Q2 2023 BWX Technologies Inc Earnings Call

Ladies and gentlemen, welcome to BWXT technologies second quarter 'twenty twenty-three 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 to turn the call over to our host Chase Jacobson Bwxt's Vice President of Investor Relations. Please go ahead.

Thank you Breanna good evening and welcome to today's call. Joining me are Rex <unk>, President and CEO , and Rob Lemasters Senior Vice President and CFO .

This call we will reference this second quarter 2023 earnings presentation that is available on the investors section of the BWXT website. We will also discuss certain matters that constitute forward looking statements. These statements involve risks and uncertainties, including those described in the safe Harbor provision found in the Investor.

Materials and the company's SEC filings, we will frequently discuss non-GAAP financial measures, which are reconciled to GAAP measures in the appendix of the earnings presentation that can be found on the investors section of the BWXT website.

I would now like to turn the call over to Rex.

Thank you chase and good evening to everyone.

Earlier today, we reported solid second quarter results that were slightly ahead of our expectations highlighted by robust double digit organic revenue growth good execution and improved free cash flow given our strong performance in the first half of the year, coupled with favorable demand trends, we now expect high single digit rare.

<unk> growth and are raising the low end of our 2023 adjusted EPS guidance by <unk>.

The $2 85 to $3 before I dive into the highlights of the quarter I would like to provide a state of the union on what we're seeing in our key nuclear end markets. There are several underlying secular theme supported by the increasing use of nuclear solutions and our global security clean energy and nuclear medicine and markets.

And given BWXT has extensive experience in the industry, our exceptional nuclear design capabilities robust manufacturing footprint in vertical scale, we're very well positioned to benefit from the growing demand that we see in the years ahead.

The first of two emergent large themes driving heightened interest in nuclear is the great power competition. This drives to global security market, but is becoming an increasingly important stimulant and the commercial nuclear power market as well before.

Before explaining that let me note that the U S government strategy to bulk up on our strategic force capabilities, including a recapitalization.

The U S Naval nuclear fleet is in direct response to this geopolitical reality.

We have supported this strategy with investment and Bwxt's Navy plants to a neighbor enable a greater level of naval nuclear shipbuilding, especially in the second half of this decade and beyond something the industry required given its ageing infrastructure. The current 30 year Shipbuilding plan calls for 10 years of serial procurement.

Columbia class submarines, beginning of 2026 and the potential for the Ford class aircraft carrier to move to four year centers beginning in 2028.

This is on top of consistent procurement of Virginia class submarines and a new demand for submarines from Australia is part of the Australia UK U S. Trilateral security agreement known as August .

Yeah.

Beyond our core naval propulsion business, we are seeing the precipitation of demand for advanced nuclear reactors by various government agencies looking for innovative clean power and propulsion solutions and space and other domains. These systems can improve the security posture of the U S, especially in emergency are warfighting.

Rio's last year BWXT was awarded separate contracts by the department of Defense's strategic capabilities office.

To build a prototype micro reactor called project Pele and to manufacture to try sell fuel to power that reactor.

<unk> objective of this program is to supply high density off grid power to military basis. Among other applications. We are tracking well on this project and are seeing new interest from various defense agencies, who view this as a potent and differentiated capability.

Just this quarter I joined other BWXT executives in an engagement with a combatant command to discuss how pele can be deployed in an off grid application to eliminate vulnerabilities related to the diesel and broader supply chain and provide reliable high density power for base load radars missile defense systems in electric and electric.

Transportation fleets.

Of note projects Pele and it related rider to support a study about a potential micro reactor in Guam received strong bipartisan support in the Senate Armed Service Committee Mark up of the fiscal 2020 for National Defense Authorization Act and just last week, we were selected along with our prime partner Lockheed Martin for the.

Draco project the first demonstration of a nuclear thermal rocket engine in space with this contract expected to be valued at over $200 million. We will have the government's cornerstone nuclear fuel and reactor programs in our portfolio, serving the terrestrial and space domains to complement our Navy franchise.

Beyond National Security applications. The commercial markets are pivoting to nuclear energy solutions to meet future power demand and to improve their energy security posture, notably nations in Western Europe , which won't stop their investment and nuclear are now announcing plans to begin new large reactor build out <unk>.

