Mirion Technologies, Inc.: Form 10-Q for the period ended Mar 31, 2024

You should read the following discussion and analysis of Mirion’s financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes of Mirion Technologies, Inc. that are included elsewhere in this Quarterly Report on Form 10-Q as well as our audited consolidated financial statements and the notes related thereto for the year ended December 31, 2023 that are included in our Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section entitled “Risk Factors” included in this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K. Unless the context otherwise requires, references in this section to “we,” “us,” “our,” “Mirion” and “the Company” refer to the business and operations of Mirion Technologies, Inc. and its consolidated subsidiaries. Unless the context otherwise requires or unless otherwise specified, all dollar amounts in this section are in millions.

Overview

We are a global provider of products, services, and software that allow our customers to safely leverage the power of ionizing radiation for the greater good of humanity through critical applications in the medical, nuclear and defense markets, as well as laboratories, scientific research, analysis, and exploration.

We provide dosimetry solutions for monitoring the total amount of radiation medical staff members are exposed to over time, radiation therapy quality assurance solutions for calibrating and verifying imaging and treatment accuracy, and radionuclide therapy products for nuclear medicine applications such as shielding, product handling, medical imaging furniture, and rehabilitation products. We provide robust, field-ready personal radiation detection and identification equipment for defense applications and radiation detection and analysis tools for power plants, labs, and research applications. Nuclear power plant product offerings are used for the full nuclear power plant lifecycle including core detectors, essential measurement devices for new build, maintenance, decontamination and decommission, and equipment for monitoring and control during fuel dismantling and remote environmental monitoring.

We manage and report results of operations in two business segments: Medical and Technologies.

• Our revenues were $192.6 million for the three months ended March 31, 2024 and $182.1 million for the three months ended March 31, 2023, of which 34.7% and 36.5% were generated in the Medical segment for the three months ended March 31, 2024 and 2023, respectively, and 65.3% and 63.5% were generated in the Technologies segment for the three months ended March 31, 2024 and 2023, respectively.
• Backlog (representing committed but undelivered contracts and purchase orders, including funded and unfunded government contracts) was $840.5 million and $857.1 million as of March 31, 2024, and December 31, 2023, respectively.

Key Factors Affecting Our Performance

We believe that our business and results of operations and financial condition may be impacted in the future by various trends and conditions, including the following:

