Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Mirion Technologies, Inc. (“Mirion,” the “Company,” "Successor," "we," "our," or "us" and formerly GS Acquisition Holdings Corp II ("GSAH")) is a global provider of radiation detection, measurement, analysis, and monitoring products and services to the medical, nuclear, and defense end markets. We provide products and services through our two operating and reportable segments; (i) Medical and (ii) Industrial. The Medical segment provides radiation oncology quality assurance, delivering patient safety solutions for diagnostic imaging and radiation therapy centers around the world, 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. The Industrial segment provides 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 and essential measurement devices for new build, maintenance, decontamination and decommission equipment for monitoring and control during fuel dismantling and remote environmental monitoring.
The Company is headquartered in Atlanta, Georgia and has operations in the United States, Canada, the United Kingdom, France, Germany, Finland, China, Belgium, the Netherlands, Estonia, and Japan.
On October 20, 2021 (the “Closing Date”), the Company, consummated its previously announced business combination (the “Business Combination”) pursuant to the certain business combination agreement (the "Business Combination Agreement"). As contemplated by the Business Combination Agreement, the Company became the corporate parent of Mirion Technologies TopCo., Ltd. ("Mirion TopCo"). In order to implement a structure similar to that of an “Up-C,” the Company established a Delaware corporation, Mirion IntermediateCo, Inc. (“IntermediateCo”), as a subsidiary of the Company.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for financial statements and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") for interim financial information. The interim Condensed Consolidated Financial Statements reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair representation of the results for the periods presented and should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the period ended December 31, 2022, which include a complete set of footnote disclosures, including our significant accounting policies included in our Annual Report on Form 10-K. The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period. The Condensed 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 allocated to noncontrolling interests is reported as “Income (Loss) attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated in consolidation.
The Company recognizes a noncontrolling interest for the portion of Class B common stock of IntermediateCo that is not attributable to the Company. See Note 21, Noncontrolling Interests.
Segments
The Company manages its operations through two operating and reportable segments: Medical and Industrial. These segments align the Company’s products and service offerings with customer use in medical and industrial markets and are consistent with how the Company’s Chief Executive Officer, its Chief Operating Decision Maker (“CODM”), reviews and evaluates the Company’s operations. The CODM allocates resources and evaluates the financial performance of each operating segment. The Company’s segments are strategic businesses that are managed separately because each one
develops, manufactures and markets distinct products and services. Refer to Note 16, Segment Information, for further detail.
Use of Estimates
Management estimates and judgments are an integral part of financial statements prepared in accordance with GAAP. We believe that the critical accounting policies listed below address the more significant estimates required of management when preparing our consolidated financial statements in accordance with GAAP. We consider an accounting estimate critical if changes in the estimate may have a material impact on our financial condition or results of operations. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustment to these balances in future periods. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include but are not limited to: business combinations, goodwill and intangible assets; estimated progress toward completion for certain revenue contracts; uncertain tax positions and tax valuation allowances and derivative warrant liabilities.
Significant Accounting Policies
There have been no material changes in our significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies described in Note 1 to the audited Consolidated Financial Statements on Form 10-K for the period ended December 31, 2022.
Accounts Receivable and Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The allowance for doubtful accounts was $7.8 million and $7.4 million as of March 31, 2023 and December 31, 2022, respectively.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are primarily comprised of various prepaid assets including prepaid insurance, short-term marketable securities, and income tax receivables.
The components of prepaid expenses and other current assets consist of the following (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Prepaid insurance | $ | 2.5 | | | $ | 3.2 | |
| Short-term marketable securities | 4.8 | | | 4.3 | |
| Income tax receivable and prepaid income taxes | 1.2 | | | 2.8 | |
| Other tax receivables | 1.6 | | | 1.6 | |
| Other current assets | 22.5 | | | 21.7 | |
| $ | 32.6 | | | $ | 33.6 | |
Facility and Equipment Decommissioning Liabilities
The Company has asset retirement obligations (“ARO”) consisting primarily of equipment and facility decommissioning costs. ARO liabilities totaled $2.5 million for both periods ended March 31, 2023 and December 31, 2022, and were included in deferred income taxes and other liabilities on the Condensed Consolidated Balance Sheets. Accretion expense related to these liabilities was not material for any periods presented.
Revenue Recognition
The Company recognizes revenue from arrangements that include performance obligations to design, engineer, manufacture, deliver, and install products. If a performance obligation does not qualify for over-time revenue recognition, revenue is then recognized at the point-in-time in which control of the distinct good or service is transferred to the customer, typically based upon the terms of delivery.
Revenue derived from passive dosimetry and analytical services is of a subscription nature and is provided to customers on an agreed-upon recurring monthly, quarterly or annual basis. Revenue is recognized ratably over the service period as the service is continuous, and no other discernible pattern of recognition is evident.
Contract Balances
The timing of the Company's revenue recognition, invoicing, and cash collections results in accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, and deferred contract revenue. Refer to Note 4, Contracts in Progress for further details.
Remaining Performance Obligations
The remaining performance obligations for all open contracts as of March 31, 2023 include assembly, delivery, installation, and trainings. The aggregate amount of the transaction price allocated to the remaining performance obligations for all open customer contracts was approximately $740.8 million and $737.4 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, the Company expects to recognize approximately 50%, 25%, 8%, and 8% of the remaining performance obligations as revenue during the fiscal years 2023, 2024, 2025 and 2026, respectively, and the remainder thereafter.
Disaggregation of Revenues
A disaggregation of the Company’s revenues by segment, geographic region, timing of revenue recognition and product category is provided in Note 16, Segment Information.
Warrant Liability
As of March 31, 2023, the Company had outstanding warrants to purchase up to 27,249,779 shares of Class A common stock. The Company accounts for the warrants in accordance with the guidance contained in ASC 815, “Derivatives and Hedging”, under which the warrants do not meet the criteria for equity treatment and must be recorded as derivative liabilities. Accordingly, the Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the Company’s Condensed Consolidated Statements of Operations. The fair value of the warrants (the "Public Warrants") issued in connection with GSAH's initial public offering has been measured based on the listed market price of such Public Warrants. As the transfer of certain warrants issued in a private placement (the "Private Placement Warrants") to GS Sponsor II LLC, the sponsor of GSAH (the "Sponsor"), to anyone who is not a permitted transferee would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, we determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. See Note 17, Fair Value Measurements.
Concentrations of Risk
Financial instruments that are potentially subject to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains cash in bank deposit accounts that, at times, may exceed the insured limits of the local country. The Company has not experienced any losses in such accounts.
The Company sells its products and services mainly to large, private and governmental organizations in the Americas, Europe, the Middle East and Asia Pacific regions. The Company performs ongoing evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. The Company generally does not require its customers to provide collateral or other security to support accounts receivable. As of March 31, 2023 and December 31, 2022, no customer accounted for more than 10% of the accounts receivable balance.
Recent Accounting Pronouncements
Accounting Guidance Issued But Not Yet Adopted
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. ASU 2020-04 provides temporary optional expedients and exceptions for applying GAAP guidance on
contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. In their October 2022 meeting, the FASB voted for an optional 2-year extension of the adoption period through December 31, 2024. The Company intends to extend the adoption, is in the process of managing the transition, and is assessing any financial impact that will be accounted for under this ASU.