Struction of multi unit small modular reactor plants.

<unk> exposure to these opportunities through our capabilities and fuel and fuel handling component manufacturing field services and design knowledge.

We are anticipating potential new builds in Canada, and another interesting markets, including the U S UK, Poland, Romania, South Korea and others.

We possess the largest operating nuclear qualified manufacturing site in North America, where we serve a range of projects, including SMS development plant life extension and operation support for the installed nuclear base.

Our scope on SMIC can range from around $50 million to over 100 million per reactor importantly, our role as a merchant supplier serves as a vital resource to reactor designers that are in need of well established qualified manufacturing and supply chain management on this note yesterday, we announced the Terrapower Selim.

BWXT to design the intermediate heat exchanger for its natrium demonstration project in Wyoming, and a highlighted our role as a designer and fabricator as key to the projects planned achievements as.

It's opportunities like this developed with new and existing customers. We are in the early days of assessing our capacity to satisfy this burgeoning demand.

I can even larger leadership role in the commercial nuclear market.

This transition to well into the second major theme driving nuclear interest and that is de carbonization of the grid.

This technology has advanced nuclear is increasingly seen as the obvious and preferred source for reliable base load clean energy production.

Last month, Ontario power generation announced it is planning for three additional VW Rx 300, small modular reactors at the Darlington site. In addition to the one planned for completion by the end of the decade also in Canada, Bruce Power launched a study to assess the feasibility of adding nearly five gigawatts of large scale.

Nuclear power as the Ontario government seeks to double the scale of the grid by 2050 to meet projected demand.

There is growing demand outside of Canada as well earlier in the year, the United States Department of energy invited utilities to apply for up to $6 billion in civil nuclear tax credits.

Some of the largest domestic utilities like the Tennessee Valley authority as well as large industrial companies around the world are considering new nuclear investment in Europe . The UK government recently opened a competition to develop <unk> as it seeks to increase its nuclear power generation capacity to two four gigawatts by 2050 from them.

Approximately six five gigawatts today, and many other countries and large utilities in Europe are signaling interest in nuclear as well.

With the growing demand for nuclear power, we are seeing new technologies for SME and micro reactors come to the market from both established and startup nuclear companies. We view this as positive for the industry overall and believe that our full suite of nuclear solutions, including reactor designed fuel fabrication manufacturing manufacturing and services <unk>.

<unk> as well to maintain our leading market position in commercial nuclear power.

We feel even more convicted that our long view and persistent investments in nuclear even in uncertain times.

Position BWXT to capitalize on the significant upcycle, we anticipate and these compelling market.

To be clear, we do intend to continue to drive our business through innovation and.

And following a super cycle of investment in our infrastructure in the past few years in particular and naval reactors in nuclear medicine manufacturing.

We are positioned to continue growing at a healthy organic rate with much more modest capex investments.

By layering in incremental Capex to support growing demand for micro reactors or SME component manufacturing capacity or even novel automated our AI driven naval manufacturing equipment, we expect to balance earnings growth alongside free cash flow and achievement of high returns on invested capital.

Our growth investments also extend the human capital over the last year, we've made multiple additions to our executive leadership team and are continuing to add to our operational and functional support teams to ensure we have superior talent necessary to address the strong growth we see ahead.

Turning back to the quarter.

Our second quarter results were ahead of expectations the quarter was boosted by a robust 11% organic growth leading to a record level of second quarter revenues. Despite this growth and as expected our adjusted EBITDA and earnings per share declined year over year due to the margin impact of Onboarding new team members operational.

Prudent investments as well as less favorable product mix and the impact of lower pension income and higher interest expense on earnings per share.

Turning to our segments and government operations, we reached an important milestone during the quarter I am pleased to report that we shipped the final missile tube under our block two contracts originally assigned an originally signed in 2017.

While this business line has had its challenges I am extremely proud of our team's dedication and hard work to complete this project and deliver a superb product to our navy customer we are working with our partners to recover costs associated with this contract and expect a resolution, giving our steadfast support to the Navy over the course of this challenge.

<unk>.

<unk> evolution.

