Q1 2021 BWX Technologies Inc Earnings Call
Ladies and gentlemen, welcome to BW ex technologies first quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
Following the Companys prepared remarks, we will conduct a question and answer session and instructions will be given at that time.
I would now let's turn the call over to our host Mark Kratz Bwxt's Vice President of Investor Relations. Please go ahead.
Thank you Todd good morning, and welcome to Bwxt's first quarter of 2021 earnings call. Joining me today on Rex <unk>, President and CEO, and David Black Senior Vice President and CFO.
On today's call, we will discuss certain matters that constitute forward looking statements. These statements involve risks and uncertainties, including those described in the safe Harbor provision found in yesterday's earnings release, and the company's SEC filings.
We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the quarterly materials that are available on the BWXT website.
With that Rex I will turn the call over to you.
Thank you Mark and good morning, everyone. The.
Yesterday, we reported solid first quarter results with earnings of <unk> 73 per share on over half of $1 billion of revenue and strong operating cash flow year.
Year over year revenue on earnings comparisons are down slightly at the consolidated level, given a tough compare to a robust first quarter last year. However, 2021 performance to date is what we expected and just as we outlined on the last earnings call.
<unk> is off to a swift start in 2021 with success on several significant milestones.
So let me give you an update on those matters before turning the call over to David to discuss detailed financial results and guidance.
Nuclear operations group was awarded the $2 $2 billion contract for the 2021 2022 of the pricing period from the Naval nuclear propulsion program. The content for this award includes components of fuel for the continued cadence of the two Virginia class submarines per year, as well as well as incremental Columbia work.
Although the President's budget request for 2022 has not been released we anticipate bipartisan support for the Navy's nuclear platforms and Shipbuilding account, we look forward to additional budget information from the new administration in the coming weeks apart from the pricing agreement were reasonably facilitated to move two of three Virginia class submarine cadence.
And non sequential years, if required similar to the schedule from the Navy's most recent 30 year Shipbuilding plan, assuming some delivery day flexibility, we await an updated three year plan and in a scenario, where a more condensed third Virginia ordering cadence as planned then a modest amount of incremental capital investment would be required.
Outside of Naval reactors <unk> was awarded $57 $5 million from the department of energy to design and standup of pilot process for purifying enriched uranium into a safe metal form. This is new scope for BWXT and it leverages the unique NRC category, one credentials infrastructure security and workforce that.
Could result in production orders in a few years once this capability is fully demonstrated.
Lastly, the segment also announced two additional awards.
$35 million this quarter, the first awarded by Naval reactors as for uranium recovery from scrap waste in unused product to be process and reused the second award from the Department of energy is for completing the second phase of the New research reactor fuel line using high assay low enriched uranium another non proliferation of activity.
The BWXT will perform in medical we continue to make both strategic and tangible progress with the commercialization of the technetium 99 generator product line.
In March we announced the formation of a joint venture with global Medical solutions.
A leading centralized radio pharmacy, operator, and radiopharmaceutical manufacturer and distributor.
The JV intends to manufacture and distribute BWXT radioisotopes in Radiopharmaceuticals and the Asia Pacific region, as we look to expand our go to market strategy as noted in the press release, the new entity would replicate Bwxt's Tech 99 generator infrastructure and operations in Asia beginning in 2023.
We view. This agreement is another endorsement of BWXT has unique technology and it lays the groundwork of capture global market share of Technetium 99, which is utilized in over $40 million diagnostic imaging procedures per year.
On a related note we continue to make significant progress on.
On Technetium 99 generator commercialization in North America in April, we completed and sell radiochemistry equipment installation and for all practical purposes, we consider the radiochemistry line to be complete we are also on track to complete the last major facility modifications of this month two important.
Milestones that draws closer to commercialization next year.
Sure.
The other two major components of the radiopharmaceutical on target delivery systems are both progressing as planned we anticipate having a fully manufactured target delivery system. This month, and we will participate in our Canadian nuclear regulatory Commission public hearing in June to receive the anticipated approval from modifications to the LPG reactor for our equipment.