• **International Conflict such as the Russia-Ukraine conflict and conflict in the Middle East—**International conflict such as the Russia-Ukraine conflict has impacted and may continue to impact us, and conflict in the Middle East may impact us in the future, including through increased inflation, limited availability of certain commodities, supply chain disruption, disruptions to our global technology infrastructure, including cyberattacks, increased terrorist activities, volatility or disruption in the capital markets, and delays or cancellations of customer projects.
• **Inflation and Interest Rates—**We continue to actively monitor, evaluate and respond to developments relating to operational challenges in the current inflationary environment. Global supply chain disruptions and the higher inflationary environment remain unpredictable and our past results may not be indicative of future performance. In addition, the increase in interest rates has in turn led to increases in the interest rates applicable to our indebtedness and increased our debt service costs.
• **Tariffs or Sanctions—**The United States imposes tariffs on imports from China and other countries, which has resulted in retaliatory tariffs and restrictions implemented by China and other countries. There are, at any given time, a multitude of ongoing or threatened armed conflicts around the world. As one example, sanctions by the United States, the European Union, and other countries against Russian entities or individuals related to the Russia-Ukraine conflict, along with any Russian retaliatory measures could increase our costs, adversely affect our operations, or impact our ability to meet existing contractual obligations.
• **Medical end market trends—**Growth and operating results in our Medical segment are impacted by:
• Changes to global regulatory standards, including new or expanded standards;
• Increased focus on healthcare safety;
• Changes to healthcare reimbursement;
• Potential budget constraints in hospitals and other healthcare providers;
• Medical/lab dosimetry growth supported by growing and aging demographics, increased number of healthcare professionals, and penetration of radiation therapy/diagnostics; and
• Medical radiation therapy quality assurance (“RT QA”) growth driven by growing and aging population demographics, low penetration of RT QA technology in emerging markets, and increased adoption of advanced software and hardware solutions for improved outcomes and administrative and labor efficiencies.
• **Strategic transactions—**A large driver of our historical growth has been the acquisition and integration of related businesses. Our ability to integrate, restructure, and leverage synergies of these businesses will impact our operating results over time. From time to time we also divest businesses, which could also impact our operating results.
• **Environmental objectives of governments—**Growth and operating results in our Technologies segment are impacted by environmental policy decisions made by governments in the countries where we operate. Our nuclear power customers may benefit from decarbonization efforts given the relatively low carbon footprint of nuclear power to other existing energy sources. In addition, decisions by governments to build new power plants or decommission existing plants can positively and negatively impact our customer base.
• **Government budgets—**While we believe that we are poised for growth from governmental customers in both of our segments, our revenues and cash flows from government customers are influenced, particularly in the short-term, by budgetary cycles. This impact can be either positive or negative.
• **Nuclear new build projects—**A portion of our backlog is driven by contracts associated with the construction of new nuclear power plants. These contracts can be long-term in nature and provide us with a strong pipeline for the recognition of future revenues in our Technologies segment. We perform our services and provide our products at a fixed price for certain contracts. Fixed-price contracts carry inherent risks, including risks of losses from underestimating costs, operational difficulties and other changes that may occur over the contract period. If our cost estimates for a contract are inaccurate or if we do not execute the contract within our cost estimates, we may incur losses or the contract may not be as profitable as we expected. In addition, even though some of our longer-term contracts contain price escalation provisions, such provisions may not fully provide for cost increases, whether from inflation, the cost of goods and services to be delivered under such contracts or otherwise.
• **Research and development—**A portion of our operating expenses is associated with research and development activities associated with the design of new products. Given the specific design and application of certain of these products, there is some risk that these costs will not result in successful products in the market. Further, the timing of these products can move and be challenging to predict.
• **Financial risks—**Our business and financial statements can be adversely affected by foreign currency exchange rates, changes in our tax rates (including as a result of changes in tax laws) or income tax liabilities/assessments, changes in interest rates, recognition of impairment charges for our goodwill or other intangible assets and fluctuations in the cost and availability of commodities.
• **Global risk—**Our business depends in part on operations and sales outside the United States. Risks related to those international operations and sales include new foreign investment laws, new export/import regulations, and additional trade restrictions (such as sanctions and embargoes). New laws that favor local competitors could prevent our ability to compete outside the United States. Additional potential issues are associated with the impact of these same risks on our suppliers and customers. If our customers or suppliers are impacted by these risk factors, we may see the reduction or cancellation of customer orders, or interruptions in raw materials and components.

Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the United States. (“GAAP”). However, management believes certain non-GAAP financial measures provide investors and other users with additional meaningful information that should be considered when assessing our ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating, and planning decisions, and in evaluating our performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures presented by other companies. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

In particular, we use the non-GAAP financial measures “EBITA,” “EBITDA,” and “Adjusted EBITDA." "Adjusted EBITDA" is used in the calculation of the First Lien Net Leverage Ratio in the 2021 Credit Agreement described in Note 8, Borrowings, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Tax impacts for the non-GAAP financial measures are calculated based on the appropriate tax rate for each individual item presented.

The following tables present a reconciliation of certain non-GAAP financial measures for the three months ended March 31, 2024 and for the three months ended March 31, 2023.

(In millions)

(1) Pre-tax non-operating expenses of $2.1 million for the three months ended March 31, 2024 include $1.0 million of costs to achieve integration and operational synergies; $0.6 million of mergers and acquisition expenses; and $0.5 million of costs to achieve information technology system integration and efficiency.