2. Business Combinations and Acquisitions
The Company continually evaluates potential acquisitions that strategically fit with the Company’s existing portfolio. As a result, on August 1, 2022, the Company acquired the Critical Infrastructure ("CI") business of Collins Aerospace (renamed as Secure Integrated Solutions "SIS") via an Asset Purchase Agreement. The Company paid cash of $6.6 million, but due to net working capital (NWC) settlements to be settled in the future, the GAAP consideration was $5.9 million. The SIS business joined our Industrial segment and specializes in delivering physical and cyber security systems to critical infrastructure based on a command-and-control platform that includes video surveillance, access control, intrusion detection, credential/training management, biometrics, and video analytics. The Company used carrying values as of the closing date of the CI Acquisition to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.
All identifiable intangible assets acquired in the CI Acquisition were assigned to developed technology for accounting purposes.
Transaction costs related to the CI Acquisition were not material for the three months ended March 31, 2023.
Measurement period adjustments to the previously disclosed preliminary fair value of net assets related to the CI Acquisition were recorded in 2023, resulting in a $0.9 million net increase in goodwill and corresponding $0.9 million net increase in Other Accrued Liabilities for the three months ended March 31, 2023.
All acquisitions are accounted for under the acquisition method of accounting, and the related assets acquired and liabilities assumed are recorded at fair value. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted results of the acquired business including revenue, earnings before interest, taxes, depreciation and amortization (“EBITDA”), and growth rates. These assumptions are forward looking and could be affected by future economic and market conditions. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
Purchases of acquired businesses resulted in the recognition of goodwill in the Company’s Consolidated Financial Statements, which is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. The goodwill is not amortized but some portion may be deductible for income tax purposes. This goodwill recorded includes the following:
• The expected synergies and other benefits that we believe will result from combining the operations of the acquired business with the operations of Mirion;
• Any intangible assets that did not qualify for separate recognition, as well as future, yet unidentified projects and products;
• The value of the existing business as an assembled collection of net assets versus if the Company had acquired all of the net assets separately.
3. Assets and Liabilities Held for Sale
In the fourth quarter of 2022 the Biodex Rehabilitation ("Rehab") business was deemed as held for sale. The following table presents information related to the major classes of assets and liabilities that were classified as held for sale (in millions):
| | | | | | | | | | | |
| | | |
| March 31, 2023 | | December 31, 2022 |
| Inventories | $ | 5.5 | | | $ | 3.9 | |
| Prepaid expenses and other current assets | 0.1 | | | 0.1 | |
| Property, plant and equipment — net | 0.7 | | | 0.7 | |
| Goodwill | 3.8 | | | 3.8 | |
| Assets held for sale | $ | 10.1 | | | $ | 8.5 | |
| | | |
| Accrued liabilities | 1.3 | | | 0.7 | |
| Other non-current liabilities | 0.1 | | | 0.1 | |
Liabilities held for sale (1) | $ | 1.4 | | | $ | 0.8 | |
(1)Included in accrued expenses and other liabilities within the consolidated balance sheets.
4. Contracts in Progress
Costs and billings on uncompleted construction-type contracts consist of the following (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Costs incurred on contracts (from inception to completion) | $ | 270.0 | | | $ | 249.6 | |
| Estimated earnings | 163.6 | | | 163.1 | |
| Contracts in progress | 433.6 | | | 412.7 | |
| Less: billings to date | (377.7) | | | (371.8) | |
| $ | 55.9 | | | $ | 40.9 | |
The carrying amounts related to uncompleted construction-type contracts are included in the accompanying Condensed Consolidated Balance Sheets under the following captions (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Costs and estimated earnings in excess of billings on uncompleted contracts – current | $ | 67.2 | | | $ | 50.0 | |
Costs and estimated earnings in excess of billings on uncompleted contracts – non-current (1) | 9.6 | | | 17.3 | |
Billings in excess of costs and estimated earnings on uncompleted contracts – current (2) | (18.5) | | | (25.5) | |
Billings in excess of costs and estimated earnings on uncompleted contracts – non-current (3) | (2.4) | | | (0.9) | |
| $ | 55.9 | | | $ | 40.9 | |
(1)Included in other assets within the Condensed Consolidated Balance Sheets.
(2)Included in deferred contract revenue – current within the Condensed Consolidated Balance Sheets.
(3)Included in other liabilities within the Condensed Consolidated Balance Sheets.
For the three months ended March 31, 2023 the Company has recognized revenue of $9.4 million related to the contract liabilities balance as of December 31, 2022.
5. Inventories
The components of inventories consist of the following (in millions):
| | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Raw materials | $ | 71.3 | | | $ | 69.7 | |
| Work in progress | 34.8 | | | 28.2 | |
| Finished goods | 51.4 | | | 45.4 | |
| | $ | 157.5 | | | $ | 143.3 | |
6. Property, Plant and Equipment, Net
Property, plant and equipment, net consist of the following (in millions):
| | | | | | | | | | | | | | | | | |
| | Depreciable
Lives | | March 31, 2023 | | December 31, 2022 |
| Land, buildings, and leasehold improvements | 3-39 years | | $ | 47.6 | | | $ | 46.5 | |
| Machinery and equipment | 5-15 years | | 34.7 | | | 33.6 | |
| Badges | 3-5 years | | 34.7 | | | 33.4 | |
| Furniture, fixtures, computer equipment and other | 3-10 years | | 25.7 | | | 25.8 | |
| Construction in progress | — | | 21.4 | | | 15.9 | |
| | | | 164.1 | | | 155.2 | |
| Less: accumulated depreciation and amortization | | | (38.1) | | | (30.9) | |
| | | | $ | 126.0 | | | $ | 124.3 | |
Total depreciation expense included in costs of revenues and operating expenses was as follows (in millions):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Depreciation expense in: | | | |
| Cost of revenues | $ | 4.7 | | | $ | 4.2 | |
| Operating expenses | $ | 2.9 | | | $ | 1.9 | |
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in millions):
| | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Compensation and related benefit costs | $ | 30.9 | | | $ | 37.6 | |
| Customer deposits | 7.7 | | | 8.5 | |
| Accrued commissions | 0.3 | | | 0.4 | |
| Accrued warranty costs | 5.2 | | | 4.4 | |
| Non-income taxes payable | 9.1 | | | 8.7 | |
| Pension and other post-retirement obligations | 0.4 | | | 0.3 | |
| Income taxes payable | 6.8 | | | 5.5 | |
| Restructuring | 2.3 | | | 1.5 | |
| Liabilities held for sale | 1.4 | | | 0.8 | |
| Other accrued expenses | 10.8 | | | 12.1 | |
| Total | $ | 74.9 | | | $ | 79.8 | |
8. Goodwill and Intangible Assets
Goodwill
Goodwill is calculated as the excess of consideration transferred over the net assets recognized for acquired businesses and represents future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Goodwill is assigned to reporting units at the date the goodwill is initially recorded and is reallocated as necessary based on the composition of reporting units over time.
The Company assesses goodwill for impairment at the reporting unit level annually on the first day of the fourth quarter and upon the occurrence of a triggering event or change in circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
No goodwill impairment was recognized for the three months ended March 31, 2023.
The following table shows changes in the carrying amount of goodwill by reportable segment as of March 31, 2023 and December 31, 2022 (in millions): | | | | | | | | | | | | | | | | | |
| Medical | | Industrial | | Consolidated |
| Balance—December 31, 2022 | $ | 616.0 | | | $ | 802.0 | | | $ | 1,418.0 | |
| Business Combination and other acquisitions - measurement period adjustments | — | | | 0.9 | | | 0.9 | |
| Translation adjustment | — | | | 6.0 | | | 6.0 | |
| Balance—March 31, 2023 | $ | 616.0 | | | $ | 808.9 | | | $ | 1,424.9 | |
A portion of goodwill is deductible for income tax purposes.
