Q3 2021 BWX Technologies Inc Earnings Call
Ladies and gentlemen, welcome to BWXT technologies third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Following the company's prepared remarks, we will conduct a question and answer session and instructions will be given at that time I would now like turn the call over to our host.
Mark Kratz, Bwxt's, Vice President of Investor Relations. Please go ahead.
Thank you Matt.
Evening and welcome to Bwxt's third quarter 2021 earnings call.
Joining me are Rex, Kevin 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 today's earnings release and in 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 evening everyone.
Before I begin with a business update I want to address the COVID-19 pandemic and.
And share with you my thoughts about the future on that topic.
We say at BWXT that where people strong and we see that value expressed everyday across the business and the actions of our employees.
And I want to thank them for their commendable efforts during the last 18 months through this awful pandemic.
We've all adapted to new protocols to keep everyone safe as reasonably possible and to protect our business.
We deliver critical materials components and services.
For National Security Clean energy nuclear medicine, and nuclear environmental remediation and these mission simply cannot be derailed by COVID-19.
In compliance with federal executive orders associated contract changes and safety regulations concerning COVID-19, we are requiring all U S employees to be fully vaccinated.
While this new hurdle may create some disruption to our business either directly or through the supply chain I fully expect our company and our nation for that matter to come together again over the next few months to stop this pandemic. So that we can go about the business of fulfilling our shared and deeply important mission objectives.
Now on to the business update earlier today, we reported third quarter earnings of <unk> 76 per share our strongest quarter year to date, as we executed well across all business lines.
The nuclear operations group continue to reliably perform for our customers and to generate cash.
Third quarter was no exception, achieving several important milestones and generating in excess of 20% operating margins.
However, pandemic headwinds have remain persistent and were particularly acute during the first and third quarters. This year aligning with the pre vaccine and Delta variant surges in cases.
The business continues to perform we have been unable to maximize shop volume hours in productivity due to lower head count from Covid related assets. Despite the pandemic headwinds we are focused on delivering bwxt's high consequence systems as we continue to ramp into more Columbia class content.
At the same time, we are finishing up the last remaining work on aircraft carrier refueling, which will be absent from the business until the Navy began preparing for Ford class carrier refueling around the turn of the decade.
We are encouraged by August the new trial lateral security pact between Australia, the United Kingdom, and the United States announced in September.
At the center of the agreement the U S and the U K will help Australia acquired nuclear powered submarines in the U S will share nuclear propulsion technology with Australia adjusted as it has with the United Kingdom since the $19 58 U S UK mutual defense agreement.
While it is early in the process and not part of our strategic baseline BWXT stands ready to support the U S government's contribution whatever that may be.
We look forward to engaging and learning more over the next 18 months as the nuclear powered submarine task force determines the responsibilities and capabilities of the nations who are parties to this agreement.
And the other government focused segment nuclear services secured a flagship win last week with a $21 billion of environmental management contract at <unk>.
Savannah River site.
This was a key strategic success that validates our growth thesis of achieving market share gains in this segment.
It is our aim to build on the success and receive future do service contract Awards.
Nuclear services also extended its track record for good award fee performance scores as reflected in operating income growth in the third quarter.
The company's commercial operations in NPG are exhibiting good growth up over 10% year to date, driven by a combination of higher revenue from commercial nuclear power and BWXT medical.
On the commercial nuclear power side business and opportunities remains solid supported by the well managed execution of sizeable life extension projects across the can do fleet beyond that we see additional clean energy opportunities materializing in small modular reactors.
As I mentioned on the last call, we remain well positioned in this market as one of if not the only nuclear nuclear manufacturer in North America, which produces large nuclear qualified components.
We are excited to support the market.
As our forward thinking Canadian customers select partners to help them harness the benefits of new safer and more efficient nuclear technologies, which they plan to deploy by the end of the decade.
And BWXT medical the Technetium 99 generator project progressed, well across all work streams during the third quarter as a testing phase ramps up.