(2) Pre-tax non-operating expenses of $3.0 million for the three months ended March 31, 2023 include $1.4 million of restructuring costs; $0.6 million of fees incurred in connection with a secondary offering made by affiliates of Charterhouse Capital Partners, our former majority stockholder; $0.5 million of costs to achieve information technology system integration and efficiency; $0.2 million in costs to achieve integration and operational synergies; $0.2 million related to the Business Combination and incremental one-time costs associated with becoming a public company; and $0.1 million of mergers and acquisition expenses.

The following tables present a reconciliation of GAAP income from operations to non-GAAP Adjusted EBITDA by segment for the three months ended March 31, 2024 and the three months ended March 31, 2023:

(In millions)

(In millions)

Our Business Segments

We manage and report our business in two business segments: Medical and Technologies.

Medical includes products and services for radiation therapy and personal dosimetry. This segment’s principal offerings include solutions for calibrating and/or verifying imaging, treatment machine, patient treatment plan, and patient treatment accuracy; solutions for monitoring the total amount of radiation medical staff members are exposed to over time; and products for nuclear medicine in radiation measurement, shielding, product handling, medical imaging furniture and rehabilitation.

Technologies includes products and services for defense, nuclear energy, laboratories and research and other industrial markets. This segment’s principal offerings are:

• Reactor Safety and Control Systems, which includes radiation monitoring systems and reactor instrumentation and control systems that ensure the safe operation of nuclear reactors and other nuclear fuel cycle facilities; and
• Radiological Search, Measurement and Analysis Systems, which includes solutions to locate, measure and perform in-depth scientific analysis of radioactive sources for radiation safety, security, and scientific applications.

Recent Developments

Russia and Ukraine

The United States, the European Union, the United Kingdom and other governments have implemented major trade and financial sanctions against Russia and related parties in response to Russia's invasion of Ukraine. We do business with Russian customers both within and outside of Russia and with customers who have contracts with Russian counterparties. The conflict’s impact on the Company is predominantly in our Technologies segment. As of March 31, 2024, the Company has approximately $0.7 million in net contract assets and accounts receivable, net of related reserves of approximately $0.8 million for Russian customers and channel partners. The Company maintains $13.9 million in advance payment guarantees and $14.1 million in performance guarantees in support of these projects. As of March 31, 2024, we continue to experience delays in recognizing project revenue due to the trade and financial sanctions made to date. The remaining performance obligations in our backlog for Russian-related projects was approximately $153.7 million at March 31, 2024.

In April 2023, one of our Russian customers made a claim against the Company, including liquidated damages for certain delays under the terms of an active project, in the amount of $19.3 million, and sent an updated claim statement in October 2023 totaling $21 million ($18 million of which accrue daily penalties), subject to a $14 million contractual cap (all amounts converted from Euros to U.S. Dollars). In June 2023, the same customer made a demand against the Company for the return of all payments received by the Company ($10.2 million) related to a Finland nuclear power plant project cancelled in May. No legal actions have been taken to date by the customer on these matters, and management disputes these claims, believes that the Company has substantial defenses and expects to vigorously defend against these claims. However, uncertainty exists as to the resolutions of these matters, including any impact from potential modifications of the underlying active contract and/or settlement of claims for the cancelled Finland project.

The Company will continue to monitor the social, political, regulatory and economic environment in Ukraine and Russia, and will consider actions as appropriate.