<unk>.
In the first quarter of the team further reduced program risk by demonstrating of full pilot production run utilizing the BWXT generator. We took the process from start to finish producing natural Molly targets the <unk>.
Irradiating them at the Missouri University research reactor processing, the moly 99 loading it into the BWXT design generator and the alluding technetium over the course of two weeks the elution process of demonstrated 95% generator efficiency better than the requirements and other generators on the market today.
And the services business BWXT was awarded a $690 million contract extension for environmental management of cleanup work at the Portsmouth gaseous diffusion plant.
Further demonstrating the companys of breadth and depth and nuclear waste management and commitment to environmental remediation efforts of the department of energy.
The services business also wrapped up two more proposal submissions, including the Y 12, Pantex management and operations and Oak Ridge Reservation cleanup. We now have four large doa proposals submitted and anticipate three of those contracts to be announced sometime later this year.
And lastly, we achieved significant milestones with two micro reactor design awards and Bwxt's advanced technologies business. Most recently NASA awarded the company additional scope for nuclear thermal propulsion. This extends our efforts with NASA for another year as the agencies nuclear thermal propulsion initiative begins the transition from development to technology day.
Australia.
In March the Dod strategic capabilities office down selected an award of BWXT of final design based contract four of transportable micro reactor prototype.
This lease BWXT is one of the two possible contractors for a full scale demonstration in the years to come <unk>.
Bwxt's innovative designs and uniquely licensed facilities continue to deliver innovative nuclear solutions for the evolving mission requirements of the DMD, including the.
The reduction of its carbon emissions.
Following successful completion of the final design phase of the strategic capabilities office would be in a position to award of demonstration phase and beyond the prototype demonstration of the program could lead to a nuclear reactor production program to ensure that the dod's domestic infrastructure is more resilient to electrical grid grid attacks and that <unk>.
The <unk> logistics for unique defense applications, more simple and robust in the future.
The early successes and micro reactors underscore the company's robust capabilities in design engineering and manufacturing that position us well to compete for subsequent work as these first of a current solutions are developed from meeting power generation and mission requirements of the future.
And with that I will turn the call over to day.
Thanks, Rex and good morning, everyone.
I will start on slide four of the earnings presentation with total company results first quarter revenue was $528 million down two 6% primarily from lower <unk> revenue compared to a robust first quarter last year, which was partially offset by higher NPG revenue.
The first quarter earnings per share were down seven 6% to 73 is the result of less operating segment earnings higher other expenses and a higher tax rate those headwinds were partially offset by higher pension income foreign exchange gains and lower interest expense quarter over quarter bridge can be found on <unk>.
Slide five moving to the first quarter segment results on slide six.
The nuclear operations group generated $402 million of revenue down five about 5% compared with the prior year period, primarily from lower long lead material production energy operating income was $74 4 million.
Down 18% from the prior year period operating income was just disproportionately lower than revenue due to a combination of lower volume and fewer favorable contract adjustments that were in part driven by negative impacts from COVID-19 absences that we discussed on the February earnings call.
This resulted in an 18, 5% operating margin for the segment in the first quarter, we do not foresee any change to the typical high teens margin with upside from pension reimbursements for the full year for NRG.
And nuclear power group first quarter revenue was $107 million up 22% compared with the first quarter last year, driven primarily from higher field service parts manufacturing and fuel handling activity, partially offset by lower component volume, while not a significant driver we.
Note the BWXT medical was up six 5% as the market continues to show positive signs of recovery following COVID-19 impacts from last year.
<unk> operating income was up 20% driven by higher volume and resulted in nine 6% operating margins for the segment in the first quarter.
Lastly, nuclear services group operating income was $5 7 million in the first quarter down less than $1 million versus the prior year period as better contract performance was more than offset by the absence of U S. Commercial service income due to the sale of the U S nuclear services business in 2020.
