Mirion Technologies, Inc. Q2 FY2024 Earnings Call

Greetings and welcome to the Mirion Technologies Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jerry Estes, Manager of Investor Relations. Thank you, sir. You may begin.

Good morning, everyone, and thank you for joining Mirion's Second Quarter 2024 Earnings Call. A reminder that comments made during this call will include forward-looking statements and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are discussed in our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and in Mirion's other SEC filings under the caption Risk Factors. Quarterly references within today's discussion are related to the second quarter ended June 30th, 2024. 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 the presentation accompanying today's call. All earnings materials can be found on our IR website at ir.mirion.com. Joining me on the call today are Tom Logan, Chief Executive Officer; and Brian Schopfer, Chief Financial Officer. Now I will turn it over to our CEO, Tom Logan.

Jerry, thank you, and good morning, everyone. Getting straight to our quarterly performance. I'm pleased with the solid results we reported yesterday evening. I'd like to extend a big thank you to the Mirion team for their efforts and results. A few items of note to kick things off. First, I'm very excited to announce that we've signed a strategic partnership agreement with EDF, the largest operator of nuclear power plants in the world, making Mirion an exclusive content supplier for all of their nuclear new build projects spanning the next two decades. This is expected to be the largest commercial deal that we have ever signed by many multiples and is a testament to our technological leadership position in the nuclear space and our longstanding relationship with EDF. Moreover, this fortifies our competitive positioning in the new build arena over the coming decades, where we expect to see significant global development. Next, second quarter order growth was relatively flat compared to the same period last year. We continue to see strong engagement from customers across the business led by nuclear power where orders were up by more than 15% in the second quarter. I'm confident in the overall health of our end markets and believe that the macro trends supporting our business will be long in tooth. Third, both sides of the business delivered steady organic revenue growth in Q2. Technologies led the way with 4% growth reflecting strong nuclear power demand and Medical delivered 3% organic growth driven by accelerating activity in Nuclear Medicine. Across the Enterprise, we continue to invest in our ground game, most notably through the creation of the Chief Revenue Officer, launching our e-commerce platform in Q4 and bolstering our inside sales capabilities. Fourth, adjusted free cash flow was nearly $9 million in the quarter, delivering on our commitment to being cash flow positive for the first half of the year. Finally, we have updated our 2024 financial guidance. We've raised our adjusted EBITDA target to $195 million to $205 million and reiterated our ranges for organic revenue growth of 4% to 6%, adjusted EPS of $0.37 to $0.42 and adjusted free cash flow of $65 million to $85 million. Moving on from our second quarter financial results, I'd like to spend some time reflecting upon the dynamics in each of our end markets. Let's turn to Slide 4. Before I dive in here, I want to note that we will not be providing segment-by-segment order numbers going forward. The competitive environment in many of our businesses is intense and we don't wish to unnecessarily help our competitors. That being said, order growth was generally flat compared to the first half of last year. While we didn't print a massive growth number, we did see solid order volume and continue to see strong engagement across the business. Backlog grew 11% from the same period last year, and we expect to book approximately $30 million in orders from two nuclear projects that slipped from Q2 to Q3. In the Medical segment, first half order growth was approximately 3%, led by strong performance from Dosimetry and Nuclear Medicine. Radiation Therapy QA saw negative order growth in the first half, driven by softer international orders, largely stemming from the depreciation of the Japanese yen and the market disruptions due to anti-corruption efforts in the China market. On the domestic side of RTQA, we continue to see better order performance and are encouraged heading into the back half of the year. In Occupational Dosimetry, we saw strong order growth in the first half, buoyed by the launch of our third generation of Instadose technology, the Instadose VUE. Within Nuclear Medicine, first half organic order growth was approximately 18% and we continue to see strong engagement as market momentum improves. I've noted strong attendance and incredible energy at the