Interest Rates

In connection with the Business Combination, certain of our subsidiaries of the Company entered into the 2021 Credit Agreement to refinance and replace the credit agreement from March 2019. The 2021 Credit Agreement provides for an $830.0 million senior secured first lien term loan facility and a $90.0 million senior secured revolving facility (collectively, the “Credit Facilities”). The term loan has a seven-year term (expiring October 2028), bears interest at the greater of the Secured Overnight Financing Rate ("SOFR") or 0.50%, plus 2.75% and has quarterly principal repayments of 0.25% of the original principal balance. Interest rates have been increasing during the year ended December 31, 2023 and three months ended March 31, 2024 as central banks, specifically the Federal Reserve, have been steadily raising their interest rates to reduce inflation. As a result, the interest rate for the term loan was 8.36% (including spread based upon rate term) and 7.48% as of March 31, 2024 and March 31, 2023, respectively. If the Federal Reserve and other central banks continue to raise the interest rates, the interest rate for the term loan will continue to increase. We will continue to monitor the interest rate, and will consider actions as appropriate.

Biodex Rehab Sale

On April 3, 2023, the Company closed the sale of the Biodex Rehabilitation ("Rehab") business to Salona Global Medical Device Corporation ("Salona"). As a result, Rehab operating results are included in Mirion's operating results for the three months ended March 31, 2023 but excluded from the three months ended March 31, 2024.

ec2 Software Solutions LLC and NUMA LLC Acquisition

On November 1, 2023, the Company acquired ec2 Software Solutions LLC and NUMA LLC (collectively “ec2”) for $33 million of cash consideration. Headquartered in Somerset, NJ, ec2 is a medical software company that designs, implements, and supports comprehensive software solutions servicing the nuclear medicine industry. The ec2 team and portfolio of solutions will be integrated into the Company's Medical segment, and ec2’s portfolio of solutions will play a key role in expanding the Company’s software offerings to Medical customers.

Public Warrants Redemption

As of March 31, 2024, we had a liability of $42.0 million related to 18,749,779 outstanding Public Warrants. On April 18, 2024, Mirion announced a redemption of all Public Warrants. Public Warrant holders may continue to exercise their Public Warrants until immediately before 5:00 p.m. New York City time on May 20, 2024 and receive shares of Class A Common Stock (i) in exchange for a $11.50 cash payment per warrant, or (ii) on a “cashless” basis, in which case the exercising holder will receive 0.220 of a share of Class A Common Stock for each Public Warrant (rounded down to the nearest whole number of shares across all warrants exercised at one time). Public Warrants not exercised by 5:00 p.m. New York City time on May 20, 2024, will be redeemed for $0.10 per Public Warrant.

Basis of Presentation

Financial information presented was derived from our historical consolidated financial statements and accounting records, and they reflect the historical financial position, results of operations and cash flows of the business in conformity with U.S. GAAP for financial statements and pursuant to the accounting and disclosure rules and regulations of the SEC. The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned or controlled subsidiaries. For consolidated subsidiaries where our ownership is less than 100%, the portion of the net income or loss allocable to noncontrolling interests is reported as “Income (Loss) attributable to noncontrolling interests” in the unaudited Condensed Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated in consolidation.

Results of Operations

For the Three Months Ended March 31, 2024 and the Three Months Ended March 31, 2023

The following table summarizes our results of operations for the periods presented below (in millions):

Unaudited

Overview

Revenues were $192.6 million for the three months ended March 31, 2024 and $182.1 million for the three months ended March 31, 2023. Our Medical segment contributed $66.8 million and $66.4 million of revenues for the three months ended March 31, 2024 and 2023, respectively. Our Technologies segment contributed $125.8 million and $115.7 million of revenues for the three months ended March 31, 2024 and 2023, respectively. Gross profit was $87.1 million and $79.1 million for the three months ended March 31, 2024 and 2023, respectively, resulting in an $8.0 million increase from the three months ended March 31, 2023.

