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spk10: fourth quarter and full year 2023 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 zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Gaddy, Senior Vice President, Strategy and Investor Relations. Thank you, Mr. Gatti. You may begin.
spk03: Good morning, everyone, and thank you for joining Marion's fourth quarter and full year 2020 earnings call. A reminder, the comments made during this presentation 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 report, on Form 10-K and quarterly reports on Form 10-Q that we file from time to time with the SEC under the caption risk factors and in Marion's other filings with the SEC. Quarterly references within today's discussion are related to the fourth quarter ended December 31st, 2023. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of this presentation accompanying the call today. All earnings materials can be found on Merion's IR website at ir.merion.com. Joining me on the call today are Tom Logan, Chief Executive Officer, and Brian Shopfer, Chief Financial Officer. Now, I will turn it over to our CEO, Tom Logan.
spk01: Tom? Thank you, Alex, and good morning, everyone. Thank you all for dialing in today and for your continued support of Mirion. To kick off my commentary today, first I'd like to congratulate and thank my Mirion colleagues for helping to put together a great 2023. We delivered a record year for the company, and I'm proud of the progress we've made as a team while continuing to build a great business. Looking at the fourth quarter and the full year, there are a few things I'd like to start with. First, we closed out 2023 with record backlog generated by fourth quarter organic order growth of 30%. This is our sixth consecutive quarter backlog expansion reflecting growth of 15% compared to year end 2022. Our vertical markets are healthy and I'm encouraged by our top line coverage heading into 2024. Second, we delivered organic revenue growth of 5% in Q4, yielding $801 million of total company revenue for the year. The medical segment led the way with organic growth just under 10%. Adjusted EBITDA on the quarter was a record $61 million, contributing to a full year result of a record $181 million. Third, we generated $62 million of adjusted free cash flow in the fourth quarter, resulting in net leverage finishing the year at 3.0 times EBITDA, beating expectations. I'm extremely proud of the team's execution against the cash and leverage targets we laid out early in 2023. And this performance bolsters our confidence and sustained momentum in this area in 2024. Finally, we've initiated financial guidance for 2024. For the full year, we're expecting organic revenue growth of 4% to 6%, adjusted EBITDA of $193 to $203 million, and adjusted free cash flow of $65 to $85 million. Moving on to panel four, I'd like to address 2023 orders performance and our end market conditions in greater detail. Beginning with the medical segment and specifically our radiation therapy business, we remain encouraged by the positive momentum we've generated in the European market by bolstering our sales and support capabilities in the region. In the U.S., our sales reps have reported some nominal improvements in overall market conditions, reversing some of the negative trends we saw through much of 22 and 23, triggered by widespread post-pandemic financial pressures in the U.S. healthcare system. Our digital and new product portfolios remain key areas of focus for growth, and we expect a strong 2024 in radiation therapy. Within occupational dosimetry, the business remains well positioned as we commercialize the next generation of insta-dose technology this year. Core services and hardware demand remain well supported heading into the new year. Lastly, recent trends in the nuclear medicine market continue to support our belief that that this segment will be a strong growth engine for us. Early results from the EC squared acquisition are encouraging and the integration is proceeding on pace. Our early experience confirms the view that EC squared will meaningfully improve Miriam's position to meet the growing demand stemming from Theranostic applications for cancer care. This revolution in nuclear medicine is enhancing the ability for physicians, to more accurately image, diagnose, and treat cancer, yielding improved patient outcomes and reduced treatment costs. EC2 accelerates our commitment to digitizing the medical portfolio, supporting higher levels of recurring revenue and expansion into adjacent niches within the nuclear medicine value chain. As a final note, our medical exposure, inclusive of technology's products being sold into medical channels, now constitutes 38% of total company revenue and 44% of total company EBITDA. Moving on to the technology segment and beginning with nuclear power, 2023 order growth was extremely robust supported by the large orders we reported in Q3. The installed base remains a strong driver and an important focal point of sustained and defensible growth for Marion going forward. We are encouraged by the global pipeline of new build opportunities and expect to take advantage