Mirion Technologies Q3 2024 Earnings Call Transcript

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October 30, 2024

Key Takeaways

  • Strong Q3 results: Revenue of $207M (+8% YoY), adjusted EPS $0.08, and adjusted EBITDA $45.7M with 180 bps margin expansion keep the company on track for full-year guidance.
  • Hyperscaler nuclear deals and DOE support signal a major acceleration in SMR projects, Mirion has already secured ~$14M in SMR orders and is pursuing $300–400M of new nuclear bids.
  • Cancer care growth driven by theranostics momentum, with nuclear medicine unit shipments up 18% YTD and blockbuster drugs Pluvicto and PylaraPhy gaining 50% and 30% sales growth respectively.
  • Operational efficiency gains lifted Q3 medical EBITDA margin by 50 bps to 34.7% and technologies margin by 370 bps, while leverage fell to 2.9× and backlog rose 2% to $815M.
  • Q3 orders declined ~30% versus tough comps but were up 13% adjusting for one-time large 2023 orders; a ~$30M Turkey debooking due to a contractual dispute may be partially recoverable.
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Earnings Conference Call
Mirion Technologies Q3 2024
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Operator

Ladies and gentlemen, greetings and welcome to the Mirion Technologies Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and star zero on your telephone keypad. As a reminder, this conference is being recorded. Now, it's my pleasure to introduce your host, Eric Linn. Please go ahead.

Eric Linn
Eric Linn
Head of Investor Relations at Mirion Technologies

Thank you, and good morning and welcome to Mirion's Q3 2024 Earnings Conference Call. Joining me this morning are Mirion CEO Tom Logan and Mirion CFO Brian Schopfer. Before we begin today's 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. The factors that could cause actual results to differ are discussed in our annual reports on Form 10-K, quarterly reports on Form 10-Q, and in Mirion's other SEC filings under the captioned risk factors. Quarterly references within today's discussion are related to the Q3 ended September 30th, 2024, unless otherwise noted. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.

Eric Linn
Eric Linn
Head of Investor Relations at Mirion Technologies

Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying today's call. All earnings materials can be found in the investor relations section of our website at www.mirion.com. With that, let me now turn the call over to Tom, who will begin on slide three.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Thank you, Eric, and good morning, everyone. I'm pleased to announce that we delivered another strong quarter consistent with expectations. $207 million of Q3 revenue was 8% higher compared to last year's Q3. Adjusted EPS was $0.08 per share. Adjusted EBITDA was $45.7 million, with 180 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. A big thank you to the Mirion team for delivering outstanding performance in the quarter. I'd like to start by talking about the evolving macro environment we compete in. The so-called super trends I've detailed over the past several quarters continue to take shape. Recall that these trends in nuclear power and cancer care are expected to be generational and tenor, and provide meaningfully favorable tailwinds to both our strategy and execution.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Let's start with nuclear power on slide four. The biggest news in this vertical has accrued from the so-called hyperscalers, a moniker associated with large-scale data center leaders like Microsoft, Google, and Amazon, who announced a spate of nuclear power deals in support of their artificial intelligence business models over the last quarter. These deals include the following: first, the Microsoft deal with Constellation Energy to bring one unit of the decommissioned Three Mile Island nuclear power plant back online. An extraordinary deal because it adds to U.S. nuclear generating capacity through the second recommissioning event of a defunct nuclear power plant. It 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.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Secondly, Amazon's deals with Talen Energy, Dominion Energy, Energy Northwest, and fourth-generation SMR developer X-energy to generate up to 5 GW of additional nuclear energy in the U.S. by the late 2030s. By way of context, today U.S. capacity is approximately 93 GW of total nuclear energy. Thirdly, the Google deal with SMR developer Kairos to generate 500 megawatts of additional nuclear capacity. And lastly, an announcement by Oracle that they've secured building permits for three SMRs for a large data center at an undisclosed location. These deals are the tip of the iceberg, reflecting the voracious appetite of hyperscalers for reliable and clean baseload electrical energy. This is a major factor in the U.S. Department of Energy view that U.S. nuclear energy capacity could well triple by the year 2050. But to be clear, this is not strictly a U.S. phenomenon.

