders declined in the quarter. This was anticipated as recurring dosimetry services order. They usually appears in the first quarter was booked in the fourth quarter 2024.
Brian Shopper: Offsetting this we saw our RT QA business delivered strong order growth in the quarter of approximately 12%.
Brian Shopper: First quarter order performance is particularly encouraging because it highlights the continued demand from the nuclear power installed base.
Brian Shopper: Moving to the financial results on slide eight first quarter Enterprise revenue was 202, million% to 4.9% better than first quarter 2024.
Brian Shopper: Organic revenue growth was 6% with both reporting segments contributing to the year over year improvement.
Brian Shopper: This was partially offset by approximately 110 basis points of FX headwinds, we expect the foreign exchange rate headwind to improve for the remainder of the 2020 of 2025 driven by the weaker dollar.
Brian Shopper: Adjusted EBITDA in the first quarter was $46 7 million $7 $2 million or 18% better than the first quarter 2020 for.
Brian Shopper: This strong performance translated to 23, 1% adjusted EBITDA margins or a 260 basis point year over year improvement.
Brian Shopper: Margin improvement reflects the high operating leverage in our business as well as procurement and marine business system initiatives underway adjusted.
Brian Shopper: Adjusted EPS totaled <unk> 10 per share an increase of four cents per share or 67, or 67% versus first quarter 'twenty 'twenty four.
Brian Shopper: Moving to the segments beginning on slide nine.
Within our nuclear safety segment first quarter revenue totaled $133 4 million $7 6 million or 6% better than first quarter 2020 for organic revenue increased seven 6% in line with the targeted full year mid single digit plus organic revenue growth we unveiled in February we.
Brian Shopper: We saw continued strength across the segment, particularly from nuclear power, which grew 17, 6% both from the current installed base, but also for new builds we continue.
Brian Shopper: You need to expect a full year to represent high single digit growth in the nuclear power end market.
Brian Shopper: Our sensors business, which incorporates in core and X core radiation detectors and electrical penetrations delivered strong revenue in the quarter within the nuclear power end market.
Brian Shopper: Offsetting this strength was a reduction in our labs and research business down approximately 19% in the quarter. Two drivers first we're comping, 15% growth in 2024 and this quarter. In this end market second this is where we may be seeing some limited impact from dose either from timing or enhanced contractual scrutiny.
Brian Shopper: Regardless labs, and research and defense and diversify its tend to be lumpier and more varied on a quarter to quarter basis.
Brian Shopper: As a reminder, within our nuclear safety segment, the nuclear power end market accounts for approximately 60% of the segment's revenue, while labs and research and defense and Diversifies, our 20% each.
Brian Shopper: Nuclear and safety segment first quarter, adjusted EBITDA was $39 2 million $6 1 million or 18, 4% better than the first quarter 2024.
Brian Shopper: Adjusted EBITDA margins improved 310 basis points to 29, 4% driven by operating leverage and ongoing procurement and marine business system initiatives.
Brian Shopper: Recall, we are streamlining our procurement process to drive efficiencies and to leverage our scale to improve cost and working capital performance.
Brian Shopper: These efforts are increasingly reflected in our results with more to come over the coming quarters.
Brian Shopper: Moving to the medical segment on slide 10.
Brian Shopper: Medical segment first quarter revenue totaled $68 6 million or $1 8 million or two 7% better than the first quarter 2024.
Brian Shopper: Organic revenue was 3%.
Brian Shopper: The nuclear medicine end market was the primary contributing factor to first quarter revenue growth, notably, even if we normalize for the ERP implementation in nuclear medicine. During the first quarter of 2020 for the business still would have grown double digits.
Brian Shopper: Several extraordinary items resulted in a $1 million revenue headwind for this segment in the court. These.
Brian Shopper: These include the previously announced closure of our lasers business in 2024 that is still reflected in the first quarter of 2024 results, China was down approximately $2 million in revenue versus the first quarter last year and the net effect of two ERP system installations, one in the first quarter of 'twenty four and the other in the first quarter of 'twenty five.
If you exclude this 1 million headwind or normalized for it organic revenue would have been approximately four 5% and approaching our targeted mid single digit full year organic growth target.