We successfully irradiated the first moly targets at the Missouri University Research reactor.
And they were delivered to our facility in Canada at the end of August in preparation for Hot chemistry testing.
I mentioned on the last call that we are utilizing E beam accelerators for terminal sterilization and the radio pharmacy production line. This quarter all of that equipment was received and installed and we will be commissioning that equipment. Soon lastly, we successfully completed the factory acceptance test with LPG for the reactor access equipment that will be <unk>.
Stalled on the commercial reactor at Darlington.
Related to that development the Canadian nuclear Safety Commission has approved Lpg's license amendment that permits installation and operation of that equipment on the Darlington reactors.
Lastly, we have begun to ship the first components to the LPG side and some of the early equipment has been installed.
So overall the project is tracking well and the team is focused on a number of critical testing milestones to complete before we produce reference batches and make our submission to the FDA in the near future.
Beyond the Tech 99 generator product project the medical businesses is taking strategic actions and laying the groundwork for building a world, leading leading nuclear medicine manufacturing business.
We regard therapeutics is the most interesting part of the nuclear medicine business and currently manufacturer one of the leading products in that market caldera sphere.
We recently increased production capacity for that product, which is BWXT medicals largest as measured by sales volume.
Meanwhile, our longer term automation initiative announced earlier this year is progressing to plan.
We are pleased to manufacture this finished product for Boston scientific.
And are encouraged by recent strides they have made with the FDA, which expand medical indications addressed by the product stoking future volume increases.
And lastly for BWXT medical we entered into an agreement with Bayer for the development and production of Actinium, $2 25 and related partnership opportunities.
<unk> hundred 25 is a powerful radioisotope using targeted alpha therapies is and is one of a handful of nuclear isotopes that can potentially deliver radiation directly to cancerous tumors by combining by combining it with tumor seeking medical targeting vectors.
We are excited about the possibility of radio therapeutic treatments and look forward to engaging with Bayer and other big pharmaceutical companies to co develop these important products.
This relationship is further evidence that our strategy of partnering with big pharma on drug development, while occupying a crucial niche in the market as a global go to isotope supplier and contract manufacturing partner is working and will enable growth in the burgeoning nuclear medicine therapeutics segment of the market.
Yeah.
I am well pleased with the progress we are making across the board and the execution of the core business, while simultaneously building for the future and a number of exciting initiatives, including micro reactors for space and National security applications advanced nuclear fuels and nuclear medicine that said given the on going.
Pandemic headwinds as well as unfavorable government contract award timing that I mentioned earlier, we are narrowing 2021 earnings guidance to the low end of the initial range of 305 to $3 20 per share.
We maintained strong conviction in our long term growth of BWXT, which is underscored by the fact that we returned more than $166 million of cash to investors through strategic share repurchases in the third quarter. We will continue to look at deploying cash towards opportunistic share repurchases.
Forward to meet or exceed our medium term capital deployment commitments and other objectives.
With that let me turn it over to David to discuss third quarter results and other financial matters.
Thanks, Roger and good evening, everyone starting on slide four of the earnings presentation with total company results.
Third quarter revenue was just shy of $5 billion down four 4% compared with the third quarter last year, driven by fewer commercial power outages in the nuclear power group.
Third quarter adjusted EBITDA was about flat on lower revenue, resulting in 70 basis points of margin expansion driven by more favorable contract adjustments and increasing depreciation expense.
And third quarter earnings per share were down 4% to 76 cents as a result of lower operating segment earnings higher commercialization costs related to the Tech 99 generator line higher interest and a higher tax rate.
Those headwinds were partially offset by a lower share count and higher pension income.
Year to date consolidated revenue was down 2% and earnings were down 8% per share.
<unk> third quarter and year to date EPS bridges can be found on slides five and six.
Moving to segment results on slide seven and eight the nuclear operations group generated $387 million of revenue consistent with the prior year period.