Tom Logan
Tom Logan
CEO at Mirion Technologies

The supply, demand, and regulatory policy frameworks reflect the same impact on the broader global nuclear industry. 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 in incremental funding to support SMR technology. As we've disclosed previously, we're working hard to forge strategic relationships with all significant SMR players. And while the initial order volume is modest, approximately $14 million booked since 2023, we're becoming more optimistic about both a market validation of these emerging players and an acceleration of the commercial scaling of SMRs. It seems clear that nuclear power is increasingly and appropriately seen as a secondary play on AI.

Tom Logan
Tom Logan
CEO at Mirion Technologies

And we're excited by the fact that our nuclear power revenue, as a percentage of total sales, is proportionally greater than most of the firms seen as pure plays in the nuclear power instrumentation space. Beyond 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 or repeat in nature. The 12% core nuclear order growth, which excludes large orders booked in the Q3 of 2023, reflects a continued improvement in the economic health of the global fleet and an increasing desire to run nuclear power plants hotter, longer, and with an uprated capacity. Finally, on the new build front, we are extremely pleased with the level of customer engagement and the quantum of opportunities in our bid pipeline.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Last night, we announced that Mirion was awarded strategic contracts with the Sizewell C new nuclear power station project in the United Kingdom. This project has a similar design to the Hinkley Point C nuclear power station project, where we have a significant position of incumbency. While these large projects don't occur rateably, we are excited by the fact that today we have $300-$400 million of new order opportunities in our bid pipeline, which we expect to be awarded by year-end 2025. While we don't expect to run the tables here, we feel very good about our prospects. Now let's turn to the second super trend on slide five, which is the growth in the cancer care market. Recall that our medical group is comprised of three primary business lines: radiation therapy quality assurance, nuclear medicine, and dosimetry services.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Within this group, the biggest macro changes have been in the nuclear medicine market, where the revolution in radiopharmaceutical therapy is creating a significant opportunity for Mirion. 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 theranostics, which hold the promise of precisely targeting cancer cells and delivering radioactive payloads which destroy the cancer cells from within with minimal collateral damage to healthy tissues. We see the momentum building in the space in a number of dimensions. First, industry conference attendance is well up and becoming increasingly dominated by radiopharmaceutical drug makers. Second, there is much higher dealmaking energy overall in the space. Third, the first two blockbuster drugs in the sector are experiencing significant growth.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Pluvicto, a prostate cancer therapeutic developed by Novartis, has seen sales growth of approximately 50% year-over-year, and Pylarify, a prostate cancer diagnostic, has seen growth of approximately 30%. Finally, Mirion has seen year-to-date unit growth in dose calibrator shipments, our franchise product in the space, of 18% versus 2023. As I've noted in the past, we've devoted enormous energy toward evolving our strategic position in 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 both incumbent and emerging participants in the space. We are looking forward to unpacking our approach comprehensively at our December 3rd Investor Day event. In the radiation therapy space, we announced a strategic alliance agreement with Siemens Healthineers for radiation therapy solutions.

Tom Logan
Tom Logan
CEO at Mirion Technologies

We believe this agreement will expand the global reach of our SunCheck software platform via the Siemens Healthineers sales force and is further validation of our market leadership position in independent RTQA solutions. RTQA growth, notably, has been flat this year, 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. We've seen a recovery in the Japanese market in Q3, and we remain optimistic that a 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 and leveraging our business system to yield improvements in margins and working capital velocity. And these efforts are beginning to bear fruit.