Brian Shopper: We are encouraged by the good order growth we saw in Q1 in our RT QA business. It continued to enjoy backlog in our nuclear medicine business.
Brian Shopper: Medical segment first quarter, adjusted EBITDA was $23 2 million $2 7 million or 13, 2% better than first quarter 2024 medic.
Brian Shopper: Medical segment adjusted EBITDA margins also improved by 310 basis points to 33, 8% comparable which reflects the absence of the nuclear medicine, the ERP system implementation headwind from last year.
Brian Shopper: Another highlight for the quarter was adjusted free cash flow shown on slide 11.
Brian Shopper: We delivered $29 million of adjusted free cash flow or 62% conversion of adjusted EBITDA.
Brian Shopper: This not only reflects our improved earnings profile, but also networking capital improvement from project cash timing and better DSO.
Brian Shopper: Better net cash interest expense and a focus on more efficient capex.
Brian Shopper: For example, capex improved by $4 million versus last year as we lapped a significant launch investments and are instead octu dosimetry badge.
Brian Shopper: We remain committed to the 18% reduction in Capex for the full year 2025 from 2024.
Brian Shopper: Although not on this slide we also did repurchased one 2 million shares as part of the 100 million share repurchase plan, we put in place in December.
Brian Shopper: The program is principally intended to mitigate the dilutive impact of shares issued under the company's 2021 omnibus incentive plan it to provide management with capital structure flexibility.
Brian Shopper: This leads nicely into our full year guidance outlined on slide 12 as mentioned, we're maintaining our organic revenue growth adjusted EBITDA adjusted EPS and adjusted free cash flow guidance.
Brian Shopper: Despite the puts and takes of potential tariff impacts mitigating factors and updated foreign exchange rates, our initial guidance Youre still holds.
Brian Shopper: We're revising total revenue higher to account for the emerging tailwind from FX at quarter end rates recognizing that the dollar has fallen a bit further since quarter end.
Brian Shopper: You can see the potential impact of current trading ranges on a tariff analysis.
Brian Shopper: As a reminder, total revenue growth is now between five and 7% better than our initial guidance of between four and 6%.
Brian Shopper: This still includes an approximately 40 basis point foreign exchange headwind at a one dollar and a euro to USD.
Brian Shopper: Other than the 190 basis point headwind from our previous guidance.
Brian Shopper: The biggest FX driver is our is.
Brian Shopper: As our update from assumed $1 four euro to USD rate to $1 eight at the end of March adjusted.
Brian Shopper: Adjusted EBITDA is still expected to land between 215 $230 million. However, the low end of adjusted EBITDA margin was slightly tweaked to incorporate the new revenue guidance and to recognize there may be some margin leakage due to tariffs.
Brian Shopper: We are sticking to our adjusted free cash flow guide recognizing that we got off to a strong start in Q1 from where we sit today the second quarter will be our lightest cash flow quarter of the year, mainly driven by timing of cash tax payments and net working capital being a seasonal use of cash.
Brian Shopper: It is worth reminding everyone that the midpoint of full year adjusted free cash flow guidance is a 50% increase year over year.
Brian Shopper: Adjusted EPS guidance of between 45, and 50 <unk> remains intact and assumes an effective tax rate of between 25, and 27% down from 2020 for cash taxes of approximately $40 million and an average share count of approximately 227 million shares all are unchanged.
Brian Shopper: Remember the 2025 share count increase versus 2024, reflecting the founder shares vesting in the fourth quarter and the taking out of the warrants in the second quarter. This.
Brian Shopper: This is a five cents per share headwind to our adjusted EPS guidance to 2025 due to these two factors.
Brian Shopper: While we are confident in our full year guide what set some margin expectations for Q2, we expect medical margins to be up year over year, but slightly less than they were up in the first quarter.
Brian Shopper: Any tariff impacts on the medical segment will be more backend weighted in the year.
Brian Shopper: On the nuclear safety side, we expect flattish <unk> margins year over year due to mix and timing around tariff mitigation plans, we are expecting to see some revenue move from Q2 to Q3 in this segment as we implement tariff mitigation strategies.