Net loss was $26.5 million and $42.9 million for the three months ended March 31, 2024 and 2023, respectively. Our Medical segment contributed $1.4 million of income from operations and $0.7 million of income from operations for the three months ended March 31, 2024 and 2023, respectively. Our Technologies segment contributed $12.6 million of income from operations and $5.5 million of income from operations for the three months ended March 31, 2024 and 2023, respectively. The overall decrease in net loss is primarily driven by increased revenues in the Technologies segment, a decrease in net interest expense in the current year, decreased amortization expense in the current year due to fully amortized intangibles, lower selling, general and administrative costs associated with stock-based compensation expense, and a $7.7 million change in the loss from fair value of warrant liabilities. Offsetting these items was higher provision for/lower benefit from income taxes in the current year.

Revenues

Revenues were $192.6 million for the three months ended March 31, 2024 and $182.1 million for the three months ended March 31, 2023. Revenues increased $10.5 million from the three months ended March 31, 2023.

Medical segment revenues remained consistent for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 primarily due to price increases, organic volume growth, the current year impact of the ec2 acquisition, and a favorable foreign currency impact. Offsetting the increases in Medical segment revenues period over period was a negative impact from delayed operations in the NucMed division in February caused by the focus on a new ERP system implementation, and reduced revenues from disposal of Rehab in the prior year.

Technologies segment revenues increased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 primarily due to price increases, organic volume growth, a better product mix in the contracts, and a favorable foreign currency impact for the euro period over period, partially offset by execution delays in certain projects.

Cost of revenues

Cost of revenues was $105.5 million for the three months ended March 31, 2024 and $103.0 million for the three months ended March 31, 2023. Cost of revenues increased $2.5 million for the three months ended March 31, 2024 as compared with the three months ended March 31, 2023.

Cost of revenues related to the Medical segment decreased $0.1 million period over period due to a reduction of cost of revenues from the disposal of Rehab, the impact of delayed operations in the NucMed division in February caused by the focus on the new ERP system implementation, and a negative product mix. The decrease was partly offset by an increase in cost of revenues due to higher operations from organic growth over the same period, increased costs from the ec2 acquisition, and inflation.

Cost of revenues related to the Technologies segment increased $2.6 million period over period. The increase was primarily driven by increased revenues over the same period and inflation, partially offset by a positive product mix from higher margin projects and products in the current year, primarily from our operations in France and other parts of Europe, reduced costs of revenues due to the negative impact from operational execution delays in the NucMed division, and cost saving initiatives.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses were $84.1 million for the three months ended March 31, 2024 and $85.1 million for the three months ended March 31, 2023, resulting in a decrease of $1.0 million period over period.

Our Medical segment incurred higher SG&A expenses of $0.6 million for the three months ended March 31, 2024 compared with the three months ended March 31, 2023. The increase was primarily due to inflation and higher SG&A associated with the ec2 acquisition. Partially offsetting the increase were the disposal of Rehab and the impact of prior year restructuring.

Our Technologies segment incurred higher SG&A expenses of $0.5 million for the three months ended March 31, 2024. The increase was primarily driven by higher SG&A expenses associated with increased compensation, supplies and facility costs, partially offset by decreased amortization expense resulting from fully amortized intangible assets.

Corporate SG&A expenses were $17.1 million for the three months ended March 31, 2024 and $19.2 million for the three months ended March 31, 2023. The decrease in SG&A expenses of $2.1 million was driven by a net decrease in stock-based compensation expense under the 2021 Omnibus Incentive Plan and Profit Interests (see Note 13, Stock-Based Compensation, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), partially offset by an increase in compensation costs.

Research and development

Research and development (“R&D”) expenses were $7.9 million for the three months ended March 31, 2024 and $7.6 million for the three months ended March 31, 2023, resulting in an increase of $0.3 million period over period. The increase in R&D expense was primarily due to increased compensation costs for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Loss from operations

Loss from operations was $4.9 million for the three months ended March 31, 2024 compared with $13.6 million for the three months ended March 31, 2023. On a segment basis, income from operations in the Medical segment for the three months ended March 31, 2024 and 2023 was $1.4 million and $0.7 million, respectively, representing an increase of $0.7 million period over period. Income from operations in the Technologies segment for the three months ended March 31, 2024 and three months ended March 31, 2023 was $12.6 million and $5.5 million, respectively, representing an increase of $7.1 million period over period. Corporate expenses were $18.9 million and $19.8 million for the three months ended March 31, 2024 and 2023, respectively, representing an increase in income from operations of $0.9 million as discussed in "Selling, general and administrative expenses" above. See “Business segments” and “Corporate and other” below for further details.