<unk> operating income was $79 5 million up 16% versus the prior year period, as we recognized more favorable contract adjustments as expected <unk> operating margins strengthened to 26% in the third quarter.
Year to date <unk> revenue was down about 4% compared with the same period in 2020.
Year to date operating margin remained strong at 19, 1% despite.
Covid related operations inefficiencies and other supply chain disruptions related to planned capital equipment installations as part of our multiyear MLG campaign.
And the nuclear power group third quarter revenue was $83 million down 23% compared with the third quarter last year, driven by lower field service activity due to the timing of planned outages, which was partially offset by higher medical isotope demand.
<unk> operating income was down primarily from a significant decrease in government bonds received to offset expenses related to COVID-19, which totaled $16 6 million in the third quarter last year.
Year to date, the NPG segment revenue is up 11%, but operating income is down about $10 million, primarily driven by the significant decrease in COVID-19 wage subsidies.
Lastly, the nuclear services group generated $10 $3 million of operating income in the third quarter, both third quarter and year to date operating income is up about $3 million compared with the same respective periods last year, primarily from better contract fee performance.
Moving to 2021 guidance on slides nine and 10 as Rex mentioned, we are now narrowing 2021 EPS guidance to the low end of the initial range due to COVID-19 headwinds and unfavorable contract award timing. We now expect earnings of 305 per share on revenue that is.
Two up 1%. We also note that this narrowed guidance does not anticipate that COVID-19 headwinds worsen in the fourth quarter or any significant disruptions due to government vaccine mandates set to take effect in December.
2021, Capex is pacing a little quicker than we originally thought and so we have updated capital expense to about $280 million of true peak as we continue to anticipate this starting to revert back to maintenance capex levels.
By the end of next year.
We have also narrowed segment guidance <unk> is now expected to be down about 1% driven by Covid disruptions and beach and PG has been revised to 9% growth given our performance year to date with slightly lower operating margins of about 12, 5%.
<unk> income has been narrowed to about $25 million given delays in anticipated award timing.
We have also updated our expectation for corporate unallocated costs and share count given our recent repurchase activity.
Turning to slide 11 for an initial 2022 outlook.
We see the opportunity for solid underlying growth from operations going into next year, we anticipate about 3% consolidated revenue growth with all segments contributing.
We also expect nuclear service contract awards dependent on their timing and success.
With the recent Savannah River award a positive step in that direction.
These tail winds are partially offset by some modest incremental investments in the BWXT medical business and increasing depreciation expense net net we expect underlying EBITDA growth from operations to be in the mid to high single digits, which is aligned with our medium term guidance.
From an earnings perspective growth from operations is anticipated to contribute 10% to 30 <unk> per share with new contract awards, representing the majority of the variability in that range.
EPS will also benefit from a lower share count, which was partially offset by higher interest expense and lower other non pension income.
<unk> would have resulted in earnings of about $3 20 to $3 40 per share for next year prior to any pension changes.
However.
The enacted American Rescue plan Act or ARPA included provisions to help corporations deferred pension funding through utilization of discount rates that are higher than current interest rates given our funding status.
The adoption of higher interest rates for cash results in a reduction of Cas recoverable pension cost that we had previously expected to maintain in the P&L through 2024.
Although past Cas pension income is rolling off quicker than previously anticipated we remain confident in our EBITDA growth guidance.
We had always contemplated this as a future headwind in the latter half of our medium term framework.
With our actuarial update we now anticipate a $17 million pension headwind in 2022, which would negatively impact earnings by about <unk> 15 per share. This results in an initial $305 to $3 25, EPS outlook for next year.
We have provided an updated pension outlook on slide 12, as a reminder, the Fas Cas differential was reported in segment operating income primarily in the nuclear operations group in conjunction with the provisions under ARPA, we do not anticipate material <unk> benefit in the future.
Years in operating income.
And with that I will turn it back over to Rex for closing remarks. Thank you David.