Tom Logan: During with Tom's earlier comments I remain enthusiastic for the financial and operating performance of the business. We're off to a strong start in 2025 and are making great progress towards our 2028 financial targets with that I'll turn it back to the operator to open the line for questions.
Brian Shopper: Thank you.
Speaker Change: Ladies and gentlemen, even in I'll begin the question and answer session.
Speaker Change: If you would like to ask a question. Please press star and one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Rob Mason from Baird. Please go ahead.
Rob Mason: Oh, yes, good morning.
Speaker Change: Tom Your commentary I mean, I know this is developing.
Rob Mason: Situation, but yes what.
Rob Mason: What youre seeing on the ground there in China around the tariffs potential reprieve.
Rob Mason: Around that can you elaborate a little more on just what would be driving that when you might think you would have some more clarity on it.
Speaker Change: Yeah, Rob good morning, just to.
Rob Mason: Reiterate a couple of comments that I've made firstly that most of our exposure today comes from med.
Rob Mason: Medical equipment produced in the U S predominantly radiation therapy equipment, but some nuclear medicine equipment that then is shipped to China. It's obviously, a very dynamic situation and the landscape is changing but what we are learning is that.
Rob Mason: There are three or four classification codes under which our products are shipped.
Rob Mason: Where there is an emerging body of thought and evidence that there'll be exempt from the.
Rob Mason: The retaliatory tariffs with a likelihood that there will still be a 20% baseline tariff.
Rob Mason: But to the extent, we can prove this out and and it is in fact validated obviously that would be that would be of great benefit to us and.
Rob Mason: And change.
Rob Mason: Change our view of bit on the aggregate range of that tariff net tariff exposure.
Rob Mason: Charley sure.
Rob Mason: Just as a follow up as well again order numbers look really strong.
Rob Mason: Absent.
Speaker Change: Any any influence from the $300 million to $400 million.
Speaker Change: That were referencing frequently just you did mention some potential exposure there to government procurement process in that envelope.
Speaker Change: That you can quantify that and what your what would you.
Speaker Change: You actually see what percent is exposed him.
Speaker Change: Where that's coming from what Youre seeing.
Speaker Change: Yes, it's a bit challenging around recognizing that the pipeline that we've referenced is a combination of government and commercial projects overall.
Speaker Change: And scattered around the globe. So this is not all about those are not all about U S government dynamics, but we clearly have a confirmation bias, where we are looking for evidence that dose related activities are having some impact on these <unk> or other just kind of routine.
Speaker Change: Slow government business and to date, we're really not seeing it absent the commentary that Brian made that there may be some evidence that some of the.
Speaker Change: Some of the tablet order dynamics and labs, maybe theoretically related the Dodge, but beyond that we're not seeing any of that we are we are actively looking for it but.
Speaker Change: But to be clear, we're not hearing any commentary from from.
Speaker Change: The program managers.
Speaker Change: These government funded projects.
Speaker Change: It continues to be a a relatively constructive environment for us.
Speaker Change: But obviously, we're being quite vigilant.
Speaker Change: Monitoring any changes and any flow through.
Speaker Change: Okay.
Speaker Change: Maybe just if I could sneak one quick one in.
Speaker Change: You're talking about almost weekly occurrence of news flow around nuclear power.
Speaker Change: Japan recently talk about restarting a reactor you just update us on what your Japan exposure might be.
Speaker Change: The Japanese exposure.
Speaker Change: Is relatively minimal as well as it relates to their nuclear industry you know in aggregate it's.
Speaker Change: It's just under 2% of our total revenue.
Speaker Change: But much of that relates to our scientific instruments, some medical exposure medical market exposure et cetera, and this is because historically within Japan. There has been a very tightly bound keiretsu network.
Speaker Change: Supporting the nuclear fleet really supporting the nuclear infrastructure I will say.
Speaker Change: We've chipped away at this.
Speaker Change: And increasingly.
Speaker Change: Our being what I would characterize as more assertive in that marketplace. So it is a marketplace that represents upside opportunity for us.
Speaker Change: And the parts of what you stated you know really reflects not only the continued momentum in Japan to restart.
Speaker Change: A significant tranche of their idle nuclear base.