Tom Logan
Tom Logan
CEO at Mirion Technologies

The Q3 medical EBITDA margin is up 50 basis points to 34.7% versus 2023, and the Technology & Analytics EBITDA margin is up 370 basis points for the same period. Net working capital days has improved by approximately 10 since Q3 of last year. In addition, the creation of our Chief Revenue Officer office, coupled with enhanced inside sales and e-commerce capabilities, will enhance and standardize our commercial proficiency across both segments. We expect to address our progress against key operational indicators again at our investor conference in December. Now, before I turn it over to Brian to share additional details from the quarter, I'd like to take just a moment to thank Jerry Estes, who led our investor relations efforts previously for a job well done over the past three years.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Jerry is taking on a new role within our dosimetry business, and I have no doubt that he'll make as much of a positive impact there as he did during his time in IR. Thanks, Jerry. With that, I'll turn it over to Brian to share more of the details from the quarter. Brian?

Brian Schopfer
CFO at Mirion Technologies

Thank you, Tom, and thank you all for joining our call. I'll pick back up on slide six. Q3 revenue grew 8.2% versus the prior year to $206.8 million. The strong performance was driven primarily by our technologies group from nuclear power activity and strong performance from nuclear medicine. Organic revenue grew 6.1% versus the prior year's third quarter. Our technologies group grew at a solid 7.8% organic growth rate, while the medical group delivered 3.2% organic growth. Adjusted EBITDA for the quarter was $45.7 million and EBITDA margins of 22.1%, a 180 basis points improvement versus the prior year and the fifth consecutive quarter of margin expansion. We again saw margin uplift from both of our operating groups. Additionally, we brought leverage to below three times. This is a significant milestone, but more work continues.

Brian Schopfer
CFO at Mirion Technologies

As we approach the end of the year, we have fine-tuned components of our 2024 guide. However, our Adjusted EBITDA and EPS guidance remains unchanged. I'll get into more detail shortly. Turning to slide seven on Q3 orders and backlog trends. Our Q3 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 Q3 last year, total company orders actually grew 13%, with nuclear power orders growing approximately 12%. Recall, we were up against the tough comp this quarter since orders grew 46% in the Q3 of 2023. As we have discussed many times, approximately 75% of our nuclear power business has historically flowed from the installed base. The adjusted orders numbers I shared is a more direct comparison of the underlying order environment.

Brian Schopfer
CFO at Mirion Technologies

As Tom mentioned, we are extremely encouraged by the large project pipeline and robust customer engagement we are seeing specifically in the nuclear power space. Q3 backlog was $815 million, or 2% higher versus the same quarter last year. As you will recall, we talked about approximately $30 million of orders moving out of Q2 into Q3. One of these orders, the largest, was the Sizewell C order announced yesterday. Since this order was booked in October, it is not represented in the backlog or overall Q3 order performance. 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 nuclear medicine business. These tailwinds were partially offset by a softer labs and research contribution due to a tough comp in the prior year.

Brian Schopfer
CFO at Mirion Technologies

Both growth 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. In medical, our nuclear medicine business is translating growth to margin expansion, and our dosimetry business is exhibiting good operating performance. The self-help initiatives we've touched on the past few quarters are beginning to take hold. 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. Good progress has been made to date, and I am excited about the opportunities that still lay ahead. Now, let's dig a bit deeper into the segments. First, with medical on slide nine, medical revenue grew 7.7%-$74.1 million, with organic growth of 3.2%.

Brian Schopfer
CFO at Mirion Technologies

The nuclear medicine business delivered a sizable revenue contribution, while our EC Squared acquisition, completed in November of 2023, added 4.4% of inorganic revenue growth. The nuclear medicine team continued to build momentum with higher volumes and favorable contributions from the EC Squared acquisition. Even absent the acquisition, the nuclear medicine business grew approximately 16% in the quarter. The RTQA business saw revenue growth despite continued headwinds from the anti-corruption efforts in China and the Lazzara closure we announced last quarter. As we had foreshadowed, Japan helped to offset these with a solid rebound in revenue this quarter. Turning to the technologies group on slide 10, technologies group revenue was $132.7 million, or 8.4% higher versus the prior year. Margins were up 370 basis points, driven by strong operating performance across the board.

Brian Schopfer
CFO at Mirion Technologies

Many of the headwinds from our French operations from prior quarters are behind us and are now reflecting positively in our results.