Nuclear Medicine Trade Shows that I've attended over the summer, and the overall momentum around the theranostic movement continues to be quite positive. Anticipated changes by CMS for the reimbursement of radio diagnostic drugs in the US market can only add to the favorable market dynamics. I'm encouraged by the evolution of our Nuclear Medicine strategy and believe that we are increasingly well-positioned to capitalize on the macro trends in this market. In the Technology segment, we saw an approximately 3% order step back from the first half of last year. Nuclear Power saw positive first half order growth in the low-single-digits, supported by steady demand from the installed base. We continue to be excited by the dynamics at play within nuclear and are expecting good order flow in the second half of '24 and into early '25. On a personal note, earlier this week, I attended our largest annual customer event which is geared toward the nuclear industry. In my two decades of keynoting this event, I've never seen higher energy or enthusiasm. Moving on to Defense. Orders were flat compared to last year despite a strong 28% growth comparison from the first half of 2023. As mentioned on our last call, we booked approximately $15 million of European defense orders at the outset of the second quarter and maintained a positive outlook for this market in 2024. Finally, Labs and Research had negative order growth compared to last year. Similar to Defense, our Labs business faced a tough 31% order growth comp and governmental budgetary dynamics had a negative impact on order timing in Q1. We saw a small ramp in the second quarter and expect momentum to build as the year progresses. Overall, I'm encouraged by both market and customer dynamics across the Enterprise. The Nuclear Power and Nuclear Medicine supertrends continue to provide a strong foundation for future growth and there's a lot of positive momentum materializing across the enterprise. Looking ahead to Q3 and Q4, we are facing tough order growth comps from last year due to large project orders, but we expect to see accelerating flow business as the installed nuclear base gains momentum. Before I pass things on to Brian, there are a few items that I'd like to highlight looking ahead to the second half of the year and beyond. First, I'd like to touch on our margin performance in the second quarter. We saw better-than-expected adjusted EBITDA margins, especially within our Technology segment. Margin expansion was driven by strong execution and positive results stemming from our procurement initiatives and operating leverage. We continue to emphasize our business system to improve overall cost performance and capital velocity. Regarding procurement, we're six months into a sweeping strategic effort to consolidate our supplier base, which we believe will yield 150 basis points to 300 basis points of EBITDA margin improvement over the next three years. Additionally, we have doubled down on daily management in our factories and the cadence of Kaizen events. I'm pleased with the progress we are making and continue to be bullish on our ability to deliver on our 30% long-term margin target. Secondly, cash flows remain a key area of focus for me and the team. I'm pleased that we were cash flow positive for the first half of the year, but we have a great deal of work yet to be done to improve conversion going forward. Capital spending will moderate now that the big Instadose launch investment is behind us. Inventory turns remain a big opportunity for us as we'll continue to grind out improvement in the quarters ahead. I'm confident in our strategic approach here and believe that we are well-positioned to improve our cash conversion in the back half of the year and into 2025. Thirdly, I'm pleased to announce some organizational changes that we've recently implemented. These updates include the following. First, we've named Luis Rivera as the Executive Vice President of our Medical Group, reporting to me while I retain leadership of the segment. Luis previously led our Radiation Therapy QA business and I believe he will have a strong positive impact in his new role. Additionally, we have named Mark Siviter as Mirion's inaugural Chief Revenue Officer where he will oversee Mirion's Global Sales Organization. Prior to this role, Mark led our medical sales team and played an integral role in the success we've seen on that side of the business. I'm confident that Mark will be instrumental in helping us achieve our long-term revenue growth aspirations. Finally, we decided to exit our Medical Lasers and Alignment business. This business unit was a non-core element of our portfolio and did not fit clearly into our long-term strategy. As part of the shutdown, we are moving all related operations from Middleton, Wisconsin to our Norfolk, Virginia factory to drive increased efficiency from our operating footprint.