Overall, we are reiterating 2021 guidance on slide seven and eight we continue to see the midpoint of our earnings guidance as the most likely outcome for the year as solid progress to date is balanced with higher expected development expenses associated with the preparation of the company's technetium.
99 generator product line, we have guided other operating expense, including R&D to greater than the 1% of revenue for this year and wanted to put more specificity around those cost we anticipate those heightened expenses will be about <unk>.
$30 million for 2021.
Now the investing triggering milestones have occurred and we have better line of sight on how those will unfold through the remainder of the year.
We also anticipate.
Slightly higher interest expense this year with the recent issuance of $400 million of senior notes, we intend to use those proceeds to redeem the notes due in 2026 on or after July 15th of this year ultimately, resulting in lower interest expense, but will not see the net effect of those benefits until 2002.
Two following the redemption of the 2026 notes BWXT will continue to have a well positioned balance sheet with the staggered debt structure well into the future.
For 2021 guidance, we also reiterate our expectation that earnings will be back half weighted within the approximate 45 55 split for the year driven primarily from <unk> timing the recovery in NPG from COVID-19 and the cadence of MSG Awards.
I would also note that capex is still anticipated to be about $250 million for the year as evidenced in our first quarter results with over $100 million expense to date.
Lastly, I would like to introduce our new multi year guidance on slide nine.
Yesterday, we published our new multiyear guidance framework, which we are designating as medium term financial targets. We view this timeframe similar to our prior multi year EPS guidance generally over the next three to five years. However, we are pivoting our focus to multiple aspects of financial performer.
<unk> and capital allocation and we intend to revisit this guidance at regular intervals or if there are any major shifts in the BWXT strategy. This structure will continue to give analysts investors and other stakeholders are rolling view of the targets and focus areas of the company moving forward knowing the.
Any one year may have push or pull effects on the three major components, depending on growth cadence capex and working capital for our free cash flow and other investment opportunities for capital allocation.
We anticipate mid to high single digit adjusted EBITDA growth rates over the medium term driven by revenue increases across all segments and margin expansion outside of the naval reactors business.
Measuring adjusted EBITDA provides greater insight into the underlying growth over the next several years as depreciation headwinds pick up.
From the recent intense capital campaigns in both the Navy of medical businesses.
This measure also removes any variability for non cash pension income taxes and share repurchases, resulting in a cleaner look at operational performance.
As we shift to maintenance capital expectations exiting 2022, we expect robust free cash flow to return and are aiming to convert more than 85% of adjusted net income to cash with some annual fluctuations for working capital and pension funding requirements and lastly, we are.
We're committing to return more than 50% of of the company's free cash flow to shareholders through dividends and share repurchases. While we don't have a discrete dividend policy. The board of directors continues to support the regular payment of a healthy dividend as it is viewed as a cornerstone in the company's ability to generate and the return future cash to shareholders.
We anticipate continuing to pay the dividend in line with historical ratios to earnings which is the range between 20% to 30% of net income since the spin in 2015, the remaining balance of our return to shareholder commitment will be fulfilled with share repurchases pending market conditions.
This commitment.
<unk> flex a strong balance between our desire to be shareholder friendly, while continuing to maintain the flexibility to invest and possible future opportunities both organically or inorganically.
To be clear, we do not anticipate building large cash balances and we will look to return any excess cash to shareholders to that end. The board of directors recently approved a new $500 million share repurchase authorization with no expiration date. This action supports our strategic capital allocation commitment and all.
There to maximize long term shareholder value and with that I will turn the call back over to Rex for some additional color on our new medium term financial targets. Thank you David we believe that our new medium term guidance accurately reflects bwxt's ability to profitably grow as it has since the spin in 2015.
Our growth targets include the assumption of increases in the base business as well as progress in several key initiatives that had been advancing over the last few years. We anticipate continued growth in the naval reactors business and other opportunities to expand <unk> product and service offerings.
The growth also contemplate successful technetium 99 introduction to the market in 2022 and share gains in net product as well as others over the subsequent years, while also expanding margins in the BWXT medical business.