Interest expense, net

Interest expense, net, was $13.8 million for the three months ended March 31, 2024 and $14.9 million for the three months ended March 31, 2023. The decrease in interest expense was due to the $125.0 million early debt repayment using proceeds from the $150.0 million T. Rowe Price direct investment and interest from derivatives in the current year, partially offset by higher interest rates associated with the 2021 Credit Agreement during the three months ended March 31, 2024 compared to the interest rates during the three months ended March 31, 2023. For more information, see Note 8, Borrowings, and Note 17, Derivatives and Hedging, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Foreign currency loss (gain), net

We recorded a $0.8 million loss for the three months ended March 31, 2024 and a $0.3 million gain for the three months ended March 31, 2023 from foreign currency exchange. The change in net foreign currency loss (gain) is due to appreciation in European local currencies in relation to the U.S. dollar.

Change in fair value of warrant liabilities

We recognized an unrealized loss of $5.7 million and $13.4 million for the three months ended March 31, 2024 and 2023, respectively, a $7.7 million reduction in loss during the period. This change is due to a smaller increase in the fair value mark-to-market of the Public Warrant and Private Placement Warrant liabilities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. See Note 16, Fair Value Measurements, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Income taxes

The effective income tax rate was (4.7)% and 2.5% for the three months ended March 31, 2024 and 2023, respectively. The difference in effective tax rate between the periods was primarily attributable to mix of earnings and the impact of valuation allowances.

The effective income tax rate differs from the U.S. statutory rate of 21% due primarily to U.S. federal permanent differences and the impact of valuation allowances.

Business segments

The following provides detail for business segment results for the three months ended March 31, 2024 and 2023. Segment (loss) income from operations includes revenues of the segment less expenses that are directly related to those revenues but excludes certain charges to cost of revenues and SG&A expenses predominantly related to corporate costs, which are included in Corporate and Other in the table below. Interest expense, loss on debt extinguishment, foreign currency loss (gain), net, and other expense (income), net, are not allocated to segments.

For reconciliations of segment revenues and operating (loss) income to our consolidated results, see Note 15, Segment Information, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Medical

Unaudited

(In millions)

Medical segment revenues were $66.8 million for the three months ended March 31, 2024 and $66.4 million for the three months ended March 31, 2023, representing a $0.4 million increase period over period. Revenues increased $4.7 million due to price increases and organic growth, $3.4 million due to the acquisition of the ec2 business, and $0.4 million due to impacts from contract execution timing. Offsetting the increase in the Medical segment revenues period over period were reduced revenues from the disposal of Rehab by $3.8 million and a negative impact from delayed operations due to the focus on a new ERP system implementation at NucMed of approximately $4.3 million.

Income from operations was $1.4 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively, representing an increase in income from operations of $0.7 million. The increase in income from operations period over period was largely due to a net income increase of $3.6 million from price increases and organic growth and a net impact from the ec2 business of $0.7 million. Offsetting the increase in income were the net decrease from the ERP system implementation impact by $2.5 million and the remainder primarily due to inflation.

Technologies

Unaudited

(In millions)

Technologies segment revenues were $125.8 million for three months ended March 31, 2024 and $115.7 million for the three months ended March 31, 2023, representing an increase of $10.1 million period over period. The increase is primarily driven by increased revenue of $10.1 million due to price increases and organic growth, $0.8 million from better product mix, and $0.3 million favorable foreign currency impact, partially offset by a $1.1 million decrease due to delays in certain projects.

