Third Quarter 2026 Earnings Call - MIRION TECHNOLOGIES INC

Financial Performance:

• Q3 2026 total revenue reached $278 million (up 24.5% YoY), with organic revenue growth of 6.5% (below the previously guided high-single-digits).
• Adjusted EBITDA was $65 million (up 23.7% YoY), with an adjusted EBITDA margin of 23.3% (down from 23.5% last year, primarily due to Paragon integration costs and one-time legacy project adjustments).
• Adjusted EPS was $0.12 per share (flat YoY).
• Adjusted free cash flow generated was $47 million in Q3, bringing YTD adjusted free cash flow to $107 million (58% conversion of adjusted EBITDA vs. 35% last year).
• Net leverage was 3.1x at quarter-end, expected to improve to approximately 2.6x by year-end.
• Debt costs remain low with a blended rate of approximately 2.8% for the full year.
• Share repurchases totaled $56 million in Q3 (3.6 million shares), completing the $100 million program; a new $250 million program remains with $235 million available.

Guidance and Future Outlook:

• Full-year 2026 organic revenue guidance raised to 7–8% (from 5–7%); total revenue guidance raised to 24–25%.
• Q4 2026 organic revenue growth expected in the mid-to-high teens.
• Medical segment Q4 organic growth expected mid-single digits plus; Nuclear and Safety expected high-teens plus.
• Full-year 2026 adjusted EBITDA guidance revised to $285–292 million (margins 24.7–25.2%), reflecting Q3 margin headwinds but expecting Q4 expansion.
• Full-year adjusted free cash flow guidance raised to $170–185 million (60–63% EBITDA conversion).
• Adjusted EPS range tightened to $0.50–$0.54 per share.
• 2028 margin targets have been abandoned as too aggressive to prioritize immediate investments in AI and cybersecurity.
• Management expects 1–2 percentage points of annual margin expansion driven by operating leverage and self-help initiatives, though no specific long-term percentage target is provided.

Business Segments and Product Lines:

• Nuclear and Safety: Revenue up 34% to $194 million (organic up 6.3%). Nuclear power end-market organic revenue grew 14%, driven by installed base and SMRs. Paragon revenue grew 22% YTD; margins diluted by legacy project adjustments and AI/development spending.
• Medical: Revenue up 6.7% to $84 million (organic up 6.6%). Margins expanded 200 bps to 37.8% driven by RTQA and operating leverage, though impacted by one-time quality costs in nuclear medicine.
• New Products/Initiatives: Significant investments in AI and cybersecurity (approx. $4M YTD opex, exceeding initial budget) are underway to enhance product utility and internal productivity.
• Large Opportunity Wins: Secured $140 million in large opportunity wins in Q3. Total YTD large awards reached $244 million.
• M&A Integration: Paragon integration is on track; Sertrek acquisition (closed July 2025) contributed to revenue growth.

Market and Competitive Landscape:

• Nuclear Power: 105% growth in nuclear orders (ex-M&A) driven by three waves: catch-up capital spending, life extensions/uprates, and digital transformation. Mirion has a presence in >98% of global nuclear reactors.
• Installed Base: 96% of U.S. reactors approved for 20-year extensions; potential 40-year renewal rules could extend operational demand.
• SMRs: 16 million SMR orders booked in Q3 from 11 designers; YTD SMR orders at $54 million. Sector showing acceleration with intense competition for "first past the post" deployment.
• New Builds: Strong pipeline for utility-scale and SMR new builds (e.g., EDF alliance in France, DOE orders in the US).
• Market Dynamics: Order book grew 62% YoY (ex-M&A) to $340 million. Total trailing 12-month orders (ex-M&A) up 37%.
• Competitive Position: Mirion views itself as a premium-priced leader in instrumentation, software, and services, particularly in the SMR and digital transformation sectors.

Risks and Challenges:

• Margin Pressure: Short-term margin contraction in Nuclear/Safety due to Paragon legacy contracts and AI/cyber investment front-loading; Medical margins impacted by one-time quality costs.
• Regulatory/Geopolitical: Uncertainty regarding EU funding approvals for French new-build projects; cautious outlook on China's medical market and new-build de-booking in China.
• Inflation: Rising input costs, though partially mitigated by procurement programs and escalation clauses in new contracts.
• Execution Risk: Potential delays in SMR project timelines, though current data suggests acceleration rather than slowing.

Management Commentary and Tone:

• Tone: Highly confident and bullish regarding nuclear sector tailwinds and backlog visibility.
• Strategic Shift: Leadership explicitly pivoted from near-term margin targets to long-term growth, citing the need to invest heavily in AI and cybersecurity to capture generational opportunities.
• Order Visibility: Emphasized that current backlog provides 95% revenue visibility for the full year, significantly de-risking the outlook.
• Capital Allocation: Reiterated a "20-40-40" model (20% Capex/Organic Growth, 40% M&A, 40% Shareholder Returns) with a strong focus on deleveraging before accelerating buybacks in 2027.

Analyst Questions and Answers:

• AI Investment: Clarified that ~$4M has been spent YTD (likely ~$5M+ for full year) on AI infrastructure, internal productivity, and customer-facing product development; returns expected to materialize over time, not immediate breakeven.
• Nuclear Margins: Underlying margins remain strong; Q3 contraction was due to Paragon mix and specific development spend. Expect best margin expansion quarter of the year in Q4.
• Capital Allocation: Prioritized deleveraging to sub-3.0x net leverage in Q4 before evaluating further share repurchases in 2027.
• SMR Pricing: No specific dollar-per-MW guidance update for 2027, but directionally expected to be higher due to expanded scope and longer lifespans.
• Order Mix: Orders reflect a mix of new builds, SMRs, and installed base upgrades; backlog conversion is accelerating into 2026 and 2027 rather than being solely long-term.
• Medical Outlook: Cautiously optimistic; RTQA driving growth, with hospital end-of-year activity boosting Q4 expectations.

Other Key Points:

• Backlog: Total backlog reached $1.25 billion (up from $816 million last year). Current year backlog recognition projected at $292 million vs. $212 million last year.
• Digital Transformation: First digital upgrade of a reactor protection system for a large operating plant has shipped with installation beginning November.
• Paragon Performance: Core Paragon business net accretive to margins, but specific instrumentation and control initiatives require higher development spend.
• Share Repurchase: Board approved new $250M program in August; $235M remaining.
• FX Impact: EUR/USD rate of 1.12 used for full-year guidance; FX provided a slight tailwind in Q3.