We look forward to sharing more details about BWXT its unique capabilities competitive positioning and our strategic growth plans and financials that feed into our medium term outlook at the BWXT Investor day in about two weeks, you'll hear more about the investments we have made in our core defense markets as well as other adjacencies where.
<unk> nuclear technologies can offer differentiated solutions and global security.
<unk> energy nuclear medicine, and micro reactor power and propulsion applications.
These investments position us well, even in a flat or defense budget environment as we continue to manage the business over a longer term horizon.
We believe our strategy and forward thinking will enable meaningful long term shareholder value as we strive to maintain industry leading performance you have grown to appreciate our shareholders of this unique and durable company.
With that operator, let's open the line for questions.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question Thats been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our route.
Our first question will come from Peter Armand with Baird. Please go ahead.
Yes.
David.
Hey, Peter Peter.
Yes.
Rex maybe you could just give us a little more color on sort of the persistent COVID-19 disruptions are you, having any sort of supply chain issues that are that you think are watch items that we should be thinking about going into 'twenty two.
Yes, Peter I would say that more.
Most of the headwind is really been internal.
We had this large peak in Q4 and Q1 and on the worst days, we had several hundred people out either sick or in quarantine.
Or out.
For deep cleaning. So we saw that peak then and then in the third quarter we saw.
This delta variant peak out at nearly 200.
200, a day and across our North American plants.
So we've seen that kind of impact in the supply chain not so much in the way of materials and forging and things like that that show up in long lead materials, but we have seen an impact from these large capital campaigns. This large capital equipment related to the GE capital campaign.
We've had trouble for example, getting technicians into the plant.
To help us install equipment and things like that and so what that's done is impacted volume through the through the shops and impacted some plant production capacity that we expect it to be there as we ramp throughout the year. This year. So those are really the two things its absences in the plant just from quarantine and from sickness and then.
The large the large machine tool installation has been somewhat delayed by that.
Okay, and then just as a follow up on the Savannah River Award can you maybe walk us through a little bit how how that contract ramps up for you.
Sure so.
So to give you a little granularity on the timing Peter.
There is a period that leads up to debrief.
Two the successful and unsuccessful offers it's a couple of weeks.
And that's followed by five to 10 day protest period, and assuming we got through all of that.
In a reasonable timeframe say in the next 30 days and then you could begin whats called transition, where it's a non fee bearing part of it.
Part of the contract, but it does provide you with meaningful absorption and those periods normally last from three three to four months. So.
Things progressed.
Sort of on a good timeline for us and we were able to avoid avoid a protest period.
Then you could see us getting into full production if you will in <unk>.
In the first quarter next year.
Okay, and just one quick one for David just on the Capex increase is that can we assume that that amount that you've increased it would be the amount that was kind of fallout of 'twenty two or is this just a step up in broader terms.
It'll be shifting in years. So we still anticipate that 2022 will still be a high capex year for us at the end of 'twenty, two we will be reaching the run rate of what we call our maintenance capex of three 5% to 4%.
Great. Thanks, so much.
Thank you.
Our next question will come from Pete Sobecki with Alembic Global. Please go ahead.
Hey, good evening guys.
Hey, Rex just another question on the impact of Covid do you guys have a sense of what percentage of the <unk>.
The factory population is vaccinated.
<unk>.
Im just wondering is it pretty low and that's why so many people are out and.
To what extent these the mandate might impact your <unk> and into 2022.
Today, there was news out that maybe there were some workarounds around the mandates. So maybe you could just maybe spend a little more light on all that.
Yes, I'd be happy to do that to Pete.
We've done <unk>, we haven't been specific about broadcasting our vaccination rates, but they have been quite good, particularly strong in Canada and really really.
Well pleased with vaccination rates generally in the U S plants. So we've got a bit of a gap there between the fully vaccinated in the unvaccinated, but it's manageable.
In my estimation.
So I feel pretty good about that but we're certainly going to have some challenges around <unk>.
<unk> all the way there based on the federal mandate.