As we discussed last quarter, we expected some near term noise in our government operations margin performance quarter to quarter as the streamlined hiring and training processes that we implemented over the last year began to kick in and we integrate a less experienced workforce because of this along with the timing of work across our portfolio and less favorable.

Product mix, mainly related to a strong increase in advanced technologies, which has mostly cost reimbursable contracts, we experienced some transient margin pressure in the second quarter. Despite that our businesses performed well and we expect to see improving margins in the third and fourth quarters.

Rob will provide more detail during his remarks.

In April a BWXT led joint venture was awarded the 10 year Hanford integrated tanks.

Disposition contract by the Doe.

Because of our superior bid after going through a protest process with the Doj. The contract decision is now back in the hands of the <unk>.

And there are a variety of options that can take in deciding the best path forward.

We will provide an update on this process as appropriate but at this point do not expect a contract transition at the site occurring until at least early 2024.

Other projects in our technical services group are performing well and we are seeking multiple new award opportunities such as the Portsmouth Paducah operations insight mission support and Pantex management and operations contracts among others.

Moving on to commercial operations are core nuclear power business performed well during the quarter driven by ongoing refurbishment and life extension projects on a number of reactors in the Canadian fleet is.

As I mentioned earlier, the Canadian government and large Canadian utilities are committed not only to maintaining and extending the lives of their existing fleet of nuclear power plants, but also to adding new nuclear capacity with the installation of <unk> and potentially new large plants as well.

At BWXT medical we had another solid quarter with over 20% organic revenue growth in the first quarter of positive EBITDA.

We faced the nuclear medicine market is a full service player in radioisotopes with a base of diagnostic isotopes additional layers of therapeutic isotopes and contract drug manufacturing.

We are enjoying strong demand for diagnostic isotopes, such a strong team in germanium that are used in cardiac and cancer image studies as well as in therapeutics, where we expect significant growth opportunities in the manufacturing of active pharmaceutical ingredients.

Black likely CCM and actinium that support innovators and pharmaceutical companies engaged in late stage clinical trials of products that will change the face of cancer therapy.

As it relates to our tech 99 product deployment, we received formal communication from the FDA in June with questions and data requests required for final approval.

With no significant surprises in that communication and in follow up discussions we now have formal consent to pivot directly to our target delivery system at the LPG Darlington site. This will enable us to achieve commercialization of the full product suite, including large generators and 2024.

With a generator product is essentially identical are superior to those on the market today, we intend to stabilize the nuclear medicine ecosystem with this critical and foundational diagnostic device used in thousands of procedures every year to sum it up we had a good first half of the year with strong organic revenue growth good execution and solid cash flow.

And a number of important wins across our businesses. Our end markets are gaining momentum and we are investing in our facilities and our people to ensure that we are positioned to attack. The most promising opportunities in these extremely compelling nuclear markets.

Let me now turn it over to Rob to discuss our second quarter financial results in more detail and to discuss our updated 2023 guidance.

Thanks, Rex and good evening everyone.

I'll start with some total company financial highlights on slide four of the earnings presentation.

Second quarter revenue was up 11% on a consolidated basis with government operations up 13% and commercial operations up 2%.

This growth led to robust second quarter revenue of $612 million.

Despite our strong revenue growth second quarter, adjusted EBITDA was down year over year as expected.

Adjusted EBITDA was $107 million down 7% year over year as higher revenue was offset by lower margins in both segments due to onboarding of inefficiencies operational improvement investments and less favorable product and services mix in both government operations and commercial power as well as higher.

Corporate costs.

Adjusted earnings per share was <unk> 65, compared to 82 in the prior year quarter.

As you can see in the EPS bridge on slide five the year over year decline was dominated by non operational items, including lower pension income and higher interest expense.

Despite lower net income free cash flow improved to $41 million compared to $35 million in the second quarter of 2022, driven by improved working capital management and slightly lower capital expenditures.

Our capital expenditures of roughly $40 million in the quarter were down modestly compared to last year and consisted of maintenance capex and selected growth initiatives.

Our target for the next couple of years is to have capital expenditures consist mostly of maintenance spending with additional investments to support specific projects or visible growth opportunities.