Brian Schopfer
CFO at Mirion Technologies

Procurement savings and operating leverage are benefiting the quarter and have been a good tailwind all year. Next, on leverage and free cash flow on slide 11, we ended the quarter with 2.9 times leverage and expect to end 2024 around 2.6 times, based on the midpoint of our guidance assumptions. Moving below three times leverage marks a significant milestone in our capital structure journey. 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 Q4 loaded. You can see this typical cadence in last year's adjusted free cash flow build. We continue to spend a lot of time on net working capital efficiency as a team.

Brian Schopfer
CFO at Mirion Technologies

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%-7% versus our previous 5%-7% range. Organic revenue growth is expected to land at the top end of our previous range as well, with expectations now at 5%-6% versus our previous range of 4%-6%. Note that the makeup for the medical group expected organic revenue growth has changed a bit as a result of the higher mix contribution from nuclear medicine. This higher contribution will yield a slightly negative impact to medical group margins in Q4.

Brian Schopfer
CFO at Mirion Technologies

Also, we tightened our expected adjusted free cash flow range to $65 million-$75 million versus a previously wider range of $65 million-$85 million. 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. Adjusted EBITDA and adjusted EPS guidance remain unchanged at $195 million-$205 million and $0.37-$0.42 per share, respectively. 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 line for questions.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question is from Joe Ritchie with Goldman Sachs. Please go ahead.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Hey, guys. Good morning.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Hey, good morning, Joe.

Brian Schopfer
CFO at Mirion Technologies

Good morning, Joe.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Yeah, so many questions. I'll try to be succinct. Can we just start with the debooking that you guys booked this quarter or debooked this quarter? Maybe just kind of talk us through the process that you typically go through to book something into backlog, and then specifically what happened with that specific order and why was it debooked?

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah, Joe, this is Tom. I'll talk about the specific order, and then I'll let Brian talk about just kind of the accounting discipline as it relates to what we book into backlog or not. 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, 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, we lost this business on two units to a regional competitor. 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, but for this product line globally.

Tom Logan
Tom Logan
CEO at Mirion Technologies

So our efforts internally are really focused on that. As we look at production profiles and the like, 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, 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 backlog, and again, the 21 years that I've been doing this, it is relatively unusual to see a debooking like this, but this one was narrowly tied to, again, a contractual dispute on the front end. Brian, you want to talk about backlog?

Brian Schopfer
CFO at Mirion Technologies

And then, Joe, to answer your second question, I mean, we're very disciplined. Sorry. We're very disciplined about what we put into backlog. We don't put unfunded things in there. We have to have a contractual obligation where it's clear that we have that. So the backlog is strong. I understand we've had two of these, I guess, in the last three years. The other one was obviously completely tied to a macro situation and nothing to do with kind of the underlying business. And we're very confident in the over $800 million we have in the backlog and how that will churn to both revenue, EBITDA, and cash.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Got it. That's helpful, caller. And look, I won't have you get into the specifics of the contract, Tom, but just maybe one follow-up question there. Was it a case where you were working for a specific contractor that ended up getting swapped out, and that's why you lost the business, or was this more kind of like a direct relationship and the owner?

Tom Logan
Tom Logan
CEO at Mirion Technologies

No.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Okay.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah, that was really the former. It was really the former, Joe.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Okay. Okay. All right. Great. Shifting gears, you guys mentioned the Sizewell project. It's great. It seems like that's already you're winning on this EDF relationship that you've already highlighted to us previously. I want to make sure that I heard it correctly. So there was roughly $30 million that got pushed from Q2-Q3 in orders, and the vast majority of that was that contract. Did I hear that right?

Tom Logan
Tom Logan
CEO at Mirion Technologies

That's correct.

Brian Schopfer
CFO at Mirion Technologies

Yeah, and I think we.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

And then.

Brian Schopfer
CFO at Mirion Technologies

Joe, maybe just one other thing. I mean, I think there's still more to come on this contract as the project progresses.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Okay. Okay. Great. And then, look, Tom, your initial comments on what the hyperscalers are doing are 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 in terms of the types of announcements that you would expect based on what you're hearing? And then also, how do you think that this ultimately impacts your orders over the next 12 months?