Thanks, Tom, and good morning, everyone. To begin our financial commentary this morning, please turn to Slide 5 for an overview of our second quarter results for the total company. Revenue grew by 5% in the quarter while adjusted EBITDA was up 10.2%. Quarterly revenue was $207.1 million and organic growth was 3.6%. Adjusted EBITDA was $48.8 million with adjusted EBITDA margins expanding 110 basis points to 23.6%. Q2 margin performance came in better than originally expected at both the gross margin and adjusted EBITDA levels. I'll get into more details on margins in a few moments, but we saw gross margin and adjusted EBITDA margin expansion in both segments in the quarter and for the first half. Moving on to our segments, starting with Medical on Slide 6. Medical revenue growth was 7.7% with organic growth of 2.6%. Medical top-line performance in the second quarter was led by Nuclear Medicine where the EC squared business added over five points to the top-line and we made solid progress catching up on shipments following the ERP-related slowdown in Q1. In the RTQA business, performance was led by strength in Europe, offset by market disruptions due to China anticorruption dynamics. Medical adjusted EBITDA margin was 34.3% in the quarter, a 150 basis point expansion from last year. Medical EBITDA margins were supported by a strong quarter from EC squared and solid execution across the portfolio. As Tom noted earlier, we also announced the closure of our RTQA facility in Wisconsin during the second quarter. The change will positively impact Medical adjusted EBITDA margins by approximately 70 basis points on an annualized basis. This move simplifies our operating footprint and is a great example of the self-help cost-out initiatives we have at our disposal to reach our longer term 30% margin target. Moving on to the Technology segment on Slide 7. Revenue grew by 3.7% in the quarter with organic growth of 4.1%. Top-line growth was led by a strong quarter for Nuclear Power, while FX had a negligible impact. I'm encouraged by the positive momentum we are seeing in our European Technologies business, especially in Nuclear Power and expect to see continued strength in the coming quarters. Technology's adjusted EBITDA was $38.9 million with margins expanding 190 basis points from the same period last year. Adjusted EBITDA margin expansion was supported by good execution in the segment. We realized early results from our procurement improvement initiatives and benefited from operating leverage in our Sensing business along with solid operational performance across the rest of the portfolio. While our French business was a headwind to margins on a year-over-year basis in Q2, performance was better than we had originally expected and we are pleased with the progress being made there. Turning now to Slide 8 for a look at leverage and cash flow. Our net leverage ratio took down to 3.0 times at the end of the quarter. We also completed a debt refinancing initiative which is expected to save us around 75 basis points in total, a 50 basis point improvement versus the SOFR spread and an annualized estimate of approximately $5 million in net interest savings. CapEx was higher year-over-year in Q2 and the first half as a whole, driven by Instadose launch investments. We expect CapEx to return to more normal levels in the second half of the year. Cash performance was generally in line with expectations, but net working capital was a use of cash in the first half of the year. We made solid progress on accounts receivable and inventory, but more work remains to be done. Progress was offset by the timing of cash payments within our Nuclear Project business. Improving working capital efficiency remains a top priority and inventory turnover continues to be our most significant opportunity to improve working capital dynamics. Finally, let's flip over to Slide 9 to take a deeper look at our updated guidance for 2024. As Tom highlighted earlier, we've reiterated our revenue growth targets for the year and continue to expect 5% to 7% top-line growth with organic revenue growth of 4% to 6%. However, there are some slight changes to how we expect to achieve the organic growth number. Namely, we are now expecting low single-digit plus growth from Medical and mid-single-digit plus growth from Technologies. The updated estimate in Technologies organic growth is supported by strong year-to-date performance from the segment and continued positive momentum across our end markets. On the Medical side and in conjunction with the shutdown of the Middleton facility, the updated Medical growth estimate is inclusive of our decision to exit the Lasers and Alignments business, which is expected to impact Medical organic growth by approximately 80 basis points for 2024 and nearly 200 basis points on an annualized basis. Just to reiterate, this is a margin accretive action for the Medical group. The updated Medical estimate is also reflective of slowing order activity driven by the depreciating Japanese yen as well as the anticorruption lockdown in China. Positive domestic momentum is expected to offset some of the impact. We are expecting operating conditions to improve in the international markets in 2025 based on increasing strength in the yen and deferred demand in China. As a reminder, our Medical business has performed very well over the last few years, with two year stack growth in 2023 at better than 20% organic growth. So a bit of a normalization was expected. We have slightly raised our adjusted EBITDA guide and are now expecting $195 million to $205 million of adjusted EBITDA with margins between 23% and 24%. Our adjusted EPS range remains unchanged at $0.37 to $0.42. We've also held our adjusted free cash flow range at $65 million to $85 million. However, we do expect free cash flow to come in towards the lower end of that range. I'd also like to note that we completed the redemption of all outstanding public and private warrants during the second quarter. This action greatly simplifies our capital structure and is a good step forward for us as we continue to mature as a public company. I point you to Slide 20 in the appendix for an updated look at our share count considerations following the redemptions. One final item of note before we open things up for Q&A. I am excited to announce that we will be hosting our first-ever Investor Day later this year and are targeting early December for the event. More details to come on the event as we get closer, but this will be a great opportunity for us to share our updated strategy and longer-term financial targets with the investment community. Looking at where we stand halfway through the year, I feel good about our financial results thus far and believe that we are well-positioned to deliver a strong finish to the year. I look forward to updating you with our third quarter results this fall. And with that, I'll now pass it over to Jerry, to open things up for Q&A.