On the other significant portion of our growth is anticipated to come from new wins in the nuclear services business and continued traction in micro reactor programs as they progress from designed to demonstration faces.
David mentioned, we expect to convert more than 85% of net income into free cash flow as we transitioned to maintenance capex levels towards the end of 2022.
Our current strategic planning does not anticipate significant capital investment beyond that but we remain flexible to make those investments, which could further support and extend growth in the company.
And lastly, we want to make the commitment to return the majority of free cash flow back to investors over the medium term.
And to continue to pay of strong dividend in the supplement the rest of that commitment with share repurchases.
We see the commencement of these medium term financial targets as the first step towards the Investor Day later, this year and the coming quarters, we expect to make significant strides in major milestones across the company, including the New Tech 99 generator product line and anticipate more visibility on how the growth in nuclear services will unfold, we look forward to sharing more.
Depth and insights about the company with investors sometime this fall and with that I will ask the operator to open the line for questions.
Operator. Thank you we will now begin the question and answer session to ask a question Press Star then one on a touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
If at any time of your questions that addressed and you would like to withdraw your question Press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question comes from Robert Spingarn with Credit Suisse. Please go ahead.
Hi, good morning, everybody.
Morning, Rob Good morning, Ron.
Could we just start on the micro reactor business and you've talked a lot about the developments there and its gaining some momentum but can we frame. This in some kind of time horizon is when this goes from sort of concept to the development to production and when this could get to some kind of a.
Critical mass.
For you is it five years sort of 2025 type of timeframe or is it 2030, how do we think about that.
So Rob the way of talking about that in the past is that we're going through what I would call sort of technology development.
For the most part and in some cases designs for Devon demonstration reactors.
In the cases of nuclear thermal propulsion and the reactor for DMD.
And those would transition into demonstration programs.
On fairly shortly in the case of the skull reactor. It would be next year does that decision if that decision is taken and funded.
For NASA, maybe a little longer term for of demonstration program. So we will start to see demonstration money as early as next year and on into the next few years and as I have said in the past these programs for US right now run on the tens of millions of year. When you get into a demonstration phase it'll be a few hundred million dollars, let's call it whether the.
Thats, a terrestrial demonstration or and on orbit demonstration in the case of NASA.
And then production programs would would presumably follow that and so the way I think about it in those those programs.
Obviously, the sales there depending on the production tempo, but.
Those would fall of the demonstration and I would think of those as being in the latter part of the decade.
2027, 2028 lets call. It so I think it becomes.
Very interesting part of the business maybe in the.
Maybe in six or seven years from now since the summer.
Like that in and as I have said in the past in the ideal case were able to construct a new vertical for the business that.
Maybe sort of resembles our naval reactors vertical.
Okay, and those numbers you threw out there of those for BWXT or would those be total program you would share some of those revenues. So those of total program revenues that are throughout there and it depends on whether your prime or not for example, we would we would primer of reactor demonstration program in the case of the Dod on the space one with the spacecraft.
And.
Launch vehicle, we might be in a subcontractor position on that one but.
But those of our total program figures.
Okay, and then just one quick one for David on <unk>.
Cost inflation in the supply chain are you seeing any pressures that we're seeing broadly in the economy and is there any lag in terms of the recoverability of that in your contracts with customers.
Such that it can have an impact on margins. Thank you.
So as everyone else's.
Seeing input prices increase, but we have negotiated in our contracts appropriate levels of.
Of.
Inflation.
Using indexes so at this point in time.
Feel secure that we'll still be able to get the margins that we have mentioned.
And in addition to the the pricing or price inflation is availability of inputs.
Satisfactory.
Yeah, right now for us, we're not having any problem with the supply chain, providing the materials and things that we need in order to get our production process.
Okay. Thank you both.
Thanks, Ron.
The next question comes from Bob <unk> with CGS Securities. Please go ahead.
Good morning, congratulations on a lot of nice milestones across the board.