of the growing and accelerated commitment to utility-scale nuclear power. Popular and political support continues to improve, and we've seen governments across the globe declare nuclear power as a green energy source, something we strongly believe in and support. This is perhaps best exemplified by the commitment made at the UN COP28 Climate Change Conference to triple net nuclear operating capacity by the year 2050. Not withstanding the extraordinary magnitude of this goal, this commitment underscores the positive overall momentum we are seeing across the globe. Moving on to the labs and research end markets, the dynamics are constructive. More than 60% of our business in this segment is driven by DOE funding, where we anticipate continued support. Workforce retention dynamics are tight within the national lab system, creating an opportunity for us to sell more value added services. We are seeing favorable growth in Asia, new big science projects, and an increased opportunity in crossover radiopharmaceutical capital equipment. In defense, momentum is supported by the booking of approximately $20 million in nontraditional defense orders in Europe in 2023. And in addition, we see a strong pipeline for the global military and defense markets in 2024. Before I pass the mic over to Brian, there are a few areas of focus that I'd like to highlight for 2024. First, we expect to release more than 40 new product introductions and enhancements this year. That represents a substantial increase of the 10 new product launches we saw in 2023. This reflects our commitment to be the innovation leader in our space with an increasingly digital flavor. Second, as we exit a year of solid financial performance, we're keeping the pedal down, focusing on margin expansion and enhanced free cash flow conversions. As we've said in the past, our five-year goal is for 30% adjusted EBITDA margins for the enterprise. We're increasingly confident in our ability to deliver upon that goal within our planning horizon and expect to take a meaningful step forward in 2024. Finally, we are committed to capital efficiency coupled with smart, opportunistic M&A. The M&A pipeline is robust, and we will continue to evaluate opportunities on a highly selective basis. 2023 was a big step forward where we continue to be active in M&A while reducing leverage from 4.4 times at the start of the year to 3.0 times at the end of 2023. With that, I'll now pass the call over to our Chief Financial Officer, Brian Schoffer. Brian?
spk04: Thanks, Tom, and good morning, everyone. With my comments started, please turn your focus to slide five for a deeper look at our fourth quarter and full year results. For the fourth quarter, total company revenue grew by 5.7%, and adjusted EBITDA was up 8.2% compared to the same period last year. Fourth quarter revenue was $230.4 million, and organic growth was 5.3%. Adjusted EBITDA for the fourth quarter was $61 million, and adjusted EBITDA margins expanded by 60 basis points. It is worth noting that we were comping a 19% organic growth quarter from Q4 2022. For the full year, total company revenue was up 11.6% and adjusted EBITDA grew 9.7%. 2023 revenue was $800.9 million and organic growth was 9.3%. We delivered $180.7 million of adjusted EBITDA for 2023 with margins of 22.6%. As we've talked about all year, the net impact of acquiring SIS and divesting Biodex impacted margins by approximately 70 basis points. Moving along to take a closer look at segment performance, starting with medical on slide six. Beginning with fourth quarter results, medical revenue grew 6.8% with organic growth of 9.6% and a net inorganic revenue impact of 3.2% from the Biodex divestiture. This was slightly offset by the EC Squared acquisition it closed in November. The RTQA business led the segment in Q4 on the back of continued strong international sales momentum through our European Sales and Service Center. This business was comping 24% organic growth from Q4 2022. Medical adjusted EBITDA margin performance was excellent in the fourth quarter, expanding by over 500 basis points to 38.5%. Performance was supported by strong operating leverage, product mix, and solid execution across the segment, in addition to positive benefits from the Biodex divestiture and the EC squared acquisition, which were both accretive to margins. As a reminder, Q1 2024 will be the last quarter of a benefit from exiting the Biodex rehabilitation business. For the full year, medical revenue was up 4.7%, with organic products growth of 8.1%, being partially offset by the Biodex divestiture. Our RTQA and Phantoms businesses were the strongest performers in the year. This brings our two-year stacked organic growth in the segment to over 23% in the medical. Medical adjusted EBITDA margins expanded 220 basis points to 34.2%. The biodex divestiture was a positive tailwind for margins delivering approximately 150 basis points of support for the full year. The medical team executed well across the board and we certainly look forward to carrying this momentum into 2024. Now moving along to the technology segment on slide seven. For the fourth quarter technologies revenue grew by 