Okay. Okay. So yeah. So there is still kind of a range you're thinking about for <unk> just from from Covid risk.
So we haven't really factored into any of that that additional COVID-19 risk into our numbers.
But so we are hoping to manage through it in a reasonable way is the way I would put it.
Okay. Okay.
I think I missed maybe what you guys said in the opening remarks about NPG NPG. The revenue was a little bit light for my my forecast in the third quarter, but you raised the full year guidance are you.
Are you just seeing more outages crop up in the <unk>.
Fourth quarter NPG, yes.
Yes, we've got we've got a good strong fourth quarter for a couple of reasons one is.
We've got some some nice material volume and profit and some of our higher margin contracts and we've also got.
A bit of growth in the medical business in the fourth quarter. So we're expecting a good strong fourth quarter in NPG and also in <unk>, obviously implied in our guidance and an.
And as GE typically delivers a strong fourth quarter itself, so I'm really kind of expecting.
Good numbers across the board.
<unk>.
Okay got it thanks, guys I'll hop back in queue. Thank you.
You bet.
Our next question will come from Bob <unk> with CJS Securities. Please go ahead.
Good afternoon, Thanks for taking my question.
Rich you mentioned, obviously preparing for the FDA submission and talk a little bit about the Tech Museum could you give us an update on where you are in terms of running the hot chemistry.
And what else is necessary to be done before you do submit to the FDA and if it's still on track for kind of December January as you've been talking about.
Sure Bob.
Yes, we're going through cold runs right now in radio chemistry, that's to kind of shake out the equipment with the.
Obviously with non irradiated material chemistry behaved the same so it's very instructive thing to do we.
We mentioned in the script here that.
That we have all the equipment in for the terminal sterilization that was kind of the long pole in the tent that E beam sterilization equipment is now in and fully integrated and we're going through checkout and validation of that Thats in the radio pharmacy line, so kind of to kind of review the bidding we had always talked about four major work streams.
There are other things of course, but for major ones that construction.
Work stream is essentially done the radiochemistry line is done and going through Cold chemistry runs right now radio Pharm line is just about fully assembled and ready to go into validation and then the target delivery system. The reactor access equipment, we call it sometimes.
<unk> completed integrated tested and is now being disassembled to take down to the reactor itself. So very mature in all four work streams, we will start hot chemistry.
Shortly just.
That's just around the corner for us in terms of the FDA package.
I was a little.
Sort of a little mushy and my statement around this the last time that we would submitted around the end of the year.
We're sticking to that schedule, we will not get the FDA package in and.
'twenty, one but sometime.
In the first quarter of 2022, so more or less on track.
Got it okay, great. Thanks, and then obviously you gave the initial outlook for 'twenty two what are some of the biggest swing factors.
From.
The energy side.
In terms of your visibility into delivering on 'twenty twos expectations.
Feel very solid around what we're going to get from Gee Bob.
We have.
Organic growth in the three 4% range in <unk>. It just it just happens that the.
The pension headwind offsets that from the on the earnings side, but.
But we are entering into government fiscal year 'twenty. Two so we have long lead materials on the next Columbia.
On the next Columbia chipset. So we will have that tailwind if you will.
And we also have been building out the volume capacity building out production capacity across all of the sites as you know for the last two years or three years and so we are nearing the end of that campaign and so should be able to produce a higher volume.
<unk> next year and Thats what is in the plan for us So higher volume plus long lead materials are both tailwind for us the headwinds are as I mentioned in the script, we've got the reloads coming out the last of the Nimitz reloads is really coming out of the business in 'twenty, two and although it's not <unk>.
Profitable on the margin the missile tubes are coming out so that's a revenue headwind and an absorption headwind and so those those things don't go in our favor.
But altogether feel Phil Carr.
Confident about the energy picture for next year.
Okay, great. Thank you.
Youre welcome. Our next question will come from Michael <unk> with Truest. Please go ahead.