Gross carrying amounts and cumulative goodwill impairment losses are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Gross Carrying Amount | | Cumulative Impairment | | Gross Carrying Amount | | Cumulative Impairment |
| Goodwill | $ | 1,636.7 | | | $ | (211.8) | | | $ | 1,629.8 | | | $ | (211.8) | |
Intangible Assets
Intangible assets consist of our developed technology, customer relationships, backlog, trade names, and non-compete agreements at the time of acquisition through business combinations. The customer relationships definite lived intangible assets are amortized using the double declining balance method while all other definite lived intangible assets are amortized on a straight-line basis over their estimated useful lives.
Many of our intangible assets are not deductible for income tax purposes. A summary of intangible assets useful lives, gross carrying value and related accumulated amortization is below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2023 |
| Original Average
Life in Years | | Gross Carrying
Amount | | Accumulated
Amortization | | Net Book
Value |
| Customer relationships | 6 - 13 | | $ | 338.0 | | | $ | (99.0) | | | $ | 239.0 | |
| Distributor relationships | 7 - 13 | | 60.9 | | | (10.5) | | | 50.4 | |
| Developed technology | 5 - 16 | | 250.4 | | | (44.2) | | | 206.2 | |
| Trade names | 3 - 10 | | 98.7 | | | (14.5) | | | 84.2 | |
| Backlog and other | 1 - 4 | | 75.4 | | | (35.4) | | | 40.0 | |
| Total | | | $ | 823.4 | | | $ | (203.6) | | | $ | 619.8 | |
| | | | | | | |
| | | December 31, 2022 |
| Original Average
Life in Years | | Gross Carrying
Amount | | Accumulated
Amortization | | Net Book
Value |
| Customer relationships | 6 - 13 | | $ | 336.8 | | | $ | (83.1) | | | $ | 253.7 | |
| Distributor relationships | 7 - 13 | | 60.9 | | | (8.7) | | 52.2 | |
| Developed technology | 5 - 16 | | 248.9 | | | (36.3) | | 212.6 | |
| Trade names | 3 - 10 | | 98.2 | | | (12.0) | | 86.2 | |
| Backlog and other | 1 - 4 | | 74.8 | | | (29.1) | | 45.7 | |
| Total | | | $ | 819.6 | | | $ | (169.2) | | | $ | 650.4 | |
Aggregate amortization expense for intangible assets included in cost of revenues and operating expenses was as follows (in millions):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Amortization expense for intangible assets in: | | | |
| Cost of revenues | $ | 6.7 | | | $ | 6.7 | |
| Operating expenses | $ | 26.9 | | | $ | 32.1 | |
9. Borrowings
Third-party notes payable consist of the following (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| 2021 Credit Agreement | $ | 696.7 | | | $ | 821.7 | |
| Canadian Financial Institution | 1.0 | | | 1.0 | |
| Other | 1.9 | | | 2.0 | |
| Draw on revolving line of credit | — | | | — | |
| Total third-party borrowings | 699.6 | | | 824.7 | |
| Less: notes payable to third-parties, current | (5.8) | | | (5.3) | |
| Less: deferred financing costs | (14.5) | | | (17.9) | |
| Notes payable to third-parties, non-current | $ | 679.3 | | | $ | 801.5 | |
As of March 31, 2023 and December 31, 2022, the fair market value of the Company's 2021 Credit Agreement (as defined below) was $682.8 million and $803.2 million, respectively. The fair market value for the 2021 Credit Agreement was estimated using primarily level 2 inputs, including borrowing rates available to the Company at the respective period ends. The fair market value for the Company’s remaining third-party debt approximates the respective carrying amounts as of March 31, 2023 and December 31, 2022.
2021 Credit Agreement
In connection with the Business Combination, in October 2021, certain subsidiaries of the Company entered into- a credit agreement (the "2021 Credit Agreement") among Mirion Technologies (HoldingSub2), Ltd., a limited liability company incorporated in England and Wales, as Holdings, Mirion Technologies (US Holdings), Inc., as the Parent Borrower, Mirion Technologies (US), Inc., as the Subsidiary Borrower, the lending institutions party thereto, Citibank, N.A., as the Administrative Agent and Collateral Agent and Goldman Sachs Lending Partners, Citigroup Global Markets Inc., Jefferies Finance LLC and JPMorgan Chase Bank, N.A., as the Joint Lead Arrangers and Bookrunners.
The 2021 Credit Agreement refinanced and replaced the credit agreement from March 2019, by and between, among others, Mirion Technologies (HoldingRep), Ltd. ("Mirion HoldingRep"), its subsidiaries and Morgan Stanley Senior Funding Inc., as administrative agent, certain other revolving lenders and a syndicate of institutional lenders (the “2019 Credit Facility”) which is described in more detail below.
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 below 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) for borrowings in U.S. dollars, a floating rate formula based on Euro Interbank Offered Rate ("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 the Company's lenders on a replacement rate for LIBOR in the event of its discontinuance or that automatically replaces LIBOR with benchmark rates based upon the Secured Overnight Financing Rate ("SOFR") or other benchmark replacement rates upon certain triggering events.
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 Technologies (HoldingSub2), Ltd. 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. Mirion Technologies (HoldingSub2), Ltd. and subsidiaries were in compliance with all debt covenants on March 31, 2023 and December 31, 2022.
Term Loan - The term loan has a seven-year term (expiring October 2028), bears interest at the greater of Adjusted London Interbank Offered Rate ("LIBOR") or 0.50%, plus 2.75% and has quarterly principal repayments of 0.25% of the original principal balance. The interest rate was 7.48% and 7.48% as of March 31, 2023 and December 31, 2022, respectively. The Company repaid $125.0 million and $6.6 million for the three month period ended March 31, 2023 and for the fiscal year ended December 31, 2022, respectively, yielding an outstanding balance of approximately $696.7 million and $821.7 million as of March 31, 2023 and December 31, 2022, respectively.
During the three months ended March 31, 2023, the Company used $125.0 million of proceeds received from a direct registered equity offering to pay down early outstanding amounts on the term loan.
Revolving Line of Credit - The revolving line of credit arrangement has a five year term and bears interest at the greater of LIBOR or 0%, plus 2.75%. The agreement requires the payment of a commitment fee of 0.50% per annum for unused commitments. The revolving line of credit matures in October 2026, at which time all outstanding revolving facility loans and accrued and unpaid interest are due. Any outstanding letters of credit reduce the availability of the revolving line of credit. There was no outstanding balance under the arrangement as of March 31, 2023 and December 31, 2022.
Additionally, the Company has standby letters of credit issued under its 2021 Credit Agreement that reduce the availability under the revolver of $10.8 million and $9.4 million as of March 31, 2023 and December 31, 2021, respectively. The amount available on the revolver as of March 31, 2023 and December 31, 2022 was approximately $79.2 million and $80.6 million, respectively.
Deferred Financing Costs
In connection with the issuance of the 2021 Credit Agreement term loan, we incurred debt issuance costs of $21.7 million on date of issuance. In accordance with accounting for debt issuance costs, we recognize and present deferred finance costs associated with non-revolving debt and financing obligations as a reduction from the face amount of related indebtedness in our Condensed Consolidated Balance Sheets.