5.1% with organic growth of 3% for the quarter. Our international business in France and Asia, mainly Korea, led the way. This is a strong result after an outstanding fourth quarter last year where the team had delivered approximately 17% organic growth. Technologies adjusted EBITDA margin contracted by 70 basis points versus the fourth quarter last year to 29.5%. Margin degradation was driven again by our French business, which experienced a number of challenges in the fourth quarter. including product mix headwinds and broader operational challenges. I will get into more detail here shortly on the corrective actions we've put in place. For the full year, technology's revenue grew by 15.8%. Organic growth contributed 10.1%, with inorganic growth adding 4.6%. Growth was supported by broad-based top-line strength across the segments. As Tom noted, we continue to see robust order activities within our technology and markets. Our four-year adjusted EBITDA margin in technologies contracted by 160 basis points to 26.2%. The SIS acquisition negatively impacted adjusted EBITDA margins by approximately 120 basis points. As we turn the page to 2024, technologies margin expansion is a central area of focus for us. with the largest areas of opportunity being in our French business in advancing the integration of the SIS acquisition. Tom and I have been working with the team in Europe and diving deeply into how we're going to significantly improve operational execution in the region in 2024. We've already taken corrective actions and believe we have the right people and plans in place to deliver targeted improvements. However, I recognize this is a journey that will take time. but I do expect to see improvement in the first half of the year. Tom and I will be spending more time with the team to ensure execution and monitor progress. Now let's turn the page to slide eight for cashflow and leverage. Fourth quarter adjusted free cashflow was $61.5 million bringing full year adjusted free cashflow to $73.8 million. Networking capital generated approximately 27 million of cash in the quarter and resulted in a positive contribution to cash flow for the full year. This result is another great step in the journey and supports our momentum heading into 2024. Networking capital management, specifically inventory, will continue to be an area of focus for us as we aim to improve inventory efficiency, management of payables, and accelerated collections. Looking at our progression against our leverage commitment, we executed well and brought our net leverage ratio down to 3.0 times as of December 31st, beating our target for the year. As Tom mentioned, we will continue to take a very measured approach to capital allocation and prioritize driving margin expansion and cash flow conversion in 2024. Absent M&A and at the midpoint of guidance, would result in ending that leverage of approximately 2.5 times by the end of 2024. As usual, our M&A strategy will reflect a highly selective filtering and evaluation process with clear investment criteria aligned to our strategy and vision. Finally, let's turn over to slide nine to look at our financial guidance for 2024. We are projecting organic growth of four to 6% supported by mid single organic growth from both segments revenue growth is expected to be five to 7% with fx expected to having to have minimal impact in the EC squared acquisition. projected to provide one point of inorganic top line growth, I am anticipating a more balanced quarterly phasing for the year from an organic growth standpoint. Our adjusted EBITDA range for 2024 is targeted between $193 and $203 million, with margins between 23 and 24%. Price-cost initiatives, inclusive of a heavier focus on material and indirect spend, higher volumes and product mix, are all anticipated to be positive drivers for adjusted EBITDA margin expansion. It is worth noting that our guidance also includes an increased investment to improve our effective tax rate. We expect these investments will provide some benefit in 2024 with continued investment and progress also expected in 2025. We will update you in the coming quarters as progress is made, and we have more color to provide on impact and timing expectations. Adjusted EPS is expected between 37 and 42 cents, while we project adjusted free cash flow in the range of $65 to $85 million. From a cash flow perspective, 2024 will likely mirror 2023's cadence with more contribution in the second half. However, unlike 2023, we are expecting to be cash flow positive in the first half of the year. Other modeling considerations for 2024 include approximately 200 million Class A shares outstanding, an effective tax rate between 26 and 28%, non-ops cash expense of approximately $9 million, mainly made up of IT initiatives around ERP, and a U.S. dollar to euro exchange rate of 1.08. In closing, we had a really solid year in 2023 and certainly a strong finish in the fourth quarter. For 24, we will be highly focused on delivering margin expansion, leveraging positive momentum in cash flow conversion, and continuing to be good stewards of capital. With that, I'll pass things back to Tom for his closing remarks.