Just as the case will be in 2023.

We proved previously signaled a $125 million to account for maintenance Capex and a top up to finish the build out of our BWXT innovation campus in Lynchburg, Virginia that we announced late last year and set up this year.

That campus will be the home of our terrestrial micro reactor team for the foreseeable future.

We are doing our final estimates for the time phasing of Capex related to project Draco that we announced just last week between 2023 and 2024, but as we have said in the past this space micro reactor build out will be inside of what we spent for payless.

In any instance, we are confident that our efforts around working capital management and its effect on operating cash flow will allow us to absorb any potentially higher 2023, capex and still achieve our goal of $200 million in free cash flow this year.

Moving now to the segment results on slide six.

And government operations second quarter revenue was up 13% to $492 million, a very strong second quarter level, driven by higher naval nuclear component production and micro reactor volume that was partially offset by lower long lead material procurement.

Second quarter adjusted EBITDA in the segment was $96 million essentially flat with last year as higher revenue was offset by less favorable mix and the new hiring initial inefficiencies Rex discussed.

And commercial operations revenue was up 2% driven by higher increased field services activity and our commercial nuclear business as well as higher BWXT medical revenue and mitigated by lower fuel fabrication and nuclear component manufacturing volume.

Second quarter commercial operations adjusted EBITDA was down approximately $2 million as revenue was skewed toward field service refurbishment activity unless outage work compared to last year.

This was partially offset by improved profitability in medical and by ongoing cost controls in the business.

Turning now to guidance on slide seven.

Following a strong first half and with more clarity into the remainder of the year. We are raising the lower end of our 2023 adjusted EPS guidance.

We project revenue of over $2 4 billion up high single digits.

Organically compared to 2022 versus our initial target of mid to high single digit annual growth.

This industry, leading growth is driven by high single digit growth in government and mid single digit growth in commercial.

While we expect modest EBITDA margin improvement at the segment level. This is somewhat offset by slightly higher corporate expense.

Our previous guidance was for corporate EBITDA expense to be roughly in line with the 2019 to 2021 historical average of about $11 million.

We will still be in the same ZIP code, but may push closer to the higher end of the $10 million to $15 million range, we had previously forecasted.

This increase is driven by human capital investment as we enter our next phase of growth and focus on driving operational performance throughout the organization.

Overall, we continue to expect adjusted EBITDA margins of approximately 20% leading to adjusted EBITDA of about $475 million up high single digits compared to 2022, driven almost entirely by organic growth consistent with our prior guidance.

Adjusted EBITDA growth in 2023 is expected to be offset by non operational items, such as lower pension income and higher interest expense.

As such we expect adjusted pre tax income of around $350 million and adjusted EPS in the range of $2 85 to.

To $3 per share.

The increase in the lower end of the range is due to our solid first half results good visibility into the second half and slightly lower interest expense.

This is offset by the modest bump in corporate expenses and the timing of the Draco and Hanford Awards.

As we look to the second half of the year I want to identify a few details related to the quarterly cadence of earnings.

While we reached a low point for government EBITDA margin in Q2, we expect another quarter of lower than normal EBITDA margins in Q3.

Over the last couple of years government EBITDA margins have averaged approximately 21, 5% we.

We expect Q3 to be somewhere between the Q2 level and that average with a significant improvement to near all time high EBITDA margins in Q4.

In Q3 government operations margins will steadily increase as we work through the impacts of Onboarding inefficiencies as well as the impacts of project mix and timing on new newer programs also as a reminder, Q3 is typically one of the lower revenue quarters, and our commercial power business.

As there are fewer outages during the peak summer months.

In Q4, we expect a significant sequential increase in volume fewer onboarding inefficiencies and the potential to recognize a recovery on non nuclear components.

Yeah.

Overall BWXT is growing across the portfolio and is building on our strategic successes and competitive positioning enabling another strong year of operational growth and positioning us to accelerate and achieve our medium term financial targets.

Not only will we remain focused on growth, but also on building a stable and enduring management infrastructure with mature processes.

This will add better predictability in free cash flow conversion that will provide tangible and sustainable shareholder value overtime.

With that we look forward to taking your questions.