Income from operations was $12.6 million and $5.5 million for the three months ended March 31, 2024 and 2023, respectively. Income from operations increased $7.1 million period over period driven primarily by the changes in revenues described above, $2.0 million in lower amortization expenses due to fully amortized intangible assets, and $0.9 million from cost saving initiatives. Partially offsetting the increases in income from operations were increased cost of revenues of $4.6 million due to higher volume, with the remainder primarily due to negative impacts of inflation.

Corporate and other

Corporate and other costs include costs associated with our corporate headquarters located in Georgia, as well as centralized global functions including Executive, Finance, Legal and Compliance, Human Resources, Technology, Strategy, and Marketing and other costs related to company-wide initiatives (e.g., Business Combination transaction expenses, merger and acquisition activities, restructuring and other initiatives).

Corporate and other costs were $18.9 million for the three months ended March 31, 2024 and $19.8 million for the three months ended March 31, 2023, which represents a decrease of $0.9 million period over period. The decrease versus the comparable period was predominantly driven by a net decrease in stock-based compensation expense of $2.1 million (see Note 13, Stock-Based Compensation, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q), partially offset by a $1.7 million increase in compensation costs. For reconciliations of segment operating income and corporate and other costs to our consolidated results, see Note 15, Segment Information, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

Overview of Liquidity

Our primary future cash needs relate to working capital, operating activities, capital spending, strategic investments, and debt service.

Mirion management believes that net cash provided by operating activities, augmented by long-term debt arrangements, will provide adequate liquidity for the next 12 months of independent operations, as well as the resources necessary to invest for growth in existing businesses and manage its capital structure on a short- and long-term basis. Access to capital and availability of financing on acceptable terms in the future will be affected by many factors, including our credit rating, economic conditions, and the overall liquidity of capital markets. There can be no assurance of continued access to financing from the capital markets on acceptable terms or at all.

At March 31, 2024 and December 31, 2023 we had $120.2 million and $128.8 million, respectively, in cash and cash equivalents, which include amounts held by entities outside of the United States of approximately $95.4 million and $105.4 million, respectively, primarily in Europe and Canada. Non-U.S. cash is generally available for repatriation without legal restrictions, subject to certain taxes, mainly withholding taxes. We are asserting indefinite reinvestment of cash for certain non-U.S. subsidiaries. The Company has alternative repatriation options other than dividends should the need arise. The 2021 Credit Agreement provides for up to $90.0 million of revolving borrowings.

There is a discussion in Note 8, Borrowings, of the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q of the long-term debt arrangements issued by Mirion. For more information on our lease commitments, See Note 9, Leased Assets, of the unaudited condensed consolidated financial statements and for other commitments and contingencies, see Note 10, Commitments and Contingencies, of the unaudited condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q.

Debt Profile

2021 Credit Agreement

On the Closing Date, certain subsidiaries of the Company entered into a credit agreement (as it may be amended, restated, supplemented, or otherwise modified from time to time, the “2021 Credit Agreement”) with the lending institutions party thereto. The 2021 Credit Agreement refinanced and replaced an earlier credit facility (the "2019 Credit Facility").

The 2021 Credit Agreement provides for an $830.0 million senior secured first lien term loan facility and a $90.0 million senior secured revolving facility (collectively, the “Credit Facilities”). Funds from the Credit Facilities are permitted to be used in connection with the Business Combination and related transactions, to refinance the 2019 Credit Facility referred to above and for general corporate purposes. The term loan facility is scheduled to mature on October 20, 2028 and the revolving facility is scheduled to expire and mature on October 20, 2026. The agreement requires the payment of a commitment fee of 0.50% per annum for unused revolving commitments, subject to stepdowns to 0.375% per annum and 0.25% per annum upon the achievement of specified leverage ratios. Any outstanding letters of credit issued under the 2021 Credit Agreement reduce the availability under the revolving line of credit.

