Mirion Technologies, Inc.

Moat: 1/5

Understandability: 4/5

Balance Sheet Health: 4/5

Mirion Technologies, Inc. is a global provider of radiation detection, measurement, analysis, and monitoring products and services, primarily serving the medical, nuclear, defense, and research industries.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Mirion’s business model is complex, spanning several highly regulated industries. The company’s performance is intertwined with specific sector-driven factors, and any individual investor should be wary of taking an active approach with the stock.

Business Overview:

Mirion Technologies operates in a niche market, providing radiation detection and measurement solutions to diverse industries. Their operations are divided into two main segments:

Medical: This segment supplies medical device manufacturers, diagnostic centers, and medical facilities with products used in imaging, therapy, and patient monitoring. The company’s products include ionization chambers, radiation sensors, and software for medical devices.
Industrial: This segment provides solutions to government agencies, industries, and research facilities. Products here are used in nuclear power plants, defense and security applications, environmental monitoring, and industrial control processes. The solutions include sensors, monitoring equipment, and software for radiation protection and detection.

Mirion differentiates itself through a broad product portfolio, a large installed base, and established relationships with major end-users of its products and services, while the company’s products are used in the most crucial aspects of multiple industries. Many products are tailored to specific customer needs.

While a leader in the niche market, Mirion is not a household name due to the technical nature of its business and clients.

Financials:

Recent Quarterly Results and Full-Year 2022 Performance (as detailed in the FORM 10K for 2022 filed February 28, 2023, and Form 10-Q for the quarterly periods):

Revenue: Net sales for the year ended December 31, 2022 totaled $752.8 million (USD).
Net Income: The company posted a full year loss of $87 million in net income for 2022 which was primarily due to a $90 million loss on early debt repayment and restructuring cost, a 64 million goodwill impairment and tax differences.
Gross Profit: Consolidated gross profit margins came in at 40.7% for 2022 with a gross profit of $306.2 million.
Income From Operations: Income from operations totaled $43.5 million for the full year 2022.
Cash Flow: The company showed $39.5 million in cash flows from operations in 2022. This is a significant decline from the previous year.
Capital Expenditures: The company spent $31.4 million in capital expenditures.
Acquisitions: As a result of the Business Combination, the company’s consolidated financials have included Mirion Technologies, LLC results from November 1, 2021. During 2022, the company announced two acquisitions. The most significant of these was the acquisition of Sun Nuclear.

The full effect of the acquisitions is still making its way through the financials. A large amount of one-time costs associated with acquisitions are still in the process of being reflected on the income statements, making the financials challenging to interpret.

2023 Q1 Results: Q1 revenue of $176.3 million was a 15.8% decrease YoY. They reported a net loss of $12.6 million and positive free cash flow of $12.4 million.

Management mentioned on the Q1 earnings call that they expect the effects of the cyber incident in November to persist until Q2, and it will also impact a large volume of sales (which may get pushed out to the following quarter)

2023 Q2 Results: Q2 revenue of $190 million was a 7.2% increase YoY. They reported a net loss of $13.2 million and a free cash flow of $4 million.

Management mentioned on the Q2 earnings call that there are expectations for better performance in the second half of the year and that their revenue and earnings should begin to improve.

2023 Q3 Results: Revenue of $187.2 million down YoY and net loss of $11.9 million with a free cash flow of $10.5 million.

Management highlighted in the Q3 earnings call they are seeing growth in Medical and Nuclear markets, a decline in growth for the Homeland Security market. They are reducing prices on certain products to remain competitive, which will result in some short-term revenue headwinds, but will allow for long term customer acquisitions. They are also looking to streamline operations for cost saving measures.

Moat Analysis

Intangible Assets: Mirion benefits from intangible assets such as a brand and long-standing customer relationships in various industries. The company has been operating in the industry for a long time and has built a relationship with medical companies that incorporate their sensors into their devices. However, these aren’t particularly significant, since there is competition in the industry.
Switching Costs: In many cases, the integration of Mirion’s products with their clients’ offerings creates high switching costs. For example, companies relying on the integration of Mirion’s sensors in medical machinery would have a difficult time switching, since they may need to change their production process, which can take a lot of time and money. However, there are many companies in the market that offer similar products and solutions.
Cost Advantages: Mirion benefits from a unique production process and access to highly specialized materials, which could give them a slight cost advantage over peers. However, it is not enough to give it a clear competitive advantage.
Network Effects: The company does not benefit from any notable network effect.
Scale Advantages: Mirion has scale as it is already a large company with high revenues, but the benefits do not seem to be creating an advantage compared to its peers.

Moat Rating: 1 / 5

Mirion’s moat is weak. The company does have some intangible assets and switching costs which give the company a small competitive edge, but there are many players in this market, and this results in the lack of a durable advantage compared to peers. Competitors will eventually catch up with any advantages held by Mirion.

Risks to the Moat & Business Resilience

Technological Disruption: Rapid technological innovation in radiation detection and measurement could lead to the obsolescence of Mirion’s current products and services, as well as create new competition from new innovative companies. In the tech space, there are always newer and better products that threaten incumbents.
Competition: The market is competitive, with rivals aggressively vying for market share, which can pressure pricing and margins. They are constantly trying to win business from each other, which can diminish the company’s pricing power and profitability.
Regulation: Mirion is subject to intense regulation by government and industry bodies. Changes to these regulations could impose new standards or restrictions that may hurt revenues.
Economic Sensitivity: Mirion’s client base is in industries that are vulnerable to economic downturns (e.g., government, hospitals). Economic slowdowns can create lower demand for Mirion products and services, affecting the company’s performance. In the event of an economic downturn, government agencies and hospitals will reduce their budgets, and may not choose to make any new investments, therefore affecting sales.
Acquisition Integration: Mirion’s growth strategy involves acquisitions. If the integration process does not go well, the company may not be able to realize all the benefits promised, and new inefficiencies may be created.

However, the company’s large installed base and long-standing relationships in the markets could give it a level of resilience to withstand short-term issues, as clients are usually locked in with the company’s products and services. Furthermore, they are in markets that are typically always in demand, so in theory they should face less cyclicality. They also are continually cutting operating costs, which will improve profitability and reduce risk.

Overall, while the company’s business is in a necessary market with stable demand, there are external market factors that will play a large part in the growth and sustainability of the business, and this includes new technologies and competitors.

Understandability Rating: 4 / 5

The company’s business is relatively complex, spanning different industries and having varied financial components and accounting practices associated with acquisitions. The technical nature of its niche market and products makes it hard to fully understand the company. It also requires one to go through their financial statements and try to put together a picture of the company’s performance. However, the overall operations can be understood given time and effort, and that is why the company scores a 4 here.

Balance Sheet Health: 4 / 5

Mirion’s balance sheet appears relatively healthy, but not perfect.

The company has a large amount of intangible assets from its acquisitions- this can be a concerning trend if these intangible assets are impaired. However, since the company has a long track record of growth they should be able to create value from them.
The company’s long-term debt is elevated ($824.5 million) but manageable considering their revenues. The fact that the company is generating free cash flows means that they will be able to reduce debt levels and manage debt payments relatively easily.
They have current assets higher than current liabilities, but have a low quick ratio. They also have a good amount of available cash on their balance sheet.
The company was affected by the cyber-security incident in 2022, and they expect that to continue to impact revenue up through Q2 of 2023 which should be followed by improvements in subsequent quarters.

Overall, the company has a good balance sheet with some financial risks that are normal.