I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.

Ask that you limit yourself to one question and one follow up thank you.

Your first question comes from Peter <unk> with Alembic Global Your line is now open.

Hey, guys.

<unk> a lot going on that's for sure.

Maybe we could start by talking about labor I don't know if you guys can quantify that.

The amount of net hiring that took place in the second quarter. It seemed like that enabled the growth at government and maybe what the net hiring goals are for the second half.

Yes, I'll put a little color on that Peter.

I am really super pleased with what's going on with hiring right now.

Our chief administrative officer, Bob Duffy and as human capital team basically completely redesign the talent acquisition process.

Kind of a kaizen approach to that and took out days and weeks and even months in that process and so the on boarding process. The hiring process is really streamlined and really functioning.

And at the same time, if you look at our attrition rate if we've gone through six quarters of sequential improvement.

Trailing 12 months attrition and now we're trending back down toward our historical averages which are around mid.

Mid single digit voluntary voluntary attrition so it's turning the right way the hiring is accelerating.

And the attrition is decelerating, so we're making great strides there and that's really giving us.

Two factors in the business, but one is.

Giving us the capacity for more volume, which is good for the business, but it's also creating some inefficiencies on the front end because of training and indirect charges related to that so.

Two impacts on the business, but altogether Super well pleased we've got more work to do but we're climbing the hill really fast right now.

And I like where we are and maybe Rob you could offer a little bit more color on that yes, no. Thanks for the question.

Yes, so on tracking the data are pretty pretty closely we've seen as Rex said as we talked about last quarter, we add that bulge of pending starts and we got those through the funnel and actually as I tracked it over the course of the month every single month during the quarter, we sort of built a larger number of net hires into the company ultimately when.

I looked at the whole quarter, we're running at about two times the first quarter number in terms of total net hires so that's having a really good impact we don't have the July data in front of us for the full month, yet but.

But I am sure that shaping up nicely too so.

People are coming through it's also as Rex said, having a noticeable impact on our utilization. So when I look at the data here on the utilization front some of our key sites, where we're taking in a lot of people were seeing a year over year impact as we expected and thats whats, causing a strained so.

Three of our.

Major sites in the in our core naval business were seeing almost.

Our 200, plus decline year over year and utilization and so as.

As we ramp those people up that utilization come through.

The third area is just to highlight that we're trying to do increase.

Data runs on is trying to figure out how for the remainder of the year as you said, we feather those people and nicely. So we're looking at different sites and we now have so much more data to try to understand how direct versus indirect come into the business. How we can layer those in even better and how we can really know when people are going to hit.

To hit the site and be able to train them up quickly so coming through as we expected and having the strain in Q2 that we expected and ultimately we will see a little step up in Q Q3 in terms of margin and ultimately I think we'll work through the hardest part and be fully prime by Q4.

Okay, well, it's great to hear the pretty active management, there and the progress guys.

Sure I get back in queue, let's just talk about Draco if we can.

I guess first of all Rick This is an OTA contract rates. So it can't be protested but maybe you can validate that in and maybe give us a sense of whether or not it was booked in the second quarter.

I will go into backlog in the third quarter.

And.

Am I understanding it sounds like it's roughly a three year contract. So will you book revenue on it. This year ended that gave any sort of upward.

Pushed our guidance this year that was offset elsewhere, just just some color about all of that would be great. Thank you get lots to impact therapy, yet exciting win for us that was booked in the third quarter. So we'll start to see.

Revenues hit the book in the second and third quarter, we would say the bulk of the revenues on that program going through 'twenty, four and 'twenty, five and bleeding into 2026 and seven as we as we fly that fly that mission, but the bulk of it in the next couple of years. After this correct that that contracting mechanism is done through and other transactional authority an OTA.

So it's not subject to federal acquisition regulations and that standard formats. So there is no appeal path or it so thats a win.

And it's an exciting one as I said in the script back there.

We've won the flagship program for the space domain, and then last year with Pele. The flagship government flagship program for the terrestrial domain to add debt to the Navy franchise and Thats, a pretty important that's a pretty important set of projects for us, particularly from the competitive context, so really happy with that win and excited to see that program.