Speaker Change: But also the desire to want to do more to take it further and so.
Speaker Change: Again, we see that more as upside then.
Speaker Change: Than anything else.
Speaker Change: Very good thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Joe Ritchie from Goldman Sachs. Please go ahead.
Speaker Change: Thank you and good morning, everybody.
Speaker Change: Hey, Joe.
Speaker Change: Hey, guys. So I'm just curious it looks nice start to the year great to see orders.
Speaker Change: Just on that $300 million to $400 million pipeline, I think kind of like the expectation was that you'd see like the vast majority of.
Speaker Change: Those decisions being made some time like in 2025.
Speaker Change: Has the timeline on that shifted at all just given the current backdrop and then and then also are we.
Speaker Change: This is just like a handful of projects or like any anything you can tell us about like kind of like the sizing.
Speaker Change: These are these projects that are out there.
Speaker Change: Yes so.
Speaker Change: In aggregate, we hold the view that a majority of these these contracts will be awarded within calendar year 2025, obviously reserving for the possibility that there may be some spillage into our into the back end of the year in aggregate. These are these are projects that we would define as being.
Speaker Change: Notably larger than what we would typically expect in our flow business. So typically that would mean in <unk> and.
Speaker Change: An eight figure or higher handle on the <unk> on the deal overall and again as we've noted previously.
Speaker Change: Mix of nuclear and other projects U S and international in scope, Brian anything you want to add to that but no I would just say.
Speaker Change: Where we've seen maybe a few things move to the right maybe out of the 25 I think we've seen Kendall with more staff.
Speaker Change: Dropping to the pipeline and twenty-five our commentary in the last two quarters has been yes, we hold the range, but we see kind of more.
Speaker Change: More in the funnel than than that.
Speaker Change: We did not have any expectations to close anything in the first quarter.
Speaker Change: So.
Speaker Change: To date I think I would tell you we're looked pretty on track.
Speaker Change: Okay, Great and then.
Speaker Change: Helpful to get some color.
Speaker Change: So thank you for that.
Speaker Change: Curious like it seems like you're already starting to see some of the benefit from your procurement savings and the <unk>.
Speaker Change: Incremental margins this quarter were really good in both segments.
Speaker Change: Just maybe kind of help me understand like I know, we have the color for the second quarter, but for the second half of the year.
Should we be expecting then incremental margins on your volume could be.
Speaker Change: Better than what you have historically said so in medical at 50% to 60% range and nuclear that 40% to 50% range. It how.
Speaker Change: How do we think about that into the second half of the year.
Speaker Change: Yeah I mean.
Speaker Change: Look we've tried to stick to keeping sight of our annual guidance. Joe I did obviously give you some color on the second quarter look I think the first quarter Incrementals were very strong.
Speaker Change: Obviously.
Speaker Change: Yes, we do have a pay raise cycle that goes into effect kind of in the second quarter.
Speaker Change: So what I would tell you is we still believe there is margin expansion every quarter.
Speaker Change: I would tell you that.
Speaker Change: Okay.
Speaker Change: I think the third quarter is probably our best margin expansion quarter and the others are kind of.
Speaker Change: Similar in size.
Speaker Change: And I think the Incrementals youll see.
Speaker Change: No.
Speaker Change: They are a little bit lumpy by business by quarter, you heard me talk about kind of my expectations in the second quarter on nuclear safety, a more more of a flattish margins just as we move some stuff probably from Q2 to Q3 to help mitigate some of the tariffs, but we also had some mix dynamics in the second quarter, we talked about this a little bit last year as well so I mean, that's probably.
Speaker Change: As much as I want to give at this point, but we do feel good about margin expansion company wide.
Speaker Change: Each quarter the rest of the year.
Speaker Change: Okay, Great. One last one for you just free cash flow nice start to the year saw the working capital benefit.
Speaker Change: Second quarter, it sounds like youre, indicating because of a couple.
Speaker Change: Cash taxes.
Speaker Change: The other items that you do you might.
Speaker Change: See like I guess, maybe negative free cash flow in the second quarter I, just want to make sure I understood that correctly and then.
Speaker Change: Yeah, how are you even thinking about working capital going forward.