spk01: Brian, thanks. Before we open up the floor for your questions, a couple of key themes are worth repeating as we think about 2024. First, our top-line growth is visible, supported by robust order growth, healthy markets, and a record backlog. Second, the team is aligned and focused on our top strategic priorities, which include driving margin expansion, improving cash flow conversion, accelerating digitization efforts, and enhancing our diverse portfolio of products, services, and software. Finally, we have confidence in our 2024 guidance initiated today. 2023 was a good year, and we're building on that momentum in every corner of the enterprise. I'll now pass it over to Alex Gaddy to open things up for Q&A. Thank you, Tom.
spk03: That concludes our formal comments this morning. Operator, let's please go ahead and start the Q&A session.
spk07: Thank you. We will now be conducting a question and answer session.
spk10: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. The first question comes from the line of Joe Ritchie with Goldman Sachs Asset Management. Please go ahead.
spk06: Thanks. Good morning, guys, and nice end to the year. Thanks, Joe. Morning, Joe. Hey, Tom, I think I'd like to start on the new product introductions. That's really interesting, increasing that fourfold in the coming year. I'd love to hear your thoughts on how you think about payback associated with those new products and ultimately how that translates into better revenue growth for the company going forward.
spk01: Sure. Great question, Joe. The starting point is that You know, a comment that we've made with some frequency historically is that we pride ourselves on being what we believe to be the innovation leader in our space. In aggregate, our view is that we spend more money on engineering, broadly speaking, R&D specifically, than the people we compete against. And ultimately, the measure of that is the cadence of new product offerings that we're putting out into the marketplace overall. The screening process that we follow as it relates to innovation is really a foundational component of our business system and effectively follows a broader capital allocation process where we do deep dives annually on market segments that are of great interest to us. That in turn drives the relative R&D commitment allocated to various corners of the business, and that ultimately is what results in new product offerings. Our expectation, generally speaking, when you look at the flavor of what is being introduced, the nature of our focus is that we're in the midst of a gradual but systematic digital conversion within our business. And of course, the hoped for result there is that we see a concurrent change in revenue composition that's driving us more toward a higher degree, a higher component of predictable, visible recurring revenue versus one-off capital equipment sales overall. So that is the biggest impact overall. But to be clear, innovation is one of the major factors that historically over the last two decades has allowed us to outgrow our markets.
spk06: Got it. That's super helpful. And maybe the follow-up to that is, is it concentrated then more in, like, the medical or technology segment, or are the bets pretty well spread throughout?
spk01: No, it is actually remarkably symmetrical across the operating groups and, again, just kind of reflective of the key priorities that you've heard us articulate over the years.
spk06: Okay. Makes a lot of sense. Can you guys maybe elaborate on what's happening in Fran and and within SIS, and you referenced that you feel confident about being able to get the margins back. You mentioned that it impacted your margins by about 120 basis points for the entire year. So just any color around, you know, like the margin expansion opportunity within technologies, particularly associated with the issues that you're currently dealing with.
spk01: Sure. Yeah, Joe. So I, I don't think we want to go too deeply down that hole, but what I will say is that it's a combination of factors. One is there's a bit of mix in there, uh, and understand that in the French market in particular, uh, as the, the, you know, the dominant customer, uh, in, in country EDF has, has gone through struggles that has had some attendant impact on, uh, uh, you know, some of our execution capabilities and just predictability of that business. But we do see that improving, and we see it improving, I think, measurably in the year ahead. In addition, there have been a series of kind of one-off events that are non-recurring in nature that we don't expect to have any bearing on our corrective action pathway as we move ahead. But maybe the most important point, and I think Brian articulated this well, we've been very actively and directly involved in the region. We've made some organizational changes supporting our near-term objectives and a number of process changes. We believe we have the right people and the right approach to get this thing back on the rails. Very, very confident that we're going to do that in 2024.
spk04: I think on SIS, a couple of things, right? One, that margin contraction on our end was planned, right? Because we, you know, comped seven months without having it. And when we bought this business, we knew it was a little bit of a fixer-upper that we needed to do. I think we made tremendous kind of quarter-on-quarter progress all year in that business. And I think you'll continue to see that be a little bit of a tailwind for us in 2024. on the margin expansion side.