Thanks, Brian. That wraps up our formal comments this morning. I'll hand the call back over to the operator to kick off the Q&A session.

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.

Hey, guys. Good morning.

Hey, Joe. Good morning.

Hey, Tom or Brian, look, I recognize that you guys are going to be coming up against some tough comps in the second half of the year as it relates to orders. At the same time, it seemed like you had roughly $30 million in orders nuclear push out to 3Q. I guess as you kind of think about the health of the order pipeline into the second half of the year, maybe just provide a little bit of color on like what you expect to happen to backlog as we progress through the rest of the year. Do you think you can hold backlog at current levels? Is it going to decline? And what does the overall health of the pipeline look like?

I have a few thoughts, Joe. First, just a reminder that we are comparing $100 million of large orders between Q3 and Q4, with most of that in Q3. However, we feel very positive about our current position. The businesses are actively engaging in the market, and our pipelines are strong across both sectors. Tom and I recently spent time with North American customers at our event in Texas, and the atmosphere there is very encouraging. The Medical team is also quite optimistic about the pipeline. To answer your question directly, order rates may not show positive growth compared to last year in the latter half of the year. However, I expect that our backlog will increase in the third quarter compared to the same quarter last year. Looking ahead to the fourth quarter, I believe we can maintain our backlog from the beginning of the year. Of course, there may be some fluctuations depending on order dynamics and timing. Overall, we feel confident about our situation, and neither Tom nor I are particularly concerned. Larger project orders do take time to fulfill, but we anticipate receiving more orders either at the end of this year or in the first half of next year. The pipeline is strong, and our insights into it remain very positive.

Yeah, Joe, this is Tom. Just to tag onto what Brian said, we look ahead multiple years, not only the back half of this year but into '25 and beyond. Again, if you look at just the queue that we see coming in terms of larger projects which typically but not exclusively tend to be nuclear projects, again, we feel good about it. To be clear, I think we've always been clear on this. It's not ratable. It is a little bit lumpy. But as it flows through revenue, obviously it smooths out, because typically for a large nuclear project, that revenue is booked over a number of years. But in addition to that, I think it's also important to note that in terms of the flow business that we're seeing, so the business above and beyond these large orders, which typically is driven from our installed base, again, very clearly the case in nuclear, but not exclusively. This is also broadly true in Radiation Therapy QA, et cetera, very clearly based on the health of the installed base, we're seeing a pickup in that flow business. And to be clear, this doesn't necessarily get reflected in backlog because it trades within a quarter. So again, to be clear, we're very confident about where we sit right now. We're not at all concerned about either order flow or market strength here. It's very positive.

I just want to provide some context regarding the flow business. As we project for the year, we believe the flow business will show mid-single digit order growth. We typically consider orders under $5 million as this helps to smooth the results. So, Joe, I wanted to share what we're observing and what we expect.

Got it, guys. That's really helpful color. I appreciate that. I thought that the fact that you signed that long-term partnership, exclusive partnership with EDF was notable. At the same time, like I know that you guys have had strong market share in the Nuclear segment already. I'm just curious like how does this potentially expand on an already existing relationship and how do you see this kind of playing out over the next couple of years with EDF?