Thanks, Bob Thank you Bob.
I wanted to start with Rex I think you mentioned a full pilot production program using your technology of generator with 95% efficiency.
I guess my question is maybe expand on that a little bit and how is that product that you've done the pilot on <unk>.
The different from what you will be submitting to the FDA later this year, presumably and what are the biggest hurdles to getting to that point, but is it. The same kind of thing you just need some approvals before then or how does the bat product differ from what you ultimately will submit.
Yeah, Bob so of that product is basically identical to what we will be producing the only difference is we were using sort of we were using we were using of BWXT design generator and we were using material from the Missouri University research reactor, but it wasn't running through our plant in Canada right. It wasn't running through an automated radio.
Chemistry radio pharmacy line, so that would be the difference it was more of a manual process, but at the very important milestone because it tells us how the generator works and we were able to demonstrate that the illusion of efficiency, which is sort of the rate at which you are able to draw that technetium out of the generator.
The best in class and we also were able to pair of that material tag that material to various cold kits, which are the molecular vectors that take the radioisotope to the correct part of the body. So it was a very important for us to be able to demonstrate that our generator does work appropriately and the rest of it is just automation from here.
Okay, great that sounds fantastic.
Then just one other one quickly.
Where does M&A fit into your medium term or multiyear guidance.
How is the market looking right now or I mean, you guys have so much on your plate anywhere even like looking for M&A opportunities right now are you focused.
Internally.
So we.
We didnt preemptively bake any M&A into that medium term guidance, although you could think about maybe pushing on.
Our performance at the top end of that guidance range with by augmenting it with some some acquisitions we.
We do have an active M&A pipeline and if we find something that really fits in that can amplify our strategic intentions, then we would do it.
But I think youre correct to say that our focus right now is really on.
The building out this organic growth that we've been capitalizing and ensuring that we have success on that but but M&A is always there is always an option for us.
Thanks, so much.
Thank you Bob.
The next question comes from Peter Arment with Baird. Please go ahead, yes, good morning Rex David.
Peter Hey, David on the.
On the medium term financial targets, you mentioned kind of the modest improvements in working capital as a percentage of sales kind of.
Is that 100 basis points 200 basis points, maybe you could just level set us on how youre thinking of that.
We haven't defined.
What that modest is theres going to be some improvement over time, but we do have fluctuations when you look quarter to quarter with our.
Working capital as we build up our contracts on progress and things. So we just think as we look over time, there will be just some small modest improvements in that.
In order to provide the additional.
Space Force.
And then just.
Rex just on the JV with the Gms, maybe you could just what are some of the components of the deal maybe how do you expect the reported in your financials. Thanks.
Yes. So the deal is structured so that our partner would capitalize the investment so.
So our.
And the way we would participate is to contribute our technology into that special purpose entity, our intellectual property and then we share on the economics and so it comes across.
Income in the future.
Great. Thanks, guys.
Yes, Thanks Peter.
The next question comes from Pete Skibinski with Alembic Global Please go ahead.
Hey, good morning, Rex and David and Mark.
Good morning.
The COVID-19 related absences at NOG in the first quarter. It sounded like there was a negative margin impact there is it safe to assume that you're kind of out of the woods there of the balance of the year.
Pete I think we saw.
Certainly hope so if you look at the way COVID-19 of ran through the business.
It looked it looks somewhat like the national curve and that they were kind of three three peaks. The beginning one of the win the early summer and then it really was most impactful to us in the fall and winter timeframe, we started to see pretty significant impacts around October worse in November of where share in December and it peaked out around the second week of January.
For Us and then started to roll off but of blood on into February.
And we sort of sort of not our way through the problem that we've been kind of hitting our numbers, but it's.
Absolutely affected production in the plants.
<unk>.
What happens there on that cases of course, you get less productivity less product rolling through the shop, and therefore less favorable contract adjustments as a consequence of all of that and to give you a sense of the magnitude.
There were times when our largest plant in Lynchburg had over 10% absent.
