Mirion Technologies (MIR) Risk Analysis

Our cybersecurity risks are growing due to increasingly aggressive and sophisticated attacks by threat actors, including AI-powered cyberattacks. These include hacking, computer viruses, malicious code, ransomware, social engineering attacks (including phishing and impersonation), denial-of-service attacks and machine learning algorithms and techniques that automate, accelerate or enhance cyberattacks. Our IT systems are subject to constant attempts to gain unauthorized access to, capture, destroy or manipulate confidential information and we have experienced, and may in the future experience, cyberattacks and data breaches. Despite the implementation of information security systems and processes to protect against unauthorized access, data loss and theft (see "Item 1C. Cybersecurity"), there is no guarantee that this governance will be adequate to safeguard against all breaches or misuse of our data and systems. Additionally, certain of our confidential information, and customer data, may be gathered, processed, and stored on third-party networks of vendors or service providers whom we have engaged. While we endeavor to conduct due diligence on those third parties regarding their data security and protection policies and procedures, and the methods they use to safeguard such information, we ultimately do not, and are unable to, control those third parties' efforts to safeguard against data security breaches or misuse of data, or data loss or theft. We maintain private liability insurance intended to help mitigate the financial risks of such incidents, but there can be no guarantee that insurance will be sufficient to cover all losses related to such incidents or available on commercially acceptable terms or at all, and our exposure resulting from any unauthorized access to, or use of our data and systems, could far exceed the limits of our insurance coverage for such events. Any significant data breach or misuse of confidential information may result in significant costs, litigation and regulatory enforcement actions, harm our reputation, and therefore, may have a material adverse impact on our business, reputation, results of operations and financial condition.

Actual or threatened adverse changes in geopolitical conditions, particularly in countries where we, our customers or our suppliers operate, may adversely impact the cost of, and demand for, our products, solutions and services, our ability to conduct business, and could adversely affect our business, results of operations, cash flows, and financial condition. Geopolitical tensions, terrorism and military conflicts have impacted, and will continue to impact global trade and global supply chains through import or export restrictions, global sanctions, increased tariffs, foreign exchange rates volatility, interest rates, inflation, labor challenges, credit availability, cash flows and other macroeconomic conditions. We do business with Russian customers both within and outside of Russia and with customers who have contracts with Russian counterparties. Russia's invasion of Ukraine, the ensuing build-up of Russian sanctions and other impacts on this region have impacted the global economic environment resulting in fluctuating demand for our products and services, delays or cancellations of customer projects and difficulties in supplying and sourcing products from this and other geographic regions. We have also experienced and may continue to experience delays in revenue recognition, order fulfillment and contract payments due to export controls and other sanctions instituted to date. A number of nuclear power plants are being constructed or are operated by or with the participation of Russian state-owned enterprises. As the situation evolves, there is a growing risk that those Russian state-owned enterprises could become further sanctioned by the United States or the European Union. We also sell medical equipment and related products into Russia for medical and humanitarian applications, however this process has become more complicated, time consulting and uncertain as some of our medical equipment exports require export licenses. We may also be subject to criticism for continuing to sell products to Russia, which could damage our reputation and adversely affect our business, results of operations and financial condition. It has become more difficult to transact with Russian parties due to the continued expansion of U.S. and EU sanctions directed at Russia and the United States has announced additional restrictions if the conflict does not end quickly. In April 2023, one of our Russian customers made a claim against the Company, including liquidated damages for certain delays under the terms of an active project in Hungary in the amount of $19.3 million, and sent an updated claim statement in October 2023 totaling $21 million ($18 million of which accrue daily penalties), subject to a $14 million contractual cap (all amounts converted from Euros to U.S. Dollars). In November 2024, the parties reached a settlement including an agreement to modify the underlying contract, the claim was rescinded, and the parties are now working on implementing the terms of the settlement which is complicated by the current sanctions regime. The modification was accounted for under ASC 606 Revenue Recognition which resulted in an immaterial impact to the Statement of Operations for the year ended December 31, 2024. In June 2023, the same Russian customer made a demand against the Company for the return of all payments received by the Company ($10.2 million) related to a Finland project cancelled in May 2022. In September 2024, the Company entered into a settlement agreement with the customer and agreed to refund €4.4 million which is complicated by the current sanctions regime. The amount is included in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet as of December 31, 2024, and the settlement resulted in an immaterial impact to the Condensed Statement of Operations for the year ended December 31, 2024. The broader consequences of the conflict between Russia and Ukraine cannot be predicted, nor can we predict the ultimate impact of other volatile conditions in the Middle East and Asia, including the South China Sea, on the global economy or our business, results of operations, and financial condition. We could be prevented from selling our products or required to cease work on certain customer projects if additional sanctions related to these or other conflicts are imposed. These volatile geopolitical conditions have heightened other risks disclosed herein, including through increased inflation, limited availability of certain commodities, supply chain disruption, disruptions to our global technology infrastructure, including cyberattacks, increased terrorist activities, volatility or disruption in the capital markets, and delays or cancellations of customer projects, each of which could adversely affect our business, results of operations, and financial condition.