We have had an excellent relationship with EDF for many decades, and we are truly thankful for that. They have been a fantastic trading partner historically. We have highlighted some of the strong projects we've worked on together, notably the Hinkley Point C project in the UK. Had we not signed this substantial commercial deal, we would have anticipated continued strong business from EDF in the future. This agreement streamlines commercial terms and reduces the necessity for negotiations, enhancing our competitive position. It boosts our confidence in our investments in this sector and positively affects our cost structure in supporting this overall commercial activity. We are very pleased about this partnership and proud to work with EDF.

That's great. If I could ask one more question, you mentioned the anticorruption dynamics in China's RTQA market. There has been discussion about this for about 12 to 15 months. How do you think this will impact your business moving forward? When do you expect to reach a bottom in that part of the business?

As we analyze the numbers, I'd like to point out that the revenue impact in the first half of the year was minimal on the Medical side, primarily due to some timing shifts between the first and second halves on the Technology side. However, this has no relation to the anticorruption issues; it's simply project-related. Our RGQA business experienced a decline in orders during the first half, and we anticipate that this trend will continue into the second half. We expect 2024 to likely be the low point, with improvements possibly starting late in the fourth quarter, but we are forecasting a better situation into 2025.

I want to add that we haven't specifically identified a turnaround in the Chinese market. The process for deals to finalize is taking longer because people are being more cautious, which we understand. If you follow the insights from industry leaders like Siemens Healthineers, you'll see a clearer view of the market dynamics. However, there are two factors that should enhance the situation in China. Whether this improvement comes in the third quarter or the fourth quarter heading into 2025, it's going to happen. First, people will move past the current challenges related to anticorruption, allowing pent-up demand to be released more steadily. Second, Chinese stimulus programs will start to have an effect, benefiting the industrial sector in general and particularly healthcare. We believe these factors will ultimately boost demand in China. Therefore, this market remains significant for us. Brian did a great job summarizing that our current exposure isn't substantial, but we anticipate it will become a consistent growth source in the future once we overcome this temporary disruption.

Perfect. Thank you very much guys.

Thanks, Joe.

Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Hey, good morning, guys. Thanks for taking a couple of questions. Maybe just to start with, Tom, you referenced the anticipated CMS changes on reimbursement. Maybe just can you talk a little bit further about the impact or potential impact and any thoughts on timing you might have?

The general view within the industry is that CMS, which stands for the American Center for Medicare Studies, establishes reimbursement protocols in the U.S. healthcare market that influence both government and private insurance reimbursement. This is crucial. Currently, there is significant development happening in nuclear medicine, often referred to as the theranostics movement related to our radiopharmaceutical therapy. This involves improved molecular imaging techniques using PET scanning technology combined with evolving nuclear medical tracers or radioisotopes for this type of imaging. Additionally, it includes therapeutic doses that utilize common ligands but involve different radioisotopes that generally deliver more energy and have a therapeutic impact. In this evolving field, there has been a rise in the commercial cost of these radio diagnostic drugs, while CMS hasn't adjusted reimbursement rates, which remain quite low at a few hundred dollars. In contrast, the market value of these drugs and what healthcare providers actually pay is in the thousands. CMS has indicated a strong intent to rectify this discrepancy beginning in 2025. If this occurs, it is reasonable to expect that healthcare providers may be more willing to prescribe protocols that currently may result in losses but could eventually be profitable for them.

Got it. Very helpful. Obviously, good job cleaning up the public and private warrants. Is there anything else from a capital structure standpoint that those seem like the more obvious, anything else that can be done to improve the cap structure there?