Either from <unk> or from having to be evacuated from their workstations to do of decontamination exercised following.
Following a potential contact.
And some of our other large plans, we had seven or eight 7%, 8% absences day to day at the peak. So it really did roll through roll through the plants in a way that was impactful.
Yes, we're certainly certainly seeing much improved rates and much much lower quarantine.
<unk> at this point and we're hoping that we follow the trajectory of the U S and get out of the woods on this soon.
Okay. Okay, Yeah, I appreciate the color Thats great.
And now on the financial targets.
Is it sounds to me like the mid to high single digit adjusted EBITDA of at that roughly corresponds to the topline growth, but could you maybe clarify on.
On the depreciation and amortization of it sounds like that will play a role.
Because I know guidance this year of $65 million.
David I mean does that get to over $100 million by the end of the period or I'm, just trying to get a sense of how much DNA kind of contributes to that.
No I think as we look now we are saying that you know.
Three 5% to 4%.
What our continued maintenance capital is going to be but your depreciation because of the high capital that we currently have been spending will get us closer to that $100 million towards the end of that period. So we feel that looking at adjusted EBITDA is just the much better picture for us to look at our operations.
And the underlying business yes.
Yes.
Sense.
Last one from me.
Some of the other companies out there one that DARPA Draco contract was that did you guys. I thought maybe you guys were going to plan. If you did was it a surprise was it a disappointment I just wanted to kind of get your thoughts around that I know, it's kind of of different mission area, but I wanted to see what he thought about it yes, yes that was an interesting one.
We were certainly interested in that in that contract we do.
We do have the continuing relationship with DARPA on that and with some of the spacecraft providers and so we're kind of we're kind of in the game, but we were not awarded a prime contract.
Okay. Okay.
Okay. Thanks, very much guys. Thanks, Thanks Pete.
Okay.
The next question comes from Michael share MONY with tourist please go ahead.
Hey, good morning, guys. Thanks for taking the questions here nicely on our final.
The results.
Yes.
Rex just to stay on the what Pete was just asking on the on that Draco to be clear it would seem that general atomics per.
I'm everything and do everything themselves, but maybe blue origin or Lockheed could pull you in as a reactor subcontractors that the right way to kind of look at summit myeloma, this opportunity, but but maybe even future opportunities, where you would get pulled Dana as a component supplier, yes, that's exactly right Michael.
Okay.
David did you say there was a $30 million of Inc.
The increased expenses this year kind of kind of flowing through related a lot to the to the isotopes and some other development expense programs.
Programs no in our other segment, what we're saying is that that segment is going to increase to $30 million I think the forecast was 20.
Six or so so it's gone up some.
Cause of the additional expenses did not increase 30.
It has just gone up 10% or so to cover the additional commercialization cost that we feel we need in the current year to get us to the FDA submit all here.
And then too.
Production next year.
Got it so the how do we think about.
As you get into production and maybe even tie in to the to the medium term targets.
<unk> get a roll off of these expenses and I don't think you've put up.
The pencil on it yet, but the margins presumably in the isotopes I think we're always going to be accretive to energy, but should we think about one once everything comes on line seen a pretty big tailwind.
To margins.
Obviously, you'll have the the core naval reactor, which is out of pretty mature margin, but maybe how should we think about the margins as they the trend in that segment into next year once you get into production.
So Michael I'll take that one.
So certainly on the less the way to think about that business that product line in the long term, it's going to be margin accretive certainly.
In the in the in the intermediate term, let's call. It as we ramp up into production will be bearing some pretty heavy expenses.
And ramping to what will ultimately be our ultimate production level over the first year or two on that product line. So so I wouldn't anticipate a lot of pop of lot of tailwind until we've gotten into let me call. It full stride on production now.
Tend to give you much more color around that when we get to the Investor Day. Later. This fall. So that you can see more transparently, how we expect that business to unfold into growth.
Got it got it perfect and then just last one from me.
The MTG you had a really strong quarter on the top line.