Hey, good evening guys. Thanks for taking the questions, maybe maybe Rex just to stay on.
22, I guess.
Maybe relative to some of the other defense guys seems like some of the headwinds are more internal for you guys, maybe I would've expected.
Next year, it just seems like internal timing and if youre not really modeling or planning for anything to get worse why aren't we seeing more of a.
LG pick up next year, I mean, I wouldn't think.
Plus CER would have an impact certainly.
Marine programs are well funded and well supported is there any other conservatism built into that <unk> outlook in terms of some of the challenges you're seeing now.
No I think I don't think so Michael it looks like it looks like good organic growth to me in that 34% range and of course like I said, it's the Columbia continuing to ramp up the second Colombia in the shop minus the the.
The reloads and minus the missile tubes, and so it's a pretty good looking growth story from my perspective.
Anything else on the Virginia class or how you guys are looking or anything you're hearing from the customer on how.
That potential forward is going to shake out.
No.
We continue to model and to plan for two Virginia as a year.
Then the columbia's layered in on their schedule and obviously forward on its schedule. So we don't we don't build that into our baseline and into our forecast and.
And so any third Virginia would be an upside surprise now of course.
There are interesting possibilities around this August programs. So we can see what that holds for us.
But again early days on that and we don't know what if any contributions we have for that program.
Got it got it and then just.
David on free cash flow I know, you've got the medium term target 85%.
Or greater conversion based on one of your prior answers I guess, we get back to that.
Maintenance capex spend in sort of <unk> of next year, so any more directional color on free cash flow.
But better than this year, presumably some of that capex winds down, but how should we be thinking about free cash flow.
Yes.
As we state INR, along our medium term guidance, we've given some ideas of what we're going to be given back.
23 is the year, where you will see a.
Demonstratively jump.
And free cash flow because you are going to the maintenance capex.
So.
It would be a modest increase in 'twenty two.
We're not providing that is capped.
Capex is going to be lower.
But it is still very strong.
Got it got it alright, great. Thanks, guys I'll jump back in the queue alright.
Alright, Thank you Mike.
Our next question will come from David Strauss with Barclays. Please go ahead.
Good evening, thanks for taking the question.
Okay.
The Savannah Award can you can you talk about what your share is on that.
The teaming arrangement and what could this be an annual revenue for you.
As the program kind of ramps up.
Yes, so David we don't.
Typically disclose equity share for competitive reasons.
And then on the revenue question, we don't <unk>.
Generally do not consolidate revenue on these kind of programs because.
We're normally in a minority.
Equity interest position, even if we were the lead.
Equity holder in the joint venture so we don't bring across that revenue and frankly, we don't want to bring it across because of the margins that are associated to it on.
On the Big management and operations jobs, those fee pools are unknown to 2% to 3% range and environmental ones, maybe up to 567%.
So we don't consolidate those margins and so the sorry, those revenues and so you can think about this as an EBITDA booster to the business.
So the net effect of.
Of the.
Of that kind of a business is to give us.
Nice nice margin accretion when these large ones come in so you can see what youll see is equity income across onto the books and nothing else.
Okay.
And then the last question, you're talking about 85% free cash flow conversion on net income.
David.
Number look like.
Converting EBITDA into free cash flow do you think you guys can convert.
60, 70% level of EBITDA and free cash flow once you get that minimal capex levels.
Yes, I'd have to calculate that so I mean I think that.
Sure.
Right now, we'll just talk about the 85% of free cash flow in.
In the medium to long term.
But obviously from an EBITDA standpoint, your EBIT is growing because you're you do have depreciation growing in the out years. So.
Right.
I mean.
So we will give.
Stick to the <unk>.
Free cash flow for a while and see how we go there.
Okay and last one for me.
Still kind of yet to be determined whether this R&D capitalization will actually happen, but if it if it does what kind of exposure do you guys potentially have there if any.
Very very little very little R&D budget as a percentage of sales is pretty modest.
Alright, thanks very much.
Thanks, David.