Revenue generated from outside of North America accounted for approximately 37%, 36%, and 36% of our net sales for the years ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively. International sales are expected to remain a material percentage of our total net sales in future periods. As a result, our operations are subject to risks associated with global operations and sales, such as currency fluctuations, compliance with complex non-U.S. laws and regulations, new or increased tariffs, obtaining governmental approvals for products that may require certification, localization requirements, export and import licenses, difficulties in collecting accounts receivable, intellectual property protection, staffing and managing international operations, managing local sales agents, distributors and other third parties that assist in selling our products and services, related contract management, restrictions on cross-border transfers of funds, tax consequences, and regional political and economic instability, all of which could materially and adversely affect our business, results of operations and financial condition.

Extreme weather events such as winter storms, hurricanes, earthquakes, fires, and tornadoes could disrupt our operations, leading to reduced revenue and increased costs and expenses. For example, some of our facilities are located in areas with earthquake fault lines or in hurricane zones such as our Sun Nuclear factory located in Florida . Depending on the location and severity of such events we could experience business interruptions, destruction of, or damage to, facilities or loss of life, any of which could materially and adversely affect our business, results of operations and financial condition. We could also be required to incur significant costs to report on, and enhance the resiliency of, our operations, infrastructure and supply chain in order to comply with government regulations addressing climate change. For example, the EU's Corporate Sustainability Reporting Directive has resulted, and is likely to continue to result, in an increase to our direct and indirect operational and compliance burdens. These additional expenses will place pressure on profit margins or require us to increase the price of our products and services potentially affecting demand and, consequently, our business, results of operations and financial condition.

A substantial portion of our business is driven by government budgets and spending, such as nuclear power plants and medicine, and a substantial portion of our revenue is derived from government customers or their contractors or sub-contractors. Any reduction in the resources or government funding of our customers, including as a result of a government shutdown, the U.S. government's failure to raise the debt ceiling, or other governmental action or order to reduce governmental budgets and spending generally, including in non-U.S. countries, could reduce our sales and impede our ability to generate revenue. Any change in policy regarding capital spending, or reduction, or scrutiny of the capital budgets of U.S. government customers could reduce demand for our solutions and could also result in audits and investigations. In addition, even when our direct customer is not a government entity, we must comply with stringent procurement processes applicable to government contractors and subcontracts, in particular in the United States, European Union and United Kingdom. Furthermore, we have bid, and may in the future submit bids, for government contracts that require government-specific terms such as various levels of security clearances with the Department of Defense or Department of Energy, or that supplies be U.S-made, and similar such measures in other countries, including the European Union and the United Kingdom. Obtaining and maintaining security clearances involves a lengthy process, such clearances may ultimately be denied or revoked and it can also be difficult to identify, recruit and retain employees qualified for security clearances. If the current requirements of the Buy-American Act are revised, it could also impede our ability to sell to the U.S. government. We are subject from time to time to government audits and investigations, and if any such audit or investigation results in an adverse finding to us, we may be subject to financial penalties and debarment or otherwise be unable to continue doing business with the applicable customer. Initiatives to reduce government spending could also drive additional audits and investigations. Failure to secure or retain security clearances, to qualify products as U.S.-made or adverse findings in audits or investigations could result in contract delays,inability to secure new government contracts, contract modification or termination, criminal and civil penalties and fines, and loss of business opportunities, any of which could adversely affect impact our business, results of operations and financial condition.

The sales cycle for our products related to new construction or refurbishment of existing NPPs ranges from 12 to 36 months and occasionally extends up to 60 months or more. In the medical end market, the typical sales cycle varies between 1 to 18 months. Significant resources are invested before orders are secured, with no assurances of a sale. Revenue recognition may be delayed due to the need for customer notices to proceed, certification of successful installation and operation or construction or scheduled outage delays. This lengthy and uncertain sales cycle, coupled with the unpredictable period of time between the placement of an order and our ability to recognize the revenue associated with the order makes revenue predictions difficult, particularly on a quarterly basis, and can cause our operating results to fluctuate significantly.