spk06: Great. One more question before I pass it on to somebody else. I have to ask about orders. It was a great year for you guys, over 20% growth in orders, another really robust quarter. Last quarter, you guys gave us some good color just around the two big orders that you booked. I'm curious, two things. Number one, just more color around what you saw in your business in the fourth quarter. And then ultimately, you know, how does that ultimately translate into revenue growth, right? Because, you know, you put up over 20% order growth, but expectation for mid-single-digit growth this year organically. So just any color around the either, you know, the longer cycle nature of some of the orders that you're booking.
spk04: Sure. A couple things, right? First off, you know, we did book another larger nuclear power order. about $20 million in the corner into Asia, mainly Korea. So there's that. I think the thing to think about here is this year was specifically a nuclear power, candidly, just a very good year. And I think we've commented that we don't think this is a completely one-time event. We think we'll continue to see good momentum in this business. But if you look at our nuclear power orders this year, right, about a third of those orders traded in 23, about a third of them trade in 24, and about a third of them trade kind of 24 and beyond. And those are a little bit round numbers. But the point is, it is longer cycle in nature. And I think it just continues to secure kind of the longer term visibility of our revenue, you know, out beyond, you know, just the next couple of quarters.
spk08: Makes a lot of sense. Great, guys. Thank you.
spk07: Thanks, Joe. Thank you. Next question comes from the line of Chris Moore with CJS Securities.
spk10: Please go ahead.
spk05: Hey, good morning, guys. Thanks for taking a few. Morning, Chris. Good morning. Maybe I'll just follow up on one of Tom's prepared comments. So you talked about the commitments at the COP28 climate conference. So I guess the question is, you know, what would it take to achieve tripling, you know, in net nuclear power output, and what does this mean for Mirion over the longer term?
spk01: Yeah, so firstly, as it relates to what it would take, I mean, it really is an extraordinary, you know, statement of intent coming out of this climate change conference. Firstly, I think it's notable because traditionally – this constituency overall has not really embraced nuclear power to the extent that we feel they should have. And it's great to see such a clear official policy statement coming out of this group overall. But in terms of the magnitude of what's being called for, it truly is extraordinary. Today, if you look at total installed nuclear capacity globally, it's roughly 400 gigawatts or so. of total nuclear power. A tripling of that capacity between 2050, if you're just to do the mental math, firstly takes you up to a level of 1.2 terawatts of total power, and that's in the face of a decommissioning profile that will be accelerating. So of the existing 400 gigawatts of installed capacity, You know, probably close to half of that is scheduled for decommissioning between now and 2050, notwithstanding life extensions. So the number in aggregate is enormous. And effectively, what it would take for the world to do that, if the solution came purely through utility-scale nuclear power and not through the more likely balance or combination of utility-scale and small modular reactors, but just to, you know... answer it more easily. If it came purely through utility-scale nuclear power, that essentially would imply a build-out rate or annual commencement rate of new nuclear projects of about 40 per year beginning in 2030, recognizing that between now and the end of the decade, essentially everything that will happen is already in the pipeline. And so the acceleration of activity in the nuclear markets would be extraordinary. That's essentially a quadrupling of the cadence that we've seen over a sustained period of time. The implications for us, if this were to happen, or even if it's only an approximation of what might happen, obviously are very positive, given the fact that we participate broadly with all of the major nuclear sponsors in the world. And we, you know, notwithstanding the fact that the installed base is the largest revenue source for us coming out of nuclear power, you know, the front end leverage, the front end kicker that we enjoy from new build activity is significant. So, you know, overall, again, very positive statement. And I think it's simply reflective of just, you know, how robust the political and popular support is for nuclear power today and how that's likely to have staying power.
spk05: Wow, very interesting. Maybe staying with nuclear, but switching over to medicine. So you talked about, you know, theranostic developments within cancer care. Can you talk maybe what the momentum in that space, you know, means to Marion going forward?