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah. So our efforts primarily over the next 12 months are focused on continuing to, again, broaden the swath of strategic alliances, strategic relationships that we forged with the relevant players in the space, recognizing that there are many dozens of SMR initiatives worldwide. And 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 taking in all of the above strategy and, again, really extending the stance that we've always had in the nuclear industry, which is to be independent, to be Swiss, if you will, where we support and integrate well with all technologies, all players. And that's exactly what we're doing here.

Tom Logan
Tom Logan
CEO at Mirion Technologies

But beyond that, we expect that we will see additional funding and commitments on first-of-a-kind SMR buildouts, 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, but that also tends to be a bit of a backbone for some of the other software opportunities that we see in the space. And then downstream from that, there's more balance of plant stuff in and around health physics applications, dosimetry, contamination clearance equipment, and the like. But we expect that early on, the biggest action will be in and around reactor instrumentation and control and software.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Got it. That's super helpful. If I could ask one more question, I'll turn it over to everybody else after. I met with one of your competitors in the radiopharma space recently, and it seems like, look, 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. How do you think about the long-term opportunity in this business? Can you kind of keep this mid to high teens type growth rate going forward? And just any, I know you'll get into this a lot more on December 3rd, but just any comments around that would be helpful.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Just as a bit of a tease, we really do believe that what's happening in radiopharmaceutical therapy is a revolution in cancer care. We think it's going to be tremendously beneficial for that market, for the individuals that are impacted by this terrible disease. If you look at any leading indicator, maybe the best one is to look at what's in the FDA approval pipeline for theranostic drugs in terms of phase one, phase II, and phase III trials. It's an incredibly robust pipeline that really is reflective of the heavy investment that's taking place in the sector. You've seen the numbers put out by others like GE about the projected exponential growth of this market. We think that's real.

Tom Logan
Tom Logan
CEO at Mirion Technologies

It's hard to pick a true revenue CAGR for the industry overall, but to understand that a lot of that top-line growth is driven by very, very expensive drugs that are $50,000 per dose, $250,000 per course of therapy today. Obviously, that will come down, but we do expect that there will be sizable volumetric growth, even greater revenue growth in the space. Our focus is to take really our unique data management platform, understanding that today we're the leading provider of data management software in the American market, where we connect the drug makers, the isotope producers, the contract manufacturers, the research organizations, the radiopharmacies, the clinicians, and ultimately the patient, and have really kind of a unique perch in the data flows through this market.

Tom Logan
Tom Logan
CEO at Mirion Technologies

That, in combination with the fact that we're the global leader in critical instruments that are used for calibration and measuring uptake of radiopharmaceuticals, and further augmented by just kind of our baseline capabilities in radiation detection and measurement, gives us the ability to create a very interesting and compelling ecosystem where ultimately, over time, we expect the value of the data that flows through there to become arguably even more important than the capital equipment revenue. And to your point, yes, we're going to unpack this in detail at our investor event, and we'll save any update on guidance at that time. But I will tell you that I'm very excited about this market overall and specifically what we're doing in it.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs Group Inc.

Great. Thank you, guys.

Brian Schopfer
CFO at Mirion Technologies

Thanks, Joe.

Operator

Thank you. The next question is from Chris Moore with CJS Securities. Please go ahead.

Chris Moore
Chris Moore
Senior Analyst at CJS Securities

Hey, good morning, guys. Thanks for taking a couple. Yeah, I think, Tom, during the prepared remark, you talked about, I think, $300 million-$400 million in new bids. That you'd hear by the end of the year. Just trying to get a sense of the average size of these deals.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah. I mean, they're all over the map, Chris. But what I will tell you, firstly, just to be clear on what I said, I said in our active bid queue, meaning deals that we've already bid on or are in the process of bidding on, for large projects, we see an aggregate quantum of $300 million-$400 million. The scale's all over the board, and these are deals that range from at the top end, about $100 million, to well below that. Heavy, heavy concentration in the nuclear industry, but not exclusively there. But the main takeaway there is that I know there's been some obvious focus on our backlog trend, the fact that we're up only nominally year-over-year and just how that correlates with the overall growth of the business.