Good growth it sounded like Youre still waiting for that business to kind of start to normalize from COVID-19, but the revenue growth.
<unk> for the rest of the year is that just normal seasonality outage and timing or what's happening there with the NPG for the remainder of the year.
The App you have that right. It's just.
Just some natural cyclicality of the business.
Thanks, guys ill jump back in the queue. Thank.
Thank you Mike.
Okay.
As a reminder, if you have a question press Star then one to be tuned into the Q net.
Next question comes from Ron Epstein with Bank of America. Please go ahead.
Yes.
Couple of questions for you.
Morning, Brian.
How is the American rescue plan changed.
The pension considerations in terms of cash.
Cash recoveries in the funding and so on and so forth.
Okay.
Brian It really has not done a lot for us.
I think that we got our pension plan into a period of.
Of fully fund I mean from an ERISA standpoint were funded enough.
So from a cash standpoint, we still anticipate that we have the additional.
Plus ups for us from a cash basis out of 24.
But.
Now our funding is under 20 million of year.
No.
We don't see an impact of delaying a lot of funding payments I think what we're more interested in is trying to shore up that pension and the newer ties what we can when we can so we can knock off the liability eventually.
Got it kind of how does the change in the R&D consideration under the tax law unless it's reversed impact your guidance you have to amortize it now over five years versus taking it all at once.
I mean remember our R&D right now is less than one percentage actually 0.6 I think of this.
This year, so the impact us is going to be very small we do take advantage of any tax benefit we can get but the the change.
And benefit is going to be very small.
Got it and then on the midterm guidance.
Why is the cash conversion only 85%.
Thought kind of a company in your position would be higher than that.
No I mean once again.
As we grow our business, we've got to have the ability to fluctuate with working capital.
Also have.
Some pension payments is still have to exist in the out years. So right now we feel that the 85% is a good measure there'll be times that were more than that.
In times, maybe a little less but we feel that as a measurement period.
Going forward that that's a good basis to start from.
Got it and then maybe one last final on on the on your EBITDA.
Growth target.
How much of that is predicated on just kind of of the core business and how much of that is predicated on new businesses. I mean broadly speaking is it sort of like two thirds core business, one third new businesses I'm, just trying to get a sense on how much how much in that you're banking on things like the medical business growing and so on and so forth.
So Ron I'll take that on one.
I'd say that maybe.
Answer of slightly different question, then you ask if I could.
The way that we're thinking about it is if you wanted to get into the upper range of our guidance then the strategic initiatives need to do.
The pan out appropriately in our base business needs to do what we anticipate its going to do so kind of on the highest scenario. Your Navy business does what you wanted to do with the isotope story unfolds. The way that we expect which is the moly project is successful then we gain the market share that we expect we win.
A good share of these department of energy of technical services opportunities and we get continue to have some traction with the micro reactor demonstration programs.
That would as we think about it sort of gets you in the high end of the mid term EBITDA guidance.
Medium term EBITDA guidance.
And so that's how we're thinking about it now if we didn't hit on all of those four cylinders and we were succeeding on two or three of those you might be able to get back up into that high end of the guidance range with an acquisition or something like that so that's how we're thinking about it internally.
I would add to that Ron.
Ron that as we look at the NRG business. We showed continued to show the growth of Columbia on that business. We do have two items out there that we're always aware of and that one is the cash.
The Fas Cas differential on the pension.
On the other thing that we don't talk a lot about is the reloads.
Reloads are going away the Ford reloads won't start again until the specific time in the future. The government doesn't really lay out of schedule, there and as I've said in the past, we do not talk a lot about those.
The government likes to use those too.
Still our shops in times of need so, but those are some impacts there as.
As well as we go forward.
Got it alright, thank you very much.
Thanks, Ron.
As we have no further questions. This concludes our question and answer session I would now like to turn the conference back over to Mark Kratz for any closing remarks.
Thanks, Todd and that concludes today's conference call. If you have further questions. Please call me at 980 365 4300. Thank you for joining us this morning.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
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