Mirion Technologies, a leader in radiation detection and measurement, just wrapped up a strong 2023, punctuated by record backlog and adjusted EBITDA. While the company reaffirmed its commitment to a 30% EBITDA margin target over the next five years, the path to achieving that goal may hinge on an unlikely hero: their troubled French business.

A closer look at the Q4 2023 and Q1 2024 transcripts reveals a fascinating narrative unfolding in France, one that may hold the key to unlocking significant margin expansion for Mirion. On the surface, the French business seems like a problem child. In Q4 2023, it dragged down Technology segment margins, experiencing operational challenges and product mix headwinds. This came on the heels of a difficult year for the company's largest French customer, EDF, the operator of the nation's nuclear power stations. Widespread outages at EDF facilities dampened demand and created uncertainty for Mirion's French operations.

However, amidst the challenges, green shoots of a turnaround are emerging. Both Q4 2023 and Q1 2024 transcripts emphasize a renewed focus on operational improvement in France. Tom Logan, Mirion's CEO, highlighted organizational and process changes, underscoring the company's commitment to getting the French business 'back on the rails.'

The Q1 2024 transcript offers particularly intriguing evidence. While Brian Schopfer, CFO, anticipates Q2 margin pressure in the Technology segment due to product mix and supply chain investments, he expresses 'robust' visibility into margin expansion in the second half of the year, driven by the Technology segment.

Here's where the French connection becomes compelling. The Q1 transcript also mentions that Mirion received a $15 million European defense order at the start of Q2, an order specifically excluded from the Q1 results. While the exact geography of this order wasn't disclosed, it's reasonable to hypothesize that at least a portion, if not a majority, of this order is tied to France, given the recent momentum in non-traditional defense orders in the European market, as highlighted in the Q4 2023 transcript.

Hypothetical Scenario: Impact of Defense Order on Q2 Margins

Let's explore a hypothetical scenario. Assume that 50% of this $15 million defense order is tied to the French business, contributing $7.5 million in additional revenue in Q2. If we further assume that this defense order carries a higher margin profile than Mirion's typical French business, let's say 30%, it would translate to $2.25 million in adjusted EBITDA.

This hypothetical $2.25 million EBITDA contribution would represent a significant boost to the Technology segment's Q2 performance. It could potentially offset some of the expected margin pressure from product mix and supply chain investments, creating a more favorable setup for the segment's projected second half margin expansion.

Of course, this is just a hypothetical scenario. The true geographic split and margin profile of the defense order remain unknown. However, it underscores the potential for Mirion's French business to surprise to the upside in 2024.

Beyond the potential short-term boost from defense orders, the long-term outlook for Mirion's French business is intrinsically linked to the global nuclear power resurgence. France derives over 70% of its electricity from nuclear power, the highest percentage of any country in the world. As the global push for decarbonization intensifies, France is likely to remain a critical market for Mirion, especially as EDF addresses its operational challenges and resumes a more predictable demand pattern.

Mirion's management is laser-focused on executing its strategic priorities. While they remain tight-lipped on specific details about the French turnaround plan, their comments suggest a strong belief in the business's underlying potential.

Mirion's Segment Revenue Growth (Q4 2023)

The French operation may be a fixer-upper today, but it's sitting on valuable real estate: a market deeply committed to nuclear power and a customer base poised for long-term growth. If Mirion's operational improvements gain traction, the French business could transform from a drag on margins to a hidden engine of growth, accelerating the company's path to its 30% EBITDA margin target.

"Fun Fact: France's commitment to nuclear power is so deep that over 3,000 French companies are involved in the nuclear industry, employing over 220,000 people. This robust ecosystem provides Mirion with a vast network of potential partners and customers, creating a fertile ground for expansion."