In connection with the issuance of the 2021 Credit Agreement revolving line of credit, we incurred debt issuance costs of $1.8 million. We recognize and present debt issuance costs associated with revolving debt arrangements as an asset and include the deferred finance costs within other assets on our Condensed Consolidated Balance Sheets. We amortize all debt issuance costs over the life of the related indebtedness.
For the three month periods ended March 31, 2023 and March 31, 2022, we incurred approximately $3.5 million (including a $2.6 million loss on debt extinguishment for the $125.0 million early debt repayment) and $1.0 million, respectively, of amortization expense of the deferred financing costs.
Canadian Financial Institution - In May 2019, the Company entered into a credit agreement for C$1.7 million ($1.3 million) with a Canadian financial institution that matures in April 2039. The note bears annual interest at 4.69%. The credit agreement is secured by the facility acquired using the funds obtained.
Overdraft Facilities
The Company has overdraft facilities with certain German and French financial institutions. As of March 31, 2023 and December 31, 2022, there were no outstanding amounts under these arrangements.
Accounts Receivable Sales Agreement
We are party to an agreement to sell short-term receivables from certain qualified customer trade accounts to an unaffiliated French financial institution without recourse. Under this agreement, the Company can sell up to €12.1 million ($13.1 million) and €12.1 million ($13.0 million) as of March 31, 2023 and December 31, 2022, respectively, of eligible accounts receivables. The accounts receivable under this agreement are sold at face value and are excluded from the consolidated balance if revenue has been recognized on the related receivable. When the related revenue has not been recognized on the receivable the Company considers the accounts receivable to be collateral for short-term borrowings. As of March 31, 2023 and December 31, 2022, there was no amount and approximately $0.1 million, respectively, outstanding under these arrangements included as Other in the Borrowings table above.
Total costs associated with this arrangement were immaterial for the periods presented and are included in selling, general and administrative expense in the Condensed Consolidated Statements of Operations.
Performance Bonds and Other Credit Facilities
The Company has entered into various line of credit arrangements with local banks in France and Germany. These arrangements provide for the issuance of documentary and standby letters of credit of up to €61.7 million ($67.2 million) and €63.6 million ($68.1 million), as of March 31, 2023 and December 31, 2022, respectively, subject to certain local restrictions. As of March 31, 2023 and December 31, 2022, there were €42.0 million ($45.7 million) and €43.3 million ($46.3 million), respectively, of the lines had been utilized to guarantee documentary and standby letters of credit, with interest rates ranging from 0.5% to 2.0%. In addition, the Company posts performance bonds with irrevocable letters of credit to support certain contractual obligations to customers for equipment delivery. These letters of credit are supported by restricted cash accounts, which totaled $1.8 million and $1.5 million as of March 31, 2023 and December 31, 2022, respectively.
At March 31, 2023, contractual principal payments of total third-party borrowings are as follows (in millions):
| | | | | |
| Remainder of 2023 | $ | 6.3 | |
| Fiscal year ending December 31: | |
| 2024 | 8.4 | |
| 2025 | 8.4 | |
| 2026 | 10.0 | |
| 2027 | 8.4 | |
| Thereafter | 658.1 | |
| Gross Payments | 699.6 | |
| Unamortized debt issuance costs | (14.5) | |
| Total third-party borrowings, net of debt issuance costs | $ | 685.1 | |
10. Leased Assets
The Company primarily leases certain logistics, office, and manufacturing facilities, as well as vehicles, copiers and other equipment. These operating leases generally have remaining lease terms between 1 month and 30 years, and some include options to extend (generally 1 to 10 years). The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
The table below presents the locations of the operating lease assets and liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively (in millions):
| | | | | | | | | | | | | | | | | |
| Balance Sheet Line Item | | March 31, 2023 | | December 31, 2022 |
| Operating lease assets | Operating lease right-of-use assets | | $ | 38.7 | | | $ | 40.1 | |
| Financing lease assets | Other assets | | $ | 0.4 | | | $ | 0.5 | |
| | | | | |
| Operating lease liabilities: | | | | | |
| Current operating lease liabilities | Current operating lease liabilities | | $ | 8.4 | | | $ | 8.5 | |
| Non-current operating lease liabilities | Operating lease liability, non-current | | 32.7 | | | 34.3 | |
| Liabilities held for sale | Accrued expenses and other current liabilities | | 0.5 | | | 0.5 | |
| Total operating lease liabilities: | | | $ | 41.6 | | | $ | 43.3 | |
| | | | | |
| Financing lease liabilities: | | | | | |
| Current financing lease liabilities | Accrued expenses and other current liabilities | | $ | 0.2 | | | $ | 0.4 | |
| Non-current financing lease liabilities | Deferred income taxes and other long-term liabilities | | 0.2 | | | 0.1 | |
| Total financing lease liabilities: | | | $ | 0.4 | | | $ | 0.5 | |
The depreciable lives are limited by the expected lease term for operating lease assets and by shorter of either the expected lease term or economic useful life for financing lease assets.
The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring the lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease within a particular currency environment. The Company used incremental borrowing rates as of July 1, 2021 for leases that commenced prior to that date.
The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, 2023 and December 31, 2022, respectively, are:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Operating leases | | | | |
| Weighted average remaining lease term (in years) | | 6.7 | | 6.9 |
| Weighted average discount rate | | 4.15 | % | | 4.13 | % |
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable operating leases with terms of more than one year to the total lease liabilities recognized on the Condensed Consolidated Balance Sheets as of March 31, 2023 (in millions):
| | | | | |
| Fiscal year ending December 31: | |
| 2023 | $ | 7.6 | |
| 2024 | 8.7 | |
| 2025 | 7.2 | |
| 2026 | 5.4 | |
| 2027 | 4.8 | |
| 2028 and thereafter | 14.0 | |
| Total undiscounted future minimum lease payments | 47.7 | |
| Less: Imputed interest | (6.1) | |
| Total operating lease liabilities | $ | 41.6 | |
| |
For the three months ended March 31, 2023 and March 31, 2022, operating lease costs (as defined under ASU 2016-02) were $2.7 million and $2.6 million, respectively. Operating lease costs are included within costs of goods sold, selling, general and administrative, and research and development expenses on the consolidated statements of income and comprehensive income. Short-term lease costs, variable lease costs and sublease income were not material for the periods presented.
Cash paid for amounts included in the measurement of operating lease liabilities was $2.6 million and $2.9 million for the three months ended March 31, 2023 and March 31, 2022, respectively, and this amount is included in operating activities in the condensed consolidated statements of cash flows. Operating lease assets obtained in exchange for new operating lease liabilities were $0.2 million and $0.9 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
11. Commitments and Contingencies
Unconditional Purchase Obligations
The Company has entered into certain long-term unconditional purchase obligations with suppliers. These agreements are non-cancellable and specify terms, including fixed or minimum quantities to be purchased, fixed or variable price provisions, and the approximate timing of payment. As of March 31, 2023, unconditional purchase obligations were as follows (in millions):
| | | | | |
| Fiscal year ending December 31: | |
| 2023 | $ | 30.6 | |
| 2024 | 11.6 | |
| 2025 | 1.2 | |
| 2026 | 1.1 | |
| 2027 and thereafter | — | |
| Total | $ | 44.5 | |
Litigation
The Company is subject to various legal proceedings, claims, litigation, investigations and contingencies arising out of the ordinary course of business. While the ultimate results of such suits or other proceedings against the Company cannot be predicted with certainty, we believe the resolution of these matters will not have a material effect on our results of operations, financial condition, or cash flows. If we believe the likelihood of an adverse legal outcome is probable and the amount is reasonably estimable, we accrue a liability in accordance with accounting guidance for contingencies. We consult with legal counsel on matters related to litigation and seek input both within and outside the Company.