Tom Logan
Tom Logan
CEO at Mirion Technologies

And so we've tried very hard in the presentation and to a degree in the commentary today to really kind of unpack that and show how importantly revenue is driven to a far greater degree by the flow 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 this $300-$400 million in our large project bid pipeline is an unusually large amount. That is not typical. This is not what we would see 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. That's how we think about it.

Brian Schopfer
CFO at Mirion Technologies

Just to be clear, we think that could trade between now and the end of 2025.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yes. Yes. Good point.

Chris Moore
Chris Moore
Senior Analyst at CJS Securities

Gotcha. That's helpful. I appreciate that. Maybe switching gears, just leverage is in good shape. You talked about 2.6 by the end of the year. Just kind of your thoughts on M&A at this point in time. Is the pipeline relatively full? Any specific areas really you're focused on?

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah. As you noted, Chris, we got a great M&A pipeline. We continue to actively develop it. Very high-quality, executable deals. We do not expect to close any M&A deals in the remainder of the quarter. Again, as Brian noted, we're very eager to continue to bring leverage down into what we feel is a more normative equilibrium in kind of the mid two range. But having said that, we see 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 technology side as well. And we expect that we will be active in M&A next year. Don't expect to do anything beyond kind of the small ball zone that we've been focused on, just based on what we see today.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Obviously, that could change, but that continues to be our posture.

Chris Moore
Chris Moore
Senior Analyst at CJS Securities

Perfect. All right. We'll leave it there. Thanks, guys.

Brian Schopfer
CFO at Mirion Technologies

Thanks, Chris.

Operator

Thank you. The next question is from Andy Kaplowitz with Citigroup. Please go ahead.

Andy Kaplowitz
Andy Kaplowitz
Senior Analyst at Citigroup

Good morning, everyone.

Brian Schopfer
CFO at Mirion Technologies

Morning, Andy.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Morning, Andy.

Andy Kaplowitz
Andy Kaplowitz
Senior Analyst at Citigroup

Tom and Brian, I think your previous guidance regarding backlog was that you could reach flattish to year-end 2023 by the end of this year. Is that still what you're thinking, or with the addition of Sizewell C and maybe some incremental activity, given the excitement around nuclear, you could even grow backlog year-over-year in Q4? And then the 300-400 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?

Brian Schopfer
CFO at Mirion Technologies

Yeah. Maybe I'll take the first one. Tom can give some color in the second. Look, first off, Sizewell was always in the deal flow for this year, so that's not a bluebird that we weren't expecting. I think the timing for us just shifted a little bit between candidly Q2 and until we booked it in Q4. Yeah. I said at the end of last year or the end of last quarter, I thought we could get the flattish. We were not expecting the FX headwind from an orders front. I do think when we get to February and look back on December, I think 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.

Brian Schopfer
CFO at Mirion Technologies

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 there's opportunity to beat.

Tom Logan
Tom Logan
CEO at Mirion Technologies

And then, Andy, in terms of the composition, 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 talked about, even at the upper end of the range, would accrue from U.S.-related opportunities. The balance is kind of split. A lot in Europe, a little bit in the Arab Gulf region. So it's a bit more diversified.

Andy Kaplowitz
Andy Kaplowitz
Senior Analyst at Citigroup

Helpful. And maybe I want to ask Joe's question in a slightly different way. He asked about the next 12 months. If I look at your commercial nuclear revenue growth forecast, you raised it this year to high single digits. But does the excitement around commercial nuclear actually support that high single-digit run rate lasting? Obviously, we know when you dispatch, you had a lot lower forecast than that. So maybe any comments on if you can sustain this kind of run rate that you had in 2024 moving forward?