Forward, Yes, just a little bit of.

Information on specific 'twenty, three and 'twenty, four and five and six the way Im looking at that.

Almost about a three year term for that contract and as we mentioned that's about a $200 million. So if you just think about that ratably, it's going to take a while even this year to kind of get it ramping so maybe think about kind of one quarter of one year hitting kind of this may be a little bit more as we kind of ramp into.

The second half of 2023, but it's going to be only a little little bite a bit and then we kind of hit a full call. It a third of that contract next year, and 24% and 25, and then a little bit.

Tapers off in 'twenty six.

Okay. Thanks for the color guys.

Yes.

Your next question comes from Bob <unk> with CJS Securities. Your line is now open.

Good afternoon, Thanks for taking my questions and congratulations on the <unk> win and also on <unk>.

FDA Darlington news you just mentioned.

Thank you Bob.

So I just wanted to start with that with the Darlington.

Radiation news could you give us a sense of how this impacts the timeframe for potential approval what additional information they have given you and then once.

Assuming approval goes forward.

Just describe how that empower Darlington gen.

Generator.

That compares to existing and versus <unk>. It seems like you can leapfrog past right now.

Yeah, Bob that was it was pretty exciting and an interesting development for us because we.

I mean, there are certain questions about the final products such as what is the what are the radio impurities that exist in the targeted fewer radiate that you really cant answer unless you are in your final solution, which in our case the Darlington.

The Darlington reactors using our target delivery system and so I think we've been trying to we've been urging the FDA to take that view that as we go through this last targeted radiation campaign. It just doesn't make sense to go back through Merck.

So we've gotten formal consent to go and pivot to Darlington, which means that we can offer that as you are well aware that full suite of of.

Of Tech 99 generator options all the way up from the small sizes all the way up to the very largest sizes that are on the market today.

And whereas with Merck we had.

A pretty modest offering up.

Small carry generators. So it's extremely important to us and I think on timeline.

Get into the guessing game on the regulatory approval process, but.

Suffice it to say we have.

Very high confidence of getting into the market in 2024 with that full full suite of products and so quite a positive development for us.

Absolutely now congratulations that is exciting.

Just.

For a follow up just so I don't know you next quarter. On this is there are there any more milestones until kind of approval or any other events or are we just playing that waiting game over the next few months quarters until the FDA you guys will go back and forth to them, but will there be any other announcements or is that kind of the next announcement over X period of time.

Yes, not no.

Anticipating any milestones to be published we do we certainly do need to go through back through our.

Through our campaign to irradiate, the material and get that delivered to the FDA, but.

No milestones I think we will be calling out.

Okay Super Bowl Congratulations again, thank you.

Thank you. Thank you thank you Bob.

Your next question comes from Peter Arment with Baird. Your line is now open.

Yes, good afternoon Rex fab.

Rex Thanks for all the color on the on the SME kind of update I was curious, though when you made some comments about not needing a lot of capacity.

Additions it just seems like Theres, a lot of things coming your way on the <unk> front in small micro reactors, maybe you could just give us a little more color on your ability to kind of weave in some of these new contracts and opportunities from new or existing capacity. Thanks.

Yes, and maybe that was misunderstood Peter we're examining what capacity we need to step into.

This volume of demand that we see.

I was in our Cambridge plan, a couple of weeks ago.

And it's chock full of steam generators that were building for Bruce the theaters are in there for both Bruce and for Darlington still still finishing up the Darling and project.

And it has hit their helix very large heat exchangers running through that plant right now so it's pretty well jammed up and when you think about.

Putting a reactor pressure vessel for that first small modular reactor the BW Rx 300 AD. The other three two it this fall and we're certainly going to get I, certainly believe the Ontario Province will approve formally the Pickering refurbishment.

48 steam generators to build for that project all the theaters all the refurbishment waste containers, which are added additive to all the to all of the above and then you've got potential.

Potential build at TVA to clinch river on that same <unk> 300, and then and then.

Bruce side is looking at four eight gigawatts of capacity that is almost certainly going to be large plant build so.

So that ends up being either.

Can do our AP 1000 or something.

And so there's just a.