I think we've made substantial progress on our balance sheet over the last two and a half years. This includes actions like exiting the capital stack last summer and completing our debt repricing. We are continually assessing the possibility of further debt repricing. Your question highlights the importance of capital allocation, and both Tom and I are actively weighing the options between mergers and acquisitions and reducing our debt, as we evaluate these choices while generating more cash. We've seen significant improvements, and I believe there's not much left to address structurally since going public. Our focus now is on executing our plan, enhancing margins, increasing free cash flow, and sustaining growth. The outlook in our end markets is promising, so that’s where our attention is directed. Most of the heavy lifting regarding our capital structure is behind us, but we remain open to any opportunistic opportunities that may arise.

I want to highlight that we previously indicated our intention to reduce leverage this year to below 2.5 times, provided we do not engage in any large mergers or acquisitions. This remains our primary approach. We believe we are in a strong position for organic growth, especially in the nuclear and healthcare sectors. Currently, we are more interested in smaller strategic deals that have minimal impact on our overall net leverage. This approach continues to be our default strategy. We see a good opportunity to further reduce leverage while maintaining a strong focus on the operational quality of the business, including margins and free cash flow generation.

Got it. Very helpful. I'll leave it there. I appreciate it, guys.

Our next question comes from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Good morning, everyone.

Hey, Andy.

Tom or Brian, you mentioned some early benefits from your procurement initiative, specifically in technologies. And you talked about 150 basis points to 300 basis points in margin over the next three years. Your Technology's EBITDA margin was close to 30% this quarter. So could you talk about how the program could play out for Technology in particular? How does it evolve over the second half and '25?

Sure. Just so we're clear, the 150 basis points to 300 basis points is actually at the total company level, not just in Technology.

Yes, of course, of course. I understand.

We've made significant progress in the first half of the year with our business system implementation. Many early benefits have come from optimizing our spending and rethinking our engagement with suppliers. The next phase focuses on reducing our supplier base. Currently, we have over 1,000 suppliers in one category, which can be streamlined to fewer than 100. Transitioning from numerous small purchase orders to a few larger partnerships will greatly simplify our operations and yield substantial benefits. We're confident that procurement will contribute to margin expansion, particularly noticeable this year but more impactful in 2025 and 2026, with lingering effects into 2027 due to the time required for these changes. We're addressing two initiatives simultaneously and are excited about our findings. The engagement from our core teams is promising, indicating a substantial positive effect for us. We're optimistic about this strategy as a clear example of how we plan to enhance our margins to reach 30%. You're already seeing some of this reflected in our profit and loss statement, and we expect continued improvement through the end of this year and into 2025.

We have transformed the organization in a way that enhances how we conduct business. This is not merely a project; it represents a significant shift that encompasses both direct and indirect procurement. Thus, the effects extend beyond just gross margins to a more comprehensive impact on overall EBITDA margins. Additionally, we remain committed to our target of achieving a 30% EBITDA margin within our planning horizon. We believe we can reach this target primarily through operating leverage, by maintaining strict control over SG&A and factory overhead, and by leveraging our relatively high gross margins for margin expansion. We are also concentrating on improving operational quality and self-initiated improvements. Today, we are highlighting one specific area of focus, which is procurement, and we are very satisfied with the outcomes observed so far. We anticipate that, even just halfway into this initiative, it will deliver significant benefits.

Helpful, guys. And then, Tom, Nuclear Medicine, I think, is your fastest growing Medical business. And obviously, you seem quite excited about it, but how big could it end up being over time? And can it help you offset if RTQA tends to be slower for longer? Ultimately, do you still believe that Medical is a mid-single-digit growth business, but maybe the mix ends up changing a bit?

Firstly, I want to highlight that from the perspective of RTQA, the long-term growth trends have consistently been in double digits. It's been an incredible business that continues to expand without any significant changes to that trend. I believe the growth can be attributed to two main factors. One is that we are comparing against substantial numbers from last year. The second is the performance in China and Japan, which I've described in detail during this call. The developments in Nuclear Medicine are quite unpredictable. While there's widespread confidence that this market will transform cancer care, as well as cardiac care and possibly Alzheimer's treatment, no one believes it will make RTQA obsolete. For instance, in the US, a newly diagnosed cancer patient has about a 65% probability of receiving external beam therapy as part of their overall treatment plan, and this is likely to continue. We expect to see a shift in the relationship between radiopharmaceutical therapy, external beam therapy, conventional chemotherapy, and surgical oncology. The dynamics will vary for different cancer types. However, the key point is that globally, there is a significant shortage of external beam therapy resources, with only about half of the necessary linear accelerators and treatment clinics available. Therefore, we remain optimistic about that business and do not foresee Nuclear Medicine reducing its demand; rather, we consider it to be complementary.