spk01: Yeah, it's an area that we're hyper-focused on, Chris. The You know, the general view is that the nuclear medicine market overall, and specifically the so-called theranostic market, will grow at a tremendous clip. I think GE announced a week or so ago that they expected about a four and a half times increase in the overall market opportunity. And this was... in a specific discussion about a recent acquisition they had done. Our view is that, again, just given the remarkable dynamics that we're seeing in this market and the clinical efficacy and cost dynamics associated with theranostic applications, that we certainly believe this will be inarguably the fastest growing market segment that we plan overall. We've been very focused on building out our capabilities in this market. Firstly through the acquisition of cap and tech following that the acquisition of biodex and now most recently with the acquisition of EC squared and the, perhaps the biggest benefit of EC squared is that we're beginning to pivot the business from a almost entirely a capital equipment business where the biggest demand driver was new clinic growth rather than procedural volumetric growth. And with the acquisition of EC2, it gives us the opportunity, firstly, to benefit more richly from, again, volumetric growth and procedures. But secondly, it gives us the opportunity to really kind of change the nature of our go-to-market strategy with our capital equipment. By buying the largest player domestically in the nuclear medicine workflow software market, again, it gives us the ability to effectively... drive this business toward, you know, more of a software business supported by capital equipment rather than the converse. And so, you know, we continue to be focused on that and that broad-based shift again toward kind of floating our boat on the tide of volumetric growth rather than clinic growth.
spk05: Got it. Very helpful. Maybe just last one from me on free cash flow guidance. Midpoint is looks at about $75 million. That's roughly 40% conversion from EBITDA. Longer term, is that 50% target still what you're looking at?
spk04: I mean, look, that is definitely where we need to get into. As EBITDA grows and we continue to you know, work hard on networking capital. Our interest rate kind of as a percentage goes down over time as well, et cetera. So, yes, I think 50% is where we need to get to. I think we're very pleased with the 41%, 42% conversion this year. We like the 40% next year at the midpoint. And then I think the only other comment, I made some comments in my prepared remarks. I mean, one of the things we're working on in 24 years And 25, candidly, it will go into 25 as taxes. And how do we bring our cash tax number kind of more in line to the peer set? So there's a lot of moving pieces here that we're... um that we're looking at and then obviously on the tax same theme on the tax we're watching the legislation in congress as well that that would be helpful to us so i guess summary a lot of moving pieces you know we like leveraging our scale on the conversion side for one um and two you know we got improvement projects on both the networking capital side continuing in 24 and we're kicking off a lot of work on on tax as well so um look i i like that 50 percent number Obviously, we're not guiding to that in 24, but I think as you look out, you can see us increasingly get – you can get confident increasingly that we'll get there.
spk05: Terrific. Appreciate that. I will jump back in line.
spk08: Thanks, guys.
spk07: Thank you. Next question comes from the line of Vlad Byselbski with Citigroup. Please go ahead.
spk08: Hey, guys, good morning. Thanks for taking my call. Hey, Brian.
spk02: Morning, Glenn. Hey. So maybe just to start off, you know, following up on Chris's question there on cash, you know, obviously we know cash has been a big focus for Miriam. So can you just talk about a little what's changed over the course of 23 to support, you know, improving cash flow and then how you're thinking about your level of visibility to working capital as a source of cash for 24?
spk04: Look, I think what's changed is, first off, I think the macro coming out of 22 is improved. I think, as you heard us talk, I think it was in 2Q, or it was on the 1Q call, but it was in 2Q, so May, about the heavy focus we were putting on this in the back end of 23. So, you know, our discipline for sure has changed. The amount of resources we've specifically dedicated to this, right? We talked about our performance excellence group coming in and helping in many of the areas. And, you know, just fundamentally a big focus on our kind of sales and planning processes across the company. So, you know, it's really about it's really about operational improvements and doubling down on making sure that happens. But look, I mean, I've said this all along. This isn't something that changes overnight. It takes quarters and many quarters. I think you'll see us continue this journey in 24. We're very focused on it. We're very, very focused on it. We've said we like networking capital as a source of cash this year. So that's a big commitment from us.
spk02: and uh you know this is something we're going to continue to double down on both from a resource standpoint but also a priority standpoint that's uh that's helpful color and it's nice to see the results and then maybe um you know just shifting to medical um organic growth you know actually kicked up on a on a tougher comp uh sequentially so Can you just talk a little bit more about what accelerated in medical in the quarter and whether there was anything, you know, unusual or one-timey in the shipments in 4Q?