In April 2023, one of our Russian customers made a claim against the Company regarding liquidated damages for certain delays under the terms of an active project. Management views the claim as without merit, however uncertainty exists as to how the resolution of the claim will impact future cash flows and results of operations, including any impact from potential modifications to the underlying contract.
12. Income Taxes
The effective income tax rate was 2.5% for the three months ended March 31, 2023, and 17.7% for the three months ended March 31, 2022. The difference in effective tax rate between the periods was primarily attributable to mix of earnings and the impact of valuation allowances in the current period.
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.
13. Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows
Supplemental cash flow information and schedules of non-cash investing and financing activities (in millions):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Cash Paid For: | | | |
| Cash paid for interest, net | $ | 13.9 | | | $ | 6.9 | |
| Cash paid for income taxes | $ | 2.8 | | | $ | 2.4 | |
| Non-Cash Investing and Financing Activities: | | | |
| Property, plant, and equipment purchases in accounts payable | $ | 0.2 | | | $ | 1.0 | |
| Acquisition purchases in accrued expense and other liabilities | $ | 1.6 | | | $ | — | |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balances Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in millions).
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Cash and cash equivalents | $ | 88.3 | | | $ | 73.5 | |
| Restricted cash—current | 0.7 | | | 0.5 | |
| Restricted cash—non-current | 1.1 | | | 1.0 | |
| Total cash, cash equivalents, and restricted cash | $ | 90.1 | | | $ | 75.0 | |
Amounts included in restricted cash represent funds with various financial institutions to support performance bonds with irrevocable letters of credit for contractual obligations to certain customers.
14. Stock-Based Compensation
Stock-based compensation is awarded to employees and directors of the Company and accounted for in accordance with ASC 718, "Compensation—Stock Compensation". Stock-based compensation expense is recognized for equity awards over the vesting period based on their grant-date fair value. Stock-based compensation expense is included within the same financial statement caption where the recipient’s other compensation is reported. The Company accounts for forfeitures as they occur. The Company uses various forms of long-term incentives including, but not limited to restricted stock units ("RSUs") and performance-based restricted units ("PSUs"), provided that the granting of such equity awards is in accordance with the Company's 2021 Omnibus Incentive Plan (the "2021 Plan") as filed on Form S-8 with the SEC on December 27, 2021.
2021 Omnibus Incentive Plan
We adopted and obtained stockholder approval at the special meeting of the stockholders on October 19, 2021 of the 2021 Plan. We initially reserved 19,952,329 shares of our Class A common stock for issuance pursuant to awards under the 2021 Plan. The total number of shares of our Class A common stock available for issuance under the 2021 Plan will be increased on the first day of each fiscal year following the date on which the 2021 Plan was adopted in an amount equal to the least of (i) three percent (3%) of the outstanding shares of Class A common stock on the last day of the immediately preceding fiscal year, (ii) 9,976,164 shares of Class A common stock and (iii) such number of shares of Class A common stock as determined by the Committee (as defined and designated under the 2021 Plan) in its discretion. Pursuant to these automatic increase provisions, the number of shares of our Class A common stock reserved for issuance pursuant to awards under the 2021 Plan increased to 31,946,993 shares at January 1, 2023. Any employee, director or consultant of the Company or any of its subsidiaries or affiliates is eligible to receive an award under the 2021 Plan, to the extent that an offer of such award is permitted by applicable law, stock market or exchange rules, and regulations or accounting or tax rules and regulations. The 2021 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, PSUs, other share-based awards, or any combination thereof. Each award will be set forth in a separate grant notice or agreement and will indicate the type and terms and conditions of the award.
The purpose of the 2021 Plan is to motivate and reward employees and other individuals to perform at their highest level and contribute significantly to the success of the Company. During the three months ended March 31, 2023, the Company granted 695,351 RSUs and 233,165 PSUs to certain members of the Company's employees. The RSUs granted to
employees are subject to service vesting conditions with one-third of each award vesting on the anniversary of the grant date such that all awards are fully vested after three (3) years. The expense will be recognized on a straight-line basis over the related service period for each tranche of awards. The PSUs are subject to service and performance/market vesting conditions and allow a maximum issuance of shares of our Class A common stock of up to 200% of the granted PSUs based on the Company meeting certain established thresholds. The recipient will generally forfeit all of the awards if the recipient is no longer providing services to the Company before the end of the performance measurement period on December 31, 2025. Fifty percent (50%) of the PSU awards shall vest based on a market condition determined by the Company’s relative total shareholder return (TSR) during the performance period of January 1, 2023 to December 31, 2025, measured as a comparative percentile to the Company’s peers in the Russell 2000 Industrials index with interpolated achievement levels of: (i) 0% if the TSR percentile is below the 30th percentile level, (ii) between 50% and 100% if the TSR percentile is at least at the 30th percentile level and up to the 55th percentile level and (iii) between 100% and 200% if the TSR percentile is at least at the 56th percentile level and up to the 80th percentile level (or above the 80th percentile level with 200% being the maximum). The remaining fifty percent (50%) of the PSU awards shall vest based on performance condition determined by the Company’s organic revenue growth percentage as measured from January 1, 2025 to December 31, 2025 as compared with January 1, 2023 to December 31, 2023 with interpolated achievement levels of (i) 0% if the organic growth revenue percentage is less than 3.0%, (ii) between 50% and 100% if the organic revenue growth percentage is at least 3.0% and up to 5.0% and (iii) between 100% and 200% if the organic revenue growth percentage is at least 5.0% and up to 7.0% (or above 7.0% but with 200% being the maximum).
There were no new grants during the three months ended March 31, 2022.
During the three months ended March 31, 2023, $1.6 million of stock-based compensation expense was recorded, of which $0.2 million was related to non-employee directors. During the three months ended March 31, 2022, $1.0 million of stock-based compensation expense was recorded, of which $0.2 million was related to non-employee directors.
In addition, during the three months ended March 31, 2023 and 2022, certain members of the Company's Directors elected to receive their quarterly retainer fees in the form of shares of Class A common stock. As such, the Company recorded related stock-based compensation expense of $0.1 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.
Profits Interests
In conjunction with entering into the Business Combination Agreement, on June 17, 2021 the Sponsor issued 4,200,000 Profits Interests to Lawrence Kingsley, the current Chairman of the Board of Directors of the Company, 3,200,000 Profits Interests to Thomas Logan, the Chief Executive Officer of Mirion, and 700,000 Profits Interests to Brian Schopfer, the Chief Financial Officer of Mirion. The Profits Interests are intended to be treated as profits interests for U.S. income tax purposes, pursuant to which Messrs. Logan, Schopfer and Kingsley will have an indirect interest in the founder shares held by the Sponsor.
The Profits Interests are subject to service vesting conditions and market vesting conditions. Fifty percent (50%) of the Profits Interests granted to each of Messrs. Logan and Schopfer service-vest on each of the second and third anniversaries of the Closing, and fifty percent (50%) of the Profits Interests granted to Mr. Kingsley service-vest on each of the first and second anniversaries of the Closing), subject in each case to the continuous service of the grantee on such date. The market vesting conditions require that the price per share of Mirion's Class A common stock must meet or exceed certain established thresholds for 20 out of 30 trading days before the fifth anniversary of the Closing Date). The expense will be recognized on a straight-line basis over the related service period for each tranche of awards.