Speaker Change: I'm not sure I said it would be negative I, just said it would be the lightest.
Speaker Change: The lightest cash flow quarter of the year.
Speaker Change: And look I mean I.
Speaker Change: I don't think its.
Speaker Change: Yes, if you look back at the second quarter's over let's say the last two years right, it's probably somewhere in those ranges candidly Bob maybe on the lower end of those ranges versus the higher end of those ranges.
Speaker Change: Well look we had a very good first quarter collect the teams across the company did absolutely fantastic collections were good there.
Speaker Change: Tons of opportunity here for us both on the collection side as the procurement stuff columns that should help on the payable side, we're very focused specifically in Europe on project cash flow Tommy.
Tommy: Yeah, I like I like the third and fourth quarter to see.
Tommy: Continued pickup on that working capital seasonally were negative net working capital in the second quarter I.
Tommy: I think that holds true here.
Tommy: And our biggest kind of one of our biggest cash tax quarters as the second quarter, just with the U S taxes et cetera. So.
Tommy: I think we feel good but I don't think I said it would be negative.
Tommy: Yes, no that was me that was me projecting but I'd appreciate it.
Tommy: To put that in your model.
Tommy: [laughter].
Tommy: Alright, thanks, guys.
Tommy: Thanks, Joe.
Speaker Change: Thank you. The next question comes from the line of Vlad British sticky from Citigroup. Please go ahead.
Speaker Change: Thanks, a lot.
Speaker Change: Hey, good morning, guys. Thanks, Thanks for taking my question here.
Speaker Change: So maybe first just on China medical.
Speaker Change: Yeah.
Speaker Change: Potential.
Speaker Change: Tariffs.
Speaker Change: Clarification that you mentioned is encouraging but could you just step back and talk about underlying demand trends in China medical broadly.
Speaker Change: And.
Speaker Change: And as a follow up to that how you're thinking about the risks of any potential anti American backlash in that market or whether you've seen any evidence of that developing.
Speaker Change: Yes.
Speaker Change: <unk> I mean, I'll start with the caveat that it's hard to say, obviously theres a lot of battle. He is right now.
Speaker Change: And where we're trying to be careful about.
Speaker Change: You know our guidance careful about describing how we see things, but it is important to contextualize the the answer as well, but that's something we've been talking about for the last two years. So last year you may recall.
Speaker Change: We saw a.
Speaker Change: A slowdown.
Speaker Change: <unk>.
Speaker Change: The Chinese component of our growth, particularly in radiation therapy, and this was driven by a generalized slowdown in med tech overall exports into China because of there there are pronounced anti corruption program, where it just induced.
Speaker Change: Incredible caution into the marketplace and this began.
Speaker Change: 24, I began the prior year.
But it has had a long tail and had a big impact on the things like the build out of new radiation therapy clinics.
Speaker Change: Which is really the key demand driver for our growth into that into that marketplace overall.
Speaker Change: Hindsight is a bit of a godsend because because of the cautionary stance.
Speaker Change: But that we took in terms of framing our operating plans for 2025.
Speaker Change: And guiding that.
Speaker Change: That view overall again, we we took a cautious view towards China in general because because of the sale.
Speaker Change: And I think that that certainly helps in terms of the aggregate exposure that we're facing this year.
Speaker Change: <unk>.
Speaker Change: The at the end of the day I think when it comes down to four.
Speaker Change: Chinese economic decisions, particularly today.
Speaker Change: We're all hopeful that some type of constructive deal as brokered.
Speaker Change: The clarity emerges and that China, and the US work together as partners to reduce the trade imbalance overall.
Speaker Change: R.
Speaker Change: Our interpretation of of this whole trade code dynamic is that at the end of the day, there's a cold rationality that prevails and there are certain things that are that the U S has to source from China and there are certain things that Chuck.
Speaker Change: China has to source from the U S and I think Thats reflected in this instance by these these trade code exemptions and so again. This is very dynamic we're still trying to prove this out.
Speaker Change: We're being very careful about this overall, but if that is true then that would suggest that we have reason to believe.
Speaker Change: That the environment in China.