spk04: I mean, look, in the back half of the year, I think it was late August, early September. We had a new product, you know, come into market, I think in Europe specifically. You know, that had some heavier volumes kind of in the fourth quarter for us. um but look that team is just they they have delivered for us all year uh and candidly even you know if you go back to 22 too so um you know i think there was one specific new product that you know was a bit heavier than maybe usual but you know that phasing for us isn't abnormal with the fourth quarter being uh being a really strong quarter for us and um but you know it's just great execution across the board honestly
spk08: By the way, I'll take this moment.
spk04: I mean, I think, you know, I think that's why we like mid-single digits in medical again this year. I mean, we continue to kind of You know, this was a good year in medical, you know, kind of 8%, so high single-digit growth, topping a 15% organic number the year before. So I think we're just, you know, we want to make sure we set the right expectations, and we'll continue to evaluate kind of what the medical growth rate looks like as we go this year.
spk02: Got it. That's helpful. And then just one last one for me, and sorry if I missed it, but can you talk about your expectations for pricing in 24 and how you're thinking about price versus cost playing out for the year?
spk04: Yeah, so we didn't put out a specific number this year. I'd like to candidly get away from signaling our pricing expectations to our customer base. But I think the thing I'll say here is, A, you know, we're very focused on rate. in 24, right? So making sure price cost is rate positive, not just dollar positive. But I think more importantly, we're doubling down on the cost side of the equation in 24. Look, we've spent a lot of time with the team on pricing over the last 24 months. And I think that's now becoming, it has become more ingrained into the business. And we've always been a cost-conscious organization. But I think, you know, with all the inflation that's kind of been put in, the fact that we haven't been able to get rate on price cost, you know, Tom and I, we've been working with the broader team about, you know, how do we double down our focus on cost, mainly around material and indirect spend. And we've kicked off a bunch of work streams recently. across the company in this. And I think that's probably flows through kind of more in the back half of the year, right? One, that's why we're so focused on inventory turns as well. So how do we turn that inventory out faster to get the benefit of some of this stuff? But two, this stuff takes a little bit of time to kind of get ingrained into the business. So didn't give a number, so you didn't miss anything, Vlad. But I would say, again, just in summary, price, I think we feel good about it being ingrained culturally into the company. It will continue to to do everything we can there and more. But I think we're doubling down this year on cost.
spk08: Great. Thanks, Brian.
spk07: Thank you.
spk10: Next question comes from the line of Yuan Ji with B Riley Securities.
spk09: Please go ahead. Good morning. Congrats on a good quarter and the 2024 guidance. And thank you for taking our questions. I have three, if I may. First, on the medical side, Can you maybe talk about some of the headwinds we are facing in the healthcare industry? As the Medicare physician fee schedule decreases, do you see an impact to the radiation therapy quality assurance part of the business? You touched some on the new clinic versus volume increase.
spk01: Yeah, firstly, Yuan, welcome. It's a pleasure to have you on the call today. As it relates to your specific question about headwinds coming from CMS and Medicare reimbursement as it relates to RTQA. In the broader context, when we think about the RTQA or radiation therapy quality assurance business, which is today about half of our total medical revenue, what we have seen over the last couple of years is that much of our growth or the over-weighting of our growth has been in global markets. And, you know, we've called out the fact that in large measure, this is driven by enhanced capabilities that we have developed in region in terms of service support and broad-based promotion and commercial activities in the region. But when we step back and kind of look at market demand drivers overall in this market, there are really two main factors. Number one is the fact that today the world has only about half of the radiation therapy clinics that it should have if we were to apply Western standards throughout the developing world. That typically is in the form of linear accelerators, but it really can be extended to all forms of external beam therapy in the market. But, you know, bridging that gap or narrowing that gap is an important overall factor in global demand for radiation therapy capital equipment. and the RTQA solutions that we provide in general. And so that certainly is a factor in the disproportionate international growth that we're seeing in the sector that has offset domestic conditions that have been a little bit softer in part because of, you know, margin compression or inversion on the part of the U.S. healthcare providers in this post-pandemic era. But part of it, you know, may factor into CMS reimbursement rates. The second major factor in market growth overall is simply an aging population demographic in the developed West. As people get older, they are more likely to get cancer. And certainly in much of the G20 footprint, if you will, there are aging population demographics overall. And so in general, it is our view and it has been our experience that even though you know, the specific CMS net reduction and reimbursements to the RADONC or radiation oncology community is about 2% this year. Our view is that the other factors, and in particular in the American market, the aging population demographic, the cancer incidence rate offsets that and is further supported by, you know, reversion back to positive operating margins on the part of U.S. healthcare providers. all of which is to say that we've considered that in our guidance, but we continue to feel constructive about our ability to grow this market.