The 2021 Credit Agreement is secured by a first priority lien on the equity interests of the Parent Borrower owned by Holdings and substantially all of the assets (subject to customary exceptions) of the borrowers and the other guarantors thereunder. Interest with respect to the facilities is based on, at the option of the borrowers, (i) a customary base rate formula for borrowings in U.S. dollars or (ii) a floating rate formula based on LIBOR (with customary fallback provisions described below) for borrowings in U.S. dollars, a floating rate formula based on EURIBOR for borrowings in Euro or a floating rate formula based on SONIA for borrowings in Pounds Sterling, each as described in the 2021 Credit Agreement with respect to the applicable type of borrowing. The 2021 Credit Agreement includes fallback language that seeks to either facilitate an agreement with our lenders on a replacement rate for LIBOR in the event of its discontinuance or that automatically replaces LIBOR with benchmark rates based on the Secured Overnight Financing Rate ("SOFR") or other benchmark replacement rates upon triggering events.

On June 23, 2023, the 2021 Credit Agreement was amended to replace the interest rate based on the London interbank offered rate (“LIBOR”) and related LIBOR-based mechanics applicable to U.S. Dollar borrowings under the Existing Credit Agreement with an interest rate based on SOFR and related SOFR-based mechanics. The interest rate under the 2021 Credit Agreement was 8.36% and 8.40% as of March 31, 2024 and December 31, 2023, respectively.

The 2021 Credit Agreement contains customary representations and warranties as well as customary affirmative and negative covenants and events of default. The negative covenants include, among others and in each case subject to certain thresholds and exceptions, limitations on incurrence of liens, limitations on incurrence of indebtedness, limitations on making dividends and other distributions, limitations on engaging in asset sales, limitations on making investments, and a financial covenant that the “First Lien Net Leverage Ratio” (as defined in the 2021 Credit Agreement) as of the end of any fiscal quarter is not greater than 7.00 to 1.00 if on the last day of such fiscal quarter certain borrowings outstanding under the revolving credit facility exceed 40% of the total revolving credit commitments at such time. The covenants also contain limitations on the activities of Mirion IntermediateCo, Inc. as the “passive” holding company. If any of the events of default occur and are not cured or waived, any unpaid amounts under the 2021 Credit Agreement may be declared immediately due and payable, the revolving credit commitments may be terminated and remedies against the collateral may be exercised.

Cash flows

For the Three Months Ended March 31, 2024 and for the Three Months Ended March 31, 2023

Unaudited

(In millions)

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $6.0 million for the three months ended March 31, 2024 as compared to net cash used of $2.7 million for the three months ended March 31, 2023, representing an increase of $8.7 million. The increase is primarily due to increases from changes in operating assets and liabilities of $6.8 million as the Company continues to focus on reducing net working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities was $12.9 million for the three months ended March 31, 2024 versus $7.5 million for the three months ended March 31, 2023. The increase in net cash used was driven primarily by a $5.3 million increase in purchases of property, plant, equipment and badges.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $0.2 million during the three months ended March 31, 2024 versus $24.6 million during the three months ended March 31, 2023. The decrease of $24.4 million period over period primarily relates to the $150.0 million of gross proceeds received from the T. Rowe direct investment in the prior year partially offset by debt repayments of approximately $125.0 million in the prior year.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. Such estimates are based on historical experience and on various other factors that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.

During the three months ended March 31, 2024, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 1, Nature of Business and Summary of Significant Accounting Policies, to our unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.

Quantitative and Qualitative Disclosures about Market Risk

We have no material changes to the disclosures on this matter for the three months ended March 31, 2024 than from the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2023.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that material information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Exchange Act) were effective.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The risk factors that affect our business and financial results are discussed in Part I, Item 1A, of the 2023 Annual report. There are no material changes to the risk factors previously disclosed, nor have we identified any previously undisclosed risks that could materially adversely affect our business and financial results.