Speaker Change: Maybe a little bit more constrained going from zero percent tariffs potentially the 20% tariffs, but again that that is a reflection of of national need as it relates to the products software.
Speaker Change: And solutions that we're selling into into that market overall longer term. If there is some type of sentiment that builds up.
Speaker Change: Not just in the China block, but in any other trading block Europe, Latin America et cetera.
Speaker Change: We have within our our plan in Q a number of actions that we think we can take to to further defease that risk and and really kind of build on us local for local construct that's endemic in our structure today.
Speaker Change: That's that's helpful helpful color, Tom and I guess, we'll just have to.
Speaker Change: Watch the tweaks going forward.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: I think Tom I heard you say that 79% of the <unk> nuclear order growth came from the existing fleet.
Speaker Change: Okay, so as opposed to new build which is quite encouraging.
Speaker Change: Maybe could you just characterize how you're thinking about where customers are in terms of their current upgrade cycle.
Speaker Change: And how are you thinking about potential longevity of this.
Capital investment into the existing fleet.
Speaker Change: Yes, I think it's still early days.
Speaker Change: And the dynamics us for for all listening is that.
Speaker Change: The installed base really is the most important elements of our nuclear business.
Speaker Change: Yes.
Speaker Change: It typically represents 80% of our nuclear revenue overall, what has changed here.
Speaker Change: Just kind of walk people through the logic is that the there is a growing supply demand.
Speaker Change: Our demand supply imbalance and global electrical generating capacity.
Speaker Change: We are seeing an immediate spike in year over year demand for electricity is more pronounced in the American market.
Speaker Change: Many but in general we are seeing an acceleration.
Speaker Change: Of demand, which in aggregate was up about 4% last year versus the prior year and that you know that.
Speaker Change: That's versus what had been for much of the decade between 2010 and 2020.
Speaker Change: A rate of about 1% to 2% annual growth and an environment, where most of the nuclear power plant operators Malone Mani so what's happening today is that the.
Speaker Change: The demand for electricity is mounting, particularly clean baseload energy, which only nuclear power can supply.
Speaker Change: And the most visible motive behind that is.
Speaker Change: AI driven data center growth, but it goes well beyond that is the general electrification of the economy the EV.
Speaker Change: Market as it emerges etcetera etcetera so.
Speaker Change: What is clear and what will be I think a an excellent trend for quite a while is this this view that there is a very clearing some filing an economic incentive for the operators to nuclear power plants to run them at a higher capacity factor.
Speaker Change: That being the term of art for capacity utilization within the industry to extend the life of plants through permanent extension. So the majority of American power plants will be life extended to 80 years, some will be will be life extended to 100 years.
Speaker Change: It is bringing back previously shutdown kind of pre decommissioned reactors and clothing the palisades reactor.
Speaker Change: The three mile Island reactor and potentially now the Duane Arnold a reactor.
Speaker Change: Coming back online it is resuscitating projects that had been terminated.
Speaker Change: Like the V C Summer project and.
Speaker Change: In North Carolina or.
Speaker Change: South Carolina.
Speaker Change: And then it's.
Speaker Change: <unk> operates so it's adding capacity to the to the existing fleet.
Speaker Change: And so while people tend to focus on newbuild activity as Theyre looking at the nuclear market.
Speaker Change: Whether it's through small modular reactors or utility scale for us what matters more is the health of that install base and when they have the incentive that they do today to operate with greater uptime at Sun life operating capacity et cetera, then that obviously drives.
Speaker Change: Looser capital spending budgets.
Speaker Change: Greenlight.
Speaker Change: Greenlight projects that are supportive of those three overarching objectives, which would include many of the solutions that we sell and so long answer but the summary of all of that is we expect US. We think we're just in the beginning of the cycle and we expect to see really healthy.
Speaker Change: Capex coming out of the global fleet for many many years to come and I would also just remind you glad that we are just committed to in December kind of high single digit growth.
Speaker Change: Our long range guidance, so we're expecting that this year.
Speaker Change: That means we need to see that also over the next couple of years.
Speaker Change: That's that's encouraging and really helpful color guys. Maybe just one last one from me and I'll get back into the queue on the acquisition you announced I note.
Speaker Change: I know it's.