Our next.
Question will come from Ronald Epstein with Bank of America. Please go ahead.
Hey, good evening guys.
Okay. Okay can you give us a feel for.
The NPV of.
The cash fast.
Or another way I mean are there any significant pension prepayment balance that you guys have.
So so let me step back there a little for you and first of all I can give you the prepayment credits that we currently have about $100 million.
Okay.
Obviously.
We talked at the beginning of the year, we were still assuming.
Four year period of time.
And now.
You could have calculated what we thought the prepayment credits were then and then what they are now assumed to be today.
The big difference for US is the fact that when we started the year, we werent going to take advantage of the yield curves on the <unk>.
Pension funding because we don't really have funding, we're pretty well funded.
But the other side of that coin is that the government decided to take advantage of that yield curve and what they pay us.
And so that does make a change in our funding so when we got our actuarial results here in the third quarter.
We saw all of that next four years.
Push out quite a bit in time, the government now will be taking advantage of market returns and.
To help their funding so that takes away from our funding so that would be the biggest change. There was also some market returns in there, but the NPV.
The $100 million just depends on when we have the.
Funding has to go out to determine how that cash would flow, but we got $100 million in credits roughly.
Got it got it got it got it.
And how.
How should we think about the organic growth for NFC.
For <unk>, yes.
Yes, I think we've laid out in the investor deck.
Sort of a notional view of what that organic growth looks like it's.
The growth signal that we have is around Colombia.
And we've got that layered in into the future years.
Okay. Okay, and then maybe one last final one how do we think about the margin performance. When you guys have a lower level of long lead materials is it right to assume that the bottom of long lead stuff, it's just lower margin.
No when we have long lead materials in the mix it tends to be good margin for us and so thats, a slightly better mix for us with.
With long lead materials.
So on the on the.
The margins I also want to reiterate the fact that for years, we've been saying that our margins in the energy business are going to be in the high teens.
With room for improvement for CAD SaaS reimbursement, so I reiterate that our margins in the energy business will continue to be in the high teens.
Got it okay. Thank you guys.
Thanks.
Our next question is a follow up from the <unk> with Alembic Global. Please go ahead.
Yes. Thanks, guys just I just wanted to see if I can tie it up on the Cas recoveries.
Yes so.
Were you expecting out of that because I think your Cas recovery plan that go into zero previously around 2020 for 2025 is that still the case or has that changed now and it stays around that $10 million to $12 million level for a longer period.
Okay.
The <unk> expense I think we forecasted in our next or in our presentation that next year 2022, the recoverable cads caused about $12 million.
We do have some active plans mainly hourly plans so there'll always be some active cost.
Inside of <unk> that will carry out into the future.
So.
Is that 12 million is that a decent <unk>.
Run rate to carry that out at for a while after 2022.
Yes.
Okay. Okay.
And then.
Maybe Rex can you ballpark.
Nimitz refueling.
Just a couple of things determine doesn't redeliver I think until like 2029 2030 did you guys just build ahead for that.
And I was just wondering if you could maybe ballpark for us.
The magnitude of the headwind from refueling.
Two maybe 23.
Yes, we've never been specific about about the scale of that because there's some disclosure limitations that we have but yes. We are we've built ahead in the last unit is coming through the through the shops right now.
Okay. Okay. Okay.
We need to wait maybe a couple more weeks or so before we find out if we get a protest on Savannah River.
That's right it will be.
C D briefs are within about a week and a half I believe and then there is either a five or a 10 day protest period, depending on which agency.
He is involved in adjudicating protest and so I think we would have real clarity about a month from now.
Okay, Okay, great. Thanks, guys.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Mark Kratz for any closing remarks.
Thanks. This concludes today's conference call as a reminder, please join us in person or virtually on November 16 for BWXT is 2021 Investor day.
Further questions. Please call me at 980 365 4300. Thank you again for joining us this evening.
The conference has now concluded.
You for attending today's presentation you may now disconnect.