spk09: Got it. Yes, thank you so much for the thorough response there. Then on the radio pharma side, you have touched some in the prior question. So based on what we have observed in 2023, you know, the successful product launch of PluVicto and expansion of clinical pipelines in clinical trials, Do you anticipate a similar trend in 2024? In other words, what factors do you think would move the performance of this segment higher or lower? Is there anything that is specific that we should be looking for in 2024?
spk01: Yeah, we certainly, again, are very bullish on the radiopharmaceutical market in general, but most specifically, you know, this revolution that we've talked about that's taking place in therapeutic radiopharmaceutical applications overall. You mentioned Pluvicto, which in its first year I think was a better than $800 million drug. This is for those who, you know, don't follow the industry specifically. This is a therapeutic or a radiotherapeutic application for prostate cancers. If you look in the approval pipeline for Pluvicto, Other theranostic applications, you know, as you might imagine, it's a very rich pipeline. There are additional PSMA or prostate-focused solutions, breast, lung, endocrine system. Our view is that, again, as others have stated, this is a market that really is undergoing a revolution that will change the nature of cancer care, not that this will become the single you know, kind of magic bullet that will cure cancer, but rather it'll be an important component of, you know, broad-based cancer care solutions and will lead to a different dynamic mix between surgical oncology, conventional chemotherapy, external beam therapy, and this theranostic application. So we do expect that we're going to continue to see ratable growth in the markets. And as noted before, our focus really is on how do we continue to grow and evolve our position in the value chain for radiopharmaceutical solutions. And, you know, we're very, very excited about the EC2 deal and how that will enable us to evolve our position in the marketplace. But there's much more work for us to do here.
spk09: Got it. Yeah, thanks for the helpful cover there. And my last question here is, just want to better understand the 2024 guidance for 5% to 7% top-line growth in the context of the past two years' performance. There was a strong recovery in 2022 after a weak performance during COVID with the continued recovery into 2023, which was 12%. Should we anticipate a more stable growth rate of 5% to 7% going forward? Of course, you know, there's long-term tailwinds on the technology side as well, the radiopharmaceutical side.
spk04: Look, you know, if you look back over the last two years, you know, our organic growth rate this year is about, you know, 9% at the total company level. You know, last year is about 6%. And so you got two-year stack numbers. you know, 23 to 22, 15% and 9% for 22 and 21. So look, five to 7% is not a, you know, it's not a, a, you know, that different of a number from what we've seen. And I think, you know, candidly, there's, there's a lot of tailwinds, but, but look, we'll take one quarter and one year at a time here. And, and, you know, we'll see how things evolve and, and, If we think longer term we can update the numbers that we've kind of guided more longer term, then we'll do so. But I think these are reasonable numbers to be putting up with the history we've had, the order growth we've seen. I think the biggest thing to recognize is the order growth gives us confidence in being able to deliver. And I think that's kind of the most important thing. as we exit 23 and begin our 24 journey here. So, yeah, we like those numbers. And we like, you know, we like how we're set up for 24. I think that's really the focus right now.
spk08: Got it. Thanks, Brian. Yeah, that's all from us.
spk07: Thank you.
spk10: Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Thomas Logan for closing comments.
spk01: Thank you. And thanks to all who dialed in today. 2023 was a good year for Mirion. Again, I think we continued our evolution in terms of operational performance. We feel very good coming into 2024 about overall market dynamics, the top line support. that will accrue from that. So for us, it's down to execution. And we're very, very focused, as we've noted, on operating margins, cash flow conversion, our digital conversion as a business, and the exceptional new product launch focus that we have in the year ahead. These are things that are well within our wheelhouse. You know, we're very proud of our long-term history of being strong operators and have a high degree of confidence as we come into 2024. So we'll look forward to sharing the journey with you as we move through it. But let's end by, again, thanking all for participating today, and we'll look forward to our next call. Thank you.
spk07: This concludes today's study conference. You may disconnect your lines at this time. Thank you for your participation.
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