Speaker Change: Fairly small, but maybe could you just characterize how that came about was that proprietary.
Speaker Change: Just any color on it yes, they are slow.
Speaker Change: This was a proprietary and again kind of consistent with.
Speaker Change: That.
Speaker Change: The crowd sourcing approach that we've taken internally.
Speaker Change: Again, a small deal.
Speaker Change: But I think it'll it'll be proved to be very important strategically in terms of how it flushes out some of the capabilities that we have in our our flagship artsy <unk> workflow software platform called Sunshine.
Speaker Change: And.
Speaker Change: We're really excited about not only in terms of the capability.
Speaker Change: The acquisition brings to bear with the team it's a great team.
Speaker Change: And.
Speaker Change: It.
Speaker Change: I think we're going to see some some good leverage down the road from us.
Speaker Change: So a nice deal nice pick up but it's not really going to move the needle meaningfully in the short term.
Speaker Change: But the main point is that our pipeline continues to be good. Obviously this is an environment where.
Speaker Change: A lot of a lot of people are being very cautious.
Speaker Change: We're being cautious.
Speaker Change: I think sellers are private companies that not quite yet capitulated in terms of.
Speaker Change: Multiple reductions that we've seen driven by the public industrial tech sector.
Speaker Change: But I think all of that will sort out and we continue to actively work on it but to be clear, we're going to be very disciplined and we're going to be patient as always in this room and maybe just two other comments. This is this is like.
Speaker Change: <unk> million dollars of revenue deal for us this year, so so real small probably breakeven.
Speaker Change: I think the other thing that this is one of the more creative deals we've done where.
Speaker Change: Yeah, Theres almost no upfront cash and it's kind of a <unk> as you go to himself.
Speaker Change: I think that is that is also just kind of proving that we are flexible in how we do deals.
Speaker Change: We want to make sure that it's a win win for everyone.
Speaker Change: Awesome. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Chris Moore from CJS Securities. Please go ahead.
Chris Moore: Hey, good morning, guys.
Speaker Change: Yes, maybe just to.
Chris Moore: Kind of a bigger picture.
Speaker Change: <unk> power question. If there are surprises after this 90 day hiatus is over.
Chris Moore: Are there certain areas products services.
Speaker Change: Are you.
Speaker Change: Consider maryann to have kind.
Speaker Change: Stronger pricing power and May be you know.
Speaker Change: It might be a little less uncertainty there.
Speaker Change: Yes, Chris this is a super important question because when when most people are talking about tariffs or doge, they're talking about it narrow.
Speaker Change: The approach that we're trying to take his very expansive where to begin with.
Speaker Change: The FX dynamics, which are strongly correlated to this kind of global reset more broadly are obviously, an important and very visible economic element, but the other element that I think is less visible to people that we're hyper hyper focused on right now is competitive advantage recognized.
Speaker Change: During that.
Speaker Change: In some instances based on.
Speaker Change: Anticipated.
Speaker Change: Future tariff construct we will gain economic advantage versus our competitors and in some instances, we will lose that economic or a degree of economic advantage relative to competitors. What I would tell you is that in general we like where we sit meaning that in aggregate we feel like our.
Speaker Change: Competitive advantage will be strengthened based upon likely kind of long term sustained tariffs scenarios overall and to the extent that does in fact happened obviously that gives us some pricing power and.
Speaker Change: And the ability to really optimize between hoped for incremental share gains plus plus margin expansion. So it's something again that.
Speaker Change: As we're thinking about a lot doing a lot of analytics.
Speaker Change: Sure.
Speaker Change: And feel.
Feel like there is a probably.
Speaker Change: Probably an upside opportunity for us here down the road.
Chris Moore: Got it that's very helpful. All the other ones I had were asked already I will jump back in line. Thanks, guys, Hey, Chris Thanks.
Speaker Change: Thank you. The next question comes from the line of <unk> <unk> from B Riley Securities. Please go ahead.
Speaker Change: Thank you for taking our questions.
Chris Moore: Brian.
Chris Moore: So we had about 21.
Speaker Change: People from Turkey, <unk>, a new floor can we anticipate.
Chris Moore: The backlog to clear out.