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah. I would say three things, Andy. One is we'll talk about this in detail at the Investor Day, but again, just as a bit of a tease to that overall. Talking about two things that have changed a lot since we initially set that guidance during the de-SPACing. One is the overall health of the nuclear industry. This is the most important factor, bar none. 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 were 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 had a very tough year. This year, they're doing extraordinarily well.

Tom Logan
Tom Logan
CEO at Mirion Technologies

This also creates an incentive. Beyond the baseline of just having better financial resources, 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. They want to life extend them. And in certain cases, they want to upgrade capacity. And all of those things are beneficial for us and have not only kind of a long-term bearing, but also impact the cadence of replacement cycles for certain product categories and just kind of the broader demands for services and software within the industry. So first point there is that the industry is considerably healthier than it was three years ago when we de-SPACed and had our public debut. And again, we're going to talk about what we think that means longer term at the December event.

Tom Logan
Tom Logan
CEO at Mirion Technologies

But to be clear, it's a good thing. It's very healthy for the market. It's very healthy for us. The second thing that's different is what's happening in the SMR world, where you've heard us say many times before that we think this is really kind of a 2030s phenomenon before we start seeing a material ramp in revenue. All of this discussion about hyperscalers is not just froth. It's real. It's robust. And it's reflective of 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 technologies, the pebble bed technology, the sodium-cooled or moderated or high-temperature gas-cooled variants of small modular reactors, rather than kind of legacy third-generation light water reactors that are downsized.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Viewing these upstart firms as being kind of like SpaceX, firms that 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 timeframe because the demand could not be more clear, and the activity is significant right now. So it does cause us to be more bullish on the sector, more ambitious about the timeframe. And again, we'll talk more about this in December just to kind of tease you on that investor day.

Andy Kaplowitz
Andy Kaplowitz
Senior Analyst at Citigroup

Tom, I just want to ask you one more question about the debooking. In the past, you said it was unusual, which I agree with. In the past, we've seen one or two of these. They've been as a result of geopolitical conditions changing or maybe new sanctions. Did the Turkey debooking have anything to do with that, or was it just purely competitive?

Tom Logan
Tom Logan
CEO at Mirion Technologies

No. In this sense, there's only one that was geopolitical in nature, and that was the loss of the Finnish project. They used Russian technology that occurred in our debut year as a public company. And that was kind of a gut punch for us because it was a great project, 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, the other debookings have related to military IDIQ business, which we no longer book into backlog because of the ephemeral nature of some of it, and the specific project, which was purely a contractual matter. And again, we like our odds of getting some or all of this back overall. So it's not part of a broader geopolitical exposure.

Tom Logan
Tom Logan
CEO at Mirion Technologies

But I would note that when we look ahead at the election next week, that could have implications for the rapidity with which the Ukraine war has settled, and that if there is a settlement near term, meaning in 2025, that would be a significantly beneficial event for us. If coupled with that is kind of a general rapprochement between Russia and the West, a reopening of Russian markets, an opportunity to come into the Ukraine market and help rebuild the nuclear infrastructure there, it would be a very, very beneficial event for the industry overall. And for us, in terms of the Russian market, it would not only be on the nuclear side, but also the medical side. That's probably the biggest kind of geopolitical potential event that we see in the near term.

Andy Kaplowitz
Andy Kaplowitz
Senior Analyst at Citigroup

Helpful, Tom. Thank you.

Operator

Thank you. The next question is from the line of Yuan Zhi with B. Riley Securities. Please go ahead.

Yuan Zhi
Yuan Zhi
Senior Healthcare Equity Research Analyst at B. Riley Securities

Good morning, Tom and Brian. Congrats on a good quarter.

Yuan Zhi
Yuan Zhi
Senior Healthcare Equity Research Analyst at B. Riley Securities

Hi. Good morning, everyone.

Yuan Zhi
Yuan Zhi
Senior Healthcare Equity Research Analyst at B. Riley Securities

Thank you for taking our questions. We got investors' questions around the backlog dynamic, maybe two parts. First, can you break down the backlog by segments? We are curious about the pattern of backlog for technologies as well as the medical side. Does the technology side have more recurring revenue, and then on the medical side, they are more short-term orientated?