Of the Profits Interests, 3.2 million have a market vesting threshold price of $12 per share of Mirion Class A common stock, 2.0 million have a threshold price of $14 per share of Mirion Class A common stock, and 3.0 million have a threshold price of $16 per share of Mirion Class A common stock.
During the three months ended March 31, 2023 and 2022, $4.0 million and $6.8 million of stock-based compensation expense was recorded, respectively. No new Profit Interests were issued during the three months ended March 31, 2023 and 2022.
15. Related-Party Transactions
Founder Shares
As of the closing of the Business Combination, the Sponsor owned 18,750,000 shares of Class B common stock the ("Founder Shares") which automatically converted into 18,750,000 shares of Class A common stock at the closing of the Business Combination. The Founder Shares, are subject to certain vesting and forfeiture conditions and transfer
restrictions, including performance vesting conditions under which the price per share of Mirion's Class A common stock must meet or exceed certain established thresholds of $12, $14, or $16 per share for 20 out of 30 trading days before the fifth anniversary of the Closing Date of the Business Combination). The Founder Shares will be forfeited to the Company for no consideration if they fail to vest before October 20, 2026.
Private Placement Warrants
The Sponsor purchased an aggregate of 8,500,000 private placement warrants (the "Private Placement Warrants") at a price of $2.00 per whole warrant ($17.0 million in the aggregate) in a private placement (the “Private Placement”) that closed concurrently with the closing of GSAH's initial public offering (the "IPO"). Each Private Placement Warrant is exercisable for one whole share of Class A common stock at a price of $11.50 per share, subject to adjustment in certain circumstances, including upon the occurrence of certain reorganization events. The Private Placement Warrants are non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
The Private Placement Warrants are accounted for as liabilities as they contain terms and features that do not qualify for equity classification under ASC 815. See Note 17, Fair Value Measurements, for the fair value of the Private Placement Warrants at March 31, 2023.
Profits Interests
In connection with the Business Combination Agreement, the Sponsor issued 8,100,000 Profits Interests to certain individuals affiliated with or expected to be affiliated with Mirion after the Business Combination. The holders of the Profits Interests will have an indirect interest in the Founder Shares held by the Sponsor. The Profits Interests are subject to service and performance vesting conditions, including the occurrence of the Closing, and do not fully vest until all of the applicable conditions are satisfied. In addition, the Profits Interests are subject to certain forfeiture conditions. See Note 14, Stock-Based Compensation, for further detail regarding the Profits Interests.
Registration Rights
The holders of the Founder Shares and Private Placement Warrants are entitled to registration rights to require the Company to register the resale of any the Founder Shares and the shares underlying the Private Placement Warrants upon exercise pursuant to the Amended and Restated Registration Rights Agreement dated October 20, 2021 (the "RRA"). These holders are also entitled to certain piggyback registration rights. The RRA also includes customary indemnification and confidentiality provisions. The Company will bear the expenses incurred in connection with the filing of any registration statements filed pursuant to the terms of the RRA, including those expenses incurred in connection with the shelf-registration statement on Form S-1 filed on October 27, 2021 and declared effective on November 2, 2021.
Charterhouse Capital Partners LLP
The Company had entered into agreements with its primary pre-Business Combination investor, Charterhouse Capital Partners LLP ("CCP"), which obligated the Company to pay certain expenses in support of any secondary market offerings of its remaining shares owned after the Business Combination. During the three months ended March 31, 2023, $0.6 million of expenses were recorded.
16. Segment Information
The following table summarizes select operating results for each reportable segment (in millions).
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Revenues | | | |
| Medical | $ | 66.4 | | | $ | 60.1 | |
| Industrial | 115.7 | | | 103.1 | |
| Consolidated Revenues | $ | 182.1 | | | $ | 163.2 | |
| Segment Income (Loss) from Operations | | | |
| Medical | $ | 0.7 | | | $ | (6.7) | |
| Industrial | 5.5 | | | (2.5) | |
| Total Segment Income (Loss) from Operations | 6.2 | | | (9.2) | |
| Corporate and other | (19.8) | | | (24.4) | |
| Consolidated Loss from Operations | $ | (13.6) | | | $ | (33.6) | |
Beginning January 1, 2023, the Company began measuring segment performance to include the impact of expenses identified as non-operating. Previously, these expenses would have been included with Corporate and other. Segment income (loss) from operations for the three months ended March 31, 2022 has been adjusted for comparability.
The Company’s assets by reportable segment were not included, as this information is not reviewed by, nor otherwise provided to, the chief operating decision maker to make operating decisions or allocate resources.
The following details revenues by geographic region. Revenues generated from external customers are attributed to geographic regions through sales from site locations (i.e., point of origin) (in millions).
| | | | | | | | | | | |
| Revenues |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| North America | | | |
| Medical | $ | 60.7 | | | $ | 55.6 | |
| Industrial | 55.2 | | | 42.2 | |
| Total North America | 115.9 | | | 97.8 | |
| Europe | | | |
| Medical | 5.7 | | | 4.5 | |
| Industrial | 53.1 | | | 53.2 | |
| Total Europe | 58.8 | | | 57.7 | |
| Asia Pacific | | | |
| Medical | — | | | — | |
| Industrial | 7.4 | | | 7.7 | |
| Total Asia Pacific | 7.4 | | | 7.7 | |
| Total revenues | $ | 182.1 | | | $ | 163.2 | |
The following details revenues by timing of recognition (in millions):
| | | | | | | | | | | |
| Revenues |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Point in time | $ | 118.3 | | | $ | 117.0 | |
| Over time | 63.8 | | | 46.2 | |
| Total revenues | $ | 182.1 | | | $ | 163.2 | |
The following details revenues by product category (in millions):
| | | | | | | | | | | |
| Revenues |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Medical segment: | | | |
| Medical | $ | 66.4 | | | $ | 60.1 | |
| Industrial segment: | | | |
| Reactor Safety and Control Systems | 42.1 | | | 30.8 | |
| Radiological Search, Measurement, and Analysis Systems | 73.6 | | | 72.3 | |
| Total revenues | $ | 182.1 | | | $ | 163.2 | |
17. Fair Value Measurements
The Company applies fair value accounting to all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The fair value of the Company’s cash and cash equivalents, restricted cash, accounts receivable, and other current assets and liabilities approximates their carrying amounts due to the relatively short maturity of these items. The fair value of third-party notes payable approximates the carrying value because the interest rates are variable and reflect market rates.
Fair Value of Financial Instruments
The Company categorizes assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets based upon the level of judgment associated with inputs used to measure their fair value. It is not practicable due to cost and effort for the Company to estimate the fair value of notes issued to related parties primarily due to the nature of their terms relative to the entity’s capital structure.
Assets and liabilities carried at fair value are valued and disclosed in one of the following three levels of the valuation hierarchy:
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs are quoted prices in active markets for similar assets or liabilities or inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs are unobservable and require significant management judgment or estimation.