Yeah. I think just one other comment, maybe is that business we've, Medical overall, we've said is a high single-digit grower for us, not mid-single. This year it's obviously mid-single coming off of two very big years, the last couple of years. And maybe one other thing we're seeing. The team has been talking to us a lot about is actually the Nuclear Medicine business and the RTQA business working together, right, in the field and Nuclear Medicine kind of being additive like Tom said to the RTQA treatment regime. So I think there's a bit of, I think we continue to just like this space a lot.

Brian, I like when you correct me to the positive. That's good. So let me ask you about cash flow. I know you're focused on cash flow this year. You didn't change your guidance, but you did a positive cash flow in the first half of the year. You do have a steep ramp in the second half. I think usually seasonally you generate cash in the second half, but maybe talk about the visibility to get into that range.

We're performing better than we did last year, and our current position is similar to where we ended last year, which is within this year's expected range. This year seems to mirror last year, and I've also noticed that 2022 had a similar pattern to 2023. For various reasons, we typically generate a significant amount of cash in the fourth quarter, and I believe this year will be no exception. If we felt uncertain about achieving our targets, we would have revised our projections, but we haven't. While we anticipate being towards the lower end of the range based on our current status, there is still ample time to make a difference.

Thank you.

Thanks.

Our next question comes from line of Yuan Zhi with B. Riley. Please proceed with your question.

All right. Thank you for taking our questions and congrats on a good quarter. First on the high level. I'm just curious, if there is a brief recession coming, do you think your customers will be cautious on spending such as delaying or canceling the orders in the backlog?

Yeah, I'll start. This is Tom. In general, looking at our more than 20-year history, we tend to be a very stable business. In fact, some of our strongest growth has occurred during recessionary periods. Therefore, we believe we are not significantly affected by economic cycles, as the demand drivers in our key markets generally remain insulated from those fluctuations. So, we do not anticipate an increased risk of a decline in demand due to macroeconomic growth indicators.

Got it. Got it. Tom, following on that prior CMS question, can you maybe talk about or comment on your plan to prepare for this upcoming change from CMS?

For us, there’s very little to prepare. For the broader audience, today we own the leading data management software platform in the US, known as EC squared. This platform connects all players in the isotope production and delivery process, including producers, drug makers, researchers, radiopharmacies, CDMOs, and clinicians, facilitating product movement through the value chain to the patient. From a hardware perspective, we are the market leader in dose calibration instruments, thyroid uptake systems, various respiratory studies equipment, and are also involved in compounding transport equipment, syringe shields, and other peripherals. In the American Nuclear Medicine market, any favorable changes in dynamics, especially those linked to procedures, reduce friction for radio diagnostic prescriptions. This added volume driver may lead to increased sales of dose calibrators, more software licenses, and additional equipment sales. There's no specific action needed from us; we are prepared for continued growth and rising demand.

Got it. Got it. Thanks for the helpful color.

We have no further questions at this time. Mr. Logan, I would like to turn the floor back over to you for closing comments.

Okay, well, ladies and gentlemen, as always, we appreciate your attention. Just to reiterate our point of view and our message here, as it was a good quarter for the company, we executed well. Very pleased with the margin expansion story and the continued strategic evolution of our business, specifically as it relates to the EDF deal, but also the continued evolution, and the operational quality of the business. Our focus for the balance of the year continues as it has been to be on driving organic growth in markets that continue to be favorable and where customer engagement continues to be strong and to continue to grind on our cost structure and our capital velocity to hit our goals in terms of margin, free cash flow and ultimately leverage between now and the end of the year. We very much look forward to reporting back to you in Q3 and appreciate your time and attention today. So I wish all of you a good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.