Joe Ritchie: Makes a lot of sense. Great, guys. Thank you.
Brian Schopfer: Thanks, Joe.
Operator: Thank you. Next question comes from the line of Chris Moore with CJS Securities. Please go ahead.
Chris Moore: Hey, good morning, guys. Thanks for taking a few.
Thomas Logan: Good morning, Chris.
Chris Moore: Good morning. Maybe I’ll just follow up on one of Tom’s prepared comments. So you talked about the commitments at the COP28 Climate Conference. So I guess the question is, what would it take to achieve tripling net nuclear power output? And what does this mean for Mirion over the longer-term?
Thomas Logan: Yeah. So, firstly, as it relates to what it would take, I mean, it really is an extraordinary statement of intent coming out of this Climate Change Conference. Firstly, I think it’s notable because traditionally this constituency overall has not really embraced nuclear power to the extent that we feel they should have. And it’s great to see such a clear official policy statement coming out of this group overall. But in terms of the magnitude of what’s being called for, truly is extraordinary. Today, if you look at total installed nuclear capacity globally, it’s roughly 400 gigawatts or so of total nuclear power. A tripling of that capacity between 2050, if you’re just to do the mental math, firstly, takes you up to a level of 1.2 terawatts of total power and that’s in the face of a decommissioning profile that will be accelerating.
So of the existing 400 gigawatts of installed capacity, probably close to half of that is scheduled for decommissioning between now and 2050, notwithstanding life extensions. So the number in aggregate is enormous. And effectively what it would take for the world to do that if the solution came purely through utility-scale nuclear power and not through the more likely balance or combination of utility-scale and small modular reactors. But, just to answer it more easily, if it came purely through utility-scale nuclear power, that essentially would imply a build-out rate or annual commencement rate of new nuclear projects of about 40 gigawatts per year beginning in 2030, recognizing that between now and the end of the decade essentially everything that will happen is already in the pipeline.
And so the acceleration of activity in the nuclear markets would be extraordinary. That’s essentially a quadrupling of the cadence that we’ve seen over a sustained period of time. The implications for us if this were to happen, or even if it’s only an approximation of what might happen, obviously are very positive. Given the fact that we participate broadly with all of the major nuclear sponsors in the world and notwithstanding the fact that the installed base is the largest revenue source for us coming out of nuclear power, the front end leverage, the front end kicker that we enjoy from new build activity is significant. So overall, again, very positive statement. And I think it’s simply reflective of just how robust the political and popular support is for nuclear power today and how that’s likely to have staying power.
Chris Moore: Well, very interesting. Maybe staying with nuclear, but switching over to Medicine. So you talked about theranostic developments within cancer care. Can you talk maybe what the momentum in that space means to Mirion going forward?
Thomas Logan: Yeah, it’s an area that we’re hyper-focused on, Chris. The general view is that the nuclear medicine market overall and specifically the so-called theranostic market will grow at a tremendous clip. I think GE announced a week or so ago that they expected about a 4.5 times increase in the overall market opportunity and this was in a specific discussion about a recent acquisition they had done. Our view is that, again, just given the remarkable dynamics that we’re seeing in this market and the clinical efficacy and cost dynamics associated with theranostic applications that we certainly believe this will be inarguably the fastest-growing market segment that we play in overall. We’ve been very focused on building out our capabilities in this market, firstly through the acquisition of Capintec, following that the acquisition of Biodex, and now most recently with the acquisition of ec2.
And perhaps the biggest benefit of ec2 is that we’re beginning to pivot the business from almost entirely a capital equipment business, where the biggest demand driver was new clinic growth rather than procedural volumetric growth. And with the acquisition of ec2, it gives us the opportunity, firstly, to benefit more richly from, again, volumetric growth and procedures. But secondly, it gives us the opportunity to really kind of change the nature of our go-to-market strategy with our capital equipment. By buying the largest player domestically and the nuclear medicine workflow software market, again, it gives us the ability to effectively drive this business toward more of a software business supported by capital equipment rather than the converse.
And so, we continue to be focused on that and that broad-based shift, again, toward kind of floating our boat on the tide of volumetric growth rather than clinic growth.
Chris Moore: Got it. Very helpful. Maybe just last one for me on free cash flow guidance. A midpoint looks about $75 million. That’s roughly 40% conversion from EBITDA. Longer-term, are you guys — is that 50% target still what you’re looking at?
Brian Schopfer: I mean, look, that is definitely where we need to get into. As EBITDA grows and we continue to work hard on net working capital, our interest rate kind of as a percentage goes down over time as well et cetera. So, yes, I think 50% is where we need to get to. I think we were very pleased with the 41%, 42% conversion this year. We like the 40% next year at the midpoint. And then I think the only other comment, I made some comments in my prepared remarks. I mean, one of the things we’re working on in ’24 hard and ’25 candidly, it will go into ’25 is taxes and how do we bring our cash tax number kind of more in line to the peer set. So there’s a lot moving pieces here that we’re looking at. And then obviously on the tax, same theme on the tax.