A tremendous amount of opportunity and volume ahead of us and so we need to look at what our plant capacity is and whether or not we need to build out additional capacity and I certainly expect us to need to do that in the coming years, because it's just a lot.

Yes, maybe I'll, maybe I'll add something and just in terms of trying to talk about the footprint because we're going through kind of a look at.

If we were to increase capacity our main facility in Cambridge is to give you some sense of little over 200000 square feet facility, but we're talking about what do you need to add 100000 square feet at there are in the U S and there's multiple different ways different properties that we have to do that and to expand capacity I would also note that as a pretty cap.

<unk> life, we do a lot of final assembly in that business, which is different than our <unk>.

Government business, so, it's really increasing square footage and can be done sort of in that same sphere.

As far as what we've talked about in the past that if this market really takes off these types of projects are tens of millions of dollars depends on how quickly it sort of increases, but that's what we're seeing is that if the SLR market really takes off in either Canada or U S. We'd want to.

Facilitate for that so that's all conceived up really in the way we've been talking about growth investments in the past.

I appreciate that color I'll leave it at one thanks guys.

Thanks, David.

Your next question comes from David Strauss with Barclays. Your line is now open.

Thanks.

Yes.

So the the.

Our coal business.

Are you still on kind of a trajectory or timeline.

Go from I guess somewhere slightly positive breakeven EBITDA in that business.

The $75 million in EBITDA that you've talked about 2025.

Yes, we are we put out that slide that that at Investor day that you're probably well familiar with the talks about $200 million of revenue and $75 million of EBITDA in the kind of the 2025, we put a plus there obviously because depending on the timing of when we can get down market you kind of need a full year run rate to hit that so whether thats.

Our full year, 2025% dip silver over the year, but that's exactly right. We still feel that we can hit that in fact in the quarter can you remember what we said in the script, we kind of hit a milestone for ourselves we turned EBITDA positive in the quarter and as you'll recall at the end.

Yesterday, I sort of said jeez I hope by the second half it was our goal to turn positive at some point in the second half of 2023, and so proud that the team kind of came forward both because of the topline is working as well as really good cost management at the individuals that running that business is really looking at everything that we're doing and thinking about it not only from a top line grow.

But from an expense standpoint, and so here, we are with positive EBITDA in the quarter and we see that continuing so that sort of positive EBITDA.

From here on in and next stop hopefully a 75.

Okay, Thanks and.

Rob probably another one for you so.

You talked about it sounds like a little bit of Capex creep for this year, but you think you can offset with working capital.

Good news can you can you maybe talk about and we've talked in the past about the initiatives on the working capital side.

Things kind of stand today, and where where it might be working capital upside you are seeing at confirm this year.

Yes, Thanks, Thats exactly right. So as we've been sort of where the street that is consistent with the kind of base level of the $100 million ish, plus we had to finish off that.

Got it.

Little bit of the $30 million that we announced last year on project Pele into 2022 timeframe, but then we really had to eat up. The 25, if you will of the $30 million in 2023 to 100, plus the 25% is kind of where most people on the street are from a capex standpoint, so thats sort of the level that I feel.

We sit at today as we look at <unk>.

Draco, specifically and maybe some some light manufacturing activity on that <unk>, you'll get a little bit of upside potential on the capex just to frame it versus that 125, we're by the way from a capex standpoint, the first half we're at $70 million and so if you did.

Double that and say we are on that run rate that kind of gives you a sense for where capex could could be beyond the.

125, and Youre exactly right, what we're trying to do is.

Rallied the team around if youre going to spend more on Capex, let's find a way to lean in on the working capital side and so we have a couple of people really targeting that.

Head of finance is really all over that Mike Fitzgerald.

<unk> spent a lot of time on that and really the most the biggest opportunity. We see there is a couple of different elements of working capital the biggest opportunity. We see right now is on the DSO side of things.

We're looking hard not only on receivable, but advanced billings.

Around Sip.

And really what we're seeing is pretty good year over year, we had a good good quarter. This quarter, we were a little bit better than we expected.

Seeing a lot of management around milestones in billings and thinking about how to structure contracts and hit those milestones at a good point and so ultimately I see that target of working capital days coming down by one or two days.