Eric Linn
Eric Linn
Head of Investor Relations at Mirion Technologies

Yeah. Yeah. So I'll take that. Look, the backlog's 75%-25%, and I think we've said that before. 75% technologies, 25% medical. So there's a significant piece that's medical. I don't think anything has changed. I don't think anything has changed from how we think about backlog rolling into revenue. We've always said 45%-50% of the next 12 months' revenue is sitting in backlog. I think we probably right now are kind of at the midpoint to high end of that range as we think about the future going forward. Yes, it's true that a majority of the revenue on the medical side kind of is more book and bill. But I would remind you that 25% of that business is also just imaging services, and very little of that actually sits in the backlog. They're evergreen kind of recurring revenue contracts, deferred revenue components, etc.

Eric Linn
Eric Linn
Head of Investor Relations at Mirion Technologies

So that's a much more kind of faster churn business, but also has a very high repeat content. So that's kind of how we think about it. And like I said, I think we really like where we're sitting right now.

Yuan Zhi
Yuan Zhi
Senior Healthcare Equity Research Analyst at B. Riley Securities

Got it. Probably you have covered my second part of the question. I will pivot to the relationship with EDF. Can you provide more color on this relationship, and how did you leverage this relationship to get this Sizewell C contract? Maybe use this as an example to show how you can leverage other similar relationships to get more bids or more orders.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Yeah. The EDF relationship is a very important one for us. They are the largest operator outside of China of nuclear power plants globally with nearly 60 reactors under operation, and they made it very clear, and French President Emmanuel Macron has been very clear that France would like to build up to an additional 14 nuclear reactors in-country and continue to be very active on the export markets. With the specifics around the Sizewell 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 tied into, again, instrumentation and control, things like electrical penetration assemblies, various health physics applications, etc. So Sizewell is really a follow-on to that.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Importantly, you may recall that we announced a strategic relationship or a Strategic Frame Agreement with EDF a couple of months ago. This falls outside of that, meaning that we had begun the work and the negotiation on Sizewell independent of that Strategic Frame Agreement with EDF. On that point, the very nature of the Strategic Frame Agreement is that we effectively become a sole source supplier of a significant mix of overall content to be used in EDF EPRs, their third-generation plus reactor technology. We expect that it could cover up to 20 reactors, those in France, those that are associated with export activities over the next two decades or so.

Tom Logan
Tom Logan
CEO at Mirion Technologies

The advantage of that is that, again, everything is in terms of terms and conditions, economic parameters, etc., are pre-negotiated, and it makes it far more efficient, speeds the overall process of building a new reactor for EDF, and we're thrilled and honored to have that relationship with them.

Yuan Zhi
Yuan Zhi
Senior Healthcare Equity Research Analyst at B. Riley Securities

Got it. Thanks for the additional color.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to Tom Logan for closing comments.

Tom Logan
Tom Logan
CEO at Mirion Technologies

I will end today, firstly, by thanking the team for delivering a truly great quarter, thanking 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 we are fortunate to have what we believe will be very robust and sustainable tailwinds in our 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 a variety of measures, including margin expansion improvements and working capital velocity and some other measures. And again, noting that we understand that we're still a relatively young public company and people are trying to understand the correlation between our backlog dynamics and top-line growth, revenue coverage, and the like.

Tom Logan
Tom Logan
CEO at Mirion Technologies

Today, we provided more detail in and around how that works and our outlook overall for backlog growth, which is bullish, but fundamentally how the demand drivers, particularly as we look at NTM growth, really go well beyond the overall backlog metrics. So hopefully, we advanced understanding there a little bit. We feel good about our positioning. Again, happy about the quarterly performance, the outlook, and we appreciate your time and attention today. So thank you for all of that, and we'll look forward to speaking with you in the next quarter.

Operator

Thank you. This concludes.

Executives
    • Tom Logan
      Tom Logan
      CEO
    • Eric Linn
      Eric Linn
      Head of Investor Relations
Analysts
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