The following table summarizes the financial assets and liabilities of the Company that are measured at fair value on a recurring basis (in millions):
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements at March 31, 2023 |
| Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | |
| Cash, cash equivalents, and restricted cash | $ | 90.1 | | | $ | — | | | $ | — | |
| Discretionary retirement plan | $ | 3.5 | | | $ | 0.9 | | | $ | — | |
| Accrued interest receivable on cross-currency rate swaps | — | | | — | | | — | |
| Liabilities | | | | | |
| Discretionary retirement plan | $ | 3.5 | | | $ | 0.9 | | | $ | — | |
| Public warrants | $ | 30.2 | | | $ | — | | | $ | — | |
| Private placement warrants | $ | — | | | $ | 13.7 | | | $ | — | |
| Cross-currency rate swaps (Note 18) | $ | — | | | $ | 15.8 | | | $ | — | |
| | | | | |
| Fair Value Measurements at December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | |
| Cash, cash equivalents, and restricted cash | $ | 75.0 | | | $ | — | | | $ | — | |
| Discretionary retirement plan | $ | 3.1 | | | $ | 0.9 | | | $ | — | |
| Accrued interest receivable on cross-currency rate swaps | $ | — | | | $ | 0.1 | | | $ | — | |
| Liabilities | | | | | |
| Discretionary retirement plan | $ | 3.1 | | | $ | 0.9 | | | $ | — | |
| Public warrants | $ | 21.0 | | | $ | — | | | $ | — | |
| Private placement warrants | $ | — | | | $ | 9.5 | | | $ | — | |
| Cross-currency rate swaps (Note 18) | $ | — | | | $ | 12.9 | | | $ | — | |
The cross-currency rate swaps the Company entered into in the year ended December 31, 2022 are not exchange traded instruments. Their fair value is determined using the cash flows of the swap contracts, discount rates to account for the passage of time, current foreign exchange market data and credit risk, which are all based on inputs readily available in public markets and categorized as Level 2 fair value hierarchy measurements.
As of March 31, 2023 and December 31, 2022, the fair value of Public Warrants issued in connection with GSAH's IPO have been measured based on the listed market price of such Public Warrants, a Level 1 measurement.
As the transfer of Private Placement Warrants to anyone who is not a permitted transferee would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, we determined that the fair value of each Private Placement Warrant is equivalent to that of each Public Warrant. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
For the three months ended March 31, 2023, the Company recognized an unrealized loss resulting from an increase in the fair value of the warrant liabilities of $13.4 million, which is presented in the Condensed Consolidated Statements of Operations as change in fair value of warrant liabilities.
Nonrecurring Basis Fair Value Measurements
There are nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis such as assets and liabilities held for sale. The fair value of assets held for sale was measured on a non-recurring basis based on the lower of the carrying amount or fair value less cost to sell. The fair value measurement was categorized as Level 3, as the fair values utilize significant unobservable inputs. See Note 3, Assets and Liabilities Held for Sale for further details.
18. Derivatives and Hedging
The Company's policy requires that derivatives are used solely for managing risks and not for speculative purposes. As a result of the Company’s European operations, the Company is exposed to fluctuations in exchange rates between EURO and USD. As such, the Company entered into cross-currency rate swaps during the year ended December 31, 2022 to manage currency risks related to our investments in foreign operations.
All derivative instruments are carried at fair value in our Condensed Consolidated Balance Sheets. The following table presents the fair values of the Company’s derivative instruments that were designated and qualified as part of a hedging relationship (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value (1) |
| Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | March 31, 2023 | | December 31, 2022 |
| Assets: | | | | | | |
| Accrued Interest Receivable on Cross-Currency Rate Swaps | | Prepaid expenses and other currents assets | | $ | 0.1 | | | $ | 0.1 | |
| Total assets | | | | $ | 0.1 | | | $ | 0.1 | |
| Liabilities: | | | | | | |
| Cross-Currency Rate Swaps | | Other non-current liabilities | | $ | 15.8 | | | $ | 12.9 | |
| Total liabilities | | | | $ | 15.8 | | | $ | 12.9 | |
(1) Refer to Note 17, Fair Value Measurements for additional information related to the estimated fair value. |
Counterparty Credit Risk
Outstanding financial derivative instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the derivative agreements. The Company's credit exposure related to these financial instruments is represented by the notional amount of the hedging instruments. The Company manages its exposure to counterparty credit risk through minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. The Company's derivative instruments are with financial institutions of investment grade or better. Counterparty credit risk will be monitored through periodic review of counterparty bank’s credit ratings and public financial filings. Based on these factors, the Company considers the risk of counterparty default to be minimal.
Hedges of Net Investments in Foreign Operations Strategy
The Company uses fixed-to-fixed cross-currency rate swaps ("CCRS") to protect the net investment on pre-tax basis in the Company’s EUR-denominated operations against changes in spot exchange rates. For derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the changes in the fair values of the derivative financial instruments are recognized in net investment hedges adjustments, a component of accumulated other comprehensive loss ("AOCL"), to offset the changes in the values of the net investments being hedged. Any ineffective portions of net investment hedges are reclassified from AOCL into earnings during the period of change.
The following table summarizes the notional values and pretax impact of changes in the fair values of instruments designated as net investment hedges (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Notional Amount | | Gain (Loss) Recognized in AOCL |
| As of | | Three Months Ended
March 31, 2023 | | Three Months Ended
March 31, 2022 |
| March 31, 2023 | | December 31, 2022 | | |
| Cross-currency rate swaps | € | 238.8 | | | € | 238.8 | | | $ | (2.9) | | | $ | — | |
| Total | € | 238.8 | | | € | 238.8 | | | $ | (2.9) | | | $ | — | |
19. Loss Per Share
A reconciliation of the numerator and denominator used in the calculation of basic and diluted loss per common share is as follows (in millions, except per share amounts):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Net loss attributable to Mirion Technologies, Inc. shareholders | $ | (41.9) | | | $ | (17.7) | |
| Weighted average common shares outstanding – basic and diluted | 187.701 | | | 180.774 | |
| Net loss per common share attributable to Mirion Technologies, Inc. — basic and diluted | $ | (0.22) | | | $ | (0.10) | |
| Anti-dilutive employee share-based awards, excluded | 0.687 | | | 0.988 | |
Net loss per share of common stock is computed using the two-class method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. Basic loss per share is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding, adjusted for the outstanding non-vested shares. Diluted loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company incurred a net loss for the three months ended March 31, 2023 and 2022, respectively; therefore, none of the potentially dilutive common shares were included in the diluted share calculations for those periods as they would have been anti-dilutive.
Upon the closing of the Business Combination, the following classes of common stock were considered in the loss per share calculation.
Class A Common Stock
Holders of shares of our Class A common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. The holders of our Class A common stock do not have cumulative voting rights in the election of directors. Holders of shares of our Class A common stock are entitled to receive dividends when and if declared by the Company's Board of Directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of our Class A common stock will be entitled to receive pro rata our remaining assets available for distribution. Class A common stock issued and outstanding is included in the Company’s basic loss per share calculation, with the exception of Founder Shares discussed below.
Class B Common Stock
Holders of shares of our Class B common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. If at any time the ratio at which shares of IntermediateCo Class B common stock are redeemable or exchangeable for shares of our Class A common stock changes from one-for-one as the number of votes to which our Class B common stockholders are entitled will be adjusted accordingly. The holders of our Class B common stock do not have cumulative voting rights in the election of directors. Except for transfers to us or to certain permitted transferees set forth in the IntermediateCo certificate of incorporation, paired interests may not be sold, transferred or otherwise disposed of.
Holders of shares of our Class B common stock are not entitled to economic interests in us or to receive dividends or to receive a distribution upon our liquidation or winding up. However, if IntermediateCo makes distributions to us other than solely with respect to our Class A common stock, the holders of paired interests will be entitled to receive distributions pro rata in accordance with the percentages of their respective shares of IntermediateCo Class B common stock.
Our Class B common stock has voting rights but no economic interest in the Company and therefore are excluded from the calculation of basic and diluted earnings per share.
Warrants
As described above, the Company has outstanding warrants to purchase up to 27,249,779 shares of Class A common stock. One whole warrant entitles the holder thereof to purchase one share of Mirion Class A common stock at a price of $11.50 per share. The Company’s warrants are not included in the Company’s calculation of basic loss per share and are excluded from the calculation of diluted loss per share because their inclusion would be anti-dilutive.
Founder Shares
Founder shares are subject to certain vesting events and forfeit if a required vesting event does not occur within five years of the closing of the Business Combination. The founder shares are subject to vesting in three equal tranches, based on the volume-weighted average price of our Class A common stock being greater than or equal to $12.00, $14.00 and $16.00 per share for any 20 trading days in any 30 consecutive trading day period. Holders of the founder shares are entitled to vote such founder shares and receive dividends and other distributions with respect to such founder shares prior to vesting, but such dividends and other distributions with respect to unvested founder shares will be set aside by the Company and shall only be paid to the holders of the founder shares upon the vesting of such founder shares.
As the holders of the founder shares are not entitled to participate in earnings unless the vesting conditions are met, the 18,750,000 founders shares have been excluded from the calculation of basic earnings per share. The founders shares are also excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive.
Stock-Based Awards
Each stock-based award represents the right to receive a Class A common stock upon vesting of the awards. Per ASC 260, Earnings Per Share ("EPS"), shares issuable for little or no cash consideration upon the satisfaction of certain conditions (i.e. contingently issuable shares) should be included in the computation of basic EPS as of the date that all necessary conditions have been satisfied. As such, any stock-based awards such as RSUs that vest will be included in the Company's basic loss per share calculations as of the date when all necessary conditions are met.
20. Restructuring
The Company incurs costs associated with restructuring initiatives intended to improve operating performance, profitability, and working capital levels. Actions associated with these initiatives may include improving productivity, workforce reductions, and the consolidation of facilities.
As of March 31, 2023, the Company has identified restructuring actions which will result in additional charges of approximately $1.1 million, primarily in the next 12 months.
| | | | | | | | | | | | | | | | | | | | |
Future Estimated Restructuring Expense by Segment (in millions) |
| Medical | | Industrial | | Corporate | | Total |
| $ | 0.6 | | | $ | 0.4 | | | $ | 0.1 | | | $ | 1.1 | |
The Company’s restructuring expenses are comprised of the following (in millions):
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Cost of revenue | | Selling, general
and administrative | | Total |
| Severance and employee costs | $ | — | | | $ | 1.2 | | | $ | 1.2 | |
Other(1) | — | | | 0.2 | | | 0.2 | |
| Total | $ | — | | | $ | 1.4 | | | $ | 1.4 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Cost of revenue | | Selling, general
and administrative | | Total |
| Severance and employee costs | $ | 0.1 | | | $ | 0.9 | | | $ | 1.0 | |
Other(1) | — | | | 1.0 | | | 1.0 | |
| Total | $ | 0.1 | | | $ | 1.9 | | | $ | 2.0 | |
| | | | | |
(1) Includes facilities, inventory write-downs, outside services, legal matters, and IT costs.
The following table summarizes restructuring expenses for each reportable segment (in millions):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| Restructuring expenses: | | | |
| Medical | $ | 0.3 | | | $ | 1.5 | |
| Industrial | 0.1 | | | — | |
| Corporate and other | 1.0 | | | 0.5 | |
| Total | $ | 1.4 | | | $ | 2.0 | |
The following table summarizes the changes in the Company’s accrued restructuring balance, which are included in Accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets (in millions).
| | | | | |
| Balance at December 31, 2022 | $ | 1.5 | |
| Restructuring charges | 1.4 | |
| Payments | (0.6) | |
| Adjustments | — | |
| Balance at March 31, 2023 | $ | 2.3 | |
21. Noncontrolling Interests
On October 20, 2021, Mirion Technologies, Inc. consummated its previously announced Business Combination pursuant to the Business Combination Agreement.
Before the Closing of the Business Combination, the Sellers had the option to elect to have their equity consideration issued as either shares of Class A common stock or Paired Interests. The Sellers receiving shares of Class B common stock also received one share of IntermediateCo Class B common stock per share of Class B common stock as a Paired Interest. Each of the shares of Class A common stock and each Paired Interest were valued at $10.00 per share for purposes of determining the aggregate number of shares issued to the Sellers. Holders of shares of our Class B common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors. If at any time the ratio at which shares of IntermediateCo Class B common stock are redeemable or exchangeable for shares of the Company’s our Class A common stock changes from one-for-one,
as the number of votes to which our Class B common stockholders are entitled will be adjusted accordingly. The holders of our the Company’s Class B common stock do not have cumulative voting rights in the election of directors. Except for transfers to us or to certain permitted transferees set forth in the IntermediateCo certificate of incorporation, paired interests may not be sold, transferred or otherwise disposed of.
The holders of IntermediateCo Class B common stock have the right to require IntermediateCo to redeem all or a portion of their IntermediateCo Class B common stock for, at the Company’s election, (1) newly issued shares of the Company’s Class A common stock on a one-for-one basis or (2) a cash payment equal to the product of the number of shares of IntermediateCo Class B common stock subject to redemption and the arithmetic average of the closing stock prices for a share of the Company’s Class A common stock for each of three (3) consecutive full trading days ending on and including the last full trading day immediately prior to the date of redemption (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). This redemption right became available upon the expiration of certain lockup restrictions on April 18, 2022.
At the Closing Date, the Company owned 100% of the voting shares (Class A) of IntermediateCo and approximately 96% of the non-voting Class B shares of IntermediateCo. The Company recognized noncontrolling interests for the 8,560,540 shares, representing approximately 4% of the non-voting Class B shares, of IntermediateCo that were not attributable to the Company. After conversions subsequent to the Business Combinations through the end of the current quarter, the Company recognized noncontrolling interests for 7,847,333 shares, representing the 3.5% of the non-voting Class B shares of IntermediateCo, that are not attributable to the Company.
As of March 31, 2023, noncontrolling interests of $66.7 million were reflected in the condensed consolidated statements of stockholders’ equity (deficit).
22. Accumulated Other Comprehensive Loss / Income
The components of accumulated other comprehensive loss, net of tax, consist of the following (in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Cumulative foreign currency translation adjustment, net of tax | $ | (60.6) | | | $ | (71.2) | |
| Unrealized gain (loss) on pension and postretirement benefit plans, net of tax | 2.1 | | | 2.1 | |
| Unrealized loss on net investment hedges, net of tax | (12.2) | | | (9.9) | |
| Less: cumulative loss attributable to noncontrolling interests | (3.0) | | | (3.3) | |
| Accumulated other comprehensive (loss) income | $ | (67.7) | | | $ | (75.7) | |
23. Subsequent Events
On April 3, 2023, the Company closed the sale of the physical medicine assets of Biodex Medical Systems, Inc. (“Biodex”) to Salona Global Medical Device Corporation for $1.0 million in cash at closing and up to an additional $7.0 million in deferred cash payments. The deferred cash payments are contingent on the performance of the business during the 12-month period following closing.