Each each year.

Year over year were down by about a day, so I'm, hoping to squeak out another day or two over the second half. So we're targeting across the board initiatives, but that's where they were spending a lot of time.

Great. Thanks very much.

Sure.

Your next question comes from Michael Michael <unk> with <unk> Securities. Your line is open.

Hey, good evening guys. Thanks for taking the question here.

I don't know who wants this retro rob, but but certainly when we look at your business.

You mentioned Terrapower Draco.

Got price so go and it sounds like there's a lot of irons in the fire for other FMR work.

How are you how are you managing the potential design risk I mean, all of these these kind of programs and opportunities our first of a kind.

Trained on resources, there and I'm just wondering how you.

Kind of prevent one of these calls from from going off the rails.

They are there.

Cost overruns or your credit what we're just saying mission milestones, but how are you looking at the portfolio and managing that design risks.

Yes, Hey, Michael Thanks for the question I'll take I'll take a crack at that one.

We've got quite a design capability in our commercial business in Canada.

We had we had an in house design capability.

When we spun.

<unk> 2015, but recall that we acquired the GE Hitachi business from.

The Canadian nuclear businesses.

In late 2016 and brought in quite a design capability with that Thats. The team that does the refueling robotics in a number of other things they designed the target delivery system and they do other.

Other complex nuclear designs. So we've got quite some designed depth. There. The team has plenty of capacity for at most of these designs. For example, the reactor pressure vessel for the BW Rx 300, and now this natrium heat exchanger thats.

That's a molten salt molten salt heat exchanger thats, an exotic thing.

Pretty interesting project for us those are.

Projects in the millions single digit.

Millions, they're typically done on a fixed price basis, but we've got a great history of being able to estimate what the design costs are going to be in managing all of that and so I don't it's not.

It's not a risk that I worry about very much given our history there.

And our design depth.

Okay. Okay. Good.

And then just one more on I think you.

Kind of mentioned quickly youre working on pricing with the Navy.

How does that.

Those negotiations conversations and capsule, what could potentially happen here with <unk> and the transfer of those.

Those subs are they in this pricing agreement or just how should we think about that expectation.

Yes. So this pricing agreement certainly does not include anything related to office I think that's that's on the come.

What we're what we're negotiating right now is kind of a standard pricing agreement that would have Virginia, Colombia type content in it.

So we have nothing there yet I expect that in future years, and then maybe Mike Let me go back.

Add a footnote to the to my prior answer to you on design risk recall that debt for the government new reactor designs that we have on Taylor in for Draco. Those are done on both of those are done under cost Reimbursable contract.

So we're not exposed to cost risk on those more episodic.

And more complex designs, let me say.

And so we have that we also have government indemnity on those on those things and so much different posture on the on the government reactor design side of it.

Got it perfect. Thanks, guys.

Thanks, Michael.

Your next question comes from Andre <unk> with Bank of America. Your line is now open.

Hey, I know some I know, it's kind of a touch on a little bit but I was wondering if you could maybe quantify a.

A bit more about the sales upside you would be seeing from medical to the end of the year.

The sales upside it's Ed.

Yes, yes.

Yes, so what we said is our ultimate goal for the year is to be up 20%, plus we had a better quarter than that and I see for the remainder of the year prospect for coming in higher than that 20% growth for revenue if that was our target for 'twenty three we're tracking as I say year to date.

To exceed that and so we will keep going on that.

Gotcha Gotcha.

Got it online and I'll hop back in queue. Thank you.

Okay, great. Thanks for the question. Thanks Andre.

There are no further questions at this time with that I will turn the call back to Chase Jacobson for closing remarks.

Thank you Brenda and thank you everyone for joining US today, we look forward to seeing and speaking with many of you at upcoming Investor events. If you have any questions.

You can reach me at by phone or email at investors at BWXT Dot com. Thanks.

This will conclude the conference call. Thank you for joining US today you may now disconnect.

Yes.

Yes.

Yes.

Yes.

Yes.

Okay.

Okay.

Okay.

Okay.

Yes.

Thank you.

Okay.

Yes.

Thank you.

Okay.

Yes.

Okay.

Okay.

Sure.