Chris Moore: So in the near term.
Speaker Change: Look I don't like to comment on.
Chris Moore: Reported at quarter orders in backlog.
Chris Moore: I think as it relates to that specific project. The team continues to work.
Chris Moore: Winning some some of that back.
Chris Moore: And I think when we're ready.
Chris Moore: When we when we have more to say there we'll talk about it.
Chris Moore: Look we had a strong first quarter on the order side.
Chris Moore: Yes, obviously.
Chris Moore: FX rates are beginning to kind of save.
Chris Moore: However, our backlog, which about half the backlog does sit in euros. So the.
Chris Moore: Strong move here in April with the Euro the weaker dollar I guess.
Chris Moore: Should help us over time.
Chris Moore: But what we've talked a lot about the three to $400 today as that comes in of course, we would expect backlog growth.
Chris Moore: Yes between now and the end of the year because there are some larger projects obviously in that in that.
Chris Moore: So.
Chris Moore: Look we like where we said we'd like to dynamics, we think we had a very good first quarter commercially.
Chris Moore: And.
Chris Moore: We look forward to updating you in kind of Q2 and the back half of the year on how we're progressing.
Speaker Change: Yeah got it and maybe a quick follow up to Joe's question earlier, what is the.
Chris Moore: Exact timing on those one time on Earth in total of $300 million to $400 million.
Chris Moore: Should we anticipate.
Chris Moore: In the second half or the like even out in the next two quarters.
Chris Moore: Yeah.
Chris Moore: Again I don't.
Speaker Change: We're not going to talk about precise timing, but I would tell you it's back half loaded.
Speaker Change: Yes, yes, and maybe one last question for me.
Speaker Change: It's in the backlog how should we think about the push and pull in terms often times. Some projects have been delays is not big risky.
Speaker Change: I'm curious.
Speaker Change: Yes, what we saw.
Speaker Change: A lot of time.
Speaker Change: In the backlog and the teams are.
Speaker Change: Looking at the project pieces this quite a bit I think one of the one of the.
Speaker Change: Yes.
These bigger projects are longer cycle, they take years and years and years to kind of push through the revenue stream.
Speaker Change: And.
Speaker Change: So I think we're always kind of looking at accounting for that as we put our forecast together. So there is always risk. It's just kind of inherent in the newbuild nuclear game, maybe things moving to the right.
Speaker Change: But I think a lot of work currently going on from a project basis is actively.
Speaker Change: And I think we feel we feel very good about our forecast for the year.
Speaker Change: I'll have to say randomized to that I was.
Speaker Change: Convinced you would ask a question either about the flu victim.
Speaker Change: A broader approval or our apex guard software release so.
Speaker Change: I got that one wrong.
Speaker Change: Yes, sorry, I was just kind of more questions on the on our part.
Speaker Change: We have saved.
Speaker Change: Moving to help really no question for the call back. Thank you for taking our questions.
Speaker Change: Okay. Thanks, you want.
Speaker Change: Thank you ladies.
Speaker Change: Ladies and gentlemen, as there are no.
Thomas Logan: No further questions I now hand, the conference over to Thomas Logan, Chairman and CEO of <unk>.
Speaker Change: Thank you Ryan.
Speaker Change: Ladies and gentlemen, thank you for listening in today and.
Speaker Change: As always thank you for your support.
Speaker Change: Just to close by reiterating.
Speaker Change: The strong quarter, great start to the year the team executed extremely well.
Speaker Change: We're in a remarkable environment. This is a it's a fascinating time to be alive, a very challenging from a from a business standpoint.
Speaker Change: But I would say that historically these are the times, where we've been at our best where we have excelled we have a battle hardened team that has weathered a lot of macro variability and challenges and their track record are second to none and I'm proud to take the field with them each and every day, we're going to continue to.
Speaker Change: To drive hard on execution in Q2.
Speaker Change: And we will look forward to speaking with you again in a quarter and seeing many of you in the various.
Speaker Change: Investor conferences and <unk>. So we have scheduled for the quarter, but thanks again today and we'll talk soon.
Speaker Change: Thank you, ladies and gentlemen, the conference off maybe